Today, most mortgages issued actually come from mortgage brokers. These people are there in order to marry a buyer with specific loan. There are many different services that brokers will undertake including assessing borrower’s credit worthiness, finding a product that matches the client’s needs, gathering the required documentation, completing the lending forms, submitting materials and explaining any legal issues. For their services, many brokers will charge a fee of one to three percent of the loan amount.

As of 2004, there were approximately 53,000 mortgage brokerage companies in the United States. These companies employed almost a half million people and accounted for 68% of all residential loans. In order to keep the mortgage brokerage industry on the up and up, there are more than ten federal laws, five federal agencies and forty-nine state laws or licensing boards keeping an eye on the business.

The most important service provided by a mortgage broker is to act as a go between for the lender and the buyer. As a result, they will work with dozens, if not hundreds, of lenders as a freelance agent. When a buyer comes to a mortgage broker the broker will analyze the client’s credit to see which lender best fits the buyer’s needs. The loan application is then submitted to several lenders and the one that offers the best terms is then chosen. The most talented mortgage brokers can generally find a loan for just about any type of credit or credit history. Once a buyer is presented with the choices for lenders, be sure to shop around and make sure that the terms are reasonable.

As with most things, there are some disadvantages to working with a mortgage broker. At times, a buyer can get overcharged for the broker’s fees and the broker can make false promises of being able to find anyone a reasonable loan. In addition, they may not have access to certain bank programs that a traditional lender would have. Finally, when dealing with out of town lenders, they might not understand local heating or septic systems, thereby slowing down closing until all of their questions have been answered. At these times, using a local bank may be the way to go.

But there are still many advantages as well. A mortgage broker will do all the heavy lifting for you and can look at wholesale rates which will typically be lower. They can also finance tricky deals and may be the best option when trying to finance unique or commercial properties. Mortgage brokers can also be easier to get in touch with and have less levels of bureaucracy.

During your home buying travels, you may have seen the letter combination of P-I-T-I or heard it spoken as “pity”.  PITI represents four individual components which together make up your monthly mortgage payment.

P is for Principal
Mortgage principal is the actual dollar amount you will borrow from your lender.  Your principal will be calculated by subtracting your down payment from your offer amount on your new home.  Each month, a portion of your principal is paid, gradually bringing down the amount you owe.  In the beginning, you will notice the amount of your monthly mortgage payment that goes toward principal is very small. Most of your payment will consist of interest (more on interest in a bit).  However, as time goes on and your principal balance decreases, your principal repayment amount will grow each month.

I is for Interest
Mortgage interest is the extra money you will pay for the privilege of borrowing money to purchase your new home.  The monthly mortgage payments early on in your loan will consist mostly of interest, as much as 80%.  It can be quite disheartening when you see that your principal balance will barely move but the amount of interest paid will add up very quickly.  The good news is that in most cases, all the interest you paid can be deducted from your federal income taxes.

T is for Taxes
Your local government (at the municipal or county level) will levy taxes on your new home.  This tax is typically called “real estate tax” or “property tax.”  Your annual real estate tax amount due will be calculated using the appraised value of your home.  Although your tax bill will be due once a year, your mortgage lender will put aside money each month into an escrow account; a type of savings account.  This money will come directly from your mortgage payment and will be used to pay your taxes, by your lender, when due.  For more about escrow, view our prior post: Escrow Account – An Introduction for the First Time Home Buyer.

I is for Insurance
It is unlikely you will be able to secure a mortgage on your new home without taking out a homeowner’s insurance policy.  As with your property taxes, your mortgage company will put aside money into escrow each month to pay your home insurance premium when due.  And you guessed it; this money will come from your monthly mortgage payment.

Source: Freddie Mac

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Source: Own the Dollar

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From the resource: “There are several types of mortgage loans and each one is catered to a specific circumstance. The type of mortgage loan you apply for will ultimately depend on your financial situation, the cost of the home and the interest rates.”

Source: Q and A’s

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From the resource: “If you’re getting a subprime loan, it’s even more important to read the fine print. If you’ve had money trouble in the past, you want to be extra careful not to sign anything that will cause more problems.”

Source: Bankrate.com

Read More About Bad Credit Mortgages at Newbuyer.com

Source: SmartHippo

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Source: FindLaw

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Escrow Account – A Definition

“A trust account held in the borrower’s name to pay obligations such as property taxes and insurance premiums.”

Escrow – How it Works
An escrow account is opened and maintained by your mortgage lender.  It is essentially a savings account in which deposits are automatically made with money from your monthly mortgage payment.  Your property tax bills and insurance premiums are paid by the lender from the funds from the escrow account.

Why Does the Lender want to take on this Task?
Your lender wants to make absolute sure that your home insurance premiums and property tax bills get paid.  Your home is collateral for all of the money they lent you to purchase your home.  If, for example your home is destroyed by fire and you are not covered by home insurance, that collateral is gone.  Similarly, if you don’t pay your property taxes and the state forecloses on your property, the bank again loses its collateral.  This is a risk most lenders are not willing to take.  An escrow account assures the mortgage lender that your taxes and insurance are paid.

Advantages for You

Budgeting for property taxes and homeowners insurance couldn’t be easier – as it is done for you.  Additionally, you can be sure that your home is covered in the event of a disaster and feel confident you are meeting your lenders requirements.

Confirm that your Payments were Made
It is a good idea to confirm that your escrow items are paid on time and no late charges have been applied to your account.  Lenders are required to make your payments in a timely manner as long as your mortgage payment to them is not more than 30 days overdue.  If you lender was late on the payments and you receive a bill for late fees or penalties, forward this bill directly to your lender.   As a matter-of-fact, if you receive any insurance or tax bills that are to be paid via your escrow account, also forward these to your lender.

Changes to Taxes or Insurance Costs
Each year your lender will review your escrow account.  You will receive a detailed statement including the total deposits made into the escrow account and the insurance and tax payments made on your behalf.  Your lender will notify you of any excesses or shortages in your escrow account due to changes to your taxes or insurance costs.  Typically, shortage amounts will be added to your next mortgage payment.  By law, any excess of $50 or greater will be returned to you.

Open up (and read) that Homeowners Policy
You will continue to receive an annual copy of your homeowners insurance policy.  Because you won’t be paying the bill yourself, you may get in the habit of simply filing the policy away without looking at it.  This is a mistake!  To confirm that your home is not overinsured or underinsured read your policy carefully.

From the resource, consider this about a convertible ARM: “Saving the cost of the loan and the hassle of shopping loans are a plus, but you might be crying if the refinance rates are lower than your new fixed. Experts say, “Just refinance.”

Source: Zillow

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