The 2 Most Important Types Of Home Loans

In the insurance and mortgage industry, there are many different and entirely individual types of home loans. There is quite the variety of loans, and each loan is different because of its respective benefits, down payment percentages, and flat rates.

Every loan is ‘custom tailored’ to whoever the benefactor or borrower is, depending on their needs. What works for you, depending on your particular set of requirements, may not work for someone else, and it is highly unusual (although technically not unheard of) to meet someone who took out the same loan as you! This is especially because the kinds of benefits, down payments, rates, interest, and all sorts of other things vary so widely.

1. Flat (Fixed) Vs. Adjustable Rates

The most common umbrella terms that all loans fall under are fixed vs. adjustable rate loans.

  • Flat Rate Loan (FRL): These kinds of loans have fixed rates (hence the name) throughout the entirety of the loan period. Because of this, what money you pay back to the investor every week, month, or year, will stay the same. This means there is no fluctuation depending on your budget, your needs or their needs, and on any other factors. This is accurate enough even for long term loans, such as a 30-year Flat Rate Loan for example. It has the same loan period, monthly rate, interest percentage and original down payment percentage.
  • Adjustable-Rate Mortgage Loans (ARMs): On the other hand, we have a type of loan that is the polar opposite of an FRL (Flat Rate Loan), and it comes in the form of an ‘ARM’ Loan. These kinds of loans have an interest and introduction (also called down payments) that tends to fluctuate, or to be more accurate, ‘adjust’ (hence the name!) from time to time.

This can vary on a lot of factors, however, so let’s name a few. To start off, you have the market; however well the housing market is doing directly reacts to how much you are paying per month, and vice versa.

Then we have more ‘down to earth’ examples, such as your credit score. If your credit score gets boosted by, say, 80 to 200 points for some odd reason, you could end up paying a significant amount less per month. The opposite is accurate as well. If your credit score goes down 80 to 200 points, or indeed any number that is more than 15, you can end up doubling or even tripling what you are paying per month.

No hard feelings, though! You are not being betrayed or scammed in any way! This is simply a reaction to your credit score. When your credit score is dangerously low or is proving to be dropping at an increased rate, lenders tend to increase your payment as an automatic safety measure, because the likelihood of you fulfilling your contract when you don’t have enough money to eat at Chilis is so much lower.

2. Conventional Vs. Government Insured

You can probably guess by the title which one the investor prefers more; traditional trust-by-trust loan, or a government insured and legally protected the loan.

The two titles of these loans speak for themselves, so there is not much to explain!

  • Conventional Loan: This is a standard loan that is not protected, guaranteed, insured or pre-insured by the government in any way, shape, or form. This sets it apart massively from the other three types of loans; USDA, VA, and FHA.

Government Insured Loans: This is an umbrella term, and there are three different types of loans that fall under this category. FHA, VA, and USDA. All of these are insured and protected by law, so if the borrower accidentally or purposely defaults on their loan (which tends to happen from time to time), then the government reimburses the lender with no hiccups whatsoever.

There are other types, here’s a little information in addition to the above.



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3 Things You Need To Know About FHA Loans

It would be in our best interests to start with the absolute basics before we get into the nitty-gritty details about FHA loans. The most fundamental and dirt-simple question that we can ask is this; “What even is an FHA loan?”

An FHA loan is a type of loan that is issued and lent solely for mortgage uses only, by the Federal Housing Administration, hence its name. Its purpose is to protect and defend the financial integrity of the lender and his respective assets if the person who is taking out the loan defaults on it.

FHA loans are easier to get than your standard and average loan, therefore making them more accessible with mortgage borrowers. The specific traits of FHA loans that attract so many people are its long term availability, far less rigorous lending standards, and its smaller down payments.

So, why do people take out FHA loans? Here is why; Lenders can offer different kinds of rates at varying price points, and this leads to more flexible requirements regarding payment dates and general qualification. With this having been said, here are three different things that you will want to keep in mind if you are thinking about taking out an FHA loan.

1. A Low Credit Is Okay!
Depending on the type of loan a borrower needs, the specific credit requirements, regarding the percentages, can vary a lot. If you want to procure for yourself an FHA loan with a down payment of 3.5%, then you will need to have at least a 580 score or higher.

People who have a low credit score, the minimum being 500 and the max for the lowest rank being 579, are required to pay at least a 10% down payment for their loan.

Borrowers with a credit score lower than 500, however, are generally not eligible to take out a loan; there is simply too much chance that they will not pay the loan back, whether by choice or not. Check out your credit rating first.

2. The Minimum Down Payment is 3.5%
As previously stated, the lowest you can go regarding your down payments is usually 3.5%. Anything less than that is purely unprofitable for the lender. You can use your own savings or even your 401k to pay for your loan, but you can also use other forms of payment as well. These have the potential to include state grants, local government down-payment programs that are aimed to assist with down payments, or even a gift from a family member.

3. Some Closing Fees May Be Covered
This is somewhat unusual to find a standard FHA loan, but it is not necessarily unheard of. The Federal Housing Association sometimes permits sellers, lenders, and builders to pay for some of the borrowers closing costs. It is an incentive for the borrower to pay off the rest of the loan in a timely and budget-friendly manner, too.

These lenders will sometimes charge an even higher rate on their interest loan if they agree to pay some of the necessary closing costs! When searching for different FHA or non-FHA loans, borrowers have the opportunity to compare different offerings and rates to figure out which loan makes the most sense to them. Loan-borrowing is a highly relative thing, and whatever works for you might not work for someone else. That’s why every single lender specifically creates the loan based off of the needs of the client, hence why you can get so many options in the mortgage industry.

Everything has cons, however, and FHA loans are no different. Watch this video just to keep a few things in mind as you shop around:


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Own Vs Rent – Pros And Cons

When it comes to moving into a new house, buying versus renting out a house is one of the most important decisions that a buyer makes. Not only does it affect how much spending money you have at the end of the month or year, but it also changes your lifestyle and how much money you save over the years.

Every day, there are buyers out there who rent out a home that they would have been better off buying and vice versa. Out of these two options, the bias seems to lean more in favor of direct ownership; it is a big business and a major source of income for mortgage lenders, home investors and other small businesses.

People choose to buy homes, it seems, to favor their chances of receiving tax benefits, such as tax deductions and a better and more stable savings account. Renting homes is also popular because of the near-minimal responsibilities, and the ability to pick up everything and go whenever you want. This is something that you cannot very easily accomplish when you own a house or property.

In more black and white terms, home ownership brings about a feeling of belonging and communal enterprise. This is not perfect for everyone, though; people with nomadic and fluent personalities find that this can become a drag-down rather quickly. Real estate is and always has been the original ‘illiquid’ asset. This means that whether the housing market is up or down in a bubble or a crash, you may not easily be able to sell your house for any profit at all, and quickly, too.

Even if the housing market is stable, there are immense and significant trading costs when you decide to sell; this can be a major off-put to a lot of consumers who are trying to decide between buying or renting out a house. What this means is that deciding to move and go somewhere out of your bubble is not easily accomplished when you own property.

Renting a house means that you can move whenever and wherever you want without any repercussions, and you can do it very fast, too. However, if your landlord decides to kick you out or sell the property, it means that you can be evicted with a terse notice.

That is the most outstanding negative aspect of renting a house, apartment, or any property by far. What happens if your landlord gets sick, and has to sell the property? What if your landlord turns out to be not such a great person, and decides to evict you over some small disagreement? Keep in mind that this has in fact happened before, and you are not the only ones who have been unlucky enough to be stuck in this case.

Also, the biggest myth about renting homes is that you are potentially ‘throwing away money.’ This is simply not correct, and for many obvious reasons; you obviously need a place to live, and that will cost you a pretty penny, either way, you decide to look at it.

What being a direct homeowner means is that you will be paying a lot more than if you were to rent it, even over the same ten year period or so. You have your property taxes, pest control, maintenance, insurance, and other kinds of fees.

So, all in all, it comes down strictly to what your budget is and whether or not you want to dig down and be rooted in a particular area. Both renting and owning houses have their respective pros and cons, of course. Which one is better for you is different for everyone and in this case is entirely relative.

Take a look at the video for more pros/cons to home ownership and renting.



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Getting A Mortgage After Having Financial Hardship

Maybe you are at a turning point in your life where you have made enough bad mistakes, especially with your finances, that you are starting to learn from them. If you’re lucky, then you already have benefited from them; if not, it may take a little bit of trial and error. If you have applied for a loan with bad credit and you have been turned away, you may not realize how easy it is to get a loan anyway; it just depends on what you are willing to pay for it up front.

Getting a mortgage when you have bad credit is not the most difficult thing in the world, but it means that you will be making some small sacrifices.

One of the best ways to get a mortgage after having some substantial difficulties regarding your finances, and more importantly your credit score, is to get FHA approval. These mortgages are not usually available to people with bad credit because they usually run the investor a higher chance of not returning that money.

The FHA does not directly lend money, but it provides the bank or investor with what can be loosely described as a ‘guarantee that you will pay them back.’ In the eyes of the investor, this makes it easier for them to give you a loan because they feel much safer.

Another alternative to seeking FHA approval is to find alternative lenders. This is a pretty basic one, but you never know; not only can you find different investors for your loan, but you can also try different types of loans (because there are many different kinds out there) and you might even get a better rate or two on them!

However, not all is well and good. You need to be very careful here. These kinds of lenders are in a great position to snatch up and capitalize (quite literally, as a matter of fact) on a desperate consumer that needs a loan. Be on the lookout for various types of marketing and loan scams, and be sure to thoroughly investigate the reputation of whoever you are looking to get a loan from.

It also helps if you can speak with a couple of customers that have either fulfilled their loan term or are in the process of doing so. This strategy helps you to be sure whether or not they are a safe investor.

As previously mentioned, taking out a loan with a bad credit score can be very, very expensive. If you are desperate enough to need to do it, it is a good idea to make it as temporary as possible and to move onto a more conventional and traditional loan if you can.

Now, this does not mean you have to get a concise term loan, of course, but it does mean that you should keep it in your mind that you should pay for it as soon as possible. You do not want to be dragging this out, as it lowers your credit score, especially if you miss payments. Not to mention that the longer and longer you drag it out, your credit score goes down, but the fees and the interest rates go up!

All in all, we think that you should not even attempt to take out a loan on a weak credit score unless it is necessary. It does not pay in the long run to have owed so much money, and in some cases, it can put you in an even tighter situation than you were previously.

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Things to Consider When Getting a House Loan

Purchasing or renting a home or apartment for the first time in your adult life is an incredibly outlandish and extraordinary move. It is probably one of the most important decisions, regarding finances, that you can make. You will need to take this seriously because it can mean living happily ever after just as well as it can mean certain bankruptcy!

The first step is… determining if you really need to buy a home or not.

Owning your own house is a significant amount of money, and costs a lot more than simply renting a house. If you decide that you want to purchase your own home, keep these extra fees and taxes in mind;

  • Maintenance
  • Heating
  • Electricity
  • Pest Control
  • Upkeep
  • Pool maintenance (if you choose to buy a house that has one)
  • Landscaping
  • Property tax

And all sorts of over taxes and fees that may come up. You may even lose access to certain tax deductions. You are held responsible for paying for all of the repairs and utilities as well, not to mention things like garbage removal (that exists as a tax, believe it or not. Don’t you just love the late stages of capitalism?) and home insurance.

The first real step is to start shopping around for a loan. You will need to be approved for a loan before you buying the house. In some cases, you getting the credit is even more important than finding the right house to buy because it determines whether or not you will be able to afford anything!

It is a good idea to hire, or at least look into, a reputable mortgage broker. These salesmen will look into different loans and credit opportunities that will benefit you the most and can save you a lot of frustration and money in the long run.

You may be surprised at all of the different loan types that exist out there for you to get snagged on! For now, do not worry about ARMS or PMI or anything like that. Just find a reputable bank or investor that you get pre-approved to receive a loan from.

As for what kind of loan and what kind of rate you will be a looking for, a basic fifteen-to-twenty percent rate is standard. These locked rates are probably your best option as well. You might be wanting to consider creative financing when it comes to paying back these loans, but keep your head about you and do not get sucked into this! You want to build and retain wealth when you purchase your home.

If you make the wrong choice about what kind of loan to take out, what rate and behind-the-scenes fees there are, you could end up hurting yourself and your partner (if you have one, that is) seriously when it comes to your finances and your savings account. If the market crashes or drops, you can find yourself drowning in fees with a balance that costs more than your actual house did when you purchased it! We cannot stress enough; be vigilant and be careful about what kind of loan you take out. Good luck in the real estate world!

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Interest Rate Vs APR: What’s The Difference?

If you are buying a house with a mortgage, then accurately knowing the difference between an APR and a standard interest rate could potentially save you thousands, and even tens of thousands, of dollars. However, if you are like the overwhelming majority of new home buyers, then you probably do not know that both are important and costly ways to pay off your mortgage. (read this, for tips on a fast mortgage pay-off)

To kick things off a little bit, let’s take a look at what an APR is, and what an interest rate is.

Interest Rate
The interest rate is defined as the percentage of money that you continually pay back over a long (usually long, but sometimes short) period for borrowing a loan. These rates differ, and they can be varied or fixed, but they are always described as a percentage.

APR Rate
An APR rate is a slightly more broad range of what you will be paying for your mortgage. It builds off of the interest rate but takes into account the various broker fees, discount points, other closing costs and charges, and taxes. It gives you a more well-rounded understanding when compared to a traditional interest rate. These are also expressed as a percentage as well.

Here is where it can get a little bit tricky. An interest loan with a rate of 4% will cost you less than one with a 6% rate, assuming that the loan payments are shelled out every month with no other fees, and are both fixed to be the same term.

Together, with the help of both an APR and a general interest rating, the borrower of the loan should be able to figure out what their monthly payments will be. The trick, however, is to understand what interaction these two loan types have with each other.

If a consumer or borrower is in a little bit of a pickle and they want to find the cheapest monthly loan, they should look into a decent interest rate. If they are more focused on what the total cost of the loan will be, say, at the end of the term (however long it may be) then they should focus on the APR as well as the interest rate.

In the short term, you can pay less monthly (or bi-monthly) but also longer, or a higher cost per month but a shorter time. It only comes down to however much money the consumer is getting in per month, or how badly they need it. These are the key factors that dictate what kind of loan someone requests.

If you purchase or rent out a house that you plan to stay in for more than, say, 20 years or so, it is certainly a better option to choose a more stable interest rate that has you paying lower amounts bi-monthly. This helps you to space out the fees instead of paying a lot up front.

However, if you chose to buy or rent a house that you will only be in for ten years or even less, choose an APR (where applicable) that has you paying more per month for a shorter term.

Determining loan methods, especially mortgages for properties and whatnot, can be a very confusing thing; that is why it is so important that you, the buyer, chooses the right lender and examines all of the options.

So, that’s just a quick run-down. Here’s another explanation:



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5 Things to Consider in the Location of Your New Home

As the saying goes, ‘home is where the heart is’ but there is just one problem with that; what if the heart does not know where the home is!?

Everything from low crime rates to a good education system and local shopping outlets is things that need to be considered when choosing the location of your next home. There are, quite obviously, many different variables that go into determining the best location for your family.

To help you make this important decision, we have decided to write an article outlining some of the most important things to consider when looking into the location of your next home.

1. Taxes
Did you know that there are some states, namely Delaware, New Hampshire, Alaska, Montana, and Oregon, that do not collect sales tax for retail sales? This slack in the tax-program allows lots of businesses to flock to these small and underpopulated states. This same states, along with Florida, Texas, Tenessee and Wyoming and a few others do not collect anything regarding individual income taxes!

2. Affordability
Living comfortably without breaking the bank should be your number one priority if it already is not, no matter what your pay grade is. The umbrella term of ‘affordability’ does not just include the price of the house or the area that you live in. It also takes into account the prices for materials, consumer goods, groceries, gas, and other things alike.

3. Employment Opportunities
If you are relocating your family and property because you are in the military, or because your job has asked this of you, you can skip to the next tip! However, if this is not you, then continue reading.

Obviously, you will not need to worry about this if you are only moving within your city or town, or even the next town over. If you are dramatically relocating, however, you will need to take into account what kind of employment opportunities there are around you! Is there another building or business from the same corporation that you can request to be transferred?

If you have a Ph.D., don’t move into a random town in Arkansas; it is as simple as that. Be smart with what you’re doing, and make sure it is what you want!

4. Statistics And Crime Rates
Nobody who is not already in a mental asylum wants to move into a crime-ridden area. However, that does not mean that you can in a perfect society where crime does not exist! By looking into the crime rates in your surrounding neighborhoods and providences, you can determine whether not it is safe to move there.

You can also look into what kind of the offenses there are as well; obviously, it is not a very good idea to go into a community where there are multiple break-ins every month.

5. Distance Between Family And Friends
This is a tough one, and one that proves to be a deal breaker for a lot of people considering moving. If your family and friends are critical to you, then you should not plan on moving very far away. Otherwise, you will live your life always feeling torn, and you will end up spending all of your vacation time simply trying to see your family!

All in all, there are a lot of different factors that go into the difficult decision of where to move when it’s time to pack your bags. We hope that this list has helped you somewhat in making that process easier!

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Why Mortgage Rates Go Up And Down

One of the key factors that go into mortgage rates is the pricing of the property itself, of course, and the state of the market. They can fluctuate depending on certain key economic factors that interchange with each other at a certain speed and algorithm to determine what particular point the rate is in the business cycle.

Property investors and lenders study the changes in the mortgage stock to determine when it is safe or volatile to invest in an individual business or property.

As for the general economy, changes in the GDP (and economic growth rates) can have a dramatic effect, leading to decreases and increases in interest rates. This means that investors and real estate moguls will have to adjust the amount of money they spend for them to stay profitable and in the clear.

For example, as all previous records seem to indicate that an increase in economic growth and GDP increase tends to generate an advanced interest level in the economy, which then, in turn, puts more pressure on the already-advancing mortgage rates. This is not unique to the real estate economy, of course. This also applies to all sorts of different markets, economies, businesses, and stocks around the globe!

You know how the old saying goes, though; what goes up must come down. Therefore, if it goes that an increase in market activity can bring up the prices and value of a particular property or mortgage rate, then a decrease in market activity will bring it down. This is what has happened many times in the past, and especially during the housing crisis of 2008.

Forecasting in the real estate market is a popular way for investors to stay a couple of steps ahead of their competitors. Mortage lenders will often try to study the stock systems and general economy as well as the real estate economy to predict when it will crash or spike. This allows them to take their losses, if there are any, or capitalize on the volatility of the market.

Forecasting these economic conditions also prove that they add insight into how different interest rates are bound to behave, plus they gauge how the economy (of the country, as well) of any one particular market is going to fare in short as well as the long term.

As you know, government policies and currency regulations quite obviously affect the markets; the Federal Reserve is a fundamental component to maintaining the volatility of these markets. The government can control the pricing and the bounciness of these interest rates through keeping the fluctuation of the currency. They can do this by selling, buying or inflating the currency at any given time.

If the economic growth for one particular quarter is too great (which is never a bad thing, in most cases) or too few, it can generate too much inflation. What this necessarily means is that it can harm the purchasing and selling power of the economy.

To prevent the value of currency from dropping too much, the government will often purchase bonds to artificially inject money into the economy. This tactic can prove to be stable, or extremely volatile; that is usually how it works with inflation, which has proven to be an unfortunate side effect of capitalism.

As you can see, there are a lot of different aspects that go into determining how mortgage rates fluctuate, some of which are as simple as people not wanting to buy houses, for some reason. Others, of course, could be that the government lost a crucial money-generating resource and the economy is suffering from inflation.

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The Importance Of Mortgage Brokers

Buying a house is one of the most stressful times of your life, but by having a mortgage broker a lot of the stress can be alleviated. If you are looking for a rewarding career then perhaps this role is one that would suit you. Many institutions that offer finance training also offer courses that will qualify you as a mortgage broker. Many new home buyers are discovering the importance of mortgage brokers as they make the process of getting approval for finance on a home loan so much easier.

What a Mortgage Broker Does

A mortgage broker liaises between the borrower and the lender to secure the best home loan and handles all the paperwork, from helping the borrower prepare their application to assist with the final signing of loan documents. Choosing the right mortgage broker is a major step in securing a home loan, so make sure you shop around to find a reputable agent. The broker will have connections and access to information that you may not, and they will search for the best deal available from lenders.

Putting this research in the hands of a mortgage broker will make your life so much easier as the variation between mortgage charges and rates with the different lenders can be quite significant. There is a huge range of loan products available, and it is important to get the right package to suit you and your financial situation. If you are new to dealing with finance, you will save yourself money in the long run by leaving it in a broker’s capable hands. Brokers often have access to discounts and better rates than if you attempted to secure finance directly through a lender, and importantly, they will help smooth out the negotiation process.

Choosing the Right Mortgage Broker

It is important that you do a bit of research first and choose a reputable mortgage broker. You may want to investigate other methods of getting a mortgage, such as approaching lenders yourself, although you will need to be confident in handling your finances. The other main method is by using a loan officer, who is someone who works for the bank or mortgage company. A mortgage broker works independently, which could be seen as a better option, as they have the right connections, but as they are not employed by a specific lender, they will work to get you the best loan product possible and not favor a particular lender.

This will give you a much better chance of obtaining a better deal. Shop around; often you will find a good broker via word of mouth. Real estate agents will have lists of them so try asking them for references. Call different brokers and ask which lenders they work with. It is important also to ask them how they are paid, whether they work for a flat rate or if they receive a percentage of the mortgage amount. This payment will be covered by the lender as they are selling you the loan product and gaining you as a customer.

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