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Points, Rates, Fees - Top Things You Need To Know About Home Mortgages

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By : Fredrica Smith    99 or more times read
As of last year, there are more than 600,000 foreclosed homes and commercial properties reported from several states here in the U.S. This large number somehow reflects the economic recession experienced by many home owners, investors and lenders as well. And the most common problem responsible for such data is the delinquency on mortgages. This information at hand should serve as a warning that home buying entails multiple financial obligations. You can ward off mortgage delinquency if you are familiarized with the points, rates, fees and other particularities involved with such loan.

Home mortgages can be as varied as the lending agency or bank you are applying a loan with. They offer different rates, points and fees which are usually calculated according to the specifications of your loan. But prior to application, you can have an overview what a company offers. Most companies have general rules for loan applications which you can immediately assess whether their terms are appropriate for you. In addition, you have to ensure that the mortgage plan you will get would suit your needs and financial capacity. Plan ahead and prepare your finances so you can guarantee your commitment to paying the monthly dues the loan entails.

Moreover, there are four main components that would make up your monthly payments. Lenders commonly utilize PITI or the Principal, Interest, Taxes and Insurance in computing a borrower’s obligation on a monthly basis. The principal is the amount equal to the total cost of the loan. As you gradually pay this component, the outstanding balance is reduced while you earn higher home equity. The interest refers to the initial payment plus a percentage of the outstanding principal. The rate would be calculated according to your credit history, current trend and features of your loan. Keep in mind that rates constantly change due to the variables involved, but locking in your rate is possible. A particular interest rate can be locked in for 15, 45 or 60 days. But be careful before engaging in this step as longer lock-in periods are more expensive. This is because lenders commonly consider such loan condition a risk.

Taxes are also attached to owning a property. Your monthly dues cover the levy to be redirected to your community. In most cases, the average annual property tax is about 1.8% of the property value. This amount can go higher or lower depending on the value of the property. Lastly, most lenders require their borrowers to also acquire a homeowner’s insurance policy. Its coverage includes the home, personal belongings and liabilities of the home owner. Paying the premium would be the biggest expense in this component.

Note that the monthly dues above are only half of the total cost of a home mortgage. There are other expenses you need to think about. Discount or buy-down or purchase points are actually upfront fees asked by the lender upon closing a loan. These points pertain to a percentage of the total cost of the loan. One point usually equals one percent of the loan. If you want to lower your interest rate, then you have to buy more points. You just have to be ready for disbursing a lump sum at closing so you can purchase the points.

Expect to have further expenses during the initial stage of getting a home mortgage. There may be fees for checking the property title, land surveying, inspection reports, credit reports, appraising the home and paying for other professional services from your lender or broker. Processing and underwriting the loan also come with dues called the origination fees. These are often charged to compensate the lender for establishing your loan, which can range from 0.5% to 1%. This fee can be deducted from your taxes if it was used for only processing the loan and not for its settlement.

Even before you enter a transaction, ensure that all the terms of upfront and monthly fees are disclosed. Beware of hidden fees and you can do that if you constantly inquire from the lender. By understanding all the factors of your home mortgage, you can better keep up with maintaining your financial obligations.
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