Make Sure You Enjoy Owning Your New Home Long After Your Closing by Choosing the Right Type of Loan

Buying a new home is a milestone worthy of the excitement it brings. Make sure you enjoy owning your new home long after your closing by choosing the right type of loan. Below is a brief description of some of the most popular loan options available today.

Fixed Rate Loans

With a fixed rate home purchase loan, you can have peace of mind knowing that the “cost” of your purchase mortgage loan will always “stay exactly the same.” So, if your rate happened to be say, 6% when you first get your home purchase loan, and your mortgage term is 15 years, it means that for 15 full years you’ll have a mortgage-rate that’s 6%. Fixed rate mortgages come in a variety of term lengths. Most fixed rate loans are for either 15 or 30 year terms.

Adjustable Rate Loans/ Adjustable Rate Mortgages (ARM’s)

An adjustable rate mortgage (ARM) is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices. Consequently, payments made by the borrower may change over time with the changing interest rate (alternatively, the term of the loan may change). This is not to be confused with the graduated payment mortgage, which offers changing payment amounts but a fixed interest rate. They can be used where unpredictable interest rates make fixed rate loans difficult to obtain. The borrower benefits if the interest rate falls. Today’s adjustable rate mortgages might be right for you. T

VA Mortgages

VA mortgage guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA mortgage guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.

FHA Home Loans

An FHA Home Loan is a great way to go when purchasing your First Home. It is also a great program for purchasing specific types of homes such as SITE BUILT OR Manufactured, Doublewide Homes and Modular Homes. If you have a high interest rate in your present Home Loan or Mortgage this is also a great loan product to Refinance into.

An FHA Mortgage is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA MORTGAGE programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.

FHA MORTGAGE programs are particularly beneficial to those buyers with less available cash. The rates on FHA MORTGAGE are generally market rates, while down payment requirements are lower than for conventional loans.

Reverse Mortgages

A reverse mortgage is a home loan (used for any purpose) where seniors, 62 and older, can access the equity (cash) built up in their home.

There are several different reverse mortgage programs. Fannie Mae Home Keeper, Jumbo Cash-Out loan, and the HUD-insured Home Equity Conversion Mortgage (HECM) are three such programs. As demand increases, more reverse mortgage programs from different organizations will become available.

It is called a reverse mortgage because you borrow money from a lender, but the lender makes monthly payments to you, rather than you making monthly payments to the lender. All interest is paid at the end of the loan, rather than in the beginning.

Rural Development

Rural Development loans offer 100% financing for purchasing a home in rural areas. Rural Development mortgages will allow you to finance your closing costs and pre paid items. In some cases you are also allowed to finance repairs or up dates to the property. This could include fixing a roof, furnace, or a leaky basement. No minimum cash requirement for borrower at closing. The interest rates are very competitive.

The ABCs of Hard Money Loans and Their Benefits

The hard money lending market

Hard money loans seem to be a trend today. No wonder! Borrowers are finding it harder to get money from banks. Their credit rating is too poor; banks are reluctant to take risks; the work involved in fixing the property may be too onerous and ominous. Real estate news shows that the volume of people who are being turned down for loans is increasing. Potential borrowers have an option and that is to turn to hard money lenders.

What are hard money lenders?

These are people who will lend you money based on your assets not on your credit. So, for instance you may have a history of bankruptcy, foreclosure, or low credit – never matter! The lender looks at the value of your property – how much it will be worth – and loans you accordingly. Typically, loans will range from 50 to 70 percent of the value of your property. Many people find this terrific since it helps them get loans in the direst of times.

Other advantages?

Banks take at least 30 days to sift your information and to consummate the loan process. Hard money lenders, in contrast, take as short as 2-3 days. Some even approve you within a day! This is terrific when you want to impress a buyer with your fast bid and when you want to jump to the front of the queue. Hard money loans, in short, give you fast turn around and a super quick response. They also avoid the hassle of numerous bureaucratic meetings and endless document reviews that you would have to do in the traditional bank situation. All your money-lender would have you do is sign a few forms and wait until your loan is approved.

Disadvantages?

On the other hand, hard money lending is notorious for its high interest fee – double than that of the banks. This is understandable from the point of view of the lender – he, or she, is taking a huge risk, therefore he or she has to make a profit. On the other hand, the high interest can be difficult for the borrower to repay.

Is a hard money loan a good idea for me?

If you’re in the situation where you want to quickly flip a house before the market turns or you need a fast loan to finish some urgent construction and you are rejected by your bank – getting such a loan sounds ideal. Some people apply for such a loan when they’ve bought a house but haven’t sold their existing one, or have bad credit but lots of equity in the home and want to avoid foreclosure. In short, borrowers apply for these kind of loans when they’re turned down elsewhere and need financing in short order. For this reason, such loans are also called ” bridge loans ” in that they help you deal with a difficult financial situation. What some borrowers do is that they get the loan, flip the house (or do what else is needed) and use a conventional loan (i.e. bank money) to repay. You may want to consider that route.

On the other hand, if you’re considering long-term work or a long-term loan, I suggest you look elsewhere. Hard money loans will turn out too costly and misery-wrecking for you.

How do I find a reputable hard money lender?

Be careful! There a lot of “bad apples’ in this field (as there are in others). Ask your network for help. Use Google to research lenders in your area and verify their experiences via a consumer bureau and via their online profiles. Shop around and look at their varying rates, costs, and other qualifications. Take your time since you don’t want to lose your house or end up in an endless cycle of debt.

Finally, if you need a short-term loan and decide to go into this, ask your attorney to review all legal documents before signing. You want to be pleased with your choice.

Choosing Between Home Loans and Mortgages

Home loans and mortgages are asset-acquiring facilities that relieve an individual from making immediate lump sum payments. A home equity loan creates a debt against the borrower’s house. According to this loan, the borrower has equity in his or her home as collateral. ‘Collateral’, here, refers to assets or properties that create a debt obligation. In real estate, the borrower’s equity in an asset refers to the difference between the market price of a property, and the borrower’s home equity loan. Equity is the interest that a borrower pays on the loan.

A mortgage, on the other hand, is a process of using property as security for debt repayment. It is a legal device used for securing an asset. By arranging for mortgage, a borrower can acquire residential or commercial real estate, without the need to pay the full price right away.

Choosing between Home Loans and Mortgages:

- Most home loans require the borrower to have a very good credit history. Hence, individuals with an average credit history are likely to be denied this loan.

- ‘Closed-end Home Equity Loan’ levies a fixed rate of interest for a period of up to 15 years. The borrower receives a lump sum amount at the time of settlement, in the final steps of a transaction. No further loan can be given to the borrower once the final settlement of a real estate transaction is executed. The maximum amount of money that can be given as loan to the borrower depends upon his/her income, credit history and appraised value of collateral, and other finance related information.

- ‘Open-end Home Equity Loan’ is a revolving credit loan that generally levies a variable rate of interest. The borrower can decide when and how frequently to borrow money against the equity. This again is determined on the borrower’s good credit history, consistent income and other such criteria. This loan is available for a period of up to 30 years.

- Mortgage loans are of two types: Fixed Rate Mortgage (FRM) and Adjustable Rate Mortgage (ARM). Individuals can choose between the two depending upon their requirements, and the capability to repay loans.

- FRM has a fixed rate of interest, and a fixed amount of monthly payments towards the loan amount. The term of FRM can be for 10, 15, 20 or 30 years. However, some lenders have recently introduced terms of 40 and 50 years.

- ARM interest rate is fixed for a period of time (generally 15 and 30 years), after which it is adjusted according to the market index. ARM interest rates are adjusted periodically on a monthly or yearly basis. The initial rate of interest in ARM is levied in the range of 0.5% to 2%.

- Lenders sanction an ARM loan depending upon a borrower’s credit report and credit score. They prefer to approve loan to borrowers with high credit scores, because low credit scores indicate greater risk of money to lenders. In order to compensate for this increased risk, lenders levy a high rate of interest on loans approved for less creditworthy borrowers.

- ARM loans prove useful to borrowers who own a lot of equity on their home. ARM loans relieve a borrower from heavy monthly payments, and provide them the flexibility to choose the kind of payment to make every month. These loans have a fixed amount of minimum payment to be made every year for 5 consecutive years.

Prospective borrowers should gauge their options carefully before choosing a loan. A well-calculated move can save a great amount of money over the term of the loan.