Which Mortgage is Best For Me??

To some people, Mortgage can be a scary word. It shouldn't be! Not only is GETTING a mortgage crucial to you, it is also important that you UNDERSTAND exactly what your dealing with. Lets start at the very begining.

Your home is collateral for your mortgage loan, which is also a legal contract you sign to promise that you'll pay the debt, with interest and other costs, typically over 15 to 30 years. To repay the debt, you make monthly installments or payments that typically include the principal, interest, taxes and insurance, together known as PITI.

Principal ~

The principal is simply the sum of money you borrow to buy your home.

Before the principal is financed you can give the lender a sum of cash called a down payment to reduce the amount of money that will be financed.

Interest ~

Usually expressed as a percentage called the interest rate, Interest is what the lender charges you to use the money you borrow.

As well as the given rate, the lender could also charge you points, and additional loan costs. Each point is one percent of the financed amount and is financed along with the principal.

Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your monthly payments are largely interest during the early years and principal later. In addition to your principal and interest, your mortgage payment could include money that is deposited in an escrow or trust account to pay certain taxes and insurance.

Generally, if your down payment is less than 20 percent, your lender considers your loan riskier than those with larger down payments. To offset that risk, the lender sets up the escrow account for those expenses, which are rolled into your monthly payment.

Taxes ~

The taxes are property taxes your community levies based on a percentage of the value of your home.

The tax is generally used to help finance the cost of running your community, say to build schools, roads, infrastructure and other needs. You must pay property taxes even if you don't need an escrow account and even after your mortgage is paid off.

TYPES OF MORTGAGE LOANS

Cash ~

Buyer pays all cash for property, with no financing involved.

30-year fixed-rate mortgage loans ~ (Most Common)(AkA Conventional )

The advantage of a 30-year fixed-rate mortgage loan is that:

• It is the easiest to qualify for
• It gives you an excellent opportunity to keep your mortgage payments reasonable by making monthly payments over a long period of time.
• Ideal if you plan to remain in your home for years and wish to keep your housing expense low
• Provides maximum interest deduction for tax purposes.

15-year fixed-rate mortgage loan -

The advantage of a 15-year mortgage is that:

• its interest rate is lower than a 20 or 30 year mortgage
• By paying it off quickly, you build up equity in your home sooner
• It lets you own your home sooner, clear of debt
• DOWN SIDE - Monthly payments will be more expensive for the same total mortgage amount

Adjustable Rate Loans (ARM) ~

• Interest rates adjust to keep in line with changing market rates
• Your payments may go up, or they may go down
• May offer lower interest rate than fixed rate mortgage, which would allow you to apply for a larger loan
• Usually benefit people who: are refinancing their home, moving soon, or are planning on reciving a higher income soon
• Important to know the "worst case scenario" interest rate to see how high your payments COULD go
• Some ARM's offer the choice to switch to Fixed Rate Mortgages only at CERTAIN times throughout the life of the loan.

Initial Fixed Period ARM's ~

• Doesn't adjust interest rate until several years after you take out the loan
• Can choose 3,5,7,or 10 years w/ fixed rates
• Protects you against rapid interest rates in the first year of loan

Government Loans ~

1. Federal Housing Administration Loans (FHA)

• With current Market - May be becoming most popular loan
• With FHA Insurance, you can purchase a home with very low down payment
• Maximum loan limit is based upon average cost of housing in a given region

2. Veteran Affairs Loans (VA)

• Allows qualified veterans to buy a house up to 203,000 dollars w/ no down payment.
• Qualifications are more flexible than FHA or Conventional

3. Rural Housing Services Loan (RHS)

• Branch of the US Dept. of Agriculture
• Offers low interest rate loans with no down payment
• Offered to People with Low & Moderate income who live in rural areas and small towns.

4. State & Local Loan Programs

• A number of states sponsor programs to help first time home buyers qualify for mortgages.
• Local housing agencies also offer attractive loan terms to eligible home buyers
• They typically offer low down payments & low interest rates to 1st time home buyers
• Must meet certain income limits

There are still even more possible loans than the ones i've listed here! Look around First!

Shopping for a loan is not really very different from shopping for a car or another large purchase. It is vital to shop around in order to find the best deal for yourself.

The more lenders you talk with, the wiser consumer you will become. Remember, it is YOUR money we are discussing. They are not doing you a favor; this is strictly a business arrangement.

Tell them you are shopping around: they will respect your honest, open attitude.

I hope this information helped anyone who was confused about mortgages. If you have any further questions, or would like me to refer a great mortgage loan officer. Please feel free to call me at any time!

Make it an awesome Day!

Glen

610.792.3000

WWW.GlenRussell.Com