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Mortgage Information

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A mortgage is the pledging of property by a borrower to a lender as security for the payment of a debt.

This is the most general definition of a mortgage that I was able to find. It does not explain practically anything. And it still leaves you in the dark when financial questions come. I will try help you to acquire (or at least extend) knowledge about mortgage and its secrets.

Here are some facts that you need to be aware when looking for a mortgage:

  1. Down payment
    Most loan programs require down payments of between 10 and 20 percent of the purchase price. However, many lenders now offer programs, government or non-government related, with requirements as little as five percent or even less.

  2. Gross income
    As a general rule, lenders want the monthly housing expenses (mortgage payments and real estate taxes) not to exceed 28 percent (in some cases stretchable to 33 percent) of a family's gross income. If you have car payments, long-term debts or any other outstanding obligations, these debts plus your housing costs should not exceed 36 percent (can be sometimes stretched to 38-40 percent) of your gross income. The standard 28/36 percent debt/income qualifying ratios are used to determine if you qualify for a home loan.

  3. Right lender
    You have to be aware that not every lender with a low rate offers a good, or reliable, deal. If you pick a mortgage lender strictly by the lowest interest rate you will most likely lose. Ask your lawyer or real estate agent for a reputable brokers. Friend and relatives with good mortgage experiences also can be helpful. Make sure to ask your lender about fees, processing charges and guarantees of interest rates.

  4. Cost of a loan
    Compare all the costs attached to the loan. Lower interest rates may hide huge processing and service fees that don't get calculated into the annual percentage rate.
    • Loan Application Fees range from $250 to $450, should include credit, application and appraisal fees.
    • Mortgage Points - typically zero to three percent of the loan amount.
    • Loan Origination Fees - should be included with mortgage points advertised by the lender (but always ask to make sure).
    • 'Junk Fees' are hidden costs with many names and descriptions, that can be confused with legitimate processing fees.

    Along with those fees you will also have other costs associated with the loan paid at closing or calculated into your monthly payments:

    • Private mortgage insurance. If your down payment is less than 20 percent of the home's purchase price, your lender will probably require you to buy PMI (it protects the lender, not the buyer).
    • Prepaid homeowner's insurance. Generally, the lender requires the buyer to pay the first year's insurance premium at or before closing.
    • Lawyer's fees can range from $300 to $1,500, but are rarely more than $500. His presence is necessary to protect your rights in this financial transaction with many legal documents to be signed. Please make sure that you use a real estate lawyer.
    • Recording fee. Be prepared to pay more than $250 for tax stamps. You also may have to pay a transaction tax (in Chicago it's $7.50 per $1,000 of purchase price).

These are just major facts that you need to be aware when you start looking for a mortgage. Most lenders will pre-qualify you for a mortgage, what gives you time to shop around for best rates and features without the pressure of a closing date. Also, most lenders will guarantee the agreed upon rate up to 60 days even if rates increase. As for current rates you can check Weekly Mortgage Rates. For information on different types of loans please visit Mortgage Types section. It would be also good if you'd take a look at Mortgage Terminology. You can even pre-calculate your payments using a Calculator. And if there are any questions left please do not hesitate to ask them - e-mail me or contact in any other way listed on Contact Me page.

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Maria Baran is a licensed Broker with RE/MAX Elite,
7339 S. Cass, Darien, IL 60561
Phone: (630) 810-1900     Fax: (630) 810-1967
REALTORŪ is a Registered Trademark of the National Association of Realtors.