Loan Options
Home buyers, especially first time home buyers ask themselves the question, how am I ever going to be able to buy a home? With sky-high prices that never seem to come down enough, the challenge is daunting. This issue has not gone unnoticed by the mortgage lending industry. New products are constantly being developed to support market conditions and bolster housing demand. Products unknown a few years ago are common in today’s market. They are designed to help buyers qualify for homes at today’s prices. The key is to understand all facets of a loan program before you commit! Knowledge is power and ignorance is the pathway to disaster.
ADJUSTABLE RATE LOANShave been around for a while. The interest rate and payment amount are fixed for a number of years, allowing buyers to purchase their home and get adjusted to the higher expenses of home ownership. At the end of the fixed period, the interest rate and payment amount adjust according to specific index parameters. The adjustment can be up or down. The borrower should very careful and consider both possibilities and be prepared for the adjustment.
INTEREST-ONLY LOANS are a more recent innovation. This product allows the buyer to pay only the interest on the loan amount for a period of years. At the end of that term the loan reverts to a fully amortized loan, one in which both principal and interest are paid together after the adjustment. The incentive is that payments during the interest-only period are much lower than are those of a fully amortized loan. Payments increase signifacently at the end of the interest only period. (A loan that is interest only for ten years becomes a 20 year amortized loan.) Here again, the borrower must understand this fact and be prepared when the adjustment comes.
FORTY YEAR LOANS are now available. When you extend the payments for longer periods the payments are lower. However, the total amount of interest paid increases considerably.
The PAY OPTION ARM has become very popular in recent years. With this product borrowers have four payment options each month. 1) Pay a very low introductory rate interest-only payment, commonly advertised at between one percent and two percent. This usually results in the lowest entry monthly payment of any program. 2) Pay an interest-only payment at the full note indexed interest rate. 3) Pay a fully amortized thirty year payment at the note indexed interest rate. 4) Pay a fully amortized fifteen year amortized payment at the note indexed interest rate.
A caution here. This program is very dangerous. If the borrower does not have the discipline to make the appropriate payment, the amount that they pay that is less that the full note interest rate, interest only payment is added to the loan principal. Therefore, if your full note rate interest only is $ 2000 and your "teaser rate payment" is $ 500, the difference of $ 1500 per month is added to your principal each month you select that "teaser rate" as your payment! And, depending on the lender, once your principal increases to 110% to 120% of the original amount, the loan recasts and the lender changes the interest rate and the repayment amount. This program is a major reason there aer so many foreclosures in today's market
100% FINANCING WITHOUT PMI Many lenders require a borrower to pay PMI (Private Mortgage Insurance) if the borrower does not have at least a 20% of the purchase price as a down payment. This PMI is an opportunity for the lenders to increase profits at the borrower's expense. Some, or all of the PMI may be tax deductible starting in 2007. Of course, there are minimum credit score requirements. One way or another, we will get you the best deal in town for your specific circumstances.
LESS THAN PERFECT CREDIT HOME LOANS We help buyers with less than perfect credit every day. We offer loan programs for buyers who have filed recent bankruptcies and foreclosures. Each loan is customized to meet the needs of the client. There is a loan package out there for almost everyone, and there is no cost for the consultation.
STATED INCOME LOANS Self employed borrowers can have a difficult time obtaining a home loan because of the difficulty in providing acceptable proof of income to the lender. If all, or part, of your income is difficult to prove, we can put you into a stated loan program that will enable you to get the necessary financing. Call for a cost-free consultation. We believe that a self-employed client has every bit as much of a right to own property as does an employed client. After all, the owners of our company are self-employed. Naturally, higher credit scores are required for stated loan borrowers.
Any program that is not fully amortized may result in a negative amortization situation. This means that until the selected payments catch up with the full note interest only amount the borrower will owe more than the initial loan amount. Obviously, this only works for the borrower when values and equity are increasing. Borrowers should understand all of the ramifications of each of these programs before they make any commitments. It is wise to consult a professional to ensure that all facets of the program are clear.
The good news is that buyers who could not qualify for the benchmark 30-year fixed interest rate loan are likely to qualify for one of these new programs. Home ownership may indeed be within their grasp. However, you MUST understand all facets of the program that you choose.
Buyers always hope to start riding the "appreciation wave." That is the ticket to most of the wealth in this country. However, a declining market results in exposure of poor buying decisions. You can not get hurt in the California real estate market unless your past decisions result in your having to sell at the wrong time in the market cycle.
If you don't think you can qualify, give us a call. It only takes a few minutes and you may be pleasantly surprised. Giving clients good news is the most enjoyable part of our job
