Archive for the 'Mortgage' Category

Stimulus Check and Buying a House

Published
by
Brandan Hadlock, with Direct Mortgage
on August 28, 2008
in Mortgage
. 0 Comments
by Brandan Hadlock, with Direct Mortgage

The federal government has already given or will soon give an economic stimulus check to millions of households in America. This article answers a few questions related to the stimulus payment and suggests ways for the homebuyer to use this income to your benefit when buying a home.

According to the IRS, if you have a social security number, filed a 2007 tax return, and earned at least $3,000 last year, you may be eligible for a stimulus check. Payments began at the end of April and will be sent out through July. People must file a tax return to receive the payment, even if they are not otherwise required to file. The amount you receive will not change the amount of your tax refund and is not taxable.

You don’t have to do anything more than file your tax return in order to receive your payment. If you provided direct deposit information on your tax return your stimulus payment will be deposited directly into your account. Otherwise, you will receive the payment by check.

Now for those ideas on using the stimulus rebate when you buy a home. You could:

1. Use the stimulus check as part of the down payment on your home. A higher down payment means you’ll take out less debt, have potentially lower monthly payments, and maybe even get a lower interest rate.

2. Use the money as part of the reserves required for some loans. Depending on your credit and the loan program you choose, you may be required to have enough money in savings to cover a month or two of mortgage payments.

3. Use this windfall to pay closing costs. Many mortgages have fees associated with them, and your stimulus payment can help cover these costs. Possible fees might be charged for pulling a credit report, appraising the value of a home, and for title insurance.

4. Use the rebate to buy furniture. As a first time homebuyer, or when buying a larger home, you may need to purchase furnishings. Taking advantage of thrift and discount stores can help the money go farther.

5. Use the money for gas. You’ll probably be doing a bit of driving trying to find your dream home, and with gas prices the way they are, the stimulus payment will come in handy.

The stimulus payment can ease the financial burden of furnishing or buying a new home. And the wonderful thing is that all you had to do to receive it was file a tax return.

About the Author:
You can learn more about home loans at our Mortgage Help Center.

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

How Does a Second Mortgage Differ from a First Mortgage?

Published
by
Mike Cotter
on August 10, 2008
in Mortgage
. 0 Comments
by Mike Cotter

A second mortgage is basically a loan that you take against the equity that you have already built into your home. The proceeds from the second mortgage can generally be used for whatever purpose the borrower has in mind. It can be used to pay off a car loan or credit cards. The proceeds can be used for home improvement or to take a vacation. The money can even be put in a savings account for a rainy day fund.

In the past, the total amount of debt from a first and second mortgage combined could not be more than 80% of the home’s appraised value. Recently however, low interest rates and a hyper-competitive marketplace created a lending environment where some lenders were approving second mortgages that, when combined with the first mortgage balance, totaled as high as 125% of the home’s appraised value.

Most competent financial advisors will warn against carrying that much debt on your home. At Micott Mortgage, I never recommend borrowing more than 100% of your home’s value and rarely would I recommend a second mortgage with a loan to value of greater than 90%.

A second mortgage is always subordinate to the first mortgage. This means that in the event of a default, the property is sold and the proceeds are used to pay the first mortgage first, including any legal costs and other costs of the sale. The remaining proceeds are applied to the second mortgage. If there is not enough money remaining from the sale of the home, the second mortgage does not get paid.

Why A Higher Interest Rate?

Before a lender is willing to loan money out for a home mortgage, he looks at the risk level to him to determine the interest rate to charge. That is why a high risk borrower with a poor credit history gets charged a higher interest rate compared to a low risk borrower with a strong credit history.

The same theory holds true with a second mortgage. Because the lender of the second mortgage is second to be paid off in the event of a default, and because there is a greater chance that there might not be enough equity in the home to pay off the second mortgage in full, second mortgages are usually given at a higher interest rate than are first mortgages; irregardless of who the borrower is.

Second Mortgage Terms

Even though you may be offered several options for terms for your second mortgage, the terms offered will most likely be shorter than those of a first mortgage. This is primarily due to the fact that the amount of the second mortgage is generally much lower than that of the first mortgage.

Repayment terms for second mortgages can vary considerably, so it is important to look around for the one that is best for you. Mostly they range in length from 5 to 20 years, with the majority of the loans being 10 to 15 years. Some lenders may offer a 30 year amortization with a balloon (maturity date) of 15 years. This type of loan is referred to as 30 due in 15. Generally, the longer the maturity, the higher the interest rate. Conversley, the higher the credit score, the lower the interest rate.

Types of 2nd Mortgages

Just as the length of the second mortgage can vary, so can other repayment terms. However, the majority of second mortgages are paid back in equal monthly payments with a portion of the payment going to interest and a portion to the principal balance, just like a first mortgage.

Second mortgages come in two basic types, fixed rate and home equity line of credit (HELOC). Fixed rate mortgages are the standard offering. The HELOC mortgage is a little unique and has been very popular of late. Typically this loan calls for interest only payments for the first 5 to 10 years with the line of credit frozen at the outstanding balance of the loan. The loan payments are recast at that point and a standard principal and interest payment schedule is established for the remaining 10 to 20 years. HELOC’s are typically priced with a variable interest rate indexed to the New York City prime interest rate.

Pricing on the HELOC’s is like other loan pricing; the lower the FICO score and the higher the loan to value, the higher the interest rate.

When contemplating a second mortgage, do your homework, shop around and then talk to lenders to ensure that you are getting the best deal!

About the Author:
Mike Cotter has been a professional lender for over 30 years. He began his career in the commercial banking industry in 1976 and in 1982 opened his own commercial bank and served as President and CEO for 10 years. He has been a successful mortgage broker for over 16 years and owns his own company.

Mortgage Accelerator: Paying Off Your Mortgage in Half the Time

Published
by
Igor Buces
on August 4, 2008
in Mortgage
. 0 Comments
by Igor Buces

With the current economical difficulties we are going through, we have to find ways to maximize the use of our money. To do so, you want to change the way you see money and how you can shift your habits to take advantage of every dollar you make.

For example, most people are happy with having most of their money in a checking or saving account where they get little return. In this case, the bank is the one taking advantage of the use of your money.

Another common example is a mortgage. With a traditional 30 year mortgage, it takes 20 years and 2 months to come to the point where the portion that we pay toward the principal equals the portion we pay toward the interest.

Since the average American only stays in their home for 5-7 years, they barely make a dent in the principal of their mortgage. In other words, the structure of the mortgage heavily favors banks because almost all of your monthly payments go toward the interest portion.

For over 20 years, homeowners in Australia, the U.K. and Canada have used mortgage accelerator programs to pay off their mortgages in less than 15 years saving an average of $150,000 on their home mortgages. The good news is that this type of programs is now available to homeowners in the U.S.

A mortgage accelerator works without having to make any additional payments toward the mortgage. It works in the following way:

1. At the beginning of each month, a software tells you the right amount to pay toward your first mortgage to make sure you are paying as little interest as possible. The funds for this payment come from an advance line of credit (HELOC.) By doing so, the debt in your mortgage is reduced an you move further down the amortization schedule.

2. You then deposit your monthly income in the HELOC decreasing the balance on the HELOC. When you do this, you have your money working against your debt in the HELOC by saving on the interest you’ll be charged.

3. You charge your daily expenses on one credit card to allow your money to sit in the HELOC for as long as possible.

4. At the end of the month, you pay off the credit card before creating any interest charges from your credit card.

By doing a few changes in your financial habits, you can start making the bank’s money work for you and no the other way around. Using other people’s money (the bank’s money) is one of the surest and fastest ways to become financially independent.

Even though it takes some getting us to these changes, you can think about the alternative available to you; After all, how long and how much effort would it take you to earn the money you would be saving if you knew you could pay off your home mortgage in 10 to 15 years?

About the Author:
To find out more about how you can apply a mortgage accelerator program to pay off your home in 10 to 15 years and save an average of $150,000 go to our mortgage accelerator website where you can find information on how a mortgage accelerator works.