Mar
8
Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.
Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.
The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!
However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.
In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.
To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.
There are many different types of loan programs available, including “low†and “no†down payment mortgage programs. These types of programs require the borrower to provide less than 3 percent of the loan amount as down payment. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income.
Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home†is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.
Mar
8
Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.
Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.
A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.
Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime†– can range anywhere from A-minus, B-paper, C-paper or D-paper loans.
If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.
A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.
Next, you should obtain free copies of your credit reports from www.annualcreditreport.com and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.
There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.
Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.
This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a road map to follow and a strategy for success in building personal wealth.
Jan
1
What Length Mortgage Loan Should I Get?
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When considering the length (or term) for your mortgage will depend on many key factors. Considerations need to be made on your current financial situation and your goals for the future. You will need to consider how much you can afford to spend each month while still maintaining a acceptable amount of cash reserve in the event of an emergency is very important.
There are many options available for you to choose concerning the length of your mortgage. Options beside the typical 15 and 30 year terms are: 10, 20, 25 and 40 year fixed rate loans. Hybrid Arms offer your fixed and interest only terms in 3, 5, 7 and 10 year terms. A mortgage or loan consultant can help guide you through which loan term is right for you.
You should always consider your short and long term financial goals when considering the length of your mortgage note. You should weigh the benefits of the longer term mortgages in regards to monthly cost saving, compared to the shorter termed loans which will save you thousands of dollars in interest payments over the life of the loan. Always remember there are ways to pay your mortgage off earlier than the note term, which can also save you thousands as well.
Generally, you will use a longer-term mortgage to lower your monthly payments to a manageable level, and a shorter-term mortgage to save money over the long term and pay off your home quicker. Many people think that if you go from a 30 year fixed mortgage to a 15 year fixed, your payments will double. This is not the case. 15 year loans generally come with a smaller interest rate, which saves you some money. But it’s also important to know that most of your monthly payment is interest. A relatively small amount is paid toward your principle balance. For that reason, it doesn’t take a large increase in your principle payment to pay off the mortgage quicker.
If you can afford a higher payment get a shorter term mortgage, this will save you tens of thousands of dollars in interest charges!
If you just aren’t sure how long your mortgage should be, keep in mind that you can always pay more than the monthly payment, but you can never pay less. It may be wise to go with a longer-term mortgage to lower your monthly payment, and if you want you can pay extra to pay off the loan faster.
Its important to know that if you choose an adjustable rate mortgage, that it will still be amortized as if it were a 30 year fixed. Many consumers get this confused when they are shopping for a new loan. The 3,5,and 7 year ARMs offer lower interest rates and are a good way to keep your payments low.
Jan
1
What if I cant make my mortgage payment
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Helpful tips if you can’t make your mortgage payment:
You have a few options if you can not make your monthly mortgage payment. One option is to contact your lender and see if they will be willing to work something out with you in regards to skipping the payment or adding the payment back onto the end of the loan. Some lenders are very generous and will work with you on trying to find a solution and others are not as easy to work with. Consult your mortgage consultant to discuss your options with him/her too.
You should also examine why you cannot make your current payment, will a temporary fix actually solve or just delay the problem? You want to be sure that if you choose to refinance and get a lower rate will you still be able to make your payments even at a reduced level. If you do decide you just cannot continue to make payments at your current level you may want to consider selling your property and moving into something more within your means.
Most lenders don’t want to be associated with putting a family out on the street, so it is always a good idea to contact your lender to make up your payment in a matter acceptable to both parties.
The majority of lenders are not in the business of real estate acquisition, they are in the business of lending money. Putting a home into the foreclosure process is very costly to a lender, therefore they really have no desire to add your home to the list. Most lenders will work with you if your current financial situation is temporary. For example, a temporary job layoff, injury or illness that requires several months for recovery. Contacting your lender before things spiral out of control is most important.
One advantage to refinancing is you get a 30 day reprieve of making a mortgage payment.
If this is not an option you can contact us and if you are not already late we may be able to place you in a program that is better for your current situation than you are currently in.
If refinancing does not cure your current situation, then selling is not a bad option. It is better than having a foreclosure or a bankruptcy on your credit report. People make the mistake of buying to much of a home all the time. Sell now and protect your credit score, and maybe your situation will change in the future, and you will then be able to purchase a different home.
Jan
1
Tax Advantages of Home Ownership
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Your home provides many tax benefits. Here are some of the benefits of being a home owner.
- All yearly interest is tax deductible. Including any points paid for financing.
- You can deduct the total amount of your yearly property tax bill.
- In addition to paid interests and real estate tax being tax deductible, most of the settlement costs are also deductible. For purchase transactions, settlement charges are deductible in the year the transactions occur. For refinances, closing costs are deductible throughout the life of the loans. As always, consult a certified tax accountant before taking any such deductions.
- Home values have sustained growth through the years. Historically there has been no better financial investment than home ownership. It is the best hedge against inflation because real estate is the world’s only commodity in absolutely limited supply. Population growth steadily increases demand, thus the increasing value of real estate over time has been constant.
- You can also use your homes equity to your advantage by consolidating debt, purchasing big ticket items with a 2nd mortgage or HELOC at comparable interest rates, lower payments and you are able to deduct the interest from these mortgages as long as the loans do not exceed 100% of your homes value.
- Please keep in mind though, because of the complexity of tax laws, you must always consult your individual tax advisor for the precise tax advantages of your home and it’s mortgage. Mortgage professionals can give you general guidelines but things can vary from homeowner to homeowner.
- The tax advantages of renting - NONE! Don’t pay someone else’s mortgage payment for them every month. Contact your trusted local mortgage consultant and get pre-qualified for a home loan today.
- In addition to tax advantages you can greatly benefit from your home’s appreciation. A general rule of thumb is about 4 - 5% per year on average. If you bought a home that is worth $100,000 then at the end of one year’s time it could be worth:1st year = $105,0002nd year = $110,2503rd year = $115,762and so on…
Jan
1
Should I refinance my second mortgage?
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Many consumers are becoming worried about the rising interest rates on their second mortgages and want to know if they should refinance to consolidate their first and second mortgage into one. One factor a borrower can use to gauge if they should refinance or not is a blended rate calculation. The blended rate is the weighted average rate for your first and second mortgage at any given time. If you can lower your blended rate by refinancing your first and second mortgage into a single loan, you may want to refinance. The tricky part is if you decide to wait, how long you should wait. If you refinanced recently and have a low fixed rate first mortgage, you may have to choose between a higher fixed rate or keeping your second mortgage that continues to increase in rate.
As the balance on your first and second mortgage change, so will your blended rate. The best way to calculate your current blended rate is to use the following example: First mortgage balance multiplied by first mortgage rate plus the second mortgage balance multiplied by the second mortgage rate and divide that number by your total balance of both loans. There are calculators available on the Internet that can quickly calculate your blended rate if you plug in these basic numbers. Of you can contact me and I can help you calculate your blended rate and decide if refinancing is right for you.
Second mortgages are often tied to the prime rate. The prime rate has been adjusting upward the last several years. Consolidating your second mortgage with your first is often worthwhile even if rates have gone up and your first mortgage is at a very attractive rate compared to what is currently being offered.
If the balance on the second mortgage is relatively small and will be paid off soon, you may not want to refinance the two mortgages into one single loan. There will be costs associated with refinancing. If the second mortgage will be paid off within the next year, your exposure to the increasing rate environment is limited. In this case, the security offered by a fixed rate refinance may not justify the closing costs.
If your second mortgage is a home equity line, it is tied the prime rate which has been rising rather quickly. If you have a low rate first mortgage and do not want to refinance it to consolidate your two loans, consider replacing your equity line with a fixed-rate second. Rates are lower and are fixed for the life of the loan which can be up to thirty years. Ask your mortgage consultant about these.
All other things being equal, sometimes homeowners just want to have one mortgage payment to make every month.
Another factor to consider is that you loose the flexibility, and security that a Home Equity Line of Credit provides. Many borrowers keep an open line of credit even if it has no balance as a rainy day fund. In the event you need money quick or need a large amount of money a home equity line can provide that if there is available funds on the line. By refinancing you may lower your payments but you may also loose that security. Alternately if there is available equity in your home you may be able to refinance that secant mortgage and add another line of credit that has a zero balance. This allows you to lower your current payment while maintaining the security of available funds
How do you figure out what your blended interest rate is? For example, if you currently have an 80/20 loan, with interest rates of 6.625% and 9.875% respectively; You take the first rate of 6.625 times 80% and come up with 5.3%. You then take your second loan, I.E. 9.875% and multiply it by 20% and arrive at 1.975%. Add the two together and you have your blended rate, 7.275%. If you can refinance with a single loan for a lower interest rate, it may be a good idea.
An experienced mortgage planner will be able to help you evaluate refinancing a second mortgage. Important things he should ask you would include:1) when does your draw period end (for lines of credit)? At the end of the draw period, your loan will convert to a fixed rate second mortgage and you lose the flexibility of being able to draw against the equity for emergencies.2) how does the margin on the new loan compare to the margin on the old loan? If your home has benefited from significant appreciation, your total loan to value may be low enough to get a lower margin which will help offset the higher indexes of today’s market.3) How are you utilizing your second mortgage? Paying off your higher rate credit card balances to get out from under the interest or floating a small business are common considerations FOR a second mortgage, but should not become routine.
There are other factors to take into consideration to such as how long you intend to own the property. If you are going to sell soon then you might want to stick it out. The only way to truly know is to look at all factors and plug this information into a financial calculator or mortgage calculators. If you are inexperienced in finances then consult you mortgage broker and ask him to run some calculations for you.
A large part of the decision on if to refinance your second mortgage will be based on your first mortgage. If you have a low rate first mortgage you may not want to refinance them together. Instead you may choose to replace your current second mortgage with a home equity line.
Jan
1
Purchasing a Home
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I am interested in buying a home. What do I need to do to buy a home? How much of a home loan can I qualify for? Can I get a house with no money for a down payment? I want to buy my first home. These are a just few examples of the most common comments and questions made and asked every single day by thousands of people from all over the country. Buying a home can be a relatively scary task, especially for the first time homebuyer. However, working with a good mortgage consultant or mortgage broker can make this a very gratifying and pleasurable experience.
Before shopping for your dream home in your desired neighborhood, obtain a copy of your credit report and examine it for any negative or incorrect items. If so, contact the three major credit repositories and request to have the false items removed. Preparation will get a home buyer the best deal in both the house hunter process and the mortgage application.
Purchasing a home makes more sense than renting. People who purchase homes gain the tax advantages that comes with purchasing a home. Another benefit of purchasing a home is the appreciation you gain. When you consider the tax advantages and the appreciation, you’ll see that purchasing a home makes more sense than renting.
You will want to decide on a mortgage company to provide you with financing for your home. A mortgage broker is often the best option for your financing. You should pick a mortgage broker you are comfortable with and who will provide you with a Good Faith Estimate and a rate lock letter when a rate is quoted and locked.
Working with a broker can benefit you because brokers have access to the loan programs provided by hundreds of different lenders. In effect, they are shopping all of the different lenders for you to make sure that you get the right financing for your situation.
Once you are pre-approved by your mortgage professional, you will need to find a real estate agent that you can trust. Your local mortgage professional should be able to give you a couple of names of their trusted realtors. It’s important to find a real estate agent that you like, because you may be spending a lot of time with them.
Jan
1
Prepayment penalty
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A lenders charge to the borrower for paying off the loan before the end of the term. It is present in some mortgages, preventing borrowers from rapidly refinancing.
Under most circumstances, there will be no pre-payment penalty on conforming, FHA or VA loans.
Some prepayment penalties will only apply if you refinance your home within the prepay period, and not if you sell your home. This is generally referred to as a “soft” prepay.
Hard Prepay penalty pertains to a penalty whether you sell or refinance while the soft pre-pay only pertains to a penalty if you refinance. The soft prepay will not affect you if you sell.
Some states prohibit prepayment penalties.
A penalty may or may not apply to repayment resulting from a home sale. If you are 100% sure that you won’t be selling your home soon then it may be a good idea to get mortgage financing that includes a prepayment penalty, especially if the lower interest rate in trade is well worth it.
Most lenders will allow you to buy-out the pre-payment penalty. The charges will vary among lenders.
If you pay off your mortgage before it is due, you may be charged a fee — this is referred to as a prepayment penalty.
Pre-Payment penalties generally enable lenders to offer borrowers lower interest rates for the life of the loan, so if you are going to be in your house longer than 2 years, a pre-payment penalty can prove to be more beneficial than the word “penalty” would indicate, resulting in large savings over the long term, especially on fixed rate loans.
Prepayment penalties on a loan offering can change the rate you pay for your mortgage. Many times you can pay a higher rate to reduce your prepayment penalty with that lender. This is one of many reasons why different mortgage brokers quotes may vary with the same borrower information.
Prepayment Penalty can be used as a tax write-off at the end of your current year. Please advise your tax consultant in regards to laws and guidelines. He/she may help you recoup the costs if you should break the contract between you and your bank.
Paying a prepayment penalty on some types of loans can carry a lower interest rate than not having one. If you feel certain that you will be remaining in the home for a period that exceeds the length of the penalty it may be a wise decision to go with the lower rate.
Many of today’s loans come with prepayment penalties. Typically, a prepayment penalty is charged if the borrower repays the loan within the first 2-3 years. This payment is usually equal to six months interest. If you are just a few months out from the expiration of your penalty period, you may want to wait it out before refinancing. However, even with a penalty the long term savings of locking in a lower fixed rate today could more than cover the penalty.
Depending on the state you live in and whether your loan was originated as a purchase transaction or a refinance, some states do not allow Pre-Payment Penalties (PPP) imposed on pre-paying a loan that was originated as a purchase. Others have laws that limit the number of years in a Pre Payment period for different transaction types. Most banks let you pre-pay up to 20% of the outstanding balance without subjecting you to a PPP.
Jan
1
Pre-approve
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Lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Most realtors will not show you a home until you have a pre-approval from your mortgage professional. Finding a great mortgage broker should be one of your first steps in the home buying process. For more info contact me now .
Gaining pre-approval prior to looking for a home can help you to better know what you qualify for as well as giving you more leverage when making offers.
The lender will pre-approve an applicant after confirming their credit and income information meets their lending guidelines. An approval is when a lender confirms credit, income and collateral confirms to their lending guidelines.
Once you have your pre-approval, you will want to make sure that you do not take on any more debt or fall back on any payments you currently have. A lender has the right to withdraw a pre-approval if there are any changes to your financial status.
Pre-Approval is commonly used to indicate that a borrower has completed a loan application and provided their debt, total income, and savings information which was reviewed and pre-approved by an underwriter.
Not only is pre-approval important when working with a real estate agent, it is very important if you are looking at homes that are being sold by owner. The first question an owner will ask when you call on a “for sale by owner” home is “have you been approved for a mortgage?” They do not want to waste their time showing their home to someone who can not afford it or who can not get a loan.
Most pre-approvals are done electronically and done the same day. We will be able to take an application, enter your information to get the approval needed. Then we will issue you a letter confirming that you have been approved for a mortgage to your realtor to strengthen your offer to purchase a property.
A pre-approval and a pre-qualification are two different things. A pre-approval letter is much stronger than a prequalification letter. Being pre-qualified means that you meet some of the basic criteria for a loan and there has not really been a full application completed and you are not approved with any specific lender. A pre-approval means that you have completed a full application and you have actually been approved with a specific lender. When you receive direct mail at home stating you are pre-qualified for a loan just call our office now to get “the ball rolling”, this prequalification simply may mean that you met this companies most basic requirements that allowed them to send the letter to you. However after you call in and complete a loan application and the mortgage consultant calls you back to let you know you have been approved for a loan, this is your pre-approval.
Mortgage pre approval should always be done prior to home searching as it will give you a true assessment of what price range of home you can afford.
A pre-approval letter will contain a loan amount you have been approved for. You should take this amount add your down payment and start shopping for your dream home.
A pre-approval certificate is basically a loan approval without the property information. It is contingent upon the outcome of the appraisal report. The purchase price of the home must be supported by the appraised value. A pre-approval has an expiration date. If the dream home is not found by the expiration date, simply have your loan officer re-submit your credit documents for an extension on the pre-approval.
A pre-approval is based on the information provided to the lender. If any of that information changes or is found to be inaccurate, that pre-approval can be withdrawn. Some of the more common reasons for withdrawal of pre-approval are change or loss of employment, increase in debt, reduction in credit score because of late payments, and reduced cash reserves.
A Real Estate agent will often ask for a pre-approval letter before presenting an offer to the home seller.
Other sites: Loan Officer | Stated Income Loan | Will Stated Income Work for You | Protect Yourself from the Real Estate Bubble | Investor Loans | 10 tips for using a mortgage as a financial tool | Reduced Documentation Loans | Closing Costs | MIP | What not to do after you apply for a Mortgage | Why should I refinance | Fixed-rate mortgage | Selling your home with a real estate agent | FSBO| Pay Option Arm Calculator
Jan
1
Pre-approval
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Getting a pre-approval means that the lender has verified your income, assets, debt and credit. The pre-approval is much more accurate than a pre-qualification when it comes to what you can afford.
Pre-approval will determine the maximum you can spend on a house before you shop, so you know what price range to target. Many shoppers aim too high, bidding on a home that they later learn is beyond their means because of unforeseen debts or other financial factors. Pre-approved buyers can rush the closing if the seller is in a hurry to deal plus gives buyers bargaining power.
A loan Pre-approval is generally more in depth than a loan Pre-Qualification. A pre-qualification is a mere chat with a loan officer, whereas the loan Pre-approval process involves a more thorough investigation of the borrower’s buying power. The Pre-approval process takes longer and involves actual documentations of the borrower’s credit history, income and employment, bank statements, and other pertinent financial information.
People interested in buying a house can often approach a lender, who will check their credit and verify their income, and then can guarantee they would be able to get a loan up to a certain amount. The people can then take a letter of pre approval from the lender, and when shopping for a home can have possibly an advantage over others because they can show the seller that they are guaranteed to be able to buy the house.
A Pre-Approval is by far superior to merely being Pre-Qualified. Pre-qualifying is only an opinion based on unsubstantiated information provided by the borrower to the loan originator. A Pre-approval is more in-depth and detailed. Normally a credit report is pulled and records of bank accounts and income, as well as W-2’s are collected.
Pre-Approval Signed or Unsigned 1003 (1003 is your Mortgage Application that you signed or the loan consultant asked you the verifiable question on the Application) Tri-Merge Report Financial Documents that you sent to the Loan Consultant Once all documents are received the Loan Consultant will fax all information over to the Bank of your/his/her choice and the Underwriter of the Bank will do a quick review of the documentation received and than determine how much you will qualify for and at what interest rates you will obtain. They will than fax over a Pre-Approval with the banks name on header stating that you have been Pre-Approved from such amount and such interest rate based on the information provided. At that time as well they will also send the loan consultant a list of additional documentation for him/her to retrieve to begin the loan process. This is usually good for 30 days since rates vary monthly.
Today many lenders offer an automated pre-approval or loan commitment online through authorized brokers. This speeds up the process by allowing their computer system to analyze the borrowers credit and income details before a human underwriter actually looks at the paperwork. This method also allows loan officers to get pre-approval from a lender within 24 hours of the borrower applying for a mortgage loan.