125% home equity loans

Editors Note: Due to the mortgage and credit crunch, 125% home equity loans may no longer be available. If you’re in need of a mortgage in Denver, contact us to discuss your mortgage options.

Before you decide to refinance with a 125% home equity loan there are some you should consider. The main concern with these programs is that you will owe more on the home then it is actually worth. This may cause a problem if you want to move in the near future

Be very careful when using the 125% loan. If you don’t gain back the extra 25% through appreciation or making improvements, then you will be obligated for the extra amount if you sell your home. Can you handle the thought of owing more on your home than your home is worth? If not, then this loan probably isn’t for you.

This may be an excellent way to finance any improvements that need to be made in the home. The improvements in turn may increase the value of the home after they are completed. For some consumers, financial burdens may make this an attractive choice for debt consolidation. If you aren’t planning on moving for awhile and your budget is stretched to the limit, this would be an alternative. Talk to your loan professional today about the pros and cons of using this loan product in your situation.

Remember that if you are taking equity out of your home in amounts over $100,000 that is not related to the improvement of the home nor to purchase additional property then you are not able to deduct the interest payments on your taxes.

Lenders offer 125% Home Equity Loans in markets where property values are on the rise. The loan is made with the expectation that the property will increase in value and give equity protection to the lender. Lenders become very hesitant to offer these kinds of loan programs in markets where property value are stable or declining.

Qualifying for a loan that is 125% of the value of your home is much harder and more strict than applying for a mortgage loan that is 100%, or under, of the value of your home. Normally, you will not be able to have any late payments over the last 12 months, and many times no late payments during the last 24 months. Your credit scores should definitely be over 700 and some lenders will require even higher credit scores for 125% financing.

125% Financing

A 125% financing allows you to purchase a home with no money down, and allows you to receive cash, up to 25% over the purchase price of the home. The extra cash received at closing can be used for home repairs, debt consolidation, or anything else that you may wish.

These are a good idea if the 25% overage is going to be used to increase the value in your home!

You may not be able to deduct the interest paid on the portion of your loan which is greater than the value of your home. Consult your tax specialist for more information.

It is more common to have a second mortgage or Home Equity Line of Credit (HELOC) that is equal to 125% of your home value.

If you are in a hot market were your home is appreciating at a rapid pace then this loan would not put you in as much risk than if you were in an area or economy where the appreciation was moving slowly.

You can expect to receive a higher interest rate for these loans, because of the high risk to the lender.

125% LTV loans are only for borrowers who believe that their home will be worth at least 25% more when it comes time to sell it, unless they have other means to cover the difference.

When you’re rehabbing or remodeling your existing home, the 125% loan makes sense because you’re tapping the future equity of your home.

Not many investors offer this program anymore. It was a popular loan in the late 90’s until about 3 years ago. However, it is still available with select lenders. You need to have excellent credit to qualify for this program since the risk to the lender is high.

40-year mortgage

A mortgage in which the repayment of principal is done over a 40-year period, rather than the traditional 30-year period, in order to reduce the monthly payments. The rate on a 40-year mortgage can be fixed or adjustable.

While 40-year mortgages increase affordability by reducing the mortgage payment, the reduction is very modest. Furthermore, a small tweaking in the 30-year mortgage would accomplish the same thing, maybe better.

40 year mortgages are increasingly popular with customers who are refinancing their home mortgage as part of a debt consolidation strategy, allowing them to borrow marginally more money, eliminating high revolving debt payments, while still maintaining a payment which is similar to what they were paying before on their 30 year mortgage payment.

40 year mortgages are becoming more popular as homeowners are constantly looking for more affordable ways to own homes.

Other alternatives to the 40 year mortgage are option arms, interest only arms, and interest only fixed mortgages. Ask which one is right for you.

In many cases the 40 year amortized loan will have a better rate than an interest only payment. If the 40 year payment is just slightly higher than the interest only payment, opt for the 40 year payment because you will be paying down some principal.

The 40-Year Mortgage allows for principal reduction but at a significant lower payment to borrower. The difference in payments can be pretty significant. For example, on a $500,000 mortgage financed over 30 years at a fixed rate of 5.875% costs $2957.69 a month. But the monthly principle and interest payment drops $2707.63 on a 40-year schedule. That is over $250 less in your monthly payment.

One of the disadvantages of a 40 year loan is that the homeowner builds equity at a much slower pace. For first-time buyers counting on equity accumulation to eventually move up to another, larger and more expensive home, this slower pace of equity accumulation is a liability and may leave some people sadly disappointed.

The 40-year mortgage is more attractive than interest-only loans because borrowers build equity in their homes, albeit at a sluggish pace, and they are not vulnerable to rising interest rates.

You should ask your mortgage broker whether or not this loan makes sense for your situation. A professional will be able to provide loan programs that he or she thinks are of the most benefit to you. Remember though that this is your mortgage, and you have final say. If you are absolutely sure that a 40 year mortgage is for you, then your broker should be glad to help you get it.

For renters who cannot afford a 30-year mortgage and still want to own their own homes, a 40-year amortization mortgage is often a good solution. In many metropolitan areas, the average rental cost for a single family residence is about the same as the monthly payments of a 40-year amortization mortgage with conforming loan amounts. Renters in these areas can often afford their own homes after all. However slow homeowners with 40-year mortgages build equity, they do contribute to the equity of their own home nonetheless.

If you run the numbers using a mortgage calculator you will be able to see the benefits of home ownership vs. renting and it may make sense to acquire a 40 year amortization loan. It is much better than throwing your money away on rent each and every month.

While fixed-rate mortgages remain attractive by historical standards, borrowers looking to keep their monthly payments down are running out of good choices. Some borrowers may consider products such as option ARMs and interest-only mortgages.

The shinning feature of a 40-year fixed-rate mortgage is that monthly payments are more affordable without taking on the risk of an ARM. This is of particular interest to buyers in high-cost areas. The 40-year fixed mortgage may also appeal to buyers with small down payments. The monthly payments on large loan amounts are accomplished by spreading amortization (the repayment term) by an extra 10 years. However, before you begin to think that this is the greatest loan ever, keep in mind the difference in payments may not be as much as you think. Be sure to have your loan professional run the numbers for you and compare with other loan products.

One twist to the 40 Year mortgage that you may want to watch out for is a 40 year due in 30, What this means is you will have a balloon payment due at the end of 30 years. This is not a bad thing considering most homeowners will most likely refinance before 30 years.

Alternate options to pay down credit cards

Some people don’t have the available equity in their home to get cash out to pay off their credit card balances. An alternative option may be to use a Pay Option ARM. When you make the minimum payments it will drastically increase your monthly cash flow. You can use that additional cash to pay off your credit card balance.

Destroying your credit cards, so they cannot be used, may sound strange, but is an excellent way to help pay them off.

An interest only loan or a 3 or 5 year ARM (Adjustable Rate Mortgage) may also help to maximize your monthly cash flow. By being able to obtain a much lower rate or by switching to an interest only mortgage, this will free up money from your housing expenses that you will be able to use for paying off those much higher rate credit cards.

If you decide to refinance into a loan that will allow you to pay off your credit cards faster, you will more than likely be able to skip a month of your mortgage payment. Use the money saved from making that payment, and applies it to one of your credit cards. Remember that once the credit cards are played down or destroyed to not close out the account. This will help your credit score in the long run. The credit bureaus like to see accounts with a zero balance that has been open for a long period of time.

Consolidation of credit card debt should be considered only a “band-aid.” If you continue to use your cards, you will need to repeat this scenario time after time. Should your home not appreciate in price as quickly as in the past, you may not be able to do another consolidation down the road. The permanent fix is to spend within your budget and use cards wisely.

Other sites: Broker Outpost | MIP | The Lending Process | Mortgage Broker vs. Your Local Bank| Pay Option Arm Calculator

Bad Credit Mortgage

Believe it or not, you don’t have to have perfect credit to get a mortgage.

Funds for borrowers for bad credit mortgage loans come from Wall Street type investors rather than banks. Local and neighborhood banks and credit unions are usually too conservative in their business practices to participate in bad credit or subprime mortgage lending.

Most neighborhood banks do not offer mortgage programs for bad credit borrowers. An experienced mortgage broker is often the best source for Bad Credit or Subprime loans. Most mortgage brokers have business relationships with mortgage bankers that only specialized in mortgage loans. Unlike neighborhood banks, whose core business operations focus on checking and savings accounts, these subprime mortgage lenders’ business model focuses only on making mortgage loans.

A Bad Credit Mortgage can be the first step in fixing your credit. It’s like a fresh start to take cash out to pay of credit card bills and perform any other debt consolidation, getting lower payments overall each month and reducing them all into one low monthly payment, which is easy to remember to pay on time each month. Paying your mortgage on time each month will improve your credit scores and you can eventually refinance your bad credit mortgage once your credit has improved and qualify for a low fixed rate or powerful pay option arm a year or two down the road.

Most of the Banks will lend on a borrower if you have above 500 credit score. There are a handful of banks/hard money lenders that will lend on sub500 fico.

While it is true that a subprime loan will carry a higher interest rate. It does not mean you are stuck with the loan forever. Hopefully you will improve your credit score to the point where you can refinance at a more favorable rate.

These types of loans are usually called “subprime” loans out in the market place. Really all it means is that is it a loan for those who have had some financial struggles in their life. Just because you’ve missed a few payments does not mean you can’t qualify for a loan.

There may be a higher interest rate or fees associated with a subprime loan, due to the higher risk the lender is making.

The mortgage industry has evolved over time allowing more options for getting approved for a mortgage. Even if you have “BAD CREDIT”. Bankruptcy?, Foreclosure?, Late payments? Defaults?, Collections?, , there is still a program out there for you. Do not assume you cannot qualify. It only takes a few minutes to apply. Find out for sure if you can qualify or not.

The rapid growth of the mortgage industry has led to the creation of programs that can help those with even the most challenged credit situations.

Having poor credit does not disqualify you from getting a mortgage, it only increases the risk that a lender might have in giving you a loan. Talk to a mortgage professional if you are unsure about your ability to obtain a mortgage.

Cash Advantage Loans

Editors Note: Due to the mortgage and credit crunch, loans such as the cash advantage loan may no longer be available. If you’re in need of a Denver mortgage loan contact us to discuss your mortgage options.

The cash advantage loan will allow you to finance your home and receive a check up to 2% of the loan amount after closing. The benefits for this mortgage option would be if a first-time home buyer needed to furnish their new home or had minor home improvements.

When refinancing some borrowers only qualify for a rate and term refinance, with a cash advantage loan the borrower will still be able to receive 2-5% of the loan amount.

Many of our programs allow up to a 5% seller’s concession on 100% purchases.

Cash advantage loans are useful for debt consolidation. Cash can be taken out to pay off high interest credit cards versus the lower interest rates available on mortgages. Plus the mortgage interests are tax deductible which means more savings.

In Texas no cash is allowed back to the borrower when refinancing unless the borrower is taking out a Texas home equity loan. Texas home equity loans are limited to 80% LTV of the property and have more stringent requirements.

Other sites: Loan Officer | Increasing your homes value | New Credit Card Minimum Payments | Why choose a mortgage Broker| Pay Option Arm Calculator

Cash-Out Refinance

Editors Note: Due to the mortgage and credit crunch, Cash-Out Refinances may be harder to obtain. If you’re in need of a Denver Refinance contact us to discuss your mortgage options.

With a Cash out-Refinance the money you get at closing can be used for many purposes such as future investments, College, or debt consolidation. Money can be used to pay off current monthly debt which could lower your personal Debt to Income ratio. Consult a Mortgage Professional in regards to how much you should extract from the equity built into your home.

You can get cash out through a first mortgage, a second mortgage or a home equity line of credit (helot). Some lenders will require that you stay within certain loan to value (LTV guidelines) for cash out. Conforming limits are 90% LTV and FHA cash out is limited to 85% LTV. Many subprime lenders will go to 100% cash out with good credit.

Whenever you take a decent amount of cash out from your home, your LTV (loan to value ratio) will probably exceed 80%. To avoid paying mortgage insurance on these loans, many borrowers split the amount borrowed into two loans, a first and a second. Typically, the first mortgage has a LTV of 80%, but there are loan programs where having the first mortgage at 70% LTV offers more favorable terms to the borrower. The lower the LTV ratio, the less risk the lender will have in offering you a loan.

FHA update on October 31, 2005 allowing for a cash out refinance to go as high as 95% LTV. Previously the guidelines only allowed for a maximum of 85% LTV. These changes will allow many borrowers to take advantage of the equity in there homes and still obtain low rate financing.

Taking cash out on a home refinance is one of the many factors a lender takes into account when evaluating the risk of the loan. In certain situations, taking cash out may cause the lender to perceive the loan to be of higher risk. This could result in a slightly higher interest rate or additional restrictions on qualifying for the loan.

Since payment on cash out refinances can be spread across over up to 40 years, it is often advisable to use the proceeds for investing in something enduring. Using cash out from home equity for Value adding home improvements or for financing a new business are excellent options whose benefits you will continue to reap long after the last payment is made.

Besides setting the maximum LTV limit with Cash-Out Refinances, some prime lenders also limit the maximum cash-out dollar amounts.

Some non-conforming lenders will allow cash-out up to 125% of the value of your home.

Cash out Refinances can help many people better their financial situations by improving their monthly cash flow. However, many of these borrowers after paying off high interest rate debts often find themselves in the same situation down the road because of a failure to control their use of credit. These people wind up being in a worse situation because now they have no equity in their home plus high interest rate debts to pay.

If you’re looking to take out unlimited cash out when refinancing consider a rate and term refinance of your first mortgage and a home equity loan second mortgage option. Taking cash out proceeds from your second mortgage allows you to get a better rate on your first mortgage.

Condominium

Condominium – A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex; the owner also shares financial responsibility for common areas.

For many first time home buyers, a condominium is an ideal starter home.

An individual condo owner holds title to the condominium unit only, not the land beneath the unit, so condos can be stacked on top of each other.

Despite being similar, town homes or townhouses are not considered condos. They are considered an attached single family residence or a planned unit development.

Condos serve as a great purchases for someone who doesn’t have a large family and doesn’t want the burden of cleaning or the maintenance that a larger home requires.

Condos are classified as high rise, more than five stories, and low rise, less than five stories.

On most condo projects a home owner association has been established to maintain the grounds and common areas.

Condominiums typically require slightly higher homeowners association dues to pay for insurances that are required and up keep of amenities and common areas.

For a mortgage loan secured by a condominium unit to be eligible for delivery to Fannie Mae (FNMA) or Freddie Mac (FHLMC), the condominium project must be approved by FNMA and FHLMC. In order for a condominium development to be accepted, it must meet certain requirements promulgated by Fannie Mae and Freddie Mac. Some of the more important requirements are, the minimum number of units already sold, the number of owner occupied units and units being rented in relation to total number of units in the development, and if any one investor holds title to more than a certain percentage of total units.

Condominium boards often require an interview with a condo buyer to ensure the potential occupants meet their requirements. Some of the condo boards’ criteria are the occupant’s family size and income situation.

The Condominium Market is booming across the United States. Apartments are being converted into condominiums in record numbers and prices continue to rise. This phenomenon is being met with mixed emotions by some. On one hand it reduces rental units available for those not financially capable or interested in home ownership. On the other hand it is argued that Condominiums aid many buyers in getting in on entry level home ownership.

A great way for young adults to get started buying their first home is by using the FHA “Kiddie” Condo Loan Program. This type of mortgage allows a person to co-borrow with a blood relative (e.g. parent, grandparent, sibling, etc.) who helps qualify for the loan using their income or assets. Both borrowers take title to the property and sign for the loan.

One advantage to owning a Condo is not having the requirement for a survey to be done.

Some lenders will consider a mortgage loan secured by a condominium to have more risk than a loan secured by a single family residence. In this case, the lender will charge a slightly higher rate of interest for the condominium loan.

This is an ownership where the owner gets title to a unit, in a multiple dwelling plus a proportionate interest in some of the common areas.

Some financial “gurus” have advised against this because you are turning unsecured debt into secured debt. While this is basically true the fact is that defaulted unsecured debt can be secured against real property very quickly once the debtor is sued for it and a judgment is received.

In order to decide if a debt consolidation is your best action, you should figure what you are paying now and how that will translate in the length of time it will take you to pay off those credit cards. You may find that rolling those debts into your mortgage will save you thousands of dollars in interest payments.

A mortgage agent can help you decide if refinancing credit card debt into a mortgage is your best option. Using financial calculators available, they can compare how long and how much it will cost you to pay off credit card debt using your current monthly payments vs. refinancing the debt into a new mortgage. Very often the monthly and lifetime savings is large.

One major difference between unsecured (e.g. credit card) debts and secured (e.g. mortgage) debt is should a financial disaster arise, such as health issues, or lose a job, and a homeowner defaults on unsecured debts, he can file bankruptcy protection and keep the home, whereas if he defaults on mortgage payments, he would be forced into foreclosure.

If you are planning on selling your home in the near future, you may want to rethink consolidating. You need to make sure that you have enough equity to pay for realtor’s commission and down payment or closing costs on the new home.

If you have gotten buried in a hole with credit card debt it could be a necessity to refinance your home and pay off your credit card debt. It has been known to save thousands of dollars. On the other side of the spectrum, if you only have 5 months left on a credit card bill it is note wise decision to bury that into a mortgage.

You can consolidate your credit card debt through use of your first mortgage or by obtaining a second mortgage or a home equity line of credit, also known as a HELOC. A HELOC works with the same basic principals of a credit card. It is a revolving account that as you pay the equity line down, you have that money available to you to use again. With a second mortgage you simply have a set term (5 years, 10 years, 15 years, etc…) that you will pay on the loan for and when it is paid off you are relinquished of your obligation to this debt and the account closes. All 3 (1st mortgagee, 2nd mortgage or HELOC) are excellent choices for debt consolidation but you and your mortgage broker will need to figure out which one makes the most sense for your particular situation.

Consolidating credit car debt into your mortgage can save a homeowner hundreds and sometimes even thousands of dollars per month by lowering their total monthly obligations. When you consolidate credit cards into your mortgage you also are able to lower your interest rates on those credit cards which essentially saves you a lot of money but you are able to write off the interest on your tax returns from your mortgage and you can not do this with your credit cards.

If you want to use a refinance loan to consolidate some of your debts, you’re going to have to borrow more than the actual amount remaining on the loan that you’re refinancing. This additional amount will be used to pay off those debts that are being consolidated and will affect the monthly payment of your refinanced loan. By doing this, however, you can make your finances and outstanding debts much more manageable and will likely become debt-free much faster.

When deciding to refinance for debt consolidation you might want to consider how long you will have to pay your credit cards if you are only making the monthly minimums. This can take you much longer in most cases than paying on a traditional 30 year fixed mortgage.

Other sites: Mortgage Broker | Investor Loans | Reduced Documentation Loans | Fixed-rate mortgage | Increasing your homes value | Why should I refinance | MIP | Rehabilitation mortgage | VA| Pay Option Arm Calculator

Credit Counseling and Mortgages

Credit counseling in lieu of filing bankruptcy has help many Americans out financial issues. Today, there are lenders who are comfortable lending money with a borrower currently in consumer credit counseling as long as the consumer has been on time with the monthly payments.

Many lenders look at credit counseling the same as bankruptcy or just barely a step above bankruptcy. Credit counseling is not always the best route to go to take care of credit card debt. Ask your mortgage professional if there are any options or other ways to deal with your debt first. A debt consolidation refinance can many times save you hundreds and sometimes even thousands of dollars.

If you are considering credit counseling, please speak to a mortgage consultant first if you plan on purchasing or refinancing a home. Entering credit counseling may limit the number of lenders willing to lend to you.

Other sites: Mortgage Broker | MIP | Why choose a mortgage Broker| Pay Option Arm Calculator

Credit Reports

Credit reports are your lifeline in the financial word in regards to obtaining financing. You want to be sure that your history is reflected accurately. Many times people find out too late that their credit report is not correct. It is a good idea to review your credit report once every 3 months to insure all your account history is accurate. Common problems on credit reports:- Not your account- Loans reporting a balance which have been paid off- Collection accounts that are incorrect- credit accounts discharged in bankruptcy- Judgments that have been satisfied not reporting as satisfied- Credit cards which you were only an authorized user on showing lates- Many more These problems can lead to lower scores and less than ideal rates. Correcting your credit report is not an overnight task, so plan ahead and make sure you have the most accurate credit profile as possible. You can dispute your accounts individually, or you can hire a company to work with you on fixing the incorrect information.

Reviewing your complete credit report with one of our mortgage professionals is the best way to fully analyze your personal credit situation and determine which accounts it would be most beneficial to consolidate in a cash out debt consolidation scenario.

The first thing you need to do is gain access to your credit report. You can buy reports from Equifax, Trans Union and Experian, the largest credit reporting agencies. Buy a report from each, because one may contain errors that affect your credit score.

When applying for a mortgage, your credit rating is one of the first things a lender will look at. They’ll be loaning you a large amount of money, and if it seems that you are likely to default on the loan, lenders will hesitate to loan you the money. Usually, lenders compensate for this higher risk with higher interest rates, so it is in your best interest to have a high credit score.

Credit reports that contain information from the three major credit repositories are called Tri-merge Reports. Base on each individual’s credit history, the three repositories each assigns a numeric value, called Credit Score. In addition to a credit profile free of negative entries such as late payments and collection accounts, an acceptable credit score is also important to mortgage lenders.

If you are looking to get a mortgage for a home then it might make sense for you to contact your mortgage broker and have them pull credit. Your broker or loan officer will go over the report with you and let you know what needs to be addressed if anything. The most important things is to pull you credit now. Don’t wait until you have a contract on the house because you may find that you need time to work on some issues that show up on the report.

Your credit score is calculated as a statistical summary of all the different information in your credit report, including – History of Paying Bills- How much debt you have outstanding- length of time you’ve had credit- number of cards and loans- your credit limits- the types of credit you have

You are entitled to one free credit report, from each of the three reporting agencies, once a year. When obtaining a mortgage line it is good to review your own credit history first. Banks and lenders will rely on these reports to represent your willingness and your ability to repay the monthly payments in a timely fashion. If you find a account reporting in error, it is quite simple to dispute an error online, directly with the agency reporting the error. The websites for the three agencies, offer this service when you order a report and the process of disputing an error is handled directly online.

There are five major types of information used to calculate a FICO score at any given point in time are listed below. Each type of information counts as a percentage of a total FICO score: – 35% Payment History