|
100% FINANCING
Zero Down…How Can We Do That?
It seems that within the mortgage industry, there’s always a great new product just around the corner that benefits the consumer. The latest of these to surface is the “zero down” mortgage. This mortgage seems to suit two decidedly different types of borrowers:
Let’s take a look at them individually:
- If you have great credit, loans have come into existence since January of 2000 that allow you to get a mortgage without having to come up with a down payment. This means that you can borrow 100% of the purchase price of the home, provided that you, the borrower, are contributing a minimum of $500.00 towards the closing costs and escrows. Interest rates on a “zero down” mortgage will run slightly higher than those available to conforming borrowers (those with at least 5% to use for a down payment). The interest rate difference is usually in the neighborhood of .375% higher depending on the amount of the mortgage. (Example, if the going rate was 6.0%, the rate with no down payment would be 6.375%)
- For those with less than average credit, loans are available and are usually viewed as a temporary solution to a short term problem. They can be structured as one loan or as a 1st mortgage (80% of the loan amount) and a 2nd mortgage, (for the remaining 20%) to avoid having to pay mortgage insurance. The loans generally offer fixed rates for 2 -3 years at which time you would be able to refinance. The interest rates are higher than other loans, due to the high risk nature, but are usually determined based on the borrower’s credit scores. In general, scores of 580 or higher are required.
With a Zero Down Payment Loan, you can buy a house NOW, reap the benefits of an interest deduction each year at tax time, and begin to accrue equity in the home of your dreams and if applicable begin the process of restoring your credit.
CREDIT CHALLENGED BUYERS
Bad Credit
Borrowers With Credit Challenges
“Two years ago, I had to make the toughest choice of my life. My youngest daughter had to be taken to the emergency room for an accident. She is ok today, but the hospital bills were the largest bills I have ever seen in my life. My credit began slipping while trying to pay back all the bills…and…well, here I am today.”
This is an all too familiar story. Sometimes life presents tough situations. And then there are times when it comes at you like a freight train. When this happens, you are faced with having to make a CHOICE. However…does that mean you should not be able to own your own home? ABSOLUTELY NOT!
Loan choices for credit-challenged individuals have never been in greater demand. All you will really need is a minimal down payment (sometimes no down payment), some good credit in your recent history, and a strong desire to move past your present situation. With these, you will be on your way to home ownership.
One of the fastest and easiest ways to discover exactly where your situation stands is to call us today for a FREE CREDIT ANALYSIS.
INTEREST ONLY LOANS
Interest-Only is All About Choices…
An ARM that doesn’t leave your hands tied!
With an Interest-Only loan, home buyers are able to choose their monthly payment and can do one of a few things: They can qualify for more home, keep more of their cash in reserve or to save for retirement, pay down high-interest debt, or make home improvements.
It should be noted that this is not a negative amortization product, your principal balance will never increase.
Interest-Only loans offer you:
- Possibility for lower monthly payments: for the first 10 years of the mortgage you can choose to pay interest only – plus any portion of the principal that you would like to pay.
- The chance to be able to afford the home of your dreams – you can buy up to 25% more home with interest-only payments.
- The benefits of an interest tax deduction
- A plethora of money-management opportunities…you can save for:
- Investments, such as tax deferred and high-yield savings, or maximizing contributions to your retirement fund
- Pay non-tax-deductible or high interest debts in full
- Tuition costs, medical expenses, vacations, or home improvement.
Here’s how it works:
This innovative approach to home financing can help you reap the double benefits of more affordable monthly payments PLUS improved cash flow. You choose your own payment amount each month. You may make the minimum payment, which would be interest only…or you can choose to pay towards your principal balance any time you wish – it’s completely up to you! In any case, the principal balance on your mortgage will never increase.
Types of Loans Offered:
Interest Only loans are offered as fixed term adjustable rates or fixed rates. The adjustable rates are offered as a fixed rate for a specific period of time. For example you can pick the length of protection you are comfortable with, 6 months, 1,3,5,7 or 10 years. The rate would be fixed for the initial period and then adjust annually based on market rates after that. The longer the period of time you need protection for the higher the rate. The loans would offer the interest only feature for the initial fixed rate period you select.
Recently, lender started offering a 30 year fixed rate with an interest only payment option for the first 10 or 15 years. The rates are slightly higher than a traditional 30 year fixed and they will amortize over the remaining period once the interest only period expires. For example, if you have a 30 year fixed with a 10 year interest only feature, after ten years, you would still owe the entire balance on the loan and would be required to pay it back over the remaining 20 years. Your payment would jump fairly dramatically in this example…so be prepared.
FIXED RATE LOANS
These loans are fixed for either a 10, 15, 20, 30 or now even 40 year period. They are amortized over the period of time you select, so the shorter the period the larger the monthly payment will be. Also, the shorter the time period you select the more significant the interest savings will be over the term of the loan. But one note of caution is that you should make sure that you are comfortable with whatever period you select, i.e. if you select a 15 year fixed you can’t go back to a 30 year later if let’s say you loose your job. Generally there is a slightly better interest rate offered for the shorter term loans.
ADJUSTABLE RATE LOANS
Adjustable Rate Mortgages, or ARMs, differ from fixed rate mortgages in that the interest rate and monthly payment move up (or down) as market interest rates change.
Most Adjustable Rate Mortgages have an initial period where the interest rate is fixed, followed by a much longer period during which the rate changes at preset intervals. The rates charged during the initial periods are generally lower than the rates found on comparable fixed rate mortgages. The initial fixed rate period can be as short as a month or as long as 10 years. Five-year ARMs are the most common, though the so-called hybrid Adjustable Rate Mortgage has become popular in recent years.
These hybrid Adjustable Rate Mortgages -- sometimes referred to as 3/1, 5/1, 7/1 or 10/1 loans -- have fixed rates for the first three, five, seven or 10 years, followed by rates that adjust annually thereafter. After the fixed rate honeymoon, an adjustable rate mortgage fluctuates at the same rate as an index spelled out in closing documents. The lender finds out what the index value is, adds a margin to that figure, then recalculates what the borrower's new rate and payment will be. The process repeats each time an adjustment date rolls around.
HOME EQUITY LINES AND 2ND MORTGAGES
Home equity lines or second mortgages are popular vehicles today to either avoid paying mortgage insurance or to avoid higher interest rates associated with “jumbo loans” (loans with a balance over $417,000 in 2006).There are several options to consider for second mortgages but for simplicity let’s stay focused on two.
Home equity lines of credit are similar to credit cards; you are approved for a maximum line amount and you borrow only what you need. Interest is paid only on the outstanding balance each month at a rate that will fluctuate based on the Wall Street Prime Rate plus a margin. The margin will be assigned based on several factors; 1) how much you are borrowing (the more you borrow the lower the rate), 2) how much you are borrowing as a percentage of the total homes value ( more you borrow against the value, the higher the rate) and 3) your credit score ( the higher the score, the better the rate). Because the rate fluctuates, it is the riskier of the two options.
Fixed rate second mortgages or Equity Loans, as they are sometimes referred to, provide for a fixed interest rate over a period of time. You can pick from terms of 15, 20 or 30 years to amortized your payments over but most lenders will require a balloon payment after 15 years if your loan amortizes over a longer period of time. In other words, you would have to refinance or payoff the loan if you still happened to have it. With this option, you borrow a fixed amount of money and have a fixed interest rate. Your payments are predictable. The disadvantage is that you don’t have the flexibility you do with a home equity line.
Let’s take an example of how these loans are utilized as an avoidance strategy. The first would be to use two mortgages to avoid paying mortgage insurance (PMI) click here for specific examples. The other would be to avoid paying the higher interest rates associated with jumbo loans (those over $417,000). You can oftentimes structure your first mortgage to be at the conforming loan limit ($417,000) and a second mortgage for the balance. If you are talking about a total loan that will not be that much higher than the limit, this strategy might make sense. We can help you analyze the differences, just give us a call.
|
“We highly recommend Family Mortgage to all friends and family. We tell them about the high level of personal service. Our loan is explained to us in understandable terms. Working with Family Mortgage is the only time we’ve dealt with “loan officers” that are truly working on our side.” Erin Scalese
When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they’d take by loaning money to you. FICO scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus – Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well. Your 3 FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. Taking steps to improve your FICO scores can help you qualify for better rates from lenders.