Mortgage-The Beginners Mortgage Guide

Automated PDF to Text preview page 4 to 6:

7 OTHER MORTGAGE-RELATED ISSUES.....................51
WHAT IS A DEED OF TRUST?.....................................................51 WHAT IS A TRUSTEE?...............................................................52 WHAT IS A PROMISSORY NOTE?...............................................53 MORTGAGE MONEY-SAVING TIPS.............................................53 PRIOR NEGOTIATION ...............................................................54 CHOOSE THE RIGHT TYPE OF MORTGAGE ...................................54 MAKE EXTRA PAYMENTS ...........................................................54 BI-WEEKLY PAYMENTS ..............................................................54 AVOID PMI ..............................................................................54

The Beginner's Mortgage Guide - Page 4

1 MORTGAGES: WHAT ARE THEY?
It is an undeniable fact that many people have the dream of owning their own home. Yet, unfortunately, most of them do not have the financial resources available in their bank accounts to make this dream a reality. For most people, the expense associated with purchasing a new home is totally out of their capacity. It is for this reason that there are numerous banks, credit unions, and mortgage lenders that operate for the purposes of supplying the funds that you need to buy a home. This is accomplished through loans. These loans, called mortgages, are not your typical form of personal loan. They are specifically offered to homebuyers. Mortgages are the standard method for obtaining home financing. This book serves as an introduction to mortgages and will help you understand how these loans make buying a home a possibility for millions of people who would not ordinarily have the chance to own a home. The realm of mortgages can be a confusing one, especially when you encounter words like amortization and escro
w. The terminology can be confusing to the uninitiated. With a mortgage, you will have different fees and costs to take into account. As a borrower it is vitally important to have a working knowledge of the loan you plan to take out, including what you will have to pay and what risks may be inherent in the process also. The Beginner's Guide To Mortgages is a simple and direct resource that will help to elucidate some of the ambiguous ideas that are commonly distributed about mortgages, and give you the solid foundation that you will need in order to use a mortgage to your advantage.

WHAT IS A MORTGAGE?
Now, although you already understand that a mortgage is a form of loan used by prospective homeowners to purchase a new house, there is more that you need to know. There are some essential elements that are present with mortgage loans. Before moving further into what types of mortgages there are, it may be helpful to define the word mortgage further.
The Beginner's Mortgage Guide - Page 5

According to the American Heritage Dictionary, a mortgage is defined as: "a temporary, conditional pledge of property to a creditor as security for the performance of an obligation or repayment of a debt." In other words, when you have a mortgage you have obligated yourself to the terms of a legal contract that includes a provision, which states that if you fail to pay the loan (including associated fees and interest), the lender has every right to take the house. You may be familiar with the term collateral. This is what you are doing with your home, making it collateral, when you pledge it as security for a mortgage loan.

A BRIEF HISTORY OF THE MORTGAGE
It is a common misconception that mortgages have been around for hundreds of years like many banking and financial institutions. In fact, this is far from the truth. The mortgage is a product of the early 20th century. Interestingly enough, when the mortgage debuted in the 1930s, it was the product not of banking institutions, but of insurance companies. The motivation was not about making a profit off the various fees and interest charges. Unfortunately, these early companies hoped to collect properties from borrowers who defaulted on their loans. Many insurance agencies gain considerable wealth through the ownership of property gained from defaulted mortgage loans. Mortgages were organized in nearly the form they still hold today back in 1934. A government organization called the FHA or the Federal Housing Administration played a crucial role in this development process. The FHA had a clear mandate before it. The United States was in the grips of serious economic depression, known as the Great Depression b
y history. During this pivotal time, the FHA sought to reinvigorate the economy by offering a new form of mortgage that would allow many more families to purchase a home for the first time. The existing programs were far more limited than today. In fact, the number of households that owned homes was about four in 10. The mortgages of the time had payment terms that only covered half the cost of the home. Most terms only lasted about three to five years. Afterwards, the borrower was required to pay a balloon payment. The terms were extremely limiting, and most Americans had become renters of one kind or another. An intervention of the FHA began to implement a number of new developments that changed the face of the lending and mortgage market. · The first area of change focused on creating lower down-payment requirements.
The Beginner's Mortgage Guide - Page 6