MortgageBasics

Escrow Account

Taxes and insurance are usually held in an escrow account
Taxes and Insurance paid by mortgage company when due
A portion of your monthly payment goes to escrow
Set aside a small amount each month for taxes/insurance
Avoid a large, semi/annual out-of-pocket expense
Reduce your cash flow each month.
Some lenders mandate an escrow account
Some let homeowner pay their insurance and tax directly.

Types of Home Loan (Most Common)

Fixed-Rate Mortgage
Adjustable-Rate Mortgage
Government Guaranteed Mortgage

Government Guaranteed Mortgages

Federal Housing Administration (FHA) loans
Department of Veterans Affairs (VA) loans
FHA help homeowners with income restrictions
VA help who are currently in the military or a veteran
Lower down payment/Less restrictive qualifying guidelines
They do require you to meet certain criteria.
Always check with the FHA or VA for complete details
If you may qualify for FHA/VA loan, inform your lender

Pre Qualification vs Pre Approval

Terms are used interchangeably
But they are actually very different
Refer next section for Details

Pre-Qualification

Provide to lender some basic information
Income, Assets, Loans & Bills etc.,
Lender provide preliminary estimate of qualifying loan terms
Lender doesn't review your credit report
Lender provides the qualifying amount only
The process is usually quick
Won't know if Buyer actually qualify until pre-approval.

Pre-Approval

Buyer completes mortgage application
Provides lender income documentation and personal records
Lender pulls and reviews buyer's credit
Extensive review of buyer's finances and credit worthiness
A pre-approval takes longer than a pre-qualification
Pre-approval is a better commitment from the lender
Lender gives the amount of financing & potential interest rate
Buyer might even be able to lock-in the rate
Buyer may get an estimate of monthly payment (before taxes and insurance)

Why Get Pre-Approved ?

Save time by searching homes within pre-approved price range
Letting sellers know you're a serious and qualified buyer.
Buyers who have their financing in place are preferred

What is APR ?

Most home buyers only think about the interest rate
Lender will typically use APR (Annual Percentage Rate)
The interest rate is the charge to borrow money.
The APR includes interest rate and Other fees like Closing Costs
Other fees will be included over the life of the loan
APR shows your total annual cost of borrowing
APR is higher than the simple interest of the mortgage
Important to compare lender's APR and not the interest rate
All lenders follow same federal rules when calculating the APR

What are Points ?

One point = 1% of Total Principal amount of mortgage
Example: For a principal of $125,000, 1 Point = $1,250
Ask for APR, Closing costs and points as they vary by lender
Lenders frequently charge points to cover loan closing costs
Points are usually collected at the loan closing
Points may be paid by buyer or seller or split between the two
This depend on local and state regulations as well as lender
Be sure to ask if there are points on your loan & the details

Pre Payment Penalty

A pre-payment penalty is fee charged if you pay off your mortgage early (i.e., pay off the loan before the loan term expires).
Be sure to ask if your mortgage contains a pre-payment penalty.