Balloon Loans : 6-6-05

A "balloon" loan has a fixed rate for a set time (e.g. 7 years) after which it "pops" and must be converted to a new loan at the then market rate. Compared to a fixed rate, a balloon offers a lower rate (about .5%) but less stability (only "X" years fixed). A balloon, however, offers more stability than an ARM. These are good loans, especially for those who are confident they will resell within the balloon term.

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Adjustable Rate Mortgages : 5-9-05

Suppose you get a 1 year ARM that starts at 6.25%; every year on the adjustment date the rate changes. To determine the new rate you take the Index rate (a financial market like the 30 year U.S. Treasury bill rate), add the margin (a set amount to be added to the index rate) to determine your new rate. If the Index is at 5.25% and your margin is 2.75%, your new rate is 8.0%.

ARM's vary in terms of the Index used (the lower and more stable the better), the adjustment cycle (e.g. 1 year, 3 years, 6 months - the longer the better), and the margin (the lower the better).

Fixed Rates: 30 Year vs. 15 Year : 4-18-05

The "standard" or "normal" mortgage is a 30 year fixed rate loan. The interest rate remains unchanged for the life of the loan, and it takes 30 years to pay the loan off completely. You can also get a 15 year fixed rate loan. The payment will be much higher (about $13/month on a $200,000 loan) but you will also pay off the principal much faster.

Conforming vs. Jumbo Loans : 4-10-05

"Conforming" loans are those for $275,000 or less. A loan above $275,000 up to $650,000 is considered a "Jumbo" loan, and a loan above $650,000 is considered a "Super-Jumbo." Jumbo loans carry slightly higher interest rates and usually a higher percentage down payment. Some lenders allow you to combine conforming loans to go beyond the "conforming" range, allowing you to buy up to a $340,000 home while still getting conforming rates, and avoiding PMI to boot.

First Time Home Buyer Programs : 4-4-05

Many lenders and some counties have special programs and options for 1st time home buyers. The primary aim for most such programs is to reduce the amount of up front cash required to buy a home (say from $7,500 down to $1,000) by allowing you to borrow this extra cash, thereby increasing your monthly payment. Be aware that some so-called 1st time loans carry penalties and/or higher interest. Get good advice from a loan officer before choosing your loan.

How to Avoid PMI : 2-28-2005

Mortgage insurance can add as much as 66¢ per thousand to your monthly payment (that's $132 a month on a $200,000 loan). Mortgage insurance is expensive (and not tax deductible). A new kind of loan, called an "80/10/10" loan, can allow you to avoid PMI without requiring a 20% down payment.
You get one mortgage for 80% of the sale price, a second mortgage for 10% of the price, and put up just a 10% down payment. And since the first mortgage is 80% or less, there is no PMI.

What is Private Mortgage Insurance : 2-21-2005

What is Private Mortgage Insurance? Lenders believe their losses in a foreclosure sale would be about 20% of the home's value. They require you to cover the risk for this 20%. You can either put up 20% in a cash down payment, or buy a "mortgage insurance" policy (which pays the lender in the event of a foreclosure), or a combination of both (e.g. 10% cash, 10% insurance, 5% cash, 15% insurance, etc.). If you can't come up with a 20% down payment, you have to buy the insurance.

What Are Points : 1-17-2005

What are "Points"? Points are interest paid in advance (one "point" equals 1% of the loan amount). Paying interest in advance "points" lowers your mortgage interest rate and monthly payment, but raises your up front cash costs at settlement. Usually your lender lets you choose whether or not to pay points by offering a "zero point" loan and various loan options (e.g. 1.25 points for 1/4% lower rate). Usually the points to rate ration is 5 to 1.

Whichever loan option you choose, remember that you generally have the ability to get a slightly higher or lower interest rate (and monthly payment) by choosing whether or not you will pay points in advance.

Get Professional Advice Early : 1-10-2005

That is my number 1 piece of advice. Nothing can take the place of an experienced, knowledgeable, and service-oriented loan officer in saving you time, money and grief. I offer general advice about major mortgage programs, but there is no way to describe every program, every nuance and every option. And, they seem to change daily! A really sharp loan officer can offer specific advice suited to your exact needs.

Buyers Agent : 1-3-2005

There are a lot of details to take care of between contract and settlement. A good buyer's agent should provide you with a good checklist of things you need to do, and recommend a good team of other professionals (title company, lender, etc.) to help make the transaction smooth and easy.

Professional Home Inspection : 12-13-2004

You definitely want a professional home inspection, but beware. A "cheap" inspector can be very "expensive." I suggest using only ASHI members (American Society of Home Inspectors). You want the best inspector you can get. Also, if the seller agrees to pay for the repairs, get it in writing.

Making Your Offer : 12-6-2004

Once you have found the "perfect home", you must then write a purchase contract. Consumer groups warn against using "standard" contracts, as they are designed to protect the seller, not you. Consumer groups urge you to have an attorney review your contract and/or make changes to protect you. Or hire a buyer's agent.