Mortgages and the Things You Need to Know
Home buyers typically secure a mortgage to purchase a property
. Paying in cash is usually not an option while there are also people who can not afford to pay cash. It can be assumed also that many people are already familiar with the complexities of home mortgages.
During the boom in the housing market, there were so many lenders who indiscriminately approved a lot of people for a mortgage. The approved mortgages were sometimes more than the market value of the property. Lenders then were also very lenient on borrower's credit and practiced non-restrictive home valuations. But due to the bursting of the housing bubble and the subsequent homes crisis, lenders today are taking a very conservative approach in approving mortgages.
In most cases, borrowers are required to have excellent credit ratings before they can be approved. Low mortgage interest rates are generally given only to borrowers with credit scores of 750. If you have a credit score below 650, it would be very difficult nowadays to get a mortgage. The current restrictions tightened the mortgage market and brought down the prices of homes.
Several years back, the required down payment is considerably lower. In fact, there were home buyers who were able to purchase a home with no upfront expenses as lenders provided loans worth more than 100 percent of the home value. Today, you can not buy a home without paying 20 percent of its selling price. Consequently, the loan that you can get only amounts to approximately 80 percent of the home value.
For most home buyers, the issue of how much they should be paying for the loan can be very confusing. There are several factors that may come into play and most significantly, the market rates are fluctuating. Some lenders may lock-in your loan rates for a short period. Locked-in rates may last from 30 days up to 90 days. Furthermore, some of the quoted loans do not carry points but there are also others that require points.
You have to understand the meaning of points when it comes to home mortgages. A point represents a percentage. So if you are getting loan with one point quote, then you have to prepay 1% of the amount of the loan to the lender. For a $500,000 mortgage loan, one point means that you have to pay the lender $5,000.
Most home mortgages are either fixed rate or adjustable rate loans. When you get a fixed rate loan, you will be paying a fixed interest for the entire lifetime of the mortgage. An adjustable rate mortgage is also known as variable rate loan. Normally, you will get a locked-in interest rate for a fixed period. After this, your rates change which will be dictated by market fluctuations. Variable interest rates are pegged on some official index such as Treasury Bill, Treasury Note, or Treasury Bond. Your lender could also peg the rate on other type of index.
These are the important things that you need to study when you decide to get a mortgage. Of course, there are other factors to consider as well. The most important thing is you have to decide using your mind and not your emotions.
Mortgages and the Things You Need to Know
By: Rob Blake
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