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Home Buying 101 Archive


How does refinancing work?

With a refinancing, you pay off an old loan on your home and take out a new one, usually at a lower mortgage interest rate. To refinance, you will generally need to have equity in your home, a good credit rating, and steady income. You can borrow a percentage of ...


In seller financing, how does the seller determine what rate to provide?

The interest rate on a purchase money note is negotiable, as are the other terms in a seller-financed transaction. To get an idea about what to charge, sellers can check with a lender or mortgage broker to determine current mortgage rates on loans, including second mortgages. Most interest rates, however, ...


Are 40-year mortgages a good idea?

The main reason buyers sign on for these type of loans, which add 10 years to the traditional 30-year mortgage, is to take advantage of smaller monthly payments. ...


Which is better, a 15-year or 30-year loan?

The 15-year mortgage offers you a chance to save a lot of money over the life of the loan. This is because the amortization is half that of the 30-year loan, which means that the total interest paid on the 15-year note, as compared to a 30-year note, is significantly ...


What determines how adjustable-rate loans change?

They go up and down with interest rates, based on several esoteric money market indices that cause the cost of funds for lenders to vary. The most popular indices include Treasury Securities (T-Bills), Cost of Funds (COFI), Certificates of Deposit (CDs), and the Libor, which is the London inter-bank offering ...


Should I avoid an adjustable rate mortgage?

Because adjustable rate mortgages, or ARMs, fluctuate with the market, they offer less stability than fixed-rate loans. If an ARM is adjusted upward, monthly payments will increase, and for a lot of people that can be too big a risk to take. On the other hand, should rates drop dramatically, ...


Why do most homebuyers prefer a fixed-rate mortgage?

Long-term, fixed-rate mortgages are preferred by most homebuyers because they offer security and stability. The interest rate does not fluctuate over the life of the loan, so the total amount of principal and interest always remains the same. The monthly payment can change, however, if local property taxes, which are ...


Are interest rates negotiable?

It depends who you negotiate with. Some lenders are willing to haggle on both the loan rate and the number of points, but this is not typical among more established lenders. ...


What is a lease option?

It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not. ...


What is seller financing?

Also known as a purchase money mortgage, it is when the seller agrees to "lend" money to the buyer to purchase and close on the seller's home. Usually sellers do this when money is tight, interest rates are high or when a buyer has difficulty qualifying for a conventional loan ...


What is a bridge loan?

It is a short-term bank loan of the equity in the home you are selling. You may take out a bridge loan, or interim financing, to help with a knotty situation: closing on the home you are buying before you close on the property you are selling. This loan basically ...


Is a reverse mortgage good for elderly homeowners?

A reverse mortgage is an increasingly popular option for older Americans to convert home equity into cash. Money can then be used to cover home repairs, everyday living expenses, and medical bills. ...


What is a wraparound loan?

Also called an all-inclusive mortgage, it is where a new home loan is placed in a subordinate or secondary position to the original mortgage and the new loan includes the unpaid balance of the first. ...


What are jumbo loans?

If you borrow at or below the conventional loan limit for non-government mortgages, you have what is known as a "conforming" loan. If the amount surpasses the loan limit that is set by both Fannie Mae and Freddie Mac -now $333,700 for a single-family home - you would then have ...


How do growing equity mortgages work?

Also called GEMs, these fixed-rate mortgages have monthly payments that increase in increments of 3 percent or more to reduce the principal loan amount. They are often written by the lender at a below market interest rate and have shorter terms. ...