5 Things To Remember Before Getting A Mortgage Loan

mortgage loan contractOne of the American dream that has been passed down from one generation to another is owning a house which entails getting a mortgage loan. It is right up there with having a healthy family and a great career.  But buying a house is not as simple as choosing a property and paying for it. Getting a mortgage loan is quite a complicated process.

Even as ABCnews.go.com shares that a 30-year loan interest rate is at an 4.12 percent from 4.53 at the beginning of 2014, it is not enough reason to jump up and get a mortgage loan from a lender. It is a great sign and will definitely help you in securing a low monthly payment but interest rates are not the only factor in getting a mortgage loan.

Getting a house for most is a landmark purchase and a sign that things are starting to look up for them. They are more focused and eager to get to work because of the need to make the mortgage payments. There is excitement in the air whenever the purchase of home furnitures and even equipments are brought up because you know that it is for a long term use.

It is really much more easier in the long run to make payments monthly for the equity on the house instead of paying a landlord every 30 days. Renting could be less expensive than owning a home but the benefits of paying for a house that will be yours in a few years time is better than paying a lower amount for a place that will never be yours.

Know these things before taking out a mortgageloan

Before you start looking for ways to pay for your mortgage loan faster, you need to understand that getting a mortgage loan is not done out of whim. It is a decision that has to be studied very carefully. That being said, it would be very beneficial to be on the lookout for these pointer.

  • Understand the loan details. It is important to know the details of the transaction even if you have a lawyer who will process all the legal requirements of the purchase. You need to understand if the interest rate is fixed or adjustable rate. It is also important to verify if there are prepayment penalties on the loan to stay away from refinancing within that time period. Study the instances on when your escrow payments could change to manage payment expectations.
  • Impulse buying. Looking for a good house to buy in a great neighborhood is an exciting time. During the course of house shopping, keep in mind that you will often fall in love with a place almost every time. Especially if you are a first time homebuyer, your emotions will most likely take the driver seat and logic delegated to the back seat. This is a normal occurrence but knowing this, it is best to stay away from impulse buying. After seeing all the homes, make an analysis of the pros and cons of the homes you visited to be able to make informed decisions based on fact and logic. But do not discount emotions entirely as you need to feel comfortable with the house as well.
  • Hire the right people and read the contract. This is true especially if you are taking out a mortgage loan for the first time. It is important to hire the right type of people like a real estate attorney to review the purchase contract according to HomeFinder.com. Knowing their background and asking around for recommendations could be a good start. It is also important to talk to previous clients to get a feel of how professional the people you will be hiring are. It is quite hard to be in the middle of a transaction and your broker suddenly goes off to a month long vacation. Perusing the legal documents yourself is also important and do not rely on your attorney to just explain the contents. They are just also human beings that makes mistakes.
  • Research the neighborhood. Change is constant and even if you do not plan to stay in one place for a very long time, it is always a wise decision to scout the area and locate landmarks that are near your place. Look for hospitals, schools and even the convenience store. Try and see where the grocery is or how bad the traffic is during peak and off-peak hours. Walk around or drive around the community to try and assess the peace and quiet of the area you will be calling home for the next few years.
  • Fixer-upper. There is a lot of gray area when a house is described as having a lot of potential. This is one of the lines used to sell a fixer-upper type of house. If you want to keep your home loan affordable, try to stay away from fixer-uppers because this will run you up in maintenance and construction cost. Even if it just a bathroom tile, inspect it closely because it might be hiding some major problems underneath.

Escrow payments will be part of the mortgage loan repayment amount

Creating an effective budget should always include your mortgage payments. But there are lenders who puts up an escrow account to be sure that the tax and insurance payments are made by the homeowner. Investopedia.com explains that an escrow amount is a financial tool where a specific amount held for a two parties and released in due time to make a payment. Here are few things to understand about movements in amounts of the escrow payments.

  • It pays for homeowners insurance. The lender wants to make sure that the property will be protected especially in case of emergencies or calamities. The insurance is meant for the property in case something unexpected might happen.
  • It pays for real estate taxes. The escrow amount also includes the tax payments on the property. The lender does not want the property falling behind on tax payments because the government could put a lien on the property.
  • Increase in payments. The insurance and premium and the tax payments could increase for a number of reason. One would be the insurance coverage on the property and the bigger the insurance company sees the risk on the property, the higher the premium will be. The tax payments can also increase especially if there are improvement within the area like a shopping mall, a new business center or road improvements like a bridge. The more improvements are made, the higher the value of the land and the increase in taxes usually follows.
  • Fixed-interest loan can still have an increase in payment. If you choose a fixed rate, the payment amount for the principal and interest will remain the same throughout the life of the loan. If you started with a $900 monthly payment, it will remain $900 until you pay off your loan. But the escrow amount can change from time to time as the taxes and premium payment increase. As the escrow amount increase, the monthly mortgage payment will follow.

Here is a video on how escrow payments work:

Getting a mortgage loan is a big step and an exciting one as well. Before plunging in and being called a homeowner, study the details of the loan agreement, choose a house that you can see yourself in for the next few years, and analyze the payment amount to manage expectations.