Homes for Sale Listings - McKinney TX Real Estate

Pamela Reubin Team, Real Estate Agents in McKinney Texas

 

    
   
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What is a Mortgage?
What is a mortgage?
Generally speaking, a mortgage is a loan obtained to purchase McKinney Texas real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
What is a loan-to-value (LTV) ratio? How does it determine the size of the loan?
The LTV ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: with a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay $2,500 as a down payment. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV ratio, the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require a mortgage insurance policy.
What types of loans are available and what are the advantages of each?
  • Fixed Rate Mortgages: Payments remain the same for the life of the loan. The biggest advantage is a predictable housing cost that remains unaffected by interest rate changes and inflation.
  • Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits.
  • Balloon Mortgage: Offers very low rates for an initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically).
  • Two-Step Mortgage: Interest rate adjusts only once and remains the same for the life of the loan ARMS linked to a specific index or margin.
When do ARMs make sense?
An ARM may make sense if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.
What are the advantages of 15- and 30-year loan terms?
30-Year: In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.

15-year: Loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal.

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