Amortization

Amortization refers to the regular amounts that you will pay back to your lender until the total cost of your home mortgage loan is repaid. The monthly payments will in the end total the amount that you borrowed from your lender to give to the seller of the home. You amortization schedule is calculated with your interest rate and any closing fees that you lender requires to be paid back to them. The purpose of an amortization schedule is so that you can see how the money you put out for your payments is used towards paying off your home and when you home will start building equity. When you first start to make payments on your home mortgage loan, you will be paying more in interest then in principal after a number of months the amount you pay in interest will go down and the amount you pay in principal will go up, meaning that your home will then start to build equity. It is possible to negotiate an amortization schedule that give you an more even split between interest and principal, but this is rare with today’s economy.

Closing Costs

Closing costs are the fees that the lender charges to you for choosing to purchase your home through their home mortgage program. Knowing what the fees are that are included in the closing cost from the lender you chose is important, you also need to know if those fees are really necessary or at the least negotiable. Checking to make sure that you are not paying an exuberant or unneeded amount of money in closing costs can help you save money that you may need later on down the road of other expenses you may incur with your new home.

When you sit down to talk to a home mortgage lender, don’t be afraid to ask them what the closing costs are that they require you to pay, a lender that won’t give you an idea of what kind of expenses you will have to pay out when asked, what they call a Good Faith Estimate or a GFE, is not one that you want to work with. National closing costs vary between 3% and 5% of the final cost of the home mortgage loan. Lenders while not required to provide you with a GFE before signing; they are required by Federal Law to give you what is called a HUD-1 settlement that details the estimated settlement and closing costs, within 3 days after you apply for the home mortgage loan; make sure to ask your lender about the HUD-1, that way you ensure that you do get this statement of estimated expenses.

When talking with a home mortgage lender, check to which of the required closing costs are negotiable; more than likely these negotiable costs are done through third party companies. The title company that does the title search to make sure that there are no hidden liens or problems associated with the property, will more than likely not agree to negotiate their fee, the same with fees for appraisals, credit checks, attorneys, or surveys. The fees that will probably be negotiable are the ones called administrative fees, and can include the application, courier, mailing, and underwriting fees. If you encounter processing fees for any of the documents, be sure to ask your lender why, as there should be absolutely no document processing fees.

You may be offered Lenders Insurance, before you jump at the extra protection, check with your home mortgage loan company or bank to make sure that this is not an option that they offer to you free of charge. They will offer the same service to you free of charge because they do not want you to default on your loan and will de everything they possibly can to prevent you from doing that. Make sure that you understand all the fees that would be included in the closing costs and keep in mind that any and all fees that come up after the close of the deal are your responsibility. If at anytime during the deal you feel that you are getting over charged remember that up until the time you close and sign the contract, you always have the option to walk away from the deal.

Points

An important part of purchasing a home, points are only used in The United States, other countries do not use the point system to figure what your home mortgage loan total will be. There are different types of points, there are front end points and there are back end points. Front end points are often called loan origination fees and are 1% of the total amount you are borrowing for your home mortgage loan. Front end points are used to counteract the interest rate that you will have to pay on your home mortgage loan, say the purchase price of your home is $150,000, if you pay 1%, or 1 point, of that cost which is $1,500 then your interest rate will lower by 1%. Paying front end points can be very useful if you intend on staying in your home for a long period of time, but if you don’t plan to stay in your home very long then that extra 1% would probably be better if used for something else that would increase the value of your home; on rare occasions, if the seller wants to make the deal on the house seem unbeatable, they will offer to pay front end points at the close of the sale. Paying front end points is not a mandatory thing, but it does have tax benefits, the total amount of points or the amount that you pay in points can be taken off your taxes the first year you have your home.

The other type of point is called a back end point; these types of points occur if you decide to enlist the aide of a broker to find you a lender for your home mortgage loan. How back end points work is when the broker finds you a lender, the lender then pays the broker for bringing your business to them, kind of like a finder’s fee. The broker can do one of two things, they can offer you an interest rate with no additional fees, this is called a par rate, or they can talk to the lender and ask what interest rate they can give you to make points. So say the par rate interest rate is 6%, your broker goes to the lender and says they want 1 point, the lender will then have them give you an interest rate of 6.5%, if the broker says they want 2 points, the lender will tell them to give you an interest rate of 7%; you then are paying an extra .5% to 1% extra to the broker. When using a broker make sure that you know what your broker is talking about and asking from you before signing with them.

Principal and Liability

Principal is the price the seller is asking for the house, or the difference between the market price of your home and what you have left to pay off on your home mortgage. When you start to pay this amount down in your home mortgage loan, your home begins to build equity. Liability is the amount that you have left to pay on your home mortgage loan.

If you sell your house before your home mortgage is up, you will need to figure out how much to ask for, so you can pay off the liability and still make a profit. You do this by totaling how much you have left to pay on the home mortgage loan, then add how much you would hope to make off the home; so say you have $20,000 left to pay on your home mortgage and you want to make $100,000, you would need to set your asking price at or above $120,000, remember that you may want to set your asking price above what you want to get for it, because not every buyer will automatically take it for what you are asking for.

When purchasing a home you will want to figure in whether you plan to stay in it for a long period of time or if it is just a stepping stone to something bigger. The longer you stay in a home the more equity you have to build up, the more equity you have built up in a home the more profit you will be able to make when you do decided to sell.