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Russ Dalbey Knows The Business Secrets Of Cash Flow Notes

Home financing is a guaranteed loan that uses real estate as security for the indebtedness. Most people don't have the amount of money to pay for the entire purchase price for a house. Rather, they will use a down payment along with a loan to purchase a home. Over time, the borrower can pay off the loan in affordable monthly payments. While the loan is in repayment, the lender will place a lien on the house to protect its security interest.

It can also be feasible to get a second home loan or home equity line of credit. With either of these products, they generally have a second place lien behind the first home loan. After the first lien has been entirely repaid, the remaining profits of the home may be used for the second lien. In the end lien holders have been satisfied, the homeowner has got the all the profits.


To get a mortgage, nearly all loan companies demand that borrowers meet strict earnings and home equity specifications before funding the borrowed funds. An important idea to understand is the financial debt to income (DTI) ratio. This is where all of the monthly minimum debt payments are divided by the monthly income. If the ratio is too high, the lender will not approve the loan.

Another important qualification to get a mortgage is the loan to value (LTV). Currently, no lender can make a loan that is more than the current appraised worth of the home. However, a few lenders might not exceed 60% to 80% of the LTV. Commonly, second homes and investment properties will have a more stringent LTV ratio that is lower than a loan on the owner's principal residence.

Escrow Account

In many cases, the principal balance on the mortgage isn't the only thing that is required to be paid every month. Many borrowers are also required by the lender to fund an escrow account for home taxes and homeowners insurance premiums. The bank will pay the taxes and insurance rather than the homeowner. There is a cushion amount above the actual amount needed within the escrow account also.

The monthly loan payment consists of one month's price of the escrow account, which can add hundreds to the monthly home loan payments. Prospective borrowers should make sure to include the escrow payment amount when estimating how much repayment will cost.


If the borrower doesn't make monthly mortgage payments, the lending company can start foreclosure proceedings. In order to avoid foreclosure, the borrower will have to make all scheduled payments as well as any additional interest and late fees. The further behind a homeowner is on making payments, the tougher it is to get out of foreclosure.

With respect to the kind of loan and state laws, the lending company may be able to pursue the borrower's other assets if the foreclosure sale doesn't produce enough funds to pay off the loan. Also, a foreclosure is extremely damaging to a credit report. It is almost as serious as a bankruptcy. Borrowers should try to avoid foreclosure.
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Article Added on Saturday, July 16, 2011
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