Mortgage Loans Texas
A mortgage is a financial claim against the property (real or personal) the buyer purchases. A lender offers a loan (the principal) at a particular rate of interest, for the borrower to buy a home. The longer the loan term, the more interest the lender earns. The mortgage, comes with a promissory bond or note, to repay the loan. In case the buyer or mortgager fails to repay the loan, the lender or mortgagee gets the collateral for the loan on the home. Hence, mortgage is the legal agreement signed by the buyer, which gives the lender the right to take back the property, in case of non-payment.
In case of default, the creditor also known as the lender can either hold the mortgage (becoming the primary and secondary lender) or sell the mortgage to investors, pensions or one of several nationwide secondary lenders, such as the Federal National Mortgage Association (Fannie Mac) or the Federal Home Loan Mortgage Corporation (Freddie Mac). If the lender sells the mortgage, it becomes the primary lender, and the person or company that buys the mortgage, becomes the secondary lender.
In Texas, mortgage loans texas are secured by a document, called a deed of trust. The buyer has to sign a deed of trust, whereby, the property ownership is
transferred to a trustee. The trustee holds the deed to the property in trust until the loan is paid.
THE PLAYERS
Mortgage Brokers act as intermediaries between the people who need loans and people who have money to loan. They act as matchmakers and receive a fee for each match they make. The Mortgage brokers can be useful for borrowers who may have difficulty qualifying for a loan.
Mortgage Bankers are the lenders themselves and earn profit from the interest they charge the debtor and also by selling the loans to the investors. They usually work with the borrower to find them the best loan according to their needs.
Mortgage Divisions of Savings and Commercial Banking also profit from fees and loan servicing. But unlike the Mortgage Bankers, they usually hold the loans and not sell to the investors.
The Fannie Mae and Freddie Mac are private, shareholder-owned companies and are secondary lenders. They purchase loans from primary lenders like the bankers, insurers or other financial institutions. About one in three mortgage loans originated is sold to Fannie Mae and one in six to Freddie Mac. They form guidelines for primary lenders to follow while offering loans to the borrowers, and if so, they purchase the loans from them. This is how they have been able to gather homeownership of people with low and moderate incomes, urban and rural, and recent immigrants. Visit www.fanniemae.com for more details.
The Federal Housing Administration (FHA) helps the lower income, minority, disabled and urban home buyers. It offers low down-payment and liberal underwriting guidelines. The lender is insured for life against borrower default.
The Department of Veterans Affair (VA) gives loans to assist veterans adjustment to civilian life. It ensures loan repayment to qualified lenders that extends finances to qualified veterans. Visit www.va.gov for more information.
DOWN PAYMENT
Till the 1970s, the homebuyers had to make a minimum down-payment of 20%. But when the interest rates went up, it became difficult for buyers to give such a large percentage of down-payment. Today many buyers put down what ever they can afford. This also gives the buyers the option to keep some extra amount of money aside, for other things like furnishings, unforeseen expenditures, paying of other debts, saving the house from foreclosure etc.
Down Payment Options
Lease Options This is an option for the prospective home-owners to buy the house without feeling the pressure of a heavy down payment. The buyer becomes a tenant and leases the property for a specified period of time. During this lease time, the tenant has the option of buying the property at an agreed price. And if the tenants agree to purchase the house, a certain percentage of the monthly rent can be accrued as a down-payment of the house. This way the down-payment can be made over a period of the lease.
The Carry-Back Mortgage Option - This is an option where the seller acts as a lending institution. This can be beneficial for the seller as, other than the down-payment, the seller will get a fixed monthly income as interest for the money lent. And also for the buyers, as they can now afford a house, which otherwise would be difficult. This can benefit the home buyers as the interest rates can be negotiated, other closing costs and private mortgage insurance can be avoided and sometimes down payment can be very low.
Buydowns Its a form of financing from sellers, when the interest rates are very high and homes are difficult to sell. The builders usually offer below market financing in exchange for higher sales prices. The buydowns can be a permanent one (i.e. for the length of the loan) or a temporary one (for a short period).
Gifts This is another way of reducing the down-payment costs. A signed and notarized gift letter, that says that the money received is not a loan and should not be counted towards the buyers debts. Many loan programs allow up to 2 -5 % of down-payment to be gift.
No-cost Mortgages - is another way to reduce the down payment cost. Here, the buyers go with a higher rate of interest, so that they can reduce the closing costs. This is because, most lenders offer lower closing costs with higher interest rates. This helps the buyer, as later they can refinance the loan at a lower rate of interest.
TO ZERO DOWN ON A MORTGAGE:
The buyers must decide whether they are eligible for Freddie Macs or Fannie Maes special loan program
Decide on the loan term and compare various loan terms.
Compare the annual percentage rates of loans.
Probably eliminate all loans that charge a pre-payment penalty
Consider the reputation of the lenders.
TYPES OF MORTGAGES
Fixed Rate Mortgages
It is probably the simplest type of loan available. The interest rate is fixed through out the loan term irrespective of the market fluctuations. Hence the home owners can plan their monthly budget as there are no surprises. People, who are not much aware of the mortgages often think of fixed rate loan.
One thing must be kept in mind. The mortgage loans stretched over a longer period of time, may have lower monthly payments, but it does mean that the debtor ends up paying more money overall in interest. With a shorter term, the buyer ends up saving more money. Hence, the best financial plan in the long run is the shorter term loan.
The fixed interest rate in this loan type, is its advantage and disadvantage. If the market rate goes down, then the buyer cannot avail it and if the market-rate goes up, then the buyer is not affected by it.
Adjustable Rate Mortgages
Also known as ARM, these mortgages can change several times during the loan period.
The fluctuations are dependent on the market, and there is no way to estimate the exact swing in the market.
The biggest advantage of ARM is that the interest rate is much lower than the fixed-rate mortgage. This also allows a borrower to qualify for a larger loan more easily. So, a lot of buyers opt for ARM. Moreover, it can be converted to fixed-rate mortgage, especially if the rates are expected to rise steeply.
The major disadvantage of ARM is that, it cannot be determined, whether the mortgage rates will increase to its maximum or remain at that level. Hence, financial planning and budgeting for the home-owners becomes a little difficult. Moreover, the loan, which can be converted to fixed loan, may come with a higher interest-rate.
Other Articles
