Archives For Mortgages

Are you shopping mortgages and struggling to understand what products best fit your needs? To help clear up your confusion, we’ve listed the most common mortgage types along with their advantages and disadvantages. We’ve also provided information on who should consider each type of loan.

ITA18FXIBLOnce you’ve narrowed down the type of financing you’re after, contact a mortgage pro. They will walk you through the entire process and get you the best available deal.

Fixed Rate Conventional

  • Description: A fixed rate loan offers a stable interest rate amortized over the life of loan, which are most often set in 15, 20, or 30 years terms.
  • Advantages: Your monthly payment stays the same over the entire life of your loan.
  • Disadvantages: If interest rates drop after you’ve locked in your loan rate, you may be stuck with a higher monthly payment.
  • Consider If: You plan on staying in your home long-term and desire the security of a predictable monthly payment.

Adjustable Rate (ARM) or Variable Rate

  • Description: A variable rate mortgage or ARM usually offers a low introductory interest rate over a 3, 5, or 7 year term. After the initial-rate period ends, the interest rate fluctuates based on market trends.
  • Advantages: Introductory rates are often lower than rates for conventional mortgages, offering short-term savings. 
  • Disadvantages: If interest rates rise after your initial-rate period your monthly payments could go up.
  • Consider If: You’re confident you’ll be out of your home before the end of the initial-rate period or you plan to refinance.

Interest Only

  • Description: A borrower pays only the mortgage interest, in monthly payments, over a fixed term.
  • Advantages: Without paying principle, monthly payments are often less than fixed rate or adjustable rate loans.
  • Disadvantages: With Interest Only loans, the balance is often due in a lump sum after the initial period ends. This could mean significantly higher monthly payments or facing a large lump sum payment.
  • Consider If: You plan to live in the home for only a short amount of time or have confidence you can handle the larger payment down the road.

FHA Loans

  • Description: Allows buyers who may not qualify for a conventional mortgage to obtain financing with a lower down payment.
  • Advantages: First-time homebuyers or individuals who may not qualify for traditional funding have better access to home financing.
  • Disadvantages: Not everyone will qualify for FHA funding and even if you do, there may be restrictions on how much you can borrow or what types of property you can buy.
  • Consider If: You’re a first-time homebuyer or have low income and/or challenged credit.

VA Loans

  • Description: These loans are offered through the US Department of Veteran’s Affairs to eligible Veterans, active duty personal, or surviving spouses.
  • Advantages: VA Loans offer competitive rates, often with low or no down payments.
  • Disadvantages: As with FHA loans, the size of your loan may be limited.
  • Consider If: You’re a veteran, active duty personal, or surviving spouse.

Jumbo Loans

  • Description: Jumbo loans are for amounts exceeding $417,000 (or $625,000 in Alaska and Hawaii), which is the maximum Fannie Mae and Freddie Mac are willing to purchase.
  • Advantages: Jumbo Loans make it possible to purchase large homes and help finance home purchases in states with high home costs.
  • Disadvantages: Jumbo loans often require 20% down payments and interest rates can be .25-.50 higher than comparable conventional loans.
  • Consider If: You want to purchase a large home or live in a high-cost area.

Reverse Mortgage

  • Description: Reverse Mortgages are for seniors aged 62 and older with substantial equity in their property. With this loan, the lender pays the borrower a fixed monthly payment for as long as they live in their home.
  • Advantages: Allows seniors to convert their home equity into cash, which is often used for living expenses. The loans and interest don’t have to be paid back as long as the borrower lives in the home.
  • Disadvantages: Often an area of fraud by unethical lenders who prey on the elderly. If you’re considering a Reverse Mortgage, make sure your lender is reputable and the loan is federally insured.
  • Consider If: You’re retired and need extra monthly income.

There are many ways that consumers can save energy and spend less––adding insulation, buying a programmable thermostat, replacing single-pane windows, and installing a solar water heater, to name a few; however, many homeowners are considering energy efficient mortgages as an alternate way to go green at home.

Energy-efficient mortgages are a great way to maximize efficiency and finance the cost of improvements that will help you save energy. Fannie Mae, the Federal Housing Administration, and the Veterans Administration loan program all offer energy-efficient mortgages. Though you may make a higher monthly payment, lenders will not move forward with the project unless they believe your home will net cost savings.

In addition to the financial benefits, energy improvements will also help boost your home’s value. According to the Shelton Group, 81% of consumers say energy efficiency “somewhat-to-very-much” affects their home buying decision.

This post can be found in its original form on US News.

Photo: Inhabitat

mortgage-rates16New federal regulations requiring lenders to verify an applicant’s ability to repay may make it more difficult for borrowers who are self-employed to obtain a mortgage. The rules, created by the Consumer Financial Protection Bureau, set standards for mortgages that are considered low-risk for both parties.

Effective this month, lenders are now required to verify a borrower’s income and confirm a debt-to-income ratio of 43% or less. Borrowers who are self-employed or own their own business will find their incomes being analyzed in greater detail.

According to Peter Grabel, a loan originator at Luxury Mortgage, in Stamford, Connecticut, borrowers who have been self-employed for less than two years will find it nearly impossible to obtain financing without sufficient business tax returns.

“[Lenders] must establish the stability and continuity of the income source,” he said. “The problem for self-employed people is that they want to minimize their tax liability, but some of the ways they do so impact their ability to borrow.”

This article can be found in its original form at The New York Times.

Home for sale via Househappy.org

2013 was a year of highs and lows in the housing market, so what should we be looking for in the year ahead? According to the Wall Street Journal, here are 5 “wild cards to watch” in 2014:

Will inventory rise? 

Though evidence shows that inventories likely bottomed out in 2013 and many markets are moving in favor of buyers, inventory numbers will remain tight. Contributing factors: foreclosure-related listings have fallen, traditional buyers still aren’t listing homes in high numbers, and new construction will take years to return to normal levels.

Where is the home-construction recovery? 

While home prices have begun to recover, they are still too low to justify the land, labor, and materials costs in new construction. Contributing factors: credit is harder to come by for smaller builders, and move-up buyers don’t have enough equity to “trade up” to a new home.

What happens to mortgage credit? 

Mortgages may be easier to come by but borrowing costs and fees could rise. Contributing factors: lenders could begin to ease certain “overlays” (additional credit and documentation checks) that have been imposed over the past few years, and mortgage insurance companies are getting more comfortable issuing loans with down payments of just 5%; however, banks may get more cautious as they face new mortgage regulations, and borrowers with hard-to-document incomes (anyone who is self employed or works on commission, bonuses, etc.) could continue to have a difficult time.

What will investors do with their homes? 

Investors have played a key role in stabilizing home prices in the past few years as they purchased tens of thousands of homes, particularly in regions that were hit hardest by foreclosures. Now that this rush to invest is dying down, more lenders and investors are extending debt financing to property owners to help boost returns.

When does housing hit a tipping point on affordability? 

Though rising prices are giving many homeowners equity in their homes again, price inflation is also making housing less affordable. This will become a bigger problem if cash buyers retreat from the market in 2014 and/or if interest rates rise significantly.

This article can be found in its original form on Wall Street Journal