Prequalify

Pre-qualification occurs before the loan process actually begins, and is usually the first step after initial contact is made. The lender gathers information about the income and debts of the borrower and makes a financial determination about how much house the borrower may be able to afford. Different loan programs may lead to different values, depending on whether you are qualified for them, so be sure to get a pre-qualification for each type of program you are suited for.
Popular Mortgages

Fixed Rates

A conventional fixed-rate mortgage offers you a set rate and payments that do not change throughout the life or "term", of the loan. A conventional loan is fully paid off over a given number of years, usually 15, 20 or 30.

A portion of each monthly payment goes towards paying back the money you borrowed, the "principal", and the rest is "interest". Any money paid into the value of the house, including your down payment, is known as "equity" in the home. For instance, if your house is worth $100,000 and you owe $65,000 on your mortgage, then you are said to have 35% equity in your house.

Temporary Buy-Downs

"Buydowns" usually refer to a borrower "buying down" the interest rate on a loan. This is the same concept as paying "points" on a loan, except that points buydown (or up) the rate of a loan over the entire term while a buydown is usually only a temporary reduction.
Credit Repair

Dealing with Credit Bureaus

It is essential to understand that Credit Bureaus are nothing more than record keepers.

Simply put, they keep a record of who has given you credit, when they gave you credit, how much credit you are given and whether or not you paid it back on time. When you want to obtain credit cards, loans, financing for a car or home, leases, apartments and sometimes even employment, the lender or bank will check your credit to see your financial history.

Credit Bureaus are paid by the people who request your credit file. Credit Bureaus have no legal power over you. Banks, police or the government does not run them; so don't be intimidated by them. They are the Credit Bureaus because they own large computer systems capable of storing credit information on everyone in the United States. However, because of the tremendous amounts of information on their computers, their method of storing information is very basic and ridden with many errors. Since the bureaus have made so many errors in the past, all Federal Laws regarding credit information are very much in your favor.

 
 

Mortgage Options

Understanding Mortgage Options
(As you read this, keep in mind that the mortgage industry is changing every day and many mortgage companies are expanding their financing options. Therefore, understand that these are general guidelines and feel free to ask your mortgage broker/lender if any new guidelines apply.)

Mortgage Programs

Conventional
Fixed
ARM
Balloon		 FHA
Fixed
ARM
Jumbo
Fixed
ARM		 VA
Fixed


Conventional Mortgage Program (also known as Conforming)
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A conventional mortgage is a loan that is long term (typically 30 or 15 years) and meets the guidelines as put forth by FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corp.). These guidelines include satisfactory types of borrowers, kinds of property, and loans amounts up to $322,700 ($484,050 in Alaska and Hawaii).

Mortgage Insurance (MI) is required on a conventional loan if the loan-to-value is more than 80%. For example, if a borrower purchases a home for $200,000 and applies for a loan of $180,000 (90% loan-to-value), he or she will be required to pay mortgage insurance to obtain the loan. Mortgage insurance is typically paid on a monthly basis.

A conventional mortgage is generally non-assumable and does not have a pre-payment penalty.

Fixed Rate Conventional Mortgage

The most common type of Conventional Mortgage is a fixed rate mortgage. Two distinct characteristics of a fixed rate loan are an interest rate that doesn't change and a loan amount that is repaid in equal monthly payments.

The most common term lengths for fixed rate mortgages are 30 years and 15 years. A 15 year term usually has a lower interest rate than a 30 year term mortgage.

As a fixed rate mortgage is repaid, more interest than principal is paid in the early years of the loan. However, the longer the borrower keeps and repays the mortgage, the larger the percentage of principal is paid with each monthly payment. A lender/broker can supply an amortization schedule to demonstrate this.

Adjustable Rate Conventional Mortgage

Another type of Conventional Mortgage is an adjustable rate mortgage (ARM). The main difference between an ARM and a fixed rate is that an ARM has an interest rate and monthly payment that is subject to change. This type of mortgage is less common than a fixed rate mortgage because many borrowers do not want to worry about their mortgage rate changing during the term of their loan. An ARM does have beneficial qualities that appeal to borrowers in certain situations.

An ARM is a mortgage with an interest rate that is subject to change periodically, based on an index that is determined at the time of obtaining the mortgage. The interest rate may go up or down, and the monthly payments of the mortgage will adjust accordingly.

As mentioned before, there are advantages to an ARM. Usually, the beginning interest rate of an ARM is lower than a fixed rate mortgage. This can be great for someone that is going to live in his or her home for a short amount of time (usually less than 5 years). And with a lower interest rate, the loan's payments are also smaller. With a smaller monthly payment, a borrower can sometimes qualify for a larger loan amount (this will depend on the lender). Some adjustable rate mortgages can be assumable. Finally, if interest rates remain steady or actually decrease an ARM can be less expensive than a fixed rate mortgage over the long term.

The main disadvantage of an ARM is the possibility of a higher monthly payment. To many people, this is a high enough risk to outweigh any advantages and thus avoid acquiring this type of loan.

ARM products usually have a beginning interest rate that is fixed for a predetermined amount of time. Most lenders/brokers offer ARM mortgages that are fixed for 1, 3, 5, 7, or even 10 years. The shorter the fixed time period, the lower the start rate. These mortgages typically convert to a 1 year ARM after the first time period has passed. At that point, the interest rate would be subject to change once a year thereafter. The details of an ARM can be complex; borrowers should consult their loan officer with any specific questions.

Balloon Conventional Mortgages

One last type of Conventional Mortgage is a balloon mortgage. This type of mortgage has a fixed interest rate, but at some point requires the borrower(s) to make a final lump sum payment.

Usually, a balloon mortgage has a fixed interest rate and monthly payments are based on a 30 year fixed payment schedule. However, the actual term of the loan is shorter than the 30 year payment schedule. Most balloons have a 5 year term or a 7 year term. At the end of the 5 or 7 years, the loan is due and payable in a lump sum. However, most balloon mortgages include an option to refinance the loan at the end of the 5 or 7 years.

A borrower might choose this type of mortgage if he or she plans on living in the home a short amount of time and does not plan on needing a mortgage for 30 or 15 years. Therefore, he or she would want to take advantage of the lower interest rates offered with a balloon mortgage.

Balloon and adjustable rate mortgages offer lower introductory rates and greater flexibility than fixed mortgages. Depending on each borrower's situation, either of these products might provide a right combination of factors. All borrowers should feel comfortable discussing different mortgage options with their loan officer.

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Jumbo Mortgage Program (also known as Non-Conforming)
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A jumbo mortgage consists of the same features as a conventional mortgage (see definition above), however the loan amount exceeds the loan limit set by FNMA and FHLMC.

Fixed Rate Jumbo Mortgages

One type of jumbo mortgage is a fixed rate mortgage. The characteristics of a jumbo fixed rate mortgage are the same as a conventional mortgage. Depending on the loan amount however, certain loan-to-value restrictions may apply. Consult a qualified loan officer for details.

Adjustable Rate Jumbo Mortgages

Jumbo mortgages can have adjustable rates also. The features of a jumbo adjustable rate mortgage (ARM) are similar to those of a conventional mortgage. Depending on the loan amount however, certain loan-to-value restrictions may apply. Consult a qualified loan officer for details.

Balloon Jumbo Mortgages

Balloon jumbo mortgages are another option for a borrower. The guidelines for this type of jumbo mortgage vary depending on lender/broker. Consult a qualified loan officer for details regarding this type of loan.

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FHA Mortgage Program (a type of Government-Guaranteed mortgage)
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A FHA mortgage is obtained through a local lender/broker, however the Federal Government guarantees these mortgages through the Department of Housing and Urban Development (HUD).

A borrower might choose a FHA mortgage because it allows for greater flexibility in income, credit, and down payment requirements. A loan that might not be approved as a conventional loan might be approved as a FHA loan.

All FHA loans require Mortgage Insurance (MI). An up front premium of 1.75% of the loan amount is required and is typically added to the loan amount. A FHA loan also requires a monthly MI premium of .5%. In comparison, a conventional mortgage only requires a monthly MI premium if the loan-to-value is over 80%.

FHA loans are only available with fixed rates or 1 year adjustable rates. FHA loans also have a maximum loan amount that varies according to the property location.

A qualified loan officer can advise a borrower if he or she should consider a FHA mortgage.

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VA Mortgage Program (a type of Government-Guaranteed mortgage)
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A VA mortgage can be obtained through a local lender/broker, and similar to a FHA mortgage, it is guaranteed by a government agency, the Veterans Administration.

Unlike any other mortgage programs described, only eligible veterans that have served in the armed forces (as defined by VA) can obtain a VA loan.

One feature of a VA loan is the ability of an eligible veteran to finance up to 100% of the purchase price of a property. The veteran can also add the VA funding fee to the purchase price, thus lowering the amount of cash the borrower needs to purchase a home. The VA funding fee is a fee charged by the Veterans Administration to insure the payment of the mortgage. The funding fee is usually 2.75% of the purchase price, but varies depending on the amount of times the veteran has previously purchased a home using the VA mortgage program.

VA loans have a maximum loan amount that as of January 2000 could not exceed $203,000.

All veteran borrowers should consider this mortgage program when reviewing their borrowing options. Regional VA offices can answer any questions regarding a veteran's eligibility status.

Should I Refinance?

If you are a homeowner who was lucky enough to buy when mortgage rates were low, you may have no interest in refinancing your present loan. But perhaps you bought your home when rates were higher. Or perhaps you have an adjustable rate loan and would like to obtain different terms.

Should you refinance? This refinancing tip will answer some questions that may help you decide. If you do refinance, the process will remind you of what you went through in obtaining the original mortgage. That's because, in reality, refinancing a mortgage is simply taking out a new mortgage. You will encounter many of the same procedures-and the same types of costs-the second time around.

Would Refinancing Be Worth It?

Refinancing can be worthwhile, but it does not make good financial sense for everyone. A general rule is that refinancing becomes worth your while if the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate. This figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings.

Rent vs. Own

If you're thinking about buying a home, you probably have a mental list of the benefits owning a home would bring to your life. You imagine waking up and falling asleep in your own home, decorating as you please, or maybe even getting away from the loud neighbor you hear every evening through the paper thin walls of your apartment complex. You are ready to invest your monthly housing expense, instead of giving it all to your landlord every month.

The desire to own a home has been felt by nearly all Americans. Owning a home is the American dream. So what's stopping you? That's a good question, one that should be carefully answered. It's important that before you buy a home, you understand the potential impact it will have on your finances and lifestyle.

Listed below are some of the new responsibilities and added benefits of owning your own home.

 

 

 

 

 

Avoid Foreclosure

How to Avoid Foreclosure

When you miss your mortgage payments, foreclosure may occur. This is the legal means that your mortgage company can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, your mortgage company or HUD could seek a deficiency judgment. If that happens, you not only lose your home, you also would owe your Mortgage Company or HUD an additional debt. Foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future. So you should avoid it if all possible!

Don't ignore letters from your mortgage company!
If you are having problems making your payments, contact your mortgage company immediately. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help. Stay in your home for now. You may not qualify for assistance if you abandon your property.

 
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