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Interest Only Mortgages
This is just what it says. You only pay interest, the principal is never reduced.This is the grand daddy of all balloon mortgages and you taking a big risk that your house depreciates in value rather than the other way around.You could very well have to come up with extra cash at closing.The payments are... : Interest Only Mortgages
Balloon mortgages
Balloon loans are short term mortgages that have some features of a fixed rate mortgage. The loans provide a level payment feature during the term of the loan, but as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. Balloon loans can have many types of maturities, but most balloons that are first mortgages have a term of 5 to 7 years. At the end of the loan term there is still a remaining principal loan balance and the mortg... : Balloon mortgages
Conforming & Non-Conforming Mortgages
A conforming mortgage refers to a mortgage that is drawn up within the guidelines specified by the lending institutions referred to as Fannie Mae and Freddie Mac. The most common reason for a mortgage to be referred to as non-conforming is because the total amount of the mortgage exceeds the lending limits or total loan amount allowed. This type of non-conforming loan is often referred to as a Jumbo mortgage. ... : Conforming & Non-Conforming Mortgages
Open Mortgage (6-month to 1 year terms are most common):
Allows borrowers to repay all or part of the principal amount of their mortgage at any time without penalty. You usually have to pay a higher interest rate for this type of mortgage since it offers greater prepayment flexibility. This flexibility makes open mortgages ideal for homeowners who plan to sell in the near future or who want to wait for rates to drop before locking into a longer-term mortgage. Unfo... : Open Mortgage (6-month to 1 year terms are most common):
Freddie Mac Shuts Bond Broker Business
By Aleksandrs Rozens NEW YORK (Reuters) - Freddie Mac (FRE.N: Quote , Profile , Research ) , the No. 2 U.S. mortgage finance company, said on Monday it will no longer serve as a broker dealer in the multi-trillion-dollar mortgage bond market, a move some said is designed to lower risk and placate regulators. The move away from buying and selling mortgage bonds to investors like Wall Street investment banks allows Freddie Mac to refocus on its core business of... : Freddie Mac Shuts Bond Broker Business
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Definition: A mortgage is a long-term loan through a bank or other financial institution, or even through the seller of the property. The house and/or property serve as collateral for the loan. |
Step 1: Find a mortgage that’s right for you.
The most common types are 30-year and 15-year fixed mortgages where the interest rate is fixed for the term of the loan. Other types include Adjustable Rate Mortgages (ARMS) where the interest rate can vary over time, hybrid ARMS, jumbos, assumables and seller financing. | Step 2: Determine how much house you can afford.
Consider: equity in your current home (if you own), amount you can put down, monthly payments you can manage, real estate taxes, closing costs and insurance (definitely homeowners insurance and probably Private Mortgage Insurance – PMI – if you put less than 20% down). Monthly payments on debt obligations including items such as credit card bills, alimony, child support and student loans should not be more than 36% of your pre-tax income. | Step 3: Check you credit.
A potential lender will check your credit report immediately. It’s best to clear up any credit problems before you apply for a mortgage. Get your credit report from Equifax (800-685-1111), Experian (888-397-3742) and Trans Union (800-888-4213). | Step 4: Pre-qualification and pre-approval.
If you haven’t found a home yet, consider getting pre-qualified (a lender will review your financial history before you find a home) or pre-approved ( a lender will check your credit and provide you with a letter stating that you’ve been pre-approved for a certain amount). Both of these will help improve your purchasing power. | Step 5: Gather the necessary paperwork.
See list below to get an idea of what you’ll need. | Step 6: Find a lender.
Finding the right lender is an important step to ensure a positive loanexperience. We make this task easy.and fill out the short information form and we’ll have one or morelicensed and professional mortgage brokers or lenders contact you todiscuss current loan rates and availability specific to yourcircumstance. While on our site we invite you to check current interestrates and some of the other tools we offer to assist you in making aninformed decision. Remember that the lowest rate doesn’t always meanit’s the best loan for you. In addition to the annual percentageinterest rate, check on points (pre-paid mortgage interest which willincrease your upfront costs) and other fees associated with a givenloan. Compare mortgage loan offerings and talk to several lendersbefore you apply for your loan. | Step 7: Assess your potential home.
Hopefully, you’ve found your dream home by this time. Be sure to thoroughly evaluate the home to make sure it’s what you really want. An appraisal is part of the mortgage process and will ensure that you’re paying the appropriate price for your home. | Step 8: prepare for closing.
Make sure the closing is scheduled before your loan commitment and any rate lock-in will expire. And be sure there is enough time to finish any loan documentation and complete any home inspections or repairs. | Step 9: Closing day!
Congratulations, you’re about to own a new home! At the closing you will have to sign legal documents and pay closing costs (these could include surveying, taxes, insurance, attorney fees, agent fees, points, loan origination fees, PMI and balance of down payment). | Step 10: Servicing the mortgage.
At closing, your mortgage lender must tell you who will be servicing or administering, your mortgage loan. Traditionally, the mortgage banker would service the loan for the life of the mortgage on behalf of the investor. However, the servicing may be handled by a third party. | |
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| W-2 forms from the previous two years | | Federal tax returns from the previous two years | | Recent paycheck stubs | | Documents showing other sources of income, which could include second jobs, overtime, commissions and bonuses, interest and dividend income, Social Security payments, VA and retirement benefits, alimony, and child support | | A complete list of your creditors, such as credit cards, student loans, car loans and child support payments, along with minimum monthly payments and balances | | Investment records including mutual fund statements, real estate and automobile titles, stock certificates and records of any other investments or assets | | Canceled checks for your rent or mortgage payment | Maximum monthly debt obligation based on $50000 annual salary | | | |
| Down the road… | Removing PMI:
You should be able to remove PMI once the equity in your home reaches 20% of the property value either because the loan balance has been decreased below 80% or because your home has appreciated in value. | Prepayment:
The motivation for prepaying a mortgage is simple-you save money on interest and it can add to a lot of money. You can create a prepayment schedule yourself or the mortgage servicer can set up a formal biweekly pre-payment plan. Be sure to consider the tax implications of prepayment-prepaying reduces mortgages interest, which is tax deductible. But that may not be beneficial in your tax bracket. | Refinancing:
In today's market, if you're planning to stay in your home for a while, and you find a good deal on refinancing costs, it may be worthwhile to refinance with as little as a 0.5% lower rate, refinancing involves many of the same steps you took when obtaining a mortgage the first time around. | |
Points or lower interest rate? 30 year $100,000 mortgage | |
Rate | Points | Monthly
Payment
| Cost of Points
(paid at closing)
| Total Interest | Comments | | | $632
$ 699
| $3000
0
| $127,544
$151,717
| If low monthly payments are your priority and you have the cash for points, then pay the points. But you may want to consider an alternative investment for your cash instead of paying the points upfront. | |
TIP: Paying points usually lowers your interest rate. If you plan on staying in your home for a while consider paying the points | |
Economics of Buying a Home | |
Home price | = $150,000 | Cash down payment | = $15,000 (10% down) | Mortgage | = $135,000 | Loan APR | = 7% | Term | = 30 years | Monthly loan payment | = $896.16 | Monthly PMI payment (will vary – approximate) | = $56.25 | Total monthly payment | = $954.41*
| |
(*allow for additional monthly costs such as homeowners insurance and real estate taxes).
Seller usually pays agent commission.
Additional costs include: closing costs, agent fees (if selling your home), insurances, legal fees, points, application fees, etc. | About ARMs (Adjustable Rate Mortgages) | | 1. If you’re going to be moving or only living in the house a few years, lower-rate ARMs are a good option. | | 2. After the initial fixed period, most ARMs adjust every year on the anniversary of the mortgage. Some ARMs adjust every three years, based on yields on the three-year Treasury securities. | | 3. On an adjustable-rate mortgage, there is usually a maximum annual increase of two percentage points and a lifetime cap of six percentage points. Note: *ARMS can be tempting, but they come with some uncertainty. That’s why more than 75% of homeowners opt for a fixed-rate mortgage. You need to ask if you can afford the highest possible payment in such a worst-case situation. | | | |
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Interviewing Mortgage Lenders – compare several lenders before committing to one.
This worksheet provides you with key questions to ask potential lenders.
There’s also space to take notes so that you can compare each of the lenders you interview.
Contact information can be recorded in the section below. | | Notes | Notes | Notes | | | | | | | 1. What is the interest rate on this mortgage? To know exactly what you’ll be paying in interest over the life of the loan, you need to know the rate. This is the single most important figure to obtain. | | | | | 2. How many discount and/or origination points will I have to pay to get this rate & loan? Lenders can charge points that lower your interest rate and points that provide no benefit whatsoever to you. Find out how many you’ll be expected to pay for the loan and which kind of points they’ll be. | | | | | 3. What closing costs will be charged on this loan & will you provide the “good faith estimate” of those costs up front? Many experts say that you shouldn’t use a lender or broker unless that person will provide a good faith estimate up front. | | | | 4. When can I lock in the interest rate & what will it cost me? The interest rate of the mortgage you’re applying for may go up or down between the time you apply and the time you close. Ask if there is a fee for locking in the rate and if you can also lock in points.
| | | | 5. Is there a prepayment penalty on this loan? Find out the duration of any penalty period and how the fee would be calculated.
| | | | | 6. What is the minimum down payment required? Depending on the amount of your down payment and its relation to the price of your home, you might be charged different interest rates or quoted different loan terms. Loans made at high loan-to-value ratios can cost more than loans with larger down payments. | | | | | 7. What are the qualifying guidelines for this loan? The qualifying guidelines can relate to your income, employment, assets, liabilities and credit history. Some first-time home buyer programs and government-sponsored loans have easier qualifying guidelines. | | | | | 8. What documents do I have to provide? You will need to provide proof of income and assets in order to get a mortgage loan as discussed earlier. Find out what documents will be required in your particular situation by asking your lender. | | | | | 9. How long will it take to process my application? This varies from lender to lender. Get a realistic estimate and use that to figure out how long a rate lock you’ll need. | | | | 10. What might delay the approval of my loan? If you provide the lender with complete, accurate information, everything should go smoothly. However, there could be a delay if the lender discovers credit problems, which is why it is critical to get your credit in order.
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