Mortgage Basics

May 7, 2008

It’s time to take that leap, but you have no idea what is under the water. Instead of continuing in blind faith you should learn a little about the real estate market and the loan industry before you sign your name on the bottom line.

Discount Points are often recommended to by down the interest rate for your loan. Be careful. The normal cost is around 1% of your loan amount and the point will only bring your interest rate down around 1/8%. Many times it is not worth this added cost.

Origination fees are what lenders make you pay for you to borrow money that they will make a huge amount of money off of over the life of your loan. Typically the origination fees are around 1% to 2% for most traditional loans.

APR is the actually cost of borrowing the money. It includes the interest and other costs averaged out. It is always higher than the quoted interest rate.

Escrow is the money that is put in reserved to pay the home owner’s insurance, taxes and other expenses. A portion of each payment made to the mortgage company will go into the escrow account. Depending on the time of year, it is possible that some money will have to be paid into the escrow at the beginning of the loan.

Closing costs are all the fees that will have to be paid when the loan is closed out. Usually it will include the real estate broker fees, survey, appraisal and lawyer. Sometimes the closing costs can be rolled into the loan. Sometimes the closing costs will have to be paid upfront.

There is more to buying a home than finding one that fits your needs and wants. You have to learn about the industry to make sure that you keep your head above the financial waters.

Posted in Financing