Home buying

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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