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.

Refinancing Your Home: The Complete Process

Refinancing Your Home-The Complete Process- 150x150Refinancing your home at the right time can bring you great financial benefits, but the process can be a little intimidating for those who are refinancing for the first time, and even for those who have done it before in the past. Changing your mortgage loan to a different loan with different terms can get a bit confusing, and you might be afraid not to make any mistakes and end up doing the exact opposite of saving money.

There are consultants who can guide you through the refinancing process, and it’s not a bad idea to use them, but it’s important that you understand how refinancing works, from deciding to refinance to actually taking out the new mortgage loan. Understanding the refinancing process will help you avoid making simple, but expensive, mistakes, which can end up ruining your plans.

Deciding to Refinance

Home owners generally refinance when the interest rates are lower than they were when they took out their mortgage loan, but interest rates should not be the only deciding factors when you consider refinancing. First of all, the advertised interest rates are usually reserved for those who meet some very strict requirements, like having a perfect credit score. Anything less than a perfect credit score and you will find that the interest rate that you’ll be required to pay on your new loan is not that attractive anymore. Secondly, you should not be blinded by the low interest rates that lenders are willing to give you. The closing costs of refinancing can be very high, and might make the overall value of your new mortgage loan even greater than the value of your current loan.

Getting Prepared to Refinance

If you have decided that refinancing is the right step for you, and you will be saving money by doing it, then it is time to get prepared. Like most mortgage loans, refinancing will require a good credit score and a significant number of documents. Before talking to a lender, you should check your credit score, and make sure it’s in good shape, without any inaccuracies. You are entitled to one free credit report check per year, and you should report any erroneous information to the credit bureau. Also, having some of the paperwork ready before applying for a refinance will save you a lot of running around, and it will make the whole process go faster and smoother.

Choosing the Right Refinance Loan

There’s no perfect mortgage loan that will benefit everyone. Depending on your financial situation and many other factors, you should closely look at all loans that will be made available to you and decide once you find one that meets all your requirements. For example, you may want a lower monthly payment, in which case you should look at 30-year fixed-rate loans. Alternatively, you may want to pay off your mortgage sooner, in which case you should look at 15-year mortgages.

Applying for the New Mortgage Loan

Like we’ve mentioned earlier, preparing certain documents, such as personal tax returns, bank statements, pay stubs, and others, will make the refinance application process go by very quickly and, in some cases, you can even apply over the phone. The quicker you submit the required information, the faster will your new mortgage loan be approved.

Appraisal and Approval

After submitting your application, you will normally have to get your home appraised by a home appraiser. These appraisals usually cost a few hundred dollars and are paid by the borrower. The home appraisal is required in order for the lender to find out how much your home is worth and if you have enough equity in your home to support the new mortgage loan. All your paperwork, including the appraisal, will then be reviewed by the lender. If the lender comes to the conclusion that you are able to repay the new loan, your refinancing loan will be approved.

Locking in the Interest Rate

Once your new mortgage loan is approved, you will have the choice of locking in the interest rate or letting it float until closing. By locking in your interest rate, you are protected from an increase in interest rates before you close on the loan. If you don’t lock the interest rate, there is a chance that the rate on your new loan might increase, but there’s also a chance that it might decrease by closing time.

Signing the Loan Documents and Closing

At closing, you will be required to sign all of the loan documents. You should carefully review each document before signing, making sure they contain everything that was agreed upon. When closing, you will also be required to pay various closing fees, which can be pretty costly. However, some of these closing costs can be reduced at your request, or even waived, if you have a good relationship with your lender.

Refinancing is a pretty straight-forward process once you understand it, but you should still pay attention to the details. Refinancing can turn into a costly nightmare if you don’t carefully take all of the aspects into consideration. Doing your homework before refinancing will ensure that the whole process goes by smoothly and making your mortgage payments will be much easier.

Quick Tips on Mortgage Refinancing

Quick Tips on Mortgage Refinancing- 150x150Refinancing can be a great way of reducing your interest rates and monthly mortgage payments. With refinance rates on the rise but still near record lows, now may still be the most opportune time to refinance, as rates are predicted to continue to increase in the future. Unless you’re a few years from paying off your mortgage, by refinancing you can lower your monthly payments and free up cash that can be invested or used to remodel and repair your home.

Refinancing also has its negative sides, like being a fairly expensive process, but it is up to you to take a close look at your financial situation and decide if refinancing is worth the cost, and if it will, indeed, save you money over time. Here are a few quick tips for those who are considering refinancing their mortgage:

Quick Tips

  • Check your credit score. Before applying for refinancing, make sure that your credit score is in great shape. Refinancing takes a lot of work and time, and all this would be wasted if you get rejected because your credit score is not good enough.
  • Don’t rely on the advertised interest rates. Lenders will usually advertise their best interest rates in order to attract more customers. The truth is that the rate that you will get will probably not be the one that you have seen advertised. Your interest rate will depend on many factors, such as the size of the mortgage loan, mortgage points, if the rate is locked in and many others.
  • Know what you want. Carefully weigh in on all of your options before contacting a lender to refinance your mortgage loan. Knowing what type of a loan you want, like a 15-year or 30-year mortgage, can make it easier for the loan officer to find a better rate for you. Also, it’s recommended that you know how much you are willing to spend on points in order to get a lower interest rate.
  • Contact your current lender first. If you are a good borrower, pay your mortgage on time and have good credit, chances are that your lender will do anything in his power to keep you as a customer. Your lender may even offer to waive some of the refinancing costs, like appraisal and inspection fees.
  • Shop around for a refinance. Closing costs and interest rates vary from one lender to another, so it doesn’t hurt to shop around a little. You might actually be pleasantly surprised and find a lender that will give you a much better rate than the others or waive some of the closing fees, making refinancing cheaper than you thought it would be.
  • Try to avoid “no cost” refinancing. “No cost” doesn’t actually mean free. The closing costs are bundled into the mortgage, which means that you’ll be paying interest rate on that amount, making the closing costs more expensive than they would have been if you paid them beforehand.
  • Save money by avoiding tax and insurance escrow services. Having a little discipline and paying your property taxes and insurance on time will save you money over using an escrow service that charges for something that you can easily do yourself.
  • Make sure you don’t have a prepayment penalty on your mortgage. Chances are you will find refinancing options that save you money, but it may all be for nothing if you haven’t been paying attention to your current mortgage contract. A prepayment penalty can make refinancing turn from a money saver to something that will end up costing you more than your original mortgage.

Whether refinancing is a good idea or not is up to you, as it largely depends on many factors. Refinancing can be a good choice for some, helping them save some money on their mortgage. Between the closing costs and all of the requirements, refinancing can turn out to be a bad choice for others, which can result in wasted time and money. At the end of the day, it is up to you to evaluate your situation and budget, and decide if mortgage refinancing is your best choice.

Refinancing Loan Types and Closing Costs

Refinancing Loan Types and Closing Costs- 150x150With the economy having a favorable effect on interest rates, many homeowners are considering the viability of refinancing existing mortgages to take full advantage of this downward trend. Depending on which type of mortgage program the original loan was (fixed-rate loan, adjustable-rate, interest-only, or hybrid ARM), refinancing is proving to be a favorable option. Careful consideration needs to be applied to the feasibility of refinancing because each has an array of advantages and disadvantages. Whether the focus is on extending the loan term, cutting down on monthly payment amounts, or accessing the equity, there are both short-term and long-term benefits and consequences to be evaluated.

 

Lengthening the Term and Lowering Payments

Lowering the interest rate can be the primary focus, but it is not the only factor. It is important the borrower understands the complete package and ramifications of refinancing. This includes understanding that to extend a loan term means more overall interest is paid out in the long run and that the loan type chosen can decrease or increase monthly payments. There are other ‘hidden’ costs involved with refinancing as well, such as a reevaluation of tax liability, along with the property insurance coverage, and whether or not the new loan will require private mortgage insurance. Make use of online mortgage calculators to establish which refinancing scenario works best for your budget.

Factoring in Closing Costs

Another consideration are the refinancing closing costs. If a borrower is fortunate enough to refinance their old loan with the original lender by simply renegotiating loan terms, then the majority of closing costs may not be a factor. If that will not be the case, then the closing costs will become a major part of the equation. Typical closing costs can run from 3% to 5% of the loan value, which can be anywhere from $3,000 to $11,000 on a $200,000 loan, depending on how many points the lender chooses to apply to the loan package.

Guidelines to Mortgage Refinancing

refinancing guidelines-150x150Before a homeowner decides to commit to a mortgage refinancing offer, there are certain criteria to address. Generally, there is an economic motivation behind the decision, such as taking advantage of the current downward trend of interest rates, or switching to different types of mortgage loans, or perhaps getting access to the available cash tied up in home equity for financial reasons. Each motivation needs to be examined carefully, with not only short-term benefits evaluated, but long-term strategies kept in mind as well.

Refinancing Timetable – When is the best time?

There are two primary focus points to consider prior to moving forward with the refinancing procedure, even before the application process can take place. The first is checking interest rates offered at local lending institutions or online, bearing in mind that these rates will be offered to borrowers with the best credit ratings. The refinancing ‘rule of thumb’ is that current mortgage interest rates must be two or more percentage points below the rate applied to the existing mortgage, in order to be worth the refinancing effort.

The second issue is determining just how long a borrower plans to stay in the home after the refinancing takes place. This formula can be examined by taking the estimated cost of closing at $4,000, and dividing it by an estimated savings in monthly payments, say $100. In this case, it would take approximately 40 months, or 3.3 years, before breaking even with the initial costs of mortgage refinancing.

Budgetary Effect – What are the potential savings?

If lowering the monthly payment is the primary consideration, then refinancing with a lower interest rate is the obvious choice. If the current monthly mortgage payment on a $200,000 loan at 8% interest over 30 years is $1,468, the same loan at 6% would bring the monthly payment down to $1,199. Over ten years, the savings would be $32,280 added back into the household budget.

An Overview of The Obama Government Refinance Program

MHA_Vert_LogoSM1-150x150President Obama is the first to admit that his earlier attempts at providing housing relief have been less than successful, but he hopes this proposal will have the desired impact for individual Americans, and the economy as a whole. The goals of the proposal, known as MHA (Making Home Affordable), focus on preventing foreclosures on people’s homes, stabilizing the nation’s housing market, and improving the country’s economy. Read on to learn about this program and see about its chances of passing legislation.

The Politics of Foreclosure

For individual consumers and homeowners, the issue of housing relief is concrete and personal. People facing the loss of their family homes have little patience for the rhetoric and wrangling of politicians. For many politicians (whose own homes are secure), the matter  is more abstract—less a humanitarian issue than an opportunity to air sound bytes to replay at re-election time.

Mitt Romney, the governor of Massachusetts and recent presidential candidate, went so far as to recommend that the record-breaking foreclosure rate should be left alone to “run its course and hit the bottom.” Obama countered with the argument that it is morally irresponsible to stand by and let “struggling, responsible homeowners” bear the brunt of the nation’s economic crisis. For these individuals, the stakes are too high.

The number of individuals facing crisis are staggering. The rate of foreclosure in this country have never been this high. One quarter of Americans with mortgages (approximately eleven million all told) now owe more than the homes are currently worth, a situation known as “being underwater.”

At the same time, most banks are hesitant to offer refinancing to people whose homes are underwater. Thirty million mortgages—approximately half of all home loans in the United States—are held by non-government lenders who are not refinancing underwater homeowners.

The Proposed Legislation

If Obama’s plan passes the legislature, eligible homeowners would be given the option of refinancing mortgages through the Federal Housing Administration (FHA). The FHA itself would guarantee the refinancing loans, and the program would be funded by fees imposed on the large banks that are currently refusing to refinance risky home loans.

Many of the home loans that are now in trouble resulted from complaisant screening policies by those same banks which approved loans for consumers without even demanding proof of income sufficient to make the loan payments.

Challenges and Down Sides to the Legislation

This proposal comes with a ten billion dollar price tag, and Obama essentially intends to send the bill to the nation’s biggest banks. A fee imposed on large banks would cover the cost, but even Democrats have vetoed this approach in the past, so getting this legislation passed is likely to be rough going.

If the legislation were to pass, its impact will be limited in scope. It does not apply to those consumers who are most in danger of foreclosure: those who have borrowed money and fallen behind on the mortgage payments. To qualify for the program, a homeowner must have stayed current on the last six months’ payments, and missed no more than one payment in the previous six months.

Refinancing a Rental Property – A Quick Guide

free-refinancing-advice-150x150The prospect of refinancing a rental property can be a scary one. If you’re in over your head, strapped for cash or perhaps you’re even afraid of losing the value within your home. No matter what your reason, something as big as the decision to refinance should be considered with great care. The housing market has changed, and with that, so have considerations in refinancing and the impact such a decision could make on your life. Here are steps to take in order to make refinancing your rental home a more welcomed process.

Refinancing May Be The Wise Choice

Refinancing can be a great thing in allowing you to pay off your mortgage sooner and providing smaller payments made month to month depending on your lender. Refinancing can also allow you to avoid bad credit and build up good credit for future investments. The same can be true for refinancing rental properties. As long as the amount that you save over the lifetime of your loan, is less than your closing costs you have made a wise decision! If you have multiple rental properties, your savings can be even more profound.

Choosing a Mortgage Refinance Lender

Choosing a lender can be a little intimidating, but in order to reach your goal of refinancing you need to be able and willing to explore more than one option.

  • Get a copy of your credit score and credit report. You are entitled to one free copy per year, so head over to AnnualCreditReport.com and get one. This is a government approved resource and should be used before buying a report from a credit bureau. Make  two copies, one for your lender and one for your personal records as your lender will need this information for your application and proof of documentation is always good in the event that something were to happen.
  • Call your original lender. If you don’t have a lender, talk to those lenders within your bank or credit union and see what they have to offer in terms of refinancing options. It is vital that you write their offers down so you can shop around and compare more effectively.  Ask questions about how exactly this could affect your personal credit, how they could work with your income and ask about a loan estimate based on the value of your home. If they hit you with anything you do not understand, request that things be explained in simpler terms. This allows you to really know what it is you’re getting into. Do a pros and cons list to refer to later with each lender you explore the possibility of refinancing with.
  • Get copies of applicable documents. Monthly mortgage statements, pay stubs and monthly bills will paint an accurate picture for those that are looking to assist you in the decision to refinance. In other words, have the ability to prove your monthly income, any assets you may have as well as your expenditures.
  • Do not be afraid to explore federal refinance programs In the event that you owe more than your home is worth, programs such as The Federal Home Refinance Program are designed to help. Remember, you owe it to yourself to look for a lender that meets your needs. If you are unsure of the options available to you, do not ever hesitate to ask questions in order to have your financial needs recognized, and more importantly, met.

Before You Apply for a Rental Refinance Loan

  • Tell your lender that you wish to refinance your rental property. A few mortgages require the homeowner or renter, as in this case, to live on that property for a set amount of time. Make sure you once again that you state that you are interested in refinancing a rental property to insure that the contract is worded correctly and therefore, valid.
  • Review your credit report.  Make sure all the documentation is accurate.  You will need to demonstrate good credit in order to qualify for a refinance in the first place. If there are any outdated, negative accounts file a dispute with the bureau. Higher credit scores equal lower interest rates! If you have any doubts or questions, remember to call your bank; that’s what they’re there for.
  • Know whether or not you have enough equity within the home. For investment properties, lenders typically give out a loan-to-value ratio at a minimum of 75%. You really want to be sure that your time and effort spent on  your home is well worth it.
  • Be able to show that you have money set aside. Lenders want to see that you are reliable and being able to cover six months (if not more) of interest, principal, as well as taxes and homeowner’s insurance.

The more prepared you are when it comes to refinancing your rental property, the better off you’ll be. Now that you know what it is to be expected, you can go forth and make a sound financial decision.

Mortgage Refinancing Guidelines

fixed-mortgage-rates 150x150The Decision Making Process

With the characteristic ebb and flow of the current economy so inextricably intertwined with the flat-lined housing market, it stands to reason that many homeowners across the country are critically examining the pros and cons of mortgage refinancing. The basic or fundamental reasoning can be boiled down to three key areas of concern in terms of having any real economic motivation to take on this task. The first is almost a no-brainer because it involves the primary feasibility of making a budget work – the homeowner is in need of saving money by lowering their existing mortgage rates. The second impetus is also a more budget friendly incentive for refinancing – to allow more manageability in the mortgage repayments by extending the term of the of the existing loan. The third criterion is based on a premise of choosing a different loan type, and for obvious reasons – considering a change from an adjustable mortgage rate to a fixed mortgage rate in order to stabilize the monthly repayment obligation. Again, these are all decisions that arise from the pressure a poor economic situation applies to every household budget.

These three factors generally point to the realization that refinancing a mortgage is certainly something to consider. However, a certain percentage of individuals may assume the task to be somewhat daunting, or even financially risky, and they have a pre-determined idea that it may not prove to be beneficial enough to attempt. Basically, the strategy is only as complicated as one makes it, and with a good plan and a bit of organized willpower, it is definitely a do-able course of action. Here are a few ideas to streamline the decision-making process a bit, to boil it all down to the necessary components to correctly evaluate the feasibility of refinancing, and it is far from rocket science.

Important Mortgage Refinancing Considerations

Determine the motivation for refinancing – The final outcome of the mortgage refinancing decision will be affected by any or all of the three budgeting factors: lower interest rates, lower monthly payments, or a fixed monthly payment.

Establish the desired loan factors – Using the previous budgeting motives, decide the feasible interest rate and monthly payment objectives, along with a specified term, using online mortgage calculators to work out possible scenarios.

Credit score evaluation – Everything depends upon this critical factor, and is especially relevant if the ratings have not been checked in some time. These scores set the stage for lender offers and the likelihood of a favorable loan approval.

Fluctuations in property values – Another key element is whether the economy has effected the current value of the home enough to decrease the viability of refinancing, unless the existing mortgage has been paid down to a significant degree.

Check the early repayment penalty – Find out if the original lending institution will consider the new refinancing, which may nullify any prepayment fees. If not, absorbing this cost needs to be considered within the feasibility study.

Seek refinancing offers from numerous lenders – The field is quite large, and prospective offers will vary considerably, therefore shop carefully and diligently for the best rates and terms.

Scrutinize every detail of each offer – Establish a checklist for comparative evaluation to determine the total projected cost of each offer. This will include the points, the interest rates, closing costs, inspections, origination fees, and so on

Get the loan offer time-table specified– Based on the length of the application process, lenders will try to hedge on verbal commitments for long periods, so getting a rate-lock in writing for the duration of the refinancing process is critical.

Balance the costs versus the savings – Utilizing mortgage calculators, work out the numbers between the existing mortgage commitment against the total cost of refinancing. The difference between the initial up-front expenditures must be weighed against the longer-term monthly savings benefit.

With the streamlined approach listed above, a more careful, concise, and budget-friendly refinancing decision can be achieved. The more focused and detailed the information is while devising a credible plan of attack, the easier it will be to reach the most beneficial mortgage refinancing solution.