Basic Mortgage Information
What exactly is a mortgage? Simply put, it's a long-term loan which uses the home you're buying as collateral. There are several different types of mortgages including 15-year and 30-year; fixed-rate and adjustable-rate; FHA, VA, and conventional.
A 15-year fixed-rate mortgage is a 15-year loan with 180 (15x12) monthly payments. A 30-year fixed-rate mortgage is made up of 360 equal monthly payments to pay off the loan. The payments on a 15-year mortgage are usually higher, but the loan is paid off quicker, generally saving you thousands of dollars in interest.
A fixed-rate mortgage has the same rate and payment for the life of the loan. Adjustable-rate mortgages (ARM) have a rate that can change over the life of the loan -– usually in relation to a specified index such as the national mortgage average or the Treasury Bill rate.
An ARM can be advantageous because lenders usually charge lower initial rates on this type of loan, which might also allow you to buy more home for the same payment. If interest rates are stable or move lower, an ARM may be less expensive in the long term too. However ... an increase in interest rates would mean that your rate would be adjusted accordingly, thereby increasing your monthly payments.
There are some important questions you should ask before you choose an ARM. For example, will your income rise to cover a higher payment if rates go up? How high can the rate go; is there a cap? Is the ARM convertible to a fixed-rate loan later, and will it cost you to do it?
There are three types of mortgage programs: FHA, VA, And conventional.
An FHA (Federal Housing Authority) mortgage is a government-backed program that allows you to purchase a home with a low down payment--usually 5 percent or less of the home cost.
A VA (Veterans Administration) mortgage allows active duty military or veterans to obtain a guaranteed loan with little or no down payment.
A conventional mortgage is not insured or subsidized by the government and usually requires a down payment of at least 20 percent of the home cost. The most common are the 15-year, 30-year, and ARM already mentioned.
Ask your lender for more details about what is right for you.
Where do you get your mortgage?
A variety of institutions offers mortgages, including banks, mortgage companies, brokers and thrift institutions (savings and loans). A good idea is to start the process of shopping at your current bank. You should also shop a few other places. The newspaper is a good source for rates and other features of mortgages being offered. You may want to ask if the lender offers FHA and VA loans, and, if applicable, if there are special programs for first-time buyers or low-income buyers.
Federal law prohibits lenders from discriminating against anyone on the basis of race, color, national origin, religion, sex, marital status, age, receipt of public assistance funds, familial status (children under 18), handicap, or exercising rights under other consumer credit protection laws.
Federal law also requires a lender to tell you, in writing, why a loan is turned down. If you are turned down, these reasons may help you satisfy the lender's requirements or improve your chances with another lender.
Remember: it is generally in the interest of the seller and the lender to help you. They want you to be able to buy your home. If we can answer any questions, please feel free to ask your sales representative.
