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:
- 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 is the amount your mortgage lender charges to use their money
- in the early years of your mortgage, payments are mostly interest
- 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)
- 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)
- loans in which an initial interest rate (lower than fixed rate mortgages) is locked in for a specified time (adjustment interval) then adjusted based upon ARM indexes and the margin (lender costs added onto ARM index)
- There are limits to the amount that your interest rate can raise to (interest rate caps) as well as limits to the amount of times it can be raised.
- ARM’s can be risky for some home buyers. Consult a licensed mortgage professional to discuss the risks or advantages of an adjustable rate mortgage.
What does a lender need to know to qualify you for a mortgage loan?
- Employment History
- Credit Score
- Collateral (property)
- Down Payment Information (depends on loan program)
- Check out our blog post Get Approved! Why Do I Need a
Pre-Approval Anyway? This blog post discusses the difference between a mortgage prequalification and mortgage pre-approval.
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:
- VA Mortgages
- FHA & FHA 203K Mortgages
- Conventional Mortgages
- USDA Rural Development Mortgages
- Jumbo Mortgages
- Purchase Mortgages
- Reverse Mortgages
- Click here for more information on Inlanta Mortgage loan programs
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