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Reverse mortgage loans
are specifically for senior citizens. It is an alternative if
you want to stay in your home but are financially limited. Instead
of paying a monthly mortgage, you receive monthly payments based on
the equity in your home and your age. You must be 62+ of age to
qualify and live permanently in the home. You will receive monthly
payments depending on the equity in your home. The loan will not
have to be repaid until the last surviving homeowner permanently
moves out or expires. The estate has 6 month in which to repay the
balance or sell the home to pay off the balance. The estate is not
personally liable if the home sells for less than the balance of a
reverse mortgage. Properties that are eligible typically include
single family homes, 2-4 unit properties, manufactured homes built
after 1976, condominiums, townhouses and in some cases cooperative
housing.
Reverse mortgage can be applied for even if you owe money on an
existing mortgage. The reverse mortgage will become the first lien;
thereby any existing indebtedness must be paid off. You can pay off
the existing mortgage with a reverse mortgage, with savings or
assistance from outside sources. The balance is paid to you in
monthly payments. Be aware loans can come with high charges,
including origination fees, closing costs and compound interest on
loan principals. The consumers Union offers tips about reverse
mortgages at www.consumerunion.org.
Closing Costs to Expect:
Lender fees include charges for loan processing, underwriting,
preparation and establishing an escrow account.
Third-party fees include charges for insurance, title
search, and other inspections such as termites.
Government fees include deed recording and state & local
mortgage taxes.
Escrow and interest fees include homeowner's insurance, loan interest, real
estate taxes, and occasionally private mortgage insurance.
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Saving A Down Payment:
should be part of an overall program to get your
finances in order prior to shopping for a home. This
includes rounding up financial records, examining your
spending habits,
and setting a budget you can live with. Remember, too, that
the down payment is not the only up-front expense. An
allowance for closing costs should also be included in your
savings budget.
How much is required?
The down payment is usually expressed as a percentage of
the overall purchase price of the home, and varies
depending on the lender, the type of financing and
amount of money being lent. In the past, the typical
down payment was 20%, but in recent years lenders have
been willing to offer conventional financing with as
little as 3% down. U.S. Government financing programs,
such as those offered by the Dept. of Veterans Affairs
(VA) or the Federal Housing Administration (FHA), also
require minimal down payments.
Private mortgage
insurance
Typically, if your down payment is less than 20% of the
purchase price, lenders will require you to carry PMI,
or private mortgage insurance. This insurance protects
the lender in case of loan default, and usually involves
an up-front payment at closing, as well as a monthly
premium. However, once you have paid off 20% of the
loan, you can request the policy be canceled. Some
lenders cancel the premium automatically, while others
require you to make a request in writing.
Gifts
If you are having trouble saving enough money, many
lenders will allow you to use gift funds for the down payment--as well as
for related closing costs. The gift may come from family, friends or other
sources, but remember that lenders usually require a "gift letter" stating
the gift doesn't have to be repaid. In addition, some lenders will also
require you to pay at least a portion of the down payment with your own
cash. Thus, if you plan to use gift money to purchase your house, ask your
lender about their policies regarding gifts.
Earnest money
Buyers are usually required to deposit earnest money
with the seller when they make an offer. If the offer is accepted, the
earnest money is then credited towards the down payment. The amount varies
widely depending on the seller and local custom, but be prepared from the
outset to have funds earmarked for this purpose.
Don't forget closing costs
In addition to the down payment, you will also need to
save for additional fees associated with the loan. Known as closing costs,
these charges cover items such as title insurance, documentary stamps, loan
origination fees, the survey, attorney's fees, etc. When you submit your
loan application, lenders are required to supply you with a good faith
estimate of your closing costs.
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Choosing the Right Loan:
Today's homebuyer has more
financing options than have ever been available before. From traditional
mortgages to adjustable-rate and hybrid loans, there are financing packages
designed to meet the needs of virtually anyone.
While the different
choices may seem overwhelming at first, the overall goal is really quite
simple: you want to find a loan that fits both your current financial
situation and your future plans. Though this article discusses some of the
more common loan types, you should spend time talking with different lenders
before deciding on the right loan for your situation.
General categories of
loans
Most loans fall into three major categories: fixed-rate, adjustable-rate,
and hybrid loans that combine features of both.
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Fixed-rate mortgages
As the name implies, a fixed-rate mortgage carries the same interest rate
for the life of the loan. Traditionally, fixed-rate mortgages have been
the most popular choice among homeowners, because the fixed monthly
payment is easy to plan and budget for, and can help protect against
inflation. Fixed-rate mortgages are most common in 30-year and 15-year
terms, but recently more lenders have begun offering 20-year and 40-year
loans.
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Adjustable-rate
mortgages (ARM)
Adjustable-rate mortgages differ from fixed-rate mortgages in that the
interest rate and monthly payment can change over the life of the loan.
This is because the interest rate for an ARM is tied to an index (such
as Treasury Securities) that may rise or fall over time. In order to
protect against dramatic increases in the rate, ARM loans usually have
caps that limit the rate from rising above a certain amount between
adjustments (i.e. no more than 2 percent a year), as well as a ceiling
on how much the rate can go up during the life of the loan (i.e. no more
than 6 percent). With these protections and low introductory rates, ARM
loans have become the most widely accepted alternative to fixed-rate
mortgages.
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Hybrid loans
Hybrid loans combine features of both fixed-rate and adjustable-rate
mortgages. Typically, a hybrid loan may start with a fixed-rate for a
certain length of time, and then later convert to an adjustable-rate
mortgage. However, be sure to check with your lender and find out how
much the rate may increase after the conversion, as some hybrid loans do
not have interest rate caps for the first adjustment period.
Other hybrid loans may
start with a fixed interest rate for several years, and then later
change to another (usually higher) fixed interest rate for the remainder
of the loan term. Lenders frequently charge a lower introductory
interest rate for hybrid loans vs. a traditional fixed-rate mortgage,
which makes hybrid loans attractive to homeowners who desire the
stability of a fixed-rate, but only plan to stay in their properties for
a short time.
Balloon payments
A balloon payment refers to a loan that has a large, final payment due at
the end of the loan. For example, there are currently fixed-rate loans which
allow homeowners to make payments based on a 30-year loan, even thought the
entire balance of the loan may be due (the balloon payment) after 7 years.
As with some hybrid loans, balloon loans may be attractive to homeowners who
do not plan to stay in their house more than a short period of time.
Time as a factor in your
loan choice
As has been discussed, the length of time you plan to own a property may
have a strong influence on the type of loan you choose. For example, if you
plan to stay in a home for 10 years or longer, a traditional fixed-rate
mortgage may be your best bet. But if you plan on owning a home for a very
short period (5 years or less), then the low introductory rate of an
adjustable-rate mortgage may make the most financial sense. In general, ARMs
have the lowest introductory interest rates, followed by hybrid loans, and
then traditional fixed-rate mortgages.
FHA and VA loans
U.S. government loan programs such as those of the Federal Housing Authority
(FHA) and Department of Veterans Affairs (VA) are designed to promote home
ownership for people who might not otherwise be able to qualify for a
conventional loan. Both FHA and VA loans have lower qualifying ratios than
conventional loans, and often require smaller or no down payments.
Bear in mind, however,
that FHA and VA loans are not issued by the government; rather, the loans
are made by private lenders but insured by the U.S. government in case the
borrower defaults. Remember too, that while any U.S. citizen may apply for a
FHA loan, VA loans are only available to veterans or their spouses and
certain government employees.
Conventional loans
A conventional loan is simply a loan offered by a traditional private
lender. They may be fixed-rate, adjustable, hybrid or other types. While
conventional loans may be harder to qualify for than government-backed
loans, they often require less paperwork and typically do not have a maximum
allowable amount.
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How does an Adjustable rate mortgage differ
from a fixed rate mortgage:
Adjustable-rate
mortgages (ARMs) differ from fixed-rate mortgages in that the interest rate
and monthly payment can change over the life of the loan. ARMs also
generally have lower introductory interest rates vs. fixed-rate mortgages.
Before deciding on an ARM, key factors to consider include how long you plan
to own the property, and how frequently your monthly payment may change.
Why choose an
adjustable-rate mortgage?
The low initial interest rates offered by ARMs make them attractive during
periods when interest rates are high, or when homeowners only plan to stay
in their home for a relatively short period. Similarly, homebuyers may find
it easier to qualify for an ARM than a traditional loan. However, ARMs are
not for everyone. If you plan to stay in your home long-term or are hesitant
about having loan payments that shift from year-to-year, then you may prefer
the stability of a fixed-rate mortagage.
Components of
adjustable-rate mortgages
Adjustable-rate mortgages have three primary components: an index, margin,
and calculated interest rate.
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Index
The interest rate for an ARM is based on an index that measures the
lender's ability to borrow money. While the specific index used may vary
depending on the lender, some common indexes include U.S. Treasury Bills
and the Federal Housing Finance Board's Contract Mortgage Rate. One
thing all indexes have in common, however, is that they cannot be
controlled by the lender.
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Margin
The margin (also called the "spread") is a percentage added to the index
in order to cover the lender's administrative costs and profit. Though
the index may rise and fall over time, the margin usually remains
constant over the life of the loan.
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Calculated interest
rate
By adding the index and margin together, you arrive at the calculated
interest rate, which is the rate the homeowner pays. It is also the rate
to which any future rate adjustments will apply (rather than the "teaser
rate," explained below).
Adjustment periods and
teaser rates
Because the interest rate for an ARM may change due to economic conditions,
a key feature to ask your lender about is the adjustment period--or how
often your interest rate may change. Many ARMS have one-year adjustment
periods, which means the interest rate and monthly payment is recalculated
(based on the index) every year. Depending on the lender, longer adjustment
periods are also available.
An ARM can also have an
initial adjustment period based on a "teaser rate," which is an artificially
low introductory interest rate offered by a lender to attract homebuyers.
Usually, teaser rates are good for 6 months or a year, at which point the
loan reverts back to the calculated interest rate. Remember, too, that most
lender will not use the teaser rate to qualify you for the loan, but instead
use a 7.5% interest rate (or calculated interest rate if it is lower).
Rate caps
To protect homebuyers from dramatic rises in the interest rate, most ARMs
have "caps" that govern how much the interest rate may rise between
adjustment periods, as well as how much the rate may rise (or fall) over the
life of the loan. For example, an ARM may be said to have a 2% periodic cap,
and a 6% lifetime cap. This means that the rate can rise no more than 2%
during an adjustment period, and no more than 6% over the life of the loan.
The lifetime cap almost always applies to the calculated interest rate and
not the introductory teaser rate.
Payment caps and negative
amortization
Some ARMs also have payment caps. These differ from rate caps by placing a
ceiling on how much your payment may rise during an adjustment period. While
this may sound like a good thing, it can sometimes lead to real trouble.
For example, if the
interest rate rises during an adjustment period, the additional interest due
on the loan payment may exceed the amount allowed by the payment
cap--leading to negative amortization. This means the balance due on the
loan is actually growing, even though the homeowner is still making the
minimum monthly payment. Many lenders limit the amount of negative
amortization that may occur before the loan must be restructured, but it's
always wise to speak with your lender about payment caps and how negative
amortization will be handled.
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What Does
Paying Points Mean:
When it
comes to comparing interest rates for a mortgage loan, homebuyers often have
the option of choosing a loan with a lower interest rate by paying points.
Simply put, a point is equal to 1 percent of the loan amount. For example,
with a $100,000 loan, one point equals $1,000. Points are usually paid
out-of-pocket by the buyer at closing.
Paying points may seem
attractive, because a lower interest rate means smaller monthly payments.
But is paying points always a good idea? The answer generally depends on how
long you plan to stay in the house. Let's look at an example:
Bob and Betty Smith are
shopping for loan rates on a $150,000 home. Their bank has offered them a 30
year loan at 7.5 percent with no points. This works out to a monthly payment
of $1,049.
However, their bank has
also offered them a loan at 7 percent if they agree to pay 2 points (or
$3,000). At this lower rate, their monthly payment drops to $998, or a
savings of $51 per month.
By dividing the amount
they paid for the points ($3,000) by the monthly savings ($51), we see that
they will have to own the house for 59 months (or just under 5 years) before
they will start to see savings as a result of paying points. If Bob and
Betty plan to stay in the house for many years, then paying points could
make good sense. But if they see themselves moving to another house in the
near future, they'd be better off paying the higher interest and no points.
(Note: for simplicity, the above example does not take into account the time
value of money, which would slightly lengthen the break-even time.)
Can you deduct points on
your income taxes?
In the United States, one side benefit of paying points on a mortgage loan
is that they are fully tax deductible for the same tax year as your closing.
However, this does not apply to points paid for a refinance loan. For
refinances, the IRS requires you to spread out the deduction over the life
of the loan. For example, if you paid $5,000 in points for a 30-year
refinance loan, you can only deduct 1/30 of the $5,000 each year for 30
years. If you pay off the loan early, though, you can deduct the remaining
amount that tax year.
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How Do I
Apply for a Loan:
By
getting a handle on your income, expenses and debts, you'll have a much
better idea of what you can afford and how much you'll need to
borrow.remember that you should include records for each person who will
be an owner of the house. So before you even visit the bank, make sure
you'll be able to provide copies of these important documents:
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Paycheck Stubs
Remember that lenders are most interested in your average income. Not
only will they want to see this month's paycheck, but also how much
you've been making for the past two years. Steady employment is also
more attractive to lenders, so if you've been hopping from job to job,
be prepared to discuss the reasons why.
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Bank Statements
In order to qualify you for a loan, most lenders will also ask you for
copies of your bank statements. Ideally, they'd like to see a steady
history of savings--or at the very least, that you're not bouncing
checks every month.
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Tax Records
It's always a good idea to save copies of your tax returns, especially
if you're self-employed. If you own your own business, it's important to
note that lenders generally consider your income as the amount you paid
taxes on--not the gross income of the business.
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Dividends
& Investments
Lenders will usually consider long-term investment dividends, as well as
your investment portfolio, when evaluating your income.
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Alimony/Child Support
If you receive steady payments as part of a divorce settlement or for
child support, you can also include this as part of your gross income.
Just remember that lenders will want to see a copy of your divorce/court
settlement verifying the amount of the payments.
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Credit Report
Virtually every lender will want to see a copy of your credit report as
part of the loan application process. The report lists all of your
long-term debts, as well as your payment history. In general, they will
require you to pay for the credit report (approximately $50), but if you
have a recent copy, they may accept that instead.
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How Important Is A
Credit Report:
As
part of the loan application process, virtually all lenders will want to see
a copy of your credit report. The report will list all your long-term debts
(credit cards, mortgage payments, automobile and student loans, etc), as
well as your payment history. If you don't have a copy of your credit
report, most lenders will generally require you to pay for a copy when they
process your loan application.
However, most real
estate experts agree that it is a good idea to obtain a copy of your
credit report several months before you apply for a loan. This is so
you have a chance to resolve any problems with your credit before
your bank sees it. U.S. Federal law ensures that you have access to
your credit report, which may be obtained from your local credit
bureau or any of several national firms that specialize in credit
reports.
Late payments
For most people, problems with their credit report are likely related
to late payments on a debt. If you were late one month in paying off
your credit card, but otherwise have a good payment history, chances
are most lenders won't be too concerned. But if you have a history
of late payments you'll need to document the reasons why. A slow
payment history won't necessarily get you turned down for a loan,
but you may have to pay a higher rate of interest or otherwise prove
to the lender that you can repay your loan in a timely fashion.
Errors on your
credit report
Many people are surprised to learn that credit reports can often
contains errors or inaccurate information. If this is the case with
your credit report, you'll need to contact the reporting agency or
creditor to have the problem resolved. This can sometimes be a slow
process, so make sure to give yourself time to clear up the mistake.
Bankruptcies and foreclosures
There's no getting around it, a bankruptcy on your credit report is
not a good thing. But that doesn't mean you still can't obtain a
loan. Even though a bankruptcy may stay on your credit report for
seven to ten years, lenders will often consider the circumstances
surrounding a bankruptcy (family illness, injury, etc.). Moreover,
if you have reestablished good credit since the bankruptcy, a lender
will be more inclined to approve your application.
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What Can You
Afford to Pay:
Understanding how much
you can afford is one of the most important rules of home buying. Depending
on your individual situation, your budget can affect everything from the
neighborhoods where you look, to the size of the house, and even what type
of financing you choose.
Bear in mind, however,
that lenders will look at more than just your income to determine the size
of the loan. Likewise, you may find that there are some creative financing
options that can help boost your purchasing power.
Loan prequalification vs.
preapproval
One of the best ways to determine your budget is to have your real estate
agent or lender prequalify you for a loan. Prequalification is different
from preapproval, because it is only an estimate of what you'll be
able to afford. On the other hand, preapproval is a more formal process
where a lender examines your finances and agrees in advance to loan you
money up to a specified amount.
What factors are
important to lenders?
Banks and lending institutions will use several criteria to determine how
much money they'll agree to lend. These include:
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Your gross monthly
income
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Your credit history
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The amount of your
outstanding debts
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Your savings--or the
amount of money you have available for a down payment and closing costs
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Your choice of mortgage
(i.e. 30-year, FHA, etc.)
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Current interest rates
Two important ratios
Lenders also use your financial information to figure out two, very
important ratios: the debt-to-income ratio and the housing expense ratio.
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Debt-to-income ratio
Many lenders use a rule of thumb that the amount of debt you are paying on
each month (car payment, student loan, credit card, etc,) shouldn't
exceed more than 36 percent of your gross monthly income. FHA loans are
slightly more lenient.
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Housing expense ratio
It is generally difficult to obtain a loan if the mortgage payment will be
more than 28 to 33 percent of your gross monthly income.
Down payments make a
difference
If you can make a large down payment, lenders may be more lenient with their
qualifying ratios. For example, a person with a 20 percent down payment may
be qualified with the 33 percent housing expense ratio, while someone with a
5 percent down payment is held to the stricter 28 percent ratio.
Other ways to improve
your purchasing power:
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Gifts
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If you're having trouble saving money, many lenders will allow you to use
gift funds for the down payment and closing costs. However, most lenders
require a "gift letter" stating the gift doesn't have to be repaid, and
will also require you to pay at least a portion of the down payment with
your own cash.
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Negotiating Closing
Costs
Through negotiation, some sellers may agree to pay all or most of your
closing costs (for example, if you agree to meet their full asking
price). If you choose to try this, make sure to ask your real estate
agent for advice.
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Loan Programs
Many local governments have special loan programs designed to help
first-time homebuyers. Loans may be available at reduced interest rates,
or with little or no down payments. Check with your local housing
authority for more information.
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Loan Types
Some homebuyers choose Adjustable Rate Mortgages (ARMs) because of low
initial interest rates. Others opt for 30-year loans because they have
lower monthly payments than 15-year loans. There are significant
differences between different loans, so make sure to discuss the pros
and cons of different loans with your agent or lender before making a
decision.
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What Can
Refinancing My Home Mean to Me:
Refinancing your home can be an
excellent way to bring down your monthly mortgage payment, raise cash, or
consolidate debts with high interest rates. However, you need to do your
homework before deciding to refinance. One important factor is the
difference between current interest rates and the rate of your original
loan. You also need to take into account the amount of time it will take to
recoup the costs of refinancing.When should you refinance?
Some common reasons homeowners refinance include:
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Lower monthly
mortgage payments
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Convert an adjustable
rate mortgage (ARM) to a fixed-rate mortgage
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Raise funds for
family expenses (i.e. college tuition)
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Pay off high-interest
loans
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Home improvements
The old rule of thumb
is that you should refinance your home if interest rates fall more than
2 percent. That's because refinancing usually involves most of the same
closing costs (loan origination fee, prepaid interest, etc.) as the
original loan. For anything less than 2 percent, the savings on your
monthly mortgage payment might not be significant enough to be worth
your while.
Savings vs. time
For some homeowners, though, the 2 percent rule is not as important as the
time needed to break even on the refinancing. For instance, if it costs
$3,000 to refinance a house, and the monthly mortgage payment is lowered
by $90, it would take almost 3 years for the savings to cover the costs
of refinancing.
If all the information
(survey, title search, etc.) for your old loan is still current,
however, the lender may be willing to waive many of the fees. In
addition, you may be able to roll the closing costs of a refinance loan
into the new note. In other words, you don't avoid the closing costs,
but instead pay them back over time along with the rest of the loan. If
you consider this option, be sure to calculate the potential savings vs.
the expense of paying off a higher principal balance.
Keep in mind that
refinancing usually lengthens the time it takes to pay off your house.
If you are 3 years into a 30-year mortgage and then refinance with a new
30-year loan, you'll end up making payments on the house for 33 years.
Nevertheless, if the monthly savings are substantial enough, you still
could end up paying much less over the long haul with the new loan.
Adjustable Rate
Mortgages (ARMs)
Timing can also be a factor in switching from an ARM to a fixed-rate loan.
For example, rising interest rates might influence you to covert your
ARM into a fixed-rate loan if you plan to stay in your house for several
more years.
Conversely, you may
plan to move in a year or two, and find a lender who is willing to offer
you dramatic interest rate savings with an ARM. In this case (and as
long as the closing costs are minimal), it might make sense to switch
from a fixed-rate loan to an ARM.
Equity
Refinancing with a new loan doesn't mean you have to give up all the money
you've paid towards your old mortgage. With each payment, you build up a
certain amount of equity in a property--which is the amount you've paid
on the principal balance of the loan.
For example, if you
have a $100,000 loan at 8 percent, you would build about $2,800 worth of
equity in the first 3 years. Thus, if you refinanced, the new loan would
only amount to $97,200.
Raising cash with home
equity loans... use caution
If you've built enough equity, you can refinance in order to take cash out
of the property. Perhaps you need money to pay off your credit cards,
add a new bathroom, or cover the costs of braces for a child.
Regardless, lenders will typically allow you to borrow against the
equity you've built in your house, plus appreciation (often up to 75
percent of the current appraised value). These types of loans are also
called home equity loans.
Be cautious, however,
of lenders offering 100 percent or 125 percent home equity loans--their
rates are often markedly higher than traditional lenders. In addition,
any amount you borrow that is above the market value of the house is NOT
tax deductible.
Talk to your lender
With all the different types of refinancing loans available today, you
should take some time to shop around and speak with several lenders
before making a decision. Be sure to discuss all the expenses and
benefits, as well as what will be expected of you, in advance. The more
you educate yourself, the better your chances of finding the right
refinancing package.
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What are Closing Costs:
The bundle of fees
associated with the buying or selling of a home are called closing
costs. Certain fees are automatically assigned to either the buyer or
the seller; other costs are either negotiable or dictated by local
custom.
Buyer closing costs
When a buyer applies for a loan, lenders are required to provide them with
a good-faith estimate of their closing costs. The fees vary according to
several factors, including the type of loan they applied for and the
terms of the purchase agreement. Likewise, some of the closing costs,
especially those associated with the loan application, are actually paid
in advance. Some typical buyer closing costs include:
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The down payment
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Loan fees (points,
application fee, credit report)
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Prepaid interest
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Inspection fees
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Appraisal
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Mortgage insurance
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Hazard insurance
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Title insurance
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Documentary stamps on
the note
Seller closing costs
If the seller has not yet paid for the house in full, the seller's most
important closing cost is satisfying the remaining balance of their
loan. Before the date of closing, the escrow officer will contact the
seller's lender to verify the amount needed to close out the loan. Then,
along with any other fees, the original loan will be paid for at the
closing before the seller receives any proceeds from the sale. Other
seller closing costs can include:
Negotiating Closing
Costs
In addition to the sales price, buyers and sellers frequently include
closing costs in their negotiations. This can be for both major and
minor fees. For example, if a buyer is particularly nervous about the
condition of the plumbing, the seller may agree to pay for the house
inspection.
Likewise, a buyer may
want to save on up-front expenditures, and so agree to pay the seller's
full asking price in return for the seller paying all the allowable
closing costs. There's no right or wrong way to negotiate closing costs;
just be sure all the terms are written down on the purchase agreement.
Prorations
At the closing, certain costs are often prorated (or distributed) between
buyer and seller. The most common prorations are for property taxes.
This is because property taxes are typically paid at the end of the year
for which they were assessed.
Thus, if a house is
sold in June, the sellers will have lived in the house for half the
year, but the bill for the taxes won't come due until the following
year! To make this situation more equitable, the taxes are prorated. In
this example, the sellers will credit the buyers for half the taxes at
closing.
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Buying Home with No Money down:
Typically, lenders require a down payment
of 20 percent of the home's purchase price. However, some special mortgage
programs allow you to purchase a home with no down payment, such as Veterans
Administration (VA) mortgages (if you are a qualified veteran) and
no-down-payment or 100 percent financing mortgage programs. VA mortgage
terms are generally favorable when compared with other types of mortgages.
However, some variations in terms may exist from lender to lender. As for
no-down-payment or 100 percent financing mortgage programs, you will
generally pay higher interest rates and closing costs on these loans, and
there may be additional qualification requirements.
Besides special mortgage programs, you
may be able to qualify for a conventional mortgage with no money down if you
purchase private mortgage insurance (PMI). Typically, monthly PMI premiums
are $45 to $65 per $100,000 borrowed. The cost of PMI depends on several
factors, such as the amount of your down payment, your type of mortgage, and
whether you pay premiums on a monthly basis or in a lump sum at closing. PMI
premiums can significantly increase your monthly housing cost. Without PMI,
however, you may be unable to qualify for a mortgage if you have no down
payment.
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