Buying a Home Part 2

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					Buying a Home Part 2
         Terms to Remember
Closing—when the actual transaction occurs
  papers are signed
  money changes hands
  loans are funded
  closing costs are paid
Refinancing—changing the mortgage you are
  using to pay for your home
Appraisal—an inspection that tells you how much
  the property is worth
Title—a document describing the rightful owner of
  the property
Equity—the difference between what you owe and
  what the property is worth
              Closing Costs
Loan fee (origination fee)—a fee that is usually
  one percent of the loan value
Credit report—you will have to pay to have your
  credit checked
Appraisal fee—you have to pay for an appraisal of
  the property
Prepaid interest—you may have to pay interest for
  the month you move in
Mortgage insurance
Homeowner’s insurance—you will be required to
  prepay one year’s worth of insurance
          More Closing Costs
Title Insurance—you have to pay a fee to prove
  who the rightful owner is
Recording and Transfer fees
Survey—pay a fee to determine the property
Taxes—you may have to pay the taxes for the part
  of the year you will own the property
Points—you may have to pay points with your loan
  -a point is equal to one percent of the loan value
Mortgage insurance if you put down less than 20%
Closing costs can add up to thousands of
  dollars on a home loan

You can either pay them outright, or
 sometimes they can be financed in the
        Subprime Mortgages
Mortgages granted to people with a poor
 credit history (less than prime)
Couldn’t qualify for a regular mortgage
Because of higher risk, were charged a
 higher interest rate
Entire structure of rates and fees is higher at
 subprime lenders
Most of these were granted 2004-2006
Construction loans
 -get an initial loan to build the house
 -usually short term (one year) and higher
 interest rates
 -convert to a regular loan at the
 -require excellent credit and lots of equity
Types of Mortgages (Worst to Best)
A Balloon Loan
  -starts with a low interest rate for a short
  period of time (usually five years)
  -you then have to pay the remainder of
  what is due in one large payment
  -the idea is to try and sell or refinance
  before the “balloon” payment is due
Interest only loans
  -only require you to pay the interest for the first
  few years (usually 5) of the loan
  -after this it turns into a regular payment
  (principal and interest)
  -advantage is lower payments in the beginning
  -BUT, you may get into trouble when the full
  payment kicks in
  -you are not building any equity because you are
  not paying off the loan
  -once again, the intent is to sell or refinance
  before the payments increase
Adjustable Rate Mortgages (ARMs)
  -begin at an interest rate that is lower than a
  regular mortgage
  -at a predetermined interval the interest rate is
  adjusted up or down based on some formula
  -typical loans are 3, 5, 7 or 10 year ARMs
  -are used if the buyer is not intending in staying
  in the house very long
  -buyers assume that property values will always
  go up
  -buyers may be counting on their income going
  up in the near future
  -the buyers may not qualify for a regular
  -this type of loan is what has been at the heart of
  the mortgage crisis
Veteran’s Administration (VA) Loans
 -the VA offers a loan program to veterans
    -served 180 days of active duty since 1940
    -served 90 days in any war
    -served 2 years since 1980
 -don’t require a down payment
 -are assumable
    -someone else can “assume” or take
    over your loan
 -never require PMI
Federal Housing Authority (FHA) Loans
 -aimed at first-time homebuyers who can’t
 come up with a large down payment
 -require only 3% to 5% down
 -can finance some of the closing costs
 -lower down payment means higher
 interest rate
 -are also assumable
 -PMI is required (but it is called MIP here)
Fixed rate mortgage (the best)
  -much less risk than the other types
  -interest rate is fixed for the life of the loan
  -principal and interest payment is the same for
  the entire time
  -usually the best interest rates
  -down payment requirements vary by lender but
  usually 20%
  -usually 30 years but can get 15 also
  -15 year mortgage saves money on interest
  -15 year gets better interest rates
A 30 year, $100,000 fixed rate mortgage of
  6.25% has interest of about $125,000 so
  total loan payback is $225,000

A 15 year, $100,000 fixed rate mortgage of
  5.75% has interest of about $50,000 so
  total loan payback is $150,000

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