A reverse mortgage is a special type of home loan that allows a homeowner to convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.
To be eligible for a HUD reverse mortgage, FHA requires that: the borrower is a homeowner, 62 years of age or older; own your home outright; or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and you must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. The counseling service is free of charge and available locally (even by phone). Additionally, there are NO credit, NO income and NO health requirements.
Proceeds received from a reverse mortgage are loan advances and not taxable income. For your specific situation, we recommend that you consult your tax advisor. Money from a reverse mortgage is not considered income, nor does it affect Social Security or Medicare. Homeowners on SSI or Medicaid should consult the agency for pertinent rules. Your home must be a single-family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, and the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment." You do not need to repay the loan as long as you or one of the borrowers (ex. spouse) continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value. When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD's reverse mortgage loan. This debt will never be passed along to the estate or heirs. For other questions concerning a reverse mortgage contact your qualified reverse mortgage lender.
Wednesday, July 23, 2008
Tuesday, May 27, 2008
Five Don't's of Mortgage Qualification
In my last article I wrote about the do’s of qualifying for a mortgage so now it is time for the don’ts. Resisting the temptation to splurge or slip-up in the credit arena is at the top of the list.
Five don'ts
1. First off, don't make any big purchases in the months prior to your application. Besides the obvious fact that it makes less money available for the down payment, it might require you to get yet another loan. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender's credit scoring systems. Plus, the human underwriter won't want to see you adding a couple of hundred dollars per month to your monthly expenses. Generally, you want your total debt obligation to be no more than 36 percent of your gross monthly income. You certainly don't want to load up on consumer debt if you're anticipating purchasing a home and you're unsure of what your mortgage payment is going to be and if you think you're within the range of exceeding that 36 percent guideline
2. Don't try shooting for that six-bedroom house if it's going to be too much of a stretch in your current budget. Lenders consider what's known in the industry as "payment shock" when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won't qualify for a mortgage or will end up having to cover too much loan with too little money. If you've paid all your bills on time, but you've been paying $450 in rent with a roommate and now you're going to have a $1,650 principal, interest, tax and insurance payment on a house, how would you handle your monthly payment? You have to make sure you're comfortable about that kind of a debt load.
3. Don't just get pre-qualified for a mortgage, get pre-approved. To get pre-qualified, a borrower need only submit credit, income and debt information voluntarily to a mortgage broker or lender. That means the resulting estimate of the maximum mortgage and home that's affordable is exactly that -- an estimate. Before they can get pre-approved, however, mortgage seekers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. That puts a borrower much closer to obtaining a loan and locking in a rate and term.
4. Don't forget what kind of money personality you have when getting a mortgage. By taking out a 30-year fixed rate loan rather than a 15-year mortgage and investing the money saved on monthly payments, you might earn a higher return on your money in the long run. But that approach won't work for people who spend any extra cash laying around on dinner and a movie twice a week. They can force themselves into saving and accumulating equity faster by going with the shorter term and higher payment.
5. Last but not least, don't forget that homeownership brings with it many burdens. The cost of defaulting on a loan is much greater than the penalty of missing a rent payment.
Well, that’s it for this time. Obviously there are many other factors to consider when applying for a mortgage, but these high points should provoke some thought and I hope assist you in the mortgage process.
Five don'ts
1. First off, don't make any big purchases in the months prior to your application. Besides the obvious fact that it makes less money available for the down payment, it might require you to get yet another loan. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender's credit scoring systems. Plus, the human underwriter won't want to see you adding a couple of hundred dollars per month to your monthly expenses. Generally, you want your total debt obligation to be no more than 36 percent of your gross monthly income. You certainly don't want to load up on consumer debt if you're anticipating purchasing a home and you're unsure of what your mortgage payment is going to be and if you think you're within the range of exceeding that 36 percent guideline
2. Don't try shooting for that six-bedroom house if it's going to be too much of a stretch in your current budget. Lenders consider what's known in the industry as "payment shock" when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won't qualify for a mortgage or will end up having to cover too much loan with too little money. If you've paid all your bills on time, but you've been paying $450 in rent with a roommate and now you're going to have a $1,650 principal, interest, tax and insurance payment on a house, how would you handle your monthly payment? You have to make sure you're comfortable about that kind of a debt load.
3. Don't just get pre-qualified for a mortgage, get pre-approved. To get pre-qualified, a borrower need only submit credit, income and debt information voluntarily to a mortgage broker or lender. That means the resulting estimate of the maximum mortgage and home that's affordable is exactly that -- an estimate. Before they can get pre-approved, however, mortgage seekers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. That puts a borrower much closer to obtaining a loan and locking in a rate and term.
4. Don't forget what kind of money personality you have when getting a mortgage. By taking out a 30-year fixed rate loan rather than a 15-year mortgage and investing the money saved on monthly payments, you might earn a higher return on your money in the long run. But that approach won't work for people who spend any extra cash laying around on dinner and a movie twice a week. They can force themselves into saving and accumulating equity faster by going with the shorter term and higher payment.
5. Last but not least, don't forget that homeownership brings with it many burdens. The cost of defaulting on a loan is much greater than the penalty of missing a rent payment.
Well, that’s it for this time. Obviously there are many other factors to consider when applying for a mortgage, but these high points should provoke some thought and I hope assist you in the mortgage process.
Thursday, May 8, 2008
What are the do’s and don’t for qualifying for a mortgage?
Here's the good news: You probably can qualify for a mortgage. The possible bad news is that you may have to impose some self-discipline to get where you want to be.
This is so important I’m going to list it twice. Pay your bills on time. There is no single element that can so dramatically impact the success of an application as your credit history.
So now for the list of do’s and don’ts.
Five do's1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get -- if you get one at all.
2. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That's because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, than the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Lastly, it would evaluate the payment performance of so-called "revolving" loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance.
If you had to prioritize -- and I would hope you wouldn't be in that situation -- pay your mortgage loans, pay your installment loans, pay your revolving loans.
3. Consider paying off more debt and putting down a smaller amount at closing. The move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.
4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower's credit score, especially if they're filed in the months prior to the home loan review process.
5. Increase the size of the down payment you're able to make by saving as much as possible, as often as possible. Don't put the savings into something volatile, such as an individual stock. But evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save.
It depends on how much you have saved already, but I think it's important to take a portion of each month's income and set it aside for the down payment
While these are all good steps to follow, borrowers have to think of what they shouldn't do as well. The five don’t’s will be in my next article.
This is so important I’m going to list it twice. Pay your bills on time. There is no single element that can so dramatically impact the success of an application as your credit history.
So now for the list of do’s and don’ts.
Five do's1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine how good a loan you get -- if you get one at all.
2. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That's because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, than the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Lastly, it would evaluate the payment performance of so-called "revolving" loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance.
If you had to prioritize -- and I would hope you wouldn't be in that situation -- pay your mortgage loans, pay your installment loans, pay your revolving loans.
3. Consider paying off more debt and putting down a smaller amount at closing. The move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.
4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower's credit score, especially if they're filed in the months prior to the home loan review process.
5. Increase the size of the down payment you're able to make by saving as much as possible, as often as possible. Don't put the savings into something volatile, such as an individual stock. But evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save.
It depends on how much you have saved already, but I think it's important to take a portion of each month's income and set it aside for the down payment
While these are all good steps to follow, borrowers have to think of what they shouldn't do as well. The five don’t’s will be in my next article.
Friday, April 18, 2008
Changes in the Mortgage Business
What are some of the changes that are happening in the mortgage business?
“The times, they are a-changing’”. Bob Dylan gave those words to us in 1964 and they couldn’t be more appropriate in today’s mortgage market. Even though interest rates remain at a consistently low level, we are experiencing a conservative ‘belt tightening” from all of the lenders in the housing market. Buyers that would have qualified with few or no problems as recently as sixty days ago are now being required to fulfill conditions that may preclude them from getting the loan to purchase their home. There are too many changes to adequately address in this limited space, but let’s look at some of the changes that are significantly impacting our systems.
No down payment programs are virtually a thing of the past. During recent years no down payment home purchase programs have been available to a large segment of our population. The programs targeted 1st time homebuyers and allowed them to acquire their first home using underwriting standards that were drafted with that home-buying population is mind. The loans were underwritten and funded with a requirement for private mortgage insurance (PMI), which offset a portion of the risk assumed by the lender. Unfortunately, the meltdown of the sub prime mortgage market has affected other mortgage market segments and PMI is no longer available for higher risk loans, thus effectively eliminating the zero down payment programs. The only exception to the no down payment rule is the home purchase program available to veterans through the Veterans Administration and some down payment assistance programs available through non-profit corporations and our Native American tribes.
An issue that is related to the same underlying problem of a deteriorating housing market is the stricter underwriting guidelines that have been adopted by local and national players in the mortgage industry. Some of the challenges that a mortgage client might encounter are: more documented cash reserves; closer scrutiny of the property appraisal report; increased amount of down payment; and increased length of time to process and close a loan. Changes in requirements seem to change daily and the rules of even six months ago no longer apply. That is why the services of an experienced professional are even more important today than they have been in the past.
“The times, they are a-changing’”. Bob Dylan gave those words to us in 1964 and they couldn’t be more appropriate in today’s mortgage market. Even though interest rates remain at a consistently low level, we are experiencing a conservative ‘belt tightening” from all of the lenders in the housing market. Buyers that would have qualified with few or no problems as recently as sixty days ago are now being required to fulfill conditions that may preclude them from getting the loan to purchase their home. There are too many changes to adequately address in this limited space, but let’s look at some of the changes that are significantly impacting our systems.
No down payment programs are virtually a thing of the past. During recent years no down payment home purchase programs have been available to a large segment of our population. The programs targeted 1st time homebuyers and allowed them to acquire their first home using underwriting standards that were drafted with that home-buying population is mind. The loans were underwritten and funded with a requirement for private mortgage insurance (PMI), which offset a portion of the risk assumed by the lender. Unfortunately, the meltdown of the sub prime mortgage market has affected other mortgage market segments and PMI is no longer available for higher risk loans, thus effectively eliminating the zero down payment programs. The only exception to the no down payment rule is the home purchase program available to veterans through the Veterans Administration and some down payment assistance programs available through non-profit corporations and our Native American tribes.
An issue that is related to the same underlying problem of a deteriorating housing market is the stricter underwriting guidelines that have been adopted by local and national players in the mortgage industry. Some of the challenges that a mortgage client might encounter are: more documented cash reserves; closer scrutiny of the property appraisal report; increased amount of down payment; and increased length of time to process and close a loan. Changes in requirements seem to change daily and the rules of even six months ago no longer apply. That is why the services of an experienced professional are even more important today than they have been in the past.
Saturday, March 1, 2008
Buying Your First Home
There are many things to think about when you are considering buying your first home. The first thing is to determine what price home you should be shopping for. There is a generally accepted guideline that states that your home should be no more that two and one half times the gross wage of the borrower. For example, if your gross salary is $40,000 .00 per year your calculation would be $40,000.00 x 2.5 = $100,000.00, therefore your upper limit price range for your home would be $100,000.00. There are other ingredients that you must add to the mix. Calculate your monthly payment, add your cost for taxes and insurance (and if some cases mortgage insurance) and you have your monthly housing expense. You must also take into account the other expenses you have every month for other loans, credit cards, utilities, food, and transportation expenses. This is a pre-qualification exercise that is essential to determining if you are ready for home ownership. A mortgage professional can assist you with this process. Your second step should be to consult with a lending professional to apply for a mortgage and receive a pre-approval for your home loan. The pre-approval informs sellers that you have taken care of your homework and you are ready to purchase. In addition, it will strengthen your position as a buyer. Your loan officer will collect information concerning your employment history, your current income, and your credit history and will analyze that information and produce a lending decision. If your information is generally positive you qualify for a home loan and you can go house hunting. Your third step is to find a home and there are a couple of options available to you. You can search on your own by scanning newspapers and other media sources or you can enlist the no cost assistance of a realtor. The choice is yours but seeking the counsel of trusted family members or friends will likely help you with that decision. The fourth step is to draw up a contract on your home of choice and deliver it to your lender for underwriting and final approval. Your lender will take over the process from there and carry the loan through to funding by: ordering abstract and title work; tile opinions; appraisal; tile insurance; insurance verification; and a myriad of other details that make up the lending process. The last step in this illustration is to meet with all of the individuals involved in your transaction, sign your note, mortgage, and a lot of other papers, get the keys to your house, call all of your friends and family members who have pick-ups, and move in. Congratulations and welcome to your new home!
Tuesday, February 5, 2008
When should I refinance my mortgage?
There is a mortgage industry unwritten rule that says you shouldn't refinance unless the rate has dropped by a certain percentage (typically 1 per cent). For a more practical method I suggest that it's in your best interest to calculate your break-even point. The break-even point is the time it takes to make up in monthly savings what you paid in fees. You calculate it by dividing the mortgage fees (just the fees now, not taxes and insurance) by the monthly savings. For example, let's say you would save $100 a month by refinancing, and the closing costs would be $3,000. Your break-even point is 30 months from now: the $3,000 in fees divided by the $100 a month in savings. In this case, if you expect to continue living in the house for more than two-and-a-half years, you'll save money in the long run by refinancing. If you plan to sell the house before then, it's probably best to stick with the mortgage you have. How do you figure your monthly savings? You'll have to get an estimate of the rate you'll qualify for. Your loan officer can tell you that. Then ask the loan officer, or consult a mortgage calculator, to determine what your principal and interest would be with the new loan. Look at your payment coupon to find out what your current monthly principal and interest payments are. Your loan officer can also furnish you with a debt consolidation worksheet that will show your savings per month. By the way, you don't have to start over with a 30-year payment plan. Let's say you got a 30-year fixed loan five years ago, and you want to refinance now, but still pay off the loan twenty five years from now. That's known as amortizing the loan over 25 years. You will retire your note in the same length of time even though you are refinancing your mortgage.There are other reasons to refinance your home loan. Perhaps you want to lower your payment by increasing the length of the loan, remodel your home, take a dream vacation, or pay college expenses. Whatever the reason, refinancing your mortgage is a financial strategy that should be carefully considered. As with all financial matters be sure to do you homework and enlist the help of professionals when needed.
Monday, January 28, 2008
Sub Prime Mortgage Crisis
Although subprime mortgages have been available since early 1982, they did not gain popularity until the mid-1990s, making them a relatively new phenomenon in the mortgage industry. Simply put, subprime mortgages cost more than conventional (prime) mortgages, but they allow borrowers with “less than perfect credit” or small down payments access to homeownership. Because of their higher chance of defaulting, these borrowers would otherwise have been denied credit.
Many homebuyers have benefited from subprime mortgages. But those with adjustable-rate mortgages (ARMs, a common subprime loan), which offered a lower initial interest rate in 2003 through 2005, are now seeing their first rate adjustment. Consequently, homeowners with an ARM at a low initial start rate will now see their payments increase significantly. Because mortgage underwriters allowed high debt-to-income ratios or loose income documentation, even the small increase thus far has pushed the subprime loan delinquency rate to unprecedented levels resulting higher delinquency rates and, in many cases, foreclosure. Although the financial mechanics of crisis making is much more complicated than the above, this weakening of the foundation of the mortgage market has shaken the entire structure to the point that many of the largest financial institutions in the world are in a substantially weakened economic position.
Still, subprime loans are only a small fraction of the overall housing market and the demand for housing over the longer term will ultimately depend on the fundamentals, such as gains in jobs and incomes, and low mortgage rates. In addition, the issues with subprime lending has negatively affected the economy and revealed possible weaknesses in financial markets. The overall economy outside of the housing sector remains on shaky ground as well, and further action to stimulate and/or stabilize the economy is indicated.
The federal government has instituted measures to assist homeowners with their sub prime mortgages and the Federal Reserve is poised to lower interest rates again, which has already resulted in interest rates below 6% for a thirty year fixed rate mortgage.The northeast Oklahoma housing economy and market has been stable and although a slowing has been observed in recent months, it is attributable to seasonal adjustments as much as anything. The “housing bubble” that has affected so much of the nation has had an insignificant impact on the northeast Oklahoma economy. Appreciation in our home values typically are in the 3-5 per cent/per year range and this reflects the conservative growth of our housing market. Oklahoma remains one of the best places in the nation to buy and own a home.
Many homebuyers have benefited from subprime mortgages. But those with adjustable-rate mortgages (ARMs, a common subprime loan), which offered a lower initial interest rate in 2003 through 2005, are now seeing their first rate adjustment. Consequently, homeowners with an ARM at a low initial start rate will now see their payments increase significantly. Because mortgage underwriters allowed high debt-to-income ratios or loose income documentation, even the small increase thus far has pushed the subprime loan delinquency rate to unprecedented levels resulting higher delinquency rates and, in many cases, foreclosure. Although the financial mechanics of crisis making is much more complicated than the above, this weakening of the foundation of the mortgage market has shaken the entire structure to the point that many of the largest financial institutions in the world are in a substantially weakened economic position.
Still, subprime loans are only a small fraction of the overall housing market and the demand for housing over the longer term will ultimately depend on the fundamentals, such as gains in jobs and incomes, and low mortgage rates. In addition, the issues with subprime lending has negatively affected the economy and revealed possible weaknesses in financial markets. The overall economy outside of the housing sector remains on shaky ground as well, and further action to stimulate and/or stabilize the economy is indicated.
The federal government has instituted measures to assist homeowners with their sub prime mortgages and the Federal Reserve is poised to lower interest rates again, which has already resulted in interest rates below 6% for a thirty year fixed rate mortgage.The northeast Oklahoma housing economy and market has been stable and although a slowing has been observed in recent months, it is attributable to seasonal adjustments as much as anything. The “housing bubble” that has affected so much of the nation has had an insignificant impact on the northeast Oklahoma economy. Appreciation in our home values typically are in the 3-5 per cent/per year range and this reflects the conservative growth of our housing market. Oklahoma remains one of the best places in the nation to buy and own a home.
Tuesday, January 8, 2008
How Much Home Can You Afford?
The first step in finding a home is figuring out how much you can afford to spend. We'll look at several different factors to consider when making this decision.
Taking out a mortgage is probably the biggest challenge facing prospective homeowners. The lender will want to ask you all sorts of nosy questions about your income and savings (or lack thereof), and then might not even lend you as much as you need. Of course, there is a reason for this. Put yourself in the lender’s shoes: If you were going to lend people money, what would you want to know about them? Basically, you'd like to know 1) if they make enough money to pay you back, 2) if they've been trustworthy in the past, and 3) if they have something of value should they be unable to pay you back
Do you make enough to pay the lender back?
Your lender will want to know how much money you make. Also, what are your other debts? Do you owe money for college loans or credit card charges? Do you have any other assets? Ideally, you will want to come up with at least 20% of the value of your new home as a down payment, to avoid things like mortgage insurance payments. But, you probably qualify for plenty of financing arrangements that will get you into a new home for as little as 0% of the asking price The lender will also plug your income numbers into a couple of formulas: the front-end ratio (having to do with your mortgage payments) and the back-end ratio (having to do with your debt) to come up with your debt-to-income (DTI) ratio.
Have you been trustworthy in the past?
What is your credit rating? Your credit report -- a nifty little compilation of your personal financial history -- will reveal whether you have a track record of paying your bills on time. If not, there are ways to clean up your credit that will make you more attractive to lenders.
Do you have any collateral?
The house you buy will generally be considered collateral for your mortgage. As a result, in case you can't repay the loan, the lender can decide to do foreclose on the mortgage and repossess the house
What are your considerations?
Now, let's look at a few things from your point of view.
Your Timeline
To determine whether you should buy a new home, think about how long you're planning to stay in it. It generally doesn't make economic sense to buy if you are only planning to stay there for a couple of years. Why? Because you are going to be paying fees to buy and then to sell your house. It would have to appreciate in value very quickly between the time you buy it and the time you sell it to make it financially worthwhile.
Your Comfort Zone
Before you borrow $90,000, $200,000, or whatever you need for your mortgage, figure out whether you can really afford it. Just because the lender will loan it to you, doesn't mean that you will want to live your life in such a way as to be able to pay it back. Are you planning to have a big family? Would you rather replace your econo car with a new Mercedes? Your house payment is just one piece of your financial puzzle. What might you need to give up to make that house a reality and are you really willing to do it?
Taking out a mortgage is probably the biggest challenge facing prospective homeowners. The lender will want to ask you all sorts of nosy questions about your income and savings (or lack thereof), and then might not even lend you as much as you need. Of course, there is a reason for this. Put yourself in the lender’s shoes: If you were going to lend people money, what would you want to know about them? Basically, you'd like to know 1) if they make enough money to pay you back, 2) if they've been trustworthy in the past, and 3) if they have something of value should they be unable to pay you back
Do you make enough to pay the lender back?
Your lender will want to know how much money you make. Also, what are your other debts? Do you owe money for college loans or credit card charges? Do you have any other assets? Ideally, you will want to come up with at least 20% of the value of your new home as a down payment, to avoid things like mortgage insurance payments. But, you probably qualify for plenty of financing arrangements that will get you into a new home for as little as 0% of the asking price The lender will also plug your income numbers into a couple of formulas: the front-end ratio (having to do with your mortgage payments) and the back-end ratio (having to do with your debt) to come up with your debt-to-income (DTI) ratio.
Have you been trustworthy in the past?
What is your credit rating? Your credit report -- a nifty little compilation of your personal financial history -- will reveal whether you have a track record of paying your bills on time. If not, there are ways to clean up your credit that will make you more attractive to lenders.
Do you have any collateral?
The house you buy will generally be considered collateral for your mortgage. As a result, in case you can't repay the loan, the lender can decide to do foreclose on the mortgage and repossess the house
What are your considerations?
Now, let's look at a few things from your point of view.
Your Timeline
To determine whether you should buy a new home, think about how long you're planning to stay in it. It generally doesn't make economic sense to buy if you are only planning to stay there for a couple of years. Why? Because you are going to be paying fees to buy and then to sell your house. It would have to appreciate in value very quickly between the time you buy it and the time you sell it to make it financially worthwhile.
Your Comfort Zone
Before you borrow $90,000, $200,000, or whatever you need for your mortgage, figure out whether you can really afford it. Just because the lender will loan it to you, doesn't mean that you will want to live your life in such a way as to be able to pay it back. Are you planning to have a big family? Would you rather replace your econo car with a new Mercedes? Your house payment is just one piece of your financial puzzle. What might you need to give up to make that house a reality and are you really willing to do it?
Wednesday, January 2, 2008
Mortgage Buzz Words
Each industry has it's own particular language and the mortgage buisiness is no different. Your home purchase or refinance have many of these words in common. Here are a few of the terms that you will encounter in your search for the perfect financing for your home loan. Additionally, here is a link http://www.fha.gov/glossary.cfm to a very extensive mortgage glossary compiled by HUD.
- ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the change in monthly payment amount, however, is usually subject to a cap.
- Cash-Out Refinance: when a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value.
- Closing Costs: fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes.
- Conforming loan: is a loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.
- Conventional Loan: a private sector loan, one that is not guaranteed or insured by the U.S. government.
- FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
Well, that's a start. Don't hesitate to post questions on these or any other real estate related topic.
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