Understanding Mortgage Terms Before Buying a Home – Part II
We hear stories from home buyers with multiple offers rejected in the current competitive housing market. Buyers improve chances of having dream homes with smart moves by understanding terminologies involved, allowing you to move quickly and decisively. A list of common terms needed to be a homeowner, are given below:
First-Time Home Buyers (FTHB) Loan Programs are offered by some cities/ counties/ states for first-time home buyers depending on the location, for loans, and grants, and down-payment assistance, if certain eligibility requirements are met.
Fannie Mae is supervised by the Federal Housing Finance Agency (FHFA), which purchases mortgage of existing loans as per eligibility criteria from mortgage lenders to provide refinance. Conditions include minimum down payment amounts, income documentation norms, credit requirements, etc.
Freddie Mac is a government organisation which purchases and backs mortgage loans from lenders. Like the previous Fannie Mae, lenders selling to Freddie Mac must make sure that loans meet eligibility criteria. Once it is purchased by Freddie Mac, loans are sold to private investors, increasing money supply in the real estate market.
FHA Loans insured by the FHA or Federal Housing Administration, are not very strict on down payment and credit requirements. An FHA loan rate is lower than conventional loans. Borrowers with credit blemishes preventing conventional loans, may qualify for FHA loans.
Home Appraisal by lenders will require a professional home appraisal is completed to meet lender requirements. A certified appraiser inspects the home, property and research surrounding areas to determine the house’s market value.
Principal refers to mortgage loan balances, owed ignoring interest charges. Mortgage payments include a portion that reduces principal loan balance, while the remaining amount is applied to accrued interest.
Interest Rate on a loan reflects costs of borrowing money from lenders and is one of the factors determining monthly payment terms. Borrowers with good credit scores and large down payments secure competitive interest rates with low monthly payments.
Loan-To-Value Ratio or LTV is calculated on the amount of loan divided by the total value of your property. The LTV is a number that enables lenders to determine what they could reasonably lend to you, after considering risks involved. A lower LTV ensures that the lender enjoys a lower risk and often results in reduced fees that are charged. Loans with higher LTV will typically ensure more fees as a result of higher level of perceived risks to the lender.
Margin is generally for adjustable-rate mortgages, as the margin on a loan adds to additional amount of interest that lenders charge in addition to the Adjustable Rate Mortgages’ index value. The index value and margin together determine the interest rate on your loan. The higher is the margin, the more monthly charge you can expect to pay.
Property Taxes are paid by all homeowners on properties owned to the city or county where the property is located, as per assessment value of property. Funds collected from property taxes are generally used by authorities to fund public services like school systems and roads.
Foreclosure is the process whereby a lender re-possesses a home, if the homeowner misses multiple consecutive mortgage payments. Depending on property location, borrowers must miss a threshold number of payments before lenders begin foreclosure proceedings. Borrower in a missed mortgage payment situation, must contact the lender for exploring options to avoid foreclosure.
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