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Advanced Home Loan Language
Every profession has its own language. Whether it?s taking your car in for repairs, or going to the dentist for a check-up, each job uses specialized words. The same is true in home buying, selling, especially when applying for a mortgage.
When researching mortgage companies and what they have to offer, knowing what to say and how to say it can have its advantages. Remember, choosing a mortgage plan is one of the more important decisions you?ll have to make when buying a home. Don?t be afraid to shop around. Call several companies and find the plan that will work best for you now and in the future.
Take precautions when comparing possible lenders. Talk to several licensed Realtors, asking their opinions of different mortgage companies and recommendations for a quality lender. Take great caution if a lender gives you inconsistent answers, asks for money before your loan application interview, or offers you an interest rate significantly below market rates (lower rates are not questionable, but significant discounts may signal future trouble).
Be sure to get your chosen lender?s promises in writing, and ask your loan officer for the name and phone number of the person who will process your loan. Check up with that person regularly to confirm the progress of your loan.
As a homebuyer, you?ll face a host of possibly confusing options, not to mention the mortgage terminology and wording. You may be familiar with the basic mortgage loan lingo, but here are some more mortgage terms that you might not be familiar with:
RESPA: An abbreviation for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish the information after application only.
Reverse Mortgage: Also called ?equity conversion mortgage,? these loans permit senior citizens to convert the equity in their homes to income. The lender makes monthly cash payments to the homeowner, and repayment is deferred for a set period or until the homeowner dies and the house is sold.
Servicing: All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.
Survey: A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachment, and other physical features.
Title Underwriter: A company which issues insurance regarding title to real property.
Truth-in-Lending: Perhaps the most important phrase to remember is Truth-in-Lending. RESPA requires all lenders to provide consumers with a ?Truth-in-Lending? form. This form takes into consideration all factors that will be paid over the life of the loan, including some closing costs. It also adjusts the actual interest rate quoted by the lender of broker in an Annual Percentage Rate (APR). Comparing the APR of each loan is a much more effective means of determining the real cost of any loan. The buyer signs this form after reviewing the estimates.
Loan Underwriting: The process of deciding whether to make a loan, based on a property appraisal, as well as a review of the borrower?s credit history, income and ability and willingness to make timely payments.
Let Your House Generate Cash for You - Take Out a Homeowner Loan
The lending business is one of the oldest businesses of the world. Right from the ancient times, there have been people who have more money than what they require and those who require more money than what they have. People with surplus money, called lenders, offer it to those, called borrowers, who need it. In return, borrowers give lenders an amount, known as interest, along with the original loan amount.
The lending business is still thriving with some changes. Unlike ancient times when the rates of interest were very high, lenders today offer loans at reasonable rates of interest. Unlike ancient times when only the poor would take out a loan, even well to do people require loans nowadays. You may need more money than what you earn even if you are quite well off.
If you are a homeowner, it must be very frustrating that you cannot get anything out of your house which is worth over ?100,000. But now, lenders have something that may help you. Your house can fetch you some money without getting sold or leased. There are many lenders who offer loans against a house. Such loans are known as homeowner loans. A homeowner loan is a secured loan, i.e. if you default in repayment, your house may be repossessed by the lender.
The amount of loan that you can get depends upon the equity in your house. If your house is already mortgaged and the value of your house has increased, then you can take out a loan against this increased value. This type of homeowner loan is called a home equity loan. The rate of interest on a homeowner loan will depend upon your credit score. If you have a good credit rating, the lender will charge a low rate of interest. A bad credit homeowner loan, on the other hand, carries a high rate of interest.
There are so many purposes for which you can take out a homeowner loan. Because of carrying a low rate of interest, a homeowner loan is ideal for debt consolidation. You can use it in repaying high rate loans and credit card dues. It can also be used for home improvement, to pay college fees, to finance a holiday trip, and much more.
10 Must-Know Mortgage Terms
Shopping for a new home is fun and exiting! Yet securing financing to buy real estate can be stressful. The more you know about the home mortgage business, however, the smoother your transaction will be. To help you get a handle on financing terminology before you buy a home, we have defined 10 commonly used mortgage terms.
Adjustable Rate Mortgage (ARM Loan): An ARM Loan has an initial interest rate that is often lower than a conventional fixed-rate mortgage. This initial rate is usually locked in for one or more years. Once the initial term is over, the interest rate on an ARM loan may go up within specified limits over predetermined intervals during the course of the loan. The lower initial interest rate associated with an ARM loan translates to a lower initial monthly payment. The tradeoff, however, is the potential for a higher payment if interest rates go up as the ARM loan progresses.
Annual Percentage Rate (APR): The APR for your home loan is an annual calculation that includes the interest rate quoted by your mortgage company plus additional home loan costs such as origination fees and points. The important thing to keep in mind about your loan?s APR is that it will be higher than advertised interest rates because of these additional factors.
Closing Costs: With each real estate transaction, there are many expenses to pay and agencies to compensate. These fees, which are often shared by the buyer and the seller, are referred to as the closing costs. When you buy a home, the closing costs might include loan origination fees, escrow payments, title insurance, attorney fees and even discount points paid to lower your loan?s interest rate.
Escrow: During the home loan process, a neutral third party known as Escrow holds documents and money (including earnest money deposits) for safekeeping until the real estate transaction is complete. An Escrow account is also used once you complete your home loan to hold the property tax and insurance monies that are collected with each mortgage payment.
Fixed-Rate Mortgage: A conventional fixed-rate mortgage means that your interest rate will be the same for the entire life of the home loan. Financing for this type of loan is typically spread out over 10, 15, 20, or 30 years, depending on the needs and payment capability of the buyer. A fixed-rate mortgage provides buyers with the security of knowing exactly what their monthly house payment will be during the entire loan term.
Loan to Value Ratio (LVR): When you buy a home, this term refers to the amount of financing you are getting in relationship to your new home?s value. For example, an $80,000 mortgage on a $100,000 home has an LVR of 80 percent. This is important because an LVR of more than 80 percent will require you to purchase private mortgage insurance (PMI). Using the same example to illustrate this point, if you finance $90,000 of your $100,000 home, your LVR will be 90 percent, initiating the need for PMI.
Lock-In: Home mortgage interest rates vary from day to day. While you buy a home and secure financing, you may decide to lock in a particular interest rate with your lender. This lock-in guarantees that your home loan will be processed with this rate, even if interest rates rise before your loan closes.
Points: There are two types of points that can be applied to a home mortgage. Discount points are used to reduce the loan?s interest rate and origination points may be added to cover the expenses associated with processing a loan. One point equals one percent of the loan amount. This means that, to lower your interest rate by one point on a $300,000 mortgage, you?ll need to pay an additional $3,000 at closing.
Private Mortgage Insurance (PMI): When you finance more than 80 percent of your new home?s value, your lender will require you to purchase PMI. This protects the lender against loss if you default on your home loan. Your monthly PMI payment is added to the cost of your mortgage payment. It is important to note that when you have accumulated 20 percent equity in your home, you will want to check into canceling your PMI to lower your monthly mortgage payment.
Title Insurance: A home mortgage requirement, title insurance protects both the buyer and the seller against legal defects in a home?s title. This policy ensures that a property owner has the legal right to transfer a home?s title to the seller. If a problem occurs, the title company pays the associated legal fees to correct the situation.
Knowledge is power, even when you buy a home and apply for a loan. By familiarizing yourself with these 10 must-know mortgage terms, and doing additional research as needed, you will be positioned to negotiate the best home loan that your money can buy!
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