Getting Enough Money For A Down Payment
With much of the subprime market gone, not that these kinds of loans were smart to begin with, the days of 0% down mortgages are over. It is back to the traditional, safer way with 10-20%. It may seem like a lot, especially getting closer to 20%, but it makes you much more secure in your purchase. How to get the down payment is the tricky part, especially for young people. I recently came across the site, The Daily Banker, which has a lot of great information.
In addition to penny pinching to help save for a down payment, people should let their money earn more money for them. Don’t just let it sit in a checking out, put it into something like a CD, money market account, stocks, bonds, mutual funds, or even just a regular old savings account. The Daily Bank has great information on many of these investment options, including providing some of the best CD rates from around the industry. This site will show you areas where you can put your savings to work for you, earning 5% or more. Another area of information it provides good detail on, are current bank promotions. Many times, banks will give you money to open an account with them, or sign up for one of their programs. The Daily Banker monitors these different offerings and makes them available to readers in one central location. This way you know what offers are available, and can choose the best ones that pertain to your needs as an individual.
Foreclosures Hitting Record Highs
According to a recent article on CNN, home foreclosures have hit record highs. The MBA (mortgage bankers association) reported that 0.78 of all mortgages entered into forclosure in the 3 months ending on Sept 30th, 2007. It is obvious that the sub-prime market fallout is still wreaking havoc on home buyers.
If you are in danger of having your home foreclosed, there are always options to help prevent it. One way is to go to your mortgage institute and try and renegotiate your mortgage payments. They would rather receive some money from you than foreclose on your house. I even heard a Donald Trump speech where he said the same thing. Also, sometimes emergency cash can help users stay out of foreclosure. It is best to try and exhaust all your options first before taking out, essentially, another loan for cash to pay your mortgage.
Also, word has come out that President Bush is working on drafting a plan to help home buyers being affected by the sub-prime fallout.
Charlotte Real Estate Firm has solution for declined mortgage applications
Buying a home? It’s not as easy as it used to be to get approved for a mortgage. With all the fraud that happened over the last few years, subprime lending has practically come to an end. It is also a common occurence for someone to get approved for a mortgage, only to be later declined at the last minute. This can be a very frustrating situation.Timothy Cline Realty, a boutique realty firm that specializes in Charlotte Real Estate seems to have an answer. Their broker in charge, Tim Leadbetter, has brought together a source of private funds for people in this situation. Mr Leadbetter calls the program “rent now, buy it later.” If you are declined for a mortgage for “borderline” reasons, Timothy Cline Realty can purchase the home you want and rent it to you. Your monthly rent is based on a .0085 factor of the purchase price. This factor produces what your mortgage payment, taxes, HOA, and insurance would be had you purchased the home on your own.
While you are renting the home, you are earning credit towards the purchase price. Within 1-2 years you will reapply for a home loan mortgage. The bank will see that you are applying for a mortgage on a home you have already been living in. The bank will also see that you have been making on time payments equal to or even more than what your new mortgage payment will be. If you have been paying $1700 a month and your new mortgage payment is only $1500, that is a big plus from the bank’s point of view. You have already proven you can make the payment, and are committed to living in that home.
Programs like this make a lot of sense, especially when the mortgage industry does not.
Mortgage Defaults On Rise
According to AIG, mortgage delinquency is on the rise. Reported on CNN, that 10.8% of subprime mortgages were 60 days past when payment was due. Currently AIG is classifying home loan borrowers as “subprime” if their credit scores are below 620. Also, according to the CNN article, the delinquency rate for overall first mortgages is right at 4%. What does this all mean? It continues to look like the housing and mortgage industry is very shaky and what was the bottom that fell out of the subprime lending market, might not have been the bottom at all. It is also being reported that more and more people, as a last resort before foreclosure, are trying to sell then rent back their homes.
Is Now A Bad Time To Get An ARM Loan?
When looking at different mortgages, an ARM loan can be very appealing at first sight. Arm loans, as previously discussed, offer teaser rates in the beginning which usually reset after a few years. This teaser rate often gives individuals a false sense of security in what they can and can’t afford. You must ask yourself, can I afford the highest possible rate the mortgage will reset to after the introductory period is over? If the answer is no, then you have no business taking this loan. Your options are to either go with another mortgage product, a different home, or wait until you can.
If you said to yourself, yes I can afford it, then you must ask if now is a good time to actually take out an ARM loan. An ARM loan can be good, especially if you feel interest rates are going to drop. No one can be sure for certain which way the market will go, but looking at historical data can help to make an educated guess.
Based on the historical prime rate, you can attempt to make that guess for yourself. Looking at past rates, which have reached as high as 20% in the recent past, it is highly possible for current rates to rise several points. However, historically as you can see, rates have not dipped much lower than what they are today. What does this mean for potential home buyers? It is certain your rates will go up by several points, and quite often it will go to the maximum, after the teaser rate resets. Would I get an ARM loan? Probably not, especially if I was making a purchase I anticipated being in for a long period of time.
Is it Best to Payoff a Mortgage as Soon as Possible?
Many people do not like the idea of being in debt, as they shouldn’t, and pay extra each month to attempt to pay off their mortgage early. This is usually an emotional or psychological based decision, not financial or mathematical. There are reasons to pay a mortgage off early, but there are also many reasons to not.
It is best to pay off high interest loans first. Credit cards and auto loans tend to have higher interest rates than most mortgages. Due to their high interest rates, especially credit card balances, people are much better off paying down credit cards than making extra payments on their mortgages. Remember, the interest paid on a mortgage is a tax deduction which will effectively lower the interest rate by 1 or 2 points depending on the amount of interest paid in a year. Thus making the likelihood of having higher interest rates on something else much higher.
Also, it should be considered as to what your money would be doing if you didn’t use it for accelerated mortgage payments. Assuming high interest loans have been paid down, how would you be using your money? Do you need to be liquid to pay for upcoming big expenses? Could you be making more money in the stock market than what you would be saving on your mortgage? (That is, is your rate of return in the market higher than the interest rate on the mortgage? If so, your money might be better spent in investments) Do you need the cash for children or college education? If you answered yes to any of these, it might be a better idea not to pay off the mortgage early.
However, many people, especially soon-to-be retirees like to payoff mortgages early. It is a good feeling to retire debt free and some retirees might not surpass their standard deduction come tax time, and would not be able to deduct the interest. Thus, making the idea of paying down the mortgage sooner, a much better one.
What is the best option for you? Only you can decide, but it is best to take a financial approach to the decision and not an emotional one.
Basic Home Mortgage Products Explained
There are two basic types of home mortgages, adjustable and fixed. Most people know the acronym for adjustable mortgages, ARM (adjustable rate mortgage). While there are other mortgage products, these two are the major two types that most everyone uses when buying a home.
ARMs
Like the name suggests, the interest rate on this type of mortgage adjusts, or fluctuates. The interest rate on an ARM will change to reflect to reflect the credit market. Generally these loans are offered with teaser rates, the first year or two, that are incredibly low. These teaser rates are at a point below the market rate. After the teaser rate is up, the mortgage adjusts several points higher. The post teaser rate will follow the trend of the bank rate, which is the interest rate of the bank, by a few points (higher than the bank rate).
Fixed
Also, like this name suggests, fixed rate mortgages offer a constant interest rate for the life of the mortgage. Typically offered in 15 and 30 years, some lenders are starting to offer 40+ year mortgages. This is the typical mortgage that most people use and the monthly payments will stay the same over the life of the mortgage. So, unlike an ARM, a fixed rate mortgage does not adjust over time to stay with current market trends. The rate will stay constant whether the market goes higher or lower.
Check back later for an in depth look at different types of mortgages and their benefits.