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Buy a home is one important decision that many people have to made sometime in their life. If you decide to buy a home now, there are many thing you have to known and many papers have to be signed before the home you brought can be registered to your name.
When home, house or real estate is used to secure a loan, the borrower signs a contract called a mortgage. It is a contract refers to the borrower as the mortgagor, and the lender is called the mortgagee. The gradual repayment over many years of a mortgage, usually 15, 20, 30 years including the accrued of interest, is called amortization and equity of a property can be estimated by finding a fair market value price and subtracting the outstanding mortgage debt.
In this article, we will discuss types of mortgages.
Understand First and Second Mortgages
a) If a property may have more than one mortgage on it, then the mortgages will be ranked as first, second,...according to the order they were recorded at the registry office.
b) If the first mortgage on a property is paid off by the home borrower, the second mortgage automatically becomes the first mortgage.
c) If the home buyer defaults on the mortgage payments and the property will be foreclosed and resell, after first mortgage has been paid, the claims of the second mortgage would be settled.
d) Usually, home buyer requires to provide a down payment of at least 25% of the property's value.
Conventional Mortgage
a) A conventional mortgage is a type of mortgage offered by all banks, trusts and credit unions requiring the home buyer to have a down payment of at least 25% of the property value.
b) Privately arranged conventional mortgage, the down payment can be whatever the parties involved agreed upon.
Insured Mortgages
a) If the mortgage is approved, financial institution may require home buyer to have addition life insurance equal to the amount of mortgage to protect the owner as well as financial institutions in case of home buyer sudden dealth brfore paying off the mortgage.
b) If the down payment is less than 25% of the property value, financial institution may require any amount less than the requirement of 25% to be insured.
Mortgage Brokers
Mortgage brokers specialize in making contact between those who have funds to invest in mortgages and those who need a mortgage. The rates for arranging a mortgage usually is 0.5% or higher of total amount borrowed is payable by the borrower at the time of closing.
Ratios to calculate home buyer qualification
The mortgage lender will calculate 2 ratios
a) Gross debt service
It is the percentage of the buyer's annual gross income (usually not exceed 32%) needed to cover the mortgage payments, plus municipal taxes.
b) Total debt service
It is the percentage of annual income needed to cover mortgage payments, taxes, heating, and consumer debts, usually not exceed 38%.
I hope this information will help. If you need more information of insurance or series of articles of the above subject at my home page at:
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