Posts Tagged ‘Lenders’

While many people have come to regret buying too much home when the foreclosure process started, no one regrets saving their money. By biding their time and trading up safely and securely as their needs and ability to pay higher mortgage payments increased homeowners can protect their finances and lead fuller more rewarding lives.

Before you fill out the real estate forms to get a mortgage, and especially before you start shopping for a home, you need to calculate how much you can really afford in monthly mortgage payments. If you don’t know this information you can put yourself in serious financial jeopardy, or at the least, let yourself in for serious disappointment when you find out you just cannot afford the houses you’ve been looking at.

To calculate the amount your can safely afford to spend on your home loan you need to know three numbers. Your monthly income, the total amount of debt you currently carry, and the percentage of your income you can safely commit to housing.

Lenders are going to look at your debt-to-income ratio. The percentage of your monthly income consumed by all of the debt that you carry is your debt-to-income ratio. If you have an income of $4,000 per month, and $400 in monthly payments on outstanding debt, your debt-to-income ratio would be 10%. Lenders will not want to see this ratio, including the new mortgage loan you are applying for rise above 36% in general. Some areas with higher housing costs, and some special types of mortgage loans will allow for higher ratios than this.

Another important number is the percentage of your monthly income spent on housing costs. The most common number used to benchmark this is 28%, though the  acceptable level will also vary by location and local housing markets and trends. Exceeding either of these numbers can be dangerous for you as a homeowner. If you sign legal documents for a loan that extends your debt-to-income ratio to a higher number and then something happens such as rising interest rates that take the ratio even higher, you could have difficulty making the payments. Likewise, you may have a low debt ratio and try to finance a larger mortgage taking up a larger portion of your income. But then if your situation changes and you need to take on more debt for another large purchase such as replacing a family car, you might have a hard time paying for it.

Buying real state properties could be the one amongst your most important investments. Purchasing real state properties in San Mateo (California) is very exciting but for making quick and better decisions you should be well prepared of all the real estate buying aspects. It pays to get your-self acquainted with the major steps involved in purchase of any real state properties in (California). Purchasing or buying real estate properties in San Mateo can be a complex procedure where several important, legal, financial details are required. A close study and a deep understanding can help in having better real estate buying experiences in California CA.

Here are some of the important guidelines to know before you purchase any residential or commercial properties in San Mateo Real Estate California CA

Step 1: The prime and first stride is to figure out your purchasing power and decide how much you can afford to pay. This saves your time by allowing you to focus on only specific price-range real estate properties. Verify your credit report to examine your credit worthiness and clear up problems if any before going to a lender. A good credit rating will result in receiving lower interest rates. The mortgage you get is largely dependent on your credit history, as all prospective lenders will have a look at your credit report before offering you any loans or mortgages.

Step 2: After that it is very essential to get pre-approved for a mortgage from a mortgage broker or lender, with an assurance to fund your mortgage in writing. Many people frequently avoid this step and choose to look out for real estate before getting a mortgage pre-approved. Moreover, you should examine potential lenders after you have your credit check. The lender like brokers, banks can check out your credit history, and give you an official letter stating how much of a mortgage you qualify for. In addition to this look out for several payment options and pre-payment options.

Step 3: Now it is very important to identify what you are looking for. It is very vital step to list down on paper what you actually want in your real state property. Prepare a list of all the specifications you want in your residential or commercial properties and prioritize them based on your requirements. Performing this exercise will really narrow down your search and will simplify your process when the time comes to truly go out for searching real estate properties.

Step 4: Now after you have recognized what you want in your real estate property, the next logical step is to get good real estate agent who can assist you in locating a property in a wanted location. Finding the right real estate agent or realtor can make easy for you to buy any real estate properties. A reputable real estate agent can assist you in having right residential or commercial properties, while focusing your likings and price range in mind.

Step 5: After viewing many San Mateo real estate properties, hopefully you may find some properties that you would like to consider more seriously. Now after your agent provides you with a list of properties that are reasonable and match your criteria, there are certain critical aspects of property that you have to be very sure like its structure, features or how much renovations may be needed and many more. Consider factors like safety, school districts, freeway access, recreational options, work commute time etc.

Step 6: When you and your San Mateo real estate agent finally derive to the conclusion to have a specific real estate property then you can make an offer. But before making an offer compare its price with other properties in the area. Get your real estate agent to evaluate the value of the property.

Your real estate agent should be actively involved in brokering the offer, as they can give advice you on a realistic offer that further optimize your chances of buying that property. Don’t get into any negotiations with that agent without the presence of your own agent and if all looks good, then write an offer.

Step 7: Once you have made the offer or the offer has been accepted, now you must confer with your San Mateo ca real estate agent to find out when real estate inspections should be handled. But this step is valid only when you make an offer on houses, townhouses, condominiums, and cottages.

Consult your real estate agent to obtain only professional inspections necessary to answer any questions you may have about the property. Some concerns may include: the condition of the roof, foundation, walls, ventilation, insulation etc. You should not close the deal until all home inspection has been completed.

Step 8: After you and seller have agreed to the deal, then plenty of administrative tasks need to be done in order to finalize the deal. You must try to reduce everything to Black and White so that there are least problems later on. However, in this step you should be focused and try o avoid any changes that can affect your mortgage payments. Also be sure to have a proper sale-deed if possible through a qualified or experienced document writer in the industry. The final sale-deed should be registered at the suitable local area office.

Moneyfacts has revealed the number of mortgage products offered by mortgage lenders for new borrowers is at its lowest value since the start of the credit crunch.

One year ago mortgage lenders offered 10,726 mortgage products to new borrowers; last Friday mortgage lenders offered only 3,281 according to the financial website Moneyfacts. In July last year when the market was buoyant mortgage lenders offered 13,027 offers to new borrowers and at much better rates currently available from mortgage lenders.

One of the mortgage lenders, Abbey has also confirmed that they won’t be passing on the Bank of England half point interest rate cut to borrowers meaning the interest rate on all Abbey’s tracker mortgages will remain the same unlike many other mortgage lenders. However if you mortgage is currently with Abbey your will automatically receive the rate cut. Other Mortgage lenders have also decided to leave their rates the same, including the now nationalised Northern Rock and Bradford & Bingley.

Potential new borrowers have welcomed the half percent rate cut to 4.5%, many expecting their mortgage lenders to cut the rates however as we have seen with Abbey and many others not all mortgage lenders are passing the savings onto their customers.

Mortgage lenders Lloyds TSB and Cheltenham and Gloucester, which Lloyds TSB owns, have announced new customers, will now require 25% deposits to secure new tracker mortgages as opposed to the previous 10% asked for by these mortgage lenders.

However it isn’t all bad news; many mortgage lenders have passed the FULL rate cut onto borrowers. These include the following mortgage lenders; Royal Bank of Scotland, NatWest, Lloyds TSB, Halifax, the Woolwich and First Direct. These mortgage lenders standard variable rates (SVR) will be reduced in the near future, shortly after the cut.

Very few mortgage holders have their repayments with mortgage lenders based on SVR however many find themselves paying this rate when their fixed-rate deal runs out to their mortgage lenders. Mortgage lenders transfer you onto this rate unless you sign up for a new fixed rate deal. SVR is more often than not the most expensive way to have a mortgage with mortgage lenders with repayments to mortgage lenders predicted to rise by as much as 10%.

Although the number of mortgage products offered by mortgage lenders is at their lowest, mortgage lenders are still offering competitive rates that can save you hundreds of pounds in repayments each year over current mortgage lenders. By planning ahead, first of all checking what rate your current mortgage lenders will charge you once your current rate ends and then by searching the market to see the offers available from other mortgage lenders; you can ensure you are getting the best rate for you. Using the services of a mortgage broker can save you time and most will search all mortgage lenders giving you whole market advice and allow you to make an informed decision and give you piece of mind to know you have chosen from the best mortgage lenders offers.

With the housing market in turmoil after the sub-prime mortgage crisis and the Federal bail-out of Freddie Mac and Fannie Mae, the basic requirements to receive a mortgage have tightened up. According to at least one real estate financier, to get a mortgage these days you”practically have to walk on water”. While this is a bit of an exaggeration, it is true that it’s far harder to qualify for a mortgage now than it was just two years ago. It’s not, however, any harder than it was before 2000, when the real estate market went into hyperdrive. According to many professionals in the credit industry, what we’re seeing is a return to the norm.

So exactly what do you need to get a mortgage these days? Says Patricia McClung, of mortgage giant Freddie Mac, creditors are getting back to the basic three C’s of mortgage lending – credit history, capacity and collateral. Here’s what you need to know about each of those three requirements, and how they’ll affect your ability to qualify for a mortgage in the current mortgage market.

Credit History – Do you pay your bills?

The first C in the mortgage triad is credit history – yours. While having a spotty credit history won’t make it impossible to get a mortgage, it will make it more difficult – and more expensive. Lenders are willing to offer far lower mortgage rates to those with the highest credit scores (760-850) than they’ll extend to those with lower credit scores. The difference can be astronomical. According to June 2008 figures, lenders were offering an average of 5.9% mortgage rates to those in the highest credit bracket. Those in the lowest bracket that Fannie Mae will accept (580-619) were being offered rates of 9.4%. On a $250,000 mortgage, that’s a difference in monthly payment of $588.

In order to be considered for a mortgage by most major lenders, you’ll need a credit score of at least 580, though you may still find some lenders willing to take a risk on someone with a lower credit score, particularly if they really shine in one of the other two C’s. The problem, of course, is figuring out exactly what constitutes a credit score of 580. There are many different barometers, and even the major credit reporting bureaus use different reporting criteria. Essentially, in order to qualify for a mortgage, you should have:

5. no missed or late payments on any credit or utility accounts for at least the preceding 12 months

6. a debt to income ratio of .45 or less

7. the legal ability to enter into a contract

8. no outstanding defaults on credit card or other loans

Capacity – Can you pay your mortgage?

In essence,”capacity” simply means ‘do you earn enough to make the payments on the mortgage you are asking for?’ The typical rule of thumb for deciding capacity is that your mortgage payment should be no more than 28% of your monthly gross income. The debt to income ratio referred to above is another way of determining capacity to pay. Follow these steps to calculate your debt to income ratio:

Add up all your sources of income (before taxes) for the month.
Add up your monthly debt. Include all credit card payments and loan payments, including student loans and car loans. Add in your calculated housing costs, including mortgage, insurance, private mortgage insurance and property taxes.
Divide your debt by your income to get a debt to income ratio.

Over the past several years, the acceptable debt to income ratio has crept up as high as .65, but .45 seems to be the new golden number.

Capacity also can include your savings. Most lenders will require that you have the equivalent of six months housing costs in savings in order to approve your mortgage.

Collateral – What have you got?

The final C in the mortgage algorithm is collateral. In banking terms, collateral is something that you own that will be used to ‘secure’ the loan. When you make a secured loan like a mortgage, you are agreeing that if you fail to make payments as agreed upon, the lender can take possession of the collateral and sell it to recover their loan. With a mortgage, the house that you’re buying serves as collateral. If you don’t make the payments as required, the bank or lender may sell the house in order to get their money back.

The amount of the down payment you make is counted as part of the collateral value. While zero down mortgages were not unusual over the past several years, you can expect most lenders to require a down payment of at least five percent of the purchase price of the home. It’s more common for them to require fifteen to twenty percent down on your home. In general, if you put down less than twenty percent on your home, you will have to carry private mortgage insurance (PMI). PMI guarantees repayment of the mortgage if you should default on the mortgage.

Are you ready to buy that first home? Are you sure you’re ready to begin? Some would say you need to begin with finding the house you want to buy. But really there are steps you need to take as first time home buyers before you begin. Let’s say you’re planning a wedding, you don’t begin the process by picking a reception hall when you haven’t even popped the question! The same with buying a house. There are some steps you need to take before you pick the location.

Beginning Steps for First Time Home Buyers:

You need to find out how much you can afford. Can I qualify for a loan? Do I have enough money saved for a down payment? What type of loan programs are out there? Which one is best for me? Do I need a bank or a broker?

Step One:

In order to figure how much you can afford you need to take a look at your income and expenses. Do you have enough left over at the end of the month to make a mortgage payment? If you’re renting you probably already have a certain amount of money budgeted. Will that amount buy you the size home you want? There are mortgage calculators out there that will help you estimate how much you can spend.

Step Two:

The first thing in qualifying for a loan is your credit rating. You may need to get a credit report pulled. Most lenders use the middle score to figure your credit rating. They get this figure by taking the credit score from all three credit reporting agencies and picking the middle one. If your credit score is too low, then you have some work to do before you go looking for that new home.

The second thing in qualifying for a loan is the ability to pay it back. So your debt-to-income (DTI) reflects whether you are a good risk or not. If you’re expenses are higher than your income, you need to lower those first.

Step Three:

Now you need to look at your savings account. Do you have enough money saved for the down payment? If not, then you may need to consider down payment assistance or grants to help you. Or perhaps you may need to set up a savings plan to help you save for that down payment.

Step Four:

It’s a good idea for first time home buyers to be educated on the different types of loan programs out there to see which one is a good fit for you. There are programs that have low down payments, ones that are best for buying in suburban areas, ones that have low interest, and many more. It never hurts to be educated.

Step Five:

You will have to make a decision on who you’re going to use to process the loan. You may wish to go to your bank and have them start the application process. Or you may wish to pick a broker. There are pros and cons to both, so spend some time learning the pros and cons so you can make your decision.

Now you’re ready to propose marriage!!! But before you buy that ring, know your rights. First time home buyers should understand things like Fair Housing, Real Estate Settlement Procedures Act (RESPA), Predatory lending and what the borrower’s rights are before they initiate their search.

Once you’re really engaged, I mean have all these steps in place, then you can begin looking for that first home. You’ll be happy you did all this planning ahead of time.

Jeffrey Ragan wants to help you get into your first home by offering a free buyers guide and other helpful informatin on their website, First-Time-Home-Buyer-Solutions.com.

There are both advantages and disadvantages to adjustable rate mortgages. Your lender may be pushing an adjustable rate mortgage for any number of reasons, including that they are more profitable for the lending company. If you only look at the advantages of an adjustable rate mortgage, they can sound pretty good. You start with a lower interest rate, which means lower monthly payments. Because of the lower payments and rate, you may be able to afford a larger mortgage. Your lender may be pitching it as a way to buy a bigger house than you could otherwise afford, or suggest that it’s a good way to get into the housing market. Most commonly, the lender may suggest that you should take the adjustable rate mortgage for now, and refinance later when the rates adjust up.

While all of these things are true, there are also cons to an adjustable rate mortgage. It’s important that you consider both sides of the issue before making a decision on the type of mortgage that you want to take out.

What an adjustable rate mortgage is

Unlike a fixed mortgage, which comes with a specific interest rate that remains the same for the life of the loan, an adjustable rate mortgage (ARM) has an interest rate that fluctuates according to a specified index. Your adjustable rate may be tied to the interest rate on Treasury Bonds, to the Consumer Price Index or to a number of other indicators. If that index rises, your interest rate – and your monthly payment – will rise. If it drops, so will your interest rate and monthly payment.

Why adjustable rate mortgages can be attractive

When lenders approve a fixed rate mortgage, they are placing a finite limit on the amount of money they’ll make from that mortgage. An adjustable rate mortgage offers the lender the possibility of making more money if interest rates rise over the life of the loan – which is a good possibility. To offset the limit on fixed rate mortgages and make adjustable rate mortgages more attractive to home buyers, lenders typically offer lower interest rates on adjustable rate mortgages than they do on fixed rate mortgages. In essence, they are offering borrowers a more attractive rate in return for assuming the risk that their mortgage rate and monthly payment will rise over the term of the loan.

The down side of adjustable rate mortgages

When looked at in that light, some of the cons of an adjustable rate mortgage become obvious.

1. Interest rates can go up, raising monthly payments as well.

Most borrowers understand and accept that their monthly mortgage payment may rise, but are willing to take the chance that their mortgage will continue to remain affordable. It’s important to know the caps on interest rate rises by which your lender is bound. When you shop around for the best adjustable mortgage, it’s important to look further than the initial interest rate so that you understand exactly what expenses you may be agreeing to.

2. Over time, payments nearly always surpass the payments on a fixed rate loan for the same amount.

If you’re planning to stay in your home for the long haul, this can be an important consideration. Depending on the specific loan agreement that you make, it may be several years before the interest rate and monthly payment reach and surpass the monthly payment for a fixed mortgage. If you’re only planning to stay in your new home for a few years, this can work to your advantage, because you’ll be paying lower monthly payments for most of that time. If, on the other hand, this is your dream home where you plan to live the rest of your life, a fixed rate mortgage is probably more economical.

3. Fluctuating payments can make it difficult for you to make a budget.

While many ARMs only adjust once a year, some may adjust as often as once a month. More frequent adjustments can make it very difficult to fit your monthly mortgage payment into your budget because you will only know what your next month’s payment will be when you receive your notice. Even in the longer term, a fluctuating mortgage payment can make it difficult for you to plan long-term savings and investments.

4. If fixed rate mortgages become favorable enough that you decide to switch, you’ll have to refinance and incur the costs and fees related to refinancing your mortgage.

5. The annual interest cap may not apply to the first interest adjustment, and it may be a big one.

Many lenders offer very low initial interest rates on ARMs to attract first time home buyers. Often, these mortgages exempt the first increase from the annual cap on adjustments. This can be especially difficult if the ARM was one of the hybrids that offered a low fixed rate for one to five years, with a jump to market interest rates at the end of the specified period. When that happens, your monthly mortgage payment can suddenly rise by hundreds or even more than a thousand dollars.

So what does your credit have to do with buying a home? Everything. In thinking about the relationship that these two things have we must look at why it is necessary to have a good handle on your financial picture before you even think about purchasing a home. Not too many people have the luxury of simply paying cash for a home, the reality of the situation is that a mortgage of some kind is usually necessary. In order to get a mortgage or at least one that has favorable terms and a decent interest rate a person must have respectable credit. Now, living in today’s world it can be fairly easy to tarnish your credit, a missed payment or two or even sometimes things that you were not aware of can decrease your chances of getting a decent loan.

Long before you start the process of shopping for a home your should be getting ready to shop for a mortgage. The first step of this process is finding out what kind of credit picture you are dealing with and being ready to make changes if necessary. Now, if there are any items of concern on your credit report you should go ahead and get those taken care of. Outstanding debts will end up costing you in the long run so take care of them now and make sure that they get deleted from your report when they have been paid out. If your credit situation is bleak then seek some financial guidance. There are quite a few banks and institutions that can help you to repair your credit.

Once credit is no longer an issue go ahead and start shopping for a mortgage. Now this is a step that anyone should be extremely careful with. As you may have heard or seen, there are some really underhanded lenders operating in this country and they seem to like nothing more than absconding with a borrower’s money never to be seen again. So take the time to search out a lender with good standing and reputation within the community. Also check with the BBB and the Chamber Of Commerce. If a company is a member in good standing with both organizations then it is likely safe to trust them as a lender.

The last thing you will have to decide before searching for your home is what kind of mortgage to get. Be wary of deals that seem too good to be true, they often are. The standard loan is a fixed rate amortized loan for approximately 30 years but there are loans that span longer or shorter periods of time depending on your payment ability. Fixed-rate mortgages are generally the best type to get as they offer stability of payments and the interest rate does not change. With variable-rate loans if there is a sudden spike in interest rates you can find your payments climbing higher than your ability to pay. Just take the time to research all your options and don’t be afraid to ask questions!

With so many different types of mortgage available, it’s difficult to determine the right one for you. Before you start looking at available mortgages, however, it’s important to first evaluate your finances, as your financial situation is an important factor that will dictate the type of loan you need, and how much you can afford to borrow.

Step One: Evaluating Your Finances

Before you even think about the type of mortgage you should obtain, it’s important to evaluate your financial situation. Check your credit rating and FICO score, evaluate your income and debt level, figure out the size of the down payment you can afford, and determine how much mortgage you can afford and what your credit rating will allow you access to.

When it comes to your credit rating, know that between 620 and 699, you’ll probably pay a higher interest rate than if your credit rating is over 700, due to a slightly higher perceived risk on the part of lenders. If your credit rating is below 620, you may find it’s better to wait and improve your credit rating rather than be forced into a sub-prime mortgage with a high interest rate.

Step Two: Choosing the Best Mortgage

Once you have completed an evaluation of your financial situation, you’re ready to start thinking about the kind of mortgage you want. The mortgage that best suits you will depend on a long list of factors, not all of which are related to the amount of money you have for a mortgage. Think not only about how much mortgage you can afford, but also your credit rating, how long you plan to stay in the home, and whether you think your plans or financial situation might change in the future.

So what are your main mortgage options?

Fixed rate mortgage

Normally a 10, 15, or 30-year mortgage, you pay the same interest rate over the life of the loan.

Good for: If you like the security of paying the same amount every month and you’re planning on owning the home long-term, this is definitely the best option. There are some variations on this theme, including jumbo mortgages, which are larger-than-standard loans with a slightly higher interest rate.

Adjustable rate mortgage

These are mortgages with adjustable interest rates, which come in several different varieties. When you first get an adjustable rate mortgage the interest rate is lower than that you’d get with a fixed rate mortgage. However, at intervals, the interest rate can increase or decrease according to current market rates. This means your monthly repayments aren’t fixed, so these types of mortgages are more risky in comparison to fixed rate mortgages.

Good for: If you want a mortgage with an initial low rate and you’re prepared to take a risk on later rates (or you only plan to own the home for a few years), this may be a good prospect.

Interest-only mortgage

The standard type of mortgage is amortized, meaning your monthly repayments include both principal and interest. An interest-only mortgage is just what its name suggests – your monthly repayments don’t have to include principal (but you can pay off principal amounts at any time). This means you are not building up equity in your home while you’re only paying interest, but there are no pre-payment penalties.

Good for: This type of loan can work well if your income is at a consistent level overall but is subject to highs and lows, since you can pay off extra principal when you can afford to do so, and pay interest only when your income is at a lower level.

Balloon mortgage

This type of mortgage has a fixed interest rate and stable repayments over the life of the loan, with lower repayments in comparison to a fixed rate mortgage. However, the terms of the loan are generally short, with three, five, and seven years being the most common options. At the end of this time period, the entire balance of the loan is due. The final payment is typically very large, so a balloon mortgage is one which shouldn’t be taken lightly.

Good for: This type of mortgage can be a good option if you plan to stay in the home long term, want to get your mortgage paid off quickly, or if know you can afford the balloon payment. Alternatively, a balloon mortgage can be useful if you know you’ll be moving or refinancing before the balloon payment is due.

30-due-in-7

For the first seven years of the mortgage you have a fixed interest rate which is generally lower than that of a standard fixed rate mortgage. In the eighth year of the mortgage, the interest rate changes to be in line with whatever the current rate is at that time. For the remaining 22 years of the mortgage, the interest rate stays fixed at that rate. Another option is a 30-due-in-5 mortgage, where the interest rate changes in the sixth year.

Good for: These mortgages can be a good option if you’re planning to stay in the house for more than five or ten years and you are willing to risk the possibility that your monthly payments may change substantially when the second interest rate is due.

Congress is considering a mortgage lending bailout, but most Americans agree its the wrong approach by a 2-1 margin. The housing market is adjusting to an oversupply of housing stock and the failure of some high risk borrowers to meet their mortgage agreements. After years of steady growth in housing prices and a historic expansion of homeownership, a market correction is to be expected. Rather than aiding the situation, government intervention would distort the natural correction and prolong the uncertainty and turmoil in the housing market. Americans understand this and believe that individual homeowners and lenders will need to adjust to market realities, according to a newly released Public Opinion Strategies poll. Between October 18 and 21, 1000 likely voters were questioned over their opinions on the mortgage crisis. With a margin of error of 3.1 percent., 90 percent of those surveyed viewed sub-prime mortgages as a serious crisis, but only 31 percent of respondents believed the federal government should get involved.

APR – This stands for Annual Percentage Rate. It enables you to compare the full cost of the mortgage. Rather than just being an interest rate, it includes up front and ongoing costs of taking out a mortgage. The formula for calculating APR is set by Government Regulations and therefore enables direct comparison of the cost of mortgages.

Capital and Interest Mortgage – This is when part of your monthly payment contributes to paying off the outstanding mortgage in addition to paying the interest on the mortgage. The payments are structured so that at the end of the term, your mortgage will have been completely paid off. For this reason this type of mortgage is also called a Repayment Mortgage.

Capped Rate – This is a mortgage where the lender agrees that the interest charged will never exceed a specific percentage. This deal lasts for a set period of years. After the set period, the rate usually reverts to the lenders standard variable rate. During the capped period, the interest charges can move up and down with the lenders interest rate – but cannot exceed the capped rate.

Cashback – An amount, either fixed or a percentage of a mortgage, which you can opt to receive when you complete your mortgage. The lender may well claw back this money through a higher interest rate.

CAT marks/standards – CAT stands for Fair Charges, Easy Access and decent Terms. They were created by the Government in an attempt to provide consumers with simple, clear financial products with straightforward, easy to understand terms. A CAT mortgage will have no arrangement fees, no redemption fees and will have interest calculated daily. It will also have a minimum loan of just £5000, offer you repayment flexibility and the mortgage should be portable should you move home. Finally, you will not have to buy the lender’s insurance products and there will be no penalties should you find yourself in arrears but can subsequently catch up.

Completion – This is end of the house buying process, when the funds are transferred and the keys are handed over. Happy moving!

Contract – A contract is a binding agreement between the buyer and seller. In the context of house buying, after the contract is signed by both the buyer and the seller it is then ‘exchanged’ between the respective solicitors for a set completion date. At that point, the contract is legally binding on both parties.

Conveyancing – This is the legal process in which property is bought and sold. You can do it yourself or hire a solicitor or specialised conveyancer to perform the tasks for you. The buying of a freehold is much less complicated than the buying of a leasehold.

Discounted Rate – This is where the lender makes a guaranteed reduction off the standard variable rate for an agreed period of time. After the discounted period ends, the mortgage usually moves to the lenders’ standard variable rate. Watch out for redemption penalties that overhang the initial discount period.

Early Redemption Charges – Redemption is when the borrower pays off the capital and the interest on the mortgage and thus owns the property outright. Early redemption fees are the charges incurred for paying off the mortgage early, either to buy the house outright, move or re-mortgage. Always ask about early redemption charges before you agree a mortgage.

Endowment – Endowments are life assurance policies with an investment element designed to pay off the outstanding capital on an interest-only mortgage. There are a few types of endowments, such as ‘with profits’, ‘unitised with profits’ and ‘unit-linked’. In the 1980s, these were sold by salesman who seemly suggested that these policies were “guaranteed” to pay off the mortgage at the end of the term. However, the investment returns on these policies have fallen to below what was previously considered to be the norm. Consequently, many policies are not worth what was originally forecast and may not fully repay the money borrowed at the end of the mortgages’ term.

Equity – In housing terminology, equity is the difference between the value of the property and the money owed on the property. So if the property is valued at £200,000 and you owe £150,000 on the mortgage, you have equity of £50,000. If you sold at that moment, you would receive £50,000. Should the value of the home be less than the mortgage outstanding then you have negative equity.

Freehold – Owning the freehold means that you own the total rights to the property and the land on which it is built.

HLC – This is the Higher Lending Charge (it was previously known as a Mortgage Indemnity Guarantee). It is levied by around three quarters of all lenders on clients who cannot afford to put down a deposit of 10% of the price of the property. In practice it is a type of insurance aimed at protecting the lender should you default on your mortgage when the value of your home is less than the capital you borrowed. The insurance only provides cover for the lender, not you, and typically costs £1,500.

Homebuyers Report – A property survey aimed at providing more information than a mortgage valuation but less information than a full structural survey. It will help the borrower to decide whether to purchase and help the lender to decide how much to lend.

Interest Only Mortgage – This is a mortgage where your monthly repayments only pay the interest on the mortgage. Therefore, at the end of the mortgage you still have to repay the full sum you borrowed. You are advised to have a separate investment vehicle into which you make payments aimed at building up a fund capable of paying off the mortgage capital at the end of the term. Typical investments include ISA’s, a pension or an endowment policy.

IFAs – Stands for Independent Financial Advisor. These advisors are regulated by the Financial Services Authority. To be classified as “independent” they have to be able to offer you the full range of products from all financial product providers. They are not entitled to describe themselves as “independent” if they can only offer products from a restricted panel of financial companies. A Financial Advisor can be one man band or work for very large companies. Before they make any recommendation, an IFA must carry out a detailed fact find so they fully understand your financial circumstances. They can then make their recommendations to suit your personal circumstances.

ISA – An ISA is an Individual Savings Account, which is a tax-free method of owning shares, building up a cash savings account or a life assurance policy. You can use an ISA to build up a capital sum to repay an interest only mortgage.

Leasehold – If your property is leasehold, ownership of the property reverts to the Freeholder at a set date. Many houses were originally sold on 999 year leases which means that 999 years after the initial date of the Leasehold, ownership of the property reverts to the Freeholder. Building in multiple occupation such as apartments, are always sold on a leasehold and usually have a much shorter leasehold period – 100 and 125 years is quite common. Often, with a block of apartments, the apartment owners individually own the leaseholds whilst a management company, in which they hold shares, owns the freehold. These days, however, leaseholders who live in the property have the legal right to buy their freehold under terms laid down by UK law.

Life Insurance – This can also be called Term Insurance or, when specifically linked to proprty purchase, as Mortgage Protection Insurance. It is designed to pay a tax free lump sum in the event of your death to enable your mortgage to be repaid in full. There are a number of variants such as Level Term Life Insurance and Decreasing Term Life Insurance. At the outset you take out insurance for the full sum you have borrowed from your mortgage lender and for the same number of years as you have agreed on your mortgage. These insurance policies do not have any investment or surrender value. The premiums are based on a number of factors – the main ones being the amount of cover you need, your age, health and how many years you want to be insured for.

Lock-In Period – This is the minimum period you have agreed to stay with the lender. Depending on the deal, it could be as low as six months up to the whole of the term. Should you wish to repay the mortgage or remortgage during the lock-in period, you will invariably have to pay redemption penalties. Always make sure you know how long you are locked in for with your mortgage.

LTV – Literally means Loan to Value. This is a measurement of the mortgage amount against the value of the property or the price that you are actually paying. A £157,500 mortgage on a property for which you paid £175,000 would be a LTV of 90%. Lenders tend to charge a Mortgage Indemnity Premium on mortgages with a loan to value of anything about 75%. Some don’t so ask about this.

MIG – This has now changed its name to HLC. See above.

Mortgage – A mortgage is a long-term loan taken out in order to buy a property with repayment secured on that property. So if you don’t keep to the repayment terms, the lender can repossess the property, sell it and retain the money they are owed. Any balance is then paid to you. If the property is sold for less than you owe your lender, you still remain liable to repay the shortfall.

Mortgage Advisor - On October 31st 2004 the selling of mortgages in the UK came under the remit of the City watchdog, The Financial Services Authority (FSA). As from that date any person providing mortgage advice had to be registered with the FSA and abide by its rules of conduct, methods of operating and training programmes etc. The objective has been to improve life for the consumer by offering better protection, clear information and access to redress for poor advice.

Negative Equity – Negative equity is when the value of your home is less than the amount that you owe on your mortgage plus any other loans secured against it. It can happen very easily if you take out a 100% mortgage or if property prices fall. (Also see Higher Lending Charge)

Portable – This is a measure of how easy it is to move a mortgage from one property to another should a property move be required. This is vital if you are moving during your lock-in-period and wish to avoid redemption penalties.

Repayment Mortgage - This is the same as a Capital and Interest mortgage – see above.

Searches – During the conveyancing process, the buyer has to be sure that the seller has title to the property and identify any matters may affect the prospective owners ownership of the property. For example, whether the property is affected by any proposed road building, whether there are preservation orders affecting the property, is it a listed building and has it been built in accordance with planning conditions and building regulations. Searches will also show whether there are mines under or close by the property. This information is obtained by the person undertaking the conveyancing from HM Land Registry and the relevant Local Authority. These investigations are collectively known as “Searches”.

Self-Certification – Should you have difficulty in providing documentation that “proves” your income to a prospective mortgage lender, you may need a self-certification mortgage. In essence you personally certify what your full income is. If you receive high bonuses, or work seasonally or on commission, or are self-employed this may be your best option. You declare your income plus some evidence that your declaration is reasonable. Ideally lenders want to see as much guaranteed income as possible. To compensate the lender for the increased risk they are taking on a self-certified mortgage, they will charge you a higher rate interest, typically 1% over their standard variable rate.

Stamp Duty Land Tax (commonly known simply as Stamp Duty) – You pay Stamp Duty Land Tax on property like houses, flats, other buildings and land. If the purchase price is £120,000 or less, you don’t pay any Stamp Duty Land Tax. If the price is more than £120,000, you pay between one and four per cent of the whole purchase price, on a sliding scale.

Upto £120,000 – No duty payable

£120,001 to £250,000 – 1% duty payable*
£250,001 to £500,000 – 3% duty payable
£500,001 and over – 4% duty payable

*If you’re buying a property an area designated by the government as ‘disadvantaged’, you don’t pay any Stamp Duty Land Tax if the purchase price is £150,000 or less.

Did you know? Stamp Duty was originally introduced by William of Orange when he was King of England.

Structural Survey – The most thorough report you can get on the condition of the property you are considering to buy. The surveyor will look in detail at the inside and outside of the property and will tell you if the property is structurally sound. All major and minor defects in the building will also be listed and should tell you what maintenance work may be needed either now or in the future. You should make sure the scope of the survey is agreed in writing before you commission it. Should the survey identify problems, use them to negotiate a reduction in the price before you exchange contracts.

Variable Rate – This is when the interest rate you pay on your mortgage can go up or down depending on changes to the lender’s standard variable rate. If you have a variable rate mortgage your monthly mortgage payments will change whenever the lender changes the interest rate.

Valuation – This is where a valuer appointed by your proposed lender, visits the property in order to estimate its current value. This value is then used by the lender as a basis for its security and to calculate its Loan to Value Ratio. The borrower never sees the valuation. With some mortgage deals the lender absorbs the cost of the valuation but in many cases the borrower has to pay upfront.

The feeling of security afforded by a fixed interest rate is the most popular feature for UK consumers when it comes to choosing a mortgage, a survey by checkmyfile.com has found.

The 2006 Mortgage Lender Survey found fixed interest rates, closely followed by the reputation of the lender as the top two attributes most likely to make Britons choose a mortgage product.

The survey also found that consumers generally regarded features such as higher lending multiples and the absence of higher lending charges – the fees charged by lenders when extending loans of more than 75 per cent of the value of the property – were amongst the least popular reasons for choosing a mortgage provider.

Barry Stamp, Joint Managing Director of checkmyfile.com, the UK’s leading provider of online credit files to consumers, said: “Our survey suggests the average UK consumer tends to be much more cautious when choosing a mortgage, compared to choosing other forms of credit which tend to be crisis-led. Consumers look for some stability when it comes to what is likely to be their largest monthly outgoing. Despite the relatively stable interest rate environment we have enjoyed for some years, they are keen to protect themselves from interest rate shocks.”

The motivation for choosing a mortgage was found to differ between the genders in two distinct ways.

Barry Stamp added: “The top priority for men, when it comes to choosing a mortgage, is a fixed interest rate. Women, on the other hand, look at the reputation of a lender as the most important factor in choosing a mortgage. Getting a quick decision is also a key factor for men. Women are far less concerned about how quickly their mortgage offer appears.”

As consumers get older, the key factors in choosing a mortgage product also change.

“Consumers in their 20s tend to look for the security offered by fixed rate mortgages, the reputation of the lender and the level of fees charged. They are not so concerned about how quickly they get confirmation of their mortgage offer – probably as they have no prior experience to base an expectation of the time a mortgage application can take.

“Consumers in their 30s also look to fixing their interest rate, and are more likely to be an existing customer of the lender. They are, however, looking for a quick decision on their mortgage offer.

“When a consumer reaches their 50s, their priorities have changed significantly. The top priorities for this age group are to choose a mortgage that gives them the ability to vary repayments and they are keen to choose a lender with a strong reputation. A quick mortgage offer in writing is also a key priority,” said Stamp.

With the reputation of mortgage lenders being the second most important factor for UK consumers in their choice of mortgage, the 2006 Mortgage Lender Survey asked respondents about the customer service levels of the top UK mortgage lenders.

60% of respondents to the survey rated the standard of customer service provided by mortgage lenders as ‘excellent’ or ‘very good’. One in six consumers were dissatisfied with the standard of customer service received.

Northern Rock and Nationwide were rated by respondents as the best mortgage lenders for their high standards of customer service. At the other end of the scale were Halifax and Barclays.

The full results of the 2006 Mortgage Lender Survey can be viewed online on checkmyfile.com.
checkmyfile.com has found.

The 2006 Mortgage Lender Survey found fixed interest rates, closely followed by the reputation of the lender as the top two attributes most likely to make Britons choose a mortgage product.

The survey also found that consumers generally regarded features such as higher lending multiples and the absence of higher lending charges – the fees charged by lenders when extending loans of more than 75 per cent of the value of the property – were amongst the least popular reasons for choosing a mortgage provider.

Barry Stamp, Joint Managing Director of checkmyfile.com, the UK’s leading provider of online credit files to consumers, said: “Our survey suggests the average UK consumer tends to be much more cautious when choosing a mortgage, compared to choosing other forms of credit which tend to be crisis-led. Consumers look for some stability when it comes to what is likely to be their largest monthly outgoing. Despite the relatively stable interest rate environment we have enjoyed for some years, they are keen to protect themselves from interest rate shocks.”

The motivation for choosing a mortgage was found to differ between the genders in two distinct ways.

Barry Stamp added: “The top priority for men, when it comes to choosing a mortgage, is a fixed interest rate. Women, on the other hand, look at the reputation of a lender as the most important factor in choosing a mortgage. Getting a quick decision is also a key factor for men. Women are far less concerned about how quickly their mortgage offer appears.”

As consumers get older, the key factors in choosing a mortgage product also change.

“Consumers in their 20s tend to look for the security offered by fixed rate mortgages, the reputation of the lender and the level of fees charged. They are not so concerned about how quickly they get confirmation of their mortgage offer – probably as they have no prior experience to base an expectation of the time a mortgage application can take.

“Consumers in their 30s also look to fixing their interest rate, and are more likely to be an existing customer of the lender. They are, however, looking for a quick decision on their mortgage offer.

“When a consumer reaches their 50s, their priorities have changed significantly. The top priorities for this age group are to choose a mortgage that gives them the ability to vary repayments and they are keen to choose a lender with a strong reputation. A quick mortgage offer in writing is also a key priority,” said Stamp.

With the reputation of mortgage lenders being the second most important factor for UK consumers in their choice of mortgage, the 2006 Mortgage Lender Survey asked respondents about the customer service levels of the top UK mortgage lenders.

60% of respondents to the survey rated the standard of customer service provided by mortgage lenders as ‘excellent’ or ‘very good’. One in six consumers were dissatisfied with the standard of customer service received.

Northern Rock and Nationwide were rated by respondents as the best mortgage lenders for their high standards of customer service. At the other end of the scale were Halifax and Barclays.

The full results of the 2006 Mortgage Lender Survey can be viewed online on checkmyfile.com.

According to a recent national survey by Wells Fargo, 78% of renters believe it is true that you can’t get a home loan without perfect credit. A majority believes that a down payment of 15% or more is required. Find out why these and other myths are NOT TRUE – and why owning your new home in Houston is much easier than you think.

Lenders evaluate mortgage applications a lot differently today than they did even 10 years ago. What used to close the door to home ownership may not be a factor today. Here are some common myths and realities about the home buying process, provided by Freddie Mac.

Myth: You need great credit to become a homeowner.

Fact: You may still be able to buy a home with less-than-perfect credit. And remember, you can improve your credit over time.

Myth: You need to put 20% down to buy a home.

Fact: There are many types of mortgage products and programs that allow low and no down payments. But remember to factor in other costs such as closing costs, property taxes, moving expenses, and repairs.

Myth: You can’t buy a home in the U.S. if you’re not a citizen.

Fact: New home buying tip: You can buy a home in the United States if you are a legal resident but not a citizen.

Myth: If you don’t have a bank account or credit cards, you can’t qualify for a mortgage.

Fact: Having a bank account is always a good idea and helps you establish credit. However, lenders can approve you for a mortgage even if you don’t have a bank account or credit cards. You’ll likely need to keep records showing a history of payments you’ve made for items such as rent, utilities, and car payments.

Myth: Lenders share your personal financial information with other companies.

Fact: By law, banks and other financial institutions are restricted in their uses and disclosures of information about you. In some situations, you may choose to restrict the disclosure of your information if you don’t want it to be shared.

Myth: If you’re late on your monthly mortgage payments, you’ll lose your house.

Fact: If you have a financial hardship, like the death of your spouse or a medical emergency and fall behind, it’s possible to keep your home and get back on track if you contact your lender early.

Myth: You can’t get a mortgage if you’ve changed jobs several times in the last few years.

Fact: Not true. You can change jobs several times and still get a loan to buy a home. Lenders understand that people change jobs. The important thing is to show that you’ve had a stable income when you begin the home buying process.

Information provided by Freddie Mac.

Sell your home to a house buyer and you will not need a home information pack (HIP). This means you avoid the delay, hassle and cost of compiling a HIP.

For more info on the HIP regulations read on.

What is a Home Information Pack?

Since 14 December 2007 a Home Information Pack has been required on all homes being marketed in England and Wales.
The pack provides information needed by home buyers at the start of the home buying process.
It includes much of the information usually compiled by a solicitor during the conveyancing process.
The burden is now on the seller to compile the info and produce the pack.

Essential Content of Home Information Packs

Index of Contents
Sale Statement
Evidence of Title
Energy Performance Certificate (EPC)
Searches
Leasehold/Commonhold Documents if applicable

HIP’s were designed to:

Provide info so that home buyers make informed decisions before offering
Reduce duplicated costs if more than one sale proceeds
Grade the energy efficiency of a home

What are the negatives of HIP’S?

Home sellers are now unable to test the market without committing cash
Delays caused because marketing can’t commence until HIP compiled
Much of the packs info is out of date by the time the property goes under offer. The buyer then has to repay for updated info.
Some lenders/solicitors will not accept the contents of a HIP and may demand their own information, so duplicating costs.
Cost of a HIP is an added cost to house sale process
If the property doesn’t sell the HIP and the money spent on it is wasted

Are there any exemptions?

Yes there are a few limited exemptions to getting a home information pack. The main of which is that if the property is not being marketed e.g. sale to quick sale company, then a HIP doesn’t have to be compiled.

You can avoid a getting a Home Information Pack in the following circumstances:

When no marketing takes place (e.g. selling to a family member or quick sale company)
Non-residential properties
Homes limited by law to use as holiday accommodation or for limited occupation
Mixed sales (e.g. shop with flat)
Right to buy and similar sales
Sales of portfolios of properties
Properties not being sold with completely vacant possession
Unsafe properties and properties to be demolished

How to pay for pack?

Our research has found that you can pay up to £600 for a HIP.

There are several ways of paying for a HIP:

Pay upfront- before marketing commences a HIP is commissioned and paid for
Financing until sold- normally interest is charged so you end up paying more
“No Sale No Fee” deal via an estate agent, where pack cost is included in final fee. However in current market agents have either withdrawn these offers or require much higher commissions to compensate for extra risk. There are also many restrictions e.g. not able to transfer HIP to another estate agent

The best financial deals are found only after a thorough investigation into home loans and mortgages. Many people dream of owning their own home, but the high cost of homes generally requires a home mortgage to make it a reality. A mortgage is just like any other product; thus whether it is a home purchase, refinancing or a home equity loan, the price and terms of a mortgage can be negotiated. If you decide to apply for a home equity loan, you shouldn’t necessarily automatically go with the same bank that holds your first mortgage. Instead, shop around to find the best rates and loan terms. Finding the right loan is always a challenge; it requires checking different lenders and comparing options to select the home equity loan that best meets your needs!

There are different types of mortgages today to suit different classes of people. To make life easier for the old and the retired, the government has even introduced reverse mortgages. This type of mortgage is a loan against the home that does not have to be paid back as long as the owner is alive and living in the home, and at the same time provides income to the owner.

Until recently, bad credit was something of a mystery. However, after the establishment of the FICO score, a uniform credit scoring agency, measuring people’s credit behavior has become easier. Your future credit behavior can more easily be predicted based on this data. Most lenders use the FICO score as a starting point when deciding whether or not to extend credit to you. Moreover, if you don’t pay your monthly mortgage payments, the mortgage company can foreclose leading you to lose your home and affecting your creditworthiness in the future.

In a rapidly changing economic scenario it is often difficult to keep up with the complexities of the financial world. We at mortgageproguide.com have made every effort to elucidate and enunciate in simple terms, matters related to money and mortgage. Mortgageproguide.com is a comprehensive site offering free and unbiased information on home loans, conventional mortgages, bad credit mortgages, home equity loans and reverse mortgage. So go through to moneyproguide.com in detail and make an informed decision on all matters concerning money and mortgage.

Selecting a Mortgage

Selecting a mortgage is not only time consuming but confusing, given the large variety of loan packages on offer in the market today. With different mortgage rates, varied costs and fees and multiple terms and conditions, you need to be well informed to make the correct decision about which mortgage is best suited for you.

Among other things, mortgage rates are extremely important while selecting a mortgage. Interest rates fluctuate depending on different factors that influence the economy like prime rate, Treasury bill rates, federal fund rate, federal discount rate and certificate of deposit rate etc. If the economy is doing well and the demand for mortgages is high, the interest rates will also see a climb. On the other hand, if the demand for mortgages is low in a poor economy the interest rates will drop as well.

However, there are several other factors that are as or perhaps more important than interest rates that determine which mortgage is right for you. These primarily include your financial situation such as income, savings and liquidity, your housing needs and duration of stay, the level of risk you are willing to take as well as the term of your loan. All these factors need to be considered equally and balanced with one’s present position and future goals.

Before you decided on which mortgage is best for you, you will need a mortgage lender approval who based on your credit rating will offer you a loan that he feels is within your reasonable risk limits. The mortgage lender will take into consideration your ability to pay and then adjust your interest rates, points, terms etc accordingly. Only after this will you be able to select a mortgage that fits your requirements both, personally as well as financially. You can go in for mortgage refinancing at the end of the term if such a need arises.

BASIC FEATURES WHILE SELECTING:

1. Interest rate – fixed or variable:

In a fixed rate mortgage your interest rate will not change during the entire duration of your loan. This will enable you to know exactly what your periodic payout is and how much of the mortgage will be paid off at the end of the term.

• Federal Housing Administration Insured Loans (FHA)

• Veterans Administration Loans (VA)

• Farmers Home Administration Loans (FmHA)

With a variable rate, the interest will vary periodically during the life of the loan, depending on interest rates in financial markets.

2) Duration of mortgage: short term or long term

The duration of mortgage is the length of current mortgage agreement. A mortgage typically has duration of six months to ten years. Usually, if the term of the loan is short, the interest rates will tend to be low. A short term mortgage is for two years or less and is appropriate for people who feel that the interest rates will drop in the future, especially when it is time for renewal. A long term mortgage is for three years or more and most suited for people who believe that current rates are stable and reasonable and want the security of budgeting for the future. After the expiration of the term loan, you can either go for a renewal in mortgage at the current rates or repay the balance principal owing on the mortgage.

3) Open or closed mortgages

Open mortgages are typically short-term loans and can be paid off at any time without penalty. Homeowners who are planning to sell in the near future or require the flexibility to make large, lump-sum payments before maturity choose these kinds of mortgages. Closed mortgages are committed after taking into consideration specific terms. If you want to pay off the mortgage balance you will have to wait until the maturity date or pay a penalty.

4) Conventional or high ratio

A conventional mortgage is one that is not more than 75% of the appraised value of purchase price of the property. The balance amount is paid through your own resources and is known as down payment. If you have to borrow more than the stipulated 75%, then you will need a high ratio mortgage. If the down payment is less than 25%, the mortgage will have to be insured. The insurer will charge a fee which will depend on the amount you are borrowing and the percentage of your down payment. Fees range from 1% to 3.5% of the principal amount and can be paid up front or added to the principal amount of the mortgage.

REVERSE MORTGAGES:

Unlike a traditional mortgage where you make monthly payments to a lender, in a “reverse” mortgage, you receive money from the lender. It is a loan against your home or borrowings on home equity, which you do not have to pay back as long as you live there and yet, retain the title to your home. It must only be repaid once you die, sell your home or permanently move out of there. With a reverse mortgage the value of your home can be turned into cash which you can receive as a lump sum and up front, monthly cash advance, credit line which allows you to withdraw as and when you need it or a combination of all.

Reverse mortgages thus help homeowners who are privileged to own a house but are cash strapped stay in their homes and still meet their financial obligations. Reverse mortgage is for seniors. To be eligible for most reverse mortgages, you must own your home and be 62 years of age or older. The proceeds of a reverse mortgage are generally tax-free, and most have no income restrictions. They also do not affect Social Security or Medicare Benefits.

There are typically three types of reverse mortgages:

• Single purpose reverse mortgage– these are offered by some state and local government agencies and nonprofit organizations and have very low costs. To qualify, one should typically belong to a low or moderate-income group. They are not available everywhere and can only be used for a single purpose as specified by the lender like repairs, improvements, paying property taxes etc.

• Federally-insured reverse mortgages- which are also known as Home Equity Conversion Mortgages (HECMs), and are backed by the U. S. Department of Housing and Urban Development (HUD) and

• Proprietary reverse mortgages- which are private loans that are backed by the companies that develop them.

In both, the HCEMs and proprietary reverse mortgages, the costs are relatively higher, widely available and can be used for any purpose. Additionally, the amount of money you can borrow with these mortgages depends on several factors, including your age, type of reverse mortgage you select, appraised value of your home, current interest rates, and the area where you live. In general, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.

Just like a traditional mortgage, there are several fees and costs associated with reverse mortgages. These charges include an origination fee, up-front mortgage insurance premium (for the FHA Home Equity Conversion Mortgage or HECM), an appraisal fee, and certain other standard closing costs. In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage.

Origination fee

This fee covers a lender’s operating expenses, office overheads and marketing costs for making the reverse mortgage. Home Keeper borrowers are charged an origination fee that may not exceed 2 % of the value of the home.

Mortgage insurance premium

Under the HECM program, borrowers are charged a mortgage insurance premium (MIP), equal to 2% of the maximum claim amount or home value, whichever is less Additionally there is an annual premium thereafter equal to 0.5% of the loan balance. The MIP guarantees that if the company managing your account goes out of business, the government will intervene to ensure that you have continued access to your loan funds. Moreover the MIP guarantees that your debt will never exceed the value of your home at the time of repayment.

Appraisal fee

It is paid to the appraiser who is in charge of appraising your home and assigning it a current market value. Since Federal regulation mandate that the home be free of structural defects, an appraiser will also ensure as much. If the appraiser uncovers property defects, these will have to be repaired through an independent contractor whose costs can be financed in the loan.

Closing Costs

Include other miscellaneous charges such as credit report fees, flood certification fees, escrow or settlement fees, document preparation fees, recording and courier fees, title insurance, pest inspection and survey fees.

Service fee set-aside is an amount deducted from the remaining loan proceeds at closing to cover the projected costs of servicing your account.

The benefits of reverse mortgages are plenty. Reverse mortgage for seniors is a boon and allows the older generation to live with dignity and happiness.