Mortgage Loans – The Basics

Basic Mortgage Loan Questions Answered

If you rent your home and always have… a mortgage may seem a bit scary.  Let’s try and clarify some of the basic terms and concepts related to mortgages, and give you something to think about as we approach 2012. With mortgage rates at record lows and home prices still down – this might just be the year some of you leap from renting to bona fide homeowner status.

How does a mortgage work?

A mortgage loan is secured using your new home as collateral. Over a period of time, typically 15 to 30 years, you make regular mortgage payments to reduce your overall mortgage loan debt in a process call amortization. Payments are applied to:

Principal

  • the principal is the sum of money you borrow to purchase your home
  • home buyers are often required to give their mortgage lender a cash down payment to reduce the amount of the principal (not all loan programs require down payments)
  • Click here for more information on Inlanta Mortgage’s loan programs or check back next week for our blog post detailing the loan programs Inlanta Mortgage offers.

Interest

  • interest is the amount your mortgage lender charges to use their money
  • in the early years of your mortgage, payments are mostly interest

Taxes

  • property taxes are levied by your community and based upon the value of your home (which you will still have to pay once your mortgage is paid off)
  • part of your mortgage payment is usually deposited in escrow or a trust account to pay these taxes (not required in all cases, but FHA loan programs require escrow)

Homeowner’s Insurance

  • home owner’s insurance protects the property you are buying
  • part of your mortgage payment is usually deposited in escrow or a trust account to pay your home owner’s insurance premiums  (not required in all cases, but FHA loan programs require escrow)

Private Mortgage Insurance (PMI)

  • if you put less than 20% down on your home purchase, most lenders will charge you private mortgage insurance (PMI) – which is designed to protect the lender from you defaulting on your mortgage.
  • PMI is not in anyway connected to homeowner’s insurance (PMI protects the lender, homeowner’s insurance protects your property)

Mortgage Payment = Principal + Interest + Taxes + Insurance
Check out our mortgage loan calculators to estimate how much your payments would be based upon term of loan, interest rate, loan amount, tax, and insurance or contact a licensed mortgage loan professional to discuss your unique situation.

What types of mortgages are there?

Fixed Rate Mortgages

  • fixed rate loans have the same interest rate for the life of the mortgage loan.
  • fixed rate loans are typically 15 or 30 year mortgage loans (but not always)

Adjustable Rate Mortgages (ARMs)

What does a lender need to know to qualify you for a mortgage loan?

Are there different mortgage loan programs?

There are a variety of loan program available to suit your specific needs.  Our next few blog posts will detail some of loan programs that Inlanta Mortgage is proud to offer including:

Are you ready to begin a loan application today? Apply here or Click here to find a licensed Inlanta Mortgage loan professional near you.

Inlanta Mortgage is a multi-state mortgage banker based out of Brookfield, WI. NMLS #1016

 

 

Get Pre-Approved! Why Do You Need a Pre-Approval Anyway?

Pre-approval or prequalification? Many new home buyers ask, “What’s the difference?”

A prequalification is an informal estimate of how much house you can afford. Your lender uses the information you provide about your income, finances, and credit history to make an educated guess about your ability to buy a home. What is important to note is that a prequalification doesn’t require a credit report and is generally doesn’t provide you with any real credibility. A prequalification letter is mainly for shoppers in the early stage of the home buying process that want a basic idea about how much they can afford.

Getting a pre-approval for a mortgage loan is a different story. Pre-approvals carry a lot more weight and are a better indication of your ability to fully qualify for a mortgage loan. Lenders collect many documents during the pre-approval process including pay stubs, a credit report, bank statements, and tax documents.

After your lender has thoroughly reviewed your documents and verified all pertinent information, he or she will issue you a mortgage loan approval letter detailing a specific amount that you are pre-approved to borrow. Click here to speak with a licensed mortgage loan officer near you about the mortgage loan pre-approval process.

Pre-approvals have several advantages over prequalifications:

  • Your Realtor knows your serious when you present a pre-approval letter – and will work even harder on your behalf!
  • Sellers prefer to negotiate with prospective buyers with pre-approvals over simple prequalification letters – often times sellers won’t even consider your offer without a pre-approval letter from a licensed mortgage loan originator!
  • Your mortgage pre-approval letter takes into consideration down payment percentages, interest rates, property taxes and mortgage insurance – which makes it clearer to you (the buyer) just how much you can truly afford to borrow.
  • A solid pre-approval will help you get your loan processed faster. Getting a pre-approval could take you offer from a 60 day closing to as little as 30 days – with Inlanta’s express underwriting you may be able to close even faster!

All that said, a pre-approval letter is not a binding agreement between you and your lender. Let’s say you put in an offer on a house and begin the formal mortgage loan process. Your lender will order an appraisal on the house you intend to buy and the loan will be subject to the details of that appraisal. What if you lose your job, interest rates rise, or you run up your credit cards over the holidays? All these factors will affect your ability to afford the amount your were originally pre-approved for. (Stay tuned for a post on what not do when you are applying for a mortgage – here’s a hint – don’t buy a car.)

Pre-approval letters trump prequalification letters in almost all scenarios.  If you are a serious shopper and want to carry more authority with sellers and real estate agents – click here to access our complete online loan application.

Loans are a lot like the law. It’s all about the documentation and proof. Like Jack McCoy (Law & Order) says, its not what you know but what you can prove. A prequalification is what you know. A pre-approval is the proof.