Can you tell me some things I should consider when shopping for a loan?
Shopping for a mortgage these days is like shopping for a new coat – you need one that fits your lifestyle as well as your budget. Many different mortgage products are available today, and each suits a different set of circumstances. Match mortgage terms to your lifestyle.
- For a family that moves frequently or expects to stay less than three years in a starter home, a one-year adjustable-rate mortgage (ARM) would make sense with its low initial rate and a cap on annual increases.
- Planning to stay longer? A five- or seven-year two-step loan provides a low initial rate for a few years with a potentially significant one-time jump at adjustment time if interest rates have risen.Planning to stay longer? A five- or seven-year two-step loan provides a low initial rate for a few years with a potentially significant one-time jump at adjustment time if interest rates have risen.
- A 10-year ARM provides an interest rate lower than a fixed rate mortgage for the first decade, but adjusts annually after that for anyone who hasn’t moved or refinanced.
- If you plan to stay in the house indefinitely, you may opt for a traditional 30-year fixed-rate loan – or 15- or 20-year loan if you can meet the higher payments – and pay extra points to get a lower interest rate.
To decide which to choose, figure all the costs over the time you expect to be in the house, and compare the bottom line. Also compare the monthly payments at each step to be sure they are manageable. Keep in mind the maximum allowable increases when calculating future payments under a worst-case scenario.
Our professionals are armed with the latest mortgage loan information plus more tips on how to choose the right loan for your circumstances. Just give us a call and we can start helping you right away.
What happens if we get near closing on my new house, but my old house hasn’t sold?
Bridge loans can close the timing gap. When buying a new home while selling the old, the timing of closings may not coincide. For buyers who need the money from the sale of their home to close on the new one, a bridge or “swing” loan can be the answer. A bridge loan is a short-term loan in which the buyer can borrow against the equity in the old house, and thus have money to put down on the new. When the old house sells, the loan is repaid.
I’ve found the house I want, but it needs a lot of repair. Can I borrow money for both the mortgage and the repair?
You love the house, but it needs work, and all your cash is going toward the down payment. Now, with a special government program, you can apply for a buy-and-repair loan to borrow enough to fix up the house as well as buy it. The program, which is the Federal Housing Administration’s 203(k) loan, rolls the cost of repairs into the mortgage.
- Under this program, buyers may be able to purchase a fixer-upper with as little as 3.5% in down payment. And recent changes in the program make it more user-friendly including a reduction in mortgage insurance costs and streamlining the approval requirements.Qualified repairs, which must total at least $5,000, can include re-roofing, replacing windows, replacing a water heater or furnace, energy improvements, landscaping and providing handicapped access. Be sure to ask about local loan limits for this program, the same as for other FHA loans.When we work with you, your concerns are our concerns. If we don’t have the answers you need, we’ll find them. Call or e-mail us, then get ready for a productive partnership.
What are some other creative loan options I might want to consider?
- How would you like to spend your money and save it, too? The Asset Integrated Mortgage, or AIM, lets you do just that.
- A home buyer with an AIM loan invests part of the down payment in a life insurance annuity set up by the lender, and draws tax-deferred interest. The minimum is 10% down with 5% of it for the annuity; but if the down payment is 20%, up to 15% can be invested in the annuity, yet counted as collateral, so private mortgage insurance is unnecessary.
- Currently, lenders in at least 50 cities offer AIM loans. For more information, contact Fannie Mae at (800) 732-6643.
A GEM Of A Mortgage Loan
- GEMs (growing equity mortgages) are making a comeback in the world of creative financing. Their early-1980s popularity gave way to ARMs (adjustable-rate mortgages). Their return to the scene was prompted by declining interest rates.
- GEMs have the advantage of being fixed-rate loans with interest rates as low as (or lower than) the lowest ARM rates. Typically, a GEM has a fixed, 30-year rate that approximates the market rate at the time the loan is taken out. The payment for the first year of the loan, however, may be set at a much lower rate – interest only. The payment for the succeeding 2-8 years increases at an agreed-upon rate, typically 3%-7.5% per year, until your monthly payment reaches a specific level for the remainder of the loan.
- As your payments increase on schedule, they will become more than the regular note rate. Then your “overpayments” go toward reducing the principal on the loan. You thereby shorten the life of the mortgage. That’s why, although figured on a 30-year basis, most GEMs are paid off in 15 to 20 years. That’s a way of building equity fast, once you get past the period paying only interest.
Biweekly Mortgages: A Good Value?
- One of the newer twists in the mortgage industry is biweekly mortgages. Here’s a quick look at how they work.
- For an up-front, non-refundable fee – typically several hundred dollars – the mortgage servicer will debit the homeowner’s bank account every two weeks – 26 times a year. This amounts to making an extra month’s payment each year.
- The benefit for the mortgage servicer is they have the use of your funds without paying interest until they apply your payment to the mortgage at the end of the month. The benefit to the consumer is paying off principal debt and increasing home equity faster.
A word of caution, though. Before you jump on the biweekly bandwagon, remember to:
- Comparison shop for the lowest start-up fee; they vary widely.
- Figure out how long you’ll have this mortgage. If you’re planning a move or refinance soon, you will have to pay a new start-up fee for a biweekly payment schedule unless your program is transferable.
- Shop for a program that pays you market interest rates on your money while it is in the mortgage servicer’s hands, prior to being credited to your mortgage balance. Beware of biweekly mortgage scams from non-reputable firms.
- Deal only with experienced, reputable companies. Ask your lender for full details.