Mortgage Financing Info
5% Down Vs. 10% Down - A ComparisonThere has always been an issue for home buyers about saving down payments. On advice from various people, many people wait to save 10% rather than moving into the home right away with 5% as the down payment. This isn’t necessarily a good idea, however. Example: There are two young couples, the Smiths’ and the Jones’. Both couples have the same amount of money to spend on housing, and on saving. From the $1000 they have saved, they are both paying $750 per month for rent, and saving the other $250 for their respective down payments. Both couples are looking for buy a property for $100,000. If they purchase at 5%, they will need a $5,000 down payment. If they decide to purchase with a 10% down payment, they will need $10,000. Because both couples have already to date saved $5,000, the Jones’ couple has decided to buy now and only pay the 5% that they have saved. The Smiths’ however, have decided to wait until they can raise the full 10%, hoping to save some CMHC costs in the process. What the Smiths’ are not realizing is that the cost of the property will continue to increase while they wait to save the money. This is going to increase the amount of money that is needed for the down payment as a result. They also are not taking into account the fact that the rent they are paying is being thrown away, instead of being put toward their mortgage. Saving CMHC fees is a good idea, but not necessarily the right way to go. Let’s say it takes the Smiths’ an extra two years to save up the 5% they are missing: The property could have increased in price by as much as $15,000 in that time. This means the down payment will be more, and the mortgage will be higher than if they had purchased earlier. Mortgages & Home Ownership CostsThough the cost of your mortgage is the largest part of your monthly housing payments, it is not the only expense that results in monthly payments. There is also hazard insurance, home ownership association dues(Where they apply), mortgage insurance and property taxes. Hazard Insurance is a policy which is aimed at covering any damage to your property. The lender usually prefers that you have a hazard insurance policy in order to protect their collateral for as long as you have a mortgage. If anything happens to your home, like it is damaged or destroyed – Then the hazard insurance will help the lender get their money back on the loan. Home Ownership Association Dues: Borrowers who live in condominiums or managed communities need to pay these dues, as they make up the cost of maintaining common areas, and up keeping the area by mowing lawns, trimming trees, etc. Mortgage Insurance: This is a charge that some lenders impose on loans that are higher risk and made for more than 80% of the property’s value. This charge is generally added to the monthly mortgage bill. Property Taxes: These are not meant to be due monthly, but typically many borrowers decide to include property taxes in their monthly payment. Depending on the property tax burden for your specific property, you may opt to include property taxes in with your mortgage payment every month. Though in some states the property tax is not allowed to increase, there are areas where you may run the risk of a property tax increase over time. It is imperative that you consider all aspects of your total monthly housing expense before purchasing your property. What Kind Of A Mortgage Do I Need For Short-Term Investments?There is a wide range of different mortgage programs available to borrowers today, including loans that range from minimum payment option loans, to thirty year fixed interest loans, and fifty year mortgages. Two key features for a short term investor when applying for a mortgage include:
Borrowers can get a mortgage with a fixed interest rate for anywhere between a month and thirty years. The term for the fixed interest rate can be for one year, three years, five, seven, ten, thirty or other terms. The fewer years that the interest rate is fixed for, the lower the interest rate will be, because the interest rate on a one-year fixed rate mortgage tends to be less than the interest rate of a thirty year fixed mortgage. If a borrower is planning to buy property for a short term period only, he or she ought to get a loan that is only fixed for a short period of time. If a borrower is playing to buy a property as a personal residence, but only plans on being in the home for two years, a loan that is fixed for three or five years would be ideal. This way, the borrower will not be exposed to any interest rate risk for the entire time he or she plans to own the property. Mortgages also occasionally come with prepayment penalties, especially loans that offer no closing cost options. These prepayment penalties can last for several years, so a borrower that plans to flip a property should avoid these penalties when possible. Mortgages with 90 Days of No PaymentsThe newest available loan is a payment feature of a minimum payment option loan. This loan provides the ability to skip 90 days of payments, which is added onto a regular minimum payment option loan. However, your principal balance may still increase while you are not making payments. This is acceptable for many borrowers, though not for everyone so make sure to consider it thoroughly before making this decision. The minimum payment option loan is also known as a cash flow adjustable rate mortgage. The basic idea behind this, is that borrowers are given a choice of the payment size made each month rather than only offering one payment choice as standard mortgage bills do. Available payment choices are typically: Minimum payment, interest-only payment, 30-year term level payment, and 15-year term level payment. The minimum payment option is lower than the interest-only payment option. The borrower is offered a much lower payment than with a regular mortgage payment, and a borrower can save as much as $1,000 per month doing this. The minimum payment option is typically only available for a few years at the start of the mortgage. After around five years, the loan becomes a regular loan once again. Minimizing Closing CostsSome lenders offer the borrower to have a no closing cost, or flat fee closing cost. What this means, is that the borrower accepts a higher interest rate instead of paying for all of the closing costs. However, this loan option also more often than not comes equipped with a prepayment penalty that may last for several years. Technically, you aren’t minimizing costs as much as simply rolling them into the loan in the form of a higher monthly payment. For a borrower who intends to keep their loan for a long amount of time, it may make more sense for the closing costs to be paid up front for a lower interest rate and monthly payment. But for borrowers who do not plan on keeping the property for very long, it may make more sense to use the no closing cost or flat fee options. What Are Notary Fees In A Mortgage?The Basics of Notary Fees
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Credit Score for Mortgage Loan: For a Good Mortgage Loan What Should My Credit Score Be?One of the most essential aspects of your mortgage loan, that you control, is your credit score. You can qualify for a mortgage even with a low score; you will just pay more for it. Below are some tips to improve your credit score and be eligible for the best mortgage loan. Your credit reports contain the keys to your credit score. Three credit agencies keep up records on you, and these records may contain errors. Your credit score will suffer if you have mistakes or negative information in your credit reports. Obtain copies of your credit reports from all three credit agencies before you do anything else and review them vigilantly for errors. If you discover errors you need to dispute them with each credit agency. Negative information has a destructive consequence on your credit score. You need to make contact with the creditors and negotiate to have this information removed if you have negative information on your credit report such as judgments or write-offs. Your credit score will rapidly bounce back once this information is out of your credit reports. The final step to rebuilding your credit score is to put together a history of making on payments time. Late payments impact negatively on your credit score and you must have at least six months of on time payments before applying for a mortgage loan. Mortgage lenders have varied requirements for credit scores, depending on the loan offer you are applying for. One lender might call for a minimum credit score of 620 while another will require 660 for an equivalent loan. This is why comparison shopping from an assortment of mortgage lenders and brokers will assist you to qualify for the best mortgage interest rate. Notary Fees In A Mortgage, What Are They?Notary Fee BasicsA notary public is frequently the person who notarized your loan documents. There is a heap of paperwork that requires completion, as anyone who has ever done a mortgage can tell you. The paperwork may include the identification paperwork, disclosures, lender’s loan note, riders, and any other lender or government required paperwork. This is usually because a real estate transaction is an intricate process where lots of paperwork must be updated with the lender and the government. The borrowers on the loan are required to have proper identifications, and property must be transferred to the right parties. Mistakes will cost massive amounts of money in the future. Notary fees are typically around $150, and many notaries will ease the process by bringing loan documents to your place of work or home. What To Watch Out ForConfirm that the signing process is thorough. Double check all documents since it is easy to miss a signature on a document. This will delay the entire loan process. The notary may be inexperienced doing mortgage signings. These are often complicated. Someone with experience doing this before is preferable. The notary is sent by the escrow company to complete the paperwork. Any corrections to the paperwork will normally have to be done with a notary. What Are My Cash Reserve Requirements?Mortgage LoansMortgage lenders will often approve a purchase mortgage or a refinance loan and make the loan conditional upon several loan conditions. Cash reserve requirements may be one of the most critical factors. A cash reserve is a specific amount of money a borrower needs to demonstrate they have readily available in order to obtain a new mortgage loan. This might be defined in terms of months – such as 2 months reserves or 3 months reserves. Every month of reserves represents the total monthly cost of owning the property – the mortgage expense, home owner’s association dues, hazard insurance, property taxes, and other expenses. The lender will calculate what these expenses will be for the future if they approve your loan. Cash ReservesCash reserves are defined in different ways. All money in a bank account is considered as a cash reserve. Retirement assets, such as IRA and 401(k) assets, will also be treated as cash reserves, but are normally valued at only 70% of their value because these are not liquid, readily available sources of money. Numerous borrowers may not have a large amount in their bank account but have large savings in their retirement accounts. Frequently they may be able to make use of these retirement accounts to document their income. What Are Sub Prime Mortgage Lenders?Mortgage LendersLenders appear in a variety forms. Your local bank where you have a checking account will likely also offer mortgage loans. Also you can obtain mortgages from special mortgage lenders, credit unions, or through a mortgage broker. Different LendersLenders are very different in how the treat borrowers. A number of mortgage lenders generally focus on borrowers with good to great credit. Some mortgage lenders work with different credit types and although they may try to work with borrowers who have bad credit, now and then their lending rules are not flexible enough to approve the loan. Sub-Prime LendersSub-prime lenders center on people with tricky credit. They include loan programs and guidelines that can handle these types of situations. They will try to make your loan happen, if they can, unlike lenders where your loan will be rejected outright. You can deal with a sub-prime lender on the internet, over the phone, or in person. There are countless competing sub-prime lenders to choose from. Some specialize in people with extremely low credit, such as those with 500 FICO scores or less. A sub-prime lender as a rule charges higher interest rates than other mortgage lenders. This is to compensate the lender for the extra risk of lending to a person with bad credit. Sub-prime lenders are more often than not more flexible about documentation. They might do a phone verification of employment rather than reviewing pay stubs, or using an employment verification form. What If My House Is Too Expensive?Property CostsYour property costs include many things and not just your mortgage but also property taxes, hazard insurance, home owner association dues, and any other house-related expenses. Over time, your property tax burden may increase as the appraised value of the property increases. You might also be subjected to special tax assessments on your property. Increasing CostsYou may have an adjustable mortgage loan and your monthly payment has increased considerably. These increases in monthly payment can now and then be $1,000 or more per month. Your Options To Fix ThisThe most basic option is to sell the property and be rid of the problem entirely. You will have to decide if you can live in a property that is not as costly. You can also choose to refinance into a lower payment mortgage. This can include an interest only mortgage, where you pay interest only and have a lower monthly payment. You can obtain loans that are interest only with a fixed interest rate for 10 years. The minimum payment option loans permit the borrower to pay even less than interest only loans. Any payment less than the interest only amount will be added onto the principal of the loan. The monthly payment, however, is usually far lower with this loan than any other type of loan. Scores of lenders allow a borrower to refinance a property even the day after they purchase the property. They will characteristically not let you cash out any increase in the value of the property but they will let you to get a new mortgage with a lower monthly payment. How To Compare Mortgage Closing CostsGetting StartedThe first step is to apply for a mortgage. There are many available mortgage sources, and you can apply at one or several. You can apply with either mortgage lenders, or mortgage brokers as one isn’t necessarily any cheaper than the other. Banks tend to fleece potential borrowers when it comes to mortgage loans, so even when they seem like a friendly neighborhood bank, they are more than likely worth avoiding. It is important to evaluate each individual loan offer one by one. You should receive a “Good faith estimate” within three days of applying for each loan. This estimate is not a guarantee of what the closing costs will be, but is meant to be an accurate ballpark figure. Closing costs include lender and broker charges, as well as third party charges like title, escrow, insurance and taxes. These third party costs tend not to be controlled by the lender/broker. It is important for you to compare offers for similar loan types and terms, make sure to compare 30 year fixed rate mortgages to other 30 year fixed rate mortgages, because too many terms will be different if you compare dissimilar loan types unless they are from the same lender. No closing cost options typically equal higher interest rates. People doing cash out refinances should not have any trouble with this, because it maximizes the amount of cash they receive up front. But people who are refinancing for other reasons should consider paying the closing costs up front instead. NegotiateOffers themselves are not final, because interest rates change daily. You may be able to find a better deal if rates begin to decline, even after you’ve received an offer. It is also worth talking with lenders to see if any of the fees involved in the mortgage process are negotiable. Find the Right DealMake sure never the bluff about untrue competing offers when negotiating for the right deal, because brokers and lenders keep up on interest rates and will know if you are being dishonest. It is wise to compare different offers to decide which combination of interest rate and closing costs is right for your individual situation. Lower rates are necessary for borrowers who plan on keeping the property for a long time. Lower closing costs are better for borrowers who plan on keeping the property for a limited time. What Is Payment Shock?Changes in Payment: When a mortgage lender evaluates your mortgage, they will want to make sure that you are not going to experience “payment shock”. They will evaluate your current mortgage or rental payment, to see how much higher than this your new loan will be. The lender’s intentions are to make sure that you can truly handle a big change in the payment being made each month, when switching from the old Mortgage payment to the new. He or she will compare your new potential debt load to your total income before taxes. If your monthly debt load is more than 40%-55% of your pretax income, you may have trouble securing the mortgage. Another form of payment shock comes in the form of a mortgage switching from fixed to adjustable rate. In this instance, a monthly mortgage payment can shoot up dramatically, sometimes by $1,000 or more per month. This is common for borrowers who received 2/28 or 3/28 mortgages in the past recent years. These loans were offered at very low interest rates, but now they are beginning to switch over to variable, adjustable interest rate mortgages with much higher monthly payments. It is possible for borrowers to refinance out of newly adjustable loans and back into some form of a fixed rate loan. This gives the borrower a lower monthly payment than usual, and a fixed interest rate and monthly payment. How Do Minimum Payment Option Loans Change?Minimum Payment Option LoanThis loan offers the borrow an opportunity to make minimum payments each month. The minimum payment is typically less than with other payment types. This type of loan can cause negative amortization, however, because if any payment is made below the interest-only level, the difference is added to the balance of the loan. Each month in this type of loan, the borrower is given a choice on what size of a payment to make. The options available to the borrower are: A minimum payment, an interest payment, and a regular payment. Increase in Payment SizeMinimum payment option loans typically offer the minimum payment offer for a few short years, such as the first five years of a loan. After this period, the loan amortizes regularly for the rest of the term length. The minimum payment may be fixed each year, but may reset slightly upwards at the end of each year. The minimum payment size will continue to increase slightly, generally 7.5% over time. What Is The Interest Rate On A Minimum Payment Option Loan?Minimum Payment Option BasicsMinimum payment option loans allow borrowers to make a minimum payment on their mortgage, which is oftentimes below the interest only level. A 1% minimum payment option loan allows for the borrowe to make a minimum payment at that same 1% rate, but your interest rate is a different number. Minimum payments made typically result in negative amortization, which is when your loan size increases. This only happens when the payment made is less than the interest-only option. Interest RateThe interest rate available on this loan type is very different than what the minimum payment rate is. The interest rate tends to be the combination of interest rate index and margin. The interest rate index tracks interest rate levels, including the LIBOR index and the CODI Index. These indexes tend to be independent third party groups that a lender can base their loan on. The margin for a loan is the lender’s profit, on top of the interest rate. Fixed Interest? Minimum payment option loans tend to have adjustable rates but come with a lifetime interest rate cap to make sure that the interest is kept from the wrong eyes. Interest rates on most minimum payments can be fixed. Check with your broker or lender to see what interest rate is available for your new loan, and how it will change over time. Are Minimum Payment Option Loans FixedMinimum Payment Option BasicsA minimum payment option loan offers the borrower an opportunity to make a small minimum monthly mortgage payment instead of the larger usual payment. A typical 30 year fixed mortgage requires a borrower to pay both principal and interest. Slowly over the 30 year life of the loan the amount is paid off. A minimum payment option loan works very differently. This loan type allows a borrower to make a much smaller minimum payment each month, usually for the first 5 years of the loan. The minimum payment option may be so low that the borrower can pay less than the interest owed each month. The minimum payment amount is based on a minimum payment rate. This can be as low as 1%. This is not the same thing as the interest rate, which is usually much higher. The minimum payment rate is the rate at which a borrower can make payments. Any payment under the interest only level adds to their loan balance because of negative amortization. If an interest only mortgage payment is $1,000 per month and the minimum payment is $800 then if the borrower pays the minimum $800 level the $200 difference is added onto the loan amount. Minimum Payments FixedOne of the appeals of this type of loan is that is minimum payments are usually “fixed”. This means that the minimum payment is usually fixed for each of the first 5 years of the loan. In each year the minimum payment may increase slightly, but it will remain at the same level for an entire year until it increases again. Payment size can increase by 7.5%. If the minimum payment is $2,000 in year 1 then in year 2 the minimum payment will be $2,150. Lenders may have exceptions to the minimum payment option. If the original loan balance exceeds a certain amount, such as 115% of the original loan balance the loan may no longer allow the borrower to make a minimum payment. Check with your lender on what they require and allow for this type of loan. Where Does Your Down Payment Come From?Down Payments: Many lenders can now offer 100% financing for a wide range of borrowers. This applies to borrowers with some credit issues as well. Source of Payment: If a borrower is making a down payment, the mortgage lender may want to know where this money is actually coming from. It is important to provide the mortgage lender with a copy of the two most recent months worth of bank statements, and if the down payment doesn’t appear to be there, they may wonder where the money initially came from. If the money is a result of an investment, you need to show documentation. Lenders want to see that you are capable of both saving money, and managing your finances. Gifts: Some lenders allow money to be given as gifts for use as a down payment, but the money must be in the form of an actual gift, and not a loan. The lender may ask to see documentation to prove that the money is a gift and not a loan. Alternatives: If your money has been sitting for two to three months in your account, the lender will generally assume the money is yours, and will not dig further. If the money suddenly seems to appear in your bank account, it will spark suspiscion. Finding and Borrowing From Wholesale Mortgage LendersOn the surface, the mortgage finance market seems reasonably straightforward. Banks let people borrow money, so you just contact a bank for a loan. If you follow this approach, you fail to benefit from wholesale mortgage lenders. Finding and Borrowing From Wholesale Mortgage Lenders If you possess any familiarity with home loans, you will swiftly come to recognize that the mortgage industry is not what it seems at first glimpse. Conventionally, a person would just go down to the bank where you keep a checking account to obtain a home loan. In current times you can still achieve this however you are nearly always going to pay additional interest, fees, and so on. The mortgage industry actually has many layers, similar to an onion. For homebuyers, the best way to find an especially fine loan is to search for wholesale home loan lenders. These lenders do not deal directly with the public, as the name suggests. They have made the choice to do away with the cost of marketing, massive customer service, etc by avoiding any retail efforts. Truthfully, there are a great number of lenders that go on this road. There are numerous benefits to dealing with wholesale lenders. First, they have a tendency to offer a wider selection of loan programs and many focus on particular areas such as bad credit [sub-prime], perfect credit, bridge loans and so on. They are predominantly useful when it comes to finding unique financing in the form of hybrid loans that are mixes of adjustable rate mortgages, fixed payment solutions and variable term lengths. Given that they lack marketing costs connected with advertising directly to consumers, they often offer superior terms as well. How do you locate wholesale home loan lenders? They do not deal directly with the public, after all. Mortgage broker is the answer. A mortgage broker is an independent mortgage professional. He or she is not associated with a particular lender. Instead, the broker works with a broad selection of wholesale lenders. For the consumer, the advantage of this approach is the broker can locate the top terms existing across a number of lenders without feeling attached to a particular one, to wit, you acquire the finest deal. For wholesale lenders, the approach works well because they don’t spend money on advertising and they have a go-between they can work with who understands the loan procedure thoroughly. When it comes to financing real estate, receiving the best possible terms on a mortgage is extremely important. Saving even a quarter point on an interest rate can result in tens or hundreds of thousands of dollars saved in interest payments over the life of a loan. If you do not consider the programs being offered by wholesale lenders, you risk paying much more for a mortgage. Private Money For Your Mortgage BindTraditional home loan lenders often will not touch you when you get in a financial bind. It is time to look for other lending sources in such a situation. Private Money For Your Mortgage Bind Traditional home loan lenders are a rigged group. They rely on all types of checklists and algorithms to determine whether money should be loaned to a borrower in a given situation. While there are plainly tens of thousands of lenders offering loans, the actual scenarios they will act on are fewer. You are going to have little if any luck getting financing if you fall outside of these. However all is not lost. Suppose you are a homeowner who falls into a financial bind that requires borrowing against your home. The loss of a job, sudden exposure to massive medical bills and so on is examples of such situations. Seeking financing from a traditional lender is going to be extremely difficult under these conditions. In the case of a lost job, the home loan lender is going to shy away from giving you money while you have no steady income. Undeniably, this is the very reason you need the money! This situation can lead to severe frustration when you are sitting on equity, but can't use it. Private money may be the answer. Real estate is a great investment. You know this because you own a home and watch it appreciate each year. For investors with ready money, real estate is considered a very rewarding opportunity. These investors will often pool their capital in partnerships or corporations with the design of creating a font of money for unique lending opportunities. When you cannot get funding from a traditional home loan lender, these investment groups are your rescue. The salvation is well-known as a private money loan. Private money loans are exactly what they sound like. A collection of investors are willing to supply you with financing for rough times when regular banks will not even consider you. These investment groups have a tendency to look at your overall situation, not checklists and algorithms calculating your debt to income ratios and so on. Due to this approach, these lenders will write loans for nearly any situation. In exchange for financing you when banks will not, private money loans are more costly. You can anticipate higher interest rates, shorter pay back terms, higher costs and higher points than you would face with a traditional loan. When you can not get financing anyplace else, this is merely the price you pay to avoid a foreclosure and pay bills. Finding these lenders can be a test for most borrowers. Clearly, most traditional lenders do not recommend this type of financing. Call any of the lenders you see in advertisements or hear on the radio and you will come up empty. If you require private financing, your best choice for locating these private lenders is to talk with a mortgage broker. 7 Tips to Help Save Interest on Your Home LoanBelow are 7 tips on how to save on interest by paying your home loan faster. Owning a home is one of the desires of people from all walks of life. No matter what his or her status is in life, everybody will give just about anything to be able to build a home for their family. There is a lot of work and time involved in purchasing your own property. Before applying for a home loan, the borrower needs to evaluate their ability to make loan payments for a specific period. Loan providers prefer to give long term loans because this is how they make money. Every borrower should choose a pay-off period that is advantageous to them. There are advantages and disadvantages to getting a long term home loan. A long term loan can be beneficial to the borrower because he can negotiate smaller monthly payments especially if he can negotiate a home loan with a fixed or locked interest. On the other hand, this can also be detrimental if interest rates go down. Conversely, a long term loan can be disadvantageous if the interest rate is not fixed and sudden economic factors cause a large increase in interest rates. A long term home loan can also be more expensive because, while the repayment term is long, the total amount paid at the end of the mortgage can be twice or even thrice the principal amount loaned depending on the terms of the lender. Generally, paying off a home loan as soon as possible would be most beneficial to the borrower if for no other reason than he is assured that he owns his home without worrying about the property being forfeited and in effect losing all his investment.
For the average income earner, a home loan can make the dream of owning a home a reality. No matter how meager the monthly income is, there is always a chance of owning a home. However, the family should find ways to pay off the home loan fast so they can finally and totally own their home. What is a Down Payment?An important step in buying a home is determining how much of a down payment you can afford to make, and from what sources the down payment and other costs will come. A current inventory of your assets is crucial for accurate answers to these questions. Begin by assembling financial statements for all your assets. You may not plan to liquidate the assets, but a complete accounting is important. The assets you keep can serve as collateral for a loan and as reserves which may be required by your lender. If you're going to receive a gift from a relative, obtain a letter stating the amount of the gift. You may be able to borrow from your 401(k) without any tax penalties. If you liquidate your 401(k) or IRA, there will probably be tax implications. Consult with your tax advisor before liquidating any assets. If you own stock you want to keep, consider borrowing against it with a margin loan. Consult with your stock broker regarding this option. This worksheet may help you inventory your assets. A) Bank Account (Savings, Checking and CDs.) B) Establish the total cash needed to close: Ask the Loan Officer to provide you the so called GFE (Good Faith Estimate) This disclosure will show you everything from the Rate, down payment to all closing costs. Calculating the total cash needed can be tricky, especially if you're doing this for the first time. Consider getting help from a real estate or mortgage professional. They're usually quite openhanded with assistance and advice in anticipation of helping you with your transaction. Request that your mortgage company provide a Good Faith Estimate of closing costs--including prepaid expenses. If you're low on money, consider asking the seller to pay the closing costs. Discuss this with your Realtor prior to making your offer. Preferably, you'll want to make a 20 percent cash down payment to avoid Private Mortgage Insurance (PMI) and get the best rate. If you are unable to put 20 percent down, there are many programs available. Here are some of them: Zero Down Programs: There are many zero down payment programs existing. If you qualify for a VA loan, you can get a zero down program. Even if you're not a vet, several lenders offer zero down loan programs. Your mortgage broker can help you find the top one for you. Low Down Payment Programs: There are various FHA and conventional programs that allow you to put as little as 2 to 5 percent down. Piggy Back Loans: By getting a piggy back loan, you can generally avoid paying PMI, even though you are putting less than 20 percent down. The most common piggy back loans are: 80-10-10 In the case of an 80-10-10, you put down 10 percent and get two loans--a first loan for 80 percent of the purchase price, and a second loan for 10 percent of the purchase price. Even though the second loan rate may be higher than the first loan rate, you generally come out on top since you don't have to pay PMI. 80-15-5 Eighty percent first loan, 15 percent second loan, 5 percent down. 80-20 Eighty percent first loan, 20 percent second loan, no cash down. Rental Property - How To Lower Your Monthly PaymentMortgage lenders offer many loan types to rental properties, including:
As a rental property owner you know the interest rate on rental properties lean to the higher end than for regular primary residence loans. Loan OptionsYour loan options to get a lower payment include:
An interest only payment allows a rental property owner to pay only the interest on a mortgage. The principal balance for the loan remains the same. The landlord realizes their gain in equity through the increase in property value. This clearly depends on real estate market trends. A minimum payment choice allows a borrower to pay a smaller amount than the interest only amount. The difference between the interest only payment and the minimum payment option is added onto the principal. For example, if the interest only payment is $1,000 and the minimum payment option is $600, the difference of $400 is added onto the principal. For a lot of landlords an increase in principal over time may be tolerable to get a lower monthly payment. This may assist a landlord control their cash flow better. This can help when rental payments are slow owing to vacancies or tenant problems. Stretching Your Dollars When Getting A MortgageWhen you are considering purchasing a property, you are restricted by how much you can afford as a monthly payment. A representative monthly payment requires you to pay both the principal and the interest. The plan is that you pay the loan down slowly over time, characteristically for thirty years. There are more than a few new loan options obtainable to help you get a lower monthly payments:
An interest only loan allows you to make a lesser payment because you are not paying down any of the principal of the loan. Your loan balance will stay the same for as long as you pay interest only. This sort of option is available for up to 10 years, though some lenders have introduced loans that are interest only for 30 years. 40 Year LoansThis type of loan will reduce your monthly payment since the payment term is extended out more than the conventional 30 year loan. 50 Year LoansThis type of loan will reduce your monthly payment since the payment term is extended out more than the conventional 30 year loan Minimum Payment OptionsA minimum payment option allows a borrower to pay a less than interest only payment. This possibly will result in negative amortization. This loan used to be offered only up to a 90% or 95% loan to value ratio, though now some lenders are offering this loan up to 100% of the value of the property. How Do I Manage Cash Flow With A Cash Flow Payment Option Loan?A cash flow payment option loan is a mortgage that allows you to choose your payment every month. This option to decide your monthly payment is more often than not offered for three to 5 years, though this changes from lender to lender. Your monthly payment options are generally:
Every month you can select which payment to make. If you feel like paying less one month you can decide on the minimum payment option. If you want to pay more in a certain month you can pay a higher amount. In this way the capability to choose your monthly mortgage payment allows you to control your cash flow better. Interest RateThe interest rate on this loan type is usually based on:
The interest rate index is characteristically a third party interest rate index, such as the LIBOR index or CODI index. These are independently determined indexes. In this way your lender doesn't direct the interest rate and how it changes. The margin is usually fixed, and is the markup on top of the interest rate index that represents the lender's revenue. The interest rate can change based on changes in the interest rate index. Frequently the interest rate indexes are weighted averages of the past 12 months of interest rates. This supports interest rate changes to move more slowly through the index. Minimum PaymentThe minimum payment is, by and large, fixed for every year of the time the borrower is allowed to make a minimum payment. Each year the minimum payment may increase slightly. For example, in the first year a minimum payment may be $1,100 and the next year this may increase to $1,175. Whenever you make a minimum payment you possibly will have negative amortization happen. This is when your loan size increases. The difference between any minimum payment made and the interest only payment is added onto your loan. For example, if a minimum payment is $600 and the interest only payment is $1,000 then $400 will be added onto your loan. For numerous borrowers this may be acceptable. They would rather have the cash instead of giving it to the bank. What is a Break-Even Point?Homeowners that are looking into making the decision of whether or not to get into a refinancing situation have many things to consider. The thing one most homeowner’s mind is quite simple. They almost all want to know how long it is going to take them to begin saving money? This question is actually quite easy to figure out. The first thing you are going to want to look at is how much you are going to be saving should you get a lower monthly payment. Then you are going to want to add together all the costs that would be put into refinancing and then divide the number you come up with by what you will be saving monthly. The number that is revealed by this equation will tell you how many months it will take for you to reach your break-even point. Consider this: A homeowner wishes to bring his monthly payments down from $1,000 per month to $800 per month. This would result in a monthly savings of $200 and refinancing expenses of around $5,000. Five thousand dollars divided by two hundred dollars would mean that it would be twenty five months before the homeowner would begin to see any savings. A break-even point can depend on several other factors as well. Are the closing costs going to be handled upfront or are they going to be added into the new mortgage? What is the homeowner’s tax situation? With all the things you need to consider when trying to decide if you should refinance, a break-even point should be right on the top of your list.
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