In the mortgage application paper you see terms like amortization periods of 20-25-30-35 years, one year terms, five year terms, fixed rate mortgages, adjustable rates mortgage, open rates mortgage… but anyway you append your signature without much thought after all, a mortgage is all you want right? And whether you read the lingo or not makes no difference. But, here is some mortgage terms broken down for you to help make you better prepared next time you are ready to start applying for a mortgage.

Amortization period
This is the duration of the entire mortgage – the time it will take the mortgage to come to maturity. Initially, the amortization period was set at 25 years but with changing times, this period has been adjusted to 30, 35, and even 40 years of home loan maturity. Remember, an extended amortization period means you will get low monthly payments but on the other hand end up paying a higher amount of interest. Rather than pay an interest of 25 years, you will pay of 30 or more years.

Term of mortgage
While amortization period is the entire length of your mortgage, actual mortgage term will range between 1 and 5 years. The term of mortgage is simply the current rate of interest and type of mortgage you have applied for during that time. For example, you can apply for a mortgage amortized over 30 years with a 4-year closed term at a fixed mortgage rate of 7.2%. Alternatively, you could apply for a mortgage amortized over the same 30 years with a one year open term attracting a fixed mortgage rate of 8.4%.

Closed and Open Mortgage Term
In a closed term mortgage, you have to pay the mortgage until the amortization period ends, failure to which you will pay off some penalties. If on the other hand you get an open mortgage term, it means that if you decide to put a new mortgage on, or pay off the mortgage in between the amortization period you will not be charged any penalties. Most mortgages fall under the closed term category. However, if you plan to sell the house before the term expires, or are waiting for mortgage rates to drop, or perhaps you are expecting some huge cash somewhere which you can apply on your mortgage, you will be better off with the open term mortgage.

One more thing, remember that in a closed term mortgage, the longer the term of mortgage, the higher the rate of interest. In a nutshell, mortgages have very many important factors that you should be aware of so that you can make an informed decision when appending your signature on that dotted line.

While some lending institutions have these detailed requirements for pre-qualification to get approved for a mortgage, there are some basic guidelines that if taken to consideration will increase your chances of getting your mortgage approved. Getting your mortgage application approved isn’t as hard as it has been made to look, thanks to some basic modus operandi that you can follow, which guarantees success 9 out of 10 times.

The first and most important thing to factor in is that you shouldn’t be put off by one unsuccessful attempt or rejection. Remember, unless you plan to venture into property trade, you will only need to get mortgage approval not more than once in your entire lifetime, thus it takes a single successful attempt and you are good to go. Besides, if you will want to try for a second or third mortgage approval in future, it will be very easy getting approved if you have previously been approved. Of course this will be in line with your credit rating/ score.

Getting into more detail, having a high credit score will almost without a shadow of a doubt earn you a mortgage approval, although you have to tread carefully in your quest to build a high credit score since a slight mistake could back fire on you seriously, and in turn earn you the reverse effects of what you want. The surest way to build a high credit score is to own a credit card, but you can build an even higher one if you had more than 2 credit cards. Of utmost importance however to keep in mind is that you have to pay your monthly remittances on time each them, and in case you don’t use the cards much, ensure they remain active. Further, you should ensure a positive feedback reflects on your name through the statements of these credit cards as they go a long way in ensuring you get a mortgage approval.

The tracking system could not be as up-to-date as it should meaning it might not be able to keep track of families that fail to pay their mortgages or those that are behaving fraudulently with their loans, justifying why many families today live in homes that are not paid for. This could be attributed to economic hardships. Basically, a lender will approve a home loan on condition that the property acts as collateral for the loan. The idea is simple, if the borrower defaults to pay, the bank can sell the property and recover its money. Even so, because of the economy, the number of foreclosures is on the rise and it has become very tiresome to track down mortgage default cases. Therefore, the overwhelmed lending institutions could not be able to contact borrowers on time.

The government bailout funding is also contributing to high foreclosure rates. As a result lending institutions seek to clear all the bad debt history houses obtained through foreclosure included. Resultantly, the homes get into the real estate market with very affordable prices; therefore, while some people cannot retain their homes and face foreclosure, others who are financially stable are able to buy property at an affordable cost.

It is of no use to clarify further the detrimental aspects of foreclosure as it is already indubitable that the process has to be prevented and avoided by all means, and the best way to do it is stopping the deals before they get tricky. How, you may ask… by negotiating with the bank. Property owners facing foreclosure could plead with the bank to forgive all payments they have failed to make and start a fresh with affordable interest rates stretched over an extended period of time.

No matter what action you take to prevent or stop foreclosure, it all boils down to your competency to communicate effectively with your mortgage lender. In case you face any doubts of being competent enough, you can always ask for third party assistance to help with the negotiations to be able to reach the best possible solution.

The answer lies in the relationship between Federal Reserve and interest rates as they control the economy meaning they can promote economic growth. But then again, the Federal Reserve doesn’t have a direct effect on the rates of interest of mortgages. This is because while the Federal Reserve alters the bank rates, the banks will then pass on the new rates to consumers. This means that when there is a low rate of interest and a low rate of mortgage refinancing, consumers are always encouraged to borrow and spend — something that significantly boosts the economy.

It goes without saying that when the interest rates are high, consumer borrowing will plummet subsequently. Boiled down, there are fluctuations in the rates of interests of mortgages that will reflect the economy’s attempt to remain balanced and to prevent the effects of inflation which can lead to recession.

Apart from the acts of the Federal Reserve, there are other things also that affect the changes in mortgage rates. Today, the secondary market has so many loans sold by banks — a market which is under the control of the federal government. Consequently, mortgage lenders together with banks will be forced to sell to investors all mortgage-backed collaterals. A return on such an investment can only be established if the mortgage holder pays the loan plus interest. As for the investors, the only way they can get a return is for the banks to charge exorbitant rates of interest, as they will be left with no other option. This factor equally affects the rate of interest of mortgages.

Fluctuations also mean rates can be driven down. People who borrow mortgage loans will always seek the lowest rates of interest. In light of this, the rates have no choice but to drop. Further, because investors know that the rates will plummet, they will end up over-purchasing the securities – something that will not only increase the demand for mortgages but also affect that rates of interest by making them go down. It is advisable for banks to strike a balance between these two forces to ensure there is a perpetual push-and-pull on mortgage interest rates.

- One must live in the property to be purchased, thus discouraging investors from buying property using this mode of financing
- The second FHA loan Qualification is a solid employment history preferably with the same employer for a period not less than one year. If you are self employed, you must show proof of being in the same line of work for the same period of time. A graduate on the other hand can use a recognized diploma in place of employment history.
- The third requirement is the ability to raise a down payment of 3.5% for someone with a credit score of above 580, failure to which one will need to place a 10% down payment. An exception to the 3.5% down payment is 100% down payment incentive program.
- Still on point, for self-employed applicants, they have to show income tax returns of 2 years including an exhaustive profit and loss income statement from the business if it is already incorporated. Note that the debt-to-income ratio shouldn’t be over 41%. In case you have other debts like student loans, you can be allowed to have a debt-to-income ratio of 45%.

The FHA home financing loans are gaining lots of popularity today more than ever before because of the 3.5% down payment – the lowest down payment requirement in the industry today. Their conventional counterparts require a down payment of 20%. Sellers have in the previous times been able to pay a closing cost of 65 for buyers but it is projected to change to 3% in the coming years. As such, you should confirm with your FHA approved lender for current updates they might have on closing costs.

A very important point to note, even though home inspection isn’t a mandatory requirement for FHA loan qualification, it is highly recommended to get one. Why? Because the Federal Government has some standards that properties must meet, which are different from home inspection. In case the property doesn’t meet the set standards, property sellers must meet the costs of maintenance or improvements required before closing in on a deal, or have the estimated costs locked up in an escrow account. In case the seller is not willing to meet the maintenance costs, chances are quite high that the property will not be financed by the FHA home loan.

Most FHA loan qualifications are quite lenient compared to conventional loans and because it is easy to qualify and get an FHA home loan, coupled with the low down payment, it could be the surest and fairest way that people can purchase their dream home.

If you apply for a reverse mortgage loan, you will not be obligated to repay the loan for as long as you shall reside in the mortgaged property. If you change homes, your heir, lender, or a new buyer will get the property without any debt. This has been made possible thanks to the insurance that ensures you cannot owe more than the total value of the property. Your lender is fully protected by the insurance meaning that in case the loan principal amount and interest accrued becomes more than the sale value; the insurance will pay for the difference. Insurance also ensures that all cash advances that you apply for when you service your loan you will get.

The FHA is fully responsible for collecting all insurance premiums from the property owner. There will be a one-off payment of 2% of the total amount borrowed, which you can pay at closing. There is also a 0.5 percent annual or monthly charge that you must pay.

The rate of interest will fluctuate in the course of the loan term meaning that as long as you have the mortgage, the rate of interest will be applicable. Some lenders have a tendency to combine the rate of interest and all related fees. If this is the case with you, discuss with your lender about the interest rate included. It is also good to find out whether the consolidation will affect your future debts.

You can also opt for a fixed rate of interest or a variable interest rate. Before you make your final decision, you should understand the effect that a high interest rate will have on your debt at a future date. Variable interest rates can be adjusted on an annual or monthly basis, but for fixed interest rates, they are as their name suggest — fixed. Some lenders give a maximum of up to 2 percentage points annually for a mortgage interest rate to be adjusted. Be advised though that the allowance shouldn’t exceed 5 percentage points over the entire lifetime of the loan.

Just like normal mortgages, lenders can charge origination fees when it comes to reverse mortgages, which include expenses incurred during documentation and stuff. Other fees include closing costs such as title search, surveys, insurance, appraisals, inspection, taxes, as well as recording fees.

Normally, the costs incurred in a reverse mortgage add up to the final loan balance while the proceeds can pay for all costs. It is recommended that you familiarize yourself with the costs of a reverse mortgage to be able to tell whether it is the best option available for you in the market.