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Mortgages


What Is a Mortgage?
A mortgage is a loan secured by real estate. In other words, in return for the funds necessary to purchase a home, a lender, gets your promise to pay back the funds over a certain period at a certain cost.

Backing your promise to repay is the property. Should you default, or stop paying, the loan, the lender would take over ownership of that property. Typically, the repayment of a mortgage occurs through monthly payments.

What Does My Mortgage Payment Include?
Usually, your monthly mortgage payment is made up of four parts: principal, interest, taxes and insurance (PITI), but it can also include maintenance expenses, such as condominium homeowners' association dues. The principal is the amount in your monthly payment that reduces the original amount borrowed.

Over the life of a standard mortgage loan, the entire original amount borrowed is generally scheduled to be fully paid off, or amortized. The interest rate is the fee charged to borrow the outstanding balance for the past month. In addition, a monthly amount may be collected and held in a separate escrow account to cover property taxes, homeowner's insurance and mortgage insurance. Your lender uses the money in the escrow account to pay your tax and insurance bills, as they come due.

How Do I Qualify For a Mortgage?
In general, all lenders use the same four basic standards to approve applicants for a mortgage. Different mortgage products have varying guidelines within those standards.
The lender looks at your income, credit history, assets and property information.

What types of loans exist?

Fixed-rate mortgages.
The interest rate remains fixed for the life of the loan.

  • Offer predictable monthly payments of principal and interest throughout the life of the loan.
  • Provide protection from rising rates. No matter how high market rates go up, your interest rate stays the same.
  • Generally well-suited to borrowers who plan to stay in their homes for a long period of time, have a fixed or slowly-increasing income, and have a lower tolerance for financial risk.

Adjustable-rate mortgages.
The interest rate adjusts periodically to reflect market conditions on pre-determined dates.

  • The initial introductory period usually offers a lower rate (relative to fixed-rate mortgages), after which the rate adjusts periodically, based on a market index.
  • Borrowers are protected from steep increases in rates through annual and lifetime adjustment caps.
  • The initial rate can be locked in for different periods such as one, three, five, seven, or ten years. Typically, the rate readjusts annually after the introductory period.
  • Because of the introductory period's lower rate, some borrowers may be eligible for a larger loan amount with an ARM than with a fixed-rate mortgage.
  • May be more appropriate for borrowers who may want to sell or refinance early, can afford to make larger monthly payments after the rate adjusts, or are looking to buy a home when interest rates are relatively high.

Jumbo loans.
These are loans that exceed a specified size (conforming loan amounts). In 2009, jumbo loans on single-family homes exceed $417,000.

  • Rates are generally higher on jumbo loans than on smaller comparable loans.

FHA Loan. The Federal Housing Administration (FHA) insures a wide variety of mortgages. These loans are designed to meet the needs of homebuyers with low or moderate incomes and feature:

  • Low down payment requirements
  • Loan limits based on geographic locations Generally more liberal qualifying guidelines
  • Use of gift funds for down payment and/or closing costs.

VA Loans.
The Department of Veterans Affairs (formerly the Veterans Administration) guarantees mortgages for qualified veterans and active-duty military personnel and their spouses who are first- or second-time homebuyers. VA loans feature:

  • Low or no down payment requirements
  • A wide range of rate, term, and cost options
  • Flexible qualifying guidelines
  • Use of gift funds for closing costs

Alternative financing.
These programs are designed for borrowers with less-than-perfect credit histories, excessive debt, or previous bankruptcy, foreclosure or tax delinquency.

No Documentation Loans.
Designed for borrowers who are self-employed, on commission or whose financial situation may be difficult to document .These loans allow borrowers to apply for a loan based on their credit history and stated income. Although these were readily available only a few short years ago, today it is rare to find such products. However, we do have opportunities for investors that are looking to purchase "business" designated properties. For homes you are looking to purchase quickly, remodel and sell. Although rates on such mortgages are always high and expensive, this allows many investors to get in and out with little fan fair. Before you consider such an option, make sure you exhaust all other possibilites. Working with a Plum Tree Consultant will insure you make a great decision for your financial situation.

For more information contact us via email, or call 503-493-2353.

 

 



 

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