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Mortgage Facts You Should Know

Most loans have four parts: Principal: the repayment of the amount you borrowed; Interest: payment to the lender for the money you’ve borrowed; Homeowners Insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders; and Property Taxes: the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year.

Most loans are for 30 years, although 15-year loans are available, too. During the life of the loan, you’ll pay far more in interest than you will in principal – sometimes two or three times more! Because of how loans are structured, you’ll pay mostly interest in your monthly payments in the first years. In the final years, you’ll be paying mostly principal.

What do you need to take with you when applying for a mortgage? If you have everything with you when you visit your lender, you’ll save a lot of time. 

You should have the following: 

  1. Social security numbers for you and your spouse if you apply for the loan.
  2. Copies of your checking and savings account statements for the past six months.
  3. Evidence of any other assets like bonds or stocks.
  4. A recent paycheck stub detailing your earnings.
  5. A list of all credit card accounts and the approximate monthly amounts owed on each; 
  6. A list of account numbers and balances due on outstanding loans, such as car loans; 
  7. Copies of your last two years’ income tax statements; and 8) the name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information.

There are numerous types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage. In a fixed-rate mortgage, your interest rate stays the same for the term, usually 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be and can plan for it.

Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than with a fixed-rate mortgage. But your rate and fee can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury Securities Index. The advantage of an ARM is that you may be able to afford a more expensive home because your initial interest rate will be lower.

Several government mortgage programs include the Veteran’s Administration and Department of Agriculture programs. Most people have heard of FHA mortgages. FHA doesn’t make loans. Instead, it insures loans so that the lenders will get their money if buyers default. This encourages lenders to give mortgages to people who might not otherwise qualify for a loan. Talk to your real estate broker about the various loans before shopping for a mortgage. ( Hud.gov)

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