Interest Only Or 50 Year Mortgages Do They Really Make Sense Buy More House With A Buy Down Mortgage First Time Buyers Mortgage Application Checklist Buying Mortgage Leads Three Things To Consider
With hotspots like Las Vegas, much of California and Florida still enjoying a good real estate market, many banks and mortgage companies are now spreading out payments over 50 years to make them more affordable. Prior to these 50-year mortgages, interest-only mortgages were promoted and sold as the way to go. The real question here is which is better?
Let’s first digress on what an interest-only mortgage is.Interest-only home loans or mortgages aren’t as a general rule permanently interest-only. The bank or mortgage company will normally offer the borrower 2 to 5 years at interest-only; after that they must start paying off the principle. During this time, the principle has grown. A great many borrowers may find themselves unable to pay the higher payments that come at the end of this interest-only period. In this case, interest-only loans are similar to ARMs, and have similar default and foreclosure rates (higher than for regular fixed mortgages where the payment stays the same throughout).
The 50-year mortgage simply spreads your payments out over a longer time period and greatly increases the amount of interest you will payback; this also tends to reduce your build-up of equity. Alex Diaz Jr., Vice President of Statewide Bancorp in Rancho Cucamonga, stated that “the 50-year mortgage has particular appeal in California because prices are higher than the rest of the country. The 30-year fixed mortgage is great, but with gas prices so high, people we’re dealing with are concerned about making prices work, and the 50-year mortgage is something they’re starting to consider.” The real estate market has grown by leaps and bounds in California with the average home selling in excess of $300,000.
The 50-year mortgage was designed to do three things. First, it makes it much easier for someone to buy a home in these high price areas. Second, it can help buffer and insulate the borrower against a housing bubble or possible localized deflation. Third, it keeps the selling prices high. However, many so-called real estate experts will tell you that the interest-only loan does the same thing, but does it? The main problem with the interest-only loan is that it does not insulate or offer any protection for the borrower from increasing principle, negative equity (which can happen should there be a drop in housing prices), and, of course, those increasing payments when the term you agreed is over.
Keeping this in mind, plus the fact that there is only a very minor difference in initial payments (payments over the interest-only period), clearly the 50-year mortgage should be a better way to go.
If your budget allows, a good tactic to use is to make bi-monthly payments which will reduce the interest and term of the loan saving you many thousands of dollars. There are many lenders out there now offering this option to their borrowers. As they say, the real money in real estate is made from buying low and selling high.
The problem is that in most of these hot communities, the selling price often ends up being much higher than the asking price, plus houses do not stay on the market for very long at all. So, buying low is normally out of the question. Just try finding a bargain foreclosure or HUD homes for sale in California, it’s a little like trying to find gold in the old days. In these hot communities, the real money is made by buying and holding for a number of years allowing for the yearly increases and returns on additions and upgrades. Money can be made for sure, but with a uncertain future. It is really best to have a payment program set in stone – always use a fixed term and rate mortgage. You can still sell in five years or less, make money, and have the added comfort of a fixed payment.
A buy down mortgage allows you to buy more house with your income and enjoy low monthly payments for a couple of years. With reduced payments, you can pay for move in costs and furnishings. You also qualify for a larger mortgage due to lower monthly payments.
Buy Down Mortgage Terms
Buy Down mortgages come in three packages. A temporary buydown loan, the most common, starts with a discounted interest rate for one to three years that increases to a fixed rate in yearly increments. You pay the difference in interest payment in an initial payout to the lender at the start of your home loan. Some lenders will pay this lump sum, but then charge a higher interest rate for the loan.
For example, you can have a mortgage with a 6% interest rate that is reduced to 4% the first year, then raised to 5% the second year, and finally reach 6% on the third year. The difference in the mortgage payments for the first two years will need to be paid to the lender at the time of settlement.
A compressed buydown mortgage works like a temporary buy down loan, but interest rates rise every six months. A permanent buydown loan has a low interest rate for the life of the loan, but that difference still has to be prepaid to the financing company.
Buy Down Mortgage Benefits
The chief benefit of a buydown mortgage is that you can qualify for a larger loan amount based on your income. This can be especially helpful if you expect your income to increase in the near future.
In addition, initial low monthly payments allow you to pay for the many expenses associated with buying a home. The cost of moving expenses, home furnishings, and landscaping can quickly add up those first couple of years.
Buy Down Mortgage Considerations
Buy Down mortgages should be considered along with other types of mortgages. In some cases if the large initial payment was used as part of a down payment, you may find better terms with a fixed rate or ARM. You may also find that if you are planning to move within seven years, an ARM can give you the same low monthly payments without the upfront cost.
No matter what type of home loan you choose, research lenders and loan terms beforehand. Compare interest payments and base your decisions on your financial goals.
If you have a dream about owning your own home and applying for a mortgage then you may be a bit nervous at the present moment. While having your own home is the American dream the high prices involved can be overwhelming. In addition to this, many lenders will be more concerned with earning a profit than with helping you find a home that matches your income. Below are some steps you can take to properly apply for your first mortgage.
Applying for a mortgage used to be simple. People would compare the prices and rates on houses they wanted, and once the found a lender they were comfortable with, they would make a large down payment and then move in. Today things have changed, and going through the number of options available can be very stressful. One thing you should do before shopping for a house is to educate yourself.
First Mortgage Application Steps
The first thing you will want to do is look at your current income. How much do you make per year? How secure is your job? Remember, if you go about getting a mortgage the traditional way, it could take 15 to 30 years to pay it off, and if you get behind on your payments, you could lose your home and have your credit ruined. If you can’t afford a home, it is best not to move into one until you can. This will keep you from taking on debt you can’t afford.
How Much Can You Afford?
If you feel that you can afford a mortgage the next thing you should decide is how much you can afford. Lenders have a tendency to offer you mortgages which are more than you can afford, and this is important to remember. In addition to the cost of the mortgage itself, you will have to pay taxes, insurance and other expenses as well. These costs should be included in your monthly expenses.
Apply Directly Or Via A Broker?
When you begin looking for a mortgage you will encounter two types of lenders; mortgage brokers and direct lenders. The direct lenders are the people who have the money to lend you. They are ultimately the individuals who decide if you will be approved for a home. The mortgage broker acts as a middleman, going out and finding direct lenders who can give you the best deal.
While the lenders may have a limited number of loans available, a mortgage broker will often have access to multiple lenders simultaneously. If you are looking for a specific type of mortgage, a mortgage broker may be better to use than a direct lender. However, a mortgage broker will charge you for their services, and this could be a certain percentage of the mortgage loan you end up with. With the rise of the internet, online mortgage brokers can help you save money.
Get The Paper Work In Order
Once you have found a loan through a direct lender or mortgage broker the next step is to fill out an application. There are a number of things you will need to fill out on the application and it will help if you have some supporting documents. You will need to provide information about your income, length of employment, and your assets. They will also want to know what other loans or credit cards you have.
Once this information has been provided, the lender will look at your credit report. In addition to this, they will want to see your bank statements and check stubs from your job. You may also need to show them tax information and data about your insurance. If your credit is good, an appraiser will be hired to make sure the house is valued at the loan amount that will be given to you.
The time comes for all mortgage brokers and loan officers to consider spending some of their hard earned money by testing the waters of mortgage leads.
After all, leads are the name of the game.
If the time is right for you, it is important to do you research, remember, you are testing the waters, not diving right in. Investigate as many lead companies as you can before you decide which one is right for you.
Equally important is the lead itself, while doing your research, consider these three things about the type of lead you will be getting.
Where did the lead come from?
Speak with a representative from the lead company to determine where the leads are being generated from. Lead companies use different methods for obtaining their leads. Some of the more common ways lead companies generate leads is through e-mail campaigns, advertisements on search engines, directing potential customers to web sites that they own, and purchasing leads in bulk from other companies.
Is the lead fresh or recycled?
Some lead companies sell their leads in what they call “real time,” which means the leads are fresh, usually no more than a day old.
A recycled lead, is a lead that a company will sell multiple times, or they are buying their leads in bulk at a cheap price and reselling them for a profit.
Not to say one is better than the other, the reason being, the difference in price.
A fresh lead will undoubtedly cost more than a recycled lead. It all depends on what you are looking for, quality or quantity.
If the lead is bad, will you get your money back?
Make sure you are 100% confident that the lead company you are dealing with has a fair return policy. Most lead companies have software in place, or verify the lead before they sell it to weed out any fake, or bogus leads. But even with these barriers in place, it is not unusual for one to slip through the cracks. If you receive a bogus lead, there is no reason why you shouldn’t get your money back..
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