What is a mortgage:

A mortgage is a loan which is secured by real property.  Most people use mortgages to purchase or refinance their home.

As with other loans, you must apply for a mortgage and get approval.  The amount you can borrow depends on several things, however the three most important factors are income, debts, and credit history.

Once your mortgage is closed, you receive the total amount of the loan at once, which is used to pay the seller (in a sale transaction) or pay off any existing loans on the property (in a refinance transaction).  You then repay the loan in monthly payments according to a predetermined schedule.  Most mortgages today are for periods of 15,  20 or 30 years.

Types of Mortgages:

To determine the right type of mortgage for your needs, you should consider:

     - How much cash you have available for the downpayment and closing costs

     - Whether you think interest rates will rise or fall

     - How long you plan to stay in the home you are purchasing or refinancing

Today, there are a variety of mortgages to fit every home buyers need.  The most common types are:

 - Fixed rate mortgages                  - FHA mortgages

- Adjustable rate mortgages           - VA mortgages

- Balloon mortgages                       - Conventional mortgages

Fixed Rate Mortgages:

The interest rate on a fixed rate mortgage remains constant over the life of the loan.  With a fixed rate loan, your monthly principal and interest payment will always remain the same.

Fixed rate mortgages are especially suited for those who expect to remain in their homes for a number of years.

For fixed rate mortgages, you can provide a downpayment as low as 5% of the purchase price.  If you don't qualify for this 5% down program, United Mortgage has programs that allow a downpayment of as little as 3% of the purchase price.

Advantages of fixed rate mortgages:  Your mortgage payment is unaffected if interest rates go up.  Your monthly payments are the same each month so you can budget your expenses easier.

Adjustable Rate Mortgages:

Adjustable rate mortgages offer an interest rate that can go up or down.  The initial start rate is usually lower than that of a fixed rate.  The initial rate is in effect for a set period, usually six months to a year and then the rate and payment change.  There are predetermined caps or limits to the amount of any fluctuation.

The interest rate of an ARM is set by an index i.e.: 1 year treasury or 11th district cost of funds, plus a margin.  The margin is a fixed percentage that is added to the index to determine the interest rate.  Always check the type of index and the amount of the margin.  Some indexes are more volatile than others.

Some of the advantages of an ARM is the interest you will pay generally drops if prevailing interest rates go down.  Low start rates can reduce your initial payments.

Balloon Mortgages:

Payments remain constant for the term of a balloon mortgage which is usually 5-7 years, although principal and  interest are amortized over 30 years.  At the end of the 5-7 years, you can pay off the mortgage or apply to refinance.

Advantages of balloon mortgages:

Balloon mortgages are typically offered at lower interest rates than other fixed rate products making them more affordable.

If you know you'll be in your home for less than the term of the mortgage, this may be a product you should consider.

FHA Mortgages:

A Federal Housing Administration insured loan allows you to buy a home with a low down payment, ranging from 3% percent to 5% depending on the price of the home.  FHA also has more a liberal qualifying procedure than most conventional loans.  This may provide you with more buying power.

VA Mortgages:

If you are currently in the United States military, or if you have ever served in the U.S. armed forces you may be eligible to get a loan guaranteed by the Veterans Administration.  If you qualify, this special government benefit to veterans might be a good option for you as it allows you to purchase a home with no downpayment.

Conventional Mortgages:

Conventional mortgages are mortgages that are not obtained under a government insured or guaranteed program such as FHA or VA.  Some of these loans may also be defined as conventional conforming loans which means they are eligible for  purchase by one of the two government chartered corporations created to support the secondary mortgage market.  These corporations are the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) and the Federal National Mortgage Association (FNMA or Fannie Mae).

Closing Costs:

There are several kind of fees associated with a mortgage.  Many lenders charge an origination fee and a processing fee.  Other fees associated with loan closing include, but are not limited to, your attorneys fees, filing fees, mortgage taxes, title search and title insurance.  You may also be asked to pay real estate taxes and/or establish escrow accounts for real estate taxes and homeowners insurance.

Annual Percentage Rate (APR)