Types Of High Risk Mortgage Locating A Home Mortgage Understanding Mortgage Backed Securities Refinance Rip Offs 6 Easy Ways To Avoid Them Top Ten Things To Know If You Re Interested In A Reverse Mortgage
As the cost of houses continues to increase, fewer people are able to afford them. Many creditors have responded to this situation by creating a new class of mortgages that are quite risky. A large number of people have begun getting these mortgages, and the payments are generally low when you first get the loan.In this article I will discuss these mortgages in detail, and what you should know about them.
Option Payment Mortgage
The most risky mortgage option available today is the Option Payment Mortgage. With this mortgage you decide how much you want to pay each month. You can pay either the principle, interest, or minimum amount allowed by the creditor. The danger with this type of mortgage is that you could end up paying more money than your home is worth. Those who fee that they are responsible with their personal finance should only use this mortgage.
The second type of risky mortgage is the Interest Only Mortgage. As the name implies, this is a mortgage with which the borrower pays interest on the loan for a set number of years. This could be ten years, and at the end of the ten years the borrower would begin making payments on the principle. The risk with this mortgage is that the payments for the principle will be much larger than the interest, and the borrower may not be able to afford it. The mortgage companies and banks win because the borrower has already spent years paying on just the interest without touching the principle.
The Interest Only Mortgage should only be used in either a situation where you are 100% certain you will make enough money to make the principle payments, or you don’t plan on living in the house after the interest has been paid. A Low Doc mortgage is one in which you are loaned money despite your qualifications. The danger with this mortgage is that the borrower may take out loans, which they can’t afford. You should only get a Low Doc Mortgage if you are making a large enough income to pay it.
Piggy Back Mortgage
The Piggy Back Mortgage is a type of loan in which two mortgages are taken out which equal over 15% of the value of the home. This percentage is paid towards the home in order to avoid paying for mortgage insurance This can be risky, because if the value of your home falls you will have to sell it for a price less than what you borrowed. You also don’t have any equity that can be used to protect you. This mortgage should only be used when you have a large down payment but want to avoid paying for mortgage insurance.
Long Term Fixed Mortgage
The last type of risky mortgage is called the Forty Year Fixed Mortgage. With this loan you get a fixed interest rate, but will pay off the loan over a period of 40 years instead of 30. Your payments will be lower, but it will take a long time to build up equity in your home. The main risk with this mortgage is that you may end up paying a lot more for your home over the long term. Now that banks are allowing just about anyone to get a home, it is important to make sure you protect yourself.
Only Buy What You Can Afford
You should never get a mortgage on a home that is outside of your price range. You should look and your income and decide what you can afford. If you get an Adjustable Rate Mortgage you should calculate how much your payments will be monthly in the interest rate suddenly increases. It is generally best to go with a mortgage that has a fixed rate.
When it comes time for you to acquire a home mortgage for your first home or for a second home, or perhaps you are just looking to refinance. Whatever the case may be, it is important to shop around for a home mortgage.
When it comes to a home mortgage, mortgage companies are very competitive, they want and compete for your business, so let them.
There are many places these days to track down a home mortgage, the easiest being the internet.
If you are a person with a good salary and excellent credit looking for a standard home mortgage, you shouldn’t have much trouble tracking one down. It would be as easy as walking into your local bank branch and asking the branch manager to set up an appointment with someone in their mortgage department.
On the other hand, if you are a person whose credit is a little bit challenged, tracking down a home mortgage may prove to be a little bit more challenging.
This is where the internet comes into play. There is a wealth of information to be found and people to help you achieve your dream of obtaining a home mortgage.
The people that are capable of helping you if your credit is damaged or challenged are called mortgage brokers.
Mortgage brokers are not actual lenders. Their job is to shop around for a mortgage for you.
Mortgage brokers easily have access to hundreds of wholesale lenders who lend to people with credit issues and unique situations. So, if your situation is unique, or you have credit issues, a broker may be ideal for you.
If your situation is unique, or your credit is challenged, it is still important to shop around for a home mortgage. By shopping around you will be doing yourself a huge favor, and you could possibly save yourself a bundle of money in closing costs and interest fees’.
Allow for up to four brokers or loan officers to assess your situation, than wait for them to come back at you with an offer. The one that offers you the best deal within reason, should be the one you give most of your consideration to. Good luck.
The housing boom of the last seven years has been one of the biggest ever. Mortgage-backed securities are one reason for the torrid pace of real estate growth.
Understanding Mortgage-Backed Securities
A mortgage-backed security is essentially a bond. Investors purchase interests in the mortgage security and your monthly mortgage payment is the revenue earned from the security. Unlike a bond, however, the value of a mortgage fluctuates because it can be paid off early. A 10-year bond definitely matures in 10 years, but a similar mortgage may be paid off at any time with a refinance or outright cash payment.
Mortgage-backed securities are issued by retail lenders, i.e., the lender giving you a mortgage. They do this for a number of reasons. The primary reason is to create liquidity so they can use the money for other purposes. If you have a thirty-year mortgage, the lender is going to have to wait thirty years to recover its money and profit. That is a long time in the world of finances. To overcome this, the lender sells securities on the secondary market and your property acts as the collateral for the security. Essentially, the mortgage lender is obtaining a loan from investors by using your mortgage and home as the guarantee of payment.
Lenders will also use mortgage-backed securities to clean up their balance sheet. After the Savings and Loan crisis of the 1980s, new regulations were created that require lenders to maintain certain debt to equity ratios. By issuing mortgage securities, lenders can keep their books safely within the relevant standards set by the regulations.
At first glance, you might think mortgage-backed securities sound a little fishy and speculative. In reality, they have been around for some time and drive the market. Government entities such as Ginnie Mae [Government National Mortgage Association] are active in this secondary mortgage market, guaranteeing many types of mortgages which makes them easier to sell on the secondary market.
As recent as 2004, it was estimated that over 729 billion dollars worth of mortgage-backed securities existed on the secondary market. The size of this investment is what lets lenders keep issuing mortgage loans to you and me.
Refinancing can be frustrating when, after all is said and done, you find you’ve been ripped off! Here is an easy guide to help you save your money and have peace of mind.
It’s so easy today to lose money unnecessarily when you refinance. Hidden fees and penalties, terms you did not completely understand or a hard core loan officer who avoids issues you may have can create headaches you don’t
need! Let us show you how to easily protect yourself and come out way ahead.
=Knowledge Going In… Go online and browse for major lender websites like Bank of America, World Savings, Indymac Bank, etc. Every one should have full descriptions of refinance programs currently available. Look through the fixed rate and adjustable rate mortgages and get a good understanding of
how they work. These big lenders spend a lot of money on easy explanations of their mortgage refinance programs. Take advantage of them.
=Making Contact…In talking with a lender, make sure the loan officer doesn’t avoid any of your questions. If they get off track and evade issues, move on to the next lender! And ALWAYS get a good faith estimate and full details of
the loan program you are interested in before making any decisions to proceed with them. There will always be questions once you see these that may give you pause.
=Don’t Let Them Pull Your Credit Report Yet… If you give every home mortgage refinance company a green light to pull your credit, this can affect your score negatively. Wait until you find the company you trust with the program you want. They need a good idea of how your credit is to quote you properly. You can call the major credit reporting agencies and request a copy of your credit report and then fax it to them, or, have them send you a
Borrower Authorization Form which gives them permission to pull your credit.
=Go Over The Fees… The fee schedule in a refinance can often include bogus
fees- fees made up to inflate the profit of the loan officer. Only pay for necessary fees. Go over it carefully with them. And remember- the origination fee is always negotiable!
=Careful of the Prepay Penalties… There is always the possibility of prepay penalties, especially with adjustable loan refinance programs. The term of the prepay can be reduced or eliminated by paying some points. But if it’s a great loan that suits your purposes, then save your money. Most prepays are 2 to 3 years in length. Most people refinance every 4-5 years.
=The Final Approval… Once the lender has received your full refinance package and appraisal, upon approval of your loan, ask to see the fee schedule from the lender. Make sure again that there are NO junk fees.
=A Final Note…When looking at loan programs, there are all kinds with different advantages and disadvantages. TAKE YOUR TIME! Make sure you discuss with your loan officer ALL the possibilities. For instance, an interest only option might be available, or a longer term on the limited fixed rate program might be better for you. If you follow these 6 simple steps we’ve outlined, you will come out way ahead and save yourself time, aggravation and most of all…MONEY!
Reverse Mortgages are becoming popular in America. The U.S. Department of Housing and Urban Development (HUD) created one of the first. HUD’s Reverse Mortgage is a federally-insured private loan, and it’s a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, and more. You can receive free information about reverse mortgages by calling AARP at: 1-800-209-8085, toll-free. Since your home is probably your largest single investment, it’s smart to know more about reverse mortgages, and decide if one is right for you!
1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. HUD’s reverse mortgage provides these benefits, and it is federally-insured as well.
2. Can I qualify for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, HUD’s Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area.
3. Can I apply if I didn’t buy my present house with FHA mortgage insurance?
Yes. While your property must meet HUD minimum property standards, it doesn’t matter if you didn’t buy it with an FHA-insured mortgage. Your new HUD reverse mortgage will be a new FHA-insured mortgage loan.
4. What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for condominiums to qualify under the Spot Loan program. The home must be in reasonable condition, and must meet HUD minimum property standards. In some cases, home repairs can be made after the closing of a reverse mortgage.
5. What’s the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don’t make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment.”
6. Can the lender take my home away if I outlive the loan?
No! Nor is the loan due. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home’s value.
7. Will I still have an estate that I can leave to my heirs?
When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan. This debt will never be passed along to the estate or heirs.
8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, other loan fees and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
9. Should I use an estate planning service to find a reverse mortgage?
I’ve been contacted by a firm that will give me the name of a lender for a “small percentage” of the loan? HUD does NOT recommend using an estate planning service, or any service that charges a fee just for referring a borrower to a lender! HUD provides this information without cost, and HUD-approved housing counseling agencies are available for free, or at minimal cost, to provide information, counseling, and free referral to a list of HUD-approved lenders. Before you agree to pay a fee for a simple referral, call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.
10. How do I receive my payments?
You have five options:.
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