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Is it Better to Rent or Own?
Why get Pre-Approved
first?
Which is a better choice: Fixed Loan
or an ARM?
How to avoid paying Private Mortgage
Insurance?
What is "Loan to Value" (LTV)?
How to Use Points to Your
Advantage?
How to Manage Closing Costs?
What is a FICO Credit Score?
How to Boost your Fico Credit
Score?
What is an Interest-Only Mortgage?
Is it Better to Rent or Own?
A good way to answer this question is to find out all the
ways homeownership can affect your life.
Advantages:
- Financial benefits:
- The most important financial benefit is that your
wealth increases as your home appreciates and
as you pay down your loan.
- You can write off mortgage interest
that you pay from your taxes.
- Mortgage payments can often be comparable
to rent payments, depending on the current
market.
- Social benefits:
- Homeowners are often more involved
in their community and work together for better
schools and less crime.
- Personal benefits
- The pride, satisfaction, and independence
of being a homeowner.
- Control over decorating or expanding
the house according to your vision for providing a permanent
place where your family can live and grow.
Disadvantages:
- Loss of Flexibility: Selling a home
takes some time, so you may not be able to move or change
jobs quickly. The main advantage of renting is flexibility
and freedom.
- Maintenance: A home requires work,
time, and money to keep it in good condition.
- Responsibility: Renters generally need
to think only about paying the rent on time because the
landlord takes care of turning the water on, fixing the
roof, planning for a storm, etc. However, when you own a
home, you are in charge of everything,
including utilities, lawn care, and any repairs or improvements.
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Looking for a home without being pre-approved is often the
costliest mistake homebuyers make. As a potential
buyer of a home you are often competing with other buyers
when putting in an offer.
Being pre-approved:
- Increases your chances of your offer
being accepted, especially in hotter markets.
- Gives you a baseline buying price so
you know what you can afford (or at least what a lender
is willing to lend to you).
Many buyers make an offer on a home they cannot qualify for
because they make the mistake of not going through the pre-approval
process up front.
Please fill out a pre-approval
application to start the process. It takes about 5 minutes
and there is no cost or obligation in doing so. We should
be able to have a pre-approval letter for you to take to your
agent or home seller within 24 hours.
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This depends mainly on how long you intend to keep your mortgage.
Rates on ARM’s are often lower than those of Fixed Rate
Mortgages at the outset, but they carry the risk of rates
rising over time.
Generally, If you know you will only be in the property for
a few years, an ARM would be recommended. If you are unsure
about how long you will have the loan or be in the property,
a Fixed Rate Mortgage is most likely the best option.
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PMI is an extra fee that lenders charge to offset their higher
risk when a loan amount is greater than 80% of the property
value. In most cases, the lender will allow cancellation of
the PMI once the borrower has paid down 20% of the loan.
There are several ways to avoid PMI including splitting your
financing up into two loans and there is also a program
called Lender Paid Mortgage Insurance or LPMI where in
exchange for a higher rate the lender will pay your monthly
PMI. Please ask your consultant to review the advantages and
disadvantages of each of these programs.
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LTV is the ratio of the amount of your loan compared
to the value of your purchased home. For example,
if your home is worth $100,000 and your loan is $80,000, your
LTV is 80%. As you pay off your loan gradually, the LTV will
go down.
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Points or Discount Points are an amount that a borrower may
choose to pay out-of-pocket to decrease their interest rate.
This could be a great way for those who are certain to stay
in a loan for a long time to save money.
The best way to decide whether to pay points or not is to
do a break-even analysis:
- Start with the amount that a point will cost you. Our
example: 1 point = $1000 on a $100,000 loan.
- Compute the amount of monthly savings you will have as
a result of the lower interest rate. For
this example let’s say you would save $50 per month
after having paid 1 point up front. (Use our
mortgage
calculator to figure out monthly payment amounts based
on loan, taxes, and interest).
- Divide the cost of the point by the monthly savings to
get your break-even point. In our
example, divide $1000 by $50 to get a break-even time of
20 months.
- The break-even time tells you how long
it will take for your initial investment to pay off.
In our example, if you will have the
loan for more than 20 months, it makes sense to pay 1 point.
You will save $50 a month or $600 a year after month 20, or
just under two years.
We would be glad to discuss the additional advantages and
disadvantages of paying points with you. Please contact one
of our consultants today for a no cost, no obligation
consultation
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These are the costs associated with the funding of the mortgage,
commonly between 3% and 6% of the loan amount. They include:
- Title Fees
- Lender and Broker Fees
- County and State Transfer and Recordation Taxes
- Appraisal Fees.
For a $100,000 loan, closing fees could be $3000-$6000.
You can choose to include these in the loan on purchases and
refinances, or you may choose to pay out of pocket.
(We offer 100% financing programs and allow you to finance
up to 6% of your loan amount for closing costs in certain
cases).
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This is a credit score used by lenders to determine your credit
worthiness and risk. The scores range from 350-850. The higher
your score, the less risky you are in the eyes of the lender.
However we have many programs that do not penalize
borrowers for distressed credit as long as they meet minimum
benchmarks. For example, 98.5% LTV Financing is available
for borrowers with at least a 580 (middle) FICO score.
To qualify for the best programs a FICO score of 720 or
above is usually required.
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First of all, to find out your FICO score you can contact
any of our loan consultants directly to access your credit
file. We will immediately provide you with a free copy of
your report from all three bureaus. You may also go to
www.AnnualCreditReport.com
to get a free report, though scores are not included.
Once you know your score, you can follow these tips to improve
your credit rating:
1. Pay your bills on time. Delinquent payments
have a major negative impact on your score, so the longer
you pay your bills on time, the better your score will be.
The bottom line is if you are ever going to be late, make
sure you are not more than 30 days late.
2. Keep balances low on credit cards. High
outstanding debt will affect your score. Try to keep balances
on your credit cards below 50% of your available credit.
3. Do not open multiple new credit card accounts.
New accounts lower your average account age, which could lower
your credit score. Retail stores often offer a discount on
purchases for opening an account with their store credit card.
Resist the temptation.
4. Have credit cards, but manage credit cards responsibly.
In general, having these accounts will raise your score. Someone
with no credit cards tends to be a higher risk than someone
with cards who manages them responsibly.
5.Understand that closing an account does not make
it go away. A closed account still reports to the
credit bureaus and continues to affect your score.
We can help you repair any credit issues by giving you a
thorough credit assessment at the time of your application
at no cost along with a free copy of your Tri-merge credit
report.
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Interest-only mortgages are getting a lot of attention these
days due to their low payments but they are not for everybody.
Essentially, they allow a borrower to defer payment
of the principal of the loan for 5-10 years, and
only pay interest in that period, which means very
low minimum payments.
Advantages:
Low initial monthly payments can give a buyer more buying
power to purchase a higher priced home than they
could otherwise have afforded.
The borrower can choose the amount they wish
to pay each month as long as it is above the minimum
requirement. Any amount over the minimum goes directly toward
the principal. This allows a borrower to have much more flexibility
over monthly payments early-on in the loan period.
Disadvantages:
After the 5-10 year interest-only period the minimum
payment will increase dramatically. This occurs when the
loan converts to a regularly amortized period, typically 20
or 25 years, and the monthly payments become calculated
based on the new loan balance.
This kind of loan is generally more expensive in the long-term,
and the expense increases with the more time that the borrower
takes to pay down the principal. However, the flexibility
can be worth the cost for some borrowers - it all depends
on your individual needs and goals.
If you are considering an Interest-only mortgage it is
very important to discuss the advantages and disadvantages
with your Mortgage Consultant.
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