Home Mortgage Tutorial

Become an educated consumer of home mortgage products

(Bookmark this page so you can return to it as a useful reference)

Presented by Cities Commerce Corporation

 

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                Contents

                1.   Introduction

                2.  Types of mortgages

                3.   Qualifying for a mortgage

                4.   Loan points

                5.   Principal, Interest, taxes and insurance

                6.   Private Mortgage Insurance

                7.   Settlement costs

                8.   Pre payment penalties

                9.   Legal fees

                10.   Real estate appraisals and Loan to Value

                11.   Second mortgages

                12.   Home equity credit lines

                13.   Debt consolidation

                14.   Shopping for mortgages

                15.   Rate analysis (bond rates, etc)

                16.   Jumbo mortgages

                17.   Investor mortgages

                18.   Locking of mortgage rates

                19.   Mortgage loan applications

                20.   Mortgage application fees

                21.   Refinancing

                22.   Credit risk

                23.   The mortgage is a commercial instrument

                24.   Income tax considerations

                25.   Mortgage Loan types

                26.   The mortgage process

                27.   Ernest money deposit

                28.   Credit Life Insurance

                29.   Annual percentage rate (APR)

                30.   FNMA (Fannie Mae) , GNMA (Ginnie Mae) and FHLMC (Freddie Mac)

                31.   Owner Occupied Property

                32.   Smaller loans

 

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1.  Introduction

 

Are you planning to buy a house?  We strongly urge you to learn about the mortgage business first. The mortgage you get can affect the house you can afford in a big way.

Are you interested in refinancing an existing mortgage?  We also strongly urge you to become an educated mortgage consumer. The morgage you get can affect your monthly payments by hundreds of dollars a month.

By becoming educated on mortgages and the application process, you can reduce the risk of time-consuming mistakes, giving better assurance that your mortgage loan will be ready when you are.

We are going to present a summarized tutorial of the mortgage business in the paragraphs that follow. Take a few moments to  read this tutorial. It should make you an educated consumer of mortgages and save you many thousands of dollars.

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2.  Types of mortgages

 

There are many types of mortgages. The most common ones are:

The 30-year fixed rate mortgage

The 15-year fixed rate mortgage

1 year adjustable rate mortgage

3 year adjustable rate mortgage

5 year adjustable rate mortgage

5 year balloon mortgage

7 year balloon mortgage

You will also find some variations of these common types, such as 20-year fixed rate mortgages, 3-1, 5-1 and 7-1 adjustable rate mortgages.

The fixed rate mortgages are the best when the rates are at historic lows. With a fixed rate mortgage, you pay a fixed percentage interest rate for the life of the loan. You want to lock in a low rate for the years to come and have the comfort of knowing that your mortgage payments will not change from year to year.

The 15 year fixed rate mortgages will tend to have an interest rate that is percent lower than the 30- year fixed rate mortgages, but they are much harder to qualify for (see qualifying information below).

The interest rates for fixed rate mortgages are usually the highest because of the greater "risk margin". If rates rise considerably the lender can be stuck a long time with a mortgage they are losing money on.

If mortgage rates are at historic highs, your best bet is probably an adjustable rate mortgage. With an adjustable rate mortgage, you pay according to an interest rate that changes from time to time. You can expect to get a better initial interest rate on an adjustable than on the fixed rate mortgages, because the adjustable rate mortgages have a lower "risk margin", plus you can ride the rates down without having to incur the expense of refinancing. Adjustable rate mortgages are often offered at a "teaser" rate during the first period of the loan, prior to the first adjustment. Don’t think this is some free lunch or gift of gratitude from the lender. These loans usually come with points that more than make up for the "teaser" discount. One of the real reasons for the teaser rate is to allow one to qualify for a larger mortgage. During economic times when too many of these mortgages are going into default, expect lenders to use the projected cost of the loan in it’s second year to determine the amount of loan you are qualified to take.

The most popular adjustable rate mortgage is the 1-year adjustable, know in the industry as the 1-year ARM. The interest you pay the first year is often a low "teaser" rate. At the end of the first year, the rate is adjusted to become that of some index (typically the 11th District Cost of Funds index or the rate on 1-year U.S. Treasury Bills) plus a margin (some current examples are 2.5% on the COF basis or 2.75% on the 1-year T-Bill basis). Most of these ARMs have an annual maximum amount they are allowed to change, either up or down, (an example is 1% on the COF and 2% on T-Bill basis) and a life of the loan limit as well (an example is 11% on the COF and 5% above the starting rate on a T-Bill basis loan).

The 3 and 5-year adjustable rate mortgages adjust less frequently. Therefore they will have a higher rate because of a greater "risk margin".

Balloon mortgages are mortgages that are based on a fixed rate for the specified period of time. These rates are often lower than the fixed rate mortgages because of a lower risk margin for the lender. At the end of the fixed rate period, the mortgage becomes due. You can generally continue the mortgage beyond the balloon period at whatever the current interest rates are at that time. But be careful. Read the fine print. The balloon mortgage may disallow continuation if you have taken a second mortgage on the property or if you are considered less than a good credit risk at time the balloon expires. Balloon mortgages can be attractive if you expect to move within the balloon period, especially during economic times when other mortgage rates are high.

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3.  Qualifying for a mortgage

 

It’s important to know how large of a mortgage you can qualify for. This amount is usually based on a percentage of your income. Add the loan’s annual amount for principle, interest, taxes and insurance. The total is called your cost of housing. It is also called your "front end ratio" It typically should not exceed 28% of your gross income. If you don’t have much other debt, such as big car loans, school loans, credit card debt and other loans to service, you may get away with qualifying with housing costs that eat up 34% of your gross income. A second general rule is that your housing cost plus the cost of servicing other debt should not exceed 32% of your total income. This is called your "back end ratio". However, some lenders may raise this figure to 36% or even higher for borrowers that have an exceptional credit rating or are making a large down payment on the property. If you are going to spend less than 28% of your income on housing costs and less than 32% of your income on total debt service, you can probably qualify for the lowest mortgage interest rates because you will be considered a less risky borrower, assuming you have a good credit history.

Here’s an example:

Your gross annual income is (combine husband and wife) is $100,000

You should be able to safely qualify for annual housing costs of $28,000.

You should be able to safely qualify for a total annual debt service cost of $32,000.

Estimates of the amount of a mortgage one can qualify for are provided in the following table. These are only ballpark estimates based on the assumption that the borrower has a good credit rating, has made a sizable down payment of around 20% and has funds set aside for closing costs. These estimates are based on a conservative 28% mortgage debt-to-income ratio, .5% of the mortgage for initial annual principal payments, 1% of the mortgage for annual property taxes and .5% of the mortgage for annual hazard insurance

Annual          rate                   rate              rate                rate

income        6.5 %               7.0%              7.5%               8.0 %

$30,000    $ 98,824         $ 93,333          $ 88,421        $ 84,000

$35,000    $115,294        $108,889         $103,158       $ 98,000

$40,000    $131,765        $124,444         $117,895       $112,000

$45,000    $148,235         $140,000         $132,632       $126,000

$50,000    $164,706         $155,556         $147,368       $140,000

$55,000    $181,176         $171,111         $162,105        $154,000

$60,000  $197,647           $186,667         $176,842        $168,000

$65,000  $214,118           $202,222         $191,579        $182,000

$70,000  $230,588           $217,778         $206,316        $196,000

$75,000  $247,059           $233,333         $221,053        $210,000

$80,000  $263,529           $248,889         $235,789        $224,000

$85,000  $280,000           $264,444         $250,526        $238,000

$90,000  $296,471           $280,000         $265,263        $252,000

$95,000  $312,941           $295,556         $280,000        $266,000

$100,000  $329,412          $311,111       $294,737        $280,000

$105,000  $345,882          $326,667       $309,474        $294,000

$110,000   $362,353         $342,222       $324,211        $308,000

$115,000   $378,824         $357,778       $338,947        $322,000

$120,000  $395,294          $373,333        $353,684       $336,000

  

There can be a twist to the qualification process. There are loans called no-income verification loans, for people who cannot verify their income, and no-asset verification loans for people who cannot verify that they have assets for closing costs. These loans are also called no-doc loans. Rest assured the risk Vs return formulas are at work here. If the lender is taking a higher risk by offering mortgages without verifying the qualification of the borrower, the interest rates will be higher to offset the risk of loss. More likely, the lender will reduce his risk by requiring a large down payment and/or a stellar credit history for these loans.

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4.  Loan points

 

"Points" are an amount of money you pay to reduce the interest rate on your loan. One point is 1% of the amount you are borrowing. If the mortgage interest rate is high, the points will probably be low, or even zero points. If the interest rate is low, the points will probably be high. The range of points paid to get a mortgage is usually zero to 3. Here again, there are no free lunches. You simply have to decide whether you want to pay the points up front, and have lower monthly payments, or not pay the points and have a higher monthly payment. If you are having trouble qualifying for the amount of money you want to borrow, and just happen to have a few thousand dollars free, you might elect to pay some points to get a lower interest rate so you can qualify for a larger mortgage.

Typically, each discount point you pay reduces the interest rate on a 30-year fixed rate mortgage by about 1/8%.

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5.  Principle, Interest, taxes and insurance

 

Your housing costs will be made up of principle, interest taxes and insurance as far as most lenders are concerned. Principle payments reduce the amount of money left to pay back. Interest payments are the amount of money you pay for the use of the lender’s money. It the early years of a mortgage pay back, the principle payments are small and the interest payments are large. Property taxes are paid to local taxing authorities, typically to pay the cost of local governments and public schools. Property taxes may vary widely from area to area, so be sure to ask what the property taxes are. However, don’t let high taxes scare you off. Areas with high taxes can have superior school systems that are in great demand, creating high and sustainable property values in their surrounding communities. If you have children, you may find areas with high taxes and good schools cheaper than areas with low taxes and poor schools, where you wind up paying a small fortune to have your children educated at private schools. Lenders will require that you purchase property insurance to protect their interest in your home should there be a fire or some other disaster. Insurance costs can also vary widely, so be sure and inquire about the insurance costs before you buy. However, insurance costs will normally be the smallest of the components of your housing costs.

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6.  Private Mortgage Insurance

 

Private mortgage insurance (PMI) insures mortgage lenders against losses in the event of the borrower’s default. By covering default risk on residential first mortgage loans, mortgage insurance makes loans with less than 20 percent down payment available. If you are applying for a conventional mortgage loan with less than 20% down, you will be asked to pay for mortgage insurance. If you are applying for a FHA loan you will be asked to pay a mortgage insurance premium (MIP). The cost of PMI can vary from about % of the loan for loans with only 5% down to around % for loans with 15-20% down. FHA loans ask for a one-time fee of 3.8% of the loan amount at settlement, for the cost of mortgage insurance.

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7.  Settlement costs

 

When you go to settlement on purchase of real estate, there a number of fees and expenses presented at closing. Some of these are associated with the mortgage. Others are associated with taxes, insurance, escrow fees etc. Typical of those associated with the mortgage, and what might be considered a typical amount (but they can vary widely) are:

Loan origination fee                                                                            Up to 1% of the mortgage amount

Appraisal fee (for having the property appraised)                               $ 300

Credit reports (to verify that you are credit-worthy)                          $   50

Title company fees                                                                               $ 300

Title insurance                                                                                     of 1% of the mortgage amount

Underwriting fees                                                                                 $ 300

Document preparation fees                                                                  $ 250

Tax service fees                                                                                    $   75

Recording fees                                                                                       $ 150

Processing fees                                                                                      $ 250

Mortgage interest for the current month                                             Varies with settlement date

Private mortgage insurance                                                                   0-3/4 percent of the loan amount.

Again, the amounts shown are typical but in no way represent what YOU will be paying on your specific mortgage.

 

Just to remind you, there are also settlement costs outside the direct costs associated with the mortgage. Typical costs are:

State taxes (if applicable)                                                                        Varies by state

Property survey (if applicable)                                                                 Typically $300

Down payment, varies,                                                                             Typically 10 to 25% of the property value

Real estate property taxes in advance                                                     Varies

Discount points                                                                                           0-3 % of the mortgage amount

Home owner’s insurance in advance, varies,                                           .25% of the property value annually for example

Homeowner’s association dues, if applicable, in advance                        Varies

Condominium association fees, if applicable, in advance                         Varies

Your attorney’s fees                                                                                   Varies

The above list is not necessarily complete. It is presented to give you an idea of the many costs you can expect to see at the settlement table. Your broker or lender should give you a list of the settlement costs in advance of settlement. This list is know as a Good Faith Estimate of Settlement Costs. It is advisable to have some extra funds available at settlement, just in case there are some mistakes.

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8.  Pre payment penalties

 

A pre payment penalty occurs when a mortgage is paid off prematurely in its early years, typically when a buyer sells the property. Loans with pre payment penalties have fallen out of favor and in many localities are not legal. Be sure to ask if the loan you are applying for carries a pre payment penalty, so you don’t have any surprises when you go to sell your property down the road.

You can wind up with surprise capital gains tax at the federal, state or local level when you sell your property. You don’t want a surprise mortgage pre-payment penalty on top of that.

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9.  Legal fees

 

It is advisable to have an attorney go over all documents you sign, including those associated with your mortgage. You can expect to pay several hundred dollars for an attorney to assist you with document review. You will probably want your attorney to be with you at settlement, to make sure all the documents that protect you, the buyer and mortgagee, and to review the many documents as you sign them.

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10.  Real estate appraisals and Loan to Value

 

Lenders will want to know the value of the property you are taking the mortgage against. The property will be pledged as collateral for the loan, which means if you default on the loan, they take the property and sell it to get their money back. They want to be sure the property is worth what you are paying for it. Therefore, they will order an appraisal, which you will have to pay for. Appraisals will usually cost several hundred dollars, and are conducted by an unbiased and professional real estate appraiser.

The lender will not want to loan you more than about 85% of the value of the property. That leaves a buffer if for some reason the property value declines or if they are saddled with big liquidation fees because they have to foreclose on the loan and take over the property. Some will loan you greater amounts but because the lender’s risk of losing money in a foreclosure is greater, they will ask for a higher mortgage interest rate.

Here’s one more thing to know about loan to value. If you only mortgage 75-80 percent of the value of the property, that means you will have a bigger cash down payment. It also means you’re a very low risk for loan default and foreclosure because of all the money you have tied up in the property. That means you can probably qualify easier for the loan amount you want and you can also probably get the lowest possible mortgage interest rate.

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11.  Second mortgages

 

Second mortgages are mortgages on a property that are less secure for the lenders than the primary mortgage. The lender of a primary mortgage is the first one to collect their money in the event of default and foreclosure. The lender holding the second mortgage note gets to collect only if the primary note holder gets their money. Because the risk of loss is greater for a second mortgage holder, the mortgage interest rate on the second mortgage will be higher. The closer the total of the first and second mortgages approaches the appraised value of the property, the higher the second mortgage interest rate will be. The interest rate on a second mortgage will be greater than that of the primary mortgage because of the second mortgage lender’s greater risk exposure.

Second mortgages are normally taken out for a fixed amount and fixed period of time, like ten or fifteen years, unlike home equity credit lines which are usually revolving credit accounts.

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12.  Home equity credit lines

 

Home equity credit lines are taken for an indefinite period of time. They usually come with the equivalent of a checkbook that the borrower may simply write checks on to increase the loan up to the maximum permitted by the loan agreement. Lenders will normally want to keep the maximum loans against a property well under the appraised value. They will not want to allow a home equity credit line that brings the total loans on the property above 85 or 90% of the property’s value.

The interest rate on home equity credit lines is often adjustable, tied to the Prime Rate plus some margin, like 1 to 3 percentage points. The outstanding balance on a home equity credit line is typically scheduled to be paid off in six years. Because of the short payoff time, when compared to a second mortgage, monthly principle payments are normally larger for home equity credit lines than for second mortgages.

Because a home equity credit line is secured by the property, the lender’s risk is not too great. That’s why the home equity credit lines are a popular alternative to unsecured credit lines, such as credit cards, which may have rates double that of the home equity credit line.

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13.  Debt consolidation

 

People who find themselves with burdensome debt payments each month, because they have overextended their finances with credit cards, can get some relief by getting a home equity credit line. The home equity credit line will have a lower interest rate, and the interest may be tax deductible. Those needing greater relief can apply for a second mortgage. Second mortgage rates will probably be slightly lower than for home equity credit lines and the payback period can be much longer. When people take a second mortgage to consolidate revolving credit debt, the relief can be significant. Of coarse, the tradeoff is that they are giving up equity in their property.

Homeowners who need the maximum in debt consolidation should consider refinancing their primary mortgage, especially if they can get a lower interest rate. There are more details on this in the section on refinancing in this tutorial.

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14. Shopping for mortgages

 

Mortgages have become a rather impersonal thing. You may get your mortgage from a local lender or through a local broker only to find the note sold to another lender within days of the original closing. The mortgage is what is know as a marketable security and market them they do. The only good reason to deal with a local lender or broker is to get personal service assistance in filling in the forms. This will often be done by phone, mail and fax. If one can get the same assistance from a non-local lender or broker, and get a better mortgage, in terms of interest rates and qualification, then there is little reason not to take advantage of the national lender’s superior mortgage product.

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15.  Rate analysis (bond rates, etc)

 

History tells us that mortgage rates tend to track the interest rates on the U.S. Treasury’s 30-year bond (known as the "long bond"). When the rate on these bonds goes up, the mortgage rates tend to go up almost immediately. When the rate on these bonds goes down, mortgage rates tend to go down. However, mortgage rates tend to go up faster than they go down.

The rates are also influenced by what Alan Greenspan, the Fed Chief, is thinking, and what the Fed watchers think Alan Greenspan is thinking, and by the personal life of Bill Clinton. If you gamble on what way you think rates will go, you will lose half the time.

Graphs of the recent data for AAA Corporate Bonds, the Prime Rate, and 30-year U.S. Treasury Bonds may be found at http://woodrow.mpls.frb.fed.us/economy/charts/int2.html (The Federal Reserve Bank of Minneapolis).

Current national average rates for the 30-year U.S. Treasury Bond, 15 and 30 year fixed rate mortgages, and 1 year Adjustable Rate Mortgages are available at http://www.money-rates.com/mortgage.htm (money-rates.com)

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16.  Jumbo mortgages

 

Jumbo mortgages are those that exceed the Fannie Mae limit. That means Fannie Mae doesn’t provide a market for them, so they are less marketable. The penalty here amounts to a higher rate, typically around .5%. As of July 1999, the Fannie Mae limit for mortgages is $240,000. Fannie Mae raises this limit from time to time. If you took out a jumbo mortgage when you bought your home, and some time has passed, you may benefit from refinancing if you have paid down the principal and the Fannie Mae limit has raised above your current mortgage principle balance. Loans below the Fannie Mae limit are called conforming loans. Loans above are called non-conforming or Jumbo mortgages.

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17. Investor mortgages

 

Most mortgages are packaged to comply with Fannie Mae guidelines, so the mortgages may be marketed easily. Sometimes investors pool funds and offer these funds for mortgages which may have some creative twists to them. These mortgages will tend to have a somewhat higher interest rate because of their limited marketability. The creative twists, though, may be just what you need so don’t overlook them.

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18.  Locking of mortgage rates

 

When applying for a mortgage you will usually have the option of asking for a rate lock. If you think rates will go up, it will be wise to lock the rate. Usually, the lender will want a sizeable earnest deposit from you to execute a rate lock. The deposit is to show your commitment to going through with the mortgage deal. After all, the lender will be committing to his supplier of funds for the amount of your loan. So if you back out, the lender will be stuck with having to take the loan himself.

You can usually let the rate float right up until loan settlement. However, if rates are highly volatile and you are sure you won’t be backing out on the deal, locking the rate can provide a great amount of peace of mind.

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19.  Mortgage loan applications

 

In order to apply for a mortgage, you will need a number of documents. This may include:

A copy of the Agreement of Sale on the property you intend to purchase.

Your recent pay stubs, to verify your income

Your recent bank statements, to further verify your income and to show that you have settlement funds available. If large deposits were recently made, you may be asked to explain them. The lenders don’t want you to borrow settlement funds.

You could be asked for a copy of your most recent federal income tax return, to further verify income.

You will need to have a list of all your cash assets, all your other assets such as cars, boats and other real estate, and all your debt accounts, such as car loans, school loans and credit cards. You will need to show how much is owned on these loans and what your monthly payments are.

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20. Mortgage application fees

 

You will probably be asked to pay a mortgage application fee of several hundred dollars. Ask what the lender’s policy is regarding this fee if the loan cannot be approved. Many lenders will refund the fee if the loan cannot be approved, unless you voluntarily withdraw your application.

You may also be asked to pay for the real estate appraisal fee in advance. This fee could be several hundred dollars and is normally not refundable.

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21.  Refinancing

 

The strategy of refinancing your first mortgage is normally to get a lower interest rate. Refinancing may also be a strategy in debt consolidation. High interest short-term loans, such as credit card debt, can become much less burdensome if the interest rate is reduced substantially and the payback period is stretched over 15 or 30 years. If you are over-extended with short-term debt, refinancing your mortgage and using the proceeds to pay of the short-term debt may be a good strategy, if implemented before your credit rating is ruined. You may even refinance your first mortgage and add a subordinate second mortgage as part of the overall debt consolidation strategy.

Seasoning of second mortgage - Second mortgage amounts may have to be at least one year old (seasoned) to roll them into a first mortgage when re-financing.

Cash out – the rules for walking away from the refinancing settlement table with cash left over are complex and not easy to pass. If you want to refinance your first mortgage to get cash for a vacation or credit card consolidation or whatever, discuss this with your lender. You may be better off refinancing your first mortgage without taking cash out, then taking a second mortgage for the cash you want.

 

Sources of loan application and settlement funds - There is a good chance you can roll the refinancing loan costs into the new mortgage if other factors such as loan-to-value ratios remain favorable.

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22. Credit risk

 

Banks and other investors loan money to make money.  If there is some risk of not being paid back,  the lender will want a higher interest rate to offset the cost of those loans that go sour.  The higher the risk, the higher the interest rate.   If you are considered too high a risk, lenders may not loan you money no matter how high a rate they can charge.

If  your credit rating is not stellar, talk it over frankly with the broker or lender you hope to deal with.  They may still have some loan package that is suitable.  If not, try another lender or embark on a credit improvement campaign.

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23.  The mortgage is a commercial instrument

 

Shortly after loan settlement, or anytime thereafter, your mortgage may change hands.  A mortgage is a commercial instrument and it may be bought and sold like a share of stock.  It is also possible that your mortgage is sold but the original lender continues to service the mortgage by collecting payments.

 

 

24.   Income tax considerations

 

Be sure to check with a tax accountant regarding the current tax laws on first and second mortgages and home equity credit lines. You may find a sizeable tax deduction with interest paid on these loans.

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25.  Mortgage Loan types

 

Conventional - These are the most common type of loan. Most of the discussion in this tutorial pertains to conventional loans.

FMHA (Farmers Home Insured Mortgages) - These loans are targeted for low and moderate income families in rural areas.

FHA (Federal Housing Administration) – These are federally backed mortgage loans designed for lower income areas.

VA (Veterans Administration) loans - These are federally backed mortgage loans designed for military veterans.

FHA, VA and FHA mortgages usually feature low down payments, low interest rates, few points and relaxed income to debt ratios for qualification purposes. In additions, some of these loans are assumable, which means they can be passed on to a new purchaser of the property.

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26.  The mortgage process

 

Here are the typical steps involved in the process of obtaining a mortgage:

1.  Find the property you wish to purchase, and sign an Agreement of Sale

2.  Select a broker or lender

3.  Prepare and submit a mortgage application to the broker or lender

4.  The broker or lender will order a real estate appraisal

5.  The lender will request any missing or supplementary information during while processing the loan application.

6.  The broker or lender notifies you that the application is approved, assuming all goes well.

7.  A settlement date and time is established.

8.  You may be able to lock the mortgage rate prior to settlement once the application is approved.

9.  You will obtain any necessary final documents prior to settlement, such as proof of insurance on the new property, proof of a termite inspection (if required). You will also obtain title insurance during this period. Normally, you get this through your lender, broker or attorney.

10. You attend settlement, at which time the mortgage becomes final and you are normally given possession of the property.

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27.  Ernest money deposit

 

An earnest money deposit is not related to the mortgage. This deposit is often asked for upon signing of an Agreement of Sale to purchase real estate. It’s purpose is to show your commitment to purchase the property. Should you back out of the deal, your earnest money deposit may have to be forfeited. If you cannot complete the deal because you cannot qualify for a mortgage, the earnest money is usually returned. MAKE SURE THIS IS SPELLED OUT IN THE AGREEMENT OF SALE! Assuming you follow through with the purchase of the property, the earnest money usually becomes part of your down payment.

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28.  Credit Life Insurance

 

At some point in the process of applying for a mortgage or sometime thereafter, you will probably be offered credit life insurance. Credit life insurance is designed to pay off the mortgage loan in the event of your death. Having insurance to cover this debt is a good idea, but compare the offerings of credit life insurance with normal life insurance that could also be used to pay off the mortgage if you should die. The normal life insurance may be a better deal for you.

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29.  Annual percentage rate (APR)

 

The Federal Truth in Lending Act requires that lenders disclose the true cost of a loan. The true cost includes not only the interest rate but certain fees involved in obtaining the loan. This true cost is called the annual percentage cost.

 

 

30.  FNMA (Fannie Mae) , GNMA (Ginnie Mae) and FHLMC (Freddie Mac)

 

Fannie Mae, Ginnie Mae and Freddie Mac buy mortgage loans, providing they comply with their qualifications. This provides a ready market for the sale of mortgages, which are marketable securities, which in turn assures an adequate supply of mortgage funds for the nation’s homebuyers.

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31.  Owner Occupied Property

 

The mortgage interest rate on properties that are not owner-occupied will be higher. Expect to pay 1.5 % higher interest rate.

 

 

32.  Smaller loans

 

Expect to pay higher rates for loans of less than $100,000.

 

 

 

This concludes the Cities Commerce Home Mortgage Tutorial.  Now that you are an educated consumer, go ahead and click below to begin applying for your mortgage, through our preferred affiliate, LoanWeb.com: This concludes the Cities Commerce Home Mortgage Tutorial.  Now that you are an educated consumer, go ahead and click below to begin applying for your mortgage, through our preferred affiliate, LoanWeb.com: : This concludes the Cities Commerce Home Mortgage Tutorial.  Now that you are an educated consumer, go ahead and click below to begin applying for your mortgage, through our preferred affiliate, LoanWeb.com: : : This concludes the Cities Commerce Home Mortgage Tutorial.  Now that you are an educated consumer, go ahead and click below to begin applying for your mortgage, through our preferred affiliate, This concludes the Cities Commerce Home Mortgage Tutorial.  Now that you are an educated consumer, go ahead and click below to begin applying for your mortgage, through our preferred affiliate, LoanWeb.com:

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Cities Commerce Corporation provides this mortgage tutorial page as a public service to the on-line community.  Please feel free to use this page all you wish but you may not copy this page or it's code.

 

 

 

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