Home Finance – Fuller Realty Lake Martin Alabama

Which Type of Mortgage Is Right for You? A Guide for Home Buyers

On February 13, 2017 / Home Finance

By: Daniel Bortz

Need a mortgage to buy a home? Oh course you do! So you’ll want to consider carefully which type of mortgage is right for you. That’s right, you have options! And it’s important to choose a home loan that best suits your financial circumstances, because it can save you major money and make sure those payments will likely remain within your financial reach.

In this fourth installment of our Stress-Free Guide to Getting a Mortgage, we’ll walk you through the choices, and the pros and cons of each.

Fixed-rate mortgage

True to its name, a fixed-rate mortgage means that the interest rate you pay remains fixed at the same level throughout the life of your loan (typically 15 or 30 years).

The majority of home buyers prefer fixed-rate mortgages because they offer long-term stability, says Katie Miller, vice president of mortgage lending at Navy Federal Credit Union. And indeed, they are ideal if you plan to stay in your home for at least five years—and the longer you stay, the more sense a fixed-rate mortgage makes.

But keep in mind, this peace of mind comes with a price. Fixed-rate loans typically have higher interest rates than the initial rates offered on adjustable-rate loans. More on those next…

Adjustable-rate mortgage

An adjustable-rate mortgage, or ARM, is a home loan that offers a low interest rate for an introductory period. After that period—typically two to five years—the rate becomes adjustable up to a certain limit, depending on market conditions. If certain economic indexes change, your rate could jump after the intro period ends. If indexes drop, your payments might stay the same or even go down. Hence, opting for an ARM can be a bit of a gamble. If you think you might outstay the introductory period, take a good look at the maximum interest rate—it’s often considerably higher than that of a fixed-rate mortgage.

Nonetheless, if you plan to sell the home within a short period of time, an ARM may be preferable. As long as you’re ready to move on before the introductory period ends, you’ll benefit from the advantage of making lower payments while you’re living in the home. Tick tock! And because your lender will be qualifying you on the basis of a lower monthly payment, you could afford a more expensive home than you would with a fixed-rate mortgage.

FHA loan

If your finances aren’t in great shape, a Federal Housing Administration loan could be an excellent option. FHA loans were created for low- and moderate-income households that would otherwise be locked out of the housing market due to subpar credit—with qualifying credit scores starting at 580. FHA loans also enable you to qualify for a mortgage with a down payment as low as 3.5%. These mortgages are government-insured, which guarantees that the lender won’t lose its money if the borrower defaults.

Here’s the downside: Because the federal government insures these loans, borrowers must pay an upfront mortgage insurance premium. Currently the fee is 1.75%—that’s $5,250 on a $300,000 home loan. Borrowers will also have to pay annual mortgage insurance, currently around 0.85% of the borrowed loan amount—or $2,550 more per year. FHA loans are usually capped at $417,000. (In certain high-cost areas, the limit is $625,000.) This means you have limited buying power when using an FHA loan, although if you aren’t looking to saddle yourself with a huge home loan, this won’t be an issue.

VA loan

The U.S. Department of Veterans Affairs loan program, which began with the creation of the GI Bill of 1944, gives active or retired military personnel the opportunity to purchase a home with a $0 down payment and no mortgage insurance premium. VA loans also offer attractive interest rates.

However, “requirements are fairly stringent,” says Miller. VA lenders are typically looking for a credit score of 620, and every VA purchase loan requires a special appraisal that includes the valuation of the property and a close check of the home’s condition.

USDA loan

Another type of government-backed mortgage, these loans are offered by the U.S. Department of Agriculture Rural Development in towns with populations of 10,000 or less (you can check the USDA website to see whether your location is eligible). Geared toward low-income buyers, USDA loans can have down payments as low as 0%. The cons? They do charge an upfront mortgage insurance fee of 2% of the loan amount, and also carry a monthly mortgage insurance premium of 0.5%.

Jumbo loan

If you live in a pricey housing market, you may end up with a jumbo loan—a mortgage that’s above the limits for government-sponsored loans. In most parts of the country, that means loans over $417,000; in areas where the cost of living is extremely high (e.g., Manhattan and San Francisco), the threshold jumps to $625,000. (You can check the limit in your local market.)

But keep in mind: Since the amount of money being borrowed is so high, jumbo loans typically require home buyers to make a bigger down payment—up to 30% for some lenders—and have at least a 680 credit score.

So now that you know the types of mortgages you can get, it’s time to start shopping for one!

Should You Refinance Even If You Plan to Sell Your Home?

On August 27, 2015 / Home Finance

Tags: adjustable rate mortgage, HELOC, home equity line of credit, Mortgages, refinance

By: Credit.com

Are you interested in refinancing your mortgage, but hesitant to do so because you’re thinking of selling your home at some point? Believe it or not, refinancing could still make sense. Here are several reasons why you might want to consider refinancing anyway.

Your financial circumstances could change

Let’s say you plan to sell your house in five to seven years. No matter how well you plan for the future financially, things happen. Job loss, illness, death—life inevitably gets in the way of your financial plans. Focus on the here and now, as long as you can financially justify refinancing your mortgage. The longer the horizon of selling the home, the more chances life has of getting in the way. If refinancing can save you money in the meantime, it may just make sense.

Because financial circumstances can change over time, for better or worse, it can be a good idea to calculate how affordable your house really is for you. This free calculator can tell you how much house you can afford.

You could take advantage of lower interest rates

At publishing time, 30-year mortgage rates have edged their way up and are hovering just over 4%. The new outlook for mortgage rates points to continual increases, bringing the cost of debt up. Picture this, if you don’t sell the property or if there is a market correction—and you do not refinance for whatever reason—is your current loan rate and payment something that you can afford to carry for the long haul? If you could save money or better your financial position, it is probably worth investigating. Rates are even better on jumbo mortgage loans, as more investors are pouring into this particular market niche. So if you have a big mortgage on your home, you may want to consider refinancing.

You’re facing a higher rate on your ARM or HELOC

With the increased likelihood of interest rates going up in fall 2015, the subsequent recasting of adjustable-rate mortgages and home equity lines of credit will affect millions of homeowners. Most adjustable mortgage loans were tied to the London Interbank Offered Rate, which closely trails the Fed Funds Rate, the rate at which the Federal Reserve uses to control the U.S. economy. If the Federal Reserve hikes interest rates, LIBOR will soon follow suit, and any homeowners within their adjustment period will experience a higher payment or a future higher payment when their adjustable-rate loans reset.

A HELOC works in a similar fashion to an ARM with a fixed period for the interest rate, followed by a rate reset. For a HELOC, payments are interest-only for the first 10 years of the 30-year term. After 10 years, the loan resets, and for the remaining 20 years the loan payment is principal and interest, so at the end of 30 years, the loan is paid off in full. The payment shock will happen after the first 10 years.

If you have a first mortgage on your home with a HELOC, it very well might make sense even if you plan to sell the home down the road, to roll the first mortgage and HELOC into one, saving money and continuing to make a manageable mortgage payment until you sell.

Mortgage tip: If you have not taken any draws on the HELOC in the past 12 months, you may be eligible for more mortgage programs as the HELOC may be considered a “rate and term,” which allows you to refinance up to 80% of the value of the home.

You want to rid yourself of this dreaded mortgage cost

The one mortgage cost consumers love to hate is private mortgage insurance. PMI is an extra portion of the mortgage payment that not only drives the housing expense higher, but it also doesn’t do anything beneficial for the consumer. PMI benefits the bank to protect against payment default. If you can rid yourself of PMI because you have 20% or more equity in your home, or can qualify for a special mortgage loan program such as lender-paid mortgage insurance, you’ll save money. PMI can average up to several hundred dollars per month in most instances. If you have the 20% equity needed to refinance a new non-PMI loan and are creditworthy, but simply choose to not refinance because the paperwork is too daunting, you’re throwing money away.

If you’re not sure where your credit stands, but you want to refinance, it’s a good idea to check your credit sooner than later. You can get two of your credit scores for free on Credit.com, and they’re updated monthly so you can watch for changes.

How quickly will you begin saving money?

No one should refinance unless the time frame it takes to recoup the closing costs on a refinance is sooner than the time in which they plan to sell the home. The most common form of determining how quickly you can recoup your money when refinancing is performing a “cash-on-cash” calculation. For example, if your closing costs are $2,800, and you’re saving a proposed $300 per month on a refinance, that’s a nine-month recapture. Fees divided by benefit equals recapture.

If you can benefit by refinancing by payment reduction, by cashing in on equity, or by interest savings or any combination of these benefits, remortgaging your home very well could make sense. Consider the following scenario: If you can recoup the refinance costs in under two years, and you don’t plan to sell for five years, you’re three years ahead, and the rewards are yours, no matter the future. Ultimately, weighing the pros and cons of a possible refinance in conjunction with selling the home is your decision. A good mortgage professional should be able to suggest mortgage options in alignment with your financial goals and objectives.

A 15-Year Mortgage Can Save You $190K … but Can You Get One?

On June 15, 2015 / Home Finance

Tags: 15-year mortgage, interest rates, Mortgages

By: Credit.com

One of the best ways to eliminate your mortgage debt is moving into a 15-year fixed-rate loan. With the average spread a full 1% compared to its 30-year counterpart, a 15-year mortgage can provide an increased rate of acceleration in paying off the biggest obligation of your life.

Can you pull it off?

In most cases, you’re going to need strong income for an approval. How much income? The old 2:1 rule applies. Switching from a 30-year mortgage to a 15-year fixed-rate loan means you’ll pay down the loan in half the amount of time, but it effectively doubles up your payment for each month of the 180-month term. Your income must support all the carrying costs associated with your home including the principal and interest payment, taxes, insurance, (private mortgage insurance, only if applicable) and any other associated carrying cost. In addition, your income will also need to support all the other consumer obligations you might have as well including cars, boats, installment loans, personal loans and any other credit obligations that contain a monthly payment.

The attractiveness of a 15-year mortgage in today’s interest rate environment has mass appeal. The 1% spread in interest rate between the 30-year mortgage and a 15-year mortgage is absolutely real and for many, the thought of being mortgage-free can be very tempting. Consider today’s average 30-year mortgage rate of around 4% on a loan of $400,000—that’s $287,487 in interest paid over 360 months. Comparing that to a 15-year mortgage over 180 months, you’ll pay a mere $97,218 in interest. That’s a shattering savings of $190,268 in interest, but there’s a catch—your monthly mortgage payment is going to be significantly higher.

Here’s how it breaks down. The 30-year mortgage in our case study pencils out to a $1,909 monthly payment covering principal and interest. Weigh that against the 15-year version of that loan, which comes to $2,762 a month in principal and interest, totaling $853 more per month, but going to principal. This is why the income piece makes or breaks the 15-year deal. Independent of your other carrying costs and other credit obligations, you’ll need to be able to show an income of $4,242 a month to offset just a principled interest payment on the 30-year fixed-rate mortgage. Alternatively, to offset the principled interest payment on the 15-year mortgage, you would need an income of $6,137 per month, essentially $1,895 per month more in income, just to be able to pay off your debt faster. As you can see, income is a large driver of debt reduction potential.

What to do if your income isn’t high enough

When your lender looks at your monthly income to qualify you for a 15-year fixed-rate loan, part of the equation is your debt load.

Lenders are going to consider the minimum payments you have on all other credit obligations in the following way. Take your total proposed new 15-year mortgage payment and add that number to the minimum payments on all of your consumer obligations and then take that number and divide it by 0.45. This is the income that you’ll need at minimum to offset a 15-year mortgage. Paying off debt can very easily reduce the amount of income you might need and/or the size of the loan you might need as there would be fewer consumer obligations handcuffing your income that could otherwise be used toward supporting a stable mortgage plan.

Can you borrow less?

Borrowing less money is a guaranteed way to keep a lid on your monthly outflow maintaining a healthy alignment with your income, housing and living expenses. Extra cash in the bank? If you have extra cash in the bank beyond your savings reserves that you don’t need for any immediate purpose, using these funds to reduce your mortgage amount could pencil very nicely in reducing the 15-year mortgage payment and interest expense paid over the life of the loan. The concept of the 15-year mortgage is “I’m going to have to hammer, bite, chew and claw my way through a higher mortgage payment in the short term in order for a brighter future.”

Can you generate cash?

If you can’t borrow less, generating cash to do so may open another door. Can you sell an asset such as stocks, or trade out of a money-market fund in order to generate the cash to rid yourself of debt faster? If yes, this is another avenue to explore.

You may also want to explore getting additional funds via selling another property. If you have another property that you’ve been planning to sell such as a previous home, any additional cash proceeds generated by selling that property (depending upon any indebtedness associated with that property) could allow you to borrow less when moving into a 15-year mortgage.

Are you an ideal match for a 15-year mortgage?

Consumers who are in a financial position to handle a higher loan payment while continuing to save money and grow their savings would be well-suited for a 15-year mortgage. The other school of thought is to refinance into a 30-year mortgage and then simply make a larger payment like you would on a 25-year, 20-year or 15-year mortgage every month. This is another fantastic way to save substantial interest over the term of the loan, since the larger-than-anticipated monthly payment you make to your lender will go to principal and you’ll owe less money in interest over the full life of the loan. As cash flow changes, so could the payments made to the loan servicer, as prepayment penalties are virtually nonexistent on bank loans.

There is an important “catch” to taking out a 15-year mortgage—you also decrease your mortgage interest tax deduction benefit. However, if you don’t need the deduction in 15 years anyway, the additional deduction removal may not be beneficial (depending on your tax situation and future income potential).

If your income is poised to rise in the future and/or your debt is planned to decrease and you want to have comfort in knowing by the time your small kids are teenagers that you’ll be mortgage-free, then a 15-year loan could be a smart move. And when your mortgage is paid off, you’ll have control of all of your income again as well.

Proximity to retirement is another factor borrowers should consider when carrying a mortgage into retirement isn’t ideal. These consumers might opt to move into a faster mortgage payoff plan than someone buying a house for the first time.

Keep in mind that to qualify for the best interest rates on a mortgage (which will have a big impact on your monthly payment), you need a great credit score as well. You can check your credit scores for free on Credit.com every month, and you can get your free annual credit reports at AnnualCreditReport.com, too.

This article was written by Scott Sheldon and originally published on Credit.com.

Mortgage Rates Are Rising, but Don’t Panic—Here’s What You Can Do

On May 24, 2015 / Home Finance

Tags: mortgage points, mortgage rates

By: Jonathan Smoke

So here we are, smack in the middle of the busiest season for the residential real estate market. With all the activity, shoppers are already facing challenges in finding their ideal home. Now, they’re starting to face a new one: rising mortgage rates.

Although the health of the real estate market has much improved this year, thanks to a better labor market and the end of the foreclosure crisis, the situation isn’t as good for the home buyer. The number of people looking for homes is outpacing the growth in inventory of both new and existing homes. In April, the No. 1 problem in home buying reported by active shoppers on our site was simply finding a home that met their needs.

Mortgage rates have remained low since the housing crisis of 2008, but we’ve been warning consumers since the end of 2014 that rates would go up in 2015. Fixed-rate mortgages are now 30 to 40 basis points higher than the lows for the year. But “I told you so” doesn’t help someone trying to determine what to do.

A basis point is 0.01 percentage point. That may sound confusing, but it’s an easy way to discuss the difference between two rates. For example, if the rate for a certain type of mortgage was 3.50%, and it went up to 3.75%, the difference would be 25 basis points.

The financial math is straightforward: A higher mortgage rate will increase the monthly payment when all other factors remain the same. An increase of 10 basis points (0.10) in an interest rate adds 1.2% to the monthly payment. And a higher payment will affect qualification ratios, potentially limiting what you can buy.

The increase in fixed rates that we’ve seen so far would result in about $40 added to the monthly payment on the purchase of a median-price home with 20% down.

That increase is not minor, especially for a median- or lower-income household. Home buyers could limit the increase, or avoid any increase, by doing a bit more research and considering financing alternatives.

One tactic for lowering the monthly payment is paying upfront for a discount point, which is knocked off your mortgage rate. Economists like to say “there’s no such thing as a free lunch,” and that’s true here, too. By paying a discount point, you are basically buying a lower rate but increasing your upfront fees. The cost of a point varies depending on your market, but 1% of your mortgage amount is not uncommon. But this approach could be worth it if you have the funds for closing and you intend to hold the mortgage long enough to recoup the upfront investment.

Another approach would include taking advantage of alternative hybrid mortgage products with lower rates. Indeed as rates have been rising, the share of adjustable and hybrid mortgages that only have fixed rates for a defined period, such as one year or up to 10 years, has been on the rise.

But you also might be able to get a lower rate just by shopping around. Realtor.com’s mortgage rate page and mobile app can get you started. An expert local mortgage broker would be of great help in working through options and the financial trade-offs between various products that are available to you.

Also, take heart that the reported average rates are not necessarily what you can get on the market. Mortgage rates are very personal and very local. The rate you end up with is a function of the market overall, local market conditions, the type of property, the type of mortgage, and the financial profile and credit history of the borrower.

To give you a perspective of rate differences around the country, even though the average 30-year fixed conforming mortgage across the U.S. is now above 4% again, in Washington, California, Illinois, Georgia, and Massachusetts the average is still under 4%.

We are forecasting even higher rates by the end of the year, so what you’ve seen in recent days is likely just the beginning. By knowing your options and staying informed, you can still take advantage of what are still very low mortgage rates.

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