Helpful Information for Home Loan Shopping

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Buying your dream home has never been easier! But how do you choose from the thousands of home finance options available? To ensure you make the right decisions regarding your home loan, it is important to find a mortgage lender who will explain to you in detail all of the loan services available.

Terms You Should Know:

PMI stands for Private Mortgage Insurance, required by most lenders when borrowers have less than 20% equity in their home. For example, to purchase a $150,000 home, you would need $30,000 down payment to have 20% equity in the home. If you have less than 20%, most lenders will charge a monthly PMI fee included in your mortgage payment as added protection against borrowers defaulting. As your home value increases and you pay off your mortgage, this PMI fee can be dropped.
Escrow is an account kept for the borrower by the lender in which to accumulate tax and insurance fees. Most lenders will collect your estimated taxes and insurance on a monthly basis for you and keep it in an escrow account until the fees are due. When that time arises, they will usually pay the fee directly to the taxing authority or insurance carrier from your escrow account. Some borrowers prefer not to accumulate escrow and pay the fees themselves. Be sure to clarify your escrow situation with your lender, because if you do not escrow your taxes or insurance you will need to budget accordingly.
A Home Equity Loan is a loan tied to the value and equity you've earned in your home. For example, if you have an outstanding mortgage loan of $150,000 and your home is worth $200,000, then you can receive an equity loan of up to $50,000. Home equity loans are popular because they carry a low comparable interest rate, and usually allow borrowers to write checks out of the loan as they pay it down, as long as they don't go over the stated equity in their home. However, the interest rate will increase as the equity in your home decreases. Be aware of your long-term home plans before taking out a home equity loan, as these loans are required to be paid in full if the home is sold.
An ARM loan is an adjustable rate mortgage, in which the interest rate begins at an initial low rate, and then increases after a specified period of time. For example, an ARM might begin with a 4.5% interest rate for a period of one or two years, and then increase by 1% or 2% every six months. ARM loans are usually most beneficial for buyers who are certain they will resell the home within a few years, before the interest rate increases dramatically.
Fixed Interest Loans are loans that lock in the current market interest rate and amortize the loan over a period of time. A fixed 30-year loan has a fixed interest rate determined at the time of purchase and requires equal monthly payments over the life of the loan. A 30-year loan will charge more interest over the life of the loan than a 15-year loan, but will require lower monthly payments.
Balloon Loans are short-term mortgages that have some features similar to the fixed rate mortgage. These loans provide a level monthly payment during the term of the loan, but as opposed to the 30-year fixed rate mortgage, balloon loans do not fully amortize over the original term. Most balloons that are first mortgages have a term of 5 to 7 years. At the end of the loan term there is still a remaining principal loan balance and the lender usually requires that the loan be paid in full. This can be achieved by refinancing under a conventional loan if the borrowers are not ready to sell the home.
Pre-Qualify (add to) Many home sellers will require buyers to have a written Pre-Qualification letter before making an offer, or even before viewing the home. If you're even considering buying a home, it's a good idea to get pre-qualified first. If you come across a home you love, you don't want to waste time getting pre-qualified to make an offer and risk losing it to another buyer that was more prepared.

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Helpful Information for Home Loan Shopping

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