Components of a Mortgage

components-of-a-mortgage

Mortgage Approval

Qualifying for a mortgage requires meeting a pre-determined set of guidelines established by a lender, which may include credit history, employment, income and assets.  Each lender may have their own slight or significant variations on interpreting these variables in granting loan approval.  In addition to personal qualifying factors, the subject property must also meet certain standards set by lenders before a mortgage can be obtained.

Mortgage Payments

Depending on the mortgage that you choose, your payment will include principal and/or interest every month.  A fully amortized loan will include principal and interest every month.  As time goes on, the amount paid in interest decreases each month as the amount paid towards the principal balance increases.  An interest only loan will have an established period of time in which you are able to make interest only payments.  Once that established period of time ends, you would have to begin making fully amortized payments for the remainder of the loan term.  If you choose a loan with a fully amortized payment, a bi-monthly payment plan may be of interest to you.  By splitting your payment up to be paid every two weeks, you end up paying an extra payment per year which will pay your loan down faster.  And, most people don’t feel any difference in their monthly budget.

Taxes and homeowners insurance also needs be factored into your monthly budget.  Taxes and homeowners insurance may be included in your monthly payment based on a matter of choice or necessity, depending on your equity or down payment. If you have less than 20% equity then including your taxes and insurance within your monthly payment may be mandatory.  If you live or plan to buy a property within a homeowners association, then this payment must be budgeted into the loan qualifying.  However, you will always be able to make this payment separately from your mortgage payment.

Mortgage Programs

Mortgage Programs come in many varieties depending on equity or down payment as well as your desire for a Fixed or Adjustable rate program (ARM).  Fixed rates are recommended for clients that plan to be in their property for the intermediate to long term.  While ARM loans work well for people who see themselves being in their property for a shorter period of time.   Most ARMs these days have an established fixed period of time before they turn into an adjustable.    Please call me for more on the various programs available today.

Closing Costs

The process of obtaining a mortgage involves the help of many different companies, contractors and agencies.  These companies, contractors and agencies require payment in doing their part to successfully close your loan.  Depending on what you qualify for and what you wish to accomplish, these costs can be paid for out of pocket, financed into your loan or paid by the lender.  Depending on a borrower’s situation, sometimes there are no or lower closing cost options available.  This is accomplished by giving a slightly higher rate then what the market will bear.  For example, if interest rates are at 4.0% by lending at 4.25% you as the client would receive funds to be able to contribute towards your closing costs.  No or low closing cost loans work well for people who don’t see themselves being in their property for the long term.   I always keep these low and no cost trends in mind for my clients and quite often are able to save money for them on their monthly payments with little or no cost.  I’ll be able to fully articulate the long and short-term financial benefits of choosing one closing cost option over another.

Mortgage Rates

On my About page, I explain the benefits of being a direct lender and broker at the same time.  Finding the best rate that you qualify for is one of the key advantages that I have.  Mortgage interest rates can change several times a day.  And depending on any given day, one lender may have better rates than the others.  Then 24 hours later, another lender of ours may have the best rates.  When you work with me you will have someone in your corner, watching the market and our lenders to determine the best priced option for you.  Once we decide on a good time to lock, we’ll choose a time period that is long enough to get your loan complete.  Once you are locked and if the market improves there are relock options to be entertained, but additional fees may apply.  Long term locks for purchases are available for up to 6 months, but in some cases up an upfront fee may be required.

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