Mortgage Information
Mortgages loans are extremely popular in today’s world. Despite being easy to understand most people are flabbergasted by the massive amounts of information available on the topic. However you should take care to ensure that you completely understand the concept of mortgage loans before venturing in to the market. Mortgage loans are the most common of all financial instruments and help most people realize the American Dream i.e. having a house of your own! If you are searching for your first mortgage loan you will most likely face numerous difficulties because they are the most difficult and cumbersome to get approved. Mortgage loans enable an overwhelming majority of people to become homeowners. If we eliminate mortgage loans from our financial and economic systems an overwhelming majority of people would no longer have access to basic amenities of life such as homes and cars etc. As mentioned above there are massive amounts of information available on mortgage both online and offline. Do not let yourself be staggered by all this information and use common sense at all times. Provided below is a brief overview of the most common and useful mortgage related information you would require before, during and after getting a mortgage loan.
Different Options for Mortgage Borrowers
Following are the main types of mortgage loans currently available in the market:
- First mortgage refers to an initial loan service extended by a mortgage company to help you finance an expensive purchase such as a house or car. First mortgages are the most common method by which individuals and businesses purchase residential and commercial properties.
- Second mortgage refers to a subordinate loan by a different lender (than the original one) against the same security. Second mortgage is a subordinate loan. In case of default by the borrower creditor holding the subordinate loan has a claim that proceeds only after claims of the original lender are satisfied. Consequently second mortgage is riskier for the lender. Lenders demand a higher interest rate to compensate for higher risk.
- Commercial mortgage refers to buying building, land and equipment etc through mortgage financing. Commercial mortgage is most the most suitable and flexible option for small and medium businesses that cannot purchase all the required assets on cash payment. However, lenders both mortgage loan companies or commercial banks require security as a guarantee against the amount loaned out.
- Construction loan mortgages are mortgage loans given out for the purpose of constructing a new home from scratch. They are generally have longer terms than conventional mortgage loans. Along with longer terms construction mortgage loans also have more stringent terms. Most construction mortgage loan companies require extensive construction plans from the borrower as a precondition for extending a construction mortgage loan. Construction mortgage loans usually require the borrower to pay interest (only) till the time the construction is in progress.
- FHA mortgage loan is a home mortgage provided by lenders approved by the Federal Housing Administration. Federal Housing Administration is a government body that helps provide home mortgages to low income citizens who would not be able to qualify for a conventional mortgage. Federal Housing Administration does not advance loans directly. Instead it provides assurance on loans extended by Federal Housing Administration approved private lenders. If you are interested in getting an FHA mortgage loan you would have to search the home mortgage market to find out which lenders provide them.
Mortgage Insurance
Mortgage insurance provides protective cover (for the amount stated in the mortgage insurance policy) in case of default by the borrower. Mortgage insurance is a very useful financial instrument that protects both mortgage loan companies and borrowers. Mortgage insurance helps borrowers by ensuring their peace of mind by undertaking to pay their monthly mortgage payments in case of adverse circumstances (such as death, illness and disability etc). Default on an exceptionally large mortgage loan can have a (significantly) negative effect on the mortgage loan company especially if it is relatively mediocre or small in size.
Mortgage Costs
Closing costs are various fees that have to be paid before signing a mortgage loan contract. Lenders usually prepare a “Good Faith Estimate” of closing costs for buyers that serves as an estimate of costs to be incurred in processing and executing a transaction. There are two main types of closing costs viz. non recurring closing costs and recurring closing costs.
- Attorney/Lawyers’ Fees – are paid by one of both parties to preparation of official documents and other legal services.
- Mortgage Application Fees – refer to loan processing fees paid by the buyer to the mortgage loan company. The application fees may be charged before or after closing the transaction at the discretion of the seller.
- Appraisal Fees –are usually paid by the buyer (and may be paid by the seller through mutual consent) to a Professional Appraiser.
- Inspection Fees - are usually paid by the buyer (and may be paid by the seller through mutual consent) to a Home Inspector.
- Recording Fees - Recording Fees are fees charged by government agencies for changing the official record of onwership of property.
- Points – The buyer buys points from the lender. However they serve as prepaid interest and help lower the interest rate of your mortgage. One point equals to one percent of the total mortgage amount.
The mortgage loan decision should not be based on interest rate alone. Most mortgage financing loan offer rock bottom interest rates to entice customers. However, after you take a mortgage loan most companies charge extra points. Another factor influencing your mortgage loan decision are closing costs. Never buy the first suitable mortgage loan you come across. It pays to compare features of different types of mortgage loans as well as comparing same type of mortgage loans across mortgage companies. Assess mortgage loans very carefully to ascertain that you are not paying for services that you do not require or did not opt for.