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Which Type Of Mortgage Is Best For Me When Buying A Longmont CO Home?

July 11, 2010 By Author Leave a Comment

In making the arrangements for buying new homes in Longmont Colorado, one of the most important decisions you will need to take is to determine what kind of mortgage you will take out. Though this may sound daunting, you will see that it is a pretty straightforward process once you’ve understood the pros and cons of the different types of mortgages. The two most basic kinds of mortgages are fixed-rate and variable-rate mortgages which are discussed below:

Fixed-rate mortgages: as the name would suggest, these are mortgages where the interest-rate stays the same throughout the life of the mortgage and the monthly mortgage payments are therefore constant. The biggest merit of a fixed-rate mortgage is the certainty about the amount that you would have to pay until the mortgage is fully paid off. The price you pay for this predictability is that if the fixed-rate of interest is higher than market rates, you are overpaying and if it is the converse, you underpay.

 There is no correlation between the rate of interest on the loan and the current market interest rates. The interest-rate risk is actually underwritten by the lender. These mortgages come in 10 year, 15 year and 30 year terms and are extremely popular, with over 75 percent of the outstanding mortgages in the US falling into this category.

 Adjustable-rate mortgages (ARMs). Also known as variable-rate mortgages, these mortgages normally start off as a fixed-rate mortgage for three to seven years during which period the interest-rate will not change. After the end of this initial period, the mortgage automatically converts into an adjustable-rate one. Generally speaking, the initial fixed rate is lower than that of a fixed-rate mortgage but, in a sense, you can consider this as compensation for the interest-rate uncertainty after the fixed rate term is over.

During the adjustable-rate part of the mortgage, the mortgage rate is reset at specified intervals in line with market interest rates and you have no way of knowing whether your payments are going to increase or decrease.

Balloon mortgages: these act like fixed-rate mortgages but have a much shorter term typically seven to 10 years after which the entire balance of the loan must repaid immediately (this is the balloon payment). These could also be interest only mortgages where the monthly payment is lower than the other mortgages because only the interest is being covered. These mortgages could be trouble for the borrower if he does not have the resources to make the balloon payment. He could of course refinance the mortgage but it is impossible to tell what terms he will get or what rate of interest he would have to pay. This could be a good strategy for a responsible borrower who wishes to sell the house before the balloon becomes due and therefore limits his monthly expense.

Depending upon your budget and the basic requirements of your home you may choose the best mortgage option that suits you when you plan on buying a home in Sedalia Colorado or any other city like Superior CO.

Filed Under: Mortgage Information Tagged With: Adjustable-rate mortgages, Balloon mortgages, Fixed-rate mortgages, homes in Longmont Colorado, types of mortgages

What Do I Need To Apply For A Mortgage To Buy A Longmont Home For Sale?

June 29, 2010 By Author Leave a Comment

The starting point in buying Longmont Colorado homes is to look for one. Right. Not necessarily. Often, the best way to begin is to get pre-approval for a mortgage. This way you will know the exact price of a house that you can afford and how much you will need to pay for it. Shop around several lenders until you have clinched the best possible deal. In the downturn after the subprime crisis, mortgages are not as easy to obtain as they used to be and often come with all kinds of restrictive clauses. At least, you will know exactly where you stand once you get the pre-approval.

To get this started, get a copy of your latest credit score from all the three bureaus. Check the information in detail for any negative connotations. The statistics say that 40 percent of all credit reports contain at least one error. Talk to the credit bureau and see if you can negotiate the negative points as well as have any inaccuracies corrected. Generally speaking a credit score of less than 700 is regarded as high risk. If your score is below 700, you will have to look for lenders who are prepared to lend at such a score. Be prepared for extremely stiff terms and conditions and interest rates which are at least a couple of points higher than what a good credit would get.

Before starting to shop for mortgages, put together the necessary paperwork. Lenders for potential lenders will require documents such as:

  • Pay slips for the past few months.
  • Documented proof of any other source of income
  • Investment and bank statements of the past few months
  • Federal tax returns for the last two or three years
  • Details of any bankruptcy filings in the past
  • Estimates of sale proceeds if you are selling a house and whether the down payment will come from this
  • Details of other high-value assets

In general use your common sense and produce any documents that will evidence your creditworthiness.

Now you are ready to start researching potential mortgage lenders. Try not to make several applications as you may be required to pay fees on each one. Potential lenders and the terms and conditions are easily researched on the Internet. Make sure that there are no hidden costs of strings attached and scientifically proceed to pick the best possible mortgage for your circumstances. You also need to research whether there are special federal housing schemes or housing schemes for ex-military personnel as these can often be obtained on favorable terms such as a low down payment or a relaxed credit score. Then proceed to fill in the application form for a mortgage and commence house hunting.

Now that you have all the essentials in place, you may want to look at some great real estate properties in Littleton CO. There are some fantastic properties in other cities like Loveland Colorado as well that might catch your interest.

Filed Under: Mortgage Information Tagged With: apply for a mortgage, Longmont Colorado homes, mortgage application, mortgage lenders

Longmont Real Estate | Understanding Origination Fees And Points

June 24, 2010 By Author Leave a Comment

An origination fee, sometimes known as origination points, is a fee charged by a lender or a middleman to set up a loan for you. Understanding this concept will help you as you search for homes in Longmont Colorado and attempt to make a purchase. It is intended to cover loan processing and other costs. The quantum and the mode of charging depend on the nature of the loan but in the case of mortgages, the fee is generally around one percent of the loan amount. Many Americans shudder at the thought of refinancing their mortgage because they simply can’t understand how origination fees and points work. In fact, the HUD Secretary is on record as stating that Americans will overpay more than $16 billion on their mortgage refinancing each year.

The origination fee is charged by the mortgage broker if you happen to be using one. Mortgage brokers are in business to earn as much of a commission as they can get out of you and it is not unknown for them to try and charge origination fees of as much as five percent. If you feel that you are being overcharged, shop around to find a broker will charge the normal amount of one percent. You should remember that everyone involved in the mortgage process is out to earn as much money as they can and there are some pretty creative nomenclature used to justify the fees that they are trying to charge.

Another variation of these fees is the so-called discount points. This is a kind of interest that you pay upfront in return for a reduction in their mortgage rate. A discount point is one percent of your loan amount and is meant to reduce your mortgage rate by one quarter per cent. Some lenders will require you to pay a specified number of points in order to get a specific low interest rate. If you have really high-quality credit, try to negotiate a mortgage without paying discount points.

If your credit is less than exemplary, it is unlikely that you will be able to secure low mortgage rates without paying discount points. However, you can decide whether to refinance your current mortgage by actually calculating the savings on interest and seeing how long it will take you to recoup your upfront costs such as closing costs and discount points. There is a rule of thumb called the two percent rule which says that the interest-rate on your new mortgage should be at least two percent lower than your current mortgage. However since interest rates are at rock bottom right now, take this rule with a pinch of salt and make your decision based on your common sense and judgment.

There is a final piece of skullduggery you should watch out for called a Yield Spread Premium. This is a fee that the lender pays the mortgage broker if he is able to write a mortgage at an interest rate higher than market for a borrower. The broker may insist that this is none of your business because it is between him and the lender but the fact is that the fee is coming out of your pocket.

Finding the right mortgage lender takes some effort. You can get some help from the local real estate agents if you are looking to buy real estate in Evergreen CO or another Colorado city like Fort Collins Colorado.

Filed Under: Mortgage Information Tagged With: homes in Longmont Colorado, Origination Fees, origination points

The Importance Of Private Mortgage Insurance (PMI) | Longmont Colorado Homes

June 22, 2010 By Author Leave a Comment

Private mortgage insurance (PMI) is a type of insurance that is designed to protect a mortgage lender from the consequences of default by the borrower. When searching for Longmont Colorado homes, you will find this information useful to finally complete your transaction. The insurance is often mandatory as we shall see a little later and the premiums are borne by the borrower. It must be clearly understood that the borrower does not directly benefit from PMI and the insurance is for the benefit of the lender.

Lenders will generally stipulate PMI cover where there is a low down payment on the mortgage. Most lenders expect a down payment of at least 20 percent and will expect PMI to cover themselves for down payments less than this. The borrower benefits because he is able to get access to a loan even if he doesn’t have much money to make a down payment. Naturally, a loan with a low down payment carries a higher risk of financial loss in the event of default on the lender will wish to cover himself.

In addition, the availability of mortgage insurance enables lenders to consider what they regard as high-risk loans which cannot be sold on to third parties such as Freddie Mac (Federal Home Loan Mortgage Corporation) and Fannie Mae (Federal National Mortgage Association). Retaining the option to sell mortgages is an extremely important source of liquidity to mortgage lenders as they can use these funds to create new mortgages.

The costs of private mortgage insurance (PMI) depend on the size of the loan and the down payment that the borrower makes. The typical cost of PMI would be about 0.5 percent of the value of the loan and the borrower is required to pay this in monthly installments together with his mortgage repayment. The borrower should try and ensure that, in terms of the Homeowners Protection Act, the insurance will automatically be terminated when his home equity reaches 20 percent (in other words, when the loan outstanding reaches 80 percent of the original amount). The other alternative, which is slightly more expensive for the borrower, is to make a request to the lender to terminate the PMI is home equity reaches 20 percent of the lender will generally oblige only at the 22 percent level.

Interestingly, it appears that one way to avoid the costs of PMI is to get a loan from the rural division of the US Department of Agriculture (USDA). The maximum loan available is actually 102 percent of the appraised value and your credit standing does not have to be that high. The USDA created this program to encourage the development of rural housing and your eligibility is determined by the population density of your location and your household income. No PMI is required. You can check out this program at the web site http://www.rurdev.usda.gov.

Now that you are looking to buy a new home, you may also want to look at real estate in Denver CO and Erie CO for the different options available to you.

Filed Under: Mortgage Information Tagged With: Longmont Colorado homes, PMI, private mortgage insurance

Qualifying For An FHA Loan To Buy A Home in Longmont CO

June 19, 2010 By Author Leave a Comment

The Federal Housing Administration (FHA), which is a part of the Department of Housing and Urban Development, has been around since 1934. They were set up with the objective of promoting ownership of housing among Americans. FHA loans fell from grace during the heyday of the subprime loan boom because of their relatively stringent conditions and limits on value of houses. As the fallout of the subprime loan bust, these loans are back in favor and with good reason. They are among the easiest mortgages to obtain because of the low down payment and the flexibility of their requirements.

FHA by itself does not either make loans or guarantee them. What it does is provide credit insurance to mortgage lenders which removes or reduces default risk in case the down payment is less than 20 percent. Lenders approved by FHA are authorized to accept loan applications, process them and approve loans without further reference to FHA. FHA loans are ideal for people looking to buy Longmont CO homes for sale for the very first time. Here are some of the important eligibility criteria for FHA loans:

Credit history. If you have had minor credit problems in the past few years, FHA is willing to overlook them if you can provide a "reasonable explanation". The credit history will be scrutinized in detail for the past two years so make an effort to keep a clean sheet for this period. Any outstanding claims of judgments will have to be satisfied before the loan is approved. Even if you have been in bankruptcy or been involved in a foreclosure, FHA will consider your case provided your credit record is unblemished for the two or three years prior to the application.

Income criteria. FHA has more lenient standards than most mortgage lenders. Provided the loan repayments do not account for more than 35 percent of the income (as opposed to 29 percent for commercial mortgage lenders), you should qualify for the loan.

Debt-to-income ratio. Here again FHA is far more flexible and only requires that when the proposed repayments on the mortgage are taken into account, the debt to income ratio should not exceed 40 percent. In other words, payments towards all your debt should not exceed 40 percent of your income.

Employment history. Your employment history will be scrutinized in detail for the two years prior to the application. Your previous employers will be asked to fill out a simple form to prove that you have been in employment with them. Two years gainful employment, not necessarily by the same employer, is essential to obtain an FHA loan.

Asset check. FHA will contact all your banks and depositaries to verify the average balance is held by them for the last three months. As a precaution and a similar to what other lenders would expect, FHA expects you to keep balances as a cash reserves to cover three to six months commitments.

With organizations like FHA making it fairly easy to get loans, first-time home buyers in
Colorado Springs CO can make their dreams of buying a home come true just as people from other cities like Conifer CO are taking advantage of it.

Filed Under: Mortgage Information Tagged With: fha home loan, homes for sale in Longmont CO, qualifying for FHA loan

Are You Ready To Buy A Longmont Colorado Home?

June 15, 2010 By Author Leave a Comment

Because the housing market remains in the doldrums, there are plenty of bargains to be had in the housing market. However, after the excesses of the past and the beating that they had taken, lenders are far more cautious in providing new mortgages to people looking to invest in real estate in Longmont Colorado. Real estate agents will hasten to advise you that you are ready for a house and that you can afford it. But only you will know your true financial position and your spending habits and are therefore in a position to determine whether you’re ready or not.

Here is what you need to do:

  • calculate your debt to income ratio to see how much extra debt you can take on affordably.
  • calculate your net worth that is the excess of your assets over your liabilities and make sure that you are in comfortable territory.
  • a copy of your latest credit scores from all three credit bureaus and examine the details critically.

If there are any inaccuracies that are adversely affecting your score, have these promptly corrected. If there is anything unfavorable such as missed payments or delayed payments, see if you can sort this out amicably. If your credit score is not in good shape, then don’t apply for a mortgage. It is not as if you may not find willing lenders, be prepared to pay through your nose for the privilege of a loan. You may end up paying interest for instance a few percentage points higher than you might have otherwise done. Over the life of a mortgage, this could amount to a substantial sum of money.

Now ask these questions about yourself:

  • do I have a steady and reliable source of income?
  • am I financially responsible and in control of my debt?
  • do I understand the full financial implications of home ownership?
  • do I have enough money to cover down payments, closing costs and other expenses incurred in house buying?
  • will I have enough money left over to sustain my normal lifestyle?
  • are my wife and I carrying sufficient insurance?

Now that you are satisfied that you are ready, you can go hunting for a mortgage. The following three things are critical to a mortgage:

  • your credit score. Aim at a FICO score of at least 700 so that you can obtain reasonable terms for a mortgage. There are plenty of ways in which you can improve your credit score so start immediately.
  • your down payment. Unless you can make a down payment of at least 20 percent, your lender is going to stipulate private mortgage insurance which will add the cost of your borrowing.
  • your debt to income ratio. Potential lenders will want to see that you can cover the costs of home ownership including mortgage and PMI payments and still have cash left over. The ratio must be below 20 percent before you apply for your mortgage and preferably around 10 percent. A rule of thumb is the 28/36 percent. In other words, all your housing related payments must not exceed 28 percent of your income and your total debt must not exceed 36 percent.

You can get a local real estate agent in Aurora CO or Brighton Colorado to help you find a reputed mortgage lender, but you must have a credit rating to be able to get the best bargain.

Filed Under: Mortgage Information Tagged With: buying a home, buying a real estate, real estate deals, real estate in Longmont Colorado