Pros and Cons of 0% Financing

If you’ve been shopping around for a new car lately, you’ve most likely come across a variety of incredible special offers and incentives such as 0 percent financing. Zero percent financing is currently one of the most popular incentives in the car industry, and it suggests that you can actually finance a car without paying any interest over the term of the loan. You’d be forgiven for being sceptical because this sounds just too good to be true.

What Is Zero Percent interest?

Each time you take out a car loan, you’re borrowing money to pay for the car. The bank lending you the money charges you a fee in the form of interest on the loan. This interest is the cost of taking out the loan. The concept of zero percent interest loans means you are getting the privilege of borrowing money without having to pay a penny in return.

It is important to educate yourself before signing up to zero percent financing as it may not always be in your best interest. Here are facts that you should know about zero percent financing:

  • You typically pay a large deposit upfront (35% or more is common), and if you miss any payments, you’re usually switched to a higher interest rate.
  • It is offered by the finance arm of major vehicle manufacturers, not the dealers or the bank.
  • Zero percent interest is often very difficult to quality for. It’s only available to shoppers with the absolute highest credit scores and a long and stellar credit history.
  • Some interest free deals have loan terms that are too short, which will require very high monthly payments.
  • Dealers typically use the allure of zero percent financing to attract buyers to the dealership. If you qualify for zero interest financing, the dealership will often offer an incentive such as a $3,000 rebate or zero percent financing on a car for an extended period such as 84 months. Most people jump at the 0 percent because they think it’s free money. The trouble is that the $3,000 you’re passing up is really not a rebate. By opting for the zero percent financing, you are going to pay $3000 more for a rapidly depreciating asset. Furthermore, if you buy the car at the end of the model year, its value has already decreased significantly.
  • If you decide to trade-in your car after a couple of years, you’ll be in for a rude awakening, because the car will have depreciated much faster than your payoff amount. For example, if the car is worth $15000, you might find that you still owe $19000. That $4,000 deficiency will have to come out of your pocket to fully satisfy the loan.
  • Zero percent finance loans are only often offered as a financing option for the dealer’s choice of vehicle, such as the hard to sell vehicles in order to move the cars off the lot. This financing doesn’t apply to premium models.

If you are planning to own your car until the wheels come off, then zero percent financing is well worth the risk. However, if you are the type that likes to drive a new car every few years or so, this type of financing may not be the best option for you.

Cash-Out Mortgage Refinance

The Mortgage Refinance Process

Before you consider refinancing your home, you need to know how the process works, what you need to know, options available and whether it is something you should pursue.

Step 1: What are your goals?

One of the most important aspects of mortgage refinancing is to determine what your goals and objectives are. Are you trying to reduce your monthly payments or are you interested in getting a buy-to-let home? Whatever your goals are, do your research online to search for the various loan programs available to decide which option will help you achieve those objectives.

Step 2: Contact a mortgage lender

Once you have defined your goals and researched all the loan options available, you can submit your information to a mortgage lender who can answer any questions you have about how to refinance or how to accomplish your defined goals.

Step 3: Select your loan program

If you decide you’ll like to move forward with refinancing, your mortgage lender will confirm the program, rate and payment. You can lock in your interest rate to protect you against flunctuations in the market. Once your rate is locked, you should receive a lock agreement confirming the terms of your loan and your lender may collect a fee to finalize the lock.

Step 4: Document Submission

Once the lender receives the signed lock agreeent and deposit, your banker will provide you a list of items so that the lender an verify all your information to get your loan approved and closed. The lender will also send you some disclosures such as the good faith estimate and truth-in-lending disclosure to review and sign which details the terms of your rate and loan.

Step 5: Appraisal Inspection

In a few days, you’ll be contacted by the lender to schedule the appraisal inspection. You need to schedule the appraisal as quickly as possible to prevent any delays in your closing.

Step 6: Document submission

Once the lender has received your documents, the next steps include opening escrow, ordering the preliminary title report and coordinate with other parties to sure your loan progresses smoothly. Once the lender has everything required, your loan file would be submitted to the underwriter for revew and approval.

Cash-Out Financing

When you refinance your mortgage, it may be possible to end up with some cash in your pocket — that’s why it is called cash-out refinancing.

You can only drag cash out if you have built up a fair amount of equity in your home.  Cash-out refinancing was very popular in the days of soaring home prices.

Unfortunately, a great many homeowners used the cash for frivolous reasons — fancy vacations, luxury items, expensive cars, etc.  Cash-out refinancing became a trap when housing values took a dive.

Homeowners were left with the higher cash out mortgage balance — their house was worth less or even “underwater” — and the cash was long gone.

People may be tempted to pay off large credit card balances with the cash from refinancing.  This also can become a dangerous trap.

Unless the underlying reason is resolved as to why you ran up the credit cards in the first place, the odds say that you will be charging big time again.

Credit card balances can usually be negotiated downward with the credit card company or even eliminated by filing bankruptcy.

Cash-out refinancing may have some merit if the cash is used for a good cause –such as college tuition payments, needed home improvements, or medical bills.

But it is always best to find some other way to pay these expenses instead of increasing your mortgage and putting the roof over your head in greater risk.

The simplest but most overlooked way to pay for needed expenses is to cut down on the expenses you don’t need.

  • You know what I mean:
  • Out of sight cable/satellite bills.
  • Thru the roof cell phone bills.
  • Constantly eating out at restaurants.
  • Always buying a new car — usually cheaper to fix your old one.
  • Fees for a health club that you don’t use.
  • And a million other unnecessary drains on your money.

You definitely don’t want to make taxable withdrawals from your 401k or IRA — the taxes and penalties could easily exceed 35% of your withdrawal.

A home equity loan may be a better way to put cash in your pocket instead of a cash-out home loan refinance — especially when the interest rate on your new refinanced mortgage is…

Making Homes Affordable Program

Instead of an in-house mortgage modification, you may qualify for a modification under the Home Affordable Modification Program also known as HAMP.

HAMP is part of President Obama’s Making Home Affordable program which started in March 2009.  HAMP was scheduled to terminate at the end of 2012 — but on 1-27-2012 it was announced that the HAMP program was extended thru 2013.

Banks and financial institutions who received money (bailouts) under the U.S. Government’s TARP program are required to offer HAMP to homeowners.

In addition, all mortgage loans insured or owned by Fannie Mae, Freddie Mac, FHA, VA, and the USDA are required to be evaluated for  HAMP.

Therefore, the only mortgages not eligible for HAMP are those from lending institutions that:

Did not accept a government bailout.

Were not insured or owned by a Government Sponsored Enterprise (GSE) like Fannie Mae, Freddie Mac, FHA, VA, USDA, etc.

Even though not required, a home lender may elect to participate in HAMP.

If you are approved for a HAMP modification, your new loan could be as low as a 2% interest rate payable over 40 years.

You may be eligible for HAMP if you meet all of the following requirements:

You got your current mortgage on or before 1/1/2009.

Your house is your primary residence or is rented to a tenant.  The Rental feature is new as of 1-27-2012.

Your monthly mortgage payment is more that 31% of your gross monthly income. This means income before any taxes or deductions.  If you are self-employed, it means net income after business deductions.

Your current mortgage balance cannot exceed $729,750.

You must have documented income that can pay the modified payment.

You must have a financial hardship.

You must be either delinquent on your mortgage payment or are in danger of being delinquent.

In the last 10 years, you must not have been convicted of a felony involving a mortgage or real estate transaction.

To apply for HAMP, you can ask your mortgage lender for a packet named Request For Modification and Affidavit (RMA). Some lenders have the RMA available for download on their websites.

You may also go to the official HAMP site for the RMA packet and other valuable information.

If you are initially approved for HAMP, you will be put on either a three or four month Trial Plan.  During this Trial Plan, you will be required to pay the new modified mortgage payment.

If you successfully complete the Trial Plan, you are supposed to be given a permanent modification.

Even if you are eligible to apply for HAMP, it still is not easy for most people to receive a permanent HAMP modification.

Failing the Net Present Value test or NPV test is a major reason why homeowners are not qualifying for HAMP.

The NPV is an exceedingly complicated test. It basically measures whether a HAMP permanent modification is more financially beneficial to the lender than it is to foreclose and sell your home.  The NPV test should never have been part of the HAMP guidelines  — it has kept responsible homeowners from saving their homes.

Mortgage Or Loan Modification

A Mortgage or Loan Modification is a changing of the original terms of your home mortgage.  If you are having trouble paying your current mortgage payment, a loan modification can lower your monthly payment and enable you to save your home from foreclosure.

What is Mortgage Modification?

Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e. mortgagee and mortgagor)

In a typical loan modification, your lender will reduce your current interest rate, which will lower your monthly mortgage payment.  Your lender may also increase the number of years that you have to payoff off your mortgage, which will also lower your payment.

If you have missed some monthly mortgage payments and have incurred late penalties, a modification may allow you to add (capitalize) these amounts to the new modified mortgage balance.

Therefore, instead of having to pay the missed payments and penalties in a one-time lump sum amount, you can spread the amount over the life of your new modified mortgage.

Bank Modification or Making Home Affordable Modification

You basically have two different alternatives for modifying your home loan.  You can apply for what is called an in-house mortgage modification with your present mortgage lender whether it be a bank, credit union, savings & loan, or other financial institution.

There is no requirement for your present lender to modify your mortgage.  After all, they have you locked into a mortgage contract with a specific interest rate and for a specific period of time.  They would only reduce your interest rate and give you a longer mortgage term if they thought doing that would be financially better for them — instead of foreclosing on your home.

If you have missed some monthly mortgage payments and have incurred late penalties, a modification may allow you to add (capitalize) these amounts to the new modified mortgage balance.

Therefore, instead of having to pay the missed payments and penalties in a one-time lump sum amount, you can spread the amount over the life of your new modified mortgage.

Should I Refinance?

Whether a lender will give you an in-house mortgage modification will depend on many things.  Some of these are:

First of all, you must be having trouble paying your current mortgage payment.  You won’t get a modification if you don’t need one.

Do you have equity in your home?  If you have substantial equity, the bank may want to foreclose to receive the amount you owe them.

Do you have a steady stable income?  If you do not, the lender will think that there is no way you can afford the new modified monthly mortgage payment.

The lender will look at your overall financial situation including credit scores, credit card debt, etc.

Possible Reasons to Finance

To lower interest rate and monthly payment

Refinancing to a lower monthly payment and interest rate is one of the most common reasons for a home mortgage refinance. If prevailing interest rates are lower than yours, it would be a smart idea to see how much you could save by refinancing. There are no-cost and low-cost options that could save you money.

To convert an adjustable rate to a fixed rate

If you’re a first ime buyer and don’t intend to stay in your home for a long time, adjustable rate mortgage loans are an effective way to ease into your mortgage payments. On the other hand, if you will be staying in your home over the long term, you may wantto consider refinancing your mortgage into a long term fixed rate loan.

Eliminate mortgage insurance

If you bought your home with less than 20% down payment, chances are you’re paying private mortgage insurance (pmi). By refinancing your mortgage, you’ll be in a position to eliminate the extra expense if the value of your home has increased to a point where you have at least 20% equity in your home, or a loan-to-value (LTV) of 80% or less.

Buy a buy-to-let mortgage

With home prices and interest rates so low, there’s never been a better time to buy an investment property such as a buy-to-let home as a second property. With this in mind, tap into the equity of your home and use the cash for your down payment.

Is Mortgage Refinancing A Good Idea?

Mortgage refinancing is a good idea, but not in every circumstance and it is not for everyone. There are a variety of reasons why someone would want to refinance their mortgage that need to be looked at first. One of the most common reasons why people consider refinancing their mortgage is because interest rates have gone down. But just just how much lower should rates be to justify the refi.nance? The end result of all these reasons of course is that you want to save money.

Before you jump into the process though, you need to see where you can save money. This will give you the information you need when you start negotiating with your lender. A house is a big investment so the financing of it should not be taken lightly.

There is one expense in particular that everyone would want to see lowered and that is the interest rate. Getting a lower interest rate is why people typically refinance just about any loan, whether it’s a student loan, mortgage, or even credit card debt. Before you make the decision to refinance you should see if that is even possible in your case. If it is not, you need to ask why and what you can do to lower it. There are going to be a few options for you here, and refinancing your mortgage should be one of them.

Lowering your interest rate in 10th of a percent increments may not seem like it’s worth the trouble doing. When you take into consideration that you are on a 30 year term though, that interest can really add up. Refinancing your mortgage gives you the option of reducing the length of your loan which in turn reduces your interest.

Reducing the amount of interest you pay along with the length of time you have to pay it equals substantial savings. If you are in good standing with your lender, this is something that you really should look into. With the federal financing regulations loosening up, this is easier to do now than ever before.

Interest rates that are applied to home loans come in two different basic types, variable and fixed. This is also something which can be modified with refinancing that can save you money. Interest rates that vary do so when the market fluctuates and this can be misleading to the average borrower. A lender might tell you that they will go down because market indicators are pointing in that direction. That may be true, but it doesn’t mean that they will stay that way. When the market fluctuates it does just that, it goes up and down.

What may look good now may very well not be the case in two or three years. Your loan is typically going to be somewhere between 15 and 30 years. Interest rates have never gone one way or another continually for that length of time. Fixed rates may be slightly higher than the nationwide average, but in two or three years they may be slightly lower. More times than not having a fixed rate loan pays off in the long run. If you have a loan with variable rates, refinancing that loan to where the rate is fixed can potentially save you a lot of money.

Common Types of Mortgage and Home Equity Loans

Mortgage Rate Basics

One of the most important aspects of buying a house is the process of getting a mortgage loan.

What is a Mortgage?

A mortgage is a loan that you are required to repay over a stipulated time period. The payment period is usually decades so you need to ensure that you get the very best deal you can get. If you get a bad deal, you could find yourself with a very expensive loan that you’ll struggle to pay off.

Types of Mortgage Rates

It is important to understand the difference between a fixed rate and variable rate mortgage.

Fixed and Variable Rate Mortgages

With a fixed rate mortgage, the interest rate remains constant throughout the life of the loan and thus, your monthly payments will also remain the same. On the other hand, a variable rate mortgage will change based on the prevailing interest rates. The way it works is, the borrower will get a low interest rate for a specified period of time. The interest rate will then be adjusted annually according to current market conditions.

If you are a prospective home owner and current interst rates are low, it would be a good idea to get a fixed rate especially if you plan to remain in the home for a relatively long period of time. Conversely, if interest rates are relatively high and you’re not planning to stay in the home for a long time, you may be better off with a variable rate mortgage.

Locking in the Interest Rate

One of the most important things you can do is to lock down the interest rate no matter what type of mortgage you want to get. It is also important to do this as early as possible. This ensures that you’ll receive the same locked interest rate even if the current mortgage rate increases.

When you lock in the mortgage rate, it is important to get this in writing to ensure that there is no misunderstanding in future. If the lender is not willing to cement the agreement on paper, keep looking, You need to search around for a lender who would be willing to put the deal on paper.

Home Equity Loans

Home equity loans enable you to borrow against the equity that exists in your home. You can use these types of loans to borrow large amounts of money. Furthermore, they are easier to qualify for than other types of loans due to the fact that they are secured by your house.Home equity loans are divided into two main categories:

Fixed Rate Home Equity Loan

A fixed rate home equity loan is pretty much the same as a fixed rate mortgage loan. Because of the security that fixed rate home equity loans provide, these types of loans are generally the most popular loans for people that are looking to refinance their homes. They ensure consistent monthly payments without the worry of changing interest rates.

For example, your home equity loan is for a set amount, like $10,000.  You then pay-off the $10,000 at a fixed rate of monthly payments on principal and interest for the life of the loan which translates to a steady and consistent repayment schedule and potential tax advantages.

The loan term is generally from 5 to 15 years, and remains the same throughout your loan term. This is probably the best option for you if you are planning to own your home for several years or more, or need a certain amount for a specific expenditure, like a new roof.

The most popular loan proram are the 30-year, 20-year, 15-year and 10-year fixed rate home loans.

Home Equity Line Of Credit (known as HELOC)

With a HELOC, you don’t borrow a fixed amount but instead take cash advances or draws by writing checks or using an equity type debit card.  Your interest rate is usually variable and is tied to a bench mark interest rate.  Some banks may allow you to lock into a fixed interest rate under certain circumstances.  Your HELOC payment normally consist of interest only.

In essence, a home equity loan and a mortgage refinance with a cash-out are the same in one regard — they both allow you to end up with some cash.
 
If your refinanced cash-out mortgage has a higher interest rate than your original mortgage, then a home equity loan may be a better option.  This is because you will be paying the same new higher interest rate on the entire mortgage — not just the cash-out portion.
 
Whatever you may do, you must proceed with caution and educate yourself about the terms that mortgage lenders are offering.  It’s just too important not to do that.
HELOC terms can vary considerably between mortgage lenders and brokers.
 
For instance, some HELOC’s require you to take a minimum advance within a certain period of time.
 
This deadline can cause you to needlessly take a cash advance, just because the time period is coming to an end.
Lenders also have the right to “freeze” your HELOC account — not allowing you to write checks for any more advances.  They can do this if they think that your home has dropped in value.

Important Questions To Ask A Mortgage Lender

Getting a mortgage is quite easily one of the largest and single most important financial decisions that you’ll ever make. Before you start shopping around for the home of your dreams, you’re probably going to need a mortgage lender, unless you’re planning to pay for the house in full, and in cash.

Before selecting a mortgage lender and determining which loan is right for your circumstances, it is vitally important ensure that you have all of the information you need to make an informed decision.

Mortgage lenders are professionals or organisations that provide the mortgage loan. They are also responsible for ensuring that you can pay back the money that they lend you. Some mortgage lenders partner with the government to provide programs that help people buy their homes.

Before you begin to apply for your home loan, here is a series of key questions that you need to ask a mortgage lender or broker. Note that mortgage brokers are not the same as mortgage lenders. Brokers are mainly responsible for arranging the loan. They counsel you, process your application and then shop around to find you a mortgage lender. They do not get involved in the actual process of lending you money.

Here are key questions to ask your mortgage broker. The answers to these questions will help you select the lender that is right for your circumstances and help you collect all of the information you need to know before you begin the mortgage application process:

How can I get the best interest rate for my mortgage?

The guidelines are different for every loan. Even if you’ve seen very low mortgage rates advertised, some companies do not openly disclose the true terms of the deal as the law requires. You should find out what the Annual Percentage Rate (APR) is for the loan you’re interested in applying for, what your monthly payment will be and how long the low interest rate will last.

Here are the factors that determine your mortgage interest rate:

  • Credit Score: Your credit score is used to predict your level of risk, and how reliable you’ll be in paying off your mortgage loan. It is calculated from your credit report, which shows all your loans and credit cards and payment history on each one.
  • Your expected down payment: The amount you’re willing to put down can have a drastic effect on your mortgage rate.
  • The total loan amount: If you take out a relatively small loan, the mortgage lender may charge you a higher rate to make a decent profit on the loan.
  • Loan term: The term of your loan influences how much you’ll pay. The shorter your loan term, the lower your mortgage rate will be.
  • Type of interest rate: The type of interest rate you select can have an impact on your mortgage rate. The two types of mortgage rates are fixed rate mortgages and adjustable rate mortgages.
  • Location of your home: The location of your home can influence your mortgage rate. If the housing market is healthy where you’re looking, then a lender is less likely to charge a higher rate.

What fees do I have to pay?

Will I be able to finance those fees into the loan amount? You need to pay a range of one-time fees for services related to the process of funding your mortgage. These fees typically vary from lender to lender, and these lenders can use different terms to describe their fees.

It is important to ensure that you know what each cost includes and when you’ll need to pay. Be sure to find out upfront which fees to expect and which ones are open to negotiation. Lenders are expected to provide a written good-faith estimate of closing costs within 3 days of receiving an application:

  • Arrangement or Completion Fee: You can sometimes add this to your mortgage, but this will increase the cost of your mortgage, and you’ll pay a higher interest rate and monthly payments.
  • Booking fee: This is a non-refundable fee that is usually paid when you complete the mortgage application. It is not usually refundable even if your mortgage fails to go through.
  • Valuation fee: This is what the mortgage lender charges to value your property to ensure it’s worth the amount you wish to borrow.
  • Mortgage Account Fee: This fee is what the mortgage lender charges for administrative costs in establishing up, maintaining and closing down your mortgage account.
  • Telegraphic Transfer Fee: Also known as CHAPS (Clearing House Automated Payment System), this is a non-refundable fee that pays for your mortgage provider to transfer the money to your solicitor.
  • Own Buildings Insurance Fee. Also known as the Freedom of Agency fee, this sometimes applies if you opt for your own buildings insurance, rather than what is offered to you by your mortgage lender.
  • Higher Lending Charge. If your mortgage has a high loan-to-value this charge can be made by your lender, and is designed to cover the lender’s increased risk.
  • Conveyancing Charge. This is a legal fee that is typically charged by your solicitor or a licensed conveyancer for legal work relating to the mortgage.
  • Mortgage Broker Fee. If you get your mortgage through a broker, this is a fee you pay to the broker. Note that some mortgage brokers charge a commission from the lender rather than charging you.
  • Early Repayment Charge. This is a fee that can be charged if you pay off your mortgage earlier than agreed.

How long does the entire process take?

There’s no definitive time you can expect to wait before your mortgage is approved. This will depend on the mortgage lender as well as the loan you’re applying for. Generally, the process from application to funding usually takes between 30 and 45 days.

What type of information do I need to provide to get the best loan for me?

In order t determine the best loan for you, mortgage lenders will typically require the following information:

  • Proof of income.
  • Employment history and verification.
  • Credit score.
  • Monthly expenses.
  • Down payment.
  • Complete list of your debts: credit cards, personal loans, etc.
  • List of assets.
  • Short-term and long-term goals and objectives.

Can I refinance my mortgage if I don’t have equity in my home?

Most mortgage lenders typically require you to have at least 20% equity in your home before they’ll approve a refinance. However, the US government has implemented the Home Affordable Refinance Program (HARP) which makes it possible to refinance your mortgage if you don’t have equity in your home, or even have negative equity.

 

 

 

 

Understanding A.P.R. – Annual Percentage Rate

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What is APR?

The term APR stands for Annual Percentage Rate.  It is the amount of interest on your total loan amount that you will pay on an annual basis, averaged over the full term of the loan.

For example, your car loan APR is a measure of the total amount of interest you will pay on your financing, over a one year term. When APR is calculated, it has to include both the cost of the borrowing and any associated fees that are automatically included. Thus it’s meant to give you the overall equivalent cost of a debt.

When you receive an interest rate quote from your lender, it may be expressed in interest rate per term. This typically does not tell you how much interest you will pay per year in annual percentage rate (APR).

APR has no fixed form and its amount can vary from lender to lender. The very fact that different companies can offer different rates of APR indicates that there is some fluidity in its’ structure.

As a general rule of thumb, the lower the APR the better the lending deal is for you, so when it comes to committing your monthly payments to a lending company it is in your best interests to shop around for a good deal.

Where one company appears to be offering a smaller APR and thus a better deal on what appears to be the same offer, it is prudent to ask; where will they recoup those ‘losses’. Due to its huge influence in any financial agreement the law stipulates that all lenders have to tell you what their APR is before you sign any agreement.

The Difference between Interest and APR

It is important to understand that the interest rate you see in an advertisement is not what you will be paying to finance your new car, truck, SUV or minivan. Your APR rate amount should legally represent the entire, complete “true cost of the loan” over the time you owe the lender money. Your interest rate is usually the percentage you owe each month based on each $1,000 you borrowed.

This is from the regulator, the Financial Conduct Authority (FCA):

“APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR takes into account not just the interest on the loan but also other charges you have to pay, for example, any arrangement fee. All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender.”

The fact it includes charges means sometimes the APR can be a bit confusing. It is possible the interest rate is 14% per annum, but the APR is 17%, as the impact of the charges adds the equivalent to another 3% interest. Yet this is useful as it allows a true comparison.

Knowing the difference between what is APR rate and interest rate and can be tricky because they are definitely not the same figure in your financial agreement. For example, if your lender offers a 3% interest, you should ask if this is interest or APR.

With car loans, you only pay simple interest on the principal, so you can expect to pay 3% on each term for your total length of payment. If you have a 48 month car loan, for example, your APR will be 36% per year for 4 years. This is found using a basic formula:

  • APR = (interest rate per period) * (number of periods in a year)

In the example above, this means:

  • APR = (3%) * (12) = 36%

Once you have been able to locate a lender with the most attractive APR, you need to learn more about the offer so you can make an informed decision to commit to deal and it’s terms and agreements.

One of the most important questions you’ll need to find out about is whether the APR is fixed or variable.  If the APR is fixed then your monthly payments will remain the same if your credit balance remains the same for any length of time.

This is where it is crucial to read the fine print. If in the small print the agreement states that the APR is variable, then chances are that after an introductory period of  12.5% (for example), the rate will not only jump up to something like 17.5% but will also vary thereafter.

Essentially, this means that once you have gone through the introductory period, you will now being charged the higher rate of 17.5%. From this point onwards, the rate may drop to something like, 15.6%, or increase further so you could see the rate hit 19.7% and then 22.7% and keep going up!

The 10 Essential Steps To Buying A Home

The process of buying a home is an exciting yet stressful experience, especially if you’re buying a home for the first time. It is a complex and massive investment that you cannot afford to get wrong. Preparation is key.

Before you even begin the process of looking at different homes, there’s a lot of prep work that you must do to ensure you get the house that you want at a price that you can comfortably afford.

How To Prepare For Your Home Purchase

Step 1: Improve Your Credit Score

Your credit score is the key to your financial life. Consequently, you must first of all do everything you can to improve your credit score. Your credit score is pretty much the most important aspect of your financial life. It determines everything about your financial life.

Your financial score determines whether you will get credit, what type of loans you will qualify for and the interest rate you will pay. Essentially, the higher your credit score, the more competitive interest rates and terms you’ll be offered on homes, vehicles and credit cards.

This means that you’ll get more competitive interest rates. Conversely, the lower your credit score, the more credit risk you will represent, and the higher the rate of interest you’ll pay, which means the more expensive it will be for you to get a loan. In the case of a mortgage you could be looking at a difference of hundreds of thousands over the term of the loan. This is why you need to prioritize improving your credit score.

Step 2: Save For Downpayment, Closing Costs

Saving for a mortgage deposit is a really smart thing to do. This will not guarantee your loan approval, but it certainly helps.

A downpayment is typically 10% to 25% of the purchase price, and it means you’ll have more equity in the home which will help you qualify for interest rates, and ultimately lower monthly payments.  You’ll become a more attractive buyer because you present a better credit risk for your lender. This can translate to savings of thousands or even tens of thousands over the loan term.

It may take years for you to come up with the right amount, but saving up is absolutely worth the effort you put in.

Step 3: Get preapproved.

Once you have made the decision to buy a house, you need to determine how much you can reasonably afford to borrow in order to buy a home.

Although a mortgage affordability calculator will provide a general idea of what your payments are likely to be, you should get preapproved in order to get a better idea of the price ranges of homes to view. This is because getting preapproved provides an idea of what loan amount and purchase price you can afford. It also strengthens your offer to the seller and their agents.

Step 4: Determine which is the best loan for your circumstances

When shopping for a home mortgage loan, the internet is the best place to start. Start by doing a broad online search in the area you’re interested in to get a sense of the market.

You also need to keep an eye on mortgage fees. Sometimes you can get a great deal if you’re willing to pay additional fees. If you’re a first time buyer, look into first-time buyer programs and FHA loans.

Next, get in touch with banks, credit unions and other lenders in your area. Here’s what you need to find out:

  • A list of current interest rates for available mortage loans.
  • Are the rates being quoted the lowest for the day or week?
  • Are the rates given for various products fixed or adjustable?
  • What fees does the lender typically charge for each loan product?
  • What is each loan’s APR?

Step 5: Find the right estate agent

After you have been preapproved and you know exactly what price range you qualify for, you can start working with estate agents in the area you’re interested in living.

You need to find a solid estate agent because they are solid partners when you’re buying a home. A good estate agent can offer you with meaningful information on homes and neighborhoods that you cannot easily obtain. Their understanding of the home buying process, negotiation skills, and local knowledge can be extremely valuable. Furthermore, you won’t be paying  anything for their services – they’re paid from the commission paid by the seller of the house.

Once you have found a home you like, you can work with the estate agent to draft an offer and fill out a purchase agreement. The seller may respond with a counter offer and you may go back and forth until you reach an agreement on price and terms.

Once you have reached an agreement, escrow will be established. These are typically 30 days, but there are also 45 and 60-day escrows.

Make sure that you understand all of the details of your loan program including the rate you want, closing fees, etc. before you move forward with it.

Step 6: Work with a mortgage banker to select your loan

You’ll discover a variety of competitively priced loan facilities. You will typically have various questions when you’re buying a house, and you’ll need an experienced, responsive mortgage bankers to assist you and make the entire process easier. They can also help you accomplish different goals such as keeping your monthly payments low or making sure that your monthly payments never increase.

Step 7: Lock in your mortgage rate

If you are happy with the mortgage rate, communicate this to your lender. They will send you a lock agreement to solidify the terms of the loan as well as the rate. After you approve the agreement, your mortgage broker will collect a lock deposit fee to lock in your rate. This will be credited to your closing fees at the conclusion of the transaction.

After the lender has received the signed lock agreement and lock deposit, the lender will send you some formal documents including the good faith estimate and truth-in-lending disclosure to review and sign. These documents speciy the terms of the loan.

Step 8: Home inspection and appraisal

Once you have established escrow, it is highly recommended that you arrange for the house to be inspected by a professional who will perform a thorough inspection of the property to identify red flags such as structural damages, defective applicances, and other items that are in need of repairs.  You need to ensure that any major issues are addressed before the close of escrow date.

This contingency protects you by providing you a chance to renegotiate your offer or withdraw it without penalty if the inspection reveals significant material damage.

Step 9: Appraisal appointment

Lenders will arrange for an appraiser to provide an independent estimate of the value of the house you are buying.

The lender will arrange an appraisal appointment with the seller’s agent to provide an independent estimate of the value of the home as your loan is being reviewed and processed.

The appraiser is from a third party company and is not directly associated with the lender. This is a requirement to confirm that the home is worth the amount you’re paying for it.

Step 10: Approval, signing and closing

When the lender has everything required for completion, your account manager will submit your complete file to the underwriting department for approval. You will be required to sign all of the paperwork required to complete the purchase, including your loan documents.

Once approved, loan documents will be prepared for you to sign at the escrow office. Once the lender has received and reviewed the signed local documents and everything is complete, you your home loan should be funded 3 days upon signing.

Should You Get a Home Equity Loan?

Before you read any further — please understand that a home equity loan is an additional mortgage on your home, usually the second mortgage on your home.
 
Just like any other mortgage, if you default on the payments of a home equity loan, you can lose your house.
 
Home equity loans are not quite as popular as they have been in the past — for a simple reason. The reason being that homeowner’s equity in their homes has dwindled or disappeared, as home prices in the United States have taken a serious dive. In the UK, leading industry experts have warned about house prices being in peril.

Continue reading “Should You Get a Home Equity Loan?”