When deciding between a Home Equity Loan against a Home Equity Line of Credit, first we need to determine what the money is being used for and how much money are we going to need. Generally, a HELOC (Home Equity Line of Credit) is a better choice for ongoing cash needs, such as college tuition payments or medical bills.

Home equity loan allows you to draw money whenever you need money, capped at a fixed limit. There is generally a minimum payment due each month, with the option to pay off as much of the line as you want. The two most popular types of home equity loans are called “open” and “closed.” The “open” loan or a line of credit sometimes called a HELOC.

In this loan usually the interest rate is variable tied to the prime rate and the term of the loan can range from five to thirty years. Because the rate is variable the payment amount is as well which might be problematic. Lenders often offer a special starting rate as an added enticement. The other type of loan is a “closed” loan where the amount is a fixed amount for a fixed period at a fixed rate with set payments so at the end of the term the loan is paid off much like a regular installment loan.

The rates and term of the loan are usually fixed but because the extra money is unsecured the rates are generally higher than a regular first or second mortgage rate but still lower than credit card rates. With a home equity loan, there are also house closing costs that you need to take into account. This refers to the money paid at closing to the lender. It may include one or more of the following fees: a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, credit report charge and other costs assessed at conclusion.

One of the variations which have broad appeal is the 125 home equity loan so selected because the borrowers can get up to 125 % of the current combined loan to value (CLTV). This type of loan is mainly appealing to first time home buyers who may need to spend extra money on furniture, home improvements, landscaping, etc.

The extra money can be used for debt consolidation, medical expenses, or college tuition as well .There is such a wide variety of loans you can get using the equity in your home as collateral that it can be confusing. But if you do a little research you can find one that is just right for you and your needs.

house closing costs

FHA Mortgage Policy Changes:

1. An increase in the Mortgage Insurance Premium (MIP) from 1.75% to 2.25%.  On a $200,000 loan, that would cost you an extra $1,000 in house closing costs.  This policy change goes into effect in the spring.
2. New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will see an increase in their house closing costs as they will be required to put down at least 10%.  This policy change goes into effect in the early summer.
3. Seller concessions reduced from 6% to 3%.  A seller concession is when the seller pays all, or a portion of, your house closing costs.  A 3% reduction doubles the amount of house closing costs that have to come out of the buyer’s pocket; which is especially hard for first time home buyers.  This policy change goes into effect in the early summer.
4. Increase enforcement on FHA lenders

Click on the image above to see book details.

Buying your first home? Not sure what the difference is between a variable rate and a fixed rate mortgage? Do you understand the true cost of borrowing? Keep reading for 7 invaluable mortgage tips that are critical for any first time home buyer.

1. The bigger the down payment, the better.

The lower your down payment, the more you’re going to pay on a monthly basis. With a 5 percent down payment, for example, you’ll be expected to pay for mortgage insurance and will most likely be subject to higher interest rates. Most lenders like to see a down payment of at least 10-20 percent.

If there is any way you can squeeze that 20 percent down payment during the purchase process, you can literally save yourself tens of thousands of dollars over the life of the loan.

2. Good credit will save you money.

Lenders base your interest rate and your subsequent cost of borrowing heavily on your credit rating. If your credit is poor, you may be advised to wait a few years while you build your credit back up. The amount you save with a lower interest rate after rebuilding your credit could be tens of thousands of dollars over the life of the loan.

3. Remember the house closing costs.

Every mortgage has hidden costs associated with it, from legal fees to home inspections to bank’s house closing costs. Before you commit to any mortgage, remember to ask about all the house closing costs. You don’t want a $5000 surprise on closing day.

4. Get pre-approved.

While pre-approval can sometimes be more difficult, you can also save yourself a lot of unnecessary headaches. Essentially, you apply to the bank for a potential mortgage up to a certain amount. From there, you have a clear idea of your budget as you search for houses, and you can consequently make an offer that won’t be dependent on potential financing.

Additionally, when a home seller knows that you are already pre-approved to borrow for the amount of their home, this lets him or her know that you are a more serious buyer and could gain you a few concessions during the negotiating.

5. Investigate FHA loans.

The Federal Housing Administration (FHA) offers free loan insurance to qualified buyers with a minimum 3 percent down payment. This insurance means you can get a better rate from lenders without having to pay for outside mortgage insurance. Typically, the FHA sets maximum limits that depend on your county and region, but are based on the median house price for that area.

6. Budget for home insurance and property taxes.

No lender will mortgage a home that has tax liens on it or isn’t properly insured. When laying out your home ownership budget, always remember to calculate the monthly cost for county property taxes and home insurance. Whether the lender collects amounts from you monthly to cover these fees or you pay them directly each year, these are inescapable expenses that must be accounted for in your budget.

7. Choose a reputable lender.

Don’t just accept the first mortgage offer you receive. Instead, look for a lender that’s stable, reputable and able to offer you quality customer service. A lending institution is one you will likely be dealing with for 30 years, so finding one with a stable history and good reputation should be a high priority.

house closing costs

A good way to be prepared for the house closing is to ask for a good faith estimate (GFE) once your application is in. By law, lenders have to tell you what they estimate house closing costs will be, as well as your annual percentage rate (APR) within three days of your applications submission. Subsequent negotiations and adjustments will probably alter the cost slightly after the first application, but you still have a right to know how much it will cost.

First Time Home Buyers May Have Fewer Choices

Most lenders have at least a couple of different options for fee payment. Some institutions offer a “no cost” loan that allows you to purchase a home with little or no out-of-pocket cost, which is attractive to first-time buyers. Be warned that you will have a higher interest rate than the average mortgage borrower. You also have the option to put more money down through buying points and therefore lower your interest rate. Shopping around for the best rate is ideal if you have the leisure time and resources, but many first-time home buyers are more concerned with coming up with house closing costs. Discussing options in detail with your lender will provide you with the most valuable information.

Educate Yourself in the Purchase Process

Lenders may charge a one percent origination fee in addition to a processing fee. This processing fee can range from a few hundred to thousands of dollars. If you are using a mortgage broker, there will also be bank fees. Some of these bank fees include items like an underwriting fee or a “doc prep” fee, and usually runs between $600 and $995. When your lender gives you a GFE, it will have title fees and appraisal costs itemized as well. These fees will vary directly depending on the loan amount, and are usually between $1,000 and $2,000. An appraisal fee starts at $350. With the number of varying factors at play when purchasing a home, getting a GFE from your loan officer is essential to the process.

Tax, Prepaid Interest and Insurance Payments are Placed into an Escrow Account

Financing fees are only one part of the house closing costs. To make sure you get funding for your home purchase, you must have proof of insurance as well as one year’s worth of insurance premiums. In this way you will have secured your investment along with the banks. Tax on your new home and any prorated interest will be tacked onto the house closing costs.

Just to repeat, make sure that you are on top of all the house closing costs, so that there won’t be any embarrassing surprises at your house closing.

house closing costs

Often, people have heard of THDA and are confused, thinking that THDA is a certain loan type. In fact, it’s lending agency. All THDA mortgages must be insured by private mortgage insurance, FHA, VA or RECD And as these loans are intended for low to moderate income families or individuals, there is a income limit and acquisition cost limit. Also, you must be a first time homebuyer unless your home is in a targeted area.

Why is THDA so fantastic for a first time homebuyer? Well, it comes down to money. THDA offers a below market rate and will allow up to 100% financing. Have you been reading the papers lately? It’s not so easy to find 100% financing these days. Unless, that is, you’re a first time homebuyer. It also has programs that allow for down payment assistance via grants from certain approved agencies (if your loan type requires a down payment). If you have satisfactory credit and the home you wish to buy meets THDA’s standards, then you’re in business.

All THDA mortgages are 30 year fixed rate loans, so you needn’t worry about finding yourself with an ARM loan (adjustable rate mortgage) and a new payment you can’t afford in 3 years. And THDA allows lenders to only charge customers a standard 1% origination and .25% discount fee. It also closely monitors fees associated with the loan. THDA really looks out for the best interest of the first time homebuyer. If you are eligible for a THDA loan, you can feel pretty certain that an unscrupulous lender can’t take advantage of you because THDA won’t let them. For so many people, buying a home is pretty intimidating. THDA takes away the uncertainties a buyer faces with its guidelines and lending practices.

If you do apply for a THDA loan, be prepared to document your credit worthiness. THDA loans require slightly more documentation than your average loans because of the uniqueness of its product. In order to offer more, THDA asks for more – ensuring you qualify for its pretty awesome program. Sounds like a fair trade, if you ask me.

What are the disadvantages of a THDA loan? Not many. They do have a federal recapture tax if you sell your home within the first nine years of owning it. But it sounds scarier than it really is. I’ve heard that only about 1% of THDA customers actually pay this tax. That’s because a bunch of really great things have to happen to you in order for it to actually apply to you. And if those great things happen to you, paying the recapture tax won’t matter much to you anyway. I’ve been in the business for 16 years and have only heard of one person actually having to pay one. He graduated from medical school and his income when through the roof. His property was sold above market value than for the area because it was adjacent to some property that a huge retailer wanted to purchase. Again, good things have to happen to pay the recapture tax. So, you shouldn’t be afraid of it.

More people need to hear about and take advantage of the THDA loan programs. It’s such a great product and really helps the community and the housing industry. If you’re a first time homebuyer or think you’re in a targeted area, make sure you ask about THDA to see if you would qualify for a loan. You won’t regret it!

House Closing

Just out of school and considering buying your first home? You’ll be surprised how easy it can be to qualify for a loan. Too often, the newly minted workforce doesn’t realize the confidence lenders have in their ability to be responsible homeowners.

Ok, so Mom and Dad told you that you need to buy a house. You’ve graduated from college and you’re earning a decent income. Even though you don’t feel like it most of the time, you are officially all grown up. But you ask yourself, “I’m only twenty-four years old, who would possibly loan me money to buy a house?”

First time homebuyer programs are established with flexible guidelines to attract – you guessed it -first time homebuyers! You are in a great position to buy a home provided you have established some history of decent credit. Even if you don’t have traditional lines of credit to show for yourself, you may have established non-traditional credit and not even realized it. Do you have utilities, a cell phone and cable bill in your name? Have you paid them on time for 12 months? Then you have established non-traditional credit. Granted, many of you already have a credit card or gas card in your name. That’s why Dad wanted your name on it, too. Good thinking on his part. At the time, you were just excited to get the credit card “for emergencies.” It didn’t even occur to you that you were establishing a good credit history.

Most lenders want to see at least a year under your belt earning income. The majority of new job workers are making at or under the median income limit for their area. There are those that beat the curve, but then, if you’re making that much money on your first job, you don’t need a first time homebuyer program. You can probably take another route to your first home. Also, recent graduates can get credit for having a diploma. If you have a diploma and an employer who is willing to verify that you earn what you say and are likely to continue on with them, then you’re good to go -even without a year’s employment history to show for yourself.

Some lending programs ask that a borrower have maintained an excellent rental history, preferably a two year history. But, you don’t get penalized if you have been living at home. Especially, if home is in the same city that your school is located. You are simply asked to provide explanation as to how you managed to live rent free. Sometimes, Mom and Dad have to provide a written statement. They’re probably willing to do that to get you out of the house and off the payroll.

What about a down payment and house closing costs? Most programs will allow a seller to chip in 3% of the sales price toward your house closing costs. This allowance can cover most if not all of your house closing costs. Your Realtor simply needs to be aware that you need this concession so she/he can negotiate it with your purchase contract. And how much do you have to come up with for a down payment? How about $0? Nearly all first time homebuyer programs are designed for empty pocket consumers with potential to earn more and maintain good credit. Some programs don’t require you to have any reserves in the bank. Since so many first time homebuyers live on a budget, these programs allow for the reality of life. And you can be rewarded for being a conscientious consumer with lower than average interest rates being available to you.

You may be ready to buy your first home and not even know it. A good mortgage specialist will pre-qualify you, find out what you can afford or what your comfortable paying. Then, you just have to find the right home. It’s easier than you think!

House Closing Costs

With the current “mortgage meltdown” we hear so much about these days, your average consumer thinks that the days of 100% financing have gone by the wayside. True, you are hard pressed these days to find a bank or lender that will want to carry a second mortgage that combined with a first mortgage adds up to 100% financing. That’s because if there is a default, sitting in second lien position is particularly dicey. Too much risk is involved. And since, in recent history, that scenario of the 80/20 combo was the most common 100% financing vehicle available to a certain group of consumers (non first time homebuyers), there’s a misconception out there that 100% options are all but dried up.

But, a-ha! There is hope for someone who has great credit but prefers to invest his/her assets elsewhere when rates are so low. It’s called the Flex 100. And it can apply to purchases and refinance transactions.

I heard an analyst mention on television the other day that mortgage money is so cheap right now it’s like a sale at Macy’s. That made me chuckle, but it’s true. In which case, why not invest your money elsewhere if you qualify for 100% financing. After all, the homes are still appreciating in most areas, but not at the stellar rate we saw in the past.

The Flex 100 requires you to invest $500 of your own cash towards the transaction, so I guess it’s technically not 100% financing, but it’s pretty darn close. And no, you don’t have to be buying your first home to get this deal. You can actually have owned a home in the past three years! However, it does apply to financing your primary residence only. You can’t get this deal for that nice cabin in Gatlinburg you want to use on the weekends or for that great rental down the street you think you can get a good deal on. You’ve got to live in the house to qualify for this financing.

But you can do a refinance, as long as it’s not a “cash-out,” meaning you’re not paying off debt or taking equity out of the property. It must be a rate term refinance only. However, you can pay off that second mortgage or home equity line of credit you hate, IF you obtained that 2nd lien mortgage when you got your first mortgage (a piggy back closing, we call it). Or to make it clearer, you originally had that 80/20 combo mentioned earlier. If you got that home equity mortgage a month or two after your initial closing to build a deck or payoff a credit card, than it that won’t work for a Flex 100 refinance.

What about your credit score? Well, it will affect the price you get, but there is no “minimum” credit score required for this program. You just have to get an approval through the automated underwriting system required. But be realistic – if you’ve got “iffy” credit, you probably won’t get an approval. A borrower with a credit score below a 620 would probably have to have a low loan to value or debt to income ratio for a chance of an approval.

A Flex 100 may or may not make sense for you. But hey, at least you know it’s an option. Your lender should be able to help you determine if this opportunity to flex your mortgage muscle makes sense for you.

Closing On Your Home

Most of the people who read this column are not first time homebuyers. The fact of the matter is many of you that are first time homebuyers and reading this article are relatively mature individuals who are fighting off your commitment fears of being tied to a mortgage. But there is a huge segment of the population that could buy their first home, yet it doesn’t occur to them to do so. Who are these people? Well, it’s your 24 year old son or daughter, new to the work force, and is throwing away money on rent somewhere. Encouraging your children to buy a home when they are young is some of the soundest financial advice you can give them. Equity in a home is an easy way to grow one’s portfolio with very little investment. But the fact of the matter is it doesn’t occur to most of us to encourage the younger generation to buy early in their lives. And trust me, it rarely occurs to our kids themselves to consider buying a home in the early twenties. They are more concerned with buying a new Halo 3 for their Xbox.

Why do so many people miss the boat on this opportunity? It could be they plan to be in the area for only a short time because they will job hop to advance their career, thus viewing a mortgage as “too permanent.” I counter to simply sell the house when you move. Or maybe they expect their income to double or triple over the next three years. I say buy a home now, then upgrade to a new home; sell or rent the old house. Investing in real estate is a proven, safe and solid return on investment. And with the right combination of credit history (or a history of paying utilities, cable and your cell phone on time) and no money down, you or someone you care about can start investing in the future.

When Junior starts his new job at the company and 401(K) is available, he’s been informed by his folks, boss or peers to enroll and contribute at least a little something to it with every paycheck. Yet, he is rarely counseled quit renting that apartment for $750 a month and buy a $75,000 house. Where will he come up with the money to do it? There are multiple options for first time buyers that allow for 100% financing. Get the seller to kick in house closing costs (up to 6% of sales price with some products), and one can close on a loan and bring no funds to the table. If your home value appreciates 4% in the next year, that’s a nice return on a no cash investment.

For some time, I’ve considered writing this series for first time buyers to let them know buying a home is easier than they think. But, the more I thought about it, the more I realized the advice I would offer would most likely not reach my target audience. So parents, it is up to you to supply your kids with this last little bit of advice and help to set them free to further establish their independence in this world. Clip this article out and tape it to their iPOD or the steering wheel of their car – someplace it will get noticed.

I think for most of us who have been through the experience, our first home buy was a very daunting experience. There are so many choices and unknowns – it can be overwhelming. In this series, I will try to break it down the process into small logical steps and make it easier understand the steps involved in financing your first home. Where do you start? That is perhaps the easiest part. Our newly established worker should first make a list of all his or her debt obligations such as student loans (unless deferred), car payments, credit card debt, etc. Hopefully at this age, this will be a small list. Then add what you think amount you could afford for a mortgage. Take that amount and divide it by your gross monthly income. If you come in at 43% or less, you’re in business. If you have something in your savings or checking – great. If not, don’t let it deter you. You have options.

Contact a mortgage specialist to drill out the details and find a good realtor who knows your market for housing you can afford.

Closing On Your Home