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Archive for the ‘Mortgages’ Category

Your Credit Score and Getting a Mortgage

January 6th, 2010

Your credit score is more important than ever if you’re trying to get a mortgage. Rather than having a standard percentage charged on all home loans, today’s loans are dependent on a number of things but the primary concern is your credit score.

Your credit score is based upon your credit history as reported on your credit report. A complex mathematical equation is used to determine your score but that number is key for getting a home loan. Credit scores are figured by a method created by Fair Isaac Corporation and are often referred to as FICO scores. Scores range from 300 to 900 and the typical home buyer falls somewhere in the 600 to 700 range. The higher your credit card, the better.

If you’re concerned about your credit score and getting a home loan your first step is to determine what your credit score is by ordering a free credit report. Each of the three big credit reporting agencies may have a different score for you but they’ll all be fairly similar.

Once you determine your score you can see how likely you are to get a loan and if you qualify for the better interest rates. Any rating below 650 should be boosted if you can to push the envelope and get you a better interest rate.

Private Mortgage Insurance

December 30th, 2009

If you’re considering purchasing a home or if you have purchased a home you have probably heard the term PMI thrown around. PMI stands for Private Mortgage Insurance but most people simply call it PMI. Not everyone has to pay a PMI, it is typically added to home loans if the borrower doesn’t have at least a 20% down payment on the purchase price.

PMI insurance can vary but the general range is somewhere between half and one percent and is designed to protect the lender in case the borrower defaults. It’s doubtful that the PMI actually does anything to protect the borrower but PMI is an accepted industry practice and isn’t going anywhere soon, so if you don’t have 20% to put down on your home then you’ll have to pay a PMI.

One thing to keep in mind during the course of your loan is the amount of principal you’ve paid. Once you’ve paid off 20% of your home’s assessed value you can approach your lender and ask them to remove the PMI. One would think that this would automatically be figured by your mortgage broker but it’s not so it’s something every mortgage holder with PMI should keep track of as it can save you thousands over the life of your loan.

Subprime Mortgages

December 28th, 2009

There’s been a lot of talk and concern about subprime mortgages and they are partially to blame for the housing crisis in the United States today. But what is a subprime mortgage? Subprime mortgages are home loans that are giving to people with less than optimal credit scores, typically their score is below 620. Credit scores run from 300 to 850 with the majority of people falling into the 600 or 700 range. Those who fall below 620 are considered a higher risk and if a lender decides to give them a loan they’re going to fall into the subprime loan category.

Subprime loans have higher interest rates than typical loans, but that rate can vary dramatically so if you are a subprime candidate then you must do your homework and shop around for the best loan rates and terms available to you.

Some subprime loans come with prepayment penalties and balloon payments, some even have both. It’s the prepayment penalties and balloon payments that are blamed for contributing if not starting the housing crisis. These penalties are almost impossible to deal with for many people, especially those with bad credit, and many homes ended up in foreclosure.

If you’ve got a poor credit score, rather than diving into a subprime loan which could cause you more trouble in the future, work instead to improve your credit score so you’ll be able to qualify for a traditional mortgage.

Things to Ask a Mortgage Lender

December 22nd, 2009

Too many people who are looking to buy a home spend all their time researching homes and almost no time at all researching mortgage lenders. This can be a huge mistake that could cost you thousands if not tens of thousands throughout the course of your loan. As your mortgage lender the following questions to make sure you’re getting the best loan for you.

What is the interest rate? This is a question that almost everyone knows to ask a mortgage lender, it’s a key determining factor.
What is the point situation? How many points will you have to pay, how much are they and what kind are they? This information will also affect the size of your loan.
What are the closing costs? The closing costs can add thousands onto your loan from the get go.
Are there prepayment penalties? Prepayment penalties hit in a number of situations, if you refinance, pay off a loan early, or sell a home and you want to avoid them if possible.
What is the down payment? Some loans require a minimum down payment, and the percentage required can vary drastically. For people without much savings this is critical.

By asking these questions you’ll have a better feel for your loan and be able to get the best loan terms possible.

photo credit:?woodleywonderworks

How Much House can you Afford

December 15th, 2009

Determining how much you can afford to borrow for a new home is the first step in finding a property you wish to buy. This is something you should estimate on your own, but it’s also something that your mortgage lender will be very concerned about.

The first step in determining how much you can afford to borrow is looking at your debt to income ratio. Then after looking at your current debt level and your income it’s time to look at the front end and the back end ratios.

The front end is the cost of the house. Determining a front end ratio is looking at how much of your gross monthly income will go to your mortgage. This means your principal, interest, taxes and insurance payments. The goal is to have the front end that is ideally less than 28% of your gross income.

The back end is figured by looking at how much of your total gross income goes to all debts, mortgage included. The goal is to have your back end stay under 36% of your gross income each month.

Both of these, the front end and back end ratios, are examined before your mortgage broker decides on how much you can borrow. Use the following percentages to figure out an estimate of what you can afford before you see a broker and you’ll be better prepared for their results.

photo credit:?patriotweb

Adjustable Rate Mortgages

December 14th, 2009

An adjustable rate mortgage is often referred to as an ARM and the basic premise is that the interest rate changes with the market which means the monthly payments can also change.

Most adjustable rate mortgages have a fixed rate period where the rate is set at a certain level and doesn’t change, then this is followed by a period where the rate changes regularly. The hook here is that this fixed rate period is typically set at an interest rate that is less than the current rate and more inviting than a fixed rate mortgage which is why it’s a popular way to go.

With the adjustable interest rate you never know if it’s going to go up or down, this is the risk that people who opt for an adjustable rate mortgage agree to. In some cases people with an ARM do quite well with their loans and in others the interest rate has been known to sky rocket and any early savings earned during the low fixed rate period are wiped out.

There are different adjustable rate mortgages out there and each one has its own benefits and downfalls so research each ARM option carefully before you fall for the early honeymoon period low interest rate.

Fixed Rate Mortgages

December 11th, 2009

There are several different types of mortgages out in the market these days and most of them are pretty legitimate, a few years ago in the housing boom there were a number of unscrupulous mortgages that have since disappeared.

The most common and the most popular mortgage is the fixed rate mortgage. Fixed rate mortgages are pretty basic in that you pay your loan off at a set percentage range for a predetermined period of time, typically 15 or 30 years.

Fixed rate mortgages are popular with the masses because it’s simple with standard interest rates and payments that never change throughout the life of the loan. It depends on the mortgage company but these loans are fairly stable and are very predictable.

The 15 year fixed rate mortgages are popular with many because they build equity much quicker and the interest rates are lower than the 30 year loans.

The 30 year fixed rate mortgages are popular because the longer term spreads the payments out and makes it possible for the borrower to afford a higher priced home and have lower monthly loan payments.

There are advantages and disadvantages to both 30 and 15 year fixed mortgages but this type of mortgage, the fixed rate mortgage, is by far the most popular with both home borrowers and home lenders.

What is an Acceleration Clause

November 18th, 2009

An acceleration clause in a mortgage gives the lender the right to demand payment of the entire loan balance or perhaps require some other form of collateral which would defray any losses they may experience or fear they may experience.

Acceleration clauses are designed to protect lenders from landing in a situation where they lose great sums by supplying someone with a mortgage. It is not a clause designed to screw over the property buyer and the lender will not enforce the acceleration clause unless certain situations arise. Some of those situations include a loan default, the title is transferred to another person, the taxes aren?t paid, or the breaking of loan covenants. Each situation is a little different and the lender has the discretion whether to enforce an acceleration clause or not.

If there is an acceleration clause in your mortgage agreement this isn?t a reason to balk at the agreement. Unless you plan on defaulting or committing some other faux pas against the mortgage covenants then you probably will never run into a situation where the acceleration clause is called into effect. Remember the acceleration clause is a form of insurance for the lender, it is not designed to harm the buyer.

Is now the Best Time for a Mortgage?

October 20th, 2009

Some people believe that now is the best time to buy a home because of the mortgage products that are available. In other words, low interest rates can make the home buying experience much more enjoyable; not to mention more affordable. But does this mean that you should rush ahead and buy a home?

There is no denying that interest rates are very competitive. For a 30 year fixed rate loan, a consumer with good credit can secure a rate of around 5 percent. For a 15 year loan, the rate dips below 5 percent and may touch 4.7 or so. As you can imagine, these rates can save you a lot of money in the long run.

Of course, lenders are tightening their belt and only offering loans to consumers who are able to repay them ? this was not always the case in the past. You only want to secure a mortgage if you are comfortable with the monthly payment and in the market for a home. In other words, don?t let the mortgage market dictate when you buy a home. There is more to the buying process than securing a low rate.

In short, now is a good time for a mortgage but only if you are 100 percent sure that you want to buy a new home.

photo credit:?woodleywonderworks

Do you need to work with a Mortgage Broker?

October 12th, 2009

Taking out a mortgage to buy a home is very common. Most people do not have the cash on hand to pay in full. The question is: how are you going to find the best mortgage for you and your home? This is not always easy to answer. Some people turn to a mortgage broker for help. Others like to do everything on their own. Whether or not you work with a broker is up to you. You should know the pros and cons before hiring or turning down a broker.

The job of a mortgage broker is simple: to find the homeowner the best mortgage product available. The benefit of using a broker is that he can show you what is out there, while also searching far and wide for the loan that is best for somebody in your position.

But can you really trust a mortgage broker? A broker gets paid by the lender when your business is sent to them. This means that a broker, in theory, can push a particular mortgage to earn more money. Most brokers are trustworthy and would never do this, but it is hard to know for sure.

You are not required to work with a mortgage broker. If you want to learn more about the benefits of doing so, hire a broker and see what they have to offer. Remember, you are not required to do what the broker says ? they are simply available for help. It is up to you to decide if choosing a mortgage through a broker is in your best interest.