Mortgage Loan Types
Meretricious MortgagesThe word “Meretricious” means falsely attractive, and was originally applied to street walkers in London who though appearing attractive in the shadows, turned out not to be so great in the light. This term is applied to mortgages as some mortgages tend to appear attractive, and turn out to be much different in the light. There has been an explosion in popularity recently, of Adjustable Rate Mortgages with the interest-only or flexible-payment options. While these Adjustable Rate Mortgages may have completely legitimate applications, their sudden burst of popularity can be attributed to the appeal they have to payment-myopic borrowers. These mortgages may make payments easier now, but borrowers are not considering the costs they actually produce. Federal Housing Administration (FHA)There are many FHA loan programs available, including but not limited to the following: FHA Access, FHA Rural Gold, FHA Mutual Mtg. Insurance, FHA 203 (K), FHA 203 (b), FHA 251, FHA Title 1 Program and FHA MIP Refund. The Federal Housing Administration (FHA) was created in 1934 as part of the National Housing Act, by Congress. This act was created to generate new jobs through increased construction, to promote the financing of real estate, and to stabilize the mortgage market. The FHA is considered part of the Department of Housing and Urban Development (HUD), and it’s primary function is to insure loans. Approved lenders by the FHA are insured against losses that are caused by default on the borrower’s behalf. This insurance program is called the Mutual Mortgage Insurance Plan (MMI or MMIP). FHA Loan Features:
The term is 30 years for the typical FHA loan. But the FHA also offers loans for as short as 15 years, and adjustable or home repair loans. The rate is completely negotiable between borrower and lender. They tend to be lower than college loan rates because the lenders risk is significantly lessened by FHA mortgage insurance. Lenders are required to obtain appraisals of the property from FHA approved appraisers. The appraisal will note health and safety deficiencies and if there are any necessary repairs to make. Lenders are required to provide buyers with a home-buyer summary, which lists all deficiencies noted by the appraiser. All problems and repairs must be completed before the FHA will issue insurance. There is not a minimum income requirement for FHA loans. Borrowers are required to prove two years of steady employment, and to demonstrate that they have been paying their bills on time consistently. There are maximum mortgage amounts that are set by the FHA, which vary depending on the county and state, and are adjusted yearly. 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. 40 Year Mortgages – How Do They Work?The Basics of 40 Year LoansThe classical mortgage loan was a 30-year fixed rate. This type of loan was paid steadily over time, and the interest rate never changed so the monthly payment was the same from start to finish. In this loan model, the term of the loan is what determines how much the monthly payment is. A 15-year loan is the loan program with the highest of monthly payments. Getting a comparable loan amount and interest rate with a 30-year term will provide a much lower monthly payment amount. The same occurs when you apply for a 40 year rather than a 30 year loan. Loan OptionsA 40 year loan can be any kind of loan, the ’40 year loan’ only describes how long the term is. The loan could very well have a 40 year term, but be a fixed rate interest for the first 30 years of the loan. Or the 40 year loan may be interest-only for the first 10 years, before reverting to an adjustable rate mortgage for the remaining 30 years. It is also possible for the 40 year loan to be a fixed interest rate loan for the entire 40 years. It is important to know what specifics are offered with a 40 year loan, as not all 40 year loans are created equal. Can A Flat Fee Mortgage Work For Me?Mortgage Loan ApplicationsWhen applying for a mortgage, you should receive a written “good faith estimate” from a lender within three days. There are a wide variety of fees listed in this good faith estimate. If there are not a lot of fees listed in this estimate, there is a good chance the lender is trying to give you a “lowball” offer that has artificially lowered closing costs. Mortgage Closing Costs Include:
A typical refinance or purchase actually requires the work of many different parties. Don’t fret, however.. There are several ways to minimize closing costs without the lender low-balling the offer. 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 Is a Cash Flow ARM?Mortgage Loan BasicsTypical mortgage bills that arrive in the mail give an amount of money that has to be paid. There isn’t a choice in how much a borrower pays. A cash flow adjustable rate mortgage is a minimum payment option loan which allows borrowers to choose how much is paid each month. Payment level options are generally fifteen year payment level, thirty year payment level, interest-only payment level and a minimum payment level. The minimum payment is usually below the interest-only payment amount, and one of the lowest possible monthly payments. Managing Cash FlowBecause borrowers have the ability to choose monthly mortgage payment amounts, this loan can be considered a useful cash management tool. Borrowers can pay more or less for their loan each month, they are not locked into one fixed monthly payment. This option is typically only available for the first several years of the loan. A minimum payment may be up to $1,000 more or less than a regular monthly payment, so this payment is a welcome relief with borrowers who have high bills to pay. Hard Money Loan ExamplesHard money lenders tend to only lend between 60% and 70% of the value of a property. They do not necessarily require for you to own a property for 6-12 months before allowing refinance. Rather than having a minimum credit score and other requirements to approve a mortgage as regular mortgage lenders do, Hard money lenders attempt to challenge credit and unique situations in order to complete a loan quickly for a borrower that doesn’t have much time. The property appraisal must be realistic, because most hard money lenders make a loan based on equity alone. They often require little if any documentation for the loan, and very rarely require a credit score. Borrowers who have less than a 500 credit score still have a great change of being approved for a hard money loan. Refinancing through a hard money lender may be a great way to avoid paying off old debts listed on your credit report, while still being approved for the money that you need. With hard money loans, just like all loans, it is important to thoroughly research all avenues before deciding on a lender or the terms of a specific loan. Loan sizes are not as restricted as they are with normal mortgage lenders, and interest only loans can often allow for lower monthly payments or lower interest rates if there is no debt attached to your home. Interest Only Mortgage: Is an Interest Only Mortgage Right for YouInterest rates are fixed, and payments are fully amortized in traditional mortgage loans, which means that you pay the same amount every month until the loan is completely paid off. Interest-Only Mortgages, on the other hand, are different because they do not amortize during the interest-only period. Is this the right type of loan for you? Keep reading to find out. Interest-Only: These mortgage loans are interest-only for a short period of time only, and this period is designated in the borrower’s loan contract. The period typically lasts only a few years, and during this period the borrower is only paying the interest amount each month. The monthly mortgage payment will be significantly lower for this term. Mortgage Conversion: When this interest-only period comes to an end, the mortgage will be converted back into a traditional mortgage with an adjustable interest rate. This means that the monthly payment will go back up to a full amortized amount based on the remaining length of the loan term. For example, if the mortgage is a 30 year loan based on 25 year amortization, the payment amount will be significantly higher than with a comparable traditional mortgage. Advantages & Disadvantages: Interest-Only mortgage loans are very useful when used correctly. They can save a lot of money if a borrower needs short term financing and understands what he or she is getting into. The disadvantage is, of course, that you cannot build equity in your home at all during this interest-only period. This could stretch a borrower’s budget to the limit if the mortgage payment is going up significantly once the interest only period has ended. 80 20 Mortgage Loans: No Money Down Mortgage Loans – Are They Right For YouHave you been putting off your home purchase, because you feel that you are lacking the down payment for a traditional mortgage? There are many options available that will help you qualify! The best option for people who are in this same situation is called the “80/20 Mortgage”, which is also called a “piggy back” loan. What are 80/20 Mortgage Loans? An 80/20 Mortgage loan is a simple concept. If you wanted to purchase a home in the past without the necessary 20% down payment, you would be forced to by PMI, Private Mortgage Insurance by the lender. This practice could raise your monthly payment by as much as $200 for each month, and actually did nothing for the homeowner. With the 80/20 Mortgage, home owners are not required to purchase private mortgage insurance. The basic idea is that the 80/20 mortgage is actually two separate loans, one which is for 80% of the purchase price, and one which is for the remaining 20% of the price. If you are shopping for 80/20 mortgage loans, the first thing to know is that your mortgage will probably be handled by two separate lenders. Mortgage brokers tend to be helpful in locating these sorts of loans, but it is important to look at a variety of mortgage brokers and piggy back lenders before you decide. Qualifying for one of these loans is much easier than most people realize, so it is important to find the best rate and terms rather than settling for the first approval. How Do 40 Year Mortgages Work?Basics of the 40 Year LoanThe 30 year fixed mortgage was the standard mortgage loan. The loan was paid steadily over time with this form of loan. The interest rate never changed on this type of loan. The monthly payment remained the same every month. Your monthly payment is determined by the term of the loan. The loan program with the highest monthly payment is a 15 year loan term. If you were to get a similar loan amount and interest rate with a 30 year term your monthly payment would be a great deal lower. When you switch from a 30 year loan to a 40 year loan term this also happens. Loan OptionsA 40 year loan is just a designation for the loan term and does not tell you exactly the type of loan it is. The loan may have a 40 year term with the interest rate fixed for the first 30 years, for example. The 40 year loan might be interest only for the first 10 years of the loan term and then change to adjustable rate afterwards. The 40 year loan could also be a loan with the interest rate fixed for 40 years. As a borrower you must know the details of the 40 year loan. An interest-only loan has the same monthly payment, despite the loan term. The interest only payment is the loan size multiplied by the interest rate. This equals the annual interest payment, which can be divided by twelve to determine the monthly payment. The Flat Fee Mortgage, Can It Work For Me?Mortgage Loan ApplicationsYou should receive a written “Good Faith Estimate” when you apply for a mortgage within three days. There are more often than not many different fees listed on the good faith estimate. If the good faith estimate is missing a bunch of these fees there is a probability it is a “lowball” offer that has artificially lowered closing costs by ignoring them. Mortgage closing costs usually include escrow fees, title insurance, appraisal fee, taxes, broker fees, lender fees, processing fees, hazard insurance, and many other types of costs. These costs come because a typical refinance or purchase requires the labor of many different parties. Minimizing Closing CostsA number of lenders put forward to the borrower the “no closing cost” or “flat fee” closing cost. As an alternative of paying all of these closing costs, the borrower usually agrees to a higher interest rate instead. This kind of loan option also often includes a prepayment penalty that might last a number of years. You actually aren’t minimizing your costs. You are merely including them in your loan in the form of a higher monthly payment. For a borrower who intends to maintain their loan for an extended time it possibly will make sense to pay closing costs up front to obtain a lower interest rate and lower monthly payment. This will probably wind up saving the borrower money in the long term. It may make sense to go for a no closing cost of flat fee option for borrowers who do not plan on keeping the property for very long. First And Second Mortgages, What Are They?Mortgage Loan BasicsNumerous lenders will give loans up to 100% of the property value. Lenders perceive bigger loans on a property as precarious. If they loan you only 50% of the money to purchase a property the loan is low risk to the lender. If you default on the payments the lender can foreclose on the property, sell it, and have sufficient money left over to recover their loan amount. The higher the percentage of the property value they loan you, the higher their risk becomes. Lenders regularly charge private mortgage insurance for loans that exceed 80% of the property value. On top of your mortgage itself, this can be an expensive additional charge every month. To circumvent the 80% cap lenders divide the loan into two pieces – a first loan for 80% and a second loan for 20%. With this arrangement you avoid paying mortgage insurance. Interest rates are frequently much higher on the second loan than on the first loan. This is for the reason that the second loan is generally a more risky loan to grant for the lender, so a higher interest rate compensates them for the risk. Mortgage loans can be offered in different combinations.You could be offered a first mortgage that is 70% of the property value and a second loan that is 25% of the property value if you are borrowing 95% of the value of a property On the whole when your second mortgage is bigger your overall payment will be higher. For instance, if you have a 70% first loan and a 25% second loan this is likely to be more expensive than an 80% first loan and a 15% second loan. See if you can get better first and second mortgages by paying attention to how these numbers change. When Does An Interest Only Mortgage Make Sense?Mortgage BasicsTypically a mortgage loan, such as a 30 year fixed loan, requires you to pay off your principal balance gradually over time. Every month your monthly payment contains part of an interest payment and part a payment towards the principal of the loan. Slowly, over time, you pay the loan off. In 30 years the loan will be completely paid off. Interest Only MortgagesVery popular option these days with borrowers is an interest only mortgage. A borrower only pays the interest and not the principal in this type of loan. The monthly payment is less than on a similar loan of the same size and interest rate. The principal balance of the loan stays the same as long as interest only payments are made. Loan OptionsThere are many new interest only loan options. The interest only option on a 30 year fixed loan allows a borrower to make interest only payments for the first 10 years of the mortgage. The interest rate stays the same throughout the 30 year term of the loan. This type of loan offers the borrower the security of a fixed interest rate with the benefit of a lower payment in the first few years. There are newer mortgages that allow for an interest only payment for the whole 30 year term of the loan. You will still owe the same amount that you started with at the end of the loan term in 30 years. The theory is that your property price may have increased substantially so you will still have gained equity on your property. Full Rental Property Financing
Advantages of 100% Financing
What Is A Fixed Rate Mortgage?Basics of MortgagesMortgages can either be adjustable rate, or fixed rate. Adjustable rate loans are those where the interest rate can change during the life of the loan. A Fixed rate mortgage is one where the interest rate remains the same over time. Fixed Rate Mortgages
Adjustable Rate Mortgages
No Money Down Mortgages - What Are My Options?Receiving 100% financing is a great deal easier today than it was previously. In the past scores of lenders favored at least 5% or 10% of the property's value be put down by the borrower. At the present the majority of lenders offer 100% financing to a broad range of people. Here are some loan factors to consider:
Loan AmountLenders offer 100% financing for several different loan sizes. There are lenders that offer 100% financing for properties of all types. CreditLenders will make loans to borrowers of all different credit types. Even if you have been rejected by one mortgage lender you may surely try with another one. There are thousands of mortgage lenders contending for your business. One lender may not be able to do a certain loan, but many others will have no quandary providing the loan. This is for the reason that mortgage lenders often have very different lending criteria. Having bad credit doesn't routinely disqualify you from getting 100% financing. If you have other factors in your favor, such good income, as assets, and employment you might still be able to make the case for 100% financing. Lenders can be much more flexible in their lending practices than they were in the past. Bear in mind that the healthier your credit is, the lower your interest rate will be, as a general rule. Loan TypeLenders offer a lot of loan types for zero down buyers. This may consist of 30 year loans, 40 year loans, interest only loans, or minimum payment option loans. Several lenders may approve you for one type of loan but not for another type of loan. Check with the loan officer to see which types of loans you are qualified for. Remember that lenders frequently have dissimilar loan programs from one another. Just because your neighborhood bank doesn't offer a loan doesn't mean no one else will. Some lenders specialize in borrowers with bad credit.
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