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Home Loan Information |
Are you thinking about buying a house? If so, in addition to finding a qualified and honest real
estate agent and lender, you also need to educate yourself about home loans. The more you
know the best deal you will ultimately secure. It used to be many years ago that when you
wanted to buy a house, you simply went to your bank and got a loan. Today, the options for
home loans are massive with three primary lenders - Freddie Mac, FHLMC, which stands for
Federal Home Loan Mortgage Corporation, Fannie Mae, FNMA, Federal National Mortgage
Association, and Ginnie Mae, GNMA, Government National Mortgage Association.
To buy a home, you have two options of getting ahead of your competitors. You can be pre-qualified, which means you go through some of the initial processes to determine the amount
of money you can spend on a home based on your income and debts. The other option is to
become pre-approved, which means you are actually approved for a home loan and the funds
are waiting for you. Once you find a house, you simply sign the papers. Not only do sellers
love this, but also, it saves a tremendous amount of time.
When you are ready to get started, you want to start out by talking to a lender. Together, they
will determine your debt to income ratio and go through all the necessary verifications for
employment, bank accounts, child support, and so on. Once that is done, you go house
shopping - the best part - then make an offer. When the seller accepts your offer, the
paperwork is signed in the house closing and then the home is yours.
Interestingly, the company you send your house payments to is usually not the company that
owns your home loan. Instead, they are merely service providers for your mortgage in that they
work as the intermediary between you and the lending institution. What you do not see or
often know about is all that goes on behind the scenes. When you secure a home loan, your
loan is packaged into a pool with many other loans. At that point, your specific loan is sold to
one of the three lending institutions mentioned above.
The mortgage company or service provider receives a monthly fee from the lending institution
for processing and handling your payments and managing your home loan. Generally, the fee
is minimal, being less than 1%. However, when you think about all of the homes that the
mortgage company is managing, you can see how quickly the money adds up. In fact, a good
mortgage company can easily make millions, if not billions of dollars a year. Even though your
home loan is being run through one of the three lending institutions, it is important that you
maintain a good relationship with your mortgage company as they act as the mediator, so to
speak.
Therefore, payments should always be made on time. If fact, if you make just one extra
payment a year, either in one lump sum or in additional money broken out each month, paid
directly to the principal of the loan, you can cut a 30-year mortgage down to just 18 years. If
you pay more, the loan will be cut even more. The savings is huge. The reason is that you are
lowering the principal amount that interest is being charged to and therefore, saving tons on
interest. Additionally, if you do plan to pay your loan off earlier than scheduled, be sure that
you will not be charged a prepay penalty.
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