Read these 23 Home Loans Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Mortgages tips and hundreds of other topics.
There are three primary advantages of a 15-year mortgage loan versus a standard 30-year loan.
Interest Rate 5.50% 15 yr. 5.75% 30 yr.
Payment $1,634.17 15 yr. $1,167.15 30 yr.
Pmt. Difference $467.02 (40% Higher then 30-year)
Interest Cost $94,150.60 15 yr. $220,174.00 30 yr.
Interest Savings $126,023.40
As you can see, you could save a huge amount of interest, real money, by using a 15-year mortgage loan instead of a 30-year product. If you're going to keep your property for a longer period of time (over five years), you should give a 15-year mortgage serious consideration if you can afford the higher payment.
Owner-occupied (O/O) mortgage loans have the lowest interest rates available in the market. Lenders are well aware that a borrower will take all measures to protect the property he/she lives in. The owner's “attachment” to the property is just as emotional as it is financial. This reality is reflected in the lower interest rate. You will pay about one to one and one-half per cent higher for an investment (non owner-occupied) (NOO) property.
Qualifying for a NOO is a bit different also. Theoretically, everyone can qualify for a NOO mortgage since the mortgage payment (principal, interest, taxes, and insurance) (PITI) is totally covered by the rental income you will receive. Therefore, your personal debt-to-income (DTI) ratio should not be changed. In fact, if you earn a good deal more than your PITI monthly obligation, your DTI will be improved.
Fair market value (FMV) will be based, not merely on the recent selling prices of similar homes in your area, but also on the income stream generated by a NOO property. Mortgage lenders assume (sometimes incorrectly) that you are purchasing investment for long-term income and appreciation (not a quick resale in a few months). Therefore, the monthly income stream and the historical vacancy factors are important in estimating the true FMV of an investment property.
It is hard to comprehend the fact that most new mortgages are written on a 30 year term. It is even harder to comprehend that the vast majority of these mortgages will never be paid in full because very few people remain in a home for that long. Do you want to be paying a mortgage forever? If you are like most, you would answer with a resounding 'No!'
Here is the best way to pay your mortgage down a little faster than your set term and a way to figure just how fast you can pay it off. There are home mortgage calculators available on the Internet that can tell you how a single or multiple extra payments will influence your overall payoff. It amazes most to learn that by making a single extra payment a year, a person can shave up to 10 years off of a 30 year mortgage term.
Most people would think that making double payments each month would pay your home mortgage off in half of the time, but this is way off. The truth is that every penny of your extra payment goes towards your principal. Your regular payment is split between your principal and your interest, so by making a double payment, you are really making a triple principal payment. Take advantage of these free mortgage repayment calculators to see just how much faster you can pay off your home mortgage.
When you are shopping for a home, you will find that you can get very different quotes on home purchase loans from lenders and mortgage brokers. When you get multiple quotes, it is important to make sure you compare apples to apples.
Some brokers may be proposing very different loan scenarios than others, so be sure you fully understand each. Here are a few things to look for.
Nobody should have to tell you of the importance of making on time home loan payments. However, people still find themselves in a situation where they have trouble making their payment on time and maybe even miss one. If you are in this situation, here are a few things you need to be sure of in reducing the damage the lateness can cause.
First, contact your lender and get the payment in as soon as you can. There may be a late fee associated with the payment and you should pay it as well. Ask the lender if there is any way that you can avoid having this payment reported to any credit agencies and usually they will have options for you to avoid that. A late payment on a home loan is a credit nuisance and is hard to get past.
If you do find no remedy to your lender reporting the lateness to the credit agencies, your next step is to contact the agencies yourself. There is typically nothing you can do to get that taken off of the reporting, but you can make sure that the report accurately reflects the fact that the payment was made and the home loan is still in good standing. This can help you reduce the damage to your credit score.
Lastly, and most obviously, do not do it again. From now on, do what you can to send your home loan payment in at least one week before its due date. The easiest way to avoid this problem in the future is to pay early and get ahead.
Are you unhappy with the total payments that you have to make each month on your multiple home loans? Most people these days are taking advantage of lower interest rates to consolidate multiple home loans into single loans with a single, lower payment. If you are carrying multiple home loans, or even other loans for cars, education or other things, you should think about consolidating into a single home loan and single payment each month.
The first step in this process is to gather all of the information about your home loans and other loans. Compare these figures to the equity available in your home to see just how much you can consolidate together.
Once you have a rough idea, bring all of this information to a mortgage specialist who can give you a more accurate picture of how you home loans will be consolidated and what your new payments will be. You will see that consolidating multiple home loans may be the best financial move you ever make. By getting a single fixed rate, you have far more security each month than with multiple home loans working on different interest rates.
The number of weather phenomena that have struck the US in the past few years are astounding. Particularly the hurricanes that have ravaged the south east. If you are a homeowner who has had some hurricane damage that your insurance can't cover completely, look into a home improvement loan to repair the damage.
A home improvement loan for specific home improvements is fairly easy to secure fast. Because hurricane damage often includes things such as a roof or windows that must be repaired to make the home livable, these home improvement loans are acted on quickly.
First, get quotes for the improvements that you need to make. Once you have those, bring them to lenders who specialize in home improvement loans. With the quotes, the lender should be able to easily evaluate the risks and rewards associated with the home improvement loan and will give you a quick response.
Don't let mother nature ruin your home investment. If you have had damage to your home that needs repair, look into a home improvement loan to remedy your situation.
The costs of education have risen like few other industries over the last few decades. However, education has gotten no less important so how are students to make it. Most of them end up taking out large amounts of student loans. Granted, these loans are often at very good interest rates, but many end up paying them for the rest of their lives.
If you have these types of student loans but also have a home mortgage, you should ask a mortgage broker about paying off your student loans from your home mortgage. Although the interest rates are lower for student loans, the fact that the repayment terms are far shorter than the typical mortgage loan translates into a much larger monthly payment.
For people looking to reduce the monthly costs of their education loans, using equity from a home mortgage can be the best solution available. Gather all of your student loan information along with your home mortgage information and visit with either a local mortgage broker or an online lender. Either should be able to give you a full evaluation of how your situation can change with this type of consolidation.
There is a great concern today over the security that the Internet provides. Professionals and regular users will always attest to the fact that the security of your information is totally in the hands of the website you provide it to. When it comes to finding a home purchase loan online, the websites that provide them offer the best in security for your most sensitive information.
Do not let security concerns stand in your way of shopping for home mortgages online. You may end up missing out on the lowest rates available. Another great reason to shop for home mortgages online is because of the expedited process as compared to a traditional mortgage broker. Because of the automation of the process, home mortgages from online lenders can sometimes go from application, to quote, to closing, in only a few days. There are different underwriting procedures and processes for online home mortgages and these combined with the automation can make for a swift closing.
If you are looking for home mortgages and are not sure if you should shop online, remember the security that comes with your information and the speed with which you can get to the closing table. Combine those with the low rates that are found online and you have no reason to doubt anymore.
There are many benefits that come with home mortgages. Home ownership is a benefit in itself, but a larger, more tangible benefit comes from the tax breaks that you can qualify for as a home owner. Taxes will vary based on the state and locality in which your home rests. However, there are invariably many tax benefits that come with home mortgages.
Did you know that every penny of interest paid on your mortgage is tax deductible? It's true. Home mortgages and their payments are made up mostly of interest payments. Since you pay taxes on your home, the taxes are waived on your mortgage interest to avoid double taxation. Compare this to paying rent, where you get no benefit.
One state in particular has a great benefit from home mortgages. That is Florida where they have the Homestead Act. The Florida Homestead Act states that a homeowner can declare their residence as their primary, homesteaded, property. They can then take an income deduction of up to $25,000 on their returns for their homesteaded properties. In a state like Florida that is already great for taxes, home mortgages will add a whole new level of tax friendliness.
There are two products commonly known by as "government mortgages". One is the Federal Housing Authority (FHA) guaranteed mortgage, the original “non-conforming” home loan. The other is the Veteran's Administration (VA) mortgage loan, designed to help former members of the military purchase owner-occupied homes.
FHA is recognized as the original non-conforming or sub-prime mortgage loan because it allows small down payments (3%), accepts borrowers with less than outstanding credit, and permits improvement, repair, or rehabilitation dollars to be included in the purchase mortgage amount. Particularly for a first home, FHA can help you achieve your goal with the relaxed credit and down payment rules. You will pay an insurance fee of .5% on your monthly mortgage payment for their guarantee.
The VA, like the FHA, does not actually make loans; they guarantee them to the actual lender. As a benefit to US military personnel, the VA has helped millions of veterans since the late 1940's purchase owner-occupied homes. With no down payment required and flexible underwriting allowing borrowers with damaged credit to qualify for loans, the VA remains an important lending source for military veterans wishing to purchase real estate.
Closing and settlement costs are every borrower's least favorite subject when financing real estate. While everyone understands that the cost of the property and the interest rate of the home purchase loan are the most significant financial concerns of the home owner or buyer, closing costs can seriously impact the overall cost of the mortgage loan and your current bank account balance. While some unscrupulous mortgage brokers and lenders attempt to increase their income by adding unnecessary and sometime exorbitant fees to the costs of settlement, there are a number of costs that must be included whether we like it or not. Here are the common costs that all settlements will include:
Always beware the “negative amortization” mortgage loan. First, learn before you ever even make an application whether the mortgage you're considering is a negative amortization or potentially negative amortization loan. Second, examine very closely any disclosures given to you by your potential mortgage lender that explain how this type of loan might work.
An example of a negative amortization mortgage will make more sense than a long technical explanation. Examine this example and you should quickly see what it is and why you must be very careful of using this mortgage type for your financing needs:
Loan amount $200,000
Starting interest rate 4.0% Note interest rate 6.5%
Payment @ 4.0% interest $961.34
Total mortgage payments first year $11,563.08
Interest due at 6.5% first year $13,000.00
Interest deficiency first year ($ 1,463.92)
Amount ADDED to mortgage balance $ 1,463.92
New mortgage balance after first year $201,463.92
As you can see, instead of your mortgage loan balance decreasing by some amount after 12 months of mortgage payments, your balance has INCREASED by over $1,000. What is wrong with this picture, you ask? Your mortgage loan has “negatively amortized” for its first year. Instead of part of your monthly payment being applied to principal to reduce your loan, all of it had to be applied to interest and you still came up short!
Why would anyone want a negative amortization mortgage? Well, no one really wants one. But they serve a valuable purpose at times. Here's how. If you need a mortgage that costs more than you can afford in its early years but your income should increase substantially in the near future, the dramatically lower starting payment of a loan like this may allow you to qualify to purchase the home you want. Then, either calculate the correct payment at the note rate plus some amount you can afford to pay towards principal, and then pay this amount every month. Or negotiate terms that state your monthly payment will revert to a “fully amortizing” payment in the future, and begin making that regular payment as scheduled. This allows you to buy the home you want, afford monthly payments at lower than market interest rate at the beginning, and provide you with normal balance pay down in the future.
The Real Estate Settlement Procedures Act (RESPA) was first enacted in 1974 and has been updated and improved since then. Every mortgage loan borrower has been affected by its terms and it is very important, but most people don't know what it is or does. The prime purpose is to a) make people better “shoppers” and b) prevent mortgage brokers and lenders from adding kickbacks and referral or other fees to your loan. Here are the major ingredients that are designed to help mortgage borrowers:
At application :
Interest-only mortgage loans are relatively new products in the industry. A market or less than market interest rate will be offered and the lender requires a payment only equal to the interest on your balance. The interest rate may change at specified intervals or increases could be agreed upon in advance of closing. An interest-only mortgage can be either a very beneficial product or a loan that you might come to despise. Much depends on your
However, often you might be able to get an interest-only loan at below market rates, which sometimes will result in a monthly payment 30-50% less than a normal fixed rate mortgage loan. The obvious benefits of a program like this –
Until about 20 years ago, you would request a mortgage term that matched your projected time period. Since the creation of the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), in the early 1970's, most home mortgages are sold to FNMA, FHLMC or other major mortgage loan purchasers. These loans are put into “pools” and re-sold into the investment markets, primarily competing with bond offerings. Because of this, almost all first mortgage loans are written for either 15 or 30 years only, allowing potential buyers of mortgage securities to calculate their “yield” (projected earnings).
This doesn't mean you cannot have a mortgage with a maturity shorter than the stated term. Here's how it would work for you.
If you wanted to be mortgage-free in 22 years, you get a 30-year mortgage. Have your mortgage professional calculate what your payment would be IF it were a 22-year loan. Make that payment every month and your mortgage loan will pay off in 22 years! Why? Every dollar above the required payment for a 30-year loan is applied to your principal balance! You will get an additional benefit. Since your lender's computer is only looking for the required 30-year mortgage payment, should you find yourself in a cash bind at any point, you can revert back to the scheduled payment, thereby saving you much needed money and keeping your credit rating perfect for your mortgage loan. A final – and most important benefit – if you follow your 22-year mortgage schedule, you will save thousands of dollars in interest, the amount of savings growing every month.
What's in a name? Beyond the obvious, one rate remains the same while the other changes, there is no difference in the basic terms of either mortgage type. However, understanding the way an adjustable rate mortgage (ARM) works is very important to your decision making. While the start rate is the same as the rate for the next 30 years in a fixed rate mortgage, the beginning rate is only one component, sometimes a relatively minor component, in an ARM. The terms of an ARM are critical to its desirability. Your future plans for the property being purchased also must be incorporated into your decision of a mortgage type.
If you plan on keeping your new property (or your new mortgage) for the long-term, at least five years or longer, you might be better off with a fixed rate mortgage. The rate will not change, for better or worse, for the entire term of the loan, usually 30 years. If your household income is consistent and should remain so, a fixed rate loan provides the security of an amount that is easily budgeted, regardless of fluctuations in the economy. If you can afford the loan now, you should have the ability to afford it in the long-term.
Should you be considering your new real estate purchase as more short-term, five years or less, you might want to consider using an ARM to finance your home. In the beginning it will definitely cost you less and, in the short-term future, with reasonable adjustment and lifetime caps, it may cost you considerably less, too. There are four major components to an ARM (in addition to the start rate), all of which you must understand to make an intelligent decision about the loan type you want. The components you need to examine:
For instance, if you opt for a 3/27 mortgage loan, your initial interest rate is fixed for the first three years and reverts to a one year ARM for the remaining term. If you plan on keeping your property or this mortgage for three to four years, this product should be an excellent choice. Should you plan to keep the mortgage for five to ten years minimum, you could find the interest rate up to six per cent higher in as little as six years. If you started at 5.5% (when the fixed rate was 6.5%) you could be at 11.5% in six years. Remember, should that happen, the fixed rate will also be much higher than the 6.5% you could have received at the beginning, so refinancing may or may not make sense.
In summary, think about your future plans for the property and the mortgage before you select the mortgage type you want. Understand the potential risks and rewards you might receive from each before you commit to one course of action or another.
There are some differences that you should know. The qualification percentages are the same as are most of the documents you need to submit. All primary requirements (appraisal, credit report, income verification, etc.) are the same. The differences:
Qualifying for a mortgage is one of the most important components of getting the mortgage you want. If you qualify, the rest is relatively easy once you know how to do it. Before you find the “home of your dreams” you should determine what size mortgage you qualify for. Here's how to do it:
While most of the U.S. has been enjoying a healthy and robust real estate market with minimal "days on the market", many states in the country's heartland are reeling from record foreclosure numbers.
States like Ohio, Texas, Georgia and even Florida are suffering from economic situations created by the shift from industrially-based economies to service. As the industrial jobs are lost, in areas where new jobs are created, they are not of the same wage and benefit level.
In addition to job loss, there are many homeowners who were victims of predatory lending or who secured Interest Only loans or other similarly risky financing options.
Take it from someone who has built his own fence, re-done his own floors, and basically given his whole house a face lift, there are few more satisfying things than home improvement. Home improvement is about far more than your comfort. It is about knowing that you have added value to your most precious commodity.
If you have some improvements that you would like to make but don't think that you have the cash for them, look into a home improvement loan to take care of the costs. Getting a home improvement loan is one of the easiest loans to secure. Homes are major assets and making improvements will only increase the value of that asset. Because of this, there is a certain level of security in these loans in the eyes of lenders. You can find a home improvement loan from lenders on the Web or in your neighborhood.
The main thing is that if you have been thinking about it for some time, the time to do it is now. Interest rates on a home improvement loan cannot get much lower. Combine that with the huge increases in land and home values and this is the absolute prime time to make your home equity work for you and your house. By borrowing the home improvement loan at such a low rate and adding major value to your house, it is a double win for your overall home investment.
There are universal basics to getting and maintaining a home loan that all homeowners and buyers should know. Here, we want to open you up to just a few of these in the hopes that you can take that information and make the best decisions for your future. Here are a few home loan basics for anyone.
The process of getting a home loan can at first seem both confusing and sometimes daunting. The reality, however, of obtaining and closing a home loan is not that complicated. Some basic rules you need to learn and follow:
|Sheri Ann Richerson|