Relocation Guide 2019-2020

CONVENTIONAL MORTGAGES Conventional loans with a down payment of less than 20% typically require private mortgage insurance (PMI), which protects the lender if the homeowner defaults. ADJUSTABLE-RATE MORTGAGES With an adjustable-rate mortgage (ARM), the interest rate changes period- ically. They are typically characterized by the amount of time that must pass before the rate can be changed (1, 3, 5, 7 or 10 years, for example). Rates are generally lower than fixed-rate mort- gages, but ARMs carry the risk that an increase in interest rates will lead to higher monthly payments. FHA-INSURED LOANS The Federal Housing Administration (FHA) offers several low down payment mortgage products for eligible participants. FHA-insured loans are available from most of the same lenders who offer conventional loans. For information about these loans and eligibility requirements, contact your lender or visit: hud.gov/fha/loans.cfm. VA-GUARANTEED LOANS If you are a veteran of military service, reservist, or on active military duty, you may qualify for a loan guarantee from the Department of Veterans Affairs. These loans require minimal down pay- ment. Home Inspections Lenders may require that you have your prospective home inspected by a professional before they approve your mortgage, but it’s a good idea, even if they don’t. Home inspections, which typically cost between $300 and $600, can reveal structural problems that may impact the selling price and your interest in the home. Home inspectors are licensed by the state. Under Wisconsin law, building inspectors are liable for damages that arise from an act or omission relating to their inspection. In addition, they are prohibited from performing any repairs, maintenance or improvements on the inspected property for at least two years after the inspection has occurred. For more information about the state’s home inspection regulations or to check the status of an inspector’s license, please call (877) 617-1565 or visit drl.wi.gov . F I N A N C I N G A H O M E APR (Annual Percentage Rate): Because it includes points, expenses and other costs charged by the lender, this is the actual interest rate you will be paying. Since all lenders must calcu- late this figure the same way, the APR provides an excellent method for com- paring mortgage proposals. Appraisal: An estimate of the proper- ty’s market value based on the condi- tion of the structure, the value of the land and the neighborhood. Appraisals are usually needed whenever a home is bought, sold or refinanced. Assumable Loan: A mortgage that can be taken over by the buyer for a fee. These mortgages avoid closing costs and loan fees. Closing Costs: Payments made on closing day to cover attorney fees, appraisals, credit reports, escrow fees, prepaid insurance premiums and other fees Common Area Assessments: Also known as homeowner association fees, these are charges paid by unit owners to maintain the property Down Payment: The amount of cash paid by the homeowner at the time of closing. Any down payment that is less than 20 percent of the purchase price usually requires mortgage insurance, Common Financial Terms which increases the buyer’s monthly payments. Escalator Clause: A provision that allows the lender to change the inter- est rates or loan amount of a loan if market conditions change Fixed-Rate Mortgage: A loan with a fixed interest rate that remains con- stant over the life of the loan Home Warranty: Insurance purchased by the seller that covers the cost of repairing major appliances, such as the furnace and water heater, if they fail within a year of the purchase date Interest-Only Mortgage: A loan in which the mortgage holder makes pay- ment only on the interest Joint Tenancy: A type of ownership that allows two or more parties to own a parcel of property together. In the event of one joint tenant’s death, own- ership of the property automatically passes to the surviving joint tenant(s). Loan-to-Value Ratio: The percentage of a property’s value that can be lent to a borrower. Typically, financial institu- tions will not lend more than 80 per- cent. Mechanics Lien: A lien against the title of a property for work done on a house. Courts impose liens for non- payment of home-related services and must be satisfied at the time a home is sold. PITI: An acronym that stands for “prin- cipal, interest, taxes and insurance.” This is the total monthly payment owed to the lender. It includes pay- ment on the principal and interest, as well as money escrowed for insurance and taxes. Points: Interest that is paid in advance of the loan. A point is equal to one per- cent of the loan value. Three points on a $100,000 mortgage is equal to $3,000. Paying points lowers the monthly payments. Private Mortgage Insurance (PMI): Insurance that protects the lender in the event the homeowner defaults on the mortgage. It is typically required when the down payment is less than 20 percent of the home’s cost but can vary according to the lender. Title: A document that indicates a buyer has clear ownership of a proper- ty. In order to protect themselves, lenders typically will not issue loans without this document. Title Insurance: Insurance that pro- tects the homeowner and the lender in the event there is an ownership dis- pute 66 YOUR RELOCATION RESOURCE