The Handy Investing Answer Book. Paul A Tucci

Such amortization periods can be 10 years, 15 years, 20 years, 30 years, and even 40 to 50 years.

      What is the distinction between the different loan periods?

      The shorter the period of the loan, the higher the monthly payments, and the less interest you have to pay over time, since you are borrowing and using the money over a shorter period of time.

      What is an “FHA mortgage”?

      The Federal Housing Administration, which provides mortgage insurance through FHA-approved lenders, is the largest insurer of residential mortgages in the world. Depending on the state in which you live, the amount you can borrow for a mortgage may differ.

      Who uses FHA mortgages?

      FHA mortgages are used by first-time homeowners because they require a smaller down payment than conventional mortgages.

      How long must I pay for mortgage insurance with an FHA loan?

      FHA loans require the borrower to pay for the insurance for five years, or until the loan-to-value ratio reaches 78%, whichever is longer.

      What is a loan-to-value ratio?

      A loan-to-value ratio is the loan amount divided by the house’s selling price.

      What is “mortgage insurance”?

      Mortgage insurance protects lenders from losses if a mortgage is not paid in full. Depending on the amount of your down payment to purchase a home, you may be required to obtain mortgage insurance until you have paid off enough of the loan, minimizing the risk of defaulting on the loan.

      The Federal Housing Administration (FHA) is the largest insurer of mortgages in the world and a great resource for first-time home buyers.

      What is an interest-only loan?

      It is a loan that allows a person to pay, for a period of time, only the interest on a loan. At the end of this period, the borrower must make a balloon payment of the value of the entire loan, or refinance the loan into a conventional loan.

      What is an adjustable-rate mortgage (ARM)?

      An ARM offers a fixed-rate of interest for a short period of time, usually three, five, or seven years. At that point, the interest rate may change up or down, depending upon the index to which the interest rate is tied. These loans also have limits as to how high the rate can change in a year, and in the life of the loan. The borrower may continue paying the loan at this variable or adjustable-rate, or may refinance the loan to a fixed-rate conventional mortgage.

      What are the steps involved to get a mortgage?

      The first step is to order your credit report, to discover if it contains any errors and/or inaccuracies. The bank will also order its own copy of the credit report to initiate your loan. The credit report will be used by the loan officers to determine whether you are a good candidate for a loan, as well as how large a loan you can obtain. Next, it is important to have a clear picture of all your debts—the amounts of the balances, and the monthly payments. You should also have your most recent pay stub, showing your current income, and the last two to three years of your IRS W-2 forms, because as your income will be used to determine your eligibility. You should also have your most recent bank statements and investment account statements, showing your most recent balances. At this point, you should also know how much money you will use in cash toward a down payment on the loan.

      Does it matter to lenders how large a down payment I will require?

      The larger your down payment for a house, the more favorably your lender will consider your mortgage application, and the better your terms will be. You will also benefit from paying less interest over the life of the loan.

      Should I pay down my debts before I apply for a mortgage?

      If at all possible, in order to reduce your normal monthly expenses, it is a good idea to try to reduce your debt load, as it will help you secure a mortgage. You also benefit by eliminating high-interest rate debts before taking on a relatively lower-interest rate mortgage.

      How should I choose a lender?

You should choose a lender by comparing the interest rates, the amount of money required for a down payment, and any fees or points associated with the loan. You may also want to inquire how long it will take to process your loan. Always speak with several different lenders, and beware of lenders offering comparatively low interest rates, as they may just be “teaser rates” designed to get you to come in and speak with them. You should meet with lenders after you have learned as much as possible about their current rates and practices, as well as fees, so that you will know who is giving you the best deal.

       What are “points”, or loan origination fees?

      Lenders charge points for mortgages, including fixed-fee mortgages. One point represents 1% of the loan amount. Not all lenders charge points for loans, so shop around to find the lowest fees.

      Getting preapproved for a home loan will give you extra bargaining power when bidding on a house. Sellers are more inclined to agree to an offer if they know a lender has thoroughly checked your credit and financial stability.

      Should I sell my house before getting a loan for my next home purchase?

      Your chances of obtaining a mortgage will be far better if you sell your current house, because your income may not support the payment of two mortgages. Also, sellers look more favorably on offers without house sale contingencies.

      What does it mean to be “preapproved” for a loan?

      When someone is preapproved, the lender has already investigated his creditworthiness, and has established that he can borrow up to a certain amount from the lender. A home-buyer often receives preapproval before making an offer on a house, in order to make his offer more attractive to a seller.

      Why is it important to be preapproved for a loan?

When comparing offers to buy a home, a house seller would prefer to consider an offer from someone who has a letter from a lender stating that he is already approved to borrow the amount of the sale price of the house over someone who makes the purchase contingent upon getting a mortgage or financing.

      What does it mean to be “prequalified” for a loan?

      Prequalification for a loan means the bank or mortgage company has looked at the borrower’s income and debt to determine the approximate amount of the loan. It does not mean the borrower has been approved for a loan.

      Can adding just a few hundred dollars to my mortgage payment help to reduce my debt?

      Yes. You can choose to add an additional sum to your normal monthly mortgage payment to pay down your loan principal. The effect can shave several years off your mortgage, and save you thousands of dollars in interest payments, depending on your loan size, your interest rate, and how many months you have remaining on your mortgage.

      How many homes are in foreclosure in the United States?

      According to experts at Realtytrac.com, as of March 2014 there are 483,224 bank-owned homes in the United States, with 51% still occupied by the former owner or tenant. This is down from a peak of about one million homes in 2010.

      The real estate bubble that precipitated the U.S. recession of 2007–2009 resulted in widespread home foreclosures. Even today, home ownership in the United States is at a low not matched since 1960.

      How many people risk home foreclosure?

      in 2010, 1.7 million homeowners were notified that they were at risk of defaulting on their loan because of missed payments. This means one in 78