Buying a home is major life decision. It is important to educate yourself on the process and your responsibilities. We’ve provided some information to get you started and links to additional resources. We encourage you to read up on it.
Loan Amount – The total amount of a loan.
Interest Rate – The interest rate is the amount charged by a lender to borrow money. The rate is a percentage that is applied to the amount of money being borrowed.
Loan Term – The number of years over which you will repay the loan. The most common terms are 15 years and 30 years. If this loan has a balloon payment, the term will be shorter than the number of years to amortize the loan or pay it down to zero. For example, a loan with a 5 year term amortized over 30 years will have the same monthly payment as a 30 year loan with the same interest rate. The difference is the 30 year loan will have equal payments for 30 years. The 5 year loan will have equal payments for 5 years and then a very large, or balloon, payment for the remaining balance, which may be refinanced.
Amortization – The number of years used in calculating the monthly payment. Loans that are amortized over a longer period than their loan term have a balloon payment.
Origination Fee -The amount charged as a loan origination fee which is included in the APR calculation. For many loans a 1% origination fee is common. For example, a 1% fee on a $120,000 loan would cost $1200.
Commitment Fee – An upfront fee included in the APR calculation.
Monthly Loan Payment – Amount paid every month which includes both the monthly principal and the interest payment (PI).
Annual Percentage Rate (APR) – A standard calculation used by lenders. It is designed to help borrowers compare different loan options. For example, a loan with a lower stated interest rate may be a bad value if its fees are too high. Likewise, a loan with a higher stated rate with very low fees could be an exceptional value. APR calculations incorporate these fees into a single rate. You can then compare loans with different fees, rates or different terms.
Balloon Payment – This is the total final payment for all loans that are amortized over a period that is longer than the loan term. The balloon payment is total interest and principal balance due at the end of the loan term. (If the loan term is the same as the amortization this amount is always zero.)
Credit and Mortgage Process Resources
If you have had credit problems, be prepared to discuss them honestly with a mortgage professional.
Understand how a mortgage company views your credit information.
Credit scoring, also known as FICO scoring, is a statistical method of assessing the credit risk of a loan applicant.
A credit profile details your credit history as it has been reported to the credit reporting agencies by lenders who have extended credit to you.
This article includes address, phone and web site information for each credit repository.
Mortgage companies often grade your loan based on certain credit related items such as payment history, amount of debt payments, bankruptcies, equity position and your credit score.
Learn about the importance of keeping tabs on your credit rating.
The Fair Credit Reporting Act (FCRA) outlines specifically who can see your credit profile.
You have the right, under the Fair Credit Reporting Act, to dispute the completeness and accuracy of information in your credit file.
It’s never fun to be turned down for a loan, but before you think you won’t be able to get credit anywhere, there are some steps you can take.
If you had a problem that’s been corrected, and your payments have been on time for a year or more, your credit may be considered satisfactory.
Read more about bankruptcy and its affect on qualifying for a mortgage.
What to do to increase your chances of being approved for a mortgage.
According to one non-profit debt counseling agency, some 40,000 consumers each year are victims of this crime, which is a serious type of fraud.
Insurance Information & Help
When you insure your home, you should insure your home for the total amount it would cost to rebuild your home if it were destroyed.
Private mortgage insurance is a type of insurance that helps protect the mortgage company against losses due to foreclosure. This protection is provided by private mortgage insurance companies and allows mortgage companies to accept lower down payments than would normally be allowed.
Mortgage insurance can usually be canceled by the home buyer after he or she has at least 20 percent equity in the home.
A policy of title insurance is a contract of indemnity between the insured and the insuring company relating to the title to the land described in the policy, protecting the insured against loss of damage by reason of defects.
Flooding is not covered by a standard homeowners insurance policy.