Discover These Money-Saving Niche Mortgage Loans

Save Money With Niche Mortgage LoansWhen buying a home, most home buyers take out a conventional mortgage loan. Mortgage loans are designed for the large majority of people who wish to become home owners, but don’t own enough money to make a home purchase with cash. A large amount of money is still needed initially for the down payment and various fees and closing costs (Read: Assessing Your Current Financial Situation: Are You Ready for a Home?).

Besides conventional mortgage loans, buyers with specific needs are still able to find niche mortgage loans, which have advantages and disadvantages over other mortgage loans. Depending on what you are looking for, a niche mortgage loan might be a better fit for your needs than a conventional mortgage loan. Niche mortgages can accommodate home buyers who are looking for a mortgage that will help them make their home more energy efficient, or buy a home that is within walking distance of their workplace, allowing the borrower to take out a larger loan. Borrowers with low credit scores, who are not able to qualify for a conventional mortgage can also take advantage of a type of niche mortgage loan, which was designed especially for them.

The Energy Efficient Mortgage

Homes that are energy efficient allow their owners to spend less on utility bills each month, allowing them to take out larger mortgage loans. Energy Efficient Mortgages help owners make their homes more energy efficient, but are not second mortgage0s (Read: Need a Second Mortgage? A Home Equity Line of Credit Could Be the Answer!). When buying a home, you have the possibility of adding an Energy Efficient Mortgage, which will pay for the energy efficient upgrades to your regular mortgage. The two mortgages will be rolled into one, but you won’t have to meet any qualification guidelines or make a down payment for an Energy Efficient Mortgage.

If you plan on refinancing your mortgage and want to upgrade your home to be more energy efficient, you can get the Energy Efficient Mortgage to be rolled into the new mortgage loan. Also, if the home that you are buying already has energy efficient upgrades, lenders will allow you to take out a larger mortgage loan because your monthly utility bills will be lower.

An Energy Efficient Mortgage can be used to purchase home upgrades such as a new heating and air conditioning unit, better insulation, solar panels and many more. There are three types of Energy Efficient Mortgages:

  • Conventional Energy Efficient Mortgage. Offered by most lenders, whose loans are backed by Fannie Mae and Freddie Mac, the conventional Energy Efficient Mortgage allows you to borrow up to 15 percent of your home value for energy efficient improvements.
  • FHA Energy Efficient Mortgage. With this type of Energy Efficient Mortgage you will only be able to borrow up to 5 percent of your home’s value, but the mortgage will be insured by the Federal housing Administration (FHA).
  • VA Energy Efficient Mortgage. Backed by the U.S. Department of Veterans Affairs, the VA Energy Efficient Mortgage allows present and ex-military members to borrow up to $6,000 for energy efficient upgrades for their homes.

The Location Efficient Mortgage

When buying a home that is within walking distance of stores, shopping centers, public transit, or your workplace, lenders consider that you will spend less money on your commute, and allow you to take out larger mortgage loans (Read: Securing the Best Mortgage Rates). The Location Efficient Mortgage was designed in order to stimulate the development of more efficient communities and reduce people’s dependence on cars.

Borrowers that wish to buy a home in an urban community are allowed to borrow a larger amount, therefore buying a bigger or better home. By doing this, Location Efficient Mortgages reduce fuel consumption, preserve open space by decreasing the need for roads, and lower air pollution, which is a problem in most large cities.

The Subprime Mortgage

The subprime mortgage is a type of niche mortgage that is designed to help people with low credit scores, usually below 600 and who would otherwise be unable to qualify for a mortgage loan, become home owners. Subprime mortgages put lenders at risk, so the interest rates on these mortgages will be much higher than on conventional mortgages offered to people with good credit scores.

Most subprime mortgages are adjustable-rate, which means that the borrower will initially pay a lower interest rate for a predetermined period of time, but a larger interest rate after that period is over (Read: Fixed Rate vs. Adjustable Rate Mortgages). Many lenders, in order to increase their profits, started giving subprime mortgages very easily back in 2004, which led to a high rate of foreclosures and large financial problems for lenders.

Conclusion

Niche mortgages can save you money or help you become a home owner if you don’t qualify for conventional mortgages. However, these mortgages also come with disadvantages which may cause you to lose money or end up losing your home, so carefully assess your financial situation and options before taking out any type of mortgage (Read: The Reality of Being a Home Owner: It Costs How Much?!).

Jumbo Loan Rates vs. Conventional Home Loan Interest Rates

Jumbo Loan Rates vs. Conventional Home Loan Interest Rates- 150x150Huge and expensive luxury houses usually come with equally large mortgages, so lenders are offering a type of loan that enables home buyers to have access to higher loan limits than they would with a conventional loan. This loan is called a “jumbo loan” and it is designed to help home buyers who are in the market for a very expensive and luxurious home. Depending on many factors, such as size, materials used in construction, or location, some homes have bigger prices than the majority of homes in the United States, and can’t be purchased by securing a conventional mortgage loan.

What is a Jumbo Loan?

Jumbo loans are nothing more than larger mortgage loans. The government has imposed lending limits for most home loans, making it impossible to buy a more expensive home through conventional mortgage loans.

Loan limits in most parts of the country are usually in the $400,000-$600,000 range. Anything over that limit is considered a jumbo loan. Jumbo loans can exceed $1,000,000, but they are much harder to obtain than conventional loans. Qualifying for a jumbo loan is significantly harder than qualifying for a conventional loan, especially if your credit score is less than perfect.

Jumbo Rates Compared to Conventional Rates

The sales of properties that are worth more than $750,000 have increased over last year by over 35 percent. The number of properties sold for $1,000,000 and over has also increased by over 25 percent compared to 2012. The jumbo loans market seems to be recovering nicely after the big hit that it received a few years ago, when many lenders stopped offering this type of loan.

The difference between current mortgage rates on conventional mortgage loans and jumbo loans has narrowed lately, making jumbo loans more appealing. Interest rates for a 30-year fixed-rate mortgage loan that conforms to the government limits were 3.75 percent in April, while rates for jumbo loans were only 3.85 percent.

After being raised in 2008 in order to stimulate the housing market, limits for jumbo loans were lowered in many states in 2011. If limits for conforming mortgage loans are lowered, then home buyers have to take out bigger jumbo loans to be able to buy a home with the same price.

Interest rates for jumbo loans might be as low as rates for regular mortgage loans, but the requirements are stricter. Depending on your financial situation and credit score, getting a jumbo loan this year could possibly be the best choice for you. If you can prove a large income, perfect credit score and you are able to provide a fairly large down payment, then a jumbo loan can be your opportunity to purchase the luxury home of your dreams.

Combination Mortgage Loans Could Be the Answer for You

Combination Mortgage Loans Could Be the Answer for You- 150x150Becoming a home owner is one of the main goals in every American’s life. But to achieve this goal, you will probably need to borrow money, and that can be a pretty nerve-wracking process. You want to make sure that you are getting the best deal on your mortgage loan, but that can be hard with all of the mortgage loan options that are available today. One of the ways in which you can save money is the combination mortgage loan.

A combination mortgage loan allows you to combine two loans, preferably from the same lender in order to pay off your mortgage. Typically, the first loan will represent 80% of the property’s value, while the second one will be 20% of the home’s value. The smaller loan can be used as a down payment or to finance the construction costs of your new home, while the second will be used to pay off the first loan, and will become the permanent mortgage loan on your home.

Benefits of a Combination Mortgage Loan

Combination loans feature a few benefits over regular mortgage loans, but whether this type of loan is your best choice will depend entirely on your financial situation. Here are the benefits that a combination mortgage loan has to offer:

  • You avoid paying private mortgage insurance. With conventional loans, you will be required to pay private mortgage insurance (PMI), which can increase the overall cost of the loan significantly. The cost of the mortgage insurance can sometimes even exceed the cost of the second mortgage loan.
  • You don’t have to make a down payment. Even though the terms are different from one lender to another, the two loans generally serve the same functions: the first mortgage loan will pay off the mortgage, and the second one will cover the down payment.
  • You’re able to get lower interest rates. Each one of the individual mortgage loans in the combination loan will receive a different interest rate. The interest on the larger loan will be smaller, usually making your total interest rate smaller than on a conventional loan.

Disadvantages of a Combination Mortgage Loan

Even though combination mortgage loans can be very beneficial, they are just one of the many types of loans that you should research before choosing. Combination loans might sound good at first, but if you don’t thoroughly research the disadvantages, as well, you could quickly end up regretting your decision.

When paying your mortgage through a combination loan, you will have to keep track of two separate monthly payments, to two different lenders, in some cases. This increases the chance that you will miss a mortgage payment which will hurt your credit. Also, there is a chance that the interest rate for one of the loans will be high, which could increase the overall cost of the loan.

Combination mortgage loans are generally a great choice when you are looking to avoid paying private mortgage insurance, but, as with any mortgage loan, you must exercise caution when choosing this type, and avoid making your decision based only on advantages. Your financial situation and the loan’s disadvantages should also play a big part in your decision. The only way in which you can be sure that you are making the best choice is by being fully aware of where you stand financially and doing your homework.

FHA Loan vs. Conventional Loan

FHA vs. Conventional- 150x150In terms of monthly payments, some conventional loans seem very similar to FHA loans, variables such as qualification requirements, mortgage insurance, down payment, or closing costs can make a big difference when choosing between the two types of loans. In recent years, because of low down payments and credit score requirements, Federal Housing Administration (FHA) loans have increased in popularity. Which option is right for you depends entirely on your particular financial situation. Both FHA and conventional loans have their advantages and drawbacks.


Put Down 3.5% on Your New Home.

FHA Loan – Pros and Cons

An FHA loan is a type of loan that is insured by the Federal Housing Administration. For many years, this type of mortgage loan has allowed Americans with a lower income to borrow money for the purchase of a home. An FHA loan has a few clear advantages over a conventional loan. Here are the most important ones:

  • Easier to qualify for a loan. As opposed to a conventional loan, requirements for an FHA loan are not as strict. People with low incomes and low credit scores have a much better chance of qualifying for an FHA loan. You can qualify for an FHA loan even if your credit score is as low as 500.
  • Lower down payment. FHA mortgage loans are very appealing to borrowers because the minimum down payment is only 3.5 percent. With down payments for conventional mortgage loans usually in the 10 to 20 percent range, an FHA loan becomes a great choice if you don’t have a lot of savings to make a bigger down payment.
  • Lower interest rate. Because the loan is backed by the government through the Federal Housing Administration, you could qualify for a lower interest rate than you would on a conventional loan. This could save you thousands of dollars over time.

This all sounds good, but FHA loans have a few disadvantages as well and are not designed to replace conventional mortgage loans. The most important ones are:

  • Mortgage insurance. If you choose an FHA loan, you will have to pay a minimum of 1.5 percent upfront mortgage insurance premium and a 0.5 percent monthly insurance. The mortgage insurance must be paid for a minimum of 5 years, and that will increase the overall cost of the loan.
  • Lower credit scores mean higher down payment. The minimum down payment amount may be as low as 3.5 percent, but only someone with a minimum credit score of 580 can qualify for that low amount. If you have a credit score between the minimum allowed for 500 and 579, you will have to make a 10 percent down payment.
  • Longer to process. Because the Federal Housing Administration mortgage loan is insured by the government, processing the loan will most likely take longer than with a conventional loan.

Conventional Loan – Pros and Cons

A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Conventional loans are typically obtained from a financial institution, such as a bank or credit union. This type of loan can be a great choice for you, depending on your budget and situation. Here are some of the advantages of a conventional loan:

  • Better terms for people with good credit scores. A credit score minimum of 620 is required by the National Association of Mortgage Brokers in order to qualify for a mortgage loan. If your credit score is higher than 760, you will qualify for the best rates available, meaning that you will save a lot of money compared to someone with a less than perfect score.
  • No upfront mortgage insurance premium. Unlike with an F HA loan, you won’t have to pay a mortgage insurance premium, which can be as high as 2.25 percent of the total loan amount.
  • More flexible terms. With a conventional mortgage loan, you will have more repayment period term options than with an FHA loan. This can also help you save money, as interest rates will be lower if you choose a faster term, such as a 10 or 15 year repayment period.

Conventional loans can be a great option for someone who meets certain requirements, but they can also become very costly unless you exercise caution when choosing a loan type. Some of the drawbacks of conventional loans are:

  • Harder to qualify. Unless you have a really high or perfect score, the lender will either give you high interest rates and fees, which will increase the cost of the loan, or will even deny your loan application.
  • Higher down payment. The minimum down payment amount for a conventional mortgage loan may be as low as 5 percent with some lenders, but only if strict requirements are met. Typically, the down payment for a conventional loan is between 10 and 20 percent.
  • Private mortgage insurance. Borrowers who made a down payment of less than 20 percent of the total loan amount will be required to pay private mortgage ,insurance which will protect lenders in case of a default.

The conclusion is this: if you are looking for a mortgage loan that requires a low down payment and your credit score is less than good, then you should choose an FHA mortgage loan. If your credit score is perfect or close to perfect and you can afford a larger down payment, the best choice for you is a conventional loan. Before deciding what type of loan to choose, you should always educate yourself and never be afraid to shop around until you find the best type of program that suits you.