Personal Finance Tips

A mortgage is a system of using property as security for the payment of a debt. It is easier for people with a bad credit history to obtain online mortgage loans. Likewise, online mortgage loan websites tend to offer more options to those with bad credit history. Online mortgage loans are of various types but the two basic types are fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). When a lender offers a loan, he makes money by charging an interest on it. In case of a mortgage loan, all that interest is front-loaded. This means that for the initial years, every payment that is made will go towards the interest.

The interest rates applicable to online mortgage loans vary with fluctuations in the market. When applying for a mortgage loan, individuals have the option of locking-in or floating their interest rates. Fluctuations in the market have no effect on the interest rates of people who choose to lock in their interest rates but market fluctuations have a great effect on floating interest rates. If from the market conditions it appears that the interest rates are going to go lower, people can opt to watch the rates carefully, and then lock it at the rate they are comfortable with.

When a person is looking at getting a good mortgage loan, the term or length of the mortgage is an essential factor to be considered. If an individual wishes to secure a mortgage loan online for a new house, three basic steps if followed can make sure the process is swift and stress-free. Firstly, being unprepared is a very big obstruction when filling up an online loan mortgage application and hence, all information that will be required must be gathered at the beginning. The information generally required is, the individual’s income, assets, and previous home ownership. Secondly, visit several websites before selecting one for the loan. This will just mean getting more quotes from more brokers. This decision can have a great effect on the terms of the loan. Lastly, be extra cautious when completing mortgage application online. A small mistake may result in delaying the loan or even worse, not receiving quotes. Double check each answer in the application for accuracy while applying for online loans.

Introduction

Mortgages are loans that are used to purchase real estate and come in many different forms. The most common types are Conventional, FHA and VA. Other types are Second, Reverse and Balloon Mortgages. These loans often involve the use of Discount Points.

Conventional

The conventional loan is the most common type of mortgage used in the nation today. Conventional mortgages are loans between borrowers and lenders that are not insured or guaranteed by the government. Conventional mortgages are either privately insured through private mortgage insurance companies or not insured at all. Conventional loan guidelines typically require a minimum down payment of five percent on owner-occupied (non-rental) properties; higher for investment/rental properties. For mortgages that have a down payment of less than 20%, private mortgage insurance (PMI) is usually required. Most conventional mortgages have time frames of 15 to 30 years and may be either fixed-rate or adjustable.

Fixed rate mortgages mean that the interest is permanently “fixed” at the rate available when the mortgage was created. The interest rate never changes no matter what interest rates do later. Fixed rate loans provide a level principal and interest payment that a borrower can depend on and are especially attractive when rates are low.

Adjustable rate mortgages mean that during the first few years, the interest rate will be lower than a typical fixed rate loan but will increase (adjust) upward to rates that are prevalent at a later date. Adjustable rate mortgages are normally used only when the borrower cannot currently qualify for the normal fixed rate interest level, but anticipates a larger income in the near future. The risk for the borrower is if that extra income does not materialize or if other expenses occur later on that cause the adjusted rate to not be affordable.

FHA

FHA loans are insured by the Federal Housing Administration, which is a division of HUD. The program was created in 1934 to stimulate the housing market during the Depression. FHA loans are insured by the government against default, but the mortgages themselves are made by major private lenders. FHA loans are often available from the same lenders who offer conventional loans. FHA maximum loan amounts are limited, and the maximum loan amount varies among geographic regions. High cost housing markets will normally have a higher maximum loan amount than lower cost areas. FHA mortgages are usually on a fixed-rate mortgage with terms of up to 30 years. FHA can lend up to 97% of the home value, and can be refinanced any time without a pre-payment penalty, and without having to qualify all over again. FHA insurance makes it possible for private lenders to provide mortgages to lower income families without attaching the rates and fees that sub-prime lenders do. FHA-insured loans have become an important element in the proposed solutions to the subprime mortgage crisis, and an FHA Reform package is making its way through Congress this year (2007) and will probably be a reality by the time you read this. The new package will enable FHA to accept even lower down payments and credit scores than they do now.

VA

VA mortgage loans are loans insured by the Department of Veterans Affairs. The program was created in 1944 during World War 2 to assist returning military personnel in buying a home. VA mortgages are reserved for those who have served in the military or are currently in the military in active or reserve status. They are also available to qualified surviving spouses. VA loan guaranty is only for owner occupied properties, which can include homes, condominiums, townhomes, 2-4 family properties and manufactured homes, as long as it is owner occupied at least in part. By example, the applicant can obtain a mortgage for a duplex, live in one side and rent out the other side. VA mortgages offer the qualified veteran or active duty military person an opportunity to buy a home up to a specified amount with no down payment and do not require Private Mortgage Insurance (PMI). Like FHA mortgages, VA places a limit on the maximum mortgage amount. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a loan.

Balloons

A Balloon mortgage is a loan that is usually a short-term fixed-rate loan with even monthly payments amortized over a stated term, but provides for a lump sum payment to be due at the end of a specified term. These loans can be used as either a first or second mortgage. The nature of balloons are that the principal is not paid off entirely during its term and the monthly payments are often lower than they would be in a fixed rate first mortgage. Balloons are often used as a type of Second mortgage, especially when a borrower is seeking the lowest possible monthly payment in the short run. These loans carry an inherent risk for the borrower because that large lump sum becomes due and payable at the end of the term, so these financing options should be used with extreme caution.

Reverse

Reverse mortgages are becoming popular in America. They were designed only a few years ago and were made to help people who have retired and stopped working, but still have to make monthly payments. They are a special type of financing that lets a homeowner convert the equity in his/her home into cash. Reverse mortgages can be relatively complex, and their use should be considered carefully by the borrower. While they have been around for a long time, but it wasn’t until the early 1990s that they began earning respectability after the FHA began insuring reverse mortgages for repayment to lenders.

Second

These are used when a borrower needs additional financing to buy a home. Second mortgages are subordinate, meaning that in the event of default, the primary, or first lien would get paid off first, and then any funds remaining would be used to pay off any second liens. Second mortgages are also arranged for various purposes, such as financing home improvements, college tuition fees, debt consolidation or other emergency expenses. They are available as either fixed-rate loans, or adjustable-rate home equity lines of credit and are based on the market value of the home minus the balance of the first mortgage. Terms are typically shorter than the primary term and are commonly written at a higher rate of interest, due to the inherent risk of the loan. An advantage for the borrower is that the interest paid on a second mortgage is tax deductable, whereas payments for PMI are not.

Discount Points

Discount Points are used to buy your interest rate lower and are charged as a percentage of the loan amount. Discount points are entirely optional unless they are required for you to qualify for the loan payment, due to a lower than required income or higher than expected expenses. Discount points are paid in cash at closing and are typically charged to the seller. A common arrangement is that when discount points are charged, the seller will want to increase the price of the home to cover this expense. The result is that 80% or more of the discount point cost is actually financed by the buyer. Discount points are not to be confused with an origination or broker fee and are tax deductible only for the year in which they were paid.

Mortgage loans, tanks to the upsurge in the number of alternative lenders, are now available to more homebuyers than ever before. Hundreds of thousands of would-be homeowners who would, in past years, have been turned down for mortgage loans by banks and other traditional lenders are now eligible for home loans, in spite of their spotty credit histories. Alternative lenders have reached out to this neglected market.

Many professional investors are constantly on the lookout for ways to diversify their capital and raise their rates of return, and when the stock market starts to look over bought will pull out some of their money to invest elsewhere. And a good number of them have established private companies to write mortgages for those whose credit records make them high-risk buyers. These buyers, if they default on their mortgage payments, will face the same foreclosure measures from alternative lenders as they would from traditional ones. But they are at least being given an opportunity to become homeowners.

Seller Financed Loans

Another opportunity for those involved in mortgage loans is to buy individual mortgages many homeowners will sell their homes agreeing to finance the buyer, so investors will buy their mortgages to provide them with the cash they need, and will become the recipients of the mortgage payments from the new homeowners.

Investors interested in profiting from seller financed mortgage loans can also locate seller-held notes and approach the holders about selling the notes to mortgage loan investment groups, earning themselves finders’ fees in the process. The amount of their fee will be based both on the size of the mortgage note and the value of the underlying home, and can be anywhere from hundreds to thousands of dollars.

Getting In On The Opportunity

Finding seller financed mortgage loans therefore can be a very lucrative business. But it is limited to those who can not only locate the notes, but who have access to the investment groups willing to buy them. Not many would-be note sellers really know who these investment groups are, but there is a booming online business among Internet marketers claiming they can, for a fee, tutor wannabe buyers of mortgage loans.

But before you bite, just remember that many people interested in profiting from this aspect of mortgage loans overlook one important fact. Even if they knew where to find the seller-owned mortgages, they are not likely to know how many of those loans are available in a specific area. So paying an Internet marker to share the secrets of how the process works could cost more than the income you might earn from following it.

A mortgage may be the largest investment of your entire life.

Deciding whether or not a mortgage is right for you may also be the single most important financial decision you ever make.

Getting down to basics, a mortgage is a loan you take out to purchase a home. With a mortgage loan the amount of money you’re borrowing, not including a down payment on your new home, is known as the principal.

Over the life of the mortgage you’ll pay interest, which is the percentage of the loan amount you’ll pay to acquire a mortgage. Interest payments are spread out, or amortized over the life of the loan. With a traditional 15- or 30-year fixed-rate mortgage your interest payment is at its highest rate starting with your first payment, and then slowly decreases with each successive payment.

For most consumers, acquiring a mortgage is the only path to home ownership. With median level homes ranging anywhere from $150,000 – $250,000 and more in some cities, very few people can purchase a home outright.

If you’re like most of us and want to own your own home, you need to know how large a home you can afford. This will be influenced most directly by the price of the home and indirectly, by several other factors including the age of the home, size, condition, available land and location within the city you choose to live. If the home needs renovations you need to make sure that the costs of renovation will not exceed the resale value of the home.

Before you begin shopping around for the mortgage that is right for you, you can use the resources of many potential lenders to help you determine what you can afford. Once you know how much home you can afford you’ll be ready to begin searching for a mortgage.

Local mortgage companies, banks, credit unions and even online mortgage brokers should all be scrutinized in your search for a loan.

A broker typically represents a number of different lenders with a variety of loans available to consumers. If a broker charges fees for brokerage services you need to determine the qualifications of the broker. Will the extra fees you pay help you get a better deal on a mortgage? The best brokers should be able to provide several loan options and be willing to provide comparisons of all available loan options. Some brokers may also be willing to assist if any disputes should arise between you and your lender of choice.

If you can find an upfront mortgage broker you’ll eliminate any guesswork as to the true costs of a mortgage loan, with all fees disclosed in writing before the loan application is even submitted.

Before you submit a loan application you should get pre-qualified for a mortgage. This will establish in writing how large a loan you may qualify for. Once you pre-qualify make sure the lender will provide you with a free, no obligation pre-approved commitment letter.

Once you’re pre-approved for a mortgage you’ll have cleared one major obstacle in the sometimes long and winding road to home ownership.

Being a First Time Home Buyer can increase the difficulty in the process of obtaining finance, not only due to the lack of credit history that it implies but because of the inexperience and lack of knowledge on the field. Following, you will find some tips to help you get started.

The Down Payment Issue

A Down payment in the range of 10% to 20% is usually required for obtaining a home loan to buy a house. There are also closing costs that you’ll need to pay in order to secure the loan. If you add up these two factors, very few can afford putting down so much money.

The financial industry, however, has found a solution to this problem and offers a new financial option. Zero Down Mortgage Loans are meant for those who cannot put away enough money for a down payment. With these loans you can finance 100% of the property’s value. Moreover, for those who cannot even raise the money for closing costs, there are lenders offering 103% or 105% Finance Home Loans. The extra percentage is used for covering the closing costs which will then be included in the overall debt that you’ll have to repay in monthly installments.

Drawbacks of Lack of Down Payment

Zero Down Mortgage Loans sound tempting but though not having to put money down in order to purchase a house can seem to be a fabulous waiver, it has many drawbacks and unless strictly necessary, it should be avoided by all means possible.

A down payment has not only direct positive financial consequences but it also can be a positive factor when the lender has to decide whether to approve your loan or not and on what terms. When the lender has to consider your application, a down payment tells him that if you were able to save enough money to make a considerable down payment, you’ll probably be able to meet your monthly payments without any difficulty.

A down payment will also imply that you have the ability to obtain finance elsewhere and so, the lender will try to offer you a more tempting loan proposal in order to keep you as a client. Those who can offer a down payment always get a considerably lower interest rate than those who cannot.

As you can see, a down payment reduces dramatically the risk implied for the lender in the financial transaction, and thus, you’ll be able to get a better deal on your loan. A down payment won’t only reduce the interest rate you pay; it will also lessen all the other loan requirements and will turn the loan terms more flexible. You’ll be able to get stretchy monthly payments and larger loan lengths too.

Home Equity Loans

If you wanted to use that money for making home improvements or for other expenses, you don’t need to worry. Once the deal is closed, the amount you had to put down will become home equity and you’ll be able to request a home equity loan for the difference between your home value and the amount owed on the mortgage. These loans are secured and carry low interests; they are the perfect solution if you ever need the money you used for the down payment.