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Archive for the ‘home loan’ Category

What are Prepayment Penalties?

Whether you’ve recently applied for a mortgage loan or are considering doing so, it’s important to familiarize yourself with prepayment penalties. Prepayment penalties are exactly as they sound; they are penalty fees charged to the borrower for paying off their loan before a certain time period. Generally speaking, the penalties are six months of interest payments, although this varies depending on the lender.

Do all Lenders Charge Prepayment Penalties?

Not all lenders charge prepayment penalties, which is why you’ll want to ask your lender if they do charge these fees, and if so, what the costs are and how they are calculated. NOLA Lending for example, does not generally write loans with prepayment penalties and explains to borrowers how these penalty fees are not a concern on most conventional and government loans.

If there are prepayment penalties however, the lender only charges the penalties if the loan is paid off before the sixth year, more specifically, in the second or third years. The penalties are designed to recoup some of the losses the lender may be faced with since the lender didn’t have time to make up for some of the costs it advanced.

Types of Prepayment Penalties

Prepayment penalties can be “hard” or “soft”. When the prepayment penalty is hard, that means that the fees will be assessed because the homeowner is selling or refinancing the home before the time period is met. When the prepayment penalty is soft, that means that the penalty is forgiven due to other circumstances.

Nevertheless, prepayment penalties can be expensive. Take a $200,000 mortgage loan for example. If you choose to pay off this amount in two to three years, you could be hit with six months of interest at 6 percent, which would come out to an additional $6,000 of penalty fees. Essentially, these fees are what deter homeowners from paying off their loans too soon and therefore, give lenders the time they need to regain their losses.

Final Thoughts

No matter the case, it’s always important to discuss prepayment penalties with your lender before signing. These penalties should never come as a surprise to the borrower and should be detailed in such documents as the Good Faith Estimate and Federal Truth in Lending. If you have an excellent credit score and are being told by your lender that you will have a prepayment penalty, be sure to get another opinion from a trusted lender.

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Many people have heard the phrase “jumbo mortgage” and most likely know that it refers to a really large loan.  But did you know that some houses in your neighborhood may require a jumbo mortgage and do you know what the loan limits currently are?

So how exactly do lenders define what qualifies as a jumbo mortgage? Actually it’s the government that sets this designation for loan amounts higher than what is considered a “conventional” or “conforming” loan.  This means that, as of 2011, any amount borrowed over $417,000 in most states and $625,500 in some areas where property values are higher, including Hawaii, Alaska and California is a jumbo mortgage.

Considerations for jumbo mortgages

Keep in mind that a jumbo mortgage is not always given to those who can afford to make the payments on it. This is because there is a significantly higher amount of money going out to pay for this type of home mortgage , the risks are higher to the lender. This leads to limitations on who will purchase these loans.

If you want to obtain a jumbo mortgage, it is a good idea to invest in it only if you are confident you can qualify. There are often more limitations on things like the following:

1. The interest rate is likely to be higher than that of a conforming loan. There is more risk and therefore that means a higher cost to the borrower in the form of interest.
2. Most lenders require at least, if not significantly more than, 20 percent of a down payment. The higher the down payment, the more likely the lender will provide the loan to you. In fact, it is best for borrowers to put down enough to keep the loan under the jumbo mortgage rate if possible.
3. Because of the high foreclosure rate for homes of this value, many lenders have restricted lending for these types of purchases. Finding a lender who is willing to provide you with this type of loan can be limiting.
4. Limitations to the property.  Jumbo loans are often used for larger homes and estates – but those can often be difficult to establish a market value for, especially if the home is somewhat unique or there is a lack of comparable sales.

A jumbo mortgage is a good option if you have no risk of losing your job or not having the money necessary to purchase the home. Keep in mind that your mortgage payment, interest and the terms for these loans vary just as they will vary for any other type of mortgage loan. Comparing interest rates is also very important for those individuals who plan to obtain a jumbo mortgage. If you want to buy a home, and the value is high, find out from your mortgage lender what you need to do to qualify.

A second mortgage is a second loan taken on a home where a current mortgage is in place behind your first mortgage. This type of loan is commonly called a home equity loan.

To get one, you need to have equity in your home, which means you need to have a home where the value of the property is higher than the amount of money you owe on the home through your current mortgage. If you have this, you may be able to qualify for a second loan.

How do you get a 2^nd mortgage?

Here is a quick explanation of how a second mortgage works. If you own a home that is appraised at $200,000, for example, and you currently have a mortgage on the home where you still owe $140,000, you have up to $60,000 worth of equity in your home. You may potentially be able to borrow from that $60,000 through a second mortgage.

Here are some facts about these loans:

• This is a second secured mortgage. If you default on this second loan, you could lose your home because of doing so.
• You can use the money from a secured loan for anything you need to, including consolidating debt, doing home improvement or even taking a dream vacation. However, keep in mind that you are putting your home under more debt to do so.
• The interest rate on a second mortgage is generally lower than on unsecured loans, such as credit cards and personal loans. The repayment terms are often affordable. It is because of these factors that many people turn to second mortgages instead of getting a credit card out to make that expensive purchase.
• You will need to qualify as you would any other loan. You will need to have a high credit score and have the income available to repay your loan. If you are not employed or have a low credit score, you may not qualify for the loan.
• Most lenders will not give you a loan that would put you at 100 percent of your home’s value. Some lenders require 20 percent of the home’s value to remain in place.

For many people, a second mortgage is an ideal way for you to invest. However, there are limitations and risks. Before borrowing, be sure you are getting the best loan available, with the lowest interest rates. You may also want to consider your ability to repay the loan in a timely fashion as a default on a 2^nd mortgage can lead to foreclosure even if you stay current on your first mortgage!

Find out if you qualify for a 2^nd mortgage by completing our Quick Online Application today!