Can I use a zero down mortgage to buy my next home without having any money to put down?
What is an �Interest Only� loan and why should I be considering that?
If I don�t have 20% to put down, does that mean I will have to pay PMI?
What advantages are offered by Mortgage Bankers and Mortgage Brokers?
It's important to remember that the computers do not take any personal factors, including income, into consideration when calculating your scores. When your credit report is generated it is simply that day's snapshot of your activities. Once you begin the loan process DO NOT apply for any new credit or increase any debts without consulting your lending professional. Sometimes folks about to buy a new home get excited and buy new cars, new furniture, and the like before their home loan is finalized. This too often changes their credit picture and may alter or eliminate their approval.
We compile a tri-merge credit report which combines the scores provided by all three credit bureaus. Underwriters use the middle score of the three to determine credit worthiness, often to the borrower's advantage.
Do you know your scores? You need to know what your credit scores are and what's in your report before you begin shopping. Some erroneous items may take 2-3 months to get removed.
Zero Down mortgage to buy my next home without having any money to put down?Answer: Although there really are options for buying homes with no down payment, there are very few options for people with no money for closing costs or reserves (money left in the bank after the loan has closed). Zero down programs are considered "alternative Financing" and often come with shorter commitments that require you to refinance in 2 -3 years and pre-payment penalties that require you to stay in the loan for 2-3 years. Buyers have access to much better loans if they are able to put 10%, 5%, or even 3% down.
Another consideration is the market you're looking to buy into. If the real estate market is a "seller's market" (high demand and low supply), like we currently have in Seattle, it may be very difficult to buy with 100% financing as homes often sell for more than their appraised value. Investors consider the true value of property to be the selling price or the appraised value, WHICHEVER IS LESS. If the appraised value comes in 5% less than the selling price, the investor will require 5% down for 100% financing.
What is an interest-only loan and why should I be considering that?
Answer: "Interest-Only" loans are also called "interest first" loans. With these loans, buyers are responsible to pay only the interest on the outstanding balance every month. Typically, loans amortize over a given period (i.e. 30 years) and each payment represents P&I (principal and interest). Interest-Only loans do not require borrowers to pay principal reduction as part of their payment for the first 5, 10 or 15 years (depending on the program). After that time the payment jumps to P&I on the outstanding balance of the remainder of the term, often at significantly higher payments. Will this work for you? It depends: How long are you planning to stay in the property? How long are you going to make the minimum payment? How will you address the higher payment later on? Sometimes these programs are exactly the right solution for the buyer, but often they are used to squeeze someone into more home than they can afford without a plan for how to address the payment increases to come. Before moving forward with this type of loan, be sure you understand all the ramifications.
What is an " Option Arm" and should I be looking for one?
Answer : "Options Arms" are called this because each month borrowers are offered several options when making their mortgage payment: 1) Minimum payment, 2) Interest-Only payment, 3) 30 - year amortized payment, and 4) 15 - year amortized payment. We're going to focus the answer on the minimum payment because that is where most people get confused. Minimum payments start out at payment rates as low as 1%, so a minimum payment on a $500,000 loan might be $1,608.20. However, the loan itself is an adjustable - rate mortgage at a much higher rate, say 5.85% so the interest due could be $2,437.50. the difference of $829.30 is called " interest" or "negative amortization". In other words, the borrower is now $829.30 deeper in debt. Although the payment may start as low as 1%, every year the payment increases by 7.5%. The $1,608.20 first year payment goes to $1,728.82 the 2nd year, $1,845.48 the 3rd year, and so on. Most programs go 5 years before recasting into a fully amortized loan based on the current rate and the balance due.Does that mean you have to be a fool to get an "Options Arm"? Quite the contrary. As long as you understand what it is, how it works, and what
its limitations are, these types of loans can be very beneficial. For example, a client of ours has a wife who wanted to return to school. Although the equity position in their house was very strong, their mortgage payment would be much harder to make for the two years she was in school and not earning. We took out some cash to pay off some of their debts, and reduced their monthly mortgage payment and other payments by more than half her salary. After she returns to work , they have the option of converting to a 30 - year fixed rate or refinance the mortgage. Also, I should point out that although the program I described on the left is typical of "Options Arms" programs, there is one investor that in this type of loan and offers some very attractive improvement, including: more stable indexes, 125% recast limit, and 10 years of graduated minimum payments instead of 5. If you are working with a mortgage broker who steers you toward an "Options Arm", ask him or her to explain "recasting". If you sense any hesitation, run away. There are far too many inexperienced loan officers selling these programs as the "latest & greatest" solution without really understanding the loans. And if the loan officer doesn't understand it, how likely do you think the borrower will understand it?What is a Home Equity Line of Credit or HELOC ?
HELOC stand for Home Equity Line of Credit. It is like having a gold or platinum credit card that is tied to your home. Most HELOCs are 2nd mortgages used to help buyers without enough funds for down payment to keep their mortgage below 80%LTV (see question on having less than a 20% down payment). For example, if you were buying a home for $300k and were planning to put $15,000 down (5%), the balance of $285,000 is 95% of the value of the home. You could opt for PMI, or you could do a combo loan with a 1st mortgage of $240,00 (80%LTV) and 2nd mortgage of $45,000 (15%LTV). HELOC's offer advantages and one big disadvantage. Let's start with the positive side.If I don't have 20% to put down , does that mean I will have to pay PMI?
Answer: Not necessarily. This question causes lots of confusion because the rules have changed over the years. Many of us go to our folks or trusted older family member for advice when we first start looking into buying a home. Unfortunately, often the advice is correct but out of date. Today there are several alternatives. First of all, it helps to understand the historical reasons for 20% down. Banks track how much it costs to foreclose on real estate. Each year this averages 18-22% of the value of the home. These costs include legal fees, repairs (evicted owners rarely leave with everything in good shape), listing commissions, selling commissions, title fees, escrow fees, taxes (local, county & state), and the like. Therefore, whenever mortgages exceed 80% of the value if the home, the investor is at risk. Today there are several ways to address that risk: 1) PMI - Private Mortgage Insurance. Mortgage insurance is a contract that insures the lender against loss caused by a mortgagor's default on a mortgage. Mortgage insurance issued by a private company is called "PMI". Mortgage insurance can also be issued by a government agency like the FHA and is called P MI. 2) LPMI - Lender-Paid Mortgage Insurance. With these programs investors charge a higher rate to "sel - insure" against the risk. The advantage for borrowers is that the interest is tax deductible, where PMI or MI isn't. 3) Combo Loans - For these programs , borrowers have a 1st mortgage that is 80% or less of the value and a 2nd mortgage to close the gap between their down payment and the balance remaining. For example , 5% down combo loans are referred to as 80/15/5 and 10% down combo loans are 80/10/10. The advantage for borrowers is that they can write off the interest on both loans. They can also work to pay the 2nd off faster, leaving them in a comfortable equity position. 4) Alternative Lending - These are typically loans with a shorter to a fixed rate, often 2-5 years. After that time , they become Adjustable - Rate Mortgages, often with higher margins that force borrowers to refinance out of them quickly. Investors manage to the risk and require pre-payment penalties to prevent borrowers from refinancing too quickly.
W
hat advantages are offered by
Mortgage
Bankers
and
Mortgage Brokers?
Answer
:
Each offer many
advantages, but let's first put these in
perspective. In the past when you applied for a
mortgage, it was assumed you would go to the local bank or
savings and loan where you keep your savings and checking
accounts. Today, there is a wide range of choices. You
also can apply with a mortgage broker, mortgage banker,
credit union, professional or trade associations that you
belong to, the financial services firm that manages your
mutual fund investment account, state and regional housing
agencies, a private home financing company or even the
seller.
Let's begin by
understanding some terms.
Mortgage Bankers
provide the funds at the closing table. Although they may
(and usually do) sell the loan to an investor for servicing,
they underwrite and fund the loans themselves. This control
offers flexibility that can avoid delays at closing.
Although some Mortgage Bankers represent only one bank
(usually their namesake), many today are approved to fund
loans for several of the larger banks. Often the best rates
are made available to the Mortgage Bankers or
"correspondent" lenders.
Mortgage Brokers
don't bring their own
funds to the closing table and they don't underwrite their
loans. They establish relationships with a pool of lenders
that approve their loans and provide funds for closing. The
advantage Brokers offer is they can shop many (sometimes
hundreds) of lenders to find the best program or rate
available. Often the more creative programs are only offered
only on a Broker basis.
We at Rainier Mortgage
& PRIVATE LENDING SERVICES are part of the new breed of
hybrid lenders:
we offer our clients both Mortgage
Banking and Mortgage Broker services
. As Mortgage
Bankers we offer competitive rates, confidential one-to-one personal service with
fast approvals in-house underwriting, and local funding. As
Mortgage Brokers we have access to thousands of specialized
mortgage programs for that unique property or solution.
Should I consider using my
credit
union
for my home loan?
Should I look to a major bank for financing my next home ?
___________________________________________________________________________________________