provided. We’ll go more in-depth with underwriting later on in this book. Finally, we come to closing, where the loan is completed and funds are transferred to escrow. Almost all loans go through this process, whether its mortgages, auto loans, or small business loans. After all, you don’t just walk into a bank, mortgage company, or mortgage broker and say, “I want a loan,” and immediately turn to closing. To the new homebuyer, or someone who hasn’t bought in the last decade, lending seems to be complex. But if you think of the whole process as these four simple steps, it doesn’t seem as complicated. A loan originates from somewhere, it is processed, it’s underwritten, and then it’s closed. Simple! However, just because the main four steps are simple doesn’t mean that there isn’t plenty of room for things to go awry. This whole book is based on the idea that a lot can go wrong with a lender, so you have to be on your toes. With that in mind, let’s focus on the three main categories that make up a typical mortgage: rate, insurance, and size.
TYPES OF MORTGAGE RATES
Almost all mortgages are either “fixed-rate” mortgages or “adjustable-rate” mortgages. In a Fixed-Rate Mortgage (FRM), the interest rate is set for the entire term of the mortgage. An FRM is advantageous to borrowers because they’ll know exactly how much money they will pay back on the loan and also know exactly how much each payment will be from the first day to the last day.
18
Powered by FlippingBook