Mortgage Lowdown

If you are a first time homebuyer or have less than perfect credit, because of which you may think your loan options are dim, here’s a word of advice—quit worrying. There are many ways in which a person with a not-too-good credit can get a loan. One of them is 100% mortgage financing. There are many sub prime lenders that offer 100% financing on a bad credit loan. In some instances, you may qualify for 103% financing. The extra money helps you pay the closing costs and other fees.

So what exactly is a 100% financing mortgage loan? It is essentially a no-money-down loan. Lenders have different guidelines for the 100% and 103% financing loans. To qualify for 103% financing, borrowers need a credit score of at least 600. For a full doc 100% mortgage financing, credit scores must be at least 580.

One of the biggest problems with reverse mortgages is that this popular program does not go far enough in extending seniors the funds they need. A ruling by the U.S. House of Representatives last month has now changed the scenario by taking steps to eliminate the geographical barrier by passing the Expanding American Homeownership Act of 2006, which would create a single national loan limit for the HECM program equal to the conforming Freddie Mac loan limit of $417,000 for 2006. Mortgage101.com reports:

Raising the local loan ceilings for senior borrowers would be well received. Two privately funded national studies showed participants were frustrated with the inability to fully tap their large and growing equity. Respondents noted their increasing property values and living expenses, as well as their difficulty in making ends meet with the current HECM loan limits.

Read more:House passes national reverse-mortgage loan limit

We’ve discussed mortgage loans, how painful they are and whether repayment is a good option or not. All through this I probably overlooked the fact that we haven’t checked out the different types of mortgage loans on offer. Well, I didn’t totally ignore them; I mean how can anybody ignore Adjustable Rate Mortgages (ARMs)? However, there are other types as well and choosing the right type of mortgage will not only save you a lot of money, it will also help you avoid a lot of heartache. Let us begin with the most popular of the lot — ARMs.

Adjustable Rate Mortgage Loans: The reason these loans were so popular is their really low introductory interest rate. These rates were so ridiculously low, that just about anybody and everybody wanted a share of the ARM pie. What most people forget in the rush is that the low interest rate is only valid for a period of time specified in the loan contract. At the end of the introductory period the mortgage lender adjusts the interest rate and payment amount.

Fixed Interest Rate Mortgage Loans: While the popularity of this traditional form of loan did take a dipping in the recent past, it is still the safest and best mortgage option for most people. Your monthly payment does not change over the life of the mortgage.

Jumbo Mortgages: I’d written about this type of mortgage loans recently. In case you need to borrow more than $417,000 for your home, you may need a jumbo mortgage loan. There’s quite a bit of risk involved with this type of loan as the interest rates are quite high.

Balloon Mortgages: Do you need short-term financing with a low monthly payment? Go in for a balloon mortgage loan. At the end of your loan period, you will have to pay back the entire balance. However, if you cannot pay off the balance or refinance the loan you could lose your home.

In a perfect world, you and I would’ve had perfect credit and life would have been a stroll in the park. Since that’s not the case, and like most other Americans, you too are struggling with a less than perfect credit, you probably have to do the juggling act. Like when you need to buy a home and are worried that you may not get approved for a mortgage because you have bad credit. Don’t worry; there is a way (rather ways) out. Hotlib.com reports:

Getting a home loan with bad credit is not very hard. In fact, each day homebuyers are approved with low credit scores. The secret to finding a bad credit home loan is applying with lenders that specialize in these sorts of loans.

Read more: How to Get Approved With Bad Credit

I know of many people who harbored the belief that when they were badly in debt, or had a heavy mortgage to repay, they could just dip into their individual retirement accounts (IRA), withdraw the amount they needed and pay off their loans. This would mean a dent but only a small one.

If you are one such person, then this is for you. You’d be an extremely foolish person to use your IRA money to pay off mortgages and other loans. This choice actually should not exist on your list of options.

Imagine if you’ve deferred payment, then the taxes and penalties will be quite high. So, when you account for all these penalties and taxes, you may be forced to withdraw much more than you actually intended to.

And the biggest problem with trying to withdraw from your IRA is that you’ll lose your future tax-deferred returns. This means that if you withdraw something as paltry as $1,000, it could cost you over $10,000 in lost retirement income at a rate of 8% per annum or in other words, over 30-35 years, you would have lost nearly $1 million in future income! A better option would be to examine your accounts and find ways to trim unnecessary expenses.

Heard of jumbo sandwiches, jumbo burgers, but what the heck is a jumbo mortgage? I heard the term recently and decided to check it out. Simply put, a jumbo loan is a mortgage loan that exceeds a certain fixed amount. Bestsyndication.com reports:

Currently (as of 2006), a jumbo mortgage loan is a loan more than $417,000. The limit typically changes each year. In 2005, the amount was $357,650. The great part about a jumbo mortgage loan is the approval process is the same for conventional loans for most lenders.

Read more: What the Heck is a Jumbo Mortgage Loan?

You’ve been renting a house for far too long and now long to own a home of your own but don’t have the financial werewithal to consider such an option. Now, now, life ain’t so bad. If you don’t have the down payment to purchase a house but are able to afford a house payment as much as your monthly rent, an 80-20 (80% first mortgage - 20% second mortgage) no money down loan could get you out of the rent trap. Bestsyndication.com reports:

The 80-20 loans are also known as piggyback loans. The buyer takes out a loan for 80% of the cost of the home. Then takes out a second mortgage for 20% of the loan to use as a down payment. The homebuyer has three options for the 20% part of the loan. Most often the 20% loan is secured from a separate lender, but look up for the second loan to have a higher interest rate.

Read more: Using a Second Mortgage for an 80-20 No Money Down Home Purchase Loan

Government-sponsored enterprises (GSE) have a very important role to play in the American housing finance system. When I came across this sentence, I was quite stumped. I do know a bit about the American mortgage market, but what exactly constituted a GSE, I had no idea. That’s until now.

Firstly, let’s have a look at the existing GSEs Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBs). All of these are for-profit corporations owned by private shareholders. What makes them different is that each one is chartered by a specific act of the U.S. Congress. These acts allow special privileges and advantages to each of these entities. All the GSEs are among the largest issuers of debt securities in the world. These three entities especially represent a very large financial sector, with their combined assets accounting to more than $5 trillion. The GSEs can best be understood as representing a historical ‘paradigm shift’ in American housing finance from a deposit-based to a bond-based system. The key transition was the insolvency and collapse of the savings and loans in the 1980s, which made possible the ascendancy of Fannie Mae and Freddie Mac. These two GSEs filled the competitive space formerly held by several thousand savings and loans.

The Mortgage Bankers Association recently reported that home loan applications in the last week of July fell to their lowest level in four years. This is just a confirmation of what is common knowledge today — that a combination of factors has led to the cooling of the housing market. Usnews.com reports:

Freddie Mac economist Frank Nothaft said Wednesday that the latest numbers still give him hope for a soft landing. Housing sales will most likely end the year lower than 2005’s all-time record, but that will still make 2006 one of the busiest years in real-estate history, he noted.

Read more: Mortgage loan applications at lowest levels in four years

A good credit score is of great help when you apply for a mortgage. The better your credit score, the easier it will be for you to get a loan. So, if your score is not too good and you want to improve it before you purchase your dream home, try this tip to get your score back on track. Always TRY to pay your bills on time. Nobody likes people who ‘forget’ or delay repaying their bills. Did you know that if you delay payment on your bills by 30 days or more, it can lower your score by 50 points or even more?

So, you realize how imperative it is that you pay off your bills as soon as you receive them. But if you cannot pay your bills for some reason like being tied down with many things or if you have a habit of forgetting, you can easily go online and automate your bill payment procedure. This way, you don’t have to worry about getting late. If you have too much debt and begin to fall behind or cannot see a way out of your financial mess, it probably is time for you to get credit counseling.