Though getting a mortgage is seen as a process that is tedious, these loans can make your dream of owning a home come true. It is better to prepare and work with the mortgage lender you trust because homeownership is a big task. There are varieties of mortgages for low-income borrowers and those buying mega dream homes. However before going for a mortgage, it is always wise to seek and get some mortage feedback, from those who have had mortgage before. You also need a financial adviser to offer money advice services. Some of the things you should know when thinking about mortgage are:
- Mortgage rates
A mortgage rate is simply the interest charged on a mortgage loan. They constantly keep on changing based on the market condition. Market conditions consist of the economy, the federal monetary policy, and housing market characteristics. Nevertheless, your financial status will also determine the interest rate you get on your mortgage loan.
A lower interest rate translates to a cheaper mortgage loan. If you want to get the lowest interest rate, you should figure out the type of loan you will use, which qualifies you for that loan, and market conditions. The truth is, if you are financially stable, you will enjoy low interests rates. So for you to get lower rates, you should lower your debts, increase your credit score and pay health down payments. This will make you more pleasant to the lender. You can also get better rates when using government-backed mortgages.
Another way to ensure you get the best interest rate possible is by observing the housing market itself. If a buyer’s market has sufficient housing inventory, it may be the best time for you to catch in a low-interest rate. The housing market varies critically, so it is good to wait for the time to purchase.
- Annual Percentage Rate (APR)
APR is different from your mortgage loan’s interest rate even though it is calculated as a rate. APR is the total cost of a mortgage loan, consisting of closing costs, interests, and other costs over the loan duration. The Lending Act requires mortgage lenders to disclose APR to borrowers.
- Mortgage Points
You can also lower your APR and interest rate by using discount points. A single mortgage point is equivalent to 1% of the loan amount. Each point you buy will lower your mortgage rate, which will eventually save you money. Enquire your mortgage consultant about a buy-down agreement to know how much you can save using mortgage points.
- Loan-to-Value Ratio (LTV)
Your LTV refers to the value of your home compared to your mortgage loan amount. For example, if you buy a home at $300,000 and your loan amount will be $280,000, your LTV will be 93.33%. Lenders use LTV as a measurement to calculate risk. So if you pay more on the down payment, your LTV will be lower, translating to lower interest rates and easier qualification.
- Mortgage Terminologies
You might come across unfamiliar industry lingo when shopping for a home. The following are commonly used mortgage terms.
- Down Payment
This refers to the amount you pay upfront to buy a home. In most cases, you have to pay a down payment to get a mortgage loan. The amount you pay for a down payment will vary according to the type of loan you apply for, but a larger down payment translates to better loan terms and cheaper monthly payments.
When you own a home, you might pay for homeowners insurance and property taxes. To make it easier for you, your mortgage lender will create a separate account called escrow to pay these expenses. Your lender manages your escrow account, and no interest is earned from the money held there. This account is used to collect money to pay for your insurance and taxes. Escrow payments are included in your monthly mortgage payment. If your mortgage doesn’t have an escrow account, you should pay for your insurance and property taxes bills yourself.
Your monthly payment will partially cater to loan interest and partially for the loan’s principal. Therefore, amortization states how those payments are broken up over the loan life.
- Loan servicer
The loan servicer refers to the company in charge of mortgage statements, managing your escrow account, processing payments, and responding to your inquiries. Your servicer is sometimes your mortgage lender, but not always. Lenders may decide to sell your loan servicing right, and you may not be able to choose who services your loan.
Being conversant with the mortgage vocabulary and everything else about a mortgage can help you understand precisely what you are signing up for.