- What are my loan choices?
- When should I refinance?
- Can I get a loan to buy a house if I have filed bankruptcy?
- If I co-sign a loan for a friend or a child what impact does this have on my ability to get a home loan?
- Can I use money in a 401(k) or employee savings plan towards a down payment on a home?
- Are closing costs tax deductible?
- Is a home equity line of credit considered a second mortgage?
- I have many credit cards which have zero balances. Although I don't owe anything on these cards, can this be detrimental in getting a home loan?
- When is mortgage insurance required for a loan?
- Is it a problem if my loan is sold to another lender?
- When would I use an ARM or Balloon mortgage over a fixed rate mortgage?
- What is a No Income Verification mortgage?
What are my loan choices - While it is best to have a mortgage broker provide an assessment of your financial situation in order to determine the best mortgage option, here are a few of the most common mortgage loan choices.
Fixed Rate Mortgage:
The 30 year fixed rate loan is by far the most popular home loan. It spreads the
cost of a home including finance charges over 30 years, with a fixed monthly payment for
the life of the loan. While few homeowners stay in a home for 30 years, this loan is
preferred for its unchanging rate and payment.
Other fixed rate options include the 10 year, 15 year and 20 year fixed rate loans. These loans pay off sooner due to their slightly higher monthly payment and generally carry a lower interest rate that the 30 year fixed.
"Balloon" Mortgage:
The balloon mortgage is very similar to the fixed rate loan with a twist. This loan
is amortized over 30 years and has a regular monthly payment, but ends after five or seven
years. At that time, the homeowner must pay off the loan or refinance it at current
market rates. Some balloon loans may even "roll over" to a fixed or
adjustable rate for the remainder of the 30 year term. The primary advantage of this
type of loan is the lower interest rate. It is an attractive option for homebuyers
who plan to sell their home before the five or seven year term is up.
Adjustable Rate Mortgage:
As the name suggests, the interest rate on an adjustable rate mortgage changes over time.
While the terms for adjustable rate mortgages vary considerably, their primary
benefit is a lower payment in the early years of a loan. Adjustable rate mortgages
start with an initial fixed rate. This fixed rate period ranges from 6 months to 10
years. At the end of the initial fixed rate period the interest rate will adjust -
generally based on 2-3 interest points above the 1 year Treasury Bill rate.
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When should I refinance - With a number of "no closing cost" programs available, a 1/4 to 1/2 point drop in interest rates may make financial sense to refinance. Under these "no closing cost" programs, you do not have to pay for items such as: appraisals, document processing, underwriting, title insurance; or other closing fees. Although, you are responsible for any prepaid interest (this is the interest charged from the date that you close your loan to your first new mortgage payment) and prepaid items (such as your escrow of taxes and insurance, if applicable).
If you are a homeowner with a loan balance of $180,000 and
an interest rate of 7.75%, and you have the option of a "no closing cost"
refinance at 7.25%, that would translate into interest saving of approximately $900 the
first year alone. If it isn't going to cost you anything, why wouldn't you want to
refinance? If interest rates move back up and you didn't refinance, then you've
missed the opportunity for that savings. If interest rates move down, then you can
"no closing cost" refinance again at the new lower rates.
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Can I get a
loan to buy a house if I have filed bankruptcy - Yes, you can get a loan
if you have filed bankruptcy. Lenders generally require that the bankruptcy be
discharged for two years before a loan is made. Lenders will also require that the
applicant has re-established credit with major vendors such as Visa, Mastercard, or an
auto loan. Department store credit does help, but does not meet the requirement for
reestablishing credit. How many years of credit do I need to have to get a home
loan? Lenders will want to see an established track record of responsible credit
history, usually two years is required.
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If
I co-sign a loan for a friend or a child what impact does this have on my ability to get a
home loan - The lender will count the obligation as a debt against you
when calculating the debt to income ratios for qualifying purposes. Providing the
lender with 12 months of canceled checks demonstrating the payments are being made by the
person you co-signed for will be an offsetting factor to the debt against you. The
obligation of the loan will be considered in the debt to income ratios for qualifying
purposes.
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Can
I use money in a 401(k) or employee savings plan towards a down payment on a home
- Most 401(k) plans will allow for a loan against the savings plan, please check with your
plan administrator for the details and availability of the loan and the repayment
provisions. The mortgage lender will need to know the amount owed, repayment term
and monthly payment.
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Are
closing costs tax deductible - Some, but not all, of the fees paid to
get a home loan are tax deductible. The points, prepaid interest and prepaid taxes
are generally deductible.
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Is a home
equity line of credit considered a second mortgage - Yes, a line of
credit is recorded as a lien against the property for the full amount of the credit line.
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I
have many credit cards which have zero balances. Although I don't owe anything on
these cards, can this be detrimental in getting a home loan - Yes.
Lenders use a credit scoring system that will consider the open credit that is
available to you. The amount of open credit available can actually lower your credit
score.
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When
is mortgage insurance required for a loan - When the buyer puts down
less than 20% for a down payment, the lender will require mortgage insurance. The
insurance protects the lender in the case of default. Lenders view a lower than 20%
down payment as a higher risk loan. Using an 80%-10%-10% strategy is one method of
purchasing a home with less than 20% down without being subject to mortgage insurance.
It's generally best to have a loan officer explain the different financing
options to determine which program works best for you.
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Is it a problem if
my loan is sold to another lender - No. Most lenders sell loans in
the secondary mortgage market, thus the practice is quite common. You will be
notified of the transfer by the existing lender and also by the new lender. Read all
correspondence regarding the transfer carefully to avoid sending payments to a wrong
address.
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When
would I use an ARM or Balloon mortgage over a fixed rate mortgage -
Adjustable rate mortgages and balloon mortgages are best used when you are looking to
purchase a home and you anticipate moving or upgrading to a another or larger home in the
future (such as first-time homebuyers and families that move often due to their employer).
ARM and balloon mortgages with 5 or 7 year fixed terms may provide the stability of
the fixed rate and provide lower monthly payment and reduced interest costs over their
respective terms.
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What
is a No Income Verification mortgage - The No Income Verification
mortgage or NIV is generally used by people with good credit histories who do not wish to
document their incomes. The income is "stated" but not verified, and this
program is ideal for the self-employed borrower with complicated tax returns and financial
statements.
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