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What are the advantages of purchasing a home?
Unlike renting, buying a home offers you pride of ownership and fulfillment of the American dream of owning your own home. One of the largest benefits of home ownership is the tax savings you'll receive as interest payments on a mortgage are 100% tax deductible. And as you continue to pay your mortgage payment, you are contributing towards building equity in your home. Once you have enough equity, you can borrow against that equity to pay off debt, send your child to college, make home improvements, or take a vacation. With today's low interest rates, affording a home is easier than you may think.
Should I get pre-qualified before looking for a home to purchase?
Although you don't have to apply for a loan before looking, it's a good idea to get pre-qualified or pre-approved for a home loan before you find a home to purchase. You will know ahead of time how much you can afford, what you can expect the monthly payment to be, and how much money you will need for the down payment and closing costs.
What is an adjustable-rate mortgage loan?
Any mortgage that does not have a fixed interest rate and a fixed payment for the term of the loan, or does not amortize to zero at the end of the set term, when required payments are made on time. The interest rate is adjusted periodically according to the movement in a pre-selected index.
Is a fixed rate or adjustable rate mortgage better?
Adjustable rate mortgages or ARMS offer lower interest rates than fixed rate loans but have the potential to fluctuate every month, every 6 months, or every year, depending on the type of adjustable mortgage that you obtain. An ARM may be more attractive to homeowners that do not have long-term plans for staying in their home. For those that want more stability in their rate and monthly payments, a longer term 15 or 30 year fixed rate may be more attractive.
What is cash-out refinancing?
A refinance transaction in which the amount of money received from the new loan exceeds the total money needed to repay the existing first mortgage, closing costs, points, and any other amount required to satisfy any outstanding subordinate mortgage liens.
What is a good faith estimate?
An estimate of charges, which a borrower is likely to incur in connection with a loan closing.
What is a mortgage insurance premium?
The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.
What are points?
A one-time charge by the lender to increase the yield of the loan; a point is one percent of the amount of the mortgage.
What is title insurance?
Title insurance protects lenders or homeowners against loss of their interest in property due to legal defects in title. It may be issued to a "mortgagee's title policy". Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase "owner's title policy", if he desires the protection of title insurance.
What is truth-in-lending?
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.
What is the underwriting process?
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.
If I apply for a debt consolidation loan to pay off my credit cards, will it raise or lower my credit score?
Applying for a loan and using it pay off your other accounts shouldn't raise or lower your credit significantly in the short term. While it does mean that you've taken on new debt, credit agencies look at your credit history as a whole and will note that your other accounts have been paid off. If you consistently make payments on your new loan for a year or two, it should ultimately improve your credit score.
Is it possible to get a home equity loan before completing an addition to a home?
If you have enough equity in your home to cover the loan you need, the state of your renovation project should not be an issue. You are free to use the money from the loan for any purpose. Most lenders will lend you an amount equal to 100 percent of your home value, and some may even lend up to 125 percent if you have a good credit score.
What is hazard insurance?
Hazard insurance protects homeowners against property damage and is required by lenders before you buy or refinance a home. Hazard insurance shields you against property damages caused by a fire or a severe storm and should cover the cost of rebuilding your home. Generally, you have to confirm at closing that you've secured one year of hazard insurance coverage.
What is pre-paid interest?
This amount represents the interest that accrues between the day your loan closes and the last day of that month, and is added to your closing costs. After this one-time payment your interest will be included in your regular monthly payments.
What is the difference between the interest rate and the APR?
The interest rate is the cost to borrow the lender's money. The APR represents the total cost of the mortgage over the life of the loan, including closing costs and lender points.
What is the difference between a home equity loan and a home equity line of credit?
While both are considered second mortgages, with a home equity loan all funds will be paid at closing. A home equity line of credit provides you with a credit line that you can borrow against at any time within a set time limit and up to a maximum amount.
What is a draw period?
The draw period is the time frame during which you are allowed to use the credit available on your home equity line. When you borrow funds from your line of credit it is referred to as a draw.
Does my home equity line of credit have any tax benefits?
In order to determine your tax benefits it is best to consult your tax advisor or attorney for specific tax guidelines. However, in most cases the interest on your home equity line of credit is deductible as long as your home equity debt is $100,000 or less and the total debt on your home is less than or equal to your home's appraised value. Any mortgage debt above your home's appraised value may not be tax deductible.
Can I eliminate PMI by refinancing?
As long as you meet the requirements, you may be able to remove mortgage insurance by refinancing your new home. The main factor is that you have made your mortgage payments on time over a specific time period and that your home as appreciated enough to reach the 20% equity mark.
What is the advantage of an interest-only mortgage other than lower payments?
Aside from the lower payment, the owner has the option of paying whatever amount they wish towards principal, whenever they want. Once a year, once a week, etc. The interest payment is based on simple interest, the payments will decrease as the principal payment decreases. |
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