What is escrow?
What fees are tax deductible when purchasing a home?
What is a buydown?
What is an adjustable rate mortgage?
What is mortgage insurance?

 

1. What is escrow?

Escrow is a stage during the homebuying process during which money and/or documents are deposited with an impartial third party (an escrow agent), to be disbursed to the rightful party when all conditions of the transaction have been met. Entry into the escrow process indicates that the buyer is done looking for homes and that the seller is finished showing that particular home. It also marks the beginning of the loan approval process in good faith with the goal of closing escrow. To close escrow, all of the papers and the money must be deposited with the escrow agent within the agreed-upon timeframe.

2. What fees are tax deductible when purchasing a home?

Any pre-paid interest, pro-rated property taxes, loan origination fees or points you paid to obtain your mortgage can typically be deducted that year from your state and federal tax returns if you itemize your deductions. Also, mortgage interest and property tax paid over the life of the loan are typically deducted for the year in which they are paid. As always, be sure to discuss your individual situation with your financial advisor.

3.  What are Buydown Points?

A mortgage buydown allows the home buyer to qualify and start making mortgage payments based on an initial rate below the current 30-year fixed rate. The rate will increase by a fixed percentage for the next one to five years, depending on the type of buydown program. For instance, the rate on a 3/1 mortgage buydown would increase gradually over the three years following the origination of the loan. A buydown typically requires a payment from the seller, buyer or third party to the lender, who reduces the interest rate during the early years of the loan in response. This may be a good option for anyone who is confident their income will increase in coming years, but who wants the best home he or she can afford today.

4.  What is an Adjustable Rate Mortgage? (ARM)

An adjustable rate mortgage (ARM) is one in which the interest rate is adjusted periodically based on a pre-selected index.

5.  What is Mortgage Insurance?

Mortgage insurance is a policy obtained by the borrower that protects lenders against some of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is normally required for borrowers placing a down payment of less than 20 percent of the home's purchase price