Financing

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If you are interested in purchasing property or land, chances are you will need some type of loan.

Finding the right loan will take time and will differ depending on your financial needs. Here are some questions to ask yourself:

  • How is your current financial status?
  • How you believe your finances will change over time?
  • How many years do you plan on keeping your house/land/income-property?
  • Would you be comfortable if your mortgage payment changed over time?

To find the best method of financing, you should contact a mortgage professional. They will be able to discuss your finances, your future plans, and the amount of risk you’re willing to take on.

Calculate Your Mortgage

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5%

1%

5%

1421

Monthly Payment

Principal & Interest 1421

Monthly Taxes 1421

Monthly HOA 1421

Monthly Insurance 1421

All About Loans

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Want a head start? Here are some different types of loans, and information on how they work!

These mortgages are the most common type of mortgage. With a Fixed Rate Mortgage you will have monthly payments that will continue throughout the duration of the mortgage term. In this, you will be paying down both interest and the principal over time. Sometimes you may incur increases in property taxes and in your homeowners insurance, however, your monthly payments will remain stable.

There are a few different types of mortgages available. There are 30 year, 20 year, 15 year, and 10 year loans available. There are two distinct features of Fixed Rate Mortgages. The first distinction is that the interest rate will remain fixed for the entire duration of the loan. The second is that payments for the loan are structured so that you will re-pay the loan at the end of the term. Both the 15 year and 30 year mortgages are the most common fixed rate loans.

At the beginning of the amortization period of a Fixed Rate Mortgage the majority of the loan payment is used to pay the interest on the loan. As time goes on this gradually shifts to paying more of the principal amount.

ARM loans are considered to be more risky of an investment. There are a few options that can work to fit your individual needs within various markets.

ARMs that have different indexes are available for refinancing and purchase. To take advantage of falling interest rates, you could purchase an ARM loan that has an index which reacts quickly. On the other hand, if you choose an ARM loan that lags behind, the market will allow you to take advantage of lower rates for a brief time as current market rates are moving upward.

Interest rates and monthly payments with an ARM can be different based on adjustments to the index rate of the loan. There are a few different types of ARM loans. Here are the basics, however, it is encouraged to seek additional assistance before signing for a specific loan.

6 Month Certificate of Deposit (CD) ARM
In this program, the loan has a maximum interest rate adjustment of 1% every six months. These loans can react very fast to movements in the market.

1 Year Treasury Spot ARM
In this program there can be an interest rate adjustment of 2% for every 12 months of the loan. This type of loan can react faster than the Treasury Average index, however, it is slower than the CD index.

6 Month Treasury Average ARM
This loan program typically reacts slower in fluctuating markets so adjustments in the ARM rate will lag behind some other indicators. This program offers an interest trade adjustment of 1% every six months.

1 Year Treasure Average ARM
Similar to the Treasury Spot ARM, this program has a maximum interest trade adjustment of 2% every one year. This type of program typically has a slower reaction in fluctuating markets. This allows for adjustments in the ARM rate to lag behind other indicators.

Balloon loans can have different types of maturity rates. The typical Balloon loan has a term of 5 to 7 years if it is a first mortgage. These loans are short term and do not fully amortize over the original term of the loan.

When a balloon loan comes to maturity, there is typically still a remaining balance to be paid off. At this time mortgage companies will require the loan to be paid in full. This can either be accomplished by paying the loan off, or by refinancing. Often, companies also have a conversion feature at the end of the Balloon term. One example of this would be if a balloon loan was coming up for expiration, the loan may convert to a 15 or 30 year fixed loan plus a percentage point in surplus of the loan. The balloon mortgage with a conversion option is often called a 7/23 Convertible or a 5/25 Convertible.

The Cost of Funds Index is a weighted average fund. There are two types of funds for each side of the country. In the eastern states this type of fund is commonly referred to as the 1-Year Treasury Security. In the western states the Cost of Funds Index is typically prevalent with the 11th District Cost of Funds.

The Federal Home Loan Bank of San Francisco continually publishes the monthly weighted average for the 11th District Fund. Over half of the savings and loan institutions in California are tied to this index. It is comprised of different institutions in not only California, but Arizona and Nevada as well.

In an interest rate buy down, a buyer typically pays 3 points above the current market in order to pay an interest rate below the market during the first two years of the loan. Then at the end of the two year term, the buyer would then pay the old market rate for the rest of the term of the loan. This is the most common buy down, called the 2-1 buy down.

For an example, if the market currently is trading a fixed rate loan at 8% and at a cost of 1 point, the buy down would allow the borrower of the loan to pay 6% the first year, 7% the 2nd year, and 8% the third year through the rest of the loan (typically 30 years). The cost of this would be a total of 4 points.

Many mortgage companies have constructed different variations of older buy downs. Instead of charging higher points to the buyer at the start of the loan, they increase the loan to cover yields in later years.

The 3-2-1 buy down is another typical buy down. This method works similarly to the 2-1 method. The difference is that with this note, the interest rate starts at 3% below the present loan rate. For further information on interest rate buy downs, please give me a call so that I may refer you to a specialist!

Steps to Pre-Approval

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  1. Check your credit score. Your credit score can directly impact what mortgage loans and interest rates you may be eligible for, so it could be a good idea to improve it before starting to shop for a home.
  2. Budget and save. There are many costs built into purchasing a home, but the biggest expense to plan for may be your down payment. Many mortgage loans (though not all!) require at least 20% of the home’s price if you want to avoid additional monthly fees and expenses. The larger the down payment, the less you pay!
  3. Consider other expenses. Keep in mind other potential expenses in the home buying process, such as appraisal fees and closing costs. Not to mention the more fun expenses like decorating your new home!
  4. Shop around for a mortgage loan. To secure financing for your home, you can work with a bank, a credit union, or a mortgage broker that will research lenders for you. There are many options when it comes to mortgages, so take the time to meet with one or more professionals to review all of your options!
  5. Apply for pre-approval. Your mortgage professional will assess your credit history, current income, and debt situation to get you pre-approved. They will also be able to give you an estimate of how much you could borrow, subject to final approval.
  6. Look for a house. Pre-approval will show homebuyers and their real estate agents that you are serious about buying a house, which can help make your offer more appealing.
  7. Seek final loan approval. After your offer has been accepted, you will submit financial documentation, such as pay stubs, tax returns and bank account statements for final loan approval. At this time, an appraisal can be scheduled, and you may also want, or be required, to obtain a property inspection. Once those are complete and the final loan approval is obtained, it’s closing day — and the home is officially yours!