Tammy Morrison Real Estate Inc | Fitchburg MA Real Estate Real Estate


Owning a house gives you a sense of fulfillment, and helps boost your self-esteem. It is a long term investment and should not be taken lightly. The present state of your finances is possibly the single most important factor when contemplating home ownership.  Before you start shopping for a house, take into consideration the following factors. Have you set aside enough money for the down payment?  The amount you need varies based on the price of the home and percentage required by your lender.  Zero down mortgages are possible, however the interest rate is typically very high increasing the amount paid out over the life of the loan. Private Mortgage Insurance (PMI) is typically required for this type of loan, again increasing your monthly payment. How high of a mortgage payment can you afford to make ?  If you opt for a fixed rate, your payment would remain consistent throughout the period of the loan. This type of loan is favorable for future financial planning.   Adjustable rate mortgages make it a bit trickier to predict your monthly payments based on the fluctuating interest rate throughout the duration of the loan.  This type of loan could be risky if interest rates rise and your payments increase significantly higher than anticipated. The security of your financial future is paramount when acquiring a mortgage loan.  You would not want to enter into this long term investment without stable employment and a definite career path.  Most banks and lending companies require a borrower to have been with the same employer for at least 2 years before considering a loan of this nature. Secure financial footing is key when applying for a mortgage loan. When determining your readiness to purchase a home, your credit score is as important as your finances. If you have a low credit score, you’ll attract a higher lending rate. This implies an increase in the amount paid back to the lender over the duration of the loan. An excellent credit score of 720 or above attracts the best interest rates and repayment terms. If your credit score is too low, improve it by:
  • Becoming Debt Free
  • Removing all inaccuracies from your credit report
  • Making all monthly payments in a timely manner -- eliminating late payments
  • Avoid applying for new loans and opening credit accounts
The commitment of home ownership comes with financial responsibilities beyond the monthly mortgage payment. Be certain to consider additional expenses such as property tax, utility bills, and home maintenance costs when calculating your budget.  Carefully weigh out all the factors to ensure you will be comfortable with your monthly payments allowing you to enjoy your new home for years to come.

Getting a mortgage these days can be tough and it is even tougher for small-business owners. Potential self-employed borrowers usually have variability in their income streams. Today, banks are requiring more financial documentation from all buyers, and self-employed borrowers tend to face more scrutiny. Small-business owners may have a smaller income because they are typically knowledgeable about tax deductions and credits. This often reduces the amount of taxable income they have. Reducing the amount of taxable income on your tax returns means to the lender there is less income to qualify for a loan. There are ways self-employed borrowers can increase their chances of getting a home loan, however. Here are a few tips: What is the lenders history? Find out if the lender has a history of working with self-employed borrowers. Self-employed borrowers should focus more on finding a lender that will understand their situation rather than shop the loan rate. There are individual loan officers who will be able to think out of the box or come up with solutions. The lender you choose is key. Consider portfolio lenders. Portfolio lenders have more flexibility in originating loans because they don't have to sell the loan to Freddie Mac or Fannie Mae. Portfolio lenders hold their own loans. That makes a big difference in their ability to loan. Another option may to consider credit unions. Many credit unions also keep a good portion of loans on their books. Boost your income. Show you make as much money as possible on your tax return. You might need to amend your tax returns. Some lenders will look at a loan application again if they have sent in amended returns to the government. Sometimes by rethinking deductions and credits on income taxes, a borrower can increase his qualifying income. Of course, with this strategy, the borrower would also face a new tax bill.

Trying to decide what type of mortgage is right for you can be tricky business. So you may be wondering what is an adjustable rate mortgage? An adjustable rate mortgage or ARM, has an interest rate that is linked to an economic index. This means the interest rate, and your payments, adjust up or down as the index changes. There are three things to know about adjustable rate mortgages: index, margin and adjustment period. What is the index? The index is a guide that lenders use to measure interest rate changes. Common indexes used by lenders include the activity of one, three, and five-year Treasury securities. Each adjustable rate mortgage is linked to a specific index. The margin is the lender's cost of doing business plus the profit they will make on the loan. The margin is added to the index rate to determine your total interest rate. The adjustment period is the period between potential interest rate adjustments. For example, you may see a loan described as a 5-1. The first figure (5) refers to the initial period of the loan, or how long the rate will stay the same. The second number (1) is the adjustment period. This is how often adjustments can be made to the rate after the initial period has ended. In this case, one year or annually. An adjustable rate mortgage might be a good choice if you are looking to qualify for a larger loan. The rate of an ARM is typically lower than a fixed rate mortgage. Remember, when the adjustment period is up the rate and payment can increase. Another reason to consider an ARM is if you are planning to sell the home within a few years. If this is the case you may end up selling before the adjustment period is up. Federal law provides that all lenders provide a federal Truth in Lending Disclosure Statement before consummating a consumer credit transaction. This will be given to you in writing. It is designed to help you compare and select a mortgage.

The first step in home buying is getting a mortgage. Many home owners also find themselves in a maze when they start the refinance process. Navigating the mortgage process can be confusing. There is so much to know between rates, types of mortgages and payment schedules. Avoiding making a mistake in the mortgage process can save you a lot of money and headaches. Here is a list of the biggest mortgage mistakes that potential borrowers make. 1. No or Low Down Payment Buying a home with no or a low down payment is not a good idea. A large down payment increases the amount of equity the borrower has in the home. It also reduces the bank’s liability on the home. Research has shown that borrowers that place down a large down payment are much more likely to make their mortgage payments. If they do not they will also lose money. Borrowers who put little to nothing down on their homes find themselves upside down on their mortgage and end up just walking away. They owe more money than the home is worth. The more a borrower owes, the more likely they are to walk away and be subject to credit damaging foreclosure. 2. Adjustable Rate Mortgages or ARMs Adjustable rate mortgages or ARMs sound too good to be true and they can be. The loan starts off with a low interest rate for the first two to five years. This allows the borrower to buy a larger house than they can normally qualify for. After two to five years the low adjustable rate expires and the interest rate resets to a higher market rate. Now the borrowers can no longer make the higher payment not can they refinance to a lower rate because they often do not have the equity in the home to qualify for a refinance. Many borrowers end up with high mortgage payments that are two to three times their original payments. 3. No Documentation Loans No documentation loans or sometimes called “liar loans” were very popular prior to the subprime meltdown. These loans requires little to no documentation. They do not require verification of the borrower's income, assets and/or expenses. Unfortunately borrowers have a tendency to inflate their income so that they can buy a larger house. The problems start once the mortgage payment is due. Because the borrower does not have the income they are unable to make mortgage payments and often end up face bankruptcy and foreclosure. 4. Reverse Mortgages You have seen the commercials and even infomercials devoted to advocating reverse mortgages. A reverse mortgage is a loan available to borrowers age 62 and up. It uses the equity from the borrower’s home. The available equity is paid out in a steady stream of payments or in a lump sum like an annuity. Reverse mortgage have can be dangerous and have many drawbacks. There are many fees associated with reverse mortgages. These includes origination fees, mortgage insurance, title insurance, appraisal fees, attorney fees and many other miscellaneous fees that can quickly eat at the home’s equity. Another drawback; the borrower loses full ownership of their home and the bank now owns the home Avoiding the pitfalls of the mortgage maze will hopefully help you keep in good financial health as a home can be your best investment. .

When it comes to mortgages there is a lot to know and a lot of choices. One loan that was popular before the housing crisis was the interest-only loan. An interest-only loan is an adjustable-rate loan with an initial fixed period when only interest is due. They are typically available in 5-, 7- or 10-year terms. Economists blame interest-only loans for the foreclosure crisis citing they were issued too freely. Today, interest-only loans are more difficult to obtain. Borrowers were using interest-only loans to qualify for a more expensive home and when the interest-only term ended the payment went up leaving many homeowners unable to afford the mortgage payment. Interest-only loans are now being used by wealthy borrowers as a financial tool to help them manage irregular cash flow, reap a tax benefit, or free up cash for investment elsewhere. Lenders that offer interest-only loans have strict qualifying standards. They generally require 30 percent equity in a property, and a minimum FICO score of 720. Lenders also look at the ability to pay back the loan is based on the fully amortized payment, not the interest-only payment.    



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