FAQ's
Q: Aren't there really just two kinds of mortgages: fixed and adjustable rate?
A: You could say that, because all mortgages fall into one of these two categories - that is, the interest you pay is either the same (fixed) for the life of the mortgage, or it can change (adjustable) over the life of the mortgage.
But, within these two broad categories, there are many different kinds of mortgages designed to fit people in different financial situations - and many of them are especially for first time buyers.
Q: How do I know which type of mortgage is best for me?
A: There isn't a single, simple answer to this question. The right type of mortgage for you depends on many different factors: your current financial picture; your short & long term goals projected income increase or decline; how long you intend to keep the house; and how comfortable you are with your mortgage payment changing from time to time.
The best way to find the "right" answer is to discuss your finances, your plans, and financial prospects and preferences with a representative from Texas Loan Star, Inc.
Q: What does my mortgage payment include?
A: For most homeowners, the monthly mortgage payment include three separate parts: a payment on the principal of the loan (that is, the amount borrowed); a payment on the interest; and payments into special account (called an escrow account) that your lender maintains to pay for things like your hazard insurance and property taxes. These elements are called P.I.T.I.(Principal-Interest-Taxes-Insurance).
Q: How much will I need for a down payment?
A: It's probably less than you think! Many first-time buyers are surprised to learn that there's no set answer to this question. Generally, though, your down payment can be anywhere from zero to twenty percent of the purchase price. Down payments can be lower for some special, first time buyer loans. In addition, there are many programs that offer 100% financing, even for investment property and second homes!
Adjustable Rate Mortgage (ARM, Also Called Variable Rate Mortgage)
A mortgage with an interest rate that has a fixed rate period and then converts to floating rate that adjust periodically to reflect changes in market conditions. Your mortgage payments are adjusted up or down as the interest rate changes.
Annual Percentage Rate (APR)
An interest rate calculation that reflects the actual cost of a mortgage as a yearly rate. Because APR includes points and other costs, it's usually higher than the advertised rate. The APR allows you to compare different mortgages based on rate offered and closing cost.
Appraisal
An estimate of the value of a home, made by a professional appraiser. On a purchase, the maximum amount of the mortgage is usually based on the lower of either the appraisal or the purchase price.
Closing Costs (Settlement Costs)
All the charges associated with getting your mortgage, including the origination fees, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, charges for credit reports and other costs. Costs of closing usually add up to 3 to 6 percent of the mortgage amount.
Equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on any home loans or liens on the property.
Escrow
A special third-party account set up by the lender in which your funds are held to pay for taxes and insurance. "Escrow" can also refer to a third party who carries out the instructions of both the buyer and seller handles the paperwork at settlement such as a title company or attorney office.
Fixed Rate Mortgage
A mortgage with an interest rate that stays the same (fixed) for the life of the mortgage. Monthly payments for a fixed rate mortgage are very stable.
Interest
The fee paid for borrowing money, which pays the lender's costs of funds plus a profit.
Origination Fee
The fee paid to a lender to prepare all the documents associated with your mortgage.
PITI (Principal-Interest-Taxes-Insurance)
Shorthand for the separate parts of a typical monthly mortgage payment.
Points (Loan Discount Points)
Points are prepaid interest on your mortgage, charged by the lender at the time of closing. Each point is equal to one percent of the loan amount - that is, 2 points paid on a $100,000 mortgage would be $2000.
Prepaid's
The expenses that are put into escrow at closing, usually including real estate taxes & insurance. This term also refers to interest paid in advance at closing. The interest paid covers the partial interest due the month of closing.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of the mortgage.
Private Mortgage Insurance (PMI)
An insurance policy the borrower buys to protect the lender from non-payment of the loan. PMI policies are usually required for a loan with a Loan-To-Value (LTV) percentage in excess of 80%.
Title Insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against a loss arising from disputes over ownership of a property.
