Adjustable Rate Mortgages at the Top Five US Bank Mortgage Lenders
Since the price of housing has become so expensive, a number of home buyers continue to look for lower monthly mortgage payments with an adjustable rate mortgage. By reducing the mortgage rate on a home loan by .500%, a borrower a may be able to lower their payments by $31.37 a month for every $100,000 borrowed. Of course, the trade off is the potential for a rising rate and monthly payment when the adjustable rate mortgage adjusts in the future.
The advantage of the 5/1 adjustable rate mortgage (ARM) is that this home loan has an initial five year fixed -interest rate. After this initial five year fixed term, the mortgage rate will adjust on an annual basis according to an index plus a margin.
Current mortgage rates for 5/1 adjustable rate mortgages offered by the five largest US banks include the following rate and point options:
Chase Bank offers a 5/1 ARM with a rate of 4.75% and no points with an APR of 3.847%.
Chase Bank mortgage can be reached at 800-873-6577.
Bank of America offers a 5/1 ARM at 4.00% with 0.875 points and an APR of 3.655%.
Bank of America mortgage operations can be reached at 800-551-7975.
Citibank does actively market a 5/1 ARM. Rates were not available.
To contact Citibank mortgage originations the phone is 800-667-8424.
Wells Fargo Bank promotes a 5/1 adjustable rate mortgage with an interest rate of 4.00% with 1 point and a 3.663% APR.
Wells Fargo Bank mortgages can be contacted at 877-937-9357.
US Bank markets a 5/1 ARM at 4.125% and no pints with an APR of 3.948%.
US Bank mortgages loan personnel can be contacted at 888-831-7524.
Just for good measure, Quicken Loans offers a 5/1 ARM at 3.875% with 1.875 points and an APR of 3.654%.
Quicken Loans can be reached at 800-251-9080.
Mortgage rates continue to remain low though the forecast is for rates to rise in the coming months. During periods of rising rates, borrowers should generally consider locking into the current low fixed interest rates that are available in the mortgage market. Whether mortgage interest rates will rise is open for debate, however rates are highly unlikely to fall any further and will inevitably begin to rise at some point over the next few months or years.
The mortgage rates from the mortgage lenders listed were obtained on January 8, 2010. Mortgage rates are subject to change. All loans are subject to bank approval, additional conditions may apply.
Scams with Home Loan Help
With home loan foreclosures up and consumer credit problems much more prevalent, a number of businesses have cropped up that do nothing but take advantage of homeowners that are under duress and seeking financial relief. These firms are fundamentally scam organizations. The sales pitches from these organizations can sound like a way for a home loan borrower to get out from under their troubles and their delinquent mortgage payments but often these people are in business just to take the homeowner’s money. Just plain old scam organizations preying on homeowners that have fallen behind on their mortgage payments and looking for a legitimate way out or guidance in the right direction.
The office of Housing and Urban Development has provided information on a variety of specific scams that these organizations have engaged in recently. Three scams that were highlighted include:
The foreclosure prevention specialist. With theses scams, the foreclosure specialist is far from a specialist. They are really just fake home loan counselors who charges high fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. Often, the result is that none of the actions provided by these alleged counselors will have the outcome of saving the home from foreclosure. These scams give the homeowners a false sense of hope and delay them from seeking qualified help for their mortgage loan problems. In addition to paying unnecessary fees to the scam artist or company, the homeowner is also exposing their personal financial information to a fraudster that may lead to further financial trouble.
Some of these companies involved will even use names of government programs to try and legitimacy to the scam with the words HOPE or HOPE NOW in them. These are just more refined scam artists who are attempting to dazzle and confuse borrowers who are looking for assistance from the actual assistance that can be found for free at the 888-995-HOPE hotline.
The lease/buy back scam. In these scams a homeowner who has a mortgage that is severely past due may be deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back under certain terms. Usually, the terms of the buyback in this scheme are actually so hard to meet that the buy-back becomes near impossible, which ends with the homeowner getting evicted, and the lease/buy back operator walks off with most or all of the equity in the home.
The bait-and-switch: In a bait and switch scam, the homeowner is led to believe they are signing documents to bring the mortgage loan current. Instead, they are signing a number of legal looking papers that includes signing over the deed to their home. The scam artist then sells the home and the homeowner usually doesn’t know they’ve been scammed until they get an eviction notice from the new homeowner or mortgage lender.
Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.
Unfortunately, during tough economic times more of these unprofessional organizations surface to make a quick a buck of those home owners that are having mortgage payment troubles and are under duress. There are a number of for-profit companies that contact homeowners that have delinquent mortgage loans promising to negotiate with the mortgage lender. While these may be legitimate businesses, they often charge you a significant fee for information and services that the homeowner’s mortgage lender or a HUD approved housing counselor will provide free if they are contacted instead.
Homeowners in trouble don’t need to pay fees for foreclosure prevention help; it is a better decision to use the money that would be paid to these organizations to pay the mortgage instead.
The office of Housing and Urban Developments reminds borrowers that if it sounds too good to be true, it may well be a scam that will damage the borrower’s credit and cost more in the long run. Working directly with the mortgage lender, home loan servicer or a legitimate non-profit organization is the best approach for troubled borrowers.
For homeowners that are unable to make their mortgage payment, don’t ignore the problem any further. The further behind in the mortgage loan payments a borrower becomes, the harder it will be to reinstate the home loan and the more likely that they will lose the house. There is a lot valuable information available regarding foreclosure prevention or loss mitigation, be sure to check that you are working with a reputable organization or directly with your mortgage lender before going forward.
Mortgages and Being a Successful Landlord
If you are ambitious, energetic, smart, and have some money and good credit, owning a rental property might seem like a great idea, but you also need a wide tolerance for the many things that can go wrong. The challenges are always there, especially if you are taking the hands on approach to property management.
There are also many legal and logistical hurdles, and you need the right accountant and lawyer to make sure you are on the right path. There’s a lot of work involved in being a landlord, and if you don’t do it right, you can end up losing money.
Mortgage loans used to acquire property for rent have a higher standard than other mortgage loans. Home mortgages for rental properties will require a larger down payment and entail a slightly higher mortgage rate.
Mortgage lenders view rentals properties or non owner occupied properties as home loans that entail a much greater level of risk. Since the risk is higher for the mortgage lender the standards to become approved for a mortgage that is used to purchase a non owner occupied property is more rigorous.
The starting point of the tighter lending standards is a larger down payment than there is on a standard owner occupied home loan. On top of that requirement, the mortgage rate will normally be at least ½ of a percent higher. The closing costs may be higher as well since non owner occupied purchases usually require more discount points by the mortgage lender. The remainder of the closing costs should be similar, only the points will be greater. Since must all home loans are initially evaluated using an automated underwriting model, potential borrowers will find that these models generally require a slighter higher credit history or credit score than the models used for owner occupied properties.
It may be useful to compare mortgage rates and mortgage costs with a mortgage calculator to see just how much the monthly mortgage payments will be as well as the true cost of t a new home loan to purchase a rental property.
Here’s a quick run-down of what every landlord needs to know regarding conditions that are not specific to the mortgage lenders.
Take care of the record keeping aspects of running your business. Open a bank account for the property and run all bills and rental income through that account. This will simplify your paperwork come tax time.
Finding good tenants will at times be the most time-consuming part of your business. It’s tempting to rent to friends, friends of friends, or relatives, and that can become complicated, especially if you are a bit of a soft touch and are the type of person who is willing to help folks out. This isn’t the place for that.
Think of a tenant as a kind of business partner, someone you can rely on to do their part. Check their references (speak with their previous landlords), pull their credit report and consider running a background check. The National Tenant Network and Registry SafeRent sell credit reports from the three major credit bureaus (Experian, Equifax and TransUnion), as well as more in-depth tenant reports including an eviction judgment check, a criminal report, and verification of employment and landlord references. A modest investment can get you very useful information.
Beyond that, manage your tenants professionally. Don’t become too personally involved. Cleaning up messes in a tenant relationship can be costly, time consuming, and maddening. Be firm but fair with them and they will respect you. Be tough and strong willed, and demand that they meet their obligations.
The building itself can be trouble too, hopefully not but be prepared. If you can’t or won’t pay someone else to repair problems or do standard maintenance, you’ll get used to calls from tenants at all hours complaining of pests, broken pipes, clogged bathtubs, exposed electric wires and other common problems. You need to be handy, or be willing to pay someone who is. A reliable handyman or woman is your best friend.
You should also be aware of your rights as a landlord. Normal wear and tear is something you have to pay for, but you shouldn’t have to pay for deliberate or extremely negligent damage.
You always must be prepared for the worst because even in the best of situations you will have tough days. Talk to other landlords, or join a local landlords group. People with experience have a lot of good advice to go along with some horror stories. Some will recommend that you budget for only ten or eleven months rent to cover eventual late rent or vacancies. Others will make you aware of federal and local laws that protect the rights of tenants. Here are some of the common issues that landlords must pay attention to.
Discrimination
Make sure you have legal reasons to reject an applicant, or you risk getting sued for discrimination. For example, you can’t reject an applicant solely on the basis of his or her race, color, religion, national origin, family status, gender, disability or handicap. You are allowed to refuse renting to tenants with pets or applicants who have previous bankruptcy filings, insufficient income, or lack positive references from previous landlords.
Steering
Steering is encouraging a potential tenant to take one apartment over another. Landlords can easily do this even if their intention is innocent. A landlord who says to a single mother with a teenage daughter, ‘You should take the upstairs unit or the unit in the back’: that’s called steering and it’s illegal. The landlord may have had the best of intentions but under federal and state law he or she has to allow the tenant to choose the unit they want among those that are available.
Security Deposits
One of the most common cases handled in small claims court is a landlord-tenant dispute over a security deposit. Have a clear written agreement that spells out how the security deposit works, and make sure that you are following the law. Some states limit the amount of the deposit you can collect or require you to hold it in a separate account that accrues interest. Generally, landlords can use the deposit for unpaid rent and repairs that are beyond normal wear and tear, but there may be additional state-specific limitations.
Insurance
Whether you rent out a single-family home to one tenant or an entire building with dozens of apartments, you need separate homeowners insurance for your rental properties. This type of insurance can be expensive and you should understand the costs before investing. The more units you rent and the more people there are, the more risk you have, and insurance companies will make you pay for that.
In today’s litigious climate, make sure you have enough liability coverage. If your tenant’s dog bites your neighbor’s child, they’re most likely to go after the tenant but if there’s some negligence on your part they may go after you.
Professional Management
If your finances allow it, property-management companies can do most of the heavy lifting for you. They market the property, maintain it, screen tenants, collect rent, pay the bills, prepare financial statements for you and keep up with the fair housing laws. Management company fees can be up to 10% of the rental income. If you live far from the rental property), for example, you may need a management company to run your business. You might also be better off with professional help if you aren’t especially handy or if you find that being a landlord is taking you away from your job or personal life.
Getting your business off the ground will involve some paperwork other than handling the mortgage lenders requirements. Some states require that you get a business license for your property in order to rent it out. First-time landlords should consult with a real estate attorney and a certified public accountant (CPA) before getting started. A CPA can help you figure out how much rent you should charge in order to make your business profitable, while an attorney can be priceless as you learn the intricacies of the fair housing laws, among other legal issues.
Q. How do I find the best mortgage lender?
A. The most important step in the process of finding the right mortgage lender is to do plenty of research. Unfortunately, most consumers will spend more time shopping and comparing the price of a new television set than they do shopping for a mortgage lender.
When shopping for the best mortgage lender is not only important to shop around and compare mortgage rates and costs, it is equally important to investigate the mortgage lender and their services. It’s important that you find a mortgage lender who will work with you to meet your needs and who you feel comfortable with and gives you a feeling of trust. This will entail comparing rates, services and competence.
It’s not that difficult to choose a good mortgage lender, but you do have to be informed and know what you are looking for in a mortgage lender. In order to shop and compare mortgage lenders, you need to fully understand what you are searching for not what they are selling. In order to understand the product, a prospective home loan borrower has to learn about the mortgage loans available, the average mortgage rates, the costs and the terminology involved in the mortgage loan process. With the knowledge of how the mortgage loan decision making process works, a mortgage shopper can better compare mortgage lenders and question the services and products offered.
Above everything else, do your homework before the application process begins. To find the right mortgage lender a consumer will have to question the mortgage lender and loan officer and this will be difficult to do without some understanding of how a mortgage loan is originated, processes and closed.
Once you, as the potential home loan borrower, understand the mortgage loan types and the process involved, its time to quiz the mortgage lender and mortgage loan officers. The first thing to find out is how knowledgeable the mortgage loan officer is about the home loan options and equally important, how well they explain the process and any potential pitfalls to a smooth home loan closing. The mortgage lender or mortgage loan officer should explain the mortgage rate lock process, the mortgage payments, the loan term, when and if you can refinance again and more.
Which mortgage lender has the best mortgage rate will certainly be a consideration. Of course, it is important to discuss mortgage rates and closing costs. This is a big ticket item and the mortgage rate can have a significant impact on the total costs of the loan. Comparing mortgage rates fortunately is fairly straight forward process.
Go online and check the prevailing mortgage rates in your area for the home loan product you are most interested in. Use these mortgage rates as a starting point to compare the mortgage rates of lenders you call and measure how competitive their mortgage rates really are. Don’t choose a mortgage lender based on mortgage rate alone. Make sure the mortgage lender is competitive with their mortgage rates but be sure to investigate the costs and service as well.
Comparing closing costs can sometimes get fishier. Some mortgage loan officers remain intentionally vague about the total closing costs. Other mortgage lenders employ loan officers that just don’t know that much about what they sell. In these cases it may be wise to move on. A representative of any mortgage lender should be able to explain the mortgage costs with great detail. That means they should explain any origination points, the costs of the appraisal, the title insurance costs, the cost for processing, the credit report, the tax service fee and any other fees the mortgage lender will be charging.
Not only should a good mortgage lender explain these costs, they should be able to explain what they are and why you are being charged the corresponding fee. Once you have chosen your mortgage lender and submitted a home loan application, get a Good Faith Estimate in writing itemizing approximate mortgage costs and fees. Pay close attention to all the figures on the Good Faith Estimate.
You should know, up front, how the mortgage lender will evaluate your application. Have the mortgage lender explain the mortgage loan process and the how they come to approve your home loan request all the way up to how and when they set up the mortgage loan closing or settlement. When you speak with the mortgage lender they should explain the automated underwriting process, the verification process, the documents needed by you to support the down payment and your income as well as how long this process should takes.
While the mortgage lender briefly explains the process, find out how accessible they will be while your home loan application is being evaluated and underwritten. With all the transactions now taking place on line including mortgage origination’s, a face to face application or consultation is not necessary with a mortgage lender but you should at least be able to contact your loan officer by phone or email regularly. Some customers can be annoying but the job as the mortgage loan officer to help you get a home loan. You want to be assured it will be easy for you to monitor the status of your mortgage loan application and be able to ask questions along the way.
A final step should be to ask for references. As good mortgage loan officer should be able to immediately provide references of satisfied customer’s even customers that they are presently working with.
In a nutshell, to choose a good mortgage lender you want to research the products they offer and the mortgage rate, the level of service in handling a home loan application from beginning to end and the reputation of the mortgage lender. Mortgage lenders who understand mortgage rates and costs and the whole loan process are most certainly going to be a very knowledgeable and resourceful mortgage loan officer who has not merely a salesman. Be sure to choose a company that gives helpful advice and that makes you feel comfortable.
Mortgage Lenders, Banker, Brokers, Oh My
Shopping for a home mortgage can be a daunting task. Not only do you have to shop the dizzying selection of mortgage loan products with varying mortgage rates and costs, but with the plethora of mortgage companies out there now you have to choose the type of mortgage lender too.
Choosing the mortgage lender by the type of organization should not be a challenge. Each lending institution will certainly have its strengths and weaknesses but the type of organization should not generally be a deciding factor for obtaining a home loan. Different mortgage lender will have differences in the variety the home loan offerings and mortgage rates between lenders and between regions where they operate but the differences in loan types is generally quite small.
There are exceptions to choosing a mortgage lender, for instance, if you are looking for a construction loan, not all lending institutions will be competitive for this type of home loan. Prospective home loan borrowers need to shop and compare loan products between mortgage lenders when the home loan request more specialized but this has little to do with the type of mortgage company itself.
The regional differences in products and the availability of home loan types and prices applies to brokers, bankers, credit unions, savings and loans and other licensed institutions that originate residential mortgages.
The term mortgage lender has usually been reserved for the financial institution that provides the actual funds at the home loan closing. However, since mortgages are frequently transferred, bought and sold in such a quick time frame, whether the institution that originates the loan is in fact the mortgage lender has become insignificant and most all mortgage originating companies are referred to as the mortgage lender.
There are hundreds of mortgage lenders and mortgage brokers available that will prequalify and preapprove a mortgage loan for almost any consumer looking to make a new home purchase or refinance an existing home loan. Major categories of mortgage lenders include:
Banks. A bank, commercial bank or savings and loan may have the largest financial backing and some of the strongest regulations in the mortgage lending marketplace. Banks and savings and loans which are also called thrift institutions were historically the largest traditional mortgage lenders of residential home mortgages. Mortgage brokers began taking a large share of mortgage origination’s starting in the 1980’s but the savings and loans and banks remain a major source of funding for home mortgage loans and for the time, appear to be perceived by consumers as being more reliable and responsible with mortgage lending.
Some banks will sell the home loans they originate shortly after funding the mortgage other banks don’t sell their home loans to other companies after closing. These banks collect the mortgage payments, manage the escrow accounts for taxes and insurance and maintain the relationship for the long term, but this process is becoming less frequent with home loans being bought and sold regularly and the servicing of the home loan either being retained by the bank or sold along with the loan. When home loan product began operating like a commodity and were bought and sold with regularity, the banks position in the mortgage lending market place diminished measurably however, the credit contraction has a brought a resurgence in mortgage origination’s being handled by banks.
Mortgage Bankers. Mortgage bankers often sell their mortgages to large mortgage servicers or to Fannie Mae and Freddie Mac, two major government-sponsored enterprises that specialize in buying residential mortgages from lenders. Mortgage bankers borrow money from banks or pools of investors, underwrite the loans, and sell them to investors for a profit. Mortgage bankers often receive a fee from these investors for servicing the mortgage if the mortgage banker retains the servicing for the home loan they originate. Mortgage servicing includes collecting monthly payments, sending out loan statements, and collecting on late payments.
Mortgage Brokers. A mortgage broker represents a wide assortment of products and can price home loans with great deal of flexibility since they often work with many mortgage lenders. Mortgage brokers do not make the mortgage loan but rather facilitate the process of obtaining a mortgage loan. The mortgage broker processes the mortgage loan request and may shop a home loan application among different mortgage lenders to find desirable home loan terms for the borrower. In exchange, the mortgage lender and/or the home loan borrower pays the broker a fee. This, however, does not necessarily mean that the consumer will get the best mortgage rate and home loan program or the loan officer’s best mortgage rate and loan program.
Credit Unions. Credit unions operate similar to banks but are owned by their members. Credit unions may offer very attractive home loan terms, particularly if they evaluate their entire banking relationship with you. Since they are nonprofit institutions, credit unions may offer attractive mortgage loan rates to their members. Like commercial mortgage lenders, credit unions sell their loans to Fannie Mae and Freddie Mac to maintain access to new sources of funds. The National Credit Union Administration (NCUA) regulates the credit union industry.
Mortgage bankers, credit unions, savings and loans and possibly more companies can offer home mortgages. With the rapid movement of mortgage money it may be a mistake to rely on one type of mortgage institution as being best as opposed to which mortgage company is chosen. Deciding which type of mortgage lender is best will rarely make any difference in the home loan process. Deciding on the mortgage lender or the originator is the important choice. The variability between mortgage companies in any one category of mortgage lender is so small as to make choosing a mortgage company by the type of organization a difficult task.
It is more important to choose a good loan officer and a reputable firm regardless of the organizational structure. Measuring a good mortgage lender or originating company may be a difficult task. During cautious times, more consumers rely on the regulation and size of the banking industry as the number choice for a mortgage loan. The structure of the mortgage lender is not what makes the home loan right but the ability to have ample resources to call upon and a known regulatory body in which to voice a complaint reassures many consumers that applying for a new home loan at a bank is the right choice. Many mortgage lenders have gone out of business, have been sold, or have stopped making certain kinds of loans, leaving their customers stranded and further reinforcing the apparent advantage held by banks.
Given this conclusion it is still essential to compare the mortgage lenders services and history since the services of that branch or that office is what makes the home loan right for any individual consumer.
Once it has been determined that a bank, mortgage lender or mortgage broker is offering the right home loan product at a favorable mortgage rate and overall cost, measuring quality can be difficult attribute to measure until the home loan process is complete. Quality can generally be regarded as prompt, efficient service from the mortgage rate quotes to question and answer sessions regarding the loan applicants’ needs to a trouble free home loan closing. Measuring the quality of those services in advance may be a challenge.
Along with shopping the source for the home loan, a potential home loan borrower will have to shop the total cost of the home loan including the mortgage rate, fees, points prepayment penalties the loan term and a host of other items.
A good starting point to choosing the right mortgage lender is to perform ample research on the home loan program and shop for the mortgage lender over the phone with sufficient knowledge on the types of home loans and how they are processed. Be sure to call more than one mortgage lender and use the online mortgage calculators to help compare mortgage rates and costs. Compare the services by measuring knowledge of the home loan programs, the questions they have for you and ask for references. Be an astute shopper and compare the mortgage loans, the mortgage rates, the closing costs and test the resources and knowledge of those mortgage lenders who are ultimately paid to help you obtain your mortgage loan.
The 40 Year Mortgage
In the past several years the mortgage market has seen a slew of new home loan products come and go. One mortgage loan product that was first lobbed into the fray by sub prime lenders was a 40-year term mortgage. Now that sub prime is tapering off, this term is being used on mainstream loan products. The advantage of the 40-year term mortgage is to make the monthly payments smaller and housing more affordable. While 40-year mortgages increase affordability by reducing the mortgage payment, the reduction is very modest.
Undeniably, the monthly mortgage payment on a 40 year term loan versus that of a 30 year term will be lower and subsequently allow some borrowers who would not normally qualify for a home loan be able to afford one. However, the effect of extending the term of a mortgage payment is smaller the longer the initial term is set at. This means that a change from 20-year term to a 30-year term can have a sizeable percentage change in the monthly mortgage payment. The change from a 30-year term to a 40-year term is not nearly the equivalent drop in relative payment amounts. For example, a 20-year mortgage for $250,000.00 at 6.0% has a principal and interest payment of $1791.08. If this same mortgage loan is placed on a 30 year term the payment drops to $1498.88 or 16%. This same mortgage loan amortized on a 40 year term would have a payment of $1375.53, a reduction $123.35 or only 8%.
Furthermore, the total payments on a 30-year term mortgage for $250,000.00 at 6% would be $535,595.47. The added 10 years on the same home loan amortized over 40 years yields a total payback of $660,256.37. The additional monthly payments add $120,660.90 in total charges for just a 6% reduction in the monthly mortgage payment.
Lastly, we have to factor in different interest mortgage rates. As a rule, mortgage loans do not last more than three to five years. Homeowners generally refinance or sell their homes long before their home loan term is due. Even though the average home loan does not last anywhere near their original terms, mortgage lenders will charge a higher mortgage rate for the longer term home loans. Fifteen-year term mortgages are usually about 1/4% lower in rate than a comparable 30-year tem mortgage. The extension to 40 year leads to roughly the same increase of about a 1/4 % from a comparable 30-year term. Having already calculated that the value of the 40-year term is fairly small, what limited monthly savings did exist is partially eroded with the higher mortgage rate.
The 40-year mortgage has a practical purpose of allowing a small segment of borrowers the ability to afford a larger home loan. The disadvantage of significantly larger repayment and a slow down in equity build up, almost completely erases the benefit this mortgage loan would have for most all borrowers. Before choosing the term on a home loan, whether it is for 15, 30 or 40 year term, home loan applicants should carefully review their budget and check the monthly payment on different mortgage loan terms with the appropriate mortgage rate. The mortgage calculator is a helpful tool for quickly comparing the different costs, the different monthly mortgage payments, the mortgage rates and the total costs over the expected life of the home loan.
Mortgage Loan Refinance Break Even Analysis
Mortgage refinancing is a measurable sector of in mortgage lending. Mortgage refinancing is normally comprises at least 50% of all mortgage loan applications. When you refinance your existing home loan there are many factors to consider in choosing the optimal term, loan amount, and mortgage rate. The best way to measure the costs and benefits from refinancing is to compare all the costs of the existing mortgage and the new mortgage over a future period of time. The decision to refinance should only be made if the long term savings outweigh the initial expenses. One such tool to help make this cost and benefit decision for home loan refinance is a measurement called the break even period.
The break even period is the number of months it takes before the savings from the lower rate of a refinance covers the costs of the new mortgage refinance. In order to find your break even point, you will need to first determine the amount of time it would take for you to cover the amount of money you spend on closing costs. An example of this would be if you spent $2400.00 on closing costs for a new home loan to reduce the monthly mortgage payment by $115, it would take just under 21 months in order to cover the costs of the refinance or reach the break even point. As long you intend to hold the new home loan for a period beyond the break-even point, the new mortgage loan pays for itself.
There are several types of refinancing options available. If you already have an existing mortgage, simply replacing it with a new first mortgage at a lower mortgage rate may be an option for you but many borrowers are adding additional funds to the refinance or doing a cash out refinance to pay off other debt. Measuring the break even point is more difficult in these cases since the debt being paid off with the cash out transaction generally has much lower term left on it.
When existing homeowners are refinancing more debts into the refinance home loan transaction, extra care should be taken to make sure they are receiving a beneficial mortgage with the appropriate mortgage rate and term that matches the debt being paid off. In these situations it is wise to measure the cost of the home loan and review the savings on the debt you are paying off. The break even point on this debt should be measured over a similar time frame or term. Therefore, don’t just add $15,000.00 in credit card debt pay offs to your cash out refinance and calculate how much you are saving over a 30 year mortgage. The calculation on the savings should be performed as if you were to pay this portion off in a much shorter period that would be comparable to the amount of time it would take to pay off the debt the way it is structured now.
Before you make a commitment to refinance your mortgage, it’s important to do your homework and determine whether such a move is the right one for you. In order to get the best possible refinancing deal, you’ll need to shop around and conduct a detailed cost comparison to see which mortgage offers the greatest financial return.
But what really matters is how long it will take you to break-even on the transaction and whether you plan to stay in your home that long. In other words, make sure you understand, and are comfortable, with the amount of time it will take for your overall savings to compensate for the cost of the refinancing. Use the mortgage calculators to help with the evaluation on process on the home loan closing costs, mortgage payments as well as the break even time period.
Before you make a commitment to refinance your mortgage, it’s important to do your homework and determine whether such a move is the right one for you. And of course, it is always important to evaluate the mortgage rates and mortgage loan programs that are available. A mortgage refinance is all about the numbers, shop and compare to find the best mortgage that fits your needs.
Buying a New Home at a Discount
New home builders are starting to struggle a bit. As the housing market continues to slow, new home sales are dropping. Prospective buyers wind up stuck in their current homes as they struggle to sell, leaving builders with an ever increasing inventory of new homes.
To move those properties, builders are starting to offer substantial incentives and discounts. Some homes have been slashed in price by as much as twenty percent. Other builders pay closing costs on the mortgage loan or offer gift certificates for free furniture to help seal the deal. Home loan related offers also include builders paying points on the mortgage which can help to reduce the mortgage rate. Still others are offering perks such as free rooms or upgrades.
While this situation is getting sticky for some builders, it is a wonderful opportunity for those in a position to buy a new home and take advantage of lower home prices and reduced cost mortgages. For the first time in years, you are now able to negotiate with builders to secure your brand new home at a sizeable discount. Or at the very least take advantage of standard rebates and other incentives builders are throwing at buyers.
Spec Homes
The best deals to be had are on existing inventory. When builders start a home without a buyer lined up, it is called a spec home. These are the “quick move-in” homes advertised by builders for those who don’t want to wait for months to start new construction. These spec homes are also what are weighing heavily on many builders.
When a spec home doesn’t sell quickly, it is costly to builders. An undeveloped lot or even a home in progress is appraised far less than a completed home. As a home nears completion, the taxes are higher and builders feel greater motivation to sell. This motivation is the key to your future great deal.
Builders complete a specific number of spec homes every month depending on market conditions. Of course, new homes can take four to six months to complete, so it can be challenging to judge the market conditions that far in advance which is one reason there are so many spec homes to be found.
Another reason is that many potential buyers start building a new home only to find they are unable to sell their existing home. If they started their new home on a contingency, the builder assumes responsibility of the started home and it becomes yet another spec home for the builder to try to sell through rebates and substantial discounts.
The internet provides an excellent way to begin your research and even complete many of the home buying steps to secure a great deal on a new home with a builder.
Builder Websites
If you know of builders in your area, start by searching their websites for existing inventory. There may be advertised specials on the website, but even so, send an email to the builder requesting additional information on spec homes in the neighborhood and asking if any additional discounts or promotions are available. You’ll likely see a rapid response if the builder is able to move on his price at all or make other incentives to move the house. If the builder isn’t offering to pay mortgage points or mortgage closing costs they may offer upgrades to the property for free or even male the first mortgage payments on yourun new home loan.
Aggregate Sites
Even if you have no idea what companies are building in a certain area, you can still find new homes online along with discounts on those homes. Sites such as inest.com and move.com allow you to search for all new homes in a certain area. These sites may have incentives listed as part of the description on the new home. If not, you can still contact the builder through the company website or possibly through contact information provided by the aggregate site to see if additional discounts exist.
Web Searches
Finally, a web search may help you find additional discount opportunities. In a major search engine, such as Google, type in “Your City New Home Discounts” and see what results you find. Many may be repeats from other research methods, but you may find a hidden jewel or two from custom builders or real estate companies.
Yahoo, among other websites, offers a real estate service that plots new neighborhoods and builders in the area. On Yahoo’s site, a pull down menu in the real estate section allows you to locate new homes in any city you request in the search box.
Local newspaper websites will not only display real estate listings including new homes, but you may also be able to find banner ads displaying the various incentives builders are offering. Search for newspapers in your desired city and then comb through the online real estate section to see what you can find in the way of new homes and possible incentives.
Remember that you are looking for “Available” or “Fast Move-in” or “Move-in Ready” homes from these builders, so vary your keywords when you search to be sure you catch all possible opportunities. Seek out additional discounts and negotiate as much as possible. Even if the builder is not offering financial incentives you can ask if they will negotiate to get your mortgage rate lower. You may just land yourself your dream home and low cost mortgage loan for far less than you ever imagined.
Not-So-Glorious Home Ownership
According to any number of experts in the media, political arena and at backyard barbecues, we should all own our own homes. Home ownership has always been a goal in the United States as it makes a statement about the stability of your income and makes you a better citizen, among other things. Homeowners have long been extolled as being pillars of the moral society, being more involved in the community, and having more educated children. But how much of that is fact, and how much is mere propaganda?
Recent numbers have certainly shown that far too many Americans own homes that they can not afford. Mortgage delinquency is rising as more mortgage payments are slipping seriously past due. These homeowners fell victim to irrational pressures that push home ownership on the American people. People that are now trying to recover from financial loss associated with an unsustainable mortgage loan, credit problems and personal problems stemming from the desire to follow the propaganda pushing the American dream.
Is Home Ownership for Everyone?
If propaganda is to be believed, we should all own our own homes. Unfortunately, many people buy into this belief but fail to consider if, in fact, owning and maintaining their own home is really the right personal decision. There is no doubt society is telling you to buy a home. But it may very well be that your bank account, your lifestyle and your career are sending a very different message entirely.
There are many home loan programs available from the government and banks that have helped low income families become proud home owners with reduced mortgage down payment programs. Unfortunately, many of those homeowners are now staring at rising mortgage payments and imminent foreclosure. Many of these families and individuals took advantage of the sub prime lending craze that swept the nation in recent years thanks to overall low interest rates, low mortgage rates and in some cases additional government assistance.
Now, with mortgage rates creeping back up, mortgage loan payments are coming up too and money is getting tight. When these sub prime buyers are unable to pay their mortgage, they face eviction and foreclosure. Mortgage refinancing, which seemed like a viable option for mortgage payment relief, became more difficult and often involved an even higher mortgage rates. Not only have they lost any investment up to this point, they have also lost their credit rating and their pride. It’s hard to feel good about yourself after being kicked out of the home you were so proud to own a few short years ago as well as losing the mortgage down payment funds and any other money that may have allocated to make previous mortgage payments and housing maintenance.
Don’t Buy a Home
Home ownership isn’t for everyone. When you own a home you must have time and money to spend maintaining that property. You must learn how to cut and edge the lawn and how time consuming driving from the suburbs to the city can be. Many city dwellers who buy a home in the suburbs chafe at the sudden isolation and removal from community activities.
Others find their free time now consumed by drives to and from work every day. Still others realize that paying homeowner association dues and property taxes isn’t as much fun as they were anticipating.
Many homeowners are not only overwhelmed by the new mortgage payment, referred to as payment shock in the mortgage industry, especially when the home loan is based on an adjustable rate mortgage but are also unpleasantly surprised over the cost of maintenance. Maintenance does not just mean maintaining the yard and cleaning but unlike a rental unit in which the structure is maintained by the landlord, your home physical structure including plumbing, electrical and physical wear and tear is maintained by the home owner.
Buying a home isn’t the right choice for many people. If you are in a career that relocates you often, you may be frustrated trying to sell home after home and losing money in mortgage closing costs and commissions. You may also not be an ideal candidate for home ownership if you are at retirement age. Many retirees would do well to sell their homes (along with the maintenance they represent) and find a high-quality, well maintained rental instead.
But Is It Better To Own a Home?
There is some truth to studies that children are more successful academically in families that own homes. There is no difference between those children and children of long-term renters, however. It seems the mobility of families, not the home location is a factor in educational success. Your children will do just as well in a rental as a home, so long as you live there for a long period of time.
Home owners are not necessarily more involved in the community or better citizens, either. Again, the longer you are in a community, the more involved you are likely to become.
As evidence, you can look too many of the cities in Europe. In the United States, 70% of citizens own their own homes. In the well-educated, successful country of Switzerland, only 34% of residents own their own homes. In Berlin, a mere 11% are homeowners.
Perhaps your desire to own a house springs more from the pressure around you than your actual desire to plant a garden or build a porch. Consider strongly your motivation before following the rest of the country into the home buying craze. Study your own personal choices regarding time and your budget for both the mortgage loan down payment and the monthly mortgage payments. Investigate the mortgage programs available and mortgage rates and do not fall into a false sense of security believing that you can always refinance a high mortgage rate into another home loan. The mortgage calculators may be especially helpful in determining mortgage options and mortgage payments. But, the mortgage calculator and mortgage rates can not determine if the work, time and investment in home ownership matches your individual goals and needs.
No Doc, Stated, Alt Doc Home Loans Explained
Before reviewing the guidelines, the background and product description for alternative document home loans, it is important to be aware that most of these types of mortgage loans are no longer available. Limited variations are still available mostly by portfolio lenders but for the most part, the increased delinquencies and foreclosure rate on these loans has curtailed their use for home purchases as well as refinances.
Stated income loans, no document, no income no asset, SIVA, NINA and no ratio home loans are all variations of alternative documentation mortgage loans. Alternative documentation loans were intended to simplify and expedite the loan approval process. Mortgage lenders may offer a variety of documentation requirements from a full documentation loan to one of almost no documentation, aptly named a no doc loan.
The documentation requirements on a mortgage loan are intended to acquire information about the borrowers income, assets and employment. The varying types of alternative documentation mortgage loans lay the groundwork for how and whether this information will be used by the lender. In addition, the lenders documentation requirements will determine whether and how the mortgage lender will verify the information provided.
These mortgage loans were originally designed specifically for self-employed borrowers with high credit quality and significant amounts of equity or large down payments. Given that the risk to the lender rises as documentation requirements become less rigorous, the rate on these mortgages rise likewise.
A stated-income loan (SIL) or no income verification (NIV) loans were the simplest forms of alternative documentation loans. These home loans are designed to qualify a borrower using the income the borrower states, as opposed to the income the borrower can document. With an SIL or NIV, the lender agrees not to verify the income the borrower states on the application. While a mortgage lender does not verify income on an SIL or NIV, they do verify assets and the actual employment, not the income. From this point of documentation, a whole host of alternatives has crept up to establish the income and asset verification standards. On a no-ratio loan, income is not reported at all; on a stated-income/stated-assets loan, both income and assets are stated; on a no-income/no-assets loan, neither income nor assets are reported; and on a no-doc loan, nothing is reported, including employment.
The advent of these mortgage loans was to provide a means for some borrowers to purchase a home or do a cash out mortgage refinance with fewer documents and close the transaction faster. It afforded some borrowers the ability to maintain more financial privacy and confidentiality. These mortgage loan terms did in fact provide flexibility in mortgage financing for these borrowers. In its infancy, these loans were overlooking the verification of income or the borrower’s capacity to pay and compensating this decision with other factors. To account for this reduction in verification and increased risk, the lender would require greater equity in the property and a stronger credit profile combined with a higher interest rate. It was historically given that borrowers with high credit scores were much less likely to be unreasonable in their financial dealings and fail to make the mortgage payments.
Over time, the standards for credit and equity or down payments were reduced. These mortgage loans were now being offered to a much larger segment of borrowers than the programs were originally intended for. The misfortune on the expansion of alternative documentation loans is that some borrowers, without any practical basis for expecting a rise in income or additional resources of any kind, lied about their current income and took out home loans they could not afford. This irrational behavior of some of these borrowers was most likely encouraged by the behavior of greedy or even predatory loan officers who get paid only if a home loan closes.
With the increase in delinquencies on these mortgage loans, alternative documentation loans are regressing back to the original intention and original strict credit and equity guidelines. A borrower should not be steered to a low documentation or no documentation loan by a mortgage lender in order to speed up the loan application and approval process. Most borrowers should know that they would receive better pricing or a better mortgage rate the more documentation they provide. If an alternative documentation loan is needed, potential borrowers should be comfortable with their financial position regarding the affordability of the loan they may be accepting. As these home loans become more restrictive it is likely that potential borrowers will have to perform an amplified amount of shopping to find the best mortgage rate and terms.