Types of Home Loans

Every home loan has two parts: principal and interest. The principal is the amount you borrow, and the interest is what you pay to borrow the money. Different types of home loans give you choices on how to structure your interest payments to meet your specific financial needs.

When shopping for a home loan, there are two major types of loans that you can choose from: a fixed-rate mortgage or an adjustable-rate mortgage (ARM).

The main features of a fixed-rate mortgage are:

• The interest rate doesn’t change on your loan.
• Your monthly mortgage payment (principal and interest) will always be the same amount
• As a tradeoff for the security of knowing your monthly payment will never increase, the interest rate will be slightly higher than the rate on an adjustable-rate mortgage

The main features of an ARM are:

• The initial interest rate will be lower than the rate on a fixed-rate loan.
• The interest rate adjusts periodically after the initial term expires (anywhere from 1 to 10 years), depending on movements in market interest rates.
• Your monthly mortgage payment could increase or decrease in the future, based on the annual adjustments to the interest rate on the loan

Tip: If you are considering an ARM, it is a good idea to ask Utah Mortgage Keystone what your monthly payment would be if interest rates rise 1, 3 or 5 percentage points in the future, so you can get a sense for how much more you may be required to pay in the future.

Government loan programs offered by the Federal Housing Authority (FHA) are also popular and are available in both fixed-rate and adjustable-rate structures. In general, government loan programs are easier to qualify for and have lower down payment requirements as well as more flexible credit requirements. However, like conventional loan programs, FHA loans have specific fees and payments associated with each of them.

Prequalified and Preapproved

Before you start looking for a home, you will need to know how much you can afford, and the best way to do that is to get prequalified for your loan. Many real estate agents want you to be prequalified so they can show you homes in your price range.

You can also get preapproved for your mortgage, which may involve providing your financial documents (W-2 statements, paycheck stubs, bank account statements, etc.) so your lender can verify your financial status and credit. Preapproval gives you "cash-buyer confidence" when you’re ready to make an offer, and it helps your seller take in your offer seriously because they know you can get the money you need to buy their home.

The Term

The term is the number of years that you will make payments on your home loan. The longer the term, the lower your monthly payment will be. With a longer term, you will also pay more in interest over the life of the loan.

Interest Rates

The interest rate is used to calculate your monthly mortgage payment. The higher the interest rate on a particular loan, the higher your monthly payment will be, and vice versa. With a fixed-rate mortgage, the interest rate on your loan will never change. With an ARM, however, the interest rate is linked to an index of interest rates published by a third-party, such as the federal government. As this index changes over time, so will the interest rate used to calculate your monthly mortgage payment.

APR

If you are comparing particular loans across lenders, you want to be sure to look at your Good Faith Estimate and the Annual Percentage Rate (APR) of each loan. The APR tells you the estimated cost of your loan, which includes the interest rate and other upfront fees that you pay for the loan (such as discount points and origination fees). Comparing APRs will help you understand which loan is actually the best value for you when all costs are considered.

Discount Points

One popular home-loan strategy is to negotiate discount points. These are fees you can choose to pay the lender to reduce your interest rate. Generally, each point you purchase will lower your rate by 0.25% (for example, a 6.50% interest rate would be lowered to 6.25%). This, however, depends on the term of the loan. The cost of buying one point is equal to 1% of the loan amount. For a $100,000 loan, a point would cost you $1,000. For a $200,000 loan, a point would cost $2,000. Buying discount points can be smart for those who know they’ll be in their home for a long time, as it saves money over the life of the loan.

Rate Lock

Interest rates can change in the time it takes to complete the home loan application process. To protect yourself against a potential rise in interest rates, you can ask your lender to lock in the rate you have been quoted for a specific period of time, usually 30-60 days (some lenders may charge a fee for locking in the rate). If you decide to lock in the rate, be sure to get the agreement in writing and make sure it covers the length of time needed to complete your home purchase or refinance your mortgage. Other borrowers prefer to take the chance that interest rates will decrease while the loan is processed and let the rate on their loan "float." The rate can then be locked in at any time until the day before your loan closes.

Monthly Mortgage Payment

Generally, your monthly mortgage payment includes principal and interest. Property taxes and homeowner’s insurance may also be collected by the lender through your monthly mortgage payment, held in an escrow account, and then paid on your behalf when the payments are due. Your property taxes and homeowner’s insurance may be reassessed each year during an annual escrow reassessment period. Your home loan servicer (described in the section below) will recalculate what your new monthly payments will be and let you know how much you owe. These payments will be put into escrow and paid on your behalf.

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Everyone Needs a House Cleaning Schedule
 Once you have your home, it’s your responsibility alone to make sure it doesn’t waste away into a musty mass of decadence fit for a haunted house urban legend. Think of a house as a body with its own set of organs and its own health to maintain. The organs here represent the components that need continued attention so the house can remain healthy and retain its vitality (value). Things like caulking, AC filters, plumbing, electrical fixtures, etc. require the most continued attention and can deteriorate quickly without it. By committing to scheduled house cleaning, you can be sure your home stays healthy.
 Home Maintenance Checklist
 We’ve put together an intensive home maintenance checklist of all the things you’ll need to keep up with in your new home and how often they’ll need your attention:
 Weekly
 ✓Dusting/Routine Cleaning – Accumulated dust can be harmful to finishes
 ✓Yard Work – This one’s pretty obvious
 Monthly/Bimonthly 
✓Change AC Filters – Every month for conventional or ever other for higher quality systems
 ✓Check Ducts and Vents for Dust – This will ensure healthy air quality
 Seasonally
 ✓Forced-Air Furnace Filters – At least every 3 months during the cold seasons
 ✓Oil the Moving Parts of Your Garage Door – Every 3 months
✓Replace Aerator (that “screen” in your faucet) – Every 3 to 4 months
✓Smoke/Carbon Monoxide Detectors – Replace batteries twice a year or as needed
✓Clean Windows and Shutters – Every 3 to 4 months
 Yearly or Less
 ✓Inspect Siding – Yearly
✓Flush Hot Water Heater – Do this yearly, and be sure to clean out the leftover sediment
 ✓Wax Any Hardwood Flooring – Yearly (it’s a good idea to have this inspected every year as well) ✓Wrap Heating Tape on the Pipes – Every winter (regional)
 ✓Service Heating System – Every fall
✓Inspect Roof and Skylights – Every 3 years (by a professional)
 Other Tidbits
 ✓Clean your gutters before any big storms and check at least weekly
 ✓Fix pipes as soon as you begin to hear noise; noisy pipes could mean loose fittings
✓Trim dead branches as you see them
✓Keep the attic at 10 degrees warmer than outside air to keep heat from escaping
 ✓Keep your windows and doors caulked if you notice any poor seals
✓Keep gable vents open year-round

What do you think the Number One Home Maintenance Failure is?

Its the “AC!!! We neglect it!!! The best advice is to change the filter regularly, it will not only improve air quality but it lowers monthly cooling costs too. We also neglect the bathroom,which can also become a big problem area that gets glossed over for sometimes years on end by most home owners. Pay attention the the grout in the corners...you might think ignoring it is ok...but...its not. For you have no idea whats going on BEHIND the cracks!! Don’t procrastinate… That is the number one failure in a home .Get caulking!! and do it yourself, you’ll want to make sure any cracks you see get filled. Remember that keeping your home in tip-top shape is a process that’s never actually finished and is one of the biggest things you can do to make sure your home’s value doesn’t diminish. If you can keep up with this home maintenance checklist, your home might catch a cold here and there, but you can be assured that nothing big should catch up with it.

photo found here