Boise Idaho Real Estate Tips
Interested in Buying or Selling in the Boise Area? Find Real Estate Tips Here.Archive for mortgage
What is Escrow
When you buy a home you will be required to pay taxes and insurance on your home. Instead of having to pay large sums of money once or twice a year the financial institution for which you take your home loan out through will open a special bank account called escrow.
When the bank calculates your mortgage payment, they include 1/12th of your taxes and 1/12th of your homeowners insurance. Each month when you make your mortgage payment the lender takes this portion and deposits it into the escrow account. Then when your insurance and taxes are due the financial institution pays the taxes on your behalf to the government and pays your insurance premiums.
In some cases, private mortgae insurance is required to portect the lender if the buyer does not pay the loan. Although this is payed with the mortgage, it is also deposited into the escrow account and paid to the mortgage insurance company.
What You Should Ask the Lender
When applying for a home mortgage there are some tips to getting the best deal and not getting burned.
- If the home mortgage product permits negative amortization? (Which means the loan balance can increase monthly.)
- If the lender you are talking to suggests an option ARM you should ask what the minimum monthly payment on the loan will be and if you make a payment will the balance rise, fall, or stay the same. You should also ask what effect will choosing minimum monthly payments have on how much of my home I actually own? What effect will choosing interest-only payments have on my loan balance and my home equity? Lastly, when I start paying down the principle, as required, how would the dollar amount of my payments compare to that of a conventional mortgage lasting the same number of years?
Questions to Ask Lenders
What you should ask a lender when looking for a home loan:
- Which of your products offer the lowest interest rate?
- Will my interest rate be variable or fixed?
- If the interest rate can change, when will it change and what is the high and low?
- If the lender is offering a “teaser” introductory rate, ask when the rate expires and how will the new rate change the monthly payment?
- Would I qualify for a better interest rate if I went for a standard full-documentation loan rather than a low-doc, or no-doc loan?
Home Improvement Loan Scam
Consider the following scenario… A contractor rings your door bell and offers to install a new roof on your home at a price that sounds great. You know your roof needs a little TLC so you tell him you are interested but you don’t have the money right now. He tells you “no problem” that he can arrange financing through a lender he knows. You agree an the work begins. At which point you are asked to sign several documents. The papers may be blank or the lender may rush you to sign before you have time to read what you’ve been given to sign. You sing the papers. Later, you realize that the papers you signed are a home equity loan with what appears to have an high interest rate, fees and points. To complicate matters more the work on your home is not completed or is a shotty job. As you can see you are left holding the bag with little help.
Protect yourself by not agreeing to a home equity loan if you can’t afford the payments. Don’t sign any documents that you have not read or are incomplete. Don’t be pressured. Don’t deed your property to anyone without consulting with an attorney. If you decide to get a home loan shop and compare loan terms.
Shop Compare Negotiate
Concluding the series on obtaining a home loan I would like to re-emphasize the importance of shopping, comparing, and negotiating for a home loan. Compare the costs and terms and don’t be afraid to negotiate for the best deal. The local newspaper and Internet are good places to start shopping for a home loan. They typically display information on both interest rates and points for several lending institutions. Check your sources often since rates and points can change daily.
Don’t be affraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal.
