A mortgage is an interest in land which provides security for the performance of a duty or payment of a debt. Some states apply the common law (http://www.lawofattractioninsight.com/overview-law-of-attraction-part-i) rule that the conveyance of real property is void and is defeasible should the “owner” fail to make the payment. Many states recognize a mortgage as a mere lien (without conveying an interest in the land other than security or lien) and some states have adopted hybrid approaches.
What are the various types of mortgages?
There are many popular financing options for home purchases. See our section on Mortgages. The types of mortgages that are typically available to prospective homebuyers are:
(1) Conventional: With a conventional mortgage, the lender obtains a lien or defeasible legal title to the property in return for the payment of the amount of money lent.
(2) FHA mortgage: An FHA mortgage is a conventional mortgage which is insured in whole or in part by the Federal Housing Authority.
(3) Purchase money mortgage: A purchase money mortgage is one that is given to secure the loan which is used to buy the property. A first (senior) mortgage on the property has priority over any second or subsequent (junior) mortgages on the property; the senior lender has a more secure interest in the event of a default since the senior obligations are paid first in the event of foreclosure and sale.
(4) Adjustable rate mortgages: An adjustable rate mortgage (often called an “ARM”) offers a fixed initial interest rate and a fixed initial monthly payment. After the initial period is over, the rate and term of the mortgage can be modified at predetermined times under the agreement to reflect the current market mortgage rates.
There are other mortgage options, such as balloon mortgages, shared-equity mortgages, biweekly mortgages, reverse mortgages, and buy downs.
What is the difference between a mortgage and a deed of trust?
The main difference between a mortgage and a Deed of Trust is the procedure that is followed if the borrower breaches his or her agreement to pay off the loan. With a mortgage, if a borrower “defaults” – such as by failing to make monthly payments or meet other conditions of the loan, such as carrying homeowner’s insurance and maintaining the house in good repair – the lender must bring a court action in order to foreclose on the property. With a Deed of Trust, if the homeowner does not pay the loan, the foreclosure process is usually much faster and less complicated than the formal court foreclosure process.
As a technical matter, a mortgage involves a relationship(What Is Housing Discrimination?) between (1) the borrower/homeowner and (2) the lender, while a Deed of Trust involves three parties: the homeowner, the lender, and a title insurance company which is holding legal title to the real estate until the loan is fully repaid.
Once the loan is paid in full, the title company transfers property title over to the homeowner. If the homeowner defaults, then the lender simply complies with the rather straight forward provisions of the law of the state where the property is located, gives the appropriate notices, and then turns the property back to the lender.
If you are ever facing foreclosure, you would be well served by consulting with an attorney in the state where the property is located.
Glossary of most commonly used mortgage terms
A few of the mortgage terms typically faced by a homeowner:
(1) “Abstract of Title” is a document that a title insurance company or, in some states, an attorney, will prepare giving the history of the home. The document usually lists who owned the property all the way back to its first original owner. The document will also disclose any liens or encumbrances on the title which may affect whether lenders will provide a loan or whether the new homeowner will want to take title to the property.
(2) “Cap” is a limit placed on how high an interest rate the lender may charge the homeowner.
(3) “Credit Report” is a report that provides the lender with the credit history of the home buyer. The report is usually prepared by a large credit reporting company. The credit report will usually state whether the prospective home buyer has any bankruptcies, foreclosures, delinquent credit payments, or has failed to pay a credit loan.
(4) “Escrow Agent” is an independent third party who takes care of aspects of the purchase and related loan transaction. The escrow agent will often hold the down payment until the closing, receive the amount of the loan from the lender, transfer the down payment and mortgage money to the seller, transfer and record the deed of title to the buyer (or if there is a “deed of trust”, the title company) and make sure the lender is protected by filing and recording the mortgage with the local county recorder of deeds. In some states the escrow functions are handled by a licensed title insurance company, or an escrow company, while in other states an attorney handles the transaction.
(5) “FHA Loan” is a loan that the Federal Housing Association insures. The FHA insures the home buyer’s loan to the lender. Usually, there is a fee for this insurance.
(6) “Point” is equal to 1% of a loan amount. Therefore, if your loan is for $100,000 and you pay 2 1/2% points, your cost will be $2,500.
(7) “VA Loan” is a loan guaranteed by the Veteran’s Administration. A lender usually provides the homeowner with a loan while the VA guarantees that the loan will be repaid to the lender.
I am getting muddled on all the types of mortgages available. Any tips on how to choose the right one?
There are at times a dizzying array of customer-friendly mortgages, starting with the conventional 30-year traditional mortgage to graduated-payment mortgages to adjusted rate mortgages. Not to mention the FHA or VA government loans or owner-carry-back loans or zero-interest mortgages or wrap around mortgages. Add to that potpourri of options is lots of paperwork and indecipherable terminology—and a crush of probably more creative methods of financing. If you feel the pinch, you’re not alone.
Though lenders and sellers will regulate the terms and conditions of financing your home purchase, your savvy shopping skill can ferret out the financing and purchase options that best suit your needs. Your first step in comparison-shopping (http://theworkingfromhomecoach.com/?p=5) is to determine your loan amount and get a quote for a conventional 30-year mortgage. Using that quote as a springboard, check around with different lenders to see what their best deal is (many have their own Internet websites). Don’t be surprised that the rates and costs quoted will vary among different lenders in the same market area. Chart the nitty-gritty—the rate, points, and fees of each lender and pare the list down. Since interest rates fluctuate and can’t be predicted with certainty, don’t wait too long in choosing the right type of loan and lender.
What happens if I cannot pay my mortgage?
If a homeowner fails to make payments upon the mortgage, the lender may foreclose on the property.
Depending upon the terms and agreements made within the original mortgage contract, the lender may do a statutory foreclosure or a judicial foreclosure. A statutory foreclosure can be performed without bringing a court action. The lender does have to follow strict state regulations as to the proper notices and opportunities to provide payment by the homeowner before a sale of the property occurs. This procedure is relatively fast.
If a judicial foreclosure action is required, the lender must file a complaint with the court system and go through the litigation process to obtain the right to foreclose on the property. In several state jurisdictions, the homeowner is allowed the right to stay in possession of the home until the foreclosure process is finalized or a sale of the home occurs.
Since some lenders prefer to avoid the cost of foreclosure, they are sometimes willing to work out an agreement with the homeowner. The lender may accept “interest only” payments or partial payments for a while in order to assist the homeowner. There are detailed regulations regarding foreclosure procedures. It is best to consult with an attorney if your home is endangered by a foreclosure proceeding.
What if the value of my home drops? Am I still personally liable on the outstanding mortgage?
It depends on the law where you live and the type of mortgage you have. Each state has its own highly technical and very different rules in this area. If you find yourself in this situation, you would be better off asking a lawyer to review all your options and liability.
Article Source: http://real-estate-law.freeadvice.com/real-estate-law/mortgage_real_property.htm
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