Mortgage Info

Get an overview of types of loans and terms and tips on how to afford a mortgage and down payment.Click on the question to view the answer. Re-click on the question to close the answer.  

 

 

 

 

Fortunately, mortgage rates and fees are usually published in the real estate sections of metropolitan newspapers, and are increasingly available on online mortgage websites. You can also work with a loan broker, someone who specializes in matching house buyers and appropriate mortgage lenders, normally collecting their fee from the lender.

Be sure to check out government-subsidized mortgages, which have no down payment and low down payment plans. Also, ask banks and other private lenders about any “first-time buyer” programs that offer low down payment plans and flexible qualifying guidelines to low- and moderate-income buyers with good credit.

Finally, don’t forget private sources of mortgage money — parents, other relatives, friends or even the seller of the house you want to buy. Borrowing money privately is usually the most cost-efficient mortgage of all.

 

 

 

 

 

Can I tap into my IRA or 401(k) plan for down payment money?

Under the 1997 Taxpayer Relief Act, first-time homebuyers can withdraw up to $10,000 penalty free from an individual retirement account (IRA) for a down payment to purchase a principal residence. This $10,000 is a lifetime limit — and it must be used within 120 days of the date you receive it. The law defines a first-time homeowner as someone who hasn’t owned a house for the past two years. If a couple is buying a home, both must be first-time homeowners. Ask your tax accountant for more information, or check IRS rules at www.irs.gov.

What kinds of government loans are available to homebuyers?

What’s the difference between a fixed and adjustable rate mortgage?

Which is better – a fixed or adjustable rate mortgage?

It depends. Because interest rates and mortgage options change often, your choice of a fixed or adjustable rate mortgage should depend on:

How do I find the least costly mortgage?

 

Another source of down payment money is a loan against your 401(k) plan. Ask your employer or plan administrator if your plan allows for loans. If it does, the maximum loan amount under the law is the one-half of your interest in the plan or $50,000, whichever is less. (If, however, you have less than $20,000 in your plan, your limit is $10,000.) Other conditions, including the maximum term, the minimum loan amount, the interest rate and applicable loan fees, are set by your employer. Any loan must be repaid in a “reasonable amount of time,” although the Tax Code doesn’t define reasonable. Be sure to find out what happens if you leave your job before fully repaying a loan from your 401(k) plan. If a loan becomes due immediately upon your departure, income tax penalties may apply to the outstanding balance.
VA Loans.
U.S. Department of Veterans Affairs (VA) loans are available to men and women who are now in the military and to veterans with an other than dishonorable discharge who meet specific eligibility rules, most of which relate to length of service. The VA doesn’t make mortgage loans, but guarantees part of the house loan you get from a bank, savings and loan or other private lender. If you default, the VA pays the lender the amount guaranteed and you in turn will owe the VA. This guarantee makes it easier for veterans to get favorable loan terms with a low down payment. For more information, check the VA’s Website at www.va.gov or contact a regional VA office for advice.

FHA Loans.
The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), insures loans made to all U.S. citizens and permanent residents who meet financial qualification rules. Under its most popular program, if the buyer defaults and the lender forecloses, the FHA pays 100% of the amount insured. This loan insurance lets qualified people buy affordable houses. The major attraction of an FHA-insured loan is that it requires a low down payment, usually about 31/2% to 5%. For more information on FHA loan programs, contact a regional office of HUD or check the FHA website at www.hud.gov/mortprog.html.

For information on other government loans, contact your state and local housing offices. They often have programs available for first-time homebuyers who are purchasing modestly-priced properties. To find your state housing office, check U.S. State Resources on FindLaw (guide.lp.findlaw.com/11stategov/). Start by looking at your state’s home page. You’ll probably find the listing for your state’s housing office.
 

With an adjustable rate mortgage (ARM), the interest rate fluctuates according to the interest rates in the economy. Initial interest rates of ARMs are typically offered at a discounted (“teaser”) interest rate lower than for fixed rate mortgages. Over time, when initial discounts are filtered out, ARM rates will fluctuate as general interest rates go up and down. Different ARMs are tied to different financial indexes, some of which fluctuate up or down more quickly than others. To avoid constant and drastic changes, ARMs typically regulate (cap) how much and how often the interest rate and/or payments can change in a year and over the life of the loan. A number of variations are available for adjustable rate mortgages, including hybrids that change from a fixed to an adjustable rate after a period of years.
 

  • the interest rates and mortgage options available when you’re buying a house
  • your view of the future (generally, high inflation will mean ARM rates will go up and lower inflation that they will fall), and
  • how willing you are to take a risk.

When mortgage rates are low, a fixed rate mortgage is the best bet for most buyers. Over the next five, ten or thirty years, interest rates are more apt to go up than further down. Even if rates could go a little lower in the short run, an ARM’s teaser rate will adjust up soon and you won’t gain much. In the long run, ARMs are likely to go up, meaning most buyers will be best off to lock in a favorable fixed rate now and not take the risk of much higher rates later.

Keep in mind that lenders not only lend money to purchase homes; they also lend money to refinance homes. For example, if you take out a fixed rate loan now, and several years from now interest rates have dropped, refinancing will probably be an option.
 

 

 

 

 

 

 

 

 

 

 Most lenders require PMI on loans where the borrower makes a down payment of less than 20%. Premiums are usually paid monthly and typically cost less than one-half of one percent of the mortgage loan. With the exception of some government and older loans, you can drop PMI once your equity in the house reaches 22% and you’ve made timely mortgage payments. Ask your lender for details on the cost of PMI and requirements for canceling it.