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Courtesy of Ricardo Martin – Intercoastal Mortgage Company

The loan type you choose is a personal preference. If you are planning on living in your home for less than 5 years, you may consider taking out an ARM loan that is fixed for the first 5 years only. Since you know you will have sold the property before the ARM starts adjusting, the risk is minimal. However, if you are planning on living in the property for more than 5 years, you would want to secure a longer term mortgage in order to prevent a higher payment in the future. Knowing your plans is key to choosing a mortgage type

Fixed Rates
Fixed rate mortgages are the most common mortgage. It is a mortgage where the interest rate stays the same throughout the term of the loan.

There are different loan terms available with fixed options. Here are the most common terms:

15 Year Fixed
20 Year Fixed
30 Year Fixed
40 Year Fixed

Pricing of fixed rates are usually higher than your ARM loans but they offer you a payment that is fixed for the term of the loan. As the commitment from the lender gets longer and longer, the rate goes up. This means that a 15 year fixed rate will be lower than a 30 year fixed rate.

ARMS (Adjustable Rate Mortgage)
Adjustable rate mortgages are mortgage loans where the interest rate is periodically adjusted based on an index. The interest rate can be fixed for up to 10 years before the interest starts adjusting with the index.

There are a variety of adjustable rate mortgage plans. The difference between them are the fixed periods, rate caps and how often they adjust. Most ARM loans can be variable from month to month, adjust every six months or every year. An ARM loan that is fixed for 5 years and adjusts every year after the 5th is a 5/1 ARM. The 5 (years) is how long the loan is fixed and the 1 (yearly) is how often it adjusts. There are other ARM programs available depending on the lender so ask about the details of the loan when deciding on an ARM. These are the most popular ARMs:

1/1
3/1
5/1
7/1
10/1

Interest Only Loans
Interest only (IO) loans are loans that the lender only requires the borrower to pay an interest payment for a certain amount of time. Once the interest only period is up, the borrower has to make fully amortized payments in order to repay back the mortgage before the maturity date. The interest only payment time frame depends on the loan program that the borrower assumes. The typical interest only periods on these loans is 5 to 10 years. Depending on the prepayment penalty, the borrower has the flexibility to pay down the principle. This will result in a lower payment once the loan re-amortizes into a principle and interest payment. Here are the different loan programs that can be modified with an interest only payment.

Fixed Rate – 30 Year fixed mortgage that has an interest only period for the first 10 years. After the initial ten years, the borrower has 20 years left to repay the mortgage so the lender will calculate the new principle and interest payment based on a 20 year term.

ARM – Most all ARM programs have an interest only modification available. The interest only period can be only on the initial fixed period 5 years or up to 10 years.

Negative Amortization loans (Pay Option Loan) - has one of it’s payment options as an interest only payment based on the fully indexed rate .

Home Equity Loans
If you have equity in your property and you would like to take cash out of your equity without refinancing your first mortgage, you can take out an Equity Loan using your house’s equity as collateral.

First-Time Buyer Programs

Buying your first home is an exciting experience. Lenders are always looking at ways to help make it easier for people to buy their first home. Some programs require little or no down payment, fewer credit restrictions and even modified loan products not available to NON-first time home buyers. The main question of most non homeowners that are considering buying their first home is why buy when you can rent. Well, any home owner will tell you that the tax benefits usually out weighs any other arguments. Not everyone buying a home will benefit but in the end, purchasing real estate is one of the largest investments that you make in your life that appreciates over time. You might not benefit right away, but in the long run, it becomes an investment into your future. Below are a few popular first time buyer programs along with the lender contacts. Feel free to contact one of our approved lenders to get more information on these particular programs:

My Community
VA, FHA & VHDA
103/105% Financing
Barrier Buster
Emerging Markets

Contact Ricardo Martin with Intercoastal Mortgage
888-998-ZILL (9455) ext. 804
rmartin@homezill.com

My Community
VA, FHA & VHDA
Seller Plus
Home Possible

Contact Dave Anzueto with First Savings Mortgage
888-998-ZILL (9455) ext. 805
danzueto@homezill.com

Loan Process

After you provide the lender with all your financial documentation, receive the lender pre-approval letter and give the lender the ratified contract on the property you will be buying, the loan begins to get processed. The loan process can take anywhere from 1 to 30 days. It all depends on the complexity of the loan. The same process applies to refinances. Here is the process of how a loan gets approved with your lender:

1. Applying for Financing
You provide the lender with all documentation needed and fill out a loan application.

2. Pre-Approval
Lender provides you with a Good Faith Estimate and Truth in Lending Disclosure within three days of the loan application. If you are in agreement with the terms, the lender will issue you a pre-approval letter.

3. Submit the Ratified Contract
You or your agent gives the lender the ratified contract so the lender can begin to process the loan for closing.

4. Full Disclosure of the Loan
The lender will then provide you with internal, state and federal mandated disclosures revealing the complete terms of the loan.

5. Processing
The loan is submitted into the processing department where the loan is put together for underwriting. The processor will ensure that the loan does fit into loan parameters and will order all the verifications (employment, rent etc.).

6. Settlement
Congratulations! You are now at the settlement table and you are getting ready to become a homeowner. At the settlement table, the settlement attorney will go over all the documentation that you must sign per instructions of the lender. The process takes about one hour.

Credit

Credit is one of the most important variables in the home buying equation. A good credit standing will make the approval and home buying process easier and you will be offered great rates. Lenders pull your credit report in order to see your middle FICO. Your FICO is the score the three credit bureaus (Equifax, Experian, Transunion) rate you at based on your credit profile. Lenders will use the middle score of all three (650, 649, 680 – Middle Fico is 650) or if you only have two Fico’s, the lender will use the lower of the two. If there is a co-borrower the lender will use the primary wage earners credit score.

Items that affect your credit are as follows:

1. Credit Depth
How long have you had credit and how much credit have you been able to pay back

2. Trade Lines
Do you have a lot of creditors that have issued you credit? The more trade lines you have, the easier it is for the credit bureaus to rate your credit.

3. Credit Limit
The bureaus like to see you only using about 35% of the credit limit on most of your cards. Having a card maxed out hurts your credit but a credit card over the limit really brings credit down. This shows the credit bureaus how you manage credit.

4. Derogatory Credit
The purpose of a credit report is to give creditors a tool to be able to see how you repay debt. If you pay your credit back late or you don’t pay it at all, the creditor will report your payment history (good or bad) to the bureaus and the bureaus will put it on your report and calculate your score factoring in the bad credit. Creditors can report late payments in 30, 60, 90 and 120 day late increments. They can also report if they charged off the debt as a loss, whether it is in collection and with what collection agency is trying to collect the debt and they can even go as far as placing a judgment in your credit report through the court system. Also the credit agencies report when you filed for bankruptcy, when it was discharged and all the debts that were included in the bankruptcy. Most lenders also see any kind of Consumer Credit Counseling the same as a bankruptcy. Any foreclosure of real estate is also reported.