FHA Mortgages

FHA mortgages are the most common type of mortgage. See if this type of mortgage is right for you

Moving on in our series, one of the most popular and most recognizable is the FHA mortgage. This type of loan is obtained from a regular institutional lender, such as a bank or credit union. The lender is insured against loss on the loan by the Federal Housing Administration (FHA). An (FHA) loan can be a fixed-rate mortgage or an adjustable rate mortgage.

Advantages: If you have sufficient income to make mortgage payments, you can get an FHA loan for anywhere from 95%-97% of a homes cost. And, with a fixed-rate FHA loan, your home may be–

  • Much easier to sell at a big profit: FHA loans are assumable. So, if interest rates are way above your mortgage interest rate when you sell your home, any buyer who assumes your loan, automatically gets a big bargain. As a result, you can charge a premium price for your home

Disadvantages: You pay premium for the FHA mortgage insurance. Also, it takes just a little bit longer to get an FHA loan than it does a conventional loan.

 

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The Growing Equity Mortgage

The Growing Equity mortgage {GEM} for short, is truly a GEM. Find out if this type of mortgage is right for you.

As we continue on in our mortgage series, today in the spotlight is the growing equity mortgage. This is sometimes called “the rapid payoff mortgage,” we will call it GEM for short. The GEM has a fixed interest rate. However, monthly payments increase year by year. This increase may be determined in advance or be tied to a financial index like the flexible.

Unlike a flexible, the GEM is systematically amortized by these increases. Every cent of the mortgage payment increase is applied to repaying the principal.

Example: Suppose you opt for the GEM mortgage for $40,000 at 12% interest. First-year payments for principal and interest are $411 a month. Second-year payments are $461 a month–$50 more.

That $50 extra is applied 100% to paying off the mortgage principal. Monthly payments go up by $50 each year. This rapid payoff of principal means that less of the “base” $411 goes for the interest (since there’s less of a loan outstanding).

Money-Saving Result: A GEM is paid off within at least half the time of a fixed-rate loan, with a considerable saving in interest costs. A 30-year GEM, may be repaid within 13 to 17 years, depending on the payment increases.

If you like the GEM concept and think it may be for you, try getting one where the increases are determined in advance. This type of GEM is more easily budgeted for than one tied to an index.

 

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Graduated Payment Mortgages

If you are a young homebuyer or don't have much to spend towards housing right now but expect your income to increase. A graduated payment mortgage may be just the right mortgage for you.

Graduated-payment mortgages {GPMs} are great favorites among young homebuyers who expect their income to increase steadily in the coming years. Typically, these younger buyers can’t spend very much on housing at the time they apply for a mortgage. This is a long-term, fixed rate mortgage, but the actual interest cost is not reflected in its initial payments.

For the first year, the monthly payments are unusually low, perhaps $150 below those of a fixed-rate loan for the same amount. The next year, the monthly payment increases and continues to increase each year for the next five to ten years. It then begins to stabilize for the life of the mortgage. The stabilized amount us higher than the payment on a fixed rate loan to make up for the initial difference. But, buyers with rising incomes should be able to afford the higher amount.

Money-Saving Move: Take out a GPM during a time when interest rates are high. This will allow you to take advantage of its extra low payments as long as you can–then pay it off with another loan when rates drop. Or take out a loan that combines the features of the GPM and the flexible (many lenders offer such mortgages). These combination loans operate as GPMs initially, then become flexibles with rates tied to the market.

Homebuyers whose jobs require them to move every few years should find a GPM and economical way to buy a home.

What do you think about the GPM? Have you ever heard of such? Let me know in the comments below. Do you think this is the type of mortgage that would work for you? Stick with this series, I have a few more types of mortgages that you may or may not have heard of.

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Flexible Rate Mortgages, Are They Right For You?

Flexible rate mortgages can be tricky. Find out if they are right for you

 

Continuing with our series, Fourteen Ways to Finance Your Home, let’s talk about flexible rate mortgages. One question, are they right for you? These loans go by several names — “flexies,” “adjustables,” “ARMS,” “floaters”– but they share one common trait: NO FIXED RATE. The lender increases and decreases the interest rate periodically, according to the fluctuations of whatever financial index that is agreed to by the borrower. Since the flexible is a long-term loan, it is renegotiated periodically and “rolled over” at the new rate, with a new payment.

Here’s an example: Taylor gets a flexible rate mortgage that offers these terms: The first year, he makes mortgage payments based on an interest rate 1/2 of 1% below today’s going mortgage interest rate. A year later (and every year after), payments are adjusted to reflect changes in the mortgage rate — up or down.

There are many variations: Some flexibles provide that mortgage payments won’t be adjusted by more than a fixed dollar amount during each adjustment period. Others “cap” the interest-rate changes that can be made during each adjustment period.

Advantages: Lenders almost always offer these loans at an initial below-market rate. Interest -rate drops must be reflected too. There is no fee for renewing a flexible and no penalty for paying one off ahead of time.

Disadvantages: If interest rates head upward after you buy the home, your monthly payments will go up too. This adds an element of uncertainty to the biggest single component of your budget. Even worse, with some flexible rate mortgages, all of your monthly payments might be allocated to interest in high-cost periods. The result of this is that you do not build equity in your home.

Money-Saving Move: Shop around among lenders before taking out any kind of flexible rate mortgage. Learn about the various indexes that lenders use to determine rate and adjustments. Find a lender that uses the least volatile index to determine the changes in your interest rate. Learn what is involved when the lender promises you “caps” on interest and payments.

You could get a bargain by taking out a flexible rate mortgage with a below-market rate with frequent adjustments during a time of falling interest, but it is a gamble.

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Fixed Rate Loans What You Should Know

Buying a house and don't know the first thing about mortgage loans? Find out if a fixed rate loan is right for you. Here's what you should know about a fixed rate loan

Financing a home can be almost as complex as finding the right home. There’s a bewildering variety of methods to choose from. In this series, Fourteen Ways To Finance Your Home, we will explore those methods. In our first installment, we will review fixed rate loans. We will review the advantages and disadvantages of all fourteen ways.

Fixed Rate Loans

This mortgage remains the first choice of at least half of all homebuyers. It is also the least complicated, and that is why I chose to start with it.

How it works:

You get a first mortgage from a bank or credit union for 60%-80% of your purchase price (depending on the lender and your ability to make payments). The mortgage lasts anywhere from 15 to 30 years and is fully paid off at the end of the term. Each mortgage payment is the same dollar amount.

Big advantage: A fixed rate loan offers you certainty and security. You know how much you will spend on mortgage payments from now until the mortgage is paid off.

Disadvantage: You may lock yourself into a high-interest rate mortgage. The longer your mortgage runs, the higher your total bill for interest.

Money Saving Moves: Put down as much cash as possible to cut down the amount of the mortgage. If mortgage rates fall substantially during ownership, you may be able to refinance to get a new first mortgage at a lower interest rate. You can also save big money by prepaying your mortgage.

When you prepay your mortgage, you increase your mortgage payment by a few dollars each month (or as often as you would like) and apply this extra payment to the principal, not the interest. Reducing your principal regularly this way cuts years off your mortgage term and slashes thousands of dollars off your total interest bill.

 

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How To Boost Your Chances Of Getting A Home Loan

Are you thinking of purchasing a new home in 2018? These tips will boost your chances of getting a home loan

Homebuyers can generally boost their chances of getting financing at terms they can afford by taking the following steps.

1.Consolidate all bank accounts

Consider putting all of your funds into the lending institution you have dealt with the most and longest. This may enhance your chances of getting a loan at favorable terms at that bank. Naturally, you should make this move when you feel ready to start househunting. Don’t wait until you have applied for the loan. If a relative is helping you out with a cash gift, deposit it in an interest-paying account at that bank. Also, go ahead and get the letter from that relative stating that the money was a gift. You will need that down the line.

2. Cut Down On Your Debt

You may be spending too much or your income on items you can do without. For example, if a large portion of your paycheck is going to pay off two cars, consider selling one car. Take other steps to reduce debt before applying for a home loan.

3. Follow This Checklist

Here are the facts a lender will need to know when you come in to apply for a loan. Saving time can often save you money; so make sure you have all of the following data ready:

  • If you are married, yours and your husbands job history, complete with past as well as present employers, duties of said jobs and above all the salary. If you are not married then have all of this info available for yourself
  • The total amount of cash the family now has on deposit and where, if it is not at the financial institution where you are applying for the loan.
  • All additional income, such as stock dividends, interest on savings accounts, etc.
  • The value of any real estate you own, including its location, condition, and the length of time owned.
  • The current depreciated value of any of the family car or cars
  • The current value of any other major possessions.
  • The face and the cash value of any life insurance policies, and the name of the company that wrote them.
  • The total amount of all outstanding debts, including home mortgage, car payments, credit card charges, department-store bills, as well as the amounts paid regularly on each.
  • Personal and credit references, complete with names, addresses, occupations and phone numbers.

4. Consider Getting A Longer Pay-off Time

The longer your loan, the lower your monthly payments. Say you need to borrow $60,000 at 13% interest. Your monthly payment on a 20-year mortgage will be $703.20 or $8,438.40 per year. But your monthly payments on a 30-year mortgage–same amount, same interest–will be $663.60 or $7963.20 annually, a saving of about $475.00 a year. Of course, your total interest cost is going to be higher over the longer term. Be sure to take that into consideration before you decide. If you don’t expect to live in the house very long, the 30-year mortgage may be the better choice.

Over the next 14 day’s, this series will cover fourteen way’s to finance your home. So, if you are in the market to purchase a home, this series is for you. See you right back here tomorrow for the first way.

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6 Effective ways you can simplify your financial life

Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger who has started her own blog and also works as a contributor for the Oak View Law Group. Please share your opinions by commenting below.

Everybody says, declutter your finance to ensure a secure financial future, but nobody says how to do that.

Well, it is true that the simpler your financial life is, the more secure financial future will be.

But, the problem is, finance is one of the most complicated subjects in our life. It is not easy to make it simple. You need to be determined first before simplifying your financial life. Because you may need to follow some ways that can be difficult at the beginning.

Here are 6 ways you can simplify your financial life easily:

1. Consider a frugal lifestyle

Frugal living is the process that helps you to learn live on less. It doesn’t mean that you will have to give up all the luxuries of your life. Frugal living is about getting the maximum value for your money. Being frugal doesn’t mean that you’re depriving yourself, or you have to sacrifice all stuff you like. It is just giving up the impulse buys and trying to lower the expenditures wherever possible. You will also be able to learn how to differentiate between the needs and wants. Often people get into the mindset of impulse buying for pleasure or minimize the stress level. Being a frugal person, you can become a wise spender and will no longer find happiness in impulse buying. This way, you can become a financially responsible person.

2. Cut down multiple credit cards

Credit cards are the convenient tools that can be used to buy things easily. These days, reward credit cards are becoming popular among people. To get bonus points, cash back and rebates, people are now a huge fan of reward credit cards. But, do you know that these reward cards are nothing but marketing gimmicks created by the credit card companies to force people to become impulse buyers?

Thus, it is advisable to cut down multiple credit cards. Use your credit card only when you are sure that you can make the payment within the stipulated time. By doing so, you will be able to avoid accumulating painful credit card debts. Thus, you can move ahead to a peaceful financial life.

3. Use cash as much as possible

Today’s technology makes our life cashless, which is not a bad thing. We are using e-wallet, online banking services, online shopping etc. to make our life more convenient. But going cashless doesn’t mean you can spend money meaninglessly. Sometimes, virtual banking or shopping makes people forget about their affordability. As I said in previous points, people use credit cards randomly without knowing how they can repay the bill on time. Thus, most of the financial experts now recommend people to use cash whenever possible.

Cash plays a vital role to simplify your finances. If you are an impulse buyer, who always fails to stick to the shopping list, then next time carry cash that you would need; doing so, you will not overdo with shopping. Because, when you have a certain amount in your wallet, you know how much to spend. If you can’t resist buying a thing and you see you don’t have enough money in your pocket, you will not be able to buy that. This way, you can stick to the shopping list that you are supposed to do without going spendthrift.

However, it is true that carrying cash is risky to some extent. But, you can use checking account where you can deposit the cash and use whenever you need.

4. Build an emergency fund

Why will your financial life get messed up every time? If I am not wrong, every time when an unexpected emergency came in the past like your son broke his leg, car died, thermostat needed a replacement, you were like “where to get money”. To overcome the situation, either you used your credit cards or took out the costly payday loan.

Thus, you may meet the financial need but you dug the debt hole.

I am not saying that using a credit card for a definite purpose is wrong, but if you don’t make the payments on time, you will be in debt soon, as I said earlier.

Payday loans are more dangerous; they come with high-interest rate and you have to pay back the money after you get your next paycheck. If you don’t, you will be in debt cycle. In addition to this, most of the online payday lenders are tribal or illegal; they can grab your personal information to pull out all the money from your bank account.

Thus, it is advisable to nurture an emergency fund to combat with all the emergencies that come your way. If you lose your job or want to switch a job, the money in your emergency fund will give you a sense of confidence. You don’t need to take out a loan or accrue debt to meet your needs.

However, you should have at least 3-6 months salary in your emergency fund to strengthen your financial backup.

5. Pay off all your debts

Debts are messy and clutter your financial life. Thus, you should pay them off to simplify your financial life. Well, accumulating debt is easier than paying them off. To do so, you have to follow some debt relief strategiesDebt payoff strategies are not simple, you may feel overwhelmed. Thus, it is important to analyze your debt status and income before choosing a debt relief method.

If your life is too stressed out for multiple debts and you need to get rid of them soon, then go for debt consolidation or settlement. However, to do so, you need to have a good income flow.

If you have debts that you can manage yourself without taking help from professional debt relief companies, then you can go for debt avalanche method.

In this method, you need to target the highest interest rate debt first. Make more than the minimum payments toward the highest interest rate debt while making the minimum payments on rest. Continue the process until all the debts are paid off.

By doing so, you don’t need to pay the fees to a third party company to get rid of debts.

6. Save money rigorously

The more money you save, the less financial worry you will have in your life. And the less financial worry, the easier to simplify your financial life.

Thus, financial experts say that you have to save money, since it is important to secure your financial future (like retirement), fund your child’s education, and pay your medical bills.

So, try to lower unnecessary expenditures to save your hard-earned money.

Contribute to a 401(k) account for retirement, open a 529 college savings plan for your child education, and nourish an HSA (Health Savings Account) for medical cost.

Also:

  • Save money by using coupons.
  • Set aside a certain amount from your monthly budget.
  • Try to save money on food by using the leftovers to make a new dish and eating at home.
  • Save money on gifts by making DIY goodies.

These are all small initiatives that create an effective impact to simplify your financial life. Try them out and let me know how they work.

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Month 6 Review What You’ve Done

You have made it to month 6, now it is time to review what you have done in the past 5 months. Write out all of your accomplishments. Redo net worth and cash flow worksheets using your current information. Compare the results with those from when you began six months ago. You will feel better knowing you are in control of your money and financial life. That provides the motivation to make your money diet an automatic part of your life. Now you won’t mind getting on those money scales we talked about in month one.

Join me tomorrow for a guest post from another personal finance blogger and after that, we will move to home buying tips for the rest of #bloglikecrazy

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Month 5 Insure The Future

Make sure you and your assets are protected. Insure your future

 

The best financial plan can be ruined if catastrophe strikes. I’m sure you don’t want that after all this hard work you have put in getting on track. You have to protect your income and assets with insurance. You must insure the future at all costs. Here are a few types of insurance you may want to invest in.

Disability

Buy as much disability insurance as you can afford. Be sure the policy provides benefits until you reach the age of 65 or for life. Make sure that it covers you if you can’t work.

Life Insurance

Nothing disturbs me more than to see a go fund me account for burial expenses. I don’t care how old you are, you need life insurance. If you have children, they need it too. The rule of thumb is to have coverage that equals five to seven times your annual income.

A term policy is often best for people in their 30’s who have young children and need a lot of coverage but don’t have a lot of money for premiums. Term insurance will cover you for a set number of years but gets more expensive each time you renew the policy.

Cash-value insurance is ideal for those who can afford coverage for 20 years or longer. Part of cash-value premiums grows tax-deferred.

Homeowners Insurance

This policy should cover what it would cost to replace your home and personal property now. Don’t own your home? No worries, get renters insurance. This will at least cover the contents (your belongings) of the house or apartment you rent.

Automobile Insurance

Liability coverage is key, so make sure you have enough. This is the mandatory coverage set forth by your state. For both comprehensive and collision coverage, take the highest deductible with which you feel comfortable.

Consider dropping comprehensive and collision if your car is more than 5 years old and has lost most of its value.

Estate Planning

If you don’t have a will, a power of attorney and a living trust, see an estate attorney. Preparation costs range from $500 to $2000 or more, depending on the complexity of your estate. If you already have these documents, review them and make any changes needed to bring them up to date.

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Month 4 Taxes And Investments

Save on taxes and invest conservatively in month 4. Learn how to make your money work for you

 

Continuing with our seriesSix Months to Financial Fitness, we’ve moved to month 4 where we will take a look at taxes and investments. This is a simple task for month 4 but is very necessary. This month, I want you to review every item on last year’s return to see how you can cut your taxes.

Taxes

Keep track of deductions, especially those for cash expenditures, such as mileage, faxes, photocopies and charity. It all adds up and every little bit is a big help.

Contribute the maximum to tax-deferred retirement plans.

Investments

Consider your investment strategy. If you’re intimidated by the market, start with an index mutual fund. One that conservatively invests in stocks in the S&P 500. You can move on to other kinds of mutual funds later.

Be sure to come back tomorrow for month 5 where we will talk about insuring your future.

 

 

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