|MORTGAGE & FINANCIAL SERVICES|
USA Asset Group, Your Mortgage Source
|Congratulations on choosing USA Asset group Realtor to buy or
sell your home! By using Houston's reliable and professional team you
will be assured quality service without spending a lot of money.
Look to USA Asset group as your mortgage source, through our affiliate USA Asset Financial
We the mortgage group at USA Asset Group would like to add to your savings by offering you a free pre-qualification on the mortgage of your next home or the refinance of your existing home.
USA Asset Group, your mortgage source, has prepared this home loan kit*guide to give you a better understanding of how to obtain financing for your new home or refinancing your existing home.
Like most buyers you are wondering, how big a home can you get? How will the type of mortgage you get determine the type of house you can afford? Which mortgage is best for your budget? Your future?
When you finish reading this guide, you will have answers to several questions. It is important that you know this information, so that you will be better prepared for most of the questions our loan consultants will ask you at your initial meeting.
What is your buying power?
One easy way to find out how much you can afford is to get free pre-qualification by our loan officers
You may have heard that most individuals or families can afford to borrow up to two and a-half times (21/2) their gross annual household income (INCOME BEFORE ANY DEDUCTIONS ARE MADE FOR TAXES, ETC.) Following this rule of thumb, a couple with a combined annual income of $30,000 should be able to borrow up to $75,000.
Like other rule of thumb, this one is handy, easy to calculate, and can give you a ballpark guess of how large a mortgage you can afford. But, because it is so simple, it doesn't take into account many other pieces of information that help determine whether you'll feel comfortable with this financial obligation.
So let's start by getting a better understanding of just what a mortgage is.
A mortgage requires you to pledge your home as the lender's security for payment of your loan. The lender agreesto hold the title to your property ( orin some states, to hold a lien on your title) until you have paid back your loan plus interest.
If you do not repay your mortgage loan, the lender has the right to take possession of your house and sell it in order to satisfy the mortgage debt.
PRINCIPAL AND INTEREST All mortgages have two features in common.
The first feature is the mortgage principal, which is the actual amount of money you borrow. So, if you take out a $70,000 mortgage, your mortgage principal is $70,000.
The second feature is the mortgage interest, which is the money you pay for use of the money you borrow. The interest you pay on your mortgage can be deducted from your taxes, which is one of the many benefits of home ownership.
AMORTIZATION. Over a stipulated length of time, you will repay your mortgage gradually through regular monthly payments of principal and interest. During the first few years, most of your payments will be applied toward the interest you owe.
At the final years of your loan your repayment amounts will be applied almost exclusively to the remaining method principal. This type of repayment method is called amortization.
Four factors affect your mortgage payments and they are:
A change in any one of these four factors will influence how much house you can afford.
How much down payment do you need?
Your down payment will reduce the amount you'll need to borrow. So the more cash you put down, the smaller the size of your loan and the small your mortgage payments will be.
Most lenders view mortgages with larger down payment as more secure because you more of your own money invested in the property.
Putting less than 20% down often means you will be required to purchase private mortgage insurance.
PMI Private Mortgage Insurance protects the lending institution in case you fail to make payments on your mortgage. The cost of PMI is added to your monthly mortgage payments or to your closing costs.
How Do You Choose The Right Loan Program?
There is a wide selection of loan programs available in today's market, and you should narrow the field by considering your particular situation.
Your choice of mortgage will depend on many different factors:
+ How long do you expect to live in your new home?
+ What is your current financial status?
+ Do you expect your finances to change soon?
+ How comfortable are you with the certainty of a fixed mortgage payment versus a payment that can change over time?
Choosing A Mortgage Program.
Summarized below are some mortgage options currently available in many areas, and the most commonly used creative financing programs.
Fixed Rate Mortgage
The fixed rate mortgages are the best when interest rates are at a record low. Fixed rate mortgage requires you to pay a fixed percentage interest rate for the life of the loan. You also want to lock in a low rate for the years to come and your mortgage payments will remain stable without changing from year to year.
Fixed rate mortgages are available for 30 years, 20 years, 15 years and even 10 years.
Adjustable Rate Mortgage (ARM)
These are flexible mortgage instruments where the interest rate may be adjusted at periodic intervals according to the term of the loan agreement. The interest rate may be pegged to a nationally recognized index that is not under the lender's control. If your loan has not been discounted, your rate will increase or decrease depending on the performance of the index.
An important feature to look for in an ARM is rate caps - and there are two types. An Adjustment-to-Adjustment rate cap limits the amount your rate can increase at each adjustment period.
A Life-of-Loan rate cap limits the amount the rate can increase during the entire term of your mortgage.
Balloon loans offer lower interest rates for shorter term financing, usually 5, 7, or 10 years. At the end of this term , they require refinancing or or paying off the outstanding balance with a lump-sum payment. Balloon mortgages may be suitable if you plan to sell or refinance your home within a few years and want a fixed , low monthly payment. Some lenders offer other options such as a conversion feature at the end of the loan term. For example, the loan may convert to a 30 year fixed loan at the 30 year market rate plus 3/8 of a percent point. Your conversion can be guaranteed based on certain criteria such as having made your last 24 payments on time. These balloon mortgage programs with conversion option are often called a 7/23 Convertible or 5/25 Convertible.
Jumbo mortgages are conventional non-conforming loan programs. They are called non-conforming loans because they exceed Fannie Mae loan limit. Fannie Mae limit is $275,000 and Fannie Mae raises this limit from time to time. If you have a jumbo loan on your house after several years of payments, you may benefit from refinancing if you have payed down the principal such that Fannie Mae limit is raised above your current mortgage principal balance. Now you will be refinancing in a conforming loan program which is below the Fannie Mae limit.
FHA Loans (Federal Housing Administration)
These are federally backed mortgage loans originated by private lenders and brokers but are guaranteed by HUD (Housing and Urban Development). Generally these loans are used for low to moderate priced homes. FHA loans are only available with fixed rate or 1 year adjustable rates. The maximum loan amounts vary for some properties depending on county and location.
FHA mortgages usually feature low down payments, low interest rates, few points and relaxed income to debt ratios for qualifying purposes. Most FHA loans are assumable to qualified buyers, which means that the loan can be passed on to a new qualified purchaser of the property.
FHA loans require Mortgage Insurance Premium, MIP is an up front insurance premium added to your loan and paid off as part of your monthly payments. In addition, FHA mortgage insurance premium requires an annual fee of .5% of your current loan amount, paid in monthly installments.
VA Mortgage (Veterans Administration)
VA loans are available to those who have served in the military service. Eligibility is based on length of service. Some surviving spouses are eligible for VA loans. VA loans don't need a down payment, you can borrow the entire purchase price of a home. You can only finance one property at a time with VA loans.
VA loans require a funding fee similar to mortgage insurance to ensure borrower pays the mortgage. This fee is usually added to your monthly loan payment which helps lower amount of cash needed at closing.
Chances are it'll cost more later.
Economists and Financial Analysts who disagree on almost every thing, agree on a couple of things about the real estate market.
They agree that the prices of houses are going to increase. And it will keep on increasing.
They also agree that no one can guess, with any kind of certainty or guarantee, whether interest rates will go up or down, or stay where they are today. But if the past is prologue, increase in interest rates will be the rule rather than the exception.
In view of these facts, it seems a wise decision to buy the house you've been considering as soon as possible
Then some doubts creep in, LikeÖÖ
There's a lot of money involved! Interest rates are too high! What if interest rates do come down? Would you make out better if you wait?
Almost certainly not.
Donít let interest rates fool you.
For example it might surprise you, Say you're thinking about buying a $90,000 house, with a 20% down payment and a 30-year mortgage at 101/2% interest. Assume that prices are going to in increase by a little more than 7%, which is not an unusual increase for real estate, and that interest rates will drop to 91/2%.
Here's what that means:
Cost of house 20% Down payment Loan Amt Mthly Pmt
Now $90,000 $18,000 $72,000 $659
Next Year $96,000 $19,200 $77,040 $648
Notice what the wait costs. The interest rate did drop, but the sale price of the home increased. So you end up paying a lower rate, but for a larger mortgage loan.
The result: You save only $11 on your monthly mortgage payment. But while you saved in that area, you lost more in another area.
Your down payment increased by $1,260.
It would take 115 monthly payments of $11 per month, to recoup the $1,260, thatís almost 10 years.
Isn't one of the objectives to make the investment less now?
It's a compelling argument for buying a home now, or as soon as possible, .rather than wait for home prices to increase in this growing market.
Remember- your monthly mortgage payments will be building your equity.
For those who have been paying rent to increase their landlord's equity, that will be a refreshing and profitable change.
If today's mortgage interest rates seem too high to you, remember that all the interest you pay is deductible from your taxable income.
And that effectively makes your net interest rate lower than the stated rate.
For example, if the stated interest rate is 101/2%, and your taxable income is 446,000, your approximate net interest rate would be 6.8% in 2001 and 7.6% thereafter.
There are three types of closing costs, Lender fees, Title fees, and Government fees.