Mortgage Basics


Owning a home has always been billed as a part of the American dream. There is nothing like the feeling of stepping across that threshold and being able to say this is mine. For some people this takes thirty years or more because until you make the final payment the house truly belongs to the mortgage company. You and the company you choose as your lender will be together longer than some marriages. It is important that you understand the basics of what a mortgage is and this will help you to ultimately choose a company that you can look forward to a long relationship with.

Feasibility study

Before going for any type of mortgage you should perform a few task on your own. Sure it may cost a little money but if you are not using a real estate agent it could save you more in the long run.

  • Find out how much you qualify for
  • Research several mortgage companies
  • Narrow the search by checking with the BBB to see which ones have the most complaints, nature of complaints and how they were resolved.

Another step to getting that home loan is to understand the terms used in the business. Below you will find a few of the most common terms and an explanation for it.

For a more comprehensive listing you may visit:

Any one of these above website will offer you a better understanding of the terms mortgage brokers use in the course of a business day.

Basic Mortgage Terms:

1.      Mortgage – this is a loan that you obtain to pay for the home of your dreams and it will pay for the land the house sits on. The home and the land are the collateral used to secure the loan if you do not keep up the payments you forfeits any rights to the home.

2.      Principal – the principal of a loan is the amount you originally borrowed to purchase the home.

3.      Interest – the amount that is charged by the bank for the use of that principal. It is generally derived by a combination of current economic indicators.

4.      Term – the length of time you have to pay back the loan.

5.      Adjustable rate – this is a rate that changes with the times. The amount you pay the bank on the money you borrowed sometimes it goes up a lot higher than you can afford. Be careful when getting this type of loan.

6.      Amortization – one method used to pay back a loan. This is gradual payment that spans a over the term of the loan. In the beginning most of the money you spend on the monthly payments will be applied toward the interest.

7.      Annual Membership – the amount charged fgor you to have access to an available line of credit. You will be charged this rate whether you use the “LOC” or not.

8.      Annual Percentage Rate – the APR is the cost of the available credit on a yearly basis. This percentage rate is usually higher than what is listed in the loan agreement but has to be disclosed according to the law.

9.      Balloon Payment – this is when you are charged a lump sum to finish out the loan.

10.     Cap – the maximum increase allowed on a loan.

If you want to know more about how this process works you can experiment with different prices using the online amortization calculator at http://www.amortization-calc.com/. There is a useful acronym that will help you to keep all the principles of the mortgage in mind it is PITI which translates to Principal +Interest + Taxes + Insurance.

Down Payments

The purpose of the down payment is to make the home affordable now. Real estate is so expensive that very few people could afford to buy a house outright. The introduction of the concept to allow you to put a portion of the purchase price down and make monthly payments has made homes affordable for more people. Single moms are now reaping the benefits of this concept. Lenders require that you at least have a down payment since this is used as a form of surety that shows you have at least a part of what the house cost. It also says that you hare good at budgeting and saving since to amass that amount you would have had to save it. If you default on the loan the bank at least will be able to recoup that amount.

Cautionary Note

During the administration of the former president the congress and the senate passed a law which effectively eliminated the seller being able to contribute to the down payment on a home loan. Until then buyers could get a percentage of the down payment funded by the seller. This does not affect those who can qualify for a government based down payment grant program.

Government Grants for First Time Homebuyers

Government grants are generally for first time homebuyers, a category in which most single mothers easily qualify. These have no seller contribution requirements, they only insist that you meet certain income standards. The amount you may qualify for varies due to income and family size.  The more income you have the higher the number of dependents needed to qualify. Low income with high dependent numbers almost always qualifies for these loans. The availability of these programs depends on the area in which you live. The larger the city the more abundant the programs are. The thing that works in your favor the most is that if the agencies do not use the funds the government allocates to them they risk loosing them for the next fiscal year. There are some of these loans that has as a part of it requirement that you pay them back in monthly installments allowing you to incorporate them into your mortgage payments more easily.

Who Qualifies?

To qualify for this loan you have to meet these three criteria.

1.      Income limits

2.      Qualify for a pre-approved loan

3.      Not have owned a home in the past three years

Sounds simple but, do not be fooled getting that low interest pre-approved mortgage loan will take some doing especially in this economy. There are also certain things in your past that might disqualify you even if you have met the three above stated criteria. Foreclosure on a previous home and having filed for bankruptcy in the past two years can make your application null and void.

Here is a listing of some of the programs you may want to check into:

Ameridream – this program can give you up to 10% of the new homes purchase price. These are monies that you will not have to pay back. The only catch is that if you do not use the entire amount for the down payment you have to return the unused portion. This is a gift with a stipulation. Single moms will have to qualify according to the following criteria

  • Be pre-approved for an FHA mortgage and are currently looking for a home
  • Make the initial offer on a home
  • The loan officer will be the one who actually applies for this loan for you
  • If approved you get a letter “Notice of Gift Approval”

This is one of the down payment assistance programs that require seller participation. The loan officer can show an interested seller how and where to apply for this for you.

For more information visit: http://www.fha.com/program_ameridream.cfm

The Nehemiah Program – has been a staple in that has helped hundreds of people get into that new home. Anyone who qualifies for a FHA loan can get this down payment assistance, since there are no income or asset limitations. If you qualify for this assistance you get

  • 6% of the final contract price toward your down payment
  • it is available to all home buyers not just those who are first time buyers
  • you can be approved for new construction and resale homes
  • this is available nation wide

Once approved for the FHA loan you must find the house and make an offer on it, once the offer is approved contact your loan officer. The loan officer must apply on your behalf. Most of these types of programs require the seller to pay a nominal fee to participate.

For more information visit http://www.fha.com/program_nehemiah.cfm

The above programs were great and they may come back into viability soon. The new administration is fighting hard to reinstate these programs. They are included here to give you an idea of the things you will have to go through to get any type of assistance. Now for what is actually available for you today. The playing field is quite small now and the best you can hope for is to qualify for one of the government sponsored loans.

In the new market the government is now offering a greater tax incentive for new homebuyers. The FHA provides the following assistance in most sates:

  • Low fixed interest rate, 30 year mortgages
  • Up to 100% financing
  • Flexible approval guidelines for Conventional, VA, or USDA-RD mortgage loans
  • Very low closing costs
  • Involuntary unemployment, accidental disability, and accidental death and dismemberment insurance available for a state by state listing of programs visit: http://first-time-home-buyer-s.com/down_payment_assistance.htm,

With single mothers carrying the entire load of the responsibility for their families. Getting food on the table and keeping things together can be touch and go for a lot of these families. For a single mother all of the things you have read about so far can still make home ownership seem like a “Pie in the Sky” dream.

The Department of Housing and Urban Development are aware of the increased strictures on home ownership with the demise of some of the greatest programs to assist a new homeowner with the down payments and more. They offer counseling to all who want to begin the journey to home ownership. This agency works especially with one income families to give them hope that it will one day come to pass. They still sponsor low interest mortgage loans and so much more.

For families in Rural America there is a government sponsored programs by the United States Department of Agriculture, these programs target  lower income families in rural areas and not only provide assistance for those looking to buy a home but also those who live in older farm houses that could benefit from a little renovation.

Habitat

Habitat for humanity is a program that has become well known for its commitment to bringing the American Dream to Low income families. The houses are completely built by volunteers of which the new home owner must be one.  In Lieu of a down payment it is called homeowner contribution and the down payment is worked off.  It is almost like the old days when you worked to get even the simplest things you needed without cash ever changing hands. Once your home is complete you are obligated to help on homes for others as a part of your contract for your home.

For information on how to apply in your area visit http://www.habitat.org/getinv/apply.aspx.

Local communities also offer various options now for the low income single mother who is trying to secure long term housing. Often Faith based programs can provide for the people of their communities where the government leave off. Catholic Charities has been doing this in one for m or another for years. In most urban communities single mothers are familiar with the local Catholic charities because they run food and clothing banks year round. Recently they have added programs to help single mothers and other low-income people secure long-term housing.

Contact your local office or http://www.catholiccharitiesusa.org/ to find out about home buying counseling services.

The Local Banks

It might take some searching but certain banks and credit unions do offer programs that are designed to help the low income families live the “Dream” single mothers should take the time and call around to the local lending institutions to find those who have these types of programs. Joining a credit union can be the answer to this dilemma for you. Credit unions tend to work closely with their members to get them to the point where they will qualify for home loans.

Conclusion

Even with all that was lost in the last few years due to budget cuts and the economic down fall you can still find ways to finance a new home. Single mothers are really in a great position to take advantage of all the programs that are still being offered by the community and the government.


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One response on “Mortgage Basics

  1. Thank you so much for all the info!! I’m a single mother who lives in an income-based townhome that is charging me as much as a regular townhome would cost because my finances are getting a TINY bit better so I’m starting to look at buying a home. I’ve got a list of forclosure homes to look at , but I really appreciate the info about Ameridream and what I need to do before I start actually picking out a home I love. Thanks again!! 🙂

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