|
Author: Ethan Hunter Article source: http://www.hotlib.com/. Used with author's permission.
The wonderful world of home buying can sometimes overwhelm the first time homebuyer. They are inundated with information riddled with terms of art. ARMS, points, interest rates, good faith estimates, pay-downs, lock-in dates, so on and so forth. Though some or all of these terms may seem somewhat foreign to you, do not get overwhelmed, there are simple explanations for each and every one of them.
Let us start with the different types of loans there are. Typically all home loans fall into two basic categories: mortgages and home equity loans. Mortgages are simply a loan against property that is secured with a "mortgage". This "mortgage" is basically a lien against the property until such time that loan is satisfied. So a mortgage is a loan against property that is secured with a lien against it.
A home equity loan is a loan that is also secured with a lien against the property. The home equity loan lien is secondary to the first mortgage on the home. This type of loan is based on the amount of equity in the house. Equity is the difference in dollars between the value of the home and the amount owed on it. Equity can be a positive number (the house is worth more than what is owed) or can be a negative number (negative equity) which means that there is more owed on the house than the house is worth.
A lien is simply a legal term that indicates that someone other than the homeowner has a legal right and interest in the property. So, if the property is ever sold, all liens need to be satisfied - any money owed to anyone with a lien must be paid, otherwise the new owner may become obligated to pay the amount owed. A lien is against property, not a person. Typically in all real estate transactions there will be a title search that will reveal any liens against the property. This title search is basically an examination over anyone and anything that may have some legal interest, obligation or right to the property.
If there are multiple home loans on a property the order they are paid in is the oldest to the newest. This is only a factor if the property is being sold for below what is owed. This is either through a "short sale" where the house is being sold by the homeowner for below the amount that is owed in the house. They will need approval from all lien holders in order to do this. This is also an issue if a house falls into foreclosure.
Within these two types of loans you will want to know the difference between a fixed-rate mortgage and a variable rate mortgage. A variable or adjustable rate mortgage is an ARM. Fixed-rate mortgages have the same interest rate from the first day of the loan to the last day of the loan unless it is refinanced. A fixed rate or variable rate loan will generally start off for a period of time at a specified rate and then after that period ends, if the loan has not been paid off or refinanced then the rate becomes adjustable based on specific conditions set forth in advance - typically tied to the federal interest rate. An ARM loan will have typically a 3 or 5 year period during which the rate is lower than the going rate. This is used to entice would-be borrowers or help borrowers have lower payments for the initial period.
"Points" are often discussed in connection with loan packages and interest rates. You can "pay down" an interest rate by paying points for example. What this means is you can pay for a lower interest rate if you pay a specified number of points. Points are simply one percent of the loan amount. So a $100,000 loan equates to $1000 for every point.
Another term you will often here is PMI, private mortgage insurance. PMI is insurance for your lender when the amount you borrow is more than 80% of the value of the property. In these cases the borrower needs to pay for this insurance policy. The calculation for your monthly PMI payment is 0.5% of your loan amount divided by twelve.
Tied to the calculation of PMI, as well as many other factors of the loan is an appraisal. An appraisal is a determination by a real estate professional of what the value of the property is. They will evaluate the property and similar properties in the area. They will consider market trends, recent sales and other factors to give an estimate on what the property is worth and would sell for.
Another potential add-on to your monthly payments is escrow payments. Escrow is money that is being held typically to pay taxes. Your lender will collect 1/12 of your yearly taxes every month in order to be assured that your taxes are paid. Your lender then makes your required tax payments. Typically your lender will have a cushion in the escrow account of 2 - 3 months in case you fall behind in your payments.
Though there are many more terms you may encounter these are the most often used, misunderstood terms. During the home loan process, however, you should never feel embarrassed or ashamed to ask what a term means. The more you know the better off you will be. Ethan Hunter is the author of many credit related articles. If you are looking for help with Home Loans or any type of credit issue please visit us at http://www.homeloanave.com
From Problems to Possibilities-Get Out of Your Old Story to Get On With the New!
What's your story? Are you the super-mom who lives in the need to do everything perfectly for everyone and often put your own needs aside? Or how about…..I'll...
Halloween Everyday: The Mask of Ive Got It All Together
Do you know how some people strive to appear as if they have it all together? Here are some ways to take off that mask.
Planning and Evaluating Marketing Programs
Measuring and understanding your Website's success is a critical process that is sometimes overlooked. Many times, marketing efforts stop at getting traffic to ...
7 Beauty Tips for Looking Younger
Healthy, beautiful skin starts from within. Here are some timeless secrets to younger looking skin, no matter what your age.
Coconut Oil Increases Beneficial Properties in Human Breast Milk
COCONUT OIL FOUND BENEFICIAL FOR LACTATING MOTHERS... The unique composition of human breast milk fat includes the fatty acids, lauric acid and capric acid, wh...
Does Your Career Change Itch or Burn?
It's tough to make a significant shift unless there is a burning desire to change. You must be inspired by the personal gain you see for yourself at the end of...
Be The Full Jigsaw! How to Solve the Leadership Jigsaw
An introduction to The Leadership Jigsaw - a model of best practice for those striving to don the mantle of leadership...
Calculating Fair Value With Growth
As you may know, earnings does not stay constant all the time. Google did not exist a decade ago and it now rakes in billion of dollars of profit. So, how do we...
How to Make Your Articles Stand Out From the Crowd
Internet article writing is becoming a crowded field. Here are some tips and guidelines that will help your articles to stand out from the crowd and get publish...
The Write Way To Grow Your Business
Hone your writing skills to project a more professional business image.
How Do The Golf Pros Train?
Many of the top touring professionals know that winning on the tour today takes much more than a great game of golf. It means understanding every aspect of thei...
Honey! Natural Treatment for Gum Disease
There is quite a bit of talk going on about the antimicrobial properties of the sweetener, Xylitol, which is a product manufactured from cornstalks. The dental...
Contact an Expert
Let's say that you have discovered your purpose but you don't know how to go about obtaining God's purpose for your life. You don't know what to do next. How do...
Recognizing Unhealthy Relationships
One of the keys to obtaining a better life or living arrangement is to assess the quality of relationships that you surround yourself with. Do you surround your...
Organisational Culture for Continuous Improvement
The UK's leading Business Organisational & Culutral Change and Continuous Improvement Consultants, Tim Franklin, and I have been working on his new book. But, d...
Building Future Leaders
Being a mentor to another person is one of the most noble things we can do. As the saying goes, "Give a person a fish and you feed them for one day -- teach the...
Comparing Mortgage Rates
When you're getting ready to buy a new house, you're likely going to be confronted with a variety of mortgage options.
Flea Markets: Strategies For Making Money At Flea Markets
Flea market selling strategies that can make you money.
Customer Service - A Sweet Essence
Your wait time is approximately 15 minutes. Please continue to hold...Please continue to hold...Please continue to hold...
No One Achieves Greatness Alone
This article is about the importance of having positive team members to learn from behind you to succeed in your fight career.
5 Top Tips For Attracting Targeted Traffic
One of the most common needs of online business owners is traffic. Without traffic, your web site barely exists, and is unlikely to make any profit whatsoever. ...
Head Coverings
A nit-picky issue that has caused problems far beyond its
importance is unravelled with amazing clarity and ease, to
reveal a powerful (and surprising) spirit...
Digital Camera Printers
The digital camera is not meant only for capturing images and storing them on the computer memory disks. The real effect comes from the hard copy of those fanta...
How to Use Fear to Your Advantage
Learn how to use positive thinking to fuel your way to success...
|
Print this page