Friday, January 20, 2006

Growing Equity Mortgage

Growing equity mortgage contributes rising portions of monthly payments to payoff principal debt. Typically pays of in 15-18 years not 30. The basic benefits are lower up front payments, quicker loan payoff than conventional fixed-rate or adjustable rate loans. A drawback however, is Higher effective rates and higher down payments than other loans in the market place. Tax deductions for interest payments decrease over time. This type of mortgage is usually used by high-income individuals who want to build equity in their homes quickly.

Thursday, January 19, 2006

Adjustable-Rate Mortgages

Adjustable-rate mortgages (ARM) are know as flexible-rate mortgage, has an interest rate that increases or decreases during the life of the loan. When mortgage rates were at record highs, many people took out variable-rate home loans, expecting rates would eventually go down. ARMs usually have a lower initial interest rate than fixed-rate mortgages; however, the borrower, not the lender, bears the risk of the future interest rate increases. In the next post we'll look at the terms rate cap and payment cap.

Wednesday, January 18, 2006

Government-Guaranteed Financing Programs

Government-guaranteed financing programs include loans insured by the Federal Housing Authority (FHA) and loans guaranteed by the Veterans Administration (VA). I currently have an FHA loan, which is probably the most commmon type of mortgage used by first time home buyers. These agencies help home buyers obtain low-interest, low-down-payment loans. Most low- and middle- income people can qualify for the FHA loan program. The minimum down payment ranges between 3 and 5 percent, depending on the size of the mortgage. The lower down payment makes it easier to buy a home. Also FHA interest rates are lower than market interest rates, since the FHA's involvement lowers the risk.

Government-Guaranteed Financing Programs

Government-guaranteed financing programs include loans insured by the Federal Housing Authority (FHA) and loans guaranteed by the Veterans Administration (VA). I currently have an FHA loan, which is probably the most commmon type of mortgage used by first time home buyers. These agencies help home buyers obtain low-interest, low-down-payment loans. Most low- and middle- income people can qualify for the FHA loan program. The minimum down payment ranges between 3 and 5 percent, depending on the size of the mortgage. The lower down payment makes it easier to buy a home. Also FHA interest rates are lower than market interest rates, since the FHA's involvement lowers the risk.

Tuesday, January 17, 2006

Balloon Mortgages

During periods of high interest rates a balloon mortgage is a very popular option. A balloon mortgage has fixed monthly payments and a very large final payment, usually after three, five, or seven years. This financing plan is designed for people who wish to buy their homes during, as previously mentioned periods of high interest rates but expect to be able to refinance the loan or sell the home before the balloon payment is due. Most all balloon mortgages allow conversion to a conventional mortgage after a year if certain conditions are met. This type of loan is risky and can result in major financial loss.

Monday, January 16, 2006

Conventional Mortgage

Let's get more familiar with some of the different types of mortgages that are available and which one will best suit your needs. The next several posts will deal with the different types of mortgages. The conventional mortgage has equal payments over a 15,20, or 30 years based on a fix interest rate. The mortgage offers home buyers certainty about the future loan payments. The mortgage payments are set at a level that allows amortization of the loan; that is, the balance owed is reduced with each payment. Since the amount of the mortgage is large, payments during the early years are applied mainly to interest, with only small reductions in the principal of the loan. Near the end the majority of the payment is applied to the balance.

Saturday, January 14, 2006

Mortgage Application Process

Applying for a mortgage involves three main steps 1. After completing the actual mortgage application, a meeting between the lender and the borrower is scheduled. The borrower presents evidence of employment, income, ownership of assets, and amounts of existing debts. At this point, most lenders charge an application fee between $100 or $300.
2. The lender obtains a credit report and verifies other aspects of the borrower's application and financial status.
3. The mortgage is either approved or denied. The decision is based on the potential borrower's credit and financial history and an evaluation of the home, including its location, condition and value. Home buyers who are denied a mortgage may seek recourse under the Equal Credit Opportunity Act of the Fair Credit Reporting Act.
*Important Note The approval application usually locks in an interest rate for 30-60 days.

Friday, January 13, 2006

Title Searches

To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that there are no mortgages already registered on the debtor's property which might have higher priority. Tax liens, in some cases, will come ahead of mortgages. For this reason, if a borrower has delinquent property taxes, the bank will often pay them to prevent the lienholder from foreclosing and wiping out the mortgage.

Private Mortgage Insurance (PMI)

The private mortgage insurance is required if the down payment is less than 20 percent. The coverage protects the lender from financial loss due to default. PMI charges,which the borrower pays, vary depending on the amount of the down payment. These costs may be paid in full at the closing or are sometimes financed over the life of the mortgage, depending on the type of financing. It's important to note that after build up 20 to 30 percent equity in a home the buyer may cancel the private mortgage insurance.

Qualify for a Mortgage

To qualify for a mortgage, you must meet the criteria similar to those for other loans. The home you buy will serve as security (collateral for the mortgage. The major factors that affect the affordable of your mortgage are; your income, other debts, the current rates. Here is a basic 5-Step Mortgage Qualifying Tool
1. Indicate your monthly income.
2. Multiply your gross income by .28 (or .36 if you have other debt).
3. Subtract the monthly debt payments and estimate monthly cost for property taxes and home owners insurance. You arrive at your affordable monthly mortgage payment(ammp).
4. Divide the ammp buy your mortgage term and rate. Multiply that by $1,000. This is the affordable mortgage amount(ama).
5. To obtain the affordabel home purchasing price, divide ama by the amount being financed.

Mortgage Basics

Common questions asked about mortgages are: Do I have the funds for a down payment? Do I earn enough to cover mortgage payments and living expenses? Do I have good credit? All of these are vital questions that must be honestly answered before we apply for a mortgage. A mortgage is defined as a long-term loan on a specific piece of property. Typical payments are made over periods of 15, 20, or 30 years. Banks, savings and loan associates, credit unions, and mortgage companies are the most common form of home financing.