REAL ESTATE CONTRACTS: Homebuyers should focus on the following: dates by which conditions in the contract expire, when the deposit should be made, how much time you have to secure the mortgage financing, when the loan should close and who are the parties to the contract. Great care should be taken when signing any contract. Make sure you understand all aspects of the contract and what you are responsible for prior to signing. We do not recommend you sign any contract before discussing it with your Realtor (or your lawyer) first. Remember that a contract requires the signatures of both parties (buyer and seller) to be enforceable. So if you sign it, it is not a contract until the other competent party signs it as well. Also, understand exactly what you are buying. Don’t assume everything or anything in the house comes with it. If that was the case, you may end up with 5 new kids. Make sure all items you feel should be included with the property are clearly documented in the contract. Also see Step 5 under "Purchase".
PREPAYMENT PENALTY: Check to see (or ask to see) if any of the mortgage documents contain a prepayment penalty clause. "How long does the prepayment penalty stay in effect?" "How much is the cost of the penalty If I sell or refinance my property before the prepayment penalty phase expires?" These are questions you need to have answered. What does Prepayment Penalty mean? (see Glossary) Your Mortgage Broker (MTGB) or Lender is the one you need to be asking these questions to get your answers. Also see Documents for more information.
NEGATIVE AMORTIZATION (Neg Am): This is a mortgage where you have at least three payment choices. Of the three, the Neg Am payment is typically the lowest payment because the interest rate is below the market rate. With each mortgage payment being paid under a Neg Am, the actual interest to be paid is not covered. The difference between what you paid and the actual interest charged will be added to the balance of the loan. This means the principal balance increases, which causes all your payments to be adjusted on a monthly basis. If the principal is increasing, then you should think carefully on the future financial implications. You will have to pay more than what you borrowed to liquidate the debt. See Documents for greater explanation.
ADJUSTABLE RATE or ARM: The use of the word Adjustable is the clue as to what happens to your interest rate over time. You need to fully understand how and when your payments will adjust and by how much. Keep in mind that there are two factors involved in determining a rate: the Margin and Index. The Margin is a fixed number points the lender determines is their profit “margin” on the loan. The Index is the variable component from where the lender purchased the money. The same Index must be used for the life of the loan. It “costs” the bank to purchase this money for the loan on a short term basis and they pay it back with interest. Because they purchased this money short term, the interest rate they pay floats with the market. So every period the index can be different, thus making your Interest Rate different. The Margin and Index are added together for your interest rate and then is used to calculate your new principal and interest (PI) payment. Read Documents to better understand it.
FIXED RATE: The Principal and Interest payment will remain the same for the length of the loan. That doesn’t mean your payments will be completely fixed for life. The Taxes and Insurance portion of the payment may adjust as needed for escrows. See below and read Documents.
HOME INSPECTION: When you purchase a property, Premass highly recommends you have a Home Inspection by a professional Home Inspector. They inspect then develop a detailed report which reveals the condition of the house, and gives you a remedy to correct any defects. After you have read the report, you have to determine if the property is safe for occupancy. This report allows you to make that final determination if the property is right for you. If you are purchasing a property “as is” with “no right to inspect” (Highly risky and not recommended), a Home Inspection is still a wise choice to have.
Also keep your home up to date. Because when you are ready to move, the Home Inspector will give your property a good report to the person who is purchasing it, and you will get top dollar for your property.
