These programs make it easier to purchase a home for those that otherwise may not be able to afford it. There are programs that require little down payment, are not credit score driven, and limited amounts of certain fees and charges the borrower must pay to establish the loan. These programs also have rates that are comparable to conventional loans.
Mortgage insurance protects the lender against taking a financial loss in the event the mortgagor stops making payments. It is required on mortgage programs that require little down payment and the lenders exposure is greater than 80% of the purchase price or appraised value, whichever is less. Mortgage insurance can sometimes be avoided by utilizing a 2nd mortgage taken on the property. Or, there is Lender Paid Mortgage Insurance (LPMI). With this option, the lender pays the mortgage insurance, which is offset by a higher interest rate charged to the borrower.
The documentation required for each loan differs depending on the loan program and financial portfolio of the borrower. While some programs require tax returns, employment, and all asset documentation, others require less documentation. A mortgage consultant will provide you with a list of items needed.
A home equity line of credit (HELOC) is an “open-end” line of credit that allows you to borrow repeatedly against your home equity. You “draw” on the line over time, usually up to some credit limit, using special checks or a credit card. As you repay the principal, you can draw that amount again. This part of the plan is known as the “draw period,” which usually lasts for some fixed term, such as ten years. After the draw period ends, you typically then enter the “repayment period,” during which you must pay off the outstanding balance in regular periodic payments of principal and interest. The repayment period is also a fixed term of years.
A Lender is a financial institution that makes loans directly to you. A Broker does not lend money. A Broker finds a lender. A Broker works with many lenders, therefore they are able to offer a wider array of loan products compared to a financial institution.
Brokers are usually paid a loan-specific fee for their services. Stonecastle brokers are paid by commissions for their work. This commission could be paid directly by you but is typically paid by the lender with whom the broker works.
With a fixed rate mortgage, the interest rate is set when you take out the loan and will not change.
With an adjustable rate mortgage (ARM), the interest rate may go up or down. Many ARMs will start at a lower interest rate than fixed rate mortgages. This initial rate may stay the same for months or years. When this introductory period is over, your interest rate will change and the amount of your payment will likely go up.
Part of the interest rate you pay will be tied to a broader measure of interest rates, called an index. Your payment goes up when this index of interest rates moves higher. When interest rates decline, sometimes your payment may go down, but that is not true for all ARMs. Many ARMs will limit the amount of each adjustment, and set a maximum or “cap” on how high your interest rate can go over the life of the loan. Some ARMs also limit how low your interest rate can go.
An interest-only mortgage is a loan with scheduled payments that require you to pay only the interest for a specified amount of time. The amount that you owe on the loan does not go down with each payment. Once the interest-only period ends, you may have several options:
Paying off the loan balance all at once
Refinancing the mortgage loan, if refinancing is available
Beginning to pay off the balance in monthly payments, which are higher than the interest-only payments
TIP: Don’t assume you’ll be able to sell your home or refinance your loan if your payment increases. The value of your property could decline or your financial condition could change. If you can’t afford the higher payments on today’s income, consider another loan.