Mortgage Loan Rates - What You Need to Know

Owning a home is a dream that millions of Americans share. Fortunately, most people will be able to one day afford to purchase their own home. Through a lot of hard work and saving, buying a home is possible if you are willing to do the research. Something that is very important for people to understand is that finding good mortgage loan rates is very important to having a successful mortgage.



In order to get the best mortgage rate for your home it is important that you have a good credit rating.



Your rating will determine how lenders view your potential loan application. Borrowers with poor ratings are more likely to default on their loan applications. For this reason many lenders are very hesitant to work with poor credit borrowers. Given the recent mortgage crisis, this fact is not surprising.



Another factor that will have an impact on the rate that you receive for your mortgage is your savings rate. If you are able to come up with a large down payment for your loan you will be able to get your loan application approved.



This is important because it will ensure that you get a low interest rate on your application.



People who are interested in getting low mortgage loan rates need to realize that there are many factors that lenders use to determine the interest rates that borrowers are given. One factor that will have a significant effect on your rate is the current market rate. If the market is very low for interest rates you can expect to be given a lower rate. Conversely a higher interest rate market will usually mean that you will be given a higher interest rate.

Mortgage Loans

A mortgage is a device used to create a lien on real estate by contract. The mortgage is an instrument that the borrower (called the mortgagor) uses to pledge real property to the lender (called the mortgagee) as security for a debt, also called hypothecation. The mortgage, as a rule, consists of the promissory note and the pledge. For example, when somebody wants to buy a house to live in it with his family, but does not have enough money at the moment.



Thus that person needs to take a credit. But nobody will give this person such a large sum of money, without having trustworthy and firm guarantees. But what kind of guarantee can meet these criteria? Of course it is not a word of honour or just a promissory note. But the house, which a person wants to buy, will probably be the best guarantee for the creditors.

Consequently, the person, who needs a credit, writes a promissory note, which serves as the evidence of the debt and the promise to repay money with a certain interest rate, and formalizes a lien.



This lien must be registered in the public records. After the repayment of the debt within a certain period of time, creditor returns the promissory note to the debtor and the lien becomes annulled. In the case when the debtor can not fulfill his engagements, the pledge (the house in our example) will be sold by the auction and the proceeds pass into the hands of the creditor.

Sometimes there occur such conditions, when a creditor needs money with expedition and the credit's maturity date is too late.



In that case the creditor can resell the lien to other holder, which will receive the interest rate and the credit. This kind of financing is very popular in the United States of America and there exists two governmental organizations - Home Owners Loan Corporation and Federal Housing Administration, which provide mortgage loans with very law interest rates and of course there are plenty of private loan companies, mortgage companies, credit unions etc.
There are many types of mortgage loans exist: adjustable rate mortgage, fixed rate mortgage, capped rate mortgage, discounted rate mortgage, reverse mortgage and other.



Adjustable rate mortgage is characterized by the changing interest rate. Thus "the borrower benefits if the interest rate falls and loses out if interest rates rise".

Fixed rate mortgage is characterized by the constant interest rate and, in turn, constant monthly payments.

Capped rate mortgage is the mortgage when the borrower pays the accrued interest with a constant rate, but if the actual rate falls below the capped rate, then the borrower pays on the lower rate.



Discounted rate mortgage is a mortgage when the borrower repays the loan with the discounted interest rate for a certain period of time.

Reverse mortgage is a kind of loan, when old people want to receive money while living in their homes. When the borrower dies his property is sold and the credit is repaid from the proceeds.

In order to obtain a mortgage a person should fill a loan application and prepare all the required by the lender documents (see below), and then deliver them to the lender.



Within three days the lender has to return the disclosures, required by the law - Good Faith Estimate and Truth in Lending, to the borrower.

Commonly, lenders demand for the following documents to be presented by the borrowers: - verification of income; - verification of assets; - information about the purchase; - information about the debts; - some kinds of additional personal information. Verification of income includes the following: earning statements for the two past years; profit and losses from the self-employment (if applicable) for the past three years; additional income (if applicable) such as interest or social security.



Verification of assets includes the following: list of bank accounts numbers, list of saving bonds and some other. Information about the purchase - anything that may be considered important from the point of view of the lender - copies of the purchase agreement and the sale agreement, because he is concerned a lot if the borrower is not a swindler. Information about the debts is important because in the case of borrower's bankruptcy there can occur the line of his creditors each of which has a legal priority to receive debts.



This information might contain the following: credit card bills, consumer debt bills, information about alimonies (if applicable) and some other. Lenders usually interested in the origin of the future down payments (will the borrower pay them from the salary or interest from some equity etc). Additional personal information can include divorce decree or explanation letters about any credit problems. Of course, the list of the required documents may very different from one lender to another and it will be wisely to make them more precise by the means of communications beforehand.



But borrowers should take into consideration that fact that different types of mortgage imply specific requirements (for example, reverse mortgage requires the borrower to be at least sixty-two years old). I also want to mention that there is a kind of mortgage when no or very little documents are required to be presented except for income and losses, but it can be given only to self-employed borrowers.

When the lender processes and analyses the information about the borrower, he determines the size of the loan, which he can give to the borrower.



This size depends on the borrower's ability to repay the debt. When the borrower knows the amount of the possible loan he or she can negotiate the terms of the mortgage and its type (main types of the mortgage were described above). Then it comes time to open escrow, provide title report, credit report and the appraisal of the property - in other words, to form mortgage package and send it to the lender, which would finally determine to give a loan to the borrower or not.



If the loan is approved by the lender, it is time to sign all the documents (with the signing agent of course) and deliver them to the lender. The lender reviews the document once more and funds the loan, then all necessary records are made and the loan closes.

Mortgage loan implies different additional fees for the borrower (or the lender, which is very seldom, but it depends on the prior negotiations) among of which there may be the following: discount fee (this fee usually reduces interest on the pro rata basis), loan origination fee (it is the compensation for the lender because of his operation costs for organizing the mortgage), application fee (it is usually paid when the borrower competes the application form for the debt), appraisal fee (this fee increases directly on the pro rata basis with the price of the house; it is paid for the independent appraisal of the house, which lender wants to know in order to assess how much money he can lend you; "Factors to be considered in determining market value of the property are: present cash value; use; location; replacement value of improvements; condition; income from property; net proceeds if the property is sold, etc"; moreover, lenders usually suggest a mortgage which not exceeds ninety five percent of the assessed property), credit report fee (this fee is paid for the independent assessment of the borrower's solvency), title search and insurance fee (these costs are related to the investigation of the property's history), flood certification costs (related to the investigation if the property is not situated in the flood zone and if it is so than it implies flood insurance costs), survey fee, paperwork fee, costs of attorneys, real property taxes (regulated by the state law), escrow account costs (lenders often require borrower to create such account as a guarantee that the borrower pays insurance fees and taxes on the real estate in time, in order not to lose his pledge; usually governmental loan companies require an escrow account, private companies may not require it) and some others depending on the situation.



In this part there also must be mentioned, that most lenders require an immediate down payment at the certain rate of the purchase price (different lenders require different down payments - from three up to thirty percent; low down payment percentage are stipulated by the private mortgage insurance).

During the process of obtaining the mortgage loan there are also needed signing agent's services. This need is stipulated by the following circumstances: both the lender and the borrower need to ascertain that they have a deal with the right people, they want to ascertain that the documents are accurate enough, that all the necessary procedures are performed in the appropriate way, that all the essential signatures and dates are made in the appropriate way and that all the documents notarized correspondingly.



But as it was already stated above, the loan signing agent must not give any legal advice or comments.

Aaron is a senior writer at Custom Essay Writing Network. He is an experienced custom essay writer and will be glad to share his experience of custom essay writing with you.

Five Common Pitfalls When Getting A Home Mortgage

Owning a home is a lifetime dream for many. The best way of acquiring a loan is with the help of a home equity mortgage. You will also sometimes feel the requirement to get some finance by providing your home as collateral. There are some fine points to look before you sign up for a loan by providing your home as guarantee.



Pitfall number 1: Dealing with wrong people



You have heard enough of frauds and cheats. Financing your requirements with unscrupulous can cause you lose the equity you build up and your home as a whole.



Don't talk finance with any party that asks you to claim more income than you actually have and to apply for higher amounts than you require. Such people are also likely to sign unfilled forms, not allow you to keep a copy of the documents you sign and most importantly put pressure on you to pay huge monthly payments than you could afford, usually at a later stage of loan approval.



Pitfall Number 2: Not Keeping a Good Credit Score While Applying for Home Equity Mortgage



Major credit purchases immediately before you apply for loan can affect your score.



Not caring too much about your credit score for a long time can damage your credit scores and you will not be able to quickly build up the damage. Healthy credit score is always desirable to get lower interest on home mortgage too. However, succumbing to the pressure of the first lender that sites your average credit score as reason for higher interest is also a major pitfall you should avoid. If the credit score is affected due to inability to repay a credit due to illness or temporary loss of job, you can still shop around and negotiate your way to low interest home mortgage.



Pitfall Number 3: Allowing a lot of credit Companies Check your Credit Score



Equifax, TransUnion and Experian are the main credit rating agencies. Ordering your own credit score can cost you $ 40. Your credit score drops a little with each credit check by lending companies. If you shop around and allow all the companies to check your credit score, it can drop considerably, disqualifying you from lower interest mortgage. Allow only the company you zero in on for your financing requirements to check your credit score.



Pitfall Number 4: Holding Back Information about your Credit History from Your Broker



Once you choose to deal with a mortgage broker to find a good home equity mortgage, you must talk with him if you had any credit problems in the recent history. If you try to misguide the broker, you will be in a bad light to getting a mortgage. If you describe your situation well, chances are higher that he will find a low cost loan to you.



Pitfall Number 5: Overlooking Overages and giving up the power of negotiation



Overage is the difference between lowest available price for the mortgage and the higher price the buyer is willing to pay.



Lenders or brokers can keep the whole of or a part of the difference as additional compensation. Ask your broker(s) how much he gets as compensation.



Copyright ฉ 2006 Joel Teo. All rights reserved.

Necessary to Know Before You Refinance Your Home Mortgage Loan

A great number of Americans are right now going through the procedures of refinancing their home mortgage loans. As the interest rates have risen like never before since past few months, many borrowers have opted to refinance their home mortgage loan. Of course if you have a good credit score and are a regular payer, then this is quite a good time for you to restructure your existing debts. The main issue arises when you need to refinance your mortgage badly but due to your bad credit score you are not able to find the interest rates you want.



Read on to solve some of your basic issues on refinancing home mortgage loans.



First thing is to decide whether the whole procedure and its cost is worth your effort and time? If you are planning to move into a new home in short term let's say within 10 years of time, than probably refinance your home mortgage is not worth your time and effort. But if you are staying here for longer term then surely refinancing your debt is your best option.



Now you should know the basic 2 kinds of loans available which are fixed rate and adjustable rate mortgages.



The former one is a conservative approach having fixed rate of interest for full span of loan while the later one has lower interest rates in the beginning few years and then generally the rates are hiked up quite a bit. The most opted and probably the best way out of both is to choose an adjustable lower rate and then converting it into fixed rate after a few years.



Now that you have basic knowledge of refinancing your home mortgage loan you can search online for various mortgage calculators and figure out your refinance options based on the span and amount of refinancing.



Of course there are experts, professional and mortgage brokers to help you with the same. But it will always be wise to take up any decision on refinancing home mortgage loan after being completely informed.