Buying a home is a very big investment and most people use a mortgage, which is a special type of loan, because they do not have the money available to buy a home upfront. Since purchasing a home is such a large investment, and in some cases the biggest of a persons lifetime, it is important to get the best deal on your mortgage. There are many factors that go into evaluating a mortgage and finding a good lender.
One of the most important considerations is the interest rate of the mortgage. The interest rate can vary, based off of the current market, as well as the credit of the person applying for the mortgage. It is essential to have an idea of what the normal interest rate is, so that you can better compare mortgage offers from various lenders.
It is important to understand that mortgage rates can vary on a daily, hourly, or even minute by minute basis. They are not set directly by the lender, but are instead a reflection of a number of factors, which are based heavily upon the current market and economic situation.
Since interest rates can vary frequently, the advertised interest rate is often not very accurate. It is simply not practical, affordable, or possible for a lender to update their advertised mortgage rate every time it changes, so there is no guarantee that you will get the same mortgage rate you see in the newspaper or even online.
In many cases, this is simply a reflection of how often the mortgage rate changes, but there are some dishonest mortgage lenders who purposely advertise a much lower interest rate than they actually offer. So, it is important to always look at advertised mortgage rates cautiously and when speaking with a lender, make sure to ask them how often their mortgage rates are changed.
When you actually apply for a mortgage, especially if there is an application fee, make sure to ask if the mortgage rate is guaranteed and for how long they will honor this guarantee.
While interest rates play a big role in the overall cost of a mortgage and the monthly payments, there are many other costs associated with a mortgage. The closing costs of a home can easily exceed $3000 and even more, depending on the cost of a home. So, it is very important to ask your mortgage lender about any fees and charges that will be associated with the mortgage.
Remember that there is almost never a situation where you will pay nothing in closing costs, so if this is offered by a mortgage lender, you should be very suspicious and make sure to ask them how they get paid and what other fees are associated with the mortgage. In almost all cases, you will find that the $0 closing costs are offset by a number of fees and other charges.
Points are one way that lenders get paid and represent a percent of the total cost of the home, which is paid up front. So, if a lender requires you to pay 1 point on a $100,000 home, you would have to pay them $1000, which is 1% of the total cost of the property. Often, by paying more points, you can get a better deal on your mortgage and lower interest rates, but it can also add up very fast.
It is important to ask about points and other fees like these and compare these fees among lenders, so you can have a better idea of who is really offering the best deal on a mortgage.
It used to be that when you bought a home, lenders required a 20% down payment. Over time, lenders began to relax this requirement, often because the higher your mortgage amount, the more they get paid over the course of the loan.
However, a lot of lenders require that you purchase Private Mortgage Insurance(PMI) if you are not going to have enough money for a 20% down payment. PMI guarantees that if the home goes into default, a portion of it will be covered by the insurance company.
Make sure to ask the mortgage lender whether Private Mortgage Insurance is required and how long it is needed. Often, it is only required until there is 20% equity in the home, but remember that they will not cancel it automatically and instead you must request that the lender cancel it when you reach this point.
It is important to explore all of your options, so you can get a good deal on your mortgage and so you have a basis for comparison to compare different mortgage offers. One of the best places to start is your current bank, as they will usually offer fairly standard interest rates and can usually give you an answer fairly quickly.
You bank also might not require any money towards an application fee, although all reputable lenders will provide you with a free estimate, without actually checking your credit or financial information. Even though they are not checking your information at this time, it is important to be honest, because when it comes time to actually apply for the loan, they will run your credit and check your references, so any dishonesty will be uncovered.
By starting with your bank, you will have an idea of what a standard interest rate is, as most banks do not offer subprime mortgages. This will give you a basis to compare other mortgage lenders and mortgage brokers, so you can get the best deal on your home loan.
The current economic situation leaves much to be desired. Unemployment is up around the country and due to the bank bailout, we are facing a very large deficit, which has questionable returns. This and many other factors lead many to be very wary of what is to come, so it can be hard to find a silver lining. However, for those who are prepared to buy a home, now is a very good time, as home prices are at a historic low and the government is offering a tax credit for first time home buyers.
There are several reasons that house prices are so low, but it has a lot to do with the high rate of foreclosures. Over the last 10 years, the subprime mortgage market exploded.
Subprime mortgages are mortgages that have higher interest rates and less favorable terms than traditional mortgages.
Subprime mortgages have historically been a tool used by people who have less than perfect credit and would not be able to get a standard mortgage. One of the most popular subprime mortgage was the Adjustable Rate mortgage, which had a low initial rate that increases periodically. Not all Adjustable rate mortgages(ARMs) are bad, but subprime ARMs can have an interest rate that increases freuquently and exponentially raises the monthly mortgage payment.
Those who receive a subprime mortgage are still usually vetted by the lender, with credit checks and income checks to verify that the individual will be able to pay for the mortgage. However, over the last few years, many lenders stopped vetting loan applicants and instead approving pretty much anyone for a home loan.
Lenders stopped vetting mortgage applicants, because mortgages became a very popular investment tool. Investors would buy up a group of mortgages and then bundle them into a large group. They would then sell the mortgages to investors, many of who were overseas, as a high return investment. Since the bundled mortgages were subprime, they had a much higher than normal return rate.
The first investor, who financed the initial mortgages, would not be keeping the mortgages, so there was no incentive for the investor to vet applicants. Instead, as soon as they had enough mortgages in their bundle, they would sell them and be someone else’s problem. This resulted in many people who should not have had a mortgage ended up with a subprime mortgage.
One of the reasons that real estate became so popular as an investment tool was because of rapidly increasing home prices. Homes would often appreciate more than 25% a year towards the end, which gave the impression that even if the person defaulted on their loan, the home could still be sold for a profit.
This went on for some time, with home prices rapidly increasing, artificially inflated by the large number of subprime mortgages. However, this could not go on for ever and eventually those who received these subprime loans, were no longer able to pay for them, spurring a increase in foreclosures.
While the current housing market has brought much sorrow to many homeowners, there is a silver lining for some. With the vast number of foreclosures and empty homes, it is possible to buy a historically low prices. This large number of foreclosures has also driven the prices down on other homes. Further, interest rates are at an all time low.
Of course, lenders are now being much more careful in who they offer mortgages to, but for those with good credit and money for a down payment, it is possible to purchase a new home for much less than even a year ago. The federal government is also offering a tax credit for first time home buyers, which is up to $8,000 and does not need to be repaid, so for many, now is a good time to buy a home.
Many assert that housing prices were artificially inflated in the first place and the prices we see today are simple the real market value of the home, and in many ways this is correct.
One of the most important parts of buying a home is obtaining a mortgage. Since most people do not have the money to buy a home outright, they must instead rely upon a lender to loan them the money to purchase the home. As a result, once the mortgage is obtained, the rest is often downhill, although waiting for your offer on a home to be accepted can be very nerve racking. Since a mortgage represents such a long term commitment and investment, which for many is the biggest investment of their life, it is not a decision that should be taken lightly. Instead, it is important to spend some time shopping around and find the best deal.
Typically, one of the first decisions is whether to go to a mortgage broker or a mortgage banker to get your home loan. A mortgage broker is sort of like a middleman, who acts as a go between for banks and people looking for a mortgage. Mortgage bankers, on the other hand, represent actual banks that offer mortgages. Both mortgage brokers and mortgage bankers have disadvantages and advantages, which vary depending on your situation.
Even just twenty years ago, the mortgage industry was dominated by banks. When it came time to get a mortgage, most people went to the bank where they had their checking account and asked for a loan. This slowly changed as other companies and investors began looking at the high returns offered by the mortgage industry and decided to enter into the business of backing home loans.
One of the main advantages of having your bank finance your mortgage is that they will often take not only your credit rating into account, but also your personal history with the bank. This is especially true of credit unions, which sometimes have a much more personal loan approval process. Mortgages offered by banks are also more likely to be less risky and offer a very competitive rate. They are also typically able to move much more quickly than other lenders to approve or deny a loan. In addition, the fees associated with a mortgage from a bank are often lower, as they will hold the loan for its length, making their money this way.
However, while many banks will take into account your history with them, they also tend to have higher standards, especially in todays market. Gone are the days where mortgage lenders rely primarily on personal feelings, with most instead having a set mathematical formula that the borrower must meet. This means that often, a bank will only offer a mortgage to those with a very high credit score. Since the bank makes a great deal of money from other investments, they can afford to be much more picky.
It is a good idea to spend some time building up your reputation with your bank, such as by taking out a small line of credit and keeping it well maintained.
Mortgage brokers, on the other hand, typically have several mortgage lenders they work with. This could be an actual brick and mortar bank, but is often simply a group of investors that buys and bundles mortgages and then sells them to other investors.
As a result, the person that initially funds the mortgage is not the same person that holds it in a years time. This can cause some problems, as has been seen in the latest housing market crisis, where the initial lender lacks the incentive to ensure the person has good credit, because they know they will only hold the mortgage for a few months. This can be a bad thing, but it also means that those with lower credit, often have a much better chance of getting a loan from a mortgage lender. Of course, as a consequence of the current housing market, most lenders have become much more strict in their lending.
Since a mortgage broker is simply a middleman, they often have access to multiple lenders and can often offer much more competitive rates and has more options. However, a mortgage broker gets paid by commission and gets a fee based off the total loan amount. This fee is many times greater than that of a bank and also, since they are personally motivated by commission, mortgage brokers do not always have your best interests at heart.
As with any financial decision, it is a good idea to explore all of your options. Many people start with their bank, as this banks can usually move very fast and have a personal relationship, which can often mean a greater chance of approval. By starting with your bank, you can also get a feel of current interest rates, so when you contact a mortgage broker, you have a way to measure what type of deal they are offering you.
The issue of health care has taken over the public conscious, creating an issue that overnight seems to have taken many people’s eyes off of the current financial situation. The health care system is indeed in need of reform and is greatly flawed, but with it so suddenly becoming a polarizing talking point, I can not help but question, what are they trying to take our minds off of?
There are many problems with the way health insurance companies operate, especially considering that there is a very good chance that your insurance company will drop you or deny you care when you need it most. Then, once dropped, it can be next to impossible to get insurance again if you have a “preexisting†condition.
When compared to other countries, our health care system is a sham and a disgrace, built upon profit margins and bottom lines, rather than helping those who need it.
The health care lobbyists that have inserted themselves into politics and purchased the votes of our congressmen is also an important issue. As are all the other corporations that pay millions to promote their agendas through our government.
With that said, one can not help but wonder about the timing and that if this current health care ‘crisis’ is not simply another cleverly engineered crisis brought about to help keep our minds off of our financial problems. Perhaps the strongest argument against this, other than the actual need for health care reform, is that it is not an election year.
To reiterate, this is not to say that we do not need health care reform, as this is something that really makes our country look years behind most other developed countries, and even a few undeveloped countries. However, the timing of this newest crisis is questionable, but we most desperately do need an affordable way to take care of our people.
However, with the way the banking crisis helped provide McCain and President Obama a powerful talking point and scare tactic during the previous election, which resulted in fast tracking one of the greatest robberies and transfers of wealth of our time, it is hard to not ask what this current health care crisis is meant to take our minds off of.
In the same way our elected officials stripped us of our constitutional rights with the patriot act, arguing that they were protecting us, I can not help but question, what are they buttering us up for this time? What piece of legislation will be pushed though using the tried and true argument, “If we don’t do anything, the World Will Collapse.”
In today’s housing market, homes prices are at a historic low, as are mortgage rates. For those who have been saving money and waiting to buy a home, there are a number of really great deals available. This includes, of course foreclosures, of which there are literally thousands and thousands across the United States, but even new home builders have been feeling the crunch, so getting a great deal on a home is possible.
In addition to these incentives, the government is also offering an incentive of its own to help make buying a home easier and less expensive for new home buyers. This incentive comes in the form of a tax credit for first time home buyers, which can cover up to 10% of the homes cost, with a limit set at $8,000.
When figuring the amount of the tax credit, the lesser of the two values is used, so for a $60,000 home, only $6,000 would be received as part of the first time home buyers tax credit. For a $150,000 home, only $8,000 would be provided.
This is not the first time the government has offered an incentive to those who have purchased a home, as they have previously offered a no-interest loan. However, the current tax credit for new home owners is different in that it does not need to be paid back. Instead, the tax credit, with its $8,000 limit, comes in the form of a check that can be used by the homeowner to help cover the cost repairs, bills, or anything else that the homeowner needs.
The first time home buyers tax credit, which is often referred to as Obamas Tax Credit or Obamas First Time Home Buyers Tax Credit, is available to those who have purchased a home during 2009, specifically between January 01, 2009 and December 01, 2009.
The home can be a traditional single family home, a modular home, a manufactured home, and even a house boat. Mobile homes and new construction are also covered by the Obama housing tax credit.
There are several other provisions to the First Time Buyers Tax Credit, most notably that the home owners must not have owned another primary residence over the last three years. For those that are married, this stipulation applies to both spouses.
An income cap is also set, with those who make more than $75,000, or $150,000 for married couples, not being able to receive the full $8,000, although a partial tax credit may be available.
The major difference between this and other stimulus plans, such as the 2008 First Time Hombuyer Credit, is that the tax credit will not need to be repaid by the home owner. Instead, it comes in the form of a check and can be applied for when you file your 2009 tax return in April. It is necessary to include a Form 5405, with your standard tax return.
However, it is not necessary to wait until April and it is also possible to file an amended tax return. Simply follow the instructions to amend your 2008 tax return, including the IRS Tax Form 5405, and it is possible to receive the Obama Housing Credit within 8 weeks.
It is also possible to change the number of dependents you claim at work, so that less money is taken from your paycheck every month. However, if you decide to go this route, make sure you are 100% certain you are eligible to receive the Obama Tax Credit, because otherwise you will end up owing the IRS money at the end of the year. It is also a good idea to calculate how much you have received, so you do not exceed the $8,000 first time home owners tax credit.
It is important to note, that the funds of Obamas Housing Credit will be applied to any money you owe the IRS first, with the balance returned to the homeowner. However, those who do not owe any taxes, even those who do not have any actual income, will receive the full $8,000 tax credit.
When applying for a mortgage, the number of different costs and charges can quickly add up. From application fees to home appraisals, it seems like everyone has their hand out. Some of these fees and charges are a normal part of the mortgage process, while others may not be.
It is very important to understand what types of charges are normal when purchasing a home and what types of charges are junk fees. Junk fees are one time fees that are added by the mortgage lender. With the exception of interest and principal fees, most other charges are junk fees. It is important to question these junk fees, as they are often negotiable, but you will not know unless you ask.
Below, you will find a list of some of the common costs associated with a mortgage.
Application Fees: Application fees are also sometimes called processing fees and vary in price, but are usually between $300 and $400. An application fee may be refundable, but it is usually not. It is very important to ask about refunds before paying the application fee. More and more lenders are waiving application fees, but often they tack these fees on somewhere else, after the mortgage is processed, highlighting the importance of questioning all junk fees.
Credit Report Fees: Many lenders will charge the mortgage applicant for the cost of running their credit. The cost of a credit report should not exceed $20 and it is possible to purchase your own and save a few dollars. If a lender tries to tack on a few extra dollars for your credit report, this is a red flag, as most creditors get a bulk discount on credit reports.
Origination Fee: This is a fee charged by the lender to process your mortgage. It is also sometimes called an administration fee or commitment fee. Sometimes the origination fee can be waived, as the lender is making money on the loan and points already. It is important to question this fee and if it is excessive consider using a different lender.
Points: In addition to the origination fee, points are another way that the mortgage lender gets paid. Typically, the points is related to the interest rate, so with a 5% interest rate, they might charge you .05% of the cost of the loan up front. Sometimes the points are negotiable, but the lender could charge you a higher interest rate if you do not want to pay the points.
Prepaid Interest: When you close on your home, you will not be responsible for your first payment right away. Depending on when in the month you close, it could be two months before your first mortgage payment. However, the lender will require that you pay interest between this time, which is the prepaid interest. Make sure to talk with your lender to determine when would be the best time during the month to close, so that you pay the least amount of interest or have the longest time between your first payment.
Lock-In-Fee: Some lenders may charge a fee to guarantee an interest rate while you are looking for a home. This is considered a lock-in-fee and in reality most quality lenders do not charge anything to guarantee an interest rate, however you should get this in writing. If the lender does charge a lock-in-fee, this is a junk fee and if they are unwilling to remove it, this is another red flag that can indicate a less than reputable mortgage lender.
Title Insurance: Like a car, all homes have a title of ownership. When purchasing a new home, a title search is preformed to ensure that no one else has a claim to the property and that there are no liens on the property. Title insurance protects the interest of the bank in case the title search turns up another owner or a lien on the home. The cost can vary, but it usually costs around $200.
Documentation Preparation: This is a junk fee that can often be avoided, because with todays technology, it does not take too much effort to prepare the paperwork for the mortgage.
Underwriting Fee: The underwriters of a loan are the people who take the time to analyze the credit worthiness of the loan applicant. Often, this fee is a junk fee and is not needed. It is a good idea to speak with the lender and have them describe exactly what their underwriters do, as well as questioning the fee.
Property Tax Fee: It is usually necessary to pay the current years property taxes, as well as setting some money aside for next years property taxes, at the time the loan is completed.
Tax Service Fee: Some lenders require that the payments of the property taxes are verified, but this is often a junk fee. It is important to question the lender on this fee, ask them how it is verified, and to see the verification. This tells the lender that you know it is a junk fee and can help you determine if the lender is reputable.
Private Mortgage Insurance(PMI) Fee: Some lenders require private mortgage insurance if less than 20% is put down on the home. PMI partially insures the mortgage and if required, is used until 20% equity is built up in the home. Some lenders require a fee for setting up PMI, but it is a good idea to question this cost. Also, lenders will not usually automatically remove PMI once you have 20% equity, instead waiting for the mortgage owner to question the charge.
Survey Fee: A survey is often done to mark the boundaries of the property. A survey can be a good idea if there are close neighbors or structures on the boundary of the property of questionable ownership. In some cases a survey may be required in order to receive title insurance. Typically a survey is, compared to the other mortgage fees, rather inexpensive and can be a good idea to get an idea of how much land you own. If you decide not to get a survey, you can sometimes see the marking of a previous survey, such as flags on trees or marks on the road, to get an idea of your land’s boundaries.
Appraisal Fee: A home appraisal is used to determine the value of a home, so the mortgage lender can ensure that you are getting a fair deal. The appraiser will evaluate the condition of the home, as well as considering the recent sale price of other similar homes in the area. The cost of an appraisal is usually around $300 and is required when purchasing a new home or refinancing your existing home.
Appraisal Review Fee: This is a junk fee that should raise some warning flags, because it is basically an appraisal of the appraisal. If the lender is so uncertain of the the companies that do their appraisals that they require someone else to review it, you might want to look elsewhere for your loan, as the alternative is that the lender is just trying to fleece you of some extra money.
Courier Fees: Sometimes a lender may charge a fee to transport the mortgage package between the lawyer and mortgage office. However, this fee is often not needed unless it is an out of state transaction or there is a short window of time that the loan must be completed in. It is a good idea to question this fee, as it is often unnecessary.