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Frequently Asked Questions (FAQs) on mortgages: Real Estate
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What is a
mortgage?
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What is a fixed rate mortgage?
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What is an adjustable rate mortgage?
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I am a First time Homebuyer. Is there a special loan for me?
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What is a mortgage?
A mortgage is a loan to finance the purchase of your home, it will
most likely be the largest debt you'll ever take on, a . Your home is
collateral for the loan, which is also a legal contract you sign to
promise that you'll pay the debt, with interest and other costs,
typically over 15 to 30 years.
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What is a fixed rate mortgage?
A fixed-rate mortgage is a loan where the principal and interest are
amortized, or spread out evenly, over the life of the loan, giving
you a fixed monthly Payment. If rates are low, you can lock in for as
long as 30 years and protect yourself against rising rates. However,
if rates fall you can’t change your rate without refinancing the
loan, and that could cost money.
The 30-year Fixed-Rate Mortgage, the most popular and easiest to
qualify for, will give you the lowest payment. But you can also get a
20-, 15- and even a 10- year fixed-rate mortgage if you wish to save
interest and pay you home off sooner.
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What is an adjustable rate mortgage?
A type of mortgage instrument in which the interest rate adjusts
periodically according to a predetermined index and margin. The
adjustment results in the mortgage payment either increasing or
decreasing. A 1-year ARM, for example, will have an initial interest
rate for 1 year and then adjust on the second year, and continue to
adjust annually over the life of the loan. With an ARM loan, you
typically get a lower starting rate in exchange for taking a risk
that rates may rise in the future. There is also a cap on how much
the interest rate can go up or down.
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I am a First time Homebuyer. Is there a special loan for me?
Many lenders participate in the Community Home Buyer's Program,
sponsored by Fannie Mae, which is specifically tailored for the
first-time homebuyer. This type of loan provides financing for low-to
moderate-income buyers who might not qualify for a loan on
traditional criteria. Under this loan program, you do not need to
have a credit history and it allows you to show a willingness to pay
by presenting paid utility bills, payments to a landlord, and other
sources of credit or services.
An important feature of the
Community Home Buyer's Program is the 3/2 option. This means that you
can buy a home with only 3% down of your own funds, instead of the
usual 5%, and the reaming 2% can be a gift from relatives or borrowed
from friends. Other loan requirements, such as your income-to-debt
ratios, are relaxed under this program and you are not required to
have a specific percentage of the purchase price in reserve or
checking account as required for a conventional loan.
The disadvantage of this program is that there are limits on the
amount of the loan you may apply for. To qualify for a loan, you must
earn no more than the area median income (with exceptions for
specified high-cost areas). You may want to check with your local
bank to see if it offers this loan program and what the loan limits
are for your area. You can learn more from the Fannie Mae Web site,
www.homepath.com (or part of
www.fanniemae.com).
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