Miami Real Estate Mortgage and Loan Information

MORTGAGE BASICS

ALL ABOUT INTEREST RATES

Research Rates

When shopping for a mortgage be sure to begin by researching current Wall Street securities. Mortgage rates, for the most part, rise and fall along with Wall Street securities and are a reflection of the overall direction of interest rates. It is of the borrower's best interest to keep an eye on mortgage market trends and key economic indicators in order to btain the best interest rates savings.

What is APR?

APR (Annual Percentage Rate) is a tool used to compare loans across different lenders. It is required by law (The Federal Truth in Lending law) that mortgage companies disclose the APR when they advertise a rate. This is designed to represent the absolute cost of the loan to the borrower, revealed in the form of a yearly rate. This is a measure taken to prevent lenders from hiding fees and cost behind the fact that they are advertising low interest rates.

Meeting with a Lender

In order to determine (in advance) how much you can afford and an amount of a mortgage for which you can qualify yo should meet with the mortgage company before you even begin your house hunt. This step, also known as pre-qualification, can save you both time and trouble to be certain you are looking in the correct price range for your budget.

Lock in Your Rate

A rate commitment - rate lock - lock in - is a lender's promise to hold a certain interest rate and a certain number of points for you. This is generally for a certain period of time during the duration of your loan application is being processed. Each lender is different, but you
may be able to lock in the interest rate and number of points that you will be charged when you file your application. This will happen either when you file your application, during the process of the loan or when the loan is approved, maybe even later.

The Several Factors That Affect Your Mortgage Rate

• Amount of Loan
• Length of Loan
• Adjustable Rate
• Down Payment
• Lock in Period
• Income Level
• Credit Quality
• Closing Costs
• Discount Points

Both debt-to-income-ratio and quality of credit affect the terms of your loan through FICO Score. If you have good credit and your monthly income surpasses your monthly debt obligations, you will get approved at a lower interest rate. Quite the contrary if your monthly income just covers your minimum debt obligations.

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Should I Pay Points?

An upfront fee that reduces your monthly interest rate and total interest due over the life of the loan is called a "point", which equals 1% of the total loan amount. Another words, a one point loan will always have a lower interest rate than a no point loan. In essence, paying points is a trade off between paying money now versus paying money later.

Depending on how long you are planning on keeping the loan is the determining factor whether or not the pay points. If you are planning to keep the loan for at least four years it is suggested to pay the points up front to ensure that you recoup the costs through lower monthly payments. If moving in the next four years is a possibility or refinancing because the market rate is declining, then it is probably a wise choice to obtain a no point loan.

There are a variety of rate and point combinations for the same loan product available through lenders. So when making the comparison of rates through the different lenders, be sure to compare the associated points and rate combinations of the offered program. The APR (Annual Percentage Rate) is a tool that lenders use to compare different terms, offered rates, and points.

Refinance Considerations

There are many things to consider when making your refinancing decisions. First, if you are planning to live in your house for at least three to five years it would make sense to pay "points" - meaning 1% of the loan amount - and closing costs to get the lowest available rate. Second, even a small rate cut can pay off in a short amount of time. This is because you can very easily find a mortgage company that is willing to waive routine refinancing charges. For example: Legal fees, which can add up to $1,500 - 3,000 and application and appraisal fees. However, you'll have to be willing to accept a rate that's a little higher than "rock bottom" in exchange for low or no upfront costs. And lastly, by adding the points and closing costs to your new mortgage you can avoid putting down cash and still get a low rate.
Does this mean a lot of extra debt? Maybe not. If you've been paying on your current mortgage for at least three years then you've probably already reduced your balance by thousands of dollars. So you may be able to add your closing costs onto your new loan with an ending result of a smaller mortgage than your original one. A benefit of a new lower
rate and a lower monthly payment.

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Get Your Hands on Some Cash

Refinancing for more than the balance remaining on your old mortgage is another way to make a refinance work for you. This is known as "cashing out" or "tapping your home equity" in mortgage speak. You may be able to refinance without boosting your monthly outlay if you acquire favorable rates. A good example: at 8.5% - the payment on a $200,000, 30-year fixed rate mortgage would be $1,538. But at 7.5% - you can borrow nearly $20,000 more with the same payment.

It would be a wise choice to pay off any higher rate loans you may have with the extra cash. Like if you have a $15,000 car loan at $10 and making minimum payments on a $10,000 credit card payment at 17%. This leaves you with a balance of $680 a month in total payments. Now let's assume that you've refinanced your mortgage and you take out an additional $25,000 to pay off your other two debts. End result: At 7.5%, your additional mortgage payment (monthly) would only be $175 - so you would be $505 ahead ($680-$175=$505).

Your Credit Report

The purpose of your credit report ti s to provide valuable information to prospective and current creditors to assist you in making purchases, manage your personal finances,pay for college educations, and secure loans. Credit reporting makes it possible for corporations to benefit the world's economy and for stores to accept checks, businesses to market their products, and for banks to offer credit cards.

Only when a lender makes an inquiry will your credit report be compiled. Information is given by lenders, court records and you is collected by credit reporting agency's file and put into a report form for the requester. Monthly updates are sent to credit reporting agencies by credit grantors. The information in these updates is about how their customers pay and use their accounts.

You are entitled to receive a free copy of your credit report under the Fair Credit Reporting Act.

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Credit Reporting Agencies

Information about you and your credit history is collected by Credit Reporting Agencies via public records and other reliable sources. Legally, these agencies make your credit history available to your current and prospective creditors and employers. It is not up to the
agency to grant or deny credit.

Credit Report Agency Addresses:

Trans Union
P.O. Box 2000
Chester, PA 19022
1-800-888-4213

Equifax
P.O. Box 105873
Atlanta, GA 30348
1-800-685-1111

Experian
P.O. Box 2002
Allen, TX 75013
1-888-397-3742

Credit Grades

Your loan is often graded by your mortgage company based on certain credit related items. For example, bankruptcies, payment history, credit score, and equity position. You are graded with the highest being an A+ - Good/excellent credit during last 2 to 5 years with no
bankruptcy 2 to 10 years. And the worst being an E - Possible current bankruptcy, foreclosure and poor payment record with a a pattern of 30, 60, 90 + late payments.

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Other Credit Factors

Mortgage companies look at other information other than just your most recent credit score and profile before determining whether or not to approve your mortgage. The also take into consideration the following:

• Down Payment Amount
• Mortgage Type
• Income Stability
• Monthly Debts in Relation to Your Income
• Property Type and Value
• Employment History
• Savings Amount and Methods

Know the Score About Your Credit Rating

The importance of keeping tabs on your credit rating is modern knowledge. A good credit score can make a huge difference on a monthly mortgage payment and can also mean lower credit card rates. But who is actually evaluating you? What is considered a good credit score? Here are some questions and answers to common questions regarding your
credit rating.

Q: Is the score treated the same for all kinds of loans?

A: Not necessarily. Depending on the loan size and repayment terms, a mortgage loan will usually require you to have a higher score score in order to qualify for a better rate than, for example, a credit card. But the nature of the loan may also play an important role. Like, a
borrower with a poor credit score applying for a 15 year mortgage with a 25% down payment may qualify for a better rate than someone applying for a one year adjustable rate mortgage. Given a particular score, it is possible to get a prime rate with one lender and a less favorable with another.

Q: What affects my chances for qualifying for a loan?

A: One component of the credit evaluation is a credit score. This is especially the case with mortgage and car loans. With these types of applications, a lender will look beyond your credit score toward your payment history. Late payments on a credit report from a small credit card (as opposed to a mortgage) could work in your favor. Two borrowers both with excellent FICO scores can get different interest rates because of their existing debt burdens.

Q: How is a credit score calculated?

A: When making lending decisions, a value is assigned to several criteria, this a a credit score. This criteria includes the amount you owe to other creditors other than your mortgage. Scorers use the information from your credit report and plug it into formulas that calculate a
value representing the amount of risk you pose to a lender. They compare this account record to other consumers with similar profiles. This score (or value) tells lenders if it is wise to extend yo;u credit.

Q: What can I do to improve my score?

A: It is a good idea to keep up with your credit report at least once a year by ordering a copy of your credit report and disputing any inaccuracies. Too many inquiries can have a negative impact. Late payments will hurt your credit to avoid taking out more credit than you can handle. Avoid "maxing" your credit card and try to keep them with low balances. This will improve your score over a period of time.

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Considering Other Mortgage Programs

There are different types of mortgages to consider when refinancing your mortgage. Like, a 15-year fixed rate mortgage. With this type of loan, your mortgage payments are somewhat higher than a long term loan, but you pay a lot less interest over the life of the loan and build equity more quickly.

Another option is an adjustable rate mortgage with high or no limits on interest rate increases. You could switch to a fixed rate mortgage or even an adjustable rate mortgage that limits changes in the rated at each adjustment date as well as over the life of the loan.

If you are not interested in a "floating" interest rated then get a written statement to guarantee the rate and the number of points that you will pay at closing. This will "lock" in that rate which ensures that the mortgage company will not raise these costs even if the rates increase before you have settled on the new loan.

The majority of mortgage companies place a limit on the length of time that they will guarantee an interest rate. You must sign the loan at that time or lose that particular rate.

Build Home Equity Faster

A good amount of borrowers refinance their loans to shorten the term of the mortgage. But a shorter term (even with low rates) means a higher monthly payment. But the benefit with refinancing is that you will build up equity more quickly and pay less in interest over the life of the loan.

If you are unable to afford payments on a 15-year mortgage, then your next best means of building equity is refinancing (for less than 30 years). You can ask your mortgage broker to customize your new loan's term to match the remaining years on your old loan. For example, if you have been paying on your loan for five years (with a 30-year loan)
then ask for a 25-year loan.

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How to Improve Your Credit

When discussing your options with your mortgage professional, be sure to tell them if you have had any credit problems. For the most part, a professional will understand the legitimacy for credit problems (unemployment, illness, financial difficulties) and if your problems have been corrected and your current payments have been on time for at least a year, then your credit may be considered satisfactory.

Here are four ways to control excess debt:

1. If your credit isn't in too poor of condition, by making changes in your lifestyle to fit your income, you can reduce your other expenses. Like taking equity out of your home, selling your second vehicle, obtaining a loan from a relative, applying for a no secured signature loan, selling your home and paying off debts with the proceeds and then renting. Selling family heirlooms, jewelry and cashing out your 401K/retirement are also beneficial.
2. If the ones from above are not an option or if your credit is already damaged then try CCCS (Consumer Credit Counseling Services. CCCS is able to help you pay off your debt as if you were in Chapter 13 (bankruptcy without having to file for bankruptcy.
3. You might have to consider claiming Chapter 13 (bankruptcy) if CCCS won't take you. Chapter 13 will take longer than Chapter 7 but in the long run your credit will end up better standing. You are allotted five years to pay off your debts with Chapter 13. The negative side is that the bankruptcy shows up for the next five years and your credit report shows the bankruptcy for seven more years after you have finished paying off your debts.
4. Chapter 7 is the best solution for you if you area so far into debt that you will never be able to repay it. Unfortunately, Chapter 7 is the least desirable as far as credit is concerned but within six months you are out of bankruptcy and do not have to repay any debt. The down side of Chapter 7 is that is will show up on your credit report for the next ten years. This may also make it harder for you to get financing considering creditors generally frown upon Chapter 7 bankruptcy.

Let's say your debts are under control now but would like to improve your bad credit history. At this point, the most important factor is to make sure your payments are always on time. Use pre-addressed envelopes enclosed with your statements when mailing and call the company if you do not receive the statement monthly. You can also send your payment as early as possible if you carry a balance. Most companies charge interest daily so the sooner you send in your payment the less interest you will be responsible for.

The postmark date does not matter to a creditor, it is the day your payment is received the matters most. Gibe the post office five business days to deliver your mail. Late payments - late fees - higher interest - and/or negative marks on your credit report!

Open a checking account if you do not already have one, never send cash, or use a money order and keep the receipt. Remember to inform your creditors of your new address change if you move.

It is a good idea to make a list of payments and when they are due. This will help you to keep up with your payments and on time. Contact your lenders as soon as possible if you think your monthly payments will be late and arrange a payment schedule.

There could be serious drawbacks from taking money from your retirement account or tapping the cash value of your life insurance policy to pay your bills. It is important to get expert advice before you take any major financial actions.

Credit cards can be a valuable possession to have in the event of a crisis since they allow you to charge items and pay them off in monthly payments. However, this can put you in a dangerous situation if you are not careful and charge more than you can afford. If credit cards are a necessity for you the choose those with the lowest interest rates and pay them back as soon as you can to cut your monthly overall debt payments.

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Credit Profile

A credit profile is a list of what types of credits you use, whether you've paid your bills on time, and the length of time your accounts have been open. It is a detailed credit history as it has been reported to the crediting agencies by the lenders that have given credit to you. This tells lender how much credit you have been using and whether you are seeking a new source of credit. Another words, it is a detailed description of how you paid back the companies you have borrowed money from and if you have met other financial obligations.

Here is a list of categories usually listed on a credit profile:

• Inquiries
• Credit Information
• Identifying Information
• Employment Information
• Public Record Information

These are items that should NOT be included on your credit profile:

• Your Income
• Your Race
• Your Political Preference
• Your Religion
• Your Criminal Record
• Your Health
• Your Driving Record

Should I Consolidate My Debt?

By combining your bills into a single source, you will discover your monthly savings. With a tax deductible consolidation loan, you can eliminate high interest rate credit card and installment loans. Consult your tax advisor and they will assist you in figuring out how long before your savings equal the cost of obtaining a new consolidation loan. Ask how long it will take to pay off the loan if consolidated if you are to make a payment equal to your total monthly payments. Just keep in mind that these calculations are only estimates. Taking out a home equity loan could increase the number of monthly payments as well as the total amount paid when comparing to your current situation.

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Choosing a Loan Program

There is not an easy answer to this question. There are many factors involved when choosing the right loan for you. For example:

• Are you comfortable with your mortgage payment changing?
• How long do you intend on keeping your house?
• What is your current financial situation like?
• How do you expect your finances to change?

A good example would be an adjustable rate mortgage. It may get you started with a lower monthly payment than a fixed rate mortgage but your payments could get higher when the interest rates change. Or a 15-year fixed rate mortgage, it can save you many thousands of dollars in interest payments over the life of the loan, however, your monthly payment will be higher. To ensure you make the right decisions, discuss your financial plans and finances with a mortgage professional.

Conventional and Jumbo Loans

Fannie Mae and Freddie Mac are government sponsored entities (GSEs) that secure conventional loans. This loan can be made to purchase or refinance a home with the first and second mortgage on a single family to four family homes.

Generally, Fannie Mae and Freddie Mac first morgtgage - single family loan limit is $359,650 in 2005. This loan limit is reviewed once a year and if necessary will change to reflect changes in the national average price for single family homes. As of January 1, 2005 the loan limit applies to all conventional mortgages.

2005 Conventional Loan Limits

First Mortgages

• One-family loans: $359,650
• Two-family loans: $460,400
• Three-family loans: $555, 500
• Four-family loans: $691,600

Note: First mortgages on properties in the U.S. Virgin Islands, Guam, Alaska, and Guam are 50 percent higher for first mortgages on maximum original loan amounts.

Second Mortgages

• $179,825
• $269,725 in the U.S. Virgin Islands, Hawaii and Alaska

Jumbo loans are loans which are larger than the limits set by Fannie Mae and Freddie Mac. They are not funded by the two government entities so they usually carry a higher interest rate and other underwriting requirements. If your purchase or refinance balance is
above $359,650 a wise approach to lower your overall interest payments is to use a combination of both first and second trust money. This is referred to as an 80/10/10, 80/15/5 or 80/20.

Fannie Mae and Freddie Mac have other loan programs for low to no down payments, not just the common loan structures such as adjustable rate, fixed rate and balloon loans. Like Community lending and affordable housing initiatives, home improvement and reverse mortgages, and construction to permanent.

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Subprime Loans

There is a chance you will not qualify for a conventional loan or a low down payment loan offered by FHA and VA if you have bad credit. If this is the case then you may want to consider a subprime mortgage. Subprime loans generally require a larger down payment and higher interest rates because of the higher risk associated with a a borrower that has bad or poor credit.

Study the terms and conditions of a subprime loan to see if this loan is suited for your personal and financial needs. It is an option for you to get into the home you want at today's price. A subprime loan is a good way for you to refinance your home if you already own it and clean up your credit so that you are able to ultimately refinance into a lower rate at a later time. If you do already have a mortgage you can refinance more than what you owe on the house and get cash back for the equity that you already have in the home. This cash can be used to clean up a poor credit history, pay off higher rate credit cards, bankruptcy, liens and collections or foreclosures.

Subprime loans are generally a short term solution when purchasing or refinancing that last approximately 2-4 years. This gives you time to clean up your credit and qualify to refinance in the future with a lower interest rate.

Fifteen years ago it was a lot harder to obtain a mortgage if the borrower did not qualify for a VA, FHA or conventional loan. Because of this, subprime loans were developed to help borrowers with a higher risk obtain a mortgage. Most borrowers intend on paying their bills on time and do not intend on acquiring bad credit. But sometimes unfortunate events take place such as a family illness or loss of job leading to late or missed payments or even foreclosure and bankruptcy. Nowadays there are mortgage companies that take these events into consideration and try to accommodate the borrower's needs, but with a
price.

Lenders are not going without being compensated for risk and this is where the interest rate comes into place. If the borrower appears to be at a higher risk then the interest rate will be higher for the privilege of borrowing their money. Likewise, the lower the risk, the lower the interest rate. The borrower's payment and credit history is the most important factor when being evaluated for a subprime mortgage. Employment history, type of property and assets, and debt to income level are additional factors taken into consideration when determining if, in fact, the borrower qualifies for a subprime, conventional or government loan.

FHA Single Family Mortgage Insurance Program

By lowering some of the costs of mortgage loans, moderate income families are able to become homeowners with the FHA's mortgage insurance program. Because of this insurance program borrowers that are otherwise creditworthy and may not meet underwriting requirements are able to get a loan. The loan company is therefore protected against loan default on mortgages for the properties that meet specified minimum requirements which include single and multifamily properties, some health related facilities, and manufactured homes.

The successor in the program that helped save homeowners from default in the 1930's is Section 203(b) which is the centerpiece of FHA's single family insurance programs. This program helped to open the suburbs for returning veterans in the 1940's and 1950's and shaped the modern mortgage finance system. FHA One to Four Family Mortgage Insurance is still and important tool that can help expand home ownership opportunities for first time buyers/borrowers who would not ordinarily qualify for conventional loans with affordable terms. This is also true for those who live in the under served areas, the Federal Government helps get loans in those areas where mortgages may be harder to get. This program insured more than 790,000 homes in 1997 valued at almost $60 billion. Currently, FHA insures about 7 million loans valued at nearly $400 billion. FHA's Mutual Mortgage INsurance Fund protects these obligations which is sustained entirely by borrower premiums.

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The Important Features of Section 203 (b)

Some fees are limited - Because of FHA rules, limits are put on some of the fees that mortgage companies may charge in making a loan. A good example o this would be that the loan origination fee charged by the mortgage company for the administration cost of processing the loan may not exceed one percent of the amount of the mortgage.

Down payment requirements can be low - Conventional mortgage products frequently require down payments of 10 percent or more of the purchase price of the home. In contrast, single family mortgages insured by FHA under Section 203 (b) make it possible to reduce down payments to as little as three percent. Because of this, FHA insurance allows the borrower to finance about 97 percent of the total value of the home purchase through their mortgage (in some cases not all).

Many closing costs can be financed - For the most part, the borrower is responsible for paying, at the time of purchase, any closing costs or fees associated with most conventional loans which is generally 2-3 percent of the price of the home. But with program, the borrower is allowed to finance many of these costs which means less of the upfront costs of buying a home. However, FHA mortgage insurance is not free. The borrower is responsible to pay an upfront premium (which can be financed) at the time of purchase as well as monthly premiums (that are not financed) but that are added to the regular mortgage payment.

HUD sets limits on the amount that may be insured - To assure that its programs serve low and moderate income borrowers, FHA has set limits on the dollar value of the mortgage loan.

Who is Eligible for a VA Loan?

Veterans of World War II and later periods are eligible for VA loan benefits. The had to have served on active duty and were discharged under conditions other than dishonorable. Veterans of the following must have at least ninety days active service. World War II - September 16, 1940 to July 25, 1947. Korean conflict (June 27, 1950 to January 31, 1955. And Vietnam era August 5, 1964 to May 7, 1975. Those veterans that served only during peacetime periods and active duty military personnel must have had more than 180 active service. Veterans must have completed two years of continuous active duty or the full period for which you were called in the Gulf War. If you are currently on active duty (not training) you will be eligible after having served 181 days.

An unremarried spouse of a veteran who died while in service or from a service connected disability may also be eligible. Also a spouse of a serviceperson missing in action or a prisoner of war.

There are other positions in certain United States organizations like Air Force, Public Service officers, cadets at the United States Military, Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, and merchant seaman with WW II service that may also be eligible. Certain United States citizens who served in the armed forces of a government allied with the United States in WW II may also qualify.

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Obtaining a VA Loan

VA Appraisal - Certificate of Reasonable Value

The appraiser's estimate of the value of the property to be purchased is known as the CRV or certificate of reasonable value. The first step in getting a VA loan is requesting an appraisal to be assured the loan amount does not exceed the CRV. The buyer, seller, lender or real estate agent can request the ap;appraisal by completing VA Form 26-1805 - Request for Determination of Reasonable Value. VA and HUD/FHA (Department of Housing and Urban Development/Federal Housing Administration) use the same appraisal forms. The form can then be sent to the Loan Guaranty Division at the nearest VA office for processing or a telephone request can be made to the Loan Guaranty Division of assignment of an appraiser. Contact your local VA office for information on their procedures. The appraiser then bills the
requester. In some circumstances the HUD conditional commitment can be converted to a VA CRV if the property was appraised under the HUD procedure if the property was appraised recently. The local VA office will have more information explaining the rules and process.

Keep in mind that the VA appraisal is not an inspection, they are simply estimating the value of the house. It is important to hire professional inspectors to help detect any defects. VA will guarantee the loan but not the condition of the property.

Application

The VA application process is the same as any other type of loan. Conventional loans use the same form as HUD/FHA and VA loans. The lender then checks on your credit report to see that all of your obligations are being paid and on time and verifies your income and assets. If the appraised value of the home is enough to cover the loan and the credit information is accepted, then the loan will be processed under VA's automatic procedure.

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VA Loan Questions and Answers

Q: How large of a loan can I get?

A: Private lenders guarantee VA loans like mortgage companies, savings & loans, and banks to eligible veterans for the purchase of a home to be used as their own personal occupancy. A veteran must apply to a lender in order to get a loan. Once approved the VA will guarantee just a portion of it to the lender. The guaranty is protection for the lender against loss up to the amount guaranteed. This allows the veteran/borrower more favorable financing terms. Lenders generally limit VA loans to $359,650. It is possible for qualified veterans to obtain no down payment if the loan is under this amount. Since a veteran's basic entitlement is $36,000, lenders will generally loan up to four times a veteran's available entitlement without a down payment. This is provided, of course, the veteran is income and credit qualified and the property appraises for the asking price.

Q: Can I get a VA loan if I have had a bankruptcy in the last few years?

A: If a veteran has had a bankruptcy less than three years ago he/she would generally not be considered a satisfactory credit risk unless: the bankruptcy was caused by circumstances beyond the control of the borrower (which would have to be verified) or the spouse or spouse of the veteran has obtained items on credit since the bankruptcy and has paid the obligations in a satisfactory manner for a continued period. A bankruptcy five years and older may be disregarded if discharged and a bankruptcy discharged three to five years ago is give some consideration when underwriting the loan. These are a few of the minimum standards that mortgage companies must keep when determining a VA loan. However, 95% of the time companies make a decision to approve a loan without VA's prior approval. Mortgage companies have stricter credit standard than those mandated by VA because they have money at risk in giving you a loan.

Q: May a veteran join with a non veteran who is not his or her spouse in
obtaining a VA loan?

A: The answer is yes. However, the guarantee is based purely on the veteran's portion of the loan and not the non veteran's portion of the loan. Not all mortgage companies are willing to accept applications for joint loans of this type so you might have to shop around in this particular situation. Mortgage companies will submit joint loans to VA for approval before they are made and will likely require a down payment to cover risk on the non guaranteed, non veteran's portion of the loan. Even though both incomes can be used to qualify for the loan, the veteran's income must be sufficient to repay at least that portion of the loan related to the veteran's portion of the property and the rest can be covered by the non veteran's income.

Q: Why do I have to pay a fee for a VA home Loan? Since I paid a fee for my first loan, why is there a larger fee for my second loan?

A: The law requires a VA funding fee which is currently two percent and no down payment loans. This is to enable the veteran (the borrower) to contribute toward the cost of this benefit by reducing the cost to taxpayers. There is a three percent funding fee for second time users who do not make a down payment. The reason for a higher fee for a second time user is for the simple fact that these veterans have already had a chance to use this benefit once meaning they have already had the opportunity to accumulate equity or save money towards a down payment. If a second time user makes a down payment of at least five percent they pay a reduced fee of 1.5 percent, the same as first time users making the same down payment. With a ten percent down payment the fee drops to 1.25 percent. The fee may be financed in the loan so the effect of the funding fee on a veteran's financial situation is minimized.

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Home Equity Credit Line of Credit (HELOC)

Home equity lines may be a useful source of credit if you need to borrow money. This is a good way to acquire large amounts of cash with a fairly low interest rate and provide you with certain tax advantages unavailable with other kinds of loans. Keep in mind, your home will be used as collateral for the loan putting your home at risk if you are late or cannot make your monthly payments. Some loans have a large final payment (known as a balloon payment) and may lead you to borrow more money to pay off this debt. If you do not qualify for refinancing your home may be in jeopardy! If you decide to sell your home it may be required that you pay off your credit line at that time. With easy access to cash through an equity loan, you may find it easier to borrow money more freely.

But there are other options to investigate when borrowing money from a lending institution. Like a second mortgage installment loan. Second mortgage money usually is loaned in a lump sum (these plans still place an additional mortgage on your home) rather that writing checks for your advances that are available to you on an account. Second mortgage loans generally have fixed payment amounts and fixed interest rates.

Exploring credibleness that do not use your home as collateral is another option. These loans are available using unsecured credit liens that let you write checks or using your credit card. You can also ask the mortgage company about loans for specific items like college tuition or cars.

Length of a Second Mortgage

Mortgage loans vary in length anywhere from one year to twenty years. These options can be discussed with your mortgage company and they can help you to decide which term best suits your personal and financial needs. For example, if you are borrowing $25,000 to make adjustments to your home, you may not want a loan that has to be paid off in a couple of years because they monthly payments will be too high.

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Second Mortgage Payment Calculations

Your mortgage company should be able to tell you in advance how much your monthly payment will be and specifically what it will cover. Some loans are interest only on the borrowed amount. With these loans your monthly payments do not reduce the principal amount of the loan, meaning, you are required to pay back the entire borrowed amount at the end of the loan period. These loans are known as "balloon loans" and if your loan has a "balloon" payment you should plan ahead on the arrangement of repaying the entire amount at the end of the loan term. Other loans are monthly payments on the principal and interest.

With a "home equity line", the mortgage company is not required to give you an exact amount of the monthly payment (but must explain how it is figured). There is no set monthly payment because the borrowed amount will vary and your outstanding balance will change if you use the line of credit.

Second Mortgage Costs

Most companies charge a fee for lending you money and that fee is usually a percentage of the loan and is sometimes referred to as "points." One point per percent of the money they lend to you. For example, on a $10,000 loan with an eight point fee, you would pay $800 in "points." Each mortgage company charges points in different variations so research before you settle on one company. Try to bargain for a lower fee or shop around until you find a mortgage company offering a lower fee and even then it is a must you get the amount of the fee in writing before you take the loan. Many states regulate the amount of fees that may be charged on a second mortgage loan so you can check with the consumer protection office or baking commissioner in your state to determine what their limit is.

Fixed Rate Mortgages

The most widely used mortgage program is where your monthly payments for interest and principal never change. Even when property taxes and homeowner's insurance increases, your monthly payments will be stable. Fixed rate mortgages are available for 10 years, 15 years, 20 years, and 30 years. There are shorter loans which are called "biweekly" mortgages - they shorten the loans by calling for half the monthly payment every two weeks. You make 26 payments in a year (since there are 52 weeks in a year) or 13 months" worth, every year.

There are two features of fixed rate fully amortizing loans. The most distinctive feature is the fact that the interest rate remains fixed for the life of the loan. The payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term. 15 and 30 year mortgages are the most common fixed rate loans.

A large percentage of the monthly payment is used for paying the interest during the early amortization period. More of the monthly payment is applied to the principal as the loan is paid. It takes 22 1/2 years of level payments to pay half of the original loan amount
with a typical 30 year fixed rate mortgage.

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Adjustable Rate Mortgages (ARMS)

An adjustable rate loan begins with an interest rate that is usually lower (2-3 percent) than a comparable fixed rate mortgage. Because of this you could buy a more expensive home. However, depending on changing market conditions the interest rates change on a yearly basis. If the rates go up then your monthly mortgage payment goes up as well
as if the interest rates drop, so will your payments.

Some mortgages are a combination of aspects from both an adjustable rate mortgage and a fixed rate mortgage starting at a low fixed rate for seven to ten years then adjusting to market conditions. Your mortgage professional will be able to answer all of your questions
regarding special mortgage programs set up to fit most financial situations.

Introductory Rate ARM's

Most ARMs (adjustable rate loans) start with a low introductory rate and is usually good from one month to up to ten years. This rate could be as low as 5.0 percent below the current market rate of a fixed loan. Generally, the lower the start rate is the shorter the time before the loan makes its first adjustment.

Margin

The margin is one of the most important facets of ARMs. The interest rate that you pay is determined by adding it to the index. The index and the margin added is known as the fully indexed rate. Like if the index is currently 5.50% and your loan has a margin of 2.5% then your fully indexed rate is 8.00%. Margins on loans generally range from 1.75% to 3.5% depending on the amount financed and the index in relation to the property value.

Index

When referring to ARMs, the index is the financial instrument that the loan is "tied" or adjusted to. The most common are LIBOR (London Interbank Offered Rate), Prime, the 1-Year Treasury Security, 6-Month Certificate of Deposit (CD), and the 11th District Cost of Funds (COFI). Depending on the conditions of the financial markets, each of
these indices move up or down.

Payment Caps

Some loans may have a payment cap rather than the interest rate cap. These loans can lead to deferred interest or negative amortization by reducing payment shock in a rising interest rate market. The loans usually cap your annual payment increases to 7.5% of the previous
payment.

Interim Caps

Interim caps are carried in all adjustable rate loans. It is standard for most ARMs to have interest rate caps of six months or a year or some up to three years. Interest rate caps can keep your interest rate higher than the fully indexed rate if rates are falling rapidly but are
beneficial in rising interest rate markets.

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Lifetime Caps

Most ARMs have a lifetime interest rate cap or a maximum interest rate cap. There is generally a higher margin on loans with low lifetime caps and lower margins on a higher lifetime cap. The lifetime will vary for each company and loan depending.

Applying for a Mortgage

Step 1: Research

*Start your research process
*Get an idea of what ballpark your loan is in
*Determine an estimate of what you can afford

Step 2: Pre qualify

*Search and compare mortgage lenders
*Once you have settled on a lender set up an appointment
*They can help you to determine what kind of house you can afford and
the best loan for you

Step 3: Complete Mortgage Application

*Applications are available online
*Sign a release allowing a lender to research a credit check

Step 4: Pre-Approval

*Your information will be confirmed
*Your credit report will be checked
*The loan is approve, subject to appraisal
*Being pre-approved will speed up the process when you find your home

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Choosing a Mortgage Company

When you begin shopping for a loan you can work with a mortgage broker who represents many individual lenders or with the lender directly. Direct lenders have in-house programs and lend with their own money so they make the final decision on your application. Along with shopping for a source, you will be shopping for the total cost of the loan, including the interest rate, points (each part is one percent of the amount you borrow), fee, prepayment penalties, the loan term and other items. Brokers are knowledgeable about many lenders and act as an intermediary between the borrower and the lender and can help you choose the loan program that is best for your financial needs. If you have special financing needs a broker might be a better choice for you.

Steps to Take After Being Denied a Mortgage Loan

Here are a few steps you can take if you are turned down for a loan:

If you are turned down for a credit, lenders are required by a federal law (The Equal Credit Opportunity Act) to give you a written statement. The document must include the specific reasons why you were denied credit and information on how to obtain those reasons. If a credit report was used to make the denying decision.

You may request more detailed information if you do not understand the reasons given for turning down your application. The decisions involved in determining good or bad credit involves many factors so it can be hard to understand why it may not have been approved. It is okay to ask questions since the information you receive may help you to improve your credit to enable you to qualify in the future. You may not qualify for something as simple as not being at your address or job for the required amount of time. Or you may not meet the creditor's minimum income requirements.

You are entitled to a free copy of your credit report if yo are denied for a loan because of poor credit. You have sixty days to request it so order it right away. Read your report carefully and thoroughly to ensure it is accurate. Check for any errors and dispute them with the credit report agency if there are any discrepancies. If this error led to the refection of your application, ask the credit bureau to send a corrected copy to the lender. Keep in contact with your lender to determine if the application can be reevaluated.

Lastly, try again! Each lender has different credit standards so just because you did not get a loan from one financial institution it does not mean that you cannot get one at another. Try again at another company just do not try more than four or five times within a six month
time period. Too many inquiries leave a bad reflection on your credit report.

You might want to consider loan programs for low to moderate income borrowers with lower down payment requirements like FHA loans or VA loans if your loan application was rejected because of insufficient income. This may help you to afford the house you want even though you do not have the funds for closing costs and the down payment.

If you request the loan amount that is larger than 95% of the appraised
property value, then it is likely that you will not get the loan. If
this is the case you can make an additional down payment to cover the
difference between the appraised values and the purchase price.
Another option is renegotiating with the seller for the purchase price
to lower the amount which will lower the amount of the loan. Or if you
feel like the appraiser undervalued the property suggest that the
lender reexamine the appraisal.

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Low Down Payments and Mortgage Insurance

If the homeowner stops making payments on the loan, mortgage insurance is used to protect the mortgage company against financial loss. If the event that the homeowner does not pay his or her payments, a default occurs and the home goes into foreclosure and both the homeowner and the mortgage insurer lose. To protect themselves in this event,
insurance companies usually require insurance on low down payment loans. The mortgage insurer is then responsible to pay the mortgage company's claim on the defaulted loan and the homeowner loses the house and all the money invested into it. This is why is it very important to not overextend yourself in a loan at the time of purchase.

Mortgage insurance is available to all of whom offer mortgage loans to home buyers including mortgage bankers, savings & loans, and commercial banks. Even though the mortgage insurance is paid by the borrower (the home buyer), the mortgage insurer works directly with the mortgage company.

Mortgage insurance and credit life insurance are not the same. Mortgage life insurance is the type of policy that repays an outstanding mortgage balance upon the death of the person who took out the insurance policy.

The Secondary Market

The requirements of investors in the mortgage market drive the mortgage company's decision to use mortgage insurance. With the possibilities of losses, major investors require mortgage insurance on all of the loans made with low down payments.

Federal National Mortgage Association (Fannie Mae), Government National Mortgage Association (Ginnie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac) are primary investors in home loans. Fannie Mae and Freddie Mac help keep money available for home across the U.S. by purchasing and selling residential mortgages. Ginnie Mae, however,
does not actually buy mortgages. Instead, it adds the guarantee of the full faith and credit of the U.S. Government to mortgage securities issued by mortgage companies.

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Government Insurance and Private Insurance

Now you have a basic understanding of mortgage insurance, how it works, and why it is necessary. Now let's look at the basic kinds of mortgage insurance. There are two ways a low down payment mortgages can be insured. Through the government or through a private sector. Mortgages backed by the governments are insured by the FHA (Federal Housing Administration, FmHA (Farmers Home Administration, and VA (Veterans Affairs).

VA and FmHA loans are much more targeted than the FHA loan. The VA program is limited to eligible veterans and reservists that are qualified. Your mortgage professional will have more information regarding the specialized qualifications needed before you apply for the VA loan. The FmHA loan insures for the construction and purchase of homes in rural areas.

A conventional mortgage is a home loan not guaranteed by the government including those guaranteed by private mortgage insurers. Choosing conventional financing is an alternative to a home loan backed by the government.

Your mortgage professional will play an important role in helping you to decide which insurance is best for your needs which is why it is important for you to choose an experienced broker that specializes in his/her field. Although private and government insurance are based on the same concept of allowing families to get into homes with less cash down payment, there are many differences between the two.

Private mortgage insurance companies make it a policy that home buyers must make a down payment of at least 5% of the home's value to be considered. However, there are special programs whereas the down payment requirement allows the buyer to use a grant to cover 2% of the 5% down payment required by private mortgage insurers. This grant or
"gift" may come from an outside source such as a family member, organization, friend or community group.

There is a wide variety of home loans available with no preset limit on the loan amount at private mortgage companies. With such a wide variety of loans available to the public, home buyers have the freedom to shop around and find the loan that best suits their needs. It is a
good idea to meet with companies early in the home buying process to compare the types of mortgages available and compare price and terms. Your mortgage professional can handle all of the arrangements concerning your FHA or private mortgage.

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Foreclosure Tips

Here are some tips on buying a foreclosure property below market value:

Foreclosure properties can be a good investment or give home buyers a much more affordable option than traditional properties. Some web-based services give consumers access to foreclosure and pre-foreclosure information that was previously available only to
professional real estate brokers and investors. Now, home buyers can use these services to identify potential home purchases.

1. Learn about the different types of foreclosure properties and the
foreclosure process

There are three types of foreclosure properties representing different stages in the foreclosure process: NTS (notice-of-default) and NOD (notice of trustee sale), which are both pre-foreclosure properties and real-estate-owned (REO), a foreclosure property which has been repurchased by the bank.

2. Secure financing early

The buyer should be pre-qualified before engaging in discussions with the seller. If the buyer is in a financial position to purchase the property he or she is in a stronger position to negotiate. It is better to work with a lender who is experienced in foreclosures so he
or she can guide the buyer through certain steps.

3. Engage a real estate agent as a "buyer's representative"

Using the right real estate agent will make the whole transaction easier for the buyer. A "buyer's representative" have the home buyer's interest at heart and, therefore, will find the right property and will negotiate the best price for their client. Look for an agent that is well experienced in foreclosures and knowledgeable in their abilities to close a deal, and have access to lenders, attorneys, mortgage and and title professionals.

4. Do your homework

Purchasing foreclosure properties is riskier thank buying traditional
real estate property but offer much higher potential savings. Before
purchasing a home that has been foreclosed be sure to:
Determine the property value - look at the original purchase price,
recent comparable property sales, and determine the current value of
the property.

Identify desirable neighborhoods - identify neighborhoods where you
would like to live to help minimize the search for your realtor.

Run a legal investing report - Make sure the property is free from any
tax liens, bankruptcies, or other financial liabilities.

Leverage your timing - know when the property is going to be auctioned
this gives you more of a bargaining chip when negotiating.

Assess the condition of the property - visit the property, review pest
and structural reports, ask your realtor's opinion, determine how
much rehab
budget you'll need, and be sure the property is in acceptable
condition.

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Home Buyer Checklist

There are many important factors to consider when choosing a home.
Here is a checklist that help help you evaluate the neighborhood as you
choose a new home

Property Address
Asking Price
Real Estate Taxes

The Neighborhood

Near Work Near Schools Near Shopping Near Churches Near Schools
Near Expressways Near Public Transportation Garbage Collection Street
Lights Sidewalks Streets Well Maintained Parks Near Airport