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Mortgage Basics...UTAH MORTGAGES MADE SIMPLE
    Mortgage Definition

    A mortgage is defined as long-term loan on a property purchased or refinanced from a
    bank, lending institution, or sometimes from a property owners. When closing on a
    mortgage, the mortgagee signs documents that give the mortgagor a lien against the
    property. If the borrower were to default on mortgage payments, the lender can take
    the property through the foreclosure process. Mortgage loans are generally approved
    for 15 or 30 year terms.

    Some lenders permit or may require borrowers to pay for additional costs above and
    beyond the principal and interest on the mortgage loan and usually includes real
    estate taxes and property hazard insurance. The estimated yearly cost for taxes and
    insurance is divided into monthly amounts and added to the cost of principal and
    interest on your mortgage loan. The amount collected monthly for taxes and insurance
    is placed into an account called an escrow account and is paid once a year when due.
    When escrow is used, a monthly payment is often referred to as a PITI payment
    (Principal, Interest, Taxes, Insurance).

    Some lenders may require an additional payment for private mortgage insurance.
    Whether or not your mortgagor will require you to pay for PMI will depend on the type
    of mortgage you have and how much vested interest, equity, you have in your home.

    Qualifying for a Loan

    When applying for a loan a mortgage lender is concerned with your ability to repay
    your mortgage. To determine if you qualify for a loan a lender will consider your credit
    history,  monthly gross income, work history, amount of debt, and how much cash you
    will have for a down payment (5 to 20 percent of the purchase price of the home is
    preferred). A mortgagor will calculate your debt to income ratio when considering your
    mortgage application. There are two ways to do this. Generally, your monthly
    mortgage payment (including principal, interest, taxes and insurance) should not
    exceed 28 percent of your gross monthly income. Additionally, all of your debt
    (including car loans, mortgage payment, child support or alimony, credit cards, student
    loans, etc.) should not exceed 36 percent of your gross income.  One big mistake
    often made by borrowers is to purchase a car or costly credit items just before
    applying for a loan, they are considered taboo and should be put off until after closing
    on your mortgage loan.

    Types of Mortgages

    Lenders offer several types of mortgages, but the most common are fixed-rate
    mortgages. These loans feature fixed rates and set monthly payments, generally for
    15-year and 30-year periods. They're popular because managing a monthly budget is
    easier with set payments and they are affordable when interest rates are low.
    However, if you are planning on owning your home for a short period of time (less than
    five years) or if interest rates are high when purchasing your home or refinancing and
    you think they will fall, then an adjustable rate mortgage (ARM) might suit your needs.
    Adjustable rate mortgages differ from fixed rate mortgages because after an initial
    fixed rate period, the interest rate on an ARM will fluctuate as the market interest rates
    change. Adjustable rates start lower than fixed rate mortgages but there is the risk of
    higher rates over the years. Adjustable rate mortgages are available with different
    initial fixed-rate periods that range from one year, three years, five years, seven years
    and even up to ten years before the rates will adjust. Borrowers do have some
    protection from extreme interest rate increases because adjustable rate mortgages
    come with caps that limit the amount by which the interest rate can change.

    Additional Mortgage Types

    Other, less-often used mortgages include: Jumbo mortgages, which exceed the loan
    limits set by Fannie Mae and Freddie Mac; Two-Step mortgages, which combine
    elements of both fixed and adjustable rate mortgages; Biweekly mortgages, which are
    fixed rate mortgages in which payments are made every other week instead of
    monthly; Balloon mortgages, which give borrowers lower rates and payments for a
    specific period of time with a large lump sum principal balance payment due at the end
    of the balloon period; Assumable mortgages, which permit homeowners to “hand-off”
    the loan to a buyer instead of paying it off at the time of sale; Subprime mortgages,
    which are generally approved for home buyers or owners with less than perfect credit;
    and Construction mortgages, which are issued to people to build their home instead of
    purchase an existing home.
 
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