Your Guide to Mortgage Loans
What Is A Mortgage Loan?
Everyone wants to attain a dream home. However, not everyone has the complete funds required to purchase a home. A mortgage is a loan that is provided to a homebuyer by a lender, to finance their home. The loaned funds are given to the buyer instituted on an agreement that the loan will be returned to the lender within a specified timeframe at an agreed amount.
Why Do People Get Mortgage Loans?
Many homebuyers choose to get a mortgage because as mentioned prior, not everyone has the financial capacity to purchase a home outright at its sale cost. Mortgages provide those seeking a home with access to home ownership as it provides affordability and accessibility. With mortgages, homebuyers can live their dream of purchasing a home for their family.
What Types of Mortgage Loans are Out There?
When it comes to getting a mortgage, there are quite a few financing options available for homebuyers. It relies heavily on what the homebuyers require and also what they qualify for. There are quite a few home mortgage loans offered by the Federal Home Loan Mortgage Corp. that can be of great assistance to those seeking assistance. Below is a list of funding options presently available for mortgages in 2017. They are listed as follows:
Fixed and Adjustable Rate:
The most common options for a mortgage loan are a fixed rate and an adjustable rate. A fixed rate is known for having an interest that remains consistent during your loan. This implies that your payment does not change at any point in time because the interest rate remains constant. Without any fluctuation, the monthly payment initially agreed upon is what continues monthly and yearly until the loan is paid off.
An adjustable rate, also known as ARM’s does what the name implies. The interest rate for this type of mortgage loan fluctuates and adjusts as needed to suit the changing financial market. Usually, the rate will change every year. Or, will change after five years of being a fixed rate. This type of adjustable rate is referred to as a 5/1 ARM or hybrid loan.
Conventional Loan and Government-Insured
A conventional mortgage loan differs from a government insured loan. The clearest distinction is its lack of protection by the federal government.
There are various types government-insured loans, and they are as follows:
FHA: Federal Housing Administration (FHA) is a mortgage program ran by the department of the federal government known as, Housing and Urban Development. The advantage of this loan is that homebuyers are allowed to make a down payment of 3.5% of the home’s purchase price. Conventional loans, and other loans not backed by the government, usually require a down payment of at least 10%. The advantage of this loan is that it is accessible to all homebuyers including those with a history of bankruptcy, foreclosures and a high debt-to-income ratio. FHA loans are more forgiving in regards to finances than other loans, but lending requirements remain.
When considering an FHA mortgage loan, borrowers must be mindful that in addition to their mortgage payments, they must pay a monthly fee for insurance. However, this insurance protects the lender from losses that may occur due to the borrower’s failure to meet legal obligations of the loan.
USDA and RHS: Homebuyers in rural areas seeking a mortgage can take advantage of loans offered by The United States Department of Agriculture (USDA). Managed by the Rural Housing Service (RHS), persons living in rural areas or communities that have a small or humble income are eligible. If conventional loans have proven unsuccessful, USDA loans are an alternative for rural residents. However, revenue and loan requirements differ by county for home mortgage loans of this caliber.
VA: Members of the military and their relatives are eligible for a loan program offered by the U.S. Department of Veterans Affairs (VA). The federal government backs a VA mortgage loan and insures lenders against losses resulting from the borrowers. Thanks to VA loan mortgage insurance, Veteran Affairs can consult with lenders on behalf of the borrower If financial troubles arise. Another prime benefit of this loan is that borrowers do not need a down payment, as they can obtain 100% funding for their home from this program. VA mortgage loans can only be used for primary homes and not homes that are in addition to a home you already have.
It is also important to note that money is not directly loaned to military members of the armed forces from this program. Rather, Veteran Affairs’ consults with private lenders to attain mortgage loans on behalf of the borrower.
Jumbo and Conforming Loan:Depending on the size of the home being purchased, or the mortgage loan needed, you may require a jumbo or conforming loan. The difference between the two is listed below.
Jumbo: As expressed by its name, a jumbo mortgage loan presents a higher risk to its borrower, and this is primarily due to its size. With a higher-priced mortgage loan, there are of course loftier interest rates. To obtain a jumbo mortgage loan, the borrower must have outstanding credit and be willing to evoke larger down payments.
Conforming Loan: A conforming loan has much more stringent rulings as they must abide by the guidelines of the Federal Home Loan Mortgage Corps. known as Fannie Mae or Freddie Mac. The size of loan is the most primary guideline, which is subjected to annual conforming loan limits. Although privately owned, these government-sponsored enterprises create a unique market for mortgage loans by acquiring mortgages from established lenders.
How Do I Know Which Mortgage Loan is Best?
There are many mortgage loans out there. It can become quite difficult to choose the right one. However before you begin perusing around for a mortgage loan, you must assess the following:
- Is my financial situation fitting for such a large loan?
- Will this permit me to have surplus money for other expenditures?
- Is this my forever home? Or will I be moving in the next five years?
These are some of the questions that must be answered before a mortgage loan is acquired. Once you have an idea of your finances, take your time to shop around. Compare various offers and evaluate which loans measure up to your expectations. Choose a mortgage loan with less stringent payments. This decision will help better your financial situation and permit you to allocate money to things that also require financial attention. For instance, consider a lengthy amortization period.These are some of the questions that must be answered before a mortgage loan is acquired. Once you have an idea of your finances, take your time to shop around. Compare various offers and evaluate which loans measure up to your expectations. Choose a mortgage loan with less stringent payments. This decision will help better your financial situation and permit you to allocate money to things that also require financial attention. For instance, consider a lengthy amortization period.
What is Amortization?
Amortization is a term used to describe the process of repaying money that is due for a loaned amount, primarily a mortgage. It specifies each recurring payment on a remunerating loan. If right for you, an amortization of 25 years or more, will help lessen the payment amount that is due recurrently. The only downside is that the larger the amortization period, the more interest required for repayment.
Getting A Mortgage with Student Loans – Is This Possible?
There are many individuals currently suffering from the plagues of student loans, If you are one of them, it may have crossed your mind that obtaining a mortgage loan is bleak. However this is not true, this year in 2017, Fannie Mae has made changes to the requirements for individuals overwhelmed by student loans. Individuals that are on an income-driven repayment program, because of their federal student loans, can take advantage of these new changes. This program is able to set monthly payments, at $0 a month. However, this depends on your discretionary income and the size of your family.
The changes to Fannie Mae’s requirements, although not helping those with private student loans is still extensive. It offers borrowers the ability to qualify for a mortgage despite their federal student loan.
Reverse Mortgage Loans – Is This For Me?
Reverse mortgages are very different from traditional loans. Instead they are much more of a home equity loan. The process involves an exchange where a portion of your home’s equity is traded for cash.
Home Equity Loan vs. Mortgage
In comparison to a mortgage, a home equity loan does not require monthly payments. Money does not have to be paid recurrently until you decide to move from that property.
There are three types of reverse mortgage loans. They are listed as follows: There are three types of reverse mortgage loans. They are listed as follows:
Single-Purpose: As the name implies, it is offered for one purpose. This can be for home repairs or property taxes. It is accessible via non-profit, local or state agencies.
Proprietary: Borrowers with high-valued homes are eligible for this type of loan. It is offered through private lenders and allows borrowers to receive a sizeable amount of money in return.
Home Equity Conversion Mortgage (HECM): This type of reverse mortgage is the most common as there are no limitations on how the money exchanged can be used. Borrowers are given control with regards to how they access and utilize their home’s equity. It is offered by the U.S. Department of Housing and Urban Development (HUD).
The benefits of a reverse mortgage far outweigh its disadvantages. However, as a borrower you must decide whether it is right for you. It must also be decided whether the advantages are enough for you to relinquish your home’s equity.
Benefits of a Reverse Mortgage
Surplus Cash: The most prime advantage and appeal to a mortgage of this form is that it offers more financial freedom. It allows individuals to sustain their current lifestyle whilst purchasing a home. They are also able to use the money to pay off debt, take a vacation, cover monthly expenses, and lengthen the life of their savings. Overall, it offers benefits that extend far beyond its immediate advantages.
Flexibility: The great thing to a reverse mortgage is that it offers financial benefits that are flexible and valuable for homebuyers. Payouts can be allocated to suit any financial necessity. It can be released in the form of a large sum to help with immediate obligations, assigned to a line of credit, or offered recurrently as a supplementary income. Also, you will keep acquiring income as long as you remain in your home. This is based on the option chosen at the beginning of the loan.
Increased Chance of Approval: Potential borrowers suffering from bad-credit or a small income, are still eligible for approval. If this is, in fact, your situation, advances from the loan will be reserved for expenses such as property tax.
Stay in Your Home: If you so decide to purchase a new home, you don’t have to move. You can remain in your old home, and borrow money against it to buy the next home. However, this depends on the limitations outlined in the agreement.
Disadvantages of a Reverse Mortgage
Impairs Home Equity and Finances: If you spend the money received absent-mindedly, you will wound up without money and with a limited amount of home equity. Another aspect to pay attention to is that reverse mortgage loans increase as time progresses. This increase occurs because they are no monthly payments chipping away at the balance. However, with government regulations, there is protection for how much money can be received yearly. This provision helps borrowers avoid the pitfalls that come without having a viable plan.
All Fees Must Be Paid Before You Leave: As mentioned prior, you are not obligated to make any monthly payments other than your property tax and homeowner’s insurance until you leave your home. Should a situation arise that forces you to leave your property, you are expected to pay all fees forthright. The continued expectation for this loan is that you will remain in it for an extended period.
There is also a mortgage loan origination fee that is associated with a Home Equity Conversion Mortgage. You can expect to be charged a percentage by a lender or mortgage broker for creating this type of loan. If you are uncertain whether a loan of this category is right for you, you can contact a HUD-approved housing counselor for further explanation. They will provide greater detail on the requirements and conditions associated with this type of loan.
What Is an Origination Fee on a Mortgage Loan?
For processing a loan application, lenders charge borrowers an upfront fee, known as an origination fee. This charge is merely recompense for generating the loan. In the United States, a percentage ranging from 0.5 to 1% of the loan offered is charged.
Where Can I Get A Mortgage?
A mortgage can be received from a few sources. These include major banks, and private or government-owned lending agencies. It is hard to identify the best bank to get a mortgage loan from, as each bank has their rates, and stipulations ascribed to loaned funds. It is best that you shop around and draw a comparison to ensure that you choose one that is best suited for you. However, it is important also to be mindful of the offers private lenders can extend to homebuyers. In some cases, they can offer better rates than those provided by major banks.
Primerica Mortgage Loan Primerica, a company offering insurance and financial services, does not independently offer mortgage loans. Rather, they work with other lenders and banks such as CitiMortagage to offer mortgages to those seeking them.
What is the Minimum loan Amount for A Mortgage?
The assumption held by many new homebuyers is that banks favor larger mortgages over small loans. Although partially true, this is not the case completely. The minimum loan amount for a mortgage is $50,000. This is the lowest number because anything less than this is not considered feasible for banks or any other financial institutions.
However, it is important to note that some individuals are living in small cities or municipalities where the housing prices are extremely affordable and do not require a large mortgage. Thus, some lenders will provide a less than the standard mortgage to homebuyers. Be aware though that these loans will cost you more, as the interest rates tend to be higher. Also, take note that despite the size of the loan, mortgage loan fees will remain.
If you are searching for a lender for a small mortgage, be persistent. Make contact with banks and other lenders to see whether they will offer it to you. Smaller institutions such a local banks will be less reluctant to support a loan of this size. Also, contacting small private lenders is also a great option.
Don’t be alarmed if you are let down by smaller institutions as they have their preferences as well. As a secondary option, try applying for a personal loan. You will experience less hassle and frustration.
How Long Do I Have to Pay Off My Mortgage Loan?
Depending on the amortization period selected upon signing for your mortgage, this will determine the length of time you have to repay the loan. Don’t get confused though between a term and amortization period. The term implies the duration of time you have agreed to do business with the lender. Once your term is up, for example, five years, you can re-negotiate a new term and amortization period after five years.
How Will Having A Mortgage Affect My Credit?
When shopping around for loans, be careful of how many times you allow them to pull your credit for a new credit line. If possible try to avoid this action. Each time you complete a credit inquiry for a loan, your FICO score drops by one to five points. This drop can have a considerable effect on your credit and potentially harm a healthy FICO score. Remember, a sound credit score is better suited for financing and obtaining a mortgage loan.
Much like any other financing option, mortgages offer you an opportunity to build your credit. The advantage to acquiring a mortgage and paying for it on time recurrently is the positive impact it has on your credit history. A loan of this caliber allows you to shape your credit positively. The issue arises when a payment is missed or paid tardily.
How Does Late Mortgage Payments Affect My Credit?
If you are late on just one mortgage payment, it is likely that your bank will forgive you but your FICO score will not. An absent payment will have a meaningful impact on your FICO score. It will cause your score to drop dramatically by not just a couple of points, but by possibly 90 points or more. To recuperate from this significant impact, it will take a substantial amount of time to rebuild a healthier score.
What Happens If I Can No Longer Pay my Mortgage?
For every homeowner, the excitement comes from being able to afford, purchase, and live in your desired home. It becomes disheartening when you can longer make the payments and suffer the possibility of losing your home. One of the most feared consequences of delay is foreclosure. This is an impending occurrence that stems from being unable to keep up with monthly payments.
It is important to note that if one payment is missed, you will not lose your home instantaneously. Foreclosure involves a process. However, a missed payment is followed by a hit against your FICO score, a subsequent telephone call and after some time a letter informing you of an impending foreclosure. When a foreclosure occurs, your home is no longer yours and becomes the property of the bank.
To avoid falling into this situation, consider contacting your lender if your financial situation changes.
Owning A Home is A Beautiful Thing
Being a homeowner is exciting and implies to many that they are indeed doing something right. They are living the American dream. Before diving into a home purchase and successively a mortgage loan, be sure to make an educated decision. Peruse different options and see which selection makes the most sense and benefits your financial situation. Don’t be afraid to sit down and communicate with mortgage brokers, and financial counselors about which options are ideal for you.