Go Big or Go Home – 7 Reasons Why Jumbo Mortgages are Currently Your Best Option

Jumbo Mortgages Current Best OptionIntroduced in the 70’s, jumbo mortgages are available for home buyers who need a larger-than-average mortgage. Jumbo loans, or jumbo mortgages, allow people to take out mortgage loans for larger amounts than the traditional conforming limits. Jumbo loans were very popular before the recent economic crisis because prices were very high in some areas even for modest homes (Read: Everything You Need to Know About Jumbo Mortgage Loans).

Mortgage loans have conforming limits that are set by Fannie Mae and Freddie Mac. These limits represent the maximum amount that these two government backed organizations are willing to pay in order to buy the loan from a lender. If Fannie Mae and Freddie Mac do not cover the full amount, the mortgage loan is considered a jumbo loan. Not being backed by these two organizations means that jumbo loans will have higher interest rates than conventional mortgage loans. Also, giving out a jumbo loan is considered high risk by lenders, so the qualification requirements will be stricter than for a conventional mortgage.

Conforming limits vary from one area to another and are usually higher in expensive housing markets. Once you start looking for a home, you may be surprised that you may have to take out a jumbo loan in order to buy a $500,000 home in some areas, while you can buy a house with the same value by taking out a conventional loan in other areas.

Who is a Jumbo Mortgage Designed For?

Jumbo mortgages are designed for people who can afford a more expensive home that can’t be bought with a regular mortgage. Right now, the borrower is not necessarily the one who decides that he or she needs a jumbo mortgage. After the housing market crashed recently, many lenders found themselves having large financial issues due to giving out jumbo loans too easily, so now they are the ones who decide if you need a jumbo loan. If a borrower can’t pay off the jumbo loan quickly, the interest charges will add up to a small fortune over time.

Jumbo mortgages are considered very high-risk by lenders, so they won’t give them out to anyone. In order to qualify for a jumbo mortgage loan, borrowers must have an excellent credit score, typically over 720 (Read: What Credit Score Do I Need to Qualify for a Mortgage?). Their debt-to-income ratio must also satisfy the lender’s requirements. To minimize risk, the lender will probably ask for a larger down payment, usually 30 percent of the total loan amount.

Reasons Why You Should Get a Jumbo Mortgage

Jumbo mortgages may be more expensive than traditional mortgages, but can also be very advantageous to those who need such a mortgage. Here are the top reasons why you should get a jumbo mortgage.

  1. You need the extra money that a jumbo mortgage provides. The largest reason why you should get this type of loan is that you need more money to buy a larger home or a home situated in an expensive area. A jumbo loan will also help you avoid spending all your savings in order to buy a home (Read: Need Help Keeping Up With Mortgage Payments?).
  2. You avoid taking out two or more mortgages. Sometimes, purchasing a home requires taking out two, or even more, mortgage loans. Taking out and paying off two loans instead of one can be overwhelming and more expensive. Jumbo mortgages simplify the process of buying a home by allowing you to make the purchase with a single mortgage loan.
  3. Jumbo loans come in several shapes and sizes. Like traditional mortgages, jumbo loans come with various terms and options, depending on what you look for. You can choose to take out a short-term or a long-term jumbo mortgage, with an adjustable or fixed interest rate. The type of jumbo loan that you can get depends on what your qualifications and requirements are.
  4. Interest rates on jumbo mortgages have started decreasing. The government introduced a stimulus package back in 2009 in an effort to stimulate home sales and the growth of the economy. Interest rates on jumbo loans are actually lower than the rates on conventional loans in many cases, and they have dropped to record lows as a result of the government’s involvement. Read more about their low interest rates here.
  5. Applying for a jumbo mortgage has become easier. Applying for this type of loan is still more difficult than applying for a traditional mortgage loan, but recent developments in the housing industry have made it easier than before. The main reason is the competition between lenders, who have lessened their requirements in order to attract more home buyers.
  6. Refinancing a jumbo mortgage can yield bigger savings than refinancing a traditional mortgage. Refinancing a traditional mortgage at the right time can bring thousands in savings (Read: Quick Tips on Mortgage Refinancing). Because jumbo mortgages are much larger, refinancing them can bring even larger savings, which can be used for a number of other things, like paying off other debt or living expenses.
  7. Jumbo mortgage offers are more attractive than ever. In order to attract those who qualify, most lenders are offering special offers for taking out a jumbo loan. These offers include reduced closing costs and fees, faster processing and many others. Lenders can afford to reduce or even waive some fees, because jumbo loans yield more profit for them than conventional mortgage loans since they have higher interest rate. To read about the bank’s latest interest in jumbo mortgages click here.

Determining your budget and knowing exactly what kind of mortgage loan you are looking for is very important when deciding to get a jumbo mortgage. While jumbo mortgages are more attractive than ever right now, you should also remember that they are more difficult to get, and come with higher interest rates than traditional mortgage loans. Jumbo mortgages are a great option for those who need larger mortgages and want to avoid having to take out two or more mortgage loans in order to become home owners.

The Sooner You Know About Hybrid Mortgage Loans, the Better

Hybrid Mortgage LoansThe large majority of people who are purchasing a home do it by taking out a mortgage loan. Buying a home with cash is something that very few people can afford, and it’s not always a good investment (Read: Should You Pay for Your Home in Cash Upfront?). But mortgages come with interest rates, closing fees and many other costs, so finding a cheap mortgage becomes the number one priority when buying a home. Fortunately, there are many options out there when it comes to mortgages, and each are designed for certain categories of people.

The most popular mortgage loans feature fixed or adjustable interest rates. A fixed interest rate means that you will be paying the same interest rate for the duration of the loan, which means that you won’t have any surprises down the road. Adjustable interest rates fluctuate during the life of the loan, which means that you might have to pay either more or less in interest during the course of the repayment period.

The fixed-rate mortgage is considered safer than the adjustable-rate mortgage because the interest rate will remain the same, so you will always know how much your monthly payment will be, but sometimes an adjustable-rate mortgage may be a better deal (Read: Even With Fixed-Rate Mortgages So Low, Don’t Overlook Adjustable Rates!). Another type of mortgage is a combination of the fixed-rate and the adjustable-rate mortgages, and it is called a hybrid mortgage.

What is a Hybrid Mortgage Loan?

A hybrid mortgage loan is both a fixed-rate mortgage loan and an adjustable-rate mortgage loan. The hybrid mortgage starts off as a fixed-rate mortgage, and then converts to an adjustable-rate mortgage. During the fixed rate period, which can be up to 10 years, the interest rate remains unchanged. When the initial period ends and the mortgage is converted to an adjustable-rate mortgage, the interest will increase or decrease, based on several indices, annually until the end of the repayment period.

Hybrids are normally referred to as a 5/1 mortgage, for example. The first number represents the fixed interest rate period of the mortgage. In this example, the hybrid mortgage will have a fixed-rate period of 5 years. The second number represents the adjustment interval that will be applied once the fixed-rate period is over. In our example the interest is adjusted once every year.

Pros and Cons of the Hybrid Mortgage Loan

Like most mortgage loans, the hybrid mortgage is also designed to accommodate the need of a particular group of home buyers. Here are the benefits of such a mortgage:

  • Compared to 1 year adjustable-rate mortgages, hybrid mortgages have lower risk, and a lower interest rate when compared to most fixed rate mortgages.
  • Hybrid mortgages are a great choice for home buyers who only wish to live in the home for a predetermined period of time.
  • The interest during the fixed-rate period will be lower than the interest on a 30-year fixed-rate mortgage, making this type of mortgage a great choice for those who don’t plan on living in the home for a long time (Read: Is Flipping Houses for You?) .
  • There is always a chance that the interest will decrease during the adjustable-rate period, making the monthly payments and overall loan value lower.

The largest downside of hybrid mortgage loans is that once the initial period is finished, there is a large risk that your interest rate will increase significantly, making it hard for you to pay your mortgage on time each month (Read: Do You Recognize the Early Warning Signs for Increasing Home Interest Rates?). Most hybrid mortgages have a maximum interest increase set, usually 2 percent per year, but that 2 percent can mean a lot of money, depending on how much you have borrowed.

Hybrid mortgages are great for those who wish to remain in the home for less than 10 years, and they can work for some others as well. But before you start shopping around for any mortgage, be sure that you know what your budget is and how long you plan on living in the home. If it’s a short while, then you will actually save money with a hybrid mortgage, but if you plan on living for a long while, you should look at other types of mortgages.

5 Quick Reasons for Not Paying Off Your Mortgage Early

5 Reasons Why You Shouldnt Pay Off Your Mortgage Early-150x150Paying off your mortgage early sounds appealing and in some cases is a good choice, but there are several reasons you shouldn’t do it. Depending on your financial situation, it may be more beneficial for you to keep paying your mortgage month to month, as it was agreed upon. Of course, paying it off early will rid you of a very large monthly bill. But if you have other debt, or don’t have any other savings, this move can interfere with other areas of your financial situation, making your life harder. Here are the most important reasons why paying off your mortgage early is not recommended.

Reasons to Not Pay Your Mortgage Off Early

  1. You have other debt. Because interest rates on consumer loans, such as a car loan or a credit card are much higher, it is recommended that you pay those off first. For example, it would be to your advantage to pay off a loan that has a 15 percent interest rate before paying off your mortgage which has a 5 percent interest rate. Your mortgage interest may be tax deductible, unlike interest on a credit card debt. So, before you even start to consider paying off your mortgage early, make sure that you have paid your other debts.
  2. You will be left without savings. Paying off your mortgage early will make things easier for you because you won’t have that large monthly payment to worry about anymore. But if this leaves you with no savings, this puts you at great risk in the event of a job loss or illness. Also, you could use that money to beef up your retirement savings, or start a college fund for your children.
  3. You won’t be earning interest on that money. Paying off your mortgage early will earn you zero return. Placing that money into a savings or retirement account will earn you money over time. It won’t be a significant amount of money, but it will still be better than paying off your mortgage and earning nothing.
  4. There’s a chance that you will move in the near future. This mostly depends on each individual or family, but studies have shown that most people live in a house for 5 to 7 years. Paying off a mortgage early if you don’t plan on living in the home for more than 30 years is not very beneficial. If you are selling your home after only a few years, you will get back all the money that you paid each month.
  5. Inflation will make your overall loan value cheaper. Because inflation rises a few percent per year, as time goes on, your mortgage loan will become cheaper. The monthly mortgage payment that you made this month won’t have the same value as it will 15 years from now. As prices for everything increase over time, your mortgage payment will remain the same.

Paying off your mortgage also has a few advantages, the most important being that you will have more peace of mind. Not having to worry about that large monthly bill and being free of debt can make your life a lot easier. But, many times, doing the opposite and not paying off your mortgage early can be very beneficial as well. Investing that money into something else, or simply using your money for something else, can have more financial advantages than simply paying off your mortgage early. This decision largely depends on each person’s financial situation and future plans, so it is very important to understand what paying off your mortgage involves before going down that road.

Current Interest Rates for Home Loans- Is it Time for You to Apply?

Current Interest Rates for Home Loans- Is it Time for You to Apply- 150x150Mortgage interest rates were at a record low last year and have slightly increased since then. This seems like the perfect time for you to become a home owner. The housing market struggled to recover for the past few years, but it seems that it is on the right track now.

Whether you are looking to buy a new home or your home has lost some of its value over the last few years, making it impossible for you to refinance, it looks like 2013 is the year when the home buying activity will see significant increase, making it the perfect time for you to buy a home.

Current Interest Rates

Current mortgage rates today for mortgage loans are around 3.5 percent for a 30-year fixed-rate mortgage. This rate is pretty close to last year’s historic low of 3.31 percent, but it is still a very low rate, that you should take advantage of.

The housing market is recovering, with home prices slowly increasing, and inventory decreasing more and more. The building industry is also slowly recovering, but they aren’t able to satisfy the demand for new homes yet.

Because mortgage interest rates are currently low, you will pay a lot less over the life of your loan. This makes current interest rates for home loans very attractive to home buyers, which will most likely lead to a rise in mortgage interest rates in the near future. Some economists predict mortgage rates as high as 4.4 percent by the end of the year.

Should You Apply for a Mortgage Loan?

Mortgage interest rates are low right now, but so are home prices. Statistics indicate that prices for homes are rising, and could go up by as much as 5 percent in 2013 only.

Many industries are recovering from the economic crisis, which will result in a decrease in unemployment rates, creating more and more home buyers. Also, new construction is on the rise, as the builders are starting to regain confidence. New homes will see, according to predictions, a 20 percent increase in 2013.

With mortgage interest rates near historic lows and the economy recovering, this may just be the perfect time to buy a home. If you decide to wait for lower prices and interest rates, you could end up having to pay a lot more for a mortgage loan. These are just predictions, but common sense also dictates that mortgage interest rates should not go lower than they were last year, especially since they have already started to rise since the beginning of 2013. Ultimately, it is up to you to do your homework, read the facts and the predictions, and decide if this is the right time to become a home owner.

Life After Foreclosure: Your Future in Home Ownership Revealed

Life After Foreclosure- Your Future in Home Ownership Revealed- 150x150Losing a home to foreclosure is a very stressful and discouraging experience which may have a negative influence on one’s desire to own another home. Fortunately, a foreclosure is not the end of the world, and it doesn’t mean that you can never own a home. Depending on the circumstances of your foreclosure, it’s just a matter of time before you will be able to apply for a new mortgage.

When Can You Apply for a New Mortgage?

Normally, you have to wait seven years after the foreclosure to buy another home. This is the period of time that is required by the government-endorsed organization Fannie Mae, a company that has purchased a large number of mortgages in the United States. The foreclosure remains on your credit report for seven years, but even after that you will need a good credit score in order to secure another mortgage loan.

If your foreclosure was caused by extenuating circumstances, like losing your job, a significant pay decrease, or illness, the period of time before you can reapply for a mortgage loan is reduced to three years. Extenuating circumstances are events that are beyond your control and must be properly documented.

Another possibility is that some lenders will be willing to give you a new mortgage loan right away. Unfortunately, the new mortgage loan will probably require you to pay a very large down payment and high interest rates.

How Can You Improve Your Credit Score?

Defaulting on your mortgage will have serious repercussions on your credit score. The foreclosure will show up on your credit report for seven years, but you should start rebuilding your credit score right away. If the foreclosure is the only negative event on your credit report, then you can rehabilitate your credit score in as little as two years.

In order to start increasing your credit score you will need a credit card that you will use to pay for your purchases. On-time payments will reflect on your credit report when the time to apply for a new mortgage loan comes. It is important to make sure that all three credit agencies record your payments on a monthly basis.

The housing market crash has left many Americans with no other options than finding a place to rent. Fortunately, recovering from a foreclosure is not as hard as it seems, it just takes a while. Rebuilding your credit and regaining the lenders’ trust can help you get a new mortgage loan in only a few years. Foreclosure is a scary and depressing process, but, through a little research and a lot of determination, you can quickly get back on track and become a home owner again.

 

Top 10 Mortgage Tips For 2013

tips-150x150You may be wondering why so many Americans are getting mortgages right now. 2013 has already started off with low interest rates so people have been anxious to secure these rates while they last. A deeper look at why you might look into getting a mortgage is that those who live in their own houses tend to have lower anxiety and expenses overall. Houses allow for individuals and families to settle down in a more permanent environment and focus on other aspects of their lives. Here are a few other benefits to consider:

Benefits Of A Mortgage Loan

  • Home Ownership. A mortgage loan enables you to have ownership to your own house without having to pay the full price instantly. A down payment is required for you to have your own home, but it is only a small fraction of the whole price premium.
  • Access to Cash. With a mortgage, you can tap into equity to access cash as needed. With this option at your fingertips, you will be able to use this money towards a car, making home repairs and even funding your child’s college education.
  • Improves Credit Score. If you handle your mortgage perfectly according to the terms and conditions of the mortgage lender, then your credit score will rise tremendously. A high credit score will enable you to access more credit products at lower interest rates.
  • Tax Benefits. If you have a mortgage loan, then you qualify for certain tax deductions in accordance to the rules and regulations of your State, which reduce your tax liability significantly. These deductions range from homeowners insurance to private mortgage insurance.
  • Capital Gains. If you maintain ownership of your home, then its value will increase over time; allowing you access to more products using the value of your home. If at some point you want to sublet your home and your mortgage lender allows you to, because you will have access to extra income.

Tips You Must Know

If you’ve been contemplating whether to take out a mortgage loan or not, then this is the time to end the dilemma. 2013 has come with new lending standards which you need to acquaint yourself with before making a decision. It doesn’t matter whether you are taking a mortgage loan for the first time or refinancing- 2013 is a great year for mortgages!

  1. New Rules. The Consumer Financial Protection Bureau (CFPB) released new rules beginning January 2013 which will ensure that lenders only advance loans to borrowers who have the ability to repay. The mortgages advanced from this year must comply with all the basic requirements that are designed to protect consumers. Once these are met, then the lenders will issue you (the lender) with a qualified mortgage.
  2. Mortgage Rates Have Decreased. Compared to last year, interest rates on mortgages have significantly reduced by about 25% from Freddie Mac’s average of 3.87%. This presents a great opportunity for you to lock your interest rate by taking a loan in 2013.
  3. 10-Year Mortgages. You are used to the normal 30-year mortgages which sometimes deny you financial peace in your latter years. You can take advantage of the lower interest rates so that you have a shorter mortgage repayment term because the lower interest rates will offset the lower monthly balance. This can enable you to repay your mortgage loan over a very short period of time of about 10 years. If you had already taken a long-term mortgage then you can refinance it now and complete making payments earlier.
  4. Conventional Loans vs. FHA. The line for FHA mortgage applicants is always long because they allow you to take a loan for a down payment as low as 3.5% of the value of the home. However, they charge higher fees in comparison to conventional loaners. With conventional loans requiring a down payment of 5%, the overall cost of the loan is generally lower. You can use a mortgage calculator to compare the costs before making a decision.
  5. Credit Rating. This is a golden requirement for receiving a good rate. The credit standards released by CFPB require that you must have a faultless credit history for at least one year before applying for a mortgage. In order to get the most attractive interest rate on your mortgage, you require a credit score of 720. However, you will still get your loan approved with a credit score of 680, but if it’s below this, then you will have to negotiate with your lender.
  6. Lock-Rate Rules. If you’ve submitted an application for a mortgage loan at a locked interest rate, it is not yet over. If there are any documents you still need to submit to the lender then do it immediately (within 24 hours). Delays can happen in this process which may make you lose your locked-in rate. Ensuring paperwork is submitted quickly to your lender and keeping in contact at least weekly will hopefully avoid any problems. The lender’s time is valuable and you need to safeguard it so that you receive a good deal.
  7. Opening New Accounts. If you want to apply for a mortgage this year, then be careful not to open new credit accounts which will have an impact on your credit. Most lenders will ask you for a second credit report shortly before closing the deal to confirm your credit habits. Since such acts could lower your credit score, your mortgage loan deal may be rejected in the last minute when you’ve made other plans with it.
  8. Shop from Several Lenders. Even though the lending rates may look attractive, you should still look further to all lenders so that you land a mortgage deal with the lender who offers the lowest interest rate. There are new programs in the market which will help borrowers to manage payments according to the FHA mortgage rules.
  9. Good Communication with Your Mortgage Lender. In case you have a hard time making payments with your current mortgagor, you may want to look into the new 2013 FHA programs like forbearance. These programs will enable lenders to easily work out any delinquent loans with loan modifications or short sales if the borrower’s financial status has changed unfavorably. Communicating with your lender regularly is the only sure way to have peace and safeguard your credit report.
  10. Underwater Refinancing. Perhaps you feel frustrated because you’ve been trying to repay your home but your home now has a greater value than what you owe the lender. Well, 2013 is the year that you can escape with a refinancing deal. Regardless of how underwater you are, the Home Affordable Refinance Program (HARP) has been revamped to enable you to refinance your mortgage.

No matter your financial situation, 2013 is a good year for mortgages if you have a decent credit report. This will enable you to borrow more money at lower interest rates. A house is out there for you and this is the year for you to get it!

Disputing a Low Mortgage Appraisal

dispute loan appraisal- 150x150Due to the downward trend of home values since the recent recession, home buyers have been facing a considerable challenge in dealing with low mortgage appraisals, which affects not only their mortgage options, but even the chance of the loan process falling through. While a lower-than-expected appraisal is not technically ‘wrong’, it may certainly reflect on whether a lender will approve the loan application or not.

As a rule, the appraiser is responsible for comparing home values with those of ‘comparable’ features within the surrounding market. Problems arise when a lender utilizes an appraisal agency that may not be familiar with the market conditions of a certain location, which will affect the home value. In turn, a particular market might be subject to high rates of foreclosures or short sales, or poor sales in general, which would cause an appraiser to ‘comp’ outside of the appropriate market.

The resulting appraisal affects the amount of funding the lender will allow toward the loan proceeds, and if the appraisal comes in below the loan pre-approval amount, the lender is forced to disqualify the loan. While the potential home buyer cannot direct or influence a property appraisal, there are procedures to challenge the results if necessary.

Steps to Challenging an Appraisal

Contract Cancellation – Most pending sales contracts have an appraisal contingency that permits buyers (and sellers) to cancel a contract due to a low appraisal figure.

Renegotiate – Buyers have the option of renegotiating an entirely new loan package. However, the seller must also accept the lower valuation, or the buyer may be forced to offer additional funds or concessions to meet the agreed sale price.

Challenge the Appraisal – The buyer can request a review of the appraisal, and provide any facts or details disputing the ‘comps’, or discrepancies in square footage or number of rooms to support the challenge.

Request a Second Opinion –  If the resulting appraisal review or subsequent challenge does not alter the outcome, the buyer can request the lender to employ a different appraiser, and one that may be better acquainted with the specific housing market in the area.

If you follow these steps, you will hopefully get a new appraisal that will meet your expectations. If not, you will have to decide how you would like to proceed.

Documentation Details for Mortgage Loans

documentation details for mortgage loans- 150x150When a borrower approaches the refinancing or loan application process, there is a required set of documents and disclosure statements which are necessary to activate the negotiation process with the lender or broker. This initial ‘package’ will include the Truth in Lending disclosure, the Good-Faith Estimate, and Credit Report disclosure. These permit the lender to acquire the background information about the borrower, such as employment records, credit history, banking activity, income and asset verification, and so on. Once these documents have been signed or provided, the loan process can move toward qualification and subsequent loan approval.

Documents Needed for Loan Approval Process

  • Application Fee – covering the cost of appraisal and credit report requests
  • Sales Contract of the home under negotiation, signed by both Seller and Buyer
  • Social Security Numbers for each loan applicant
  • Address listings of each applicant for the previous 2 years (including landlords)
  • Income earned from any employer for the previous 2 years (name and address)
  • Copies of each W-2 forms from each employer for the previous 2 years
  • Copies of the most recent pay-stubs, including year-to-date amounts
  • Account information on existing installment, auto, student, and mortgage loans, and credit accounts (name, address, acct. number, monthly payments, balances)
  • Account information on checking and savings accounts, stocks, and bonds (name, address, account numbers and balances, and three months of deposit statements)

If the borrower has filed for bankruptcy within the previous 7 years:

  • Copies of all documentation for petition and discharges, reason for filing, and any evidence in support of excellent credit behavior since the time of discharge

If the borrower is self-employed or is compensated by commission:

  • Federal Income tax returns, including each Schedule, for the previous 2 years, and a year-to-date profit and loss statement

If the borrower owns any additional real estate:

  • Property addresses and market value assessments
  • Mortgage obligations on all property (name, address, payments and balances)
  • Federal Income tax returns, including each Schedule, for the previous 2 years
  • Copies of all active leases and rental agreements

All of this paperwork can look overwhelming, but all of it is necessary for the mortgage loan approval process. Before meeting with a lender, be sure to make a checklist of the documents you need and include these in one folder to keep everything organized. If you have what you need at the beginning of the loan process, there will be less delay and stress! Be sure to also prepare a list of the top questions for lenders.