Be a Smart Home Buyer - Using the Internet

Be a Smart Home Buyer - Using the Internet

The internet is one resource you should take advantage of by doing your own research. It is a great way to check the current mortgage rates, search for home prices, look to see which lender offers the best rates, apply for a loan, or find a real estate agent. According to the National Association of Realtors (NAR), during 2005 nearly 77% of all households used the Internet to conduct their housing search. These sites were primarily used to:

The internet is one resource you should take advantage of by doing your own research. It is a great way to check the current mortgage rates, search for home prices, look to see which lender offers the best rates, apply for a loan, or find a real estate agent.

According to the National Association of Realtors (NAR), during 2005 nearly 77% of all households used the Internet to conduct their housing search. These sites were primarily used to:

1. Research home listings

2. Learn more about a specific area

3. Find out more about a real estate agent

4. Apply for a loan

It used to be, when a home was listed for sale by an agent it would appear in the Multiple Listing Service (MLS). The sales agent would research the MLS to find a home that met your requirements (e.g., 3 bedrooms, 2 baths, swimming pool with a patio, etc.). Once found, you and your agent would look together at potential home sites.

Now, by using websites you can save time and money by doing your own investigative work online. Using their search criteria tools, you can specify an exact geographic area, the minimum and maximum amount you're able to pay, the number of bedrooms and bathrooms you require, and other requirements.

Once retrieved from a database of over 2 million homes, you can view a photograph of the property, the square footage, get a detailed description of the property features, and even take a virtual tour of the property inside and out -- all without actually stepping foot into the home.

You can also shop around for local rates to pick the best lender for you. Each lender details their fees so you can see exactly what they charge. During your lender selection, make sure the monthly payment quoted meets your budget. If not, discuss other options you are more comfortable with.

Using lenders online can save you time on the application process. Completing the application on your own gives you the flexibility to work at your own pace and access documents you might otherwise forget to bring when you meet with the loan officer. Since rates vary from state to state, make sure that the lender complies with Federal and State laws so that they are authorized to operate in your state.

Image: Image courtesy of nenetus at FreeDigitalPhotos.net
Compare the Four Main Types of Mortgage Lenders

Compare the Four Main Types of Mortgage Lenders

Borrowers have may choices when shopping for the right lender. Choices include banks, mortgage brokers, home builders, and internet lenders. Each has its advantages and disadvantages, and rates vary from lender to lender.

Borrowers have may choices when shopping for the right lender. Choices include banks, mortgage brokers, home builders, and internet lenders. Each has its advantages and disadvantages, and rates vary from lender to lender.

Type

Advantages

Disadvantages

Banks

  • Regulated by state and federal agencies
  • Current banking relationship can get you a reduced mortgage rate
  • Numerous branches provide you with face-to-face access
  • Limited to products only the bank has to offer
  • May not have the lowest rates
  • May lack negotiation leverage when it comes to publicized rates

Mortgage Brokers

  • Access to a variety of mortgages and lenders
  • Can save you money by shopping for the best rates
  • Can quickly find another lender if your initial loan application is turned down.
  • Some function as the lender's agent and have the lender's best interests at heart.
  • Free to set their own rates and may mark-up wholesale rates or charge additional points.
  • Service may vary from broker to broker.

Home builders

  • Good way for the first-time home buyer to qualify
  • The buyer does not take title to the property until the home is completed
  • May favor certain lenders and pressure you into getting their loan instead of using a different lender
  • Less lenders to choose from which may offer a higher interest rate

Internet Lenders

  • A greater learning curve for the borrower to understand the lending process

Typically, most lenders do not keep money on hand but instantly sell conforming loans to third parties like the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). The most common source of home lending is a retail financial institution or credit union. They offer specific loan products and handle their own direct financing by taking consumer deposits and lending them to home buyers. Compare mortgage rates.

Mortgage brokers, on the other hand, act as the middleman and don't fund the loans themselves, but handle the mortgage financing for the borrower. Most earn their fees directly as a percentage from the lender and some from the borrower, or a combination of both. Since mortgage brokers have access to a wide variety of lenders they are usually on top of the latest rates, fees and lending practices.

Home builder financing is common in new developments where there is a single builder. The builder carries the construction costs until the homes are built. The builder works with a lender to set-up financing for the buyer and finances the construction costs. The buyer doesn't make mortgage payments until the property is finished.

The popularity of finding a mortgage on the Internet has grown in recent years. Many lenders offer competitive rates and the convenience of tracking your application through the approval process. Some can save you a significant amount in closing costs since everything is automated and the time to get approved can be shortened.

Image: Image courtesy of Stuart Miles at FreeDigitalPhotos.net
Mortgage Terminology

Mortgage Terminology

Here is some commonly used mortgage terminology.

Acceleration Clause
A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

Acceptance
An offeree’s consent to enter into a contract and be bound by the terms of the offer.

Adjustable-rate Mortgage (ARM)
A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index

Adjustment Date
The date on which the interest rate changes for an adjustable-rate mortgage

Adjustment Period
The period that elapses between the adjustment dates for an adjustable-rate mortgage.

Amortization
Number of fixed payments or years it takes to repay the entire amount of the mortgage loan.

Amortization Schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Appraisal
A written analysis of the estimated value of a property prepared by a qualified appraiser.

Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.

Appreciation
An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.

Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignment
The transfer of a mortgage from one person to another.

Assumable Mortgage
A mortgage that can be taken over ("assumed") by the buyer when a home is sold. More

Assumption Agreement
A legal document signed by a home buyer which requires the buyer to assume responsibility for the obligations of a mortgage made by a former owner.

Bi-weekly Accelerated Payments
Payments are exactly half of a monthly payment amount, collected every two weeks, on the same day of the week. More aggressive than semi-monthly.

Bi-weekly Payments
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 25-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

Blended Payments
Equal payments consisting of both a principal and an interest component, paid each month during the term of the mortgage. The principal portion increases each month, while the interest portion decreases, but the total monthly payment does not change.

Building Code
Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Cap
A provision of an adjustable-rate mortgage that limits how much the interest rate or mortgage payments may increase or decrease.

Capital Expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital Improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Certificate of Title
A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

Chattel
Another name for personal property.

Closed Mortgage
A mortgage which cannot be prepaid, renegotiated or refinanced.

Closing
A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

Closing Costs
closing costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or realtors often provide estimates of closing costs to prospective homebuyers.

Commission
The fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

Compound Interest
Interest paid on the original principal balance and on the accrued and unpaid interest.

Conditional Offer
An offer to buy a property if certain conditions are met.

Condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas

Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Conventional Mortgage
A mortgage loan which does not exceed 75% of the appraised value or purchase price of the property, whichever is the lesser of the two. Mortgages that exceed this limit must be insured.

Convertible mortgage
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Debt-service Ratio
The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, space heating costs and condominium fees.

Default
Non-payment of the installments due under the terms of the mortgage(s).

Depreciation
A decline in the value of property; the opposite of appreciation.

Discharge
The removal of all mortgages and financial encumbrances on a property.

Down Payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Easement
A right of way giving persons other than the owner access to or over a property.

Effective Interest Rate
The real rate of interest after the effects of compounding are included. More frequent compounding adds up to a higher effective rate.

Encroachment
An improvement that intrudes illegally on another’s property.

Encumbrance
Anything that affects or limits the free simple title to a property, such as mortgages, leases, easements, or restrictions.

Equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

Examination of Title
The report on the title of a property from the public records or an abstract of the title.

Exclusive Listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Firm Commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage
A mortgage that is the primary lien against a property.

Fixed Installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Fixed-rate Mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.

Fixture
Personal property that becomes real property when attached in a permanent manner to real estate.

Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt

Gross Debt Service Ratio
The percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes and secondary financing). Most lenders prefer that the GDS be no more than 32%.

High Ratio Mortgage
If you don’t have the 25% required for a down payment, as is the case with a conventional mortgage, your mortgage must be insured against payment default to a certain maximum by CMHC or an approved private insurer. A high-ratio mortgage is a loan in excess of 75% of the lending value of the property.

Home Equity Line of Credit
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in a property.

Home Inspection
A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

Income Property
Real estate developed or improved to produce income.

Initial Interest Rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."

Installment
The regular periodic payment that a borrower agrees to make to a lender.

Joint Tenancy
A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Jumbo Mortgage
A mortgage involving an initial outstanding balance more than $417,000.

Lease
A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

Lien
A legal claim against a property that must be paid off when the property is sold.

Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Lock-in
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

Lock-in Period
The time period during which the lender has guaranteed an interest rate to a borrower.

Margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Mortgage Insurance Premium
A premium which is added to the mortgage and paid by the borrower over the life of the mortgage. The mortgage insurance insures the lender against loss in case of default by the borrower.

Mortgage Life Insurance
A form of reducing term insurance recommended for the borrower. In the event of the death of the owner or one of the owners, the insurance pays the balance owing on the mortgage. The intent is to protect survivors from losing their home.

Mortgage Loan Insurance
For high-ratio mortgages, lenders require mortgage loan insurance. The insurance premium will generally cost between 0.5% and 3.75% of the amount of the mortgage (additional charges may apply).

Mortgagee
The lender.

Mortgagor
The borrower.

Negative Amortization
A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the remaining balance to create "negative" amortization.

Notice of Default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Open Mortgage
A mortgage which can be prepaid at any time, without penalty.

Original Principal Balance
The total amount of principal owed on a mortgage before any payments are made.

Origination Fee
A fee paid to a lender for processing a loan application. The origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.

P.I. (Principal & Interest)
Principal and interest due on a mortgage.

P.l.T. (Principal, Interest, & Taxes)
Principal, interest and taxes due on a mortgage.

Payment Change Date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date.

Penalty
A sum of money paid to a lender for the privilege of prepaying a mortgage in part or in full.

Pre-approved Mortgage
Preliminary approval by the lender of the borrower’s application for a mortgage to a certain maximum amount and rate.

Pre-qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

Prepayment
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

Prepayment Option
The right to prepay specified amounts of the principal balance. Penalty interest may be incurred on prepayment options.

Prepayment Penalty
A fee that may be charged to a borrower who pays off a loan before it is due.

Prime Rate
The interest rate that banks charge to their preferred customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.

Principal
The amount you still owe the lender at any time.

Purchase and Sale Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold

Qualifying Ratios
Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio. See Gross Debt Service Ratio.

Quitclaim Deed
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made

Rate (interest)
The return the lender receives for loaning you the money for the mortgage.

Recission
The cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Borrowers usually have the option to cancel a refinance transaction within three business days after it has closed.

Refinance Transaction
The process of paying off one loan with the proceeds from a new loan using the same property as security.

Right of First Refusal
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Roll-over Mortgage
A mortgage loan where the interest rate is established for a specific term. At the end of this term the mortgage is said to "roll over" and the borrower and lender may agree to extend to loan. If satisfactory terms cannot be agreed upon, the lender is entitled to be repaid in full. In this case, the borrower may seek alternative financing.

Second Mortgage
This is usually at a higher interest rate and represents the difference between the price of the house and first mortgage plus the down payment. This may be obtained from banks and finance companies or through lawyers or notaries.

Semi-monthly Payments
Payments are taken twice a month, usually on the 1st and the 15th. Payments are one half of the monthly amount. Less aggressive at attacking principle than a bi-weekly payment method.

Survey
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Term
In a mortgage, "term" is the actual length of time for which the money is loaned, at that particular rate of interest. After the term expires, you can either repay the balance of the principal then owing or renegotiate the mortgage at current rates and conditions.

Title
A legal document evidencing a person's right to or ownership of a property

Title Insurance
Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

Title Search
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Trustee
A fiduciary who holds or controls property for the benefit of another.

Underwriting
The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

Underwriting Fees
A sum of money collected by some lenders to offset expenses incurred in the lending transaction.

Unsecured Loan
A loan that is not backed by collateral.

Variable Rate Mortgage (Floating Rate)
A mortgage where payments can be fixed from one to five years, but the interest rate could change from month to month depending on market conditions. If interest rates go down, the monthly principal is reduced; if rates go up, the monthly payments might not cover the interest owing and payments may be increased for the next term. Most variable rate mortgages allow prepayment of any amount (with certain minimums) on any monthly payment date and usually without penalty.

Vendor Financing (Balance of Sale)
The seller sometimes takes the mortgage at a rate lower than market rates. Most of these arrangements are not renewable nor transferable to the next owner.

Vendor-Take-Back
When the vendor (seller) of a property provides some or all of the mortgage financing in order to sell the property

Weekly Accelerated Payments
Same as bi-weekly accelerated. Your payments will be one quarter of your normal monthly payment. More aggressive than simple weekly payments as sometimes there are 5 weeks in the month and you will have 5 payments in that month. This will happen at least 4 times a year.

Image: Image courtesy of Stuart Miles at FreeDigitalPhotos.net