MORTGAGE LOANS:
A
loan that is secured by property or real estate is called a mortgage.
In exchange for funds received by the home buyer to buy property or a
home, a lender gets the promise of that buyer to pay back the funds
within a certain time frame for a certain cost. The mortgage is legally
binding and secures the note in giving the lender the right to have
legal claim against the borrower’s home if the borrower defaults on the
terms of the note. Basically, the borrower has possession of the
property or the home, but the lender is the one who owns it until it is
completely paid off.
Repaying a Mortgage
The
mortgage is usually to be paid back in the form of monthly payments
that consist of interest and a principle. The principal is repayment of
the original amount borrowed, which reduces the balance. The interest,
on the other hand, is the cost of borrowing the principal amount for the
past month.
A
monthly mortgage payment includes taxes, insurance, interest, and the
principal. Taxes are remitted to local governments as a percentage of
the value of the property. These tax amounts can vary based on where the
borrower lives and are usually reassessed on an annual basis. The
insurance payments go toward mortgage and hazard insurance. The mortgage
insurance protects the lender from loss incurred if a borrower
defaults, whereas hazard insurance protects both the borrower and the
lender from property losses. The funds may be held in escrow or the
lender may collect the taxes and the insurance.
Applying for a Mortgage Loans
The
process of applying for a mortgage loan can be a stressful process if
it is not researched. The borrower should know what type of home is
desired and what the budget will allow. This may determine the type of
mortgage that should be acquired. That is why it is important for the
borrower to acquire a copy of their credit report and check it for
errors. If there is any incorrect information, it needs to be disputed.
The
lender receives an appraisal of the property and this appraisal
determines the market value of the home, which is used for collateral in
the loan. The borrower is charged a fee for the appraisal service and
is usually included in the closing costs.
When
the mortgage application is complete, the borrower will be asked for a
considerable amount of information. That is why the borrower should be
prepared to give the lender the following information:
- Bank information such as the name, address, account numbers, and three months of statements.
- Three months of investment statements.
- W-2s, pay stubs, proof of employment and two years worth of income.
- Tax returns and balance sheets for the self-employed.
- Debt currently owed, including amounts due and account numbers.
- Divorce papers, if they apply.
Once
the application is completed, the lender will review the application
and decide whether to deny or approve it. If approved, the last step in
the process is the meeting in which documentation is completed and the
deal is closed. If denied, the prospective borrower should talk to the
lender in order to devise a plan and find out why the application was
denied. By law, the prospective borrower should receive a disclosure
statement from the lender in writing that states why the application was
turned down.
Employment History and Your Sources of Income
The
ability to pay is one of the primary decisions in considering a loan
application for approval. All information regarding income and
employment history must be submitted. This information includes:
- Employer’s name, address, borrower’s job title, time on the job, bonuses, average overtime, salary, and students may be required to provide transcripts.
- Two years of W-2 forms and most recent paycheck stubs.
- For the self-employed, financial statements for two years and all tax forms must be provided, including a profit and loss statement for the current year.
- If there are gaps in employment history, there must be a written explanation.
- A VOE or Verification of Employment form may be sent to the current employer.
The Closing
The
last step in the process of applying for a mortgage is the closing
process. All parties sign the necessary papers and officially seal the
deal. Ownership of property is transferred to the buyer, so the closing
date makes for a great opportunity to make any necessary changes at the
last minute. These procedures vary from state-to-state, but in most
states the following people are present at the closing:
- A closing agent that may work for the lender.
- The Borrower’s and the Lender’s attorneys
- Title company representative
- Seller of the home
- Real estate agent for the seller
- The borrower (known as the mortgagor)
- The lender (known as the mortgagee)
The borrower is required to sign a number of documents when closing. Below is a description of those documents:
- The one selling the home must bring the deed with them to the closing. It must be signed and notarized so that the lender can have the deed filed at the county’s Deed Registrar since it is public record.
- The HUD-1 Settlement statement itemizes the services by the lender that is related to the loan and charges both the seller and the buyer. This is required by federal law.
- The mortgage note must be signed because it is the buyer’s promise to pay according to the terms. These items include payment due dates, amounts, and where the payments should be remitted to.
- The statement that gives the actual rate of interest, APR, fees, and other costs is the Truth-In-Lending Statement.
-copy from MORTGAGE