Mortgage Advice

What does this program do? 
This program assists approved lenders in providing low- and moderate-income households the opportunity to own adequate, modest, decent, safe and sanitary dwellings as their primary residence in eligible rural areas. Eligible applicants may build, rehabilitate, improve or relocate a dwelling in an eligible rural area. The program provides a 90% loan note guarantee to approved lenders in order to reduce the risk of extending 100% loans to eligible rural home buyers. This can be a no money down loan. Ask your mortgage broker which areas qualify under the USDA standards.

Who may apply for this program?
Applicants must:

• Meet income guidelines
• Agree to personally occupy the dwelling as their primary residence
• Be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
• Have the legal capacity to incur the loan obligation
• Have not been suspended or debarred from participation in federal programs
• Demonstrate the willingness to meet credit obligations in a timely manner
• Purchase a property that meets all program criteria

VA Loans

A VA loan is a loan guaranteed by the Veterans Administration (VA). This type of loan is only available to certain borrowers through VA-approved lenders. (The guarantee means that the lender is protected against loss if the borrower fails to repay the loan.)

To get a VA loan, you must be:

• a current member of the U.S. armed forces
• a veteran
• a reservist/national guard member, or
• an eligible surviving spouse.

VA mortgage loans can be guaranteed with no money down and there is no private mortgage insurance requirement.

FHA Loans

A FHA loan is a loan insured by the Federal Housing Administration (FHA). If you default on the loan, the FHA will repay the bank’s loss.

Since the loan is insured, the lender can offer you good terms including:

• a low down payment (as low as 3.5% of the purchase price)
• the financing of some closing costs (which means they are included in the loan amount), and
• low closing costs.

This type of loan is often easier to qualify for than a conventional mortgage and anyone can apply. However, FHA loans have a maximum loan limit that varies depending on the average cost of housing in a given region.

Also, you’ll have to pay MIP (mortgage insurance premium) as part of an FHA loan. (Conventional mortgages have PMI and FHA loans have MIP.) The premiums that borrowers pay contribute to the Mutual Mortgage Insurance Fund. FHA draws from this fund to pay lenders’ claims when borrowers default.

Conventional Loans

When you apply for a home loan, you can apply for a government-backed loan (such as a FHA or VA loan) or a conventional loan, which is not insured or guaranteed by the federal government. This means that, unlike federally insured loans, conventional loans carry no guarantees for the lender if you fail to repay the loan.

For this reason, if you make less than a 20% down payment on the property, you’ll have to pay for private mortgage insurance (PMI) when you get a conventional loan. (If you default on the loan, the mortgage insurance company makes sure the lender is paid in full.)

Conventional mortgage loans must adhere to guidelines set by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and are available to everyone, but they are more difficult to qualify for than VA and FHA loans. (Since there is no government insurance, conventional loans pose a higher risk for lenders so credit and income requirements are stricter than for FHA and VA mortgages).

Generally, you can get a conventional loan if you:

• have good credit
• have a steady income, and
• can afford the down payment.

An FHA 203k loan allows you to borrow money, using only one loan, for both home improvement and a home purchase. … 203k loans are guaranteed by the FHA, which means lenders take less risk when offering this loan. As a result, it’s easier to get approved (especially with a lower interest rate)

Eligibility: owner/occupants and nonprofit organizations can use FHA 203k, but not investors. The program is designed for one to four unit properties, but condo and town home owners can use the program for interior projects.

You must borrow at least $5,000, and there are maximum limits set by the FHA that vary by location. For most people buying a single-family home that is not extravagant, you’ll fall into these limits. For smaller projects, the Streamlined 203 K loan  allows you to borrow less (with an easier process).

You can borrow enough to finance 110% of the home’s projected value after improvement. Appraisers will review your plans and take the future value of your home into account.

Interest rate: the interest rate will vary, depending on rates in general and your credit. Expect to pay a rate that’s 1% or so higher than you’d pay on a standard loan.

Think of this as the cost of easier approval (or bundling both your purchase and improvement loans into one). Plus, lenders need to do extra work tracking the progress of your project and handling payouts. At the same time, the loan is insured by the FHA, so lenders might offer a lower rate than you’d get elsewhere. Compare offers and get the loan that works best for you. 2023k loans can be either fixed rate or variable rate loans with repayment up to 30 years.

When you apply for a loan, long, steady employment is always seen as a plus, as is a large down payment, a good credit rating, a history of regular savings, and property located in a “good” neighborhood.

Not so good in the lender’s mind: frequent job changes without salary increases, self-employment in a new venture, bad debt history, no previous borrowing record, and dilapidated property.

Do not be discouraged. These are standard lender pre-dispositions when evaluating your application, but when it comes to making a loan decision, most lenders will tell you nothing is completely carved in stone.

Consider, too, that credit you have qualified for—say, credit cards—can work against you, even if never used. This is because those credit cards are looked upon as being open credit lines—and while they have not been used, they could be used, and potentially used up to the maximum dollar amount allowed by the credit card companies. As a result, their perceived risks lower your credit, or FICO, score.

Conforming loans have terms and conditions that adhere to guidelines established by Fannie Mae and Freddie Mac, the two, big quasi-government corporations that purchase mortgage loans from lenders then packages them into securities that are sold to investors.

Their guidelines are far-reaching and as such set borrower credit and income requirements, as well as the down payment, and maximum loan amounts.

Non-conforming loans are for buyers, such as the self-employed or people with poor credit histories, who do not qualify for mainstream loans.

A mortgage makes homeownership possible for most people. In the simplest terms, it is a loan that is secured by real property. The lender holds title to the home until the loan is completely repaid. If you fail to pay up, the lender has a right to take the property, sell it, and recover the money that is owed.

The amount of a mortgage will vary greatly depending on the down payment you make to reduce the amount of money that is needed to finance the home. You may put as much money down as you like, or you can sometimes pay as little as 3 to 5 percent of the purchase price, or sometimes nothing at all. The more you put down, the more you reduce the amount that is financed, thereby lowering your monthly payment.

The monthly payment consists of both principal and interest but also typically includes additional amounts to cover property taxes and insurance – specifically hazard insurance and private mortgage insurance, the latter of which is required for down payments less than 20 percent of the purchase price.

Homebuyers in the U.S. have access to several different types of mortgage loans.

Much like a stockbroker helps you buy stocks, a mortgage broker can help you purchase a home loan. Because the broker has access to many lenders, you will be able to select from a wide variety of loan types and terms that fit your specific needs.

Note, however, that brokers are not obligated to find the best deal for you. Of course, if you agree in writing to have one act as your agent, that is an entirely different story. This is why it is important when looking for a broker to contact more than one, just as you would any other lender.

Compare their fees and ask questions, particularly about how they will be paid. Sometimes their fees appear as points paid at closing or the compensation is factored into the interest rate, or both. In any event, haggle with the broker and the lender for the best deal.

Real estate agents normally maintain contact with several brokers. Ask your agent for recommendations.

These are limits imposed by Fannie Mae and Freddie Mac on the amount of money you can borrow to finance a home purchase. The loan limit generally increases each year and applies to single-family homes in the 48 contiguous states, with higher limits in Alaska, Hawaii, Guam and the U.S. Virgin Islands and on homes with two, three and four units.

For example, in 2008, the loan limit is $417,000 for a single-family owner-occupied property, $533,850 for a two-unit property, $645,300 for three-units, and $801,950 for four-units.

Theoretically, no limit applies to the amount a lender can provide under the VA program. But in practice, local lenders generally lend up to $417,000 in 2008 with no money down.

There are also loan limits for owner-occupied homes under the FHA 203(b) program, the most common FHA option. The limits vary depending on whether you live in a “high cost” or “low cost” area, as well as the number of units that are being financed. In general, the FHA loan limit is $362,790 for a single-family home in high-cost areas and $200,160 in low-cost areas.

They are the same as conforming and non-conforming loans. A conventional, or conforming, loan is one not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA), two federal government agencies that make homeownership possible and generally more affordable for a large segment of the population.

However, that said, many major banks and private lenders now offer non-conventional, or non-conforming, loans for lower-income borrowers and those with blemishes on their credit.

In fact, Fannie Mae and Freddie Mac are now the leading sources of non-conventional loans, thereby making the process of buying a home a lot easier for more people – but not necessarily cheaper. The interest rates on these loans are much higher than rates on conventional mortgages.

Putting down as little as possible lets you take full advantage of the tax benefits of homeownership. Mortgage interest and property taxes are both fully deductible from state and federal income taxes. Also, making a small down payment frees up cash that you can use to meet unexpected home improvements.

Some real estate experts contend it is more economical, however, to make a larger down payment, thus reducing the amount of debt financed over the life of the loan. A borrower could potentially save several thousand dollars, maybe even hundreds of thousands of dollars.

Not too long ago, they offered in abundance what are called “stated income loans,” more commonly referred to as “no doc” or “low-doc” loans, mortgages that require no documentation or little documentation to verify the borrower’s income and assets. In return, the borrower, who must have very good credit, make a big down payment—generally 25 percent or more—and pay a higher interest rate.

Given current market conditions and the sub-prime debacle, these loans have become more difficult to find, cost more, and are mainly funded by hard money lenders who do not conform to bank standards.

The loans are common among self-employed borrowers who have difficulty substantiating all of their income and service industry employees, such as waiters and hair stylists, whose pay is hard to pinpoint exactly. Borrowers also may use no-doc loans when they derive most of their income from commissions or when they have very complicated income structures. In reality, calling the loans “no-doc” and “low-doc” are misnomers. Some “low-doc” loans require plenty of documentation, such as tax returns and profit-and-loss statements. Even “no-doc” loans require a credit report and a property appraisal.

Builders will typically offer no-down-payment loans to sell properties in a slow-moving development or a depressed market. Desperate sellers also may commit to finance the down payment for the buyer to move a hard-to-sell home or to make a quick sale. And veterans may buy a home with nothing down through the Veterans Administration’s home loan program. And members of some pension funds also may avoid making a down payment.

Your real estate agent has information on lender loan requirements and will be able to calculate a rough monthly figure you can afford based on the maximum monthly payment for the loan, taxes, insurance, and any type of maintenance fees. This pre-purchase evaluation by the agent can save you a lot of time spent looking at properties you cannot afford.

Lenders also routinely calculate what you can afford and can pre-qualify you for a loan even before you begin your home search. This way, you know exactly how much you can afford to buy.
Lenders generally stipulate that you spend no more than 28 percent of your gross monthly income on a mortgage payment or 36 percent on total debts.

Ultimately, the price you can afford to pay for a home will also depend on other factors besides your gross income and outstanding debts. They include the amount of cash you have available for the down payment, your credit history, current interest rates, closing costs and cash reserves required by the lender, and the type of mortgage you select

You see promotions for them all the time. But banking regulators have gone after lenders who misrepresent these loans. The reality is that no-cost and no-fee loans may actually cost the borrower more over the long term because costs are often hidden by rolling them into the new loan through higher principal or interest.

The rates on no-cost loans are usually about 1/2 or 5/8 of a percentage point higher than the “full cost” rate.

A typical no-fee loan includes points and all fees in the loan principal, so the borrower does not pay or “see” these expenses at the closing. Instead, the borrower pays them over the life of the loan.

If you are looking to refinance, it may be possible to get a no-cost program that will lower your rate at no expense to you. Today, lenders are paying all closing costs, such as title fees, appraisal fees, and credit report fees. There are no loan fees or points, and nothing is added to your loan balance.
However, many lenders may charge a loan application fee and some restrictions may apply depending on the size of the loan.

Also known as a purchase money mortgage, it is when the seller agrees to “lend” money to the buyer to purchase and close on the seller’s home. Usually sellers do this when money is tight, interest rates are high or when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price.

Seller financing differs from a traditional loan because the seller does not actually give the buyer cash to complete the purchase, as does the lender. Instead, it involves issuing a credit against the purchase price of the home. The buyer executes a promissory note or trust deed in the seller’s favor. The seller may take back a second note or finance the entire purchase if he owns the home free and clear.

The buyer makes a sizeable down payment and agrees to pay the seller directly every month.
The interest rate on a purchase money note is negotiable, as are the other terms in a seller-financed transaction, and is generally influenced by current Treasury bill and certificate of deposit rates. The rate may be higher than those on conventional loans, and the length of the loan shorter, anywhere from five to 15 years.

It is a mortgage held by the seller that can be taken over by the buyer when a home is sold. Such loans are hard to find because most lenders stopped voluntarily writing them many years ago. Most new assumable loans today are adjustable rate mortgages.

An assumable mortgage may be attractive if the interest rate on the existing loan is lower than the rate the buyer could otherwise get on a new mortgage, either because of current market conditions or the buyer’s poor credit history.

To determine whether to assume an old loan or apply for a new one, pay close attention to the possible assumption fee, usually one point, and other terms of assumption set forth in the existing loan. One plus: there are generally few closing costs with an assumable loan.

While an assumable mortgage can speed up the property sale, sellers should be careful about letting a buyer assume their mortgage. Depending on the state and terms of the mortgage, a seller may remain liable for the loan until it is paid off in full. Or the lender may go after both the seller and the buyer if the loan is not paid.

Also called an all-inclusive mortgage, it is where a new home loan is placed in a subordinate or secondary position to the original mortgage and the new loan includes the unpaid balance of the first.

The wraparound allows the buyer to purchase a home without having to qualify for a loan or pay closing costs. The contract is made between the buyer and seller with the seller remaining on the original mortgage and title. The buyer pays the seller a fixed monthly amount and the seller uses part of this money towards the existing loan.

The seller benefits by offering the buyer a loan at a higher interest rate than the existing mortgage, and the lender profits from the difference in interest in the two loans.

Wraparounds are not for novices and cannot be used when there is a legally enforceable “due on sale” clause in the first mortgage.
Consult an attorney if you are considering this type of financing.

Not to be confused with a biweekly mortgage, this type of home loan is also known as 5/25s and 7/23s. It has one interest rate for part of the life of the mortgage and a different rate for the remainder of the loan.

Two steps are 30-year mortgages. They can either be convertible or nonconvertible. The 5/25s have a fixed interest rate for the first five years and either convert to a one-year adjustable rate or a 25-year fixed loan. The 7/23 has a fixed interest rate for the first seven years and then converts to a one-year adjustable rate or a 23-year fixed loan.

The initial rate on the two step is lower than on a 30-year fixed mortgage, but higher than a one-year adjustable. Also, because the adjustment interval is longer, there is less risk initially than with an adjustable rate mortgage, or ARM.

It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not.

Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs. A lease option may also be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan.

Under this arrangement, the landlord agrees to give a renter an exclusive option to purchase the property. The option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place.

A portion of the rent is used to make the future down payment. Most lenders will accept the down payment if the rental payments exceed the market rent and a valid lease-purchase agreement is in effect.

Before you opt to do a lease option, find out as much as possible about how they work. Have an attorney review any paperwork before you and the tenant sign on the dotted line.

It is a short-term bank loan of the equity in the home you are selling. You may take out a bridge loan, or interim financing, to help with a knotty situation: closing on the home you are buying before you close on the property you are selling. This loan basically enables you to have a place to live after the closing on the old home.

The key to a bridge loan is having a qualified buyer and a signed contract. Usually, the lender issuing the mortgage loan on the new home will write the interim financing as a personal note due at settlement on the property being sold.

If, however, there is no buyer for the property you have up for sale, most lenders will place a lien on the property, thereby making that bridge loan a kind of second mortgage.

Things to consider: interest rates are high, points are high, and there are costs and fees involved on bridge loans. It may be cheaper to borrow from your 401(K). Actually, any secured loan is acceptable to lenders for the down payment. So if you have stocks or bonds or an insurance policy, you can borrow against them as well.

It is a mortgage in which the entire unpaid principal becomes due and payable on a given date, five, ten, or any number of years in the future. The borrower must pay up, refinance, or lose the property.

Interest rates on balloon mortgages are lower than for fixed-rate mortgages. So their monthly mortgage payments will be lower than the monthly payments for conventional mortgages.

Balloon mortgages are a good way to keep monthly housing costs to a minimum if you plan to move or sale well within the period of the balloon.

Also called a fixed-period ARM, these crossbreed loans combine features of fixed-rate and adjustable-rate mortgages.

They start out with a fixed interest rate for a number of years – usually 3, 5, 7 or 10 years – and then convert to an ARM.

Initially, the interest rate for the fixed period of the loan is much lower than the rate on a fixed-rate, 30-year mortgage by about 1.5 percentage points. As a result, the hybrid allows borrowers to buy a lot more home than they can afford – but at greater risk.

he terms and fees for these loans vary widely and when the fixed-rate period expires, homeowners could end up paying considerably more than the current rate of interest.

Before considering a hybrid, pay close attention to the terms, fees, and prepayment penalties.

A reverse mortgage is an increasingly popular option for older Americans to convert home equity into cash. Money can then be used to cover home repairs, everyday living expenses, and medical bills.
Instead of making monthly payments to a lender, the lender makes payments to the homeowner, who continues to own the home and hold title to it.

According to the National Reverse Mortgage Lenders Association, the money given by the lender is tax-free and does not affect Social Security or Medicare benefits, although it may affect the homeowners’ eligibility for certain kinds of government assistance, including Medicaid.

Homeowners must be at least 62 and own their own homes to get a reverse mortgage. No income or medical requirements are necessary to qualify, and they may be eligible even if they still owe money on a first or second mortgage. In fact, many seniors get reverse mortgages to pay off the original loan.
A reverse mortgage is repaid when the property is sold or the owner moves. Should the owner die before the property is sold, the estate repays the loan, plus any interest that has accrued.

Certainly, once you get pass the sticker shock. Closing costs are expensive. They can average between 2 to 3 percent of the total home purchase price. But here are a few ways to save:

• Haggle with the seller. He may pay all or part of the closing costs.
• Nab a no-point loan. You may have to pay a higher interest rate, but if you are strapped for cash and can qualify for a higher interest rate, you may find this type of loan can significantly reduce your closing costs.
• Grab a no-fee loan. Although the fee is usually wrapped into a higher rate loan, it does offer one advantage – you get to save on the amount of cash you would need up-front.
• Secure seller financing. These loans typically avoid the traditional fees or charges imposed by lenders.
• Shop ‘til you drop for the best deal. Every lender has its own unique fee structure; you are bound to find one that works for you.

Yes. A comparative market analysis and an appraisal are the two most common and reliable ways to determine a home’s value.

Your real estate agent can provide a comparative market analysis, an informal estimate of value based on the recent selling price of similar neighborhood properties. Reviewing comparable homes that have sold within the past year along with the listing, or asking, price on current homes for sale should prevent you from overpaying.

A certified appraiser can provide an appraisal of a home. After visiting the home to check such things as the number of rooms, improvements, size and square footage, construction quality, and the condition of the neighborhood, the appraiser then reviews recent comparable sales to determine the estimated value of the home.

Lenders normally require an appraisal – which run between $200 to $300 – before they will approve a mortgage loan. This protects the lender by ensuring the home is worth the money you want to borrow.

You also can check recent sales in public records, through private firms, and on the Internet to help you determine a home’s potential worth.

The biweekly mortgage has become increasingly popular as more people favor paying off their home loan early and reducing interest charges.
Monthly payments on these loans are split in half, payable every two weeks.
Because there are 52 weeks in a year, you actually have 26 half-payments, or the equivalent of 13 monthly payments per year instead of 12.
Under the biweekly payment plan, a homeowner can save tens of thousands of dollars in interest and pay off their loan balance in less than 30 years.

There are some people who get incredibly wealthy through stocks and some other people who do not. For the people who don’t succeed, is it that stocks don’t work or that the people using them don’t all possess the right knowledge and skills?

It’s funny because every man is a “self made man,” it’s just only the rich who admit to it. The wealthy are what they are because they have applied knowledge that works. Studies repeatedly conclude that over 90% of wealthy individuals have become wealthy through real estate. Does it really work? It works better than any other system of business to produce wealth with the right knowledge and skills.