Zillow Advice RSS: Guide,Mortgage Types, http://www.zillow.com/advice/United-States%253B%253B%253B%253B%253B%253B%253B%253B/mortgage-mortgage-types/guide/ Zillow Advice search results | Zillow Real Estate Interest-Only and Deferred-Interest Loans http://www.zillow.com/advice-thread/Interest-Only-and-Deferred-Interest-Loans/2369/ <wikipage><p><pagelink type="wikipage" dest="Interest-Only-Loan">Interest-only</pagelink> and deferred-interest mortgages are gaining increasing popularity, as homeowners like the idea of having the freedom to decide how much to pay against their mortgage each month. Interest-only loans offer you the option to pay only the monthly interest, or you can pay the monthly interest and as much of the principal as you'd like. Deferred-interest mortgages give you even more choices. In addition to the payment options of an interest-only mortgage, a deferred-interest loan also allows you to pay just a portion of the interest payment each month (the unpaid interest would then be added to your principal loan balance).</p><p>&nbsp;</p><p>By opting for an interest-only payment or a deferred-interest payment, your monthly mortgage payment is less -- often times, significantly less -- than it would be if you made a "conventional" interest plus principal payment. You gain the freedom to do with your available cash as you choose.</p><p>&nbsp;</p><p>To help you decide how much home you can afford, it's smart to think in terms of an interest <em>plus</em> principal payment each month. If you can only afford the minimum payment on your mortgage, you may be overextending yourself. Having a <em>choice</em> to pay only the minimum is quite different than only being able to <em>afford</em> the minimum.</p><p>&nbsp;</p><p>Is an interest-only or deferred-payment mortgage right for you? If any of the following situations apply to you, these loans may be just what you've been waiting for:</p><ul><li>If you need cash flow and have a low interest rate, paying interest only is the same as borrowing money at a great rate.</li><li>If you're paid on commission or depend on tips, and your income fluctuates month-to-month, interest-only or deferred-interest payments are great. When commissions are down, make the minimum payment. When you have an excellent month, pay the full payment or more.</li><li>If you invest the money you don't put toward your mortgage in something with a higher rate of return. For example, if you pay 6.5 percent on your mortgage but find an opportunity to make an investment that returns 9 percent, you will make 2.5 percent on your money that you wouldn't make if you had paid your full principal plus interest.</li><li>You have higher interest debt to pay off. Again, if you have credit card debt at 15 percent, it makes dollars and sense to pay that before mortgage interest debt at 6.5 percent.</li><li>If you expect to be in your home for less than 10 years.</li><li>If you live in an area with appreciating home values. Regardless of what you've heard, most of the country is still appreciating in value. In those areas, even if you pay mostly just interest on your home, you're likely gaining equity in your home. In some cases, you can gain equity even with deferred-interest minimum payments.</li></ul><p>Interest-only and deferred-interest loans can be great tools for money management. But, be careful not to stretch your budget too thin so that you have to rely on paying only the minimum payment each month. This can cause headaches down the road and isn't recommended. If you can afford the full payment but choose to have the payment flexibility that these types of loans offer, they just might be a fit for your financial goals.</p><br/><p>As always, make sure your mortgage professional goes over all the numbers and fully explains the payment scenarios. Don't assume anything. Get real numbers and you'll make the best decision.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p><p><br/>&nbsp;</p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 21:35:00 GMT http://www.zillow.com/advice-thread/Interest-Only-and-Deferred-Interest-Loans/2369/ 2012-10-12T21:35:00Z Prime Rate http://www.zillow.com/advice-thread/Prime-Rate/158/ <wikipage><p>The published interest rate at which banks make short-term unsecured loans to their best customers. It is the most-widely used standard in setting rates for <pagelink type="wikipage" dest="Home-Equity-Loans-and-Lines">home equity lines of credit</pagelink> and credit card rates. It is in turn based on the fed funds rate, which is set by the Federal Reserve.</p><p>&nbsp;</p><h2>Related Links</h2><ul><li><pagelink type="wikipage" dest="Interest-Rate">Interest Rate</pagelink></li></ul><p><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 22:35:00 GMT http://www.zillow.com/advice-thread/Prime-Rate/158/ 2012-10-12T22:35:00Z What Kind of Loan Should a First-Time Buyer Get? http://www.zillow.com/advice-thread/What-Kind-of-Loan-Should-a-First-Time-Buyer-Get/2063/ <wikipage><p>The recent trouble in the sub-prime mortgage industry has made many people take pause. So it begs the question: what should you do if you're a first-time home buyer and have bruised credit? Is a mortgage even possible?</p><p>&nbsp;</p><p>If you have less-than-perfect credit, don't think you're excluded from getting a mortgage--it still may be available to you. Lenders use four different factors to qualify you for a loan--<pagelink type="wikipage" dest="Credit-Report">credit</pagelink> is just one. The others include your assets, how much income you make and the property you're looking to finance. If you're weaker on one factor, you may be able to compensate by being stronger on other factors. For instance, if your credit score isn't quite high enough to qualify you for a particular loan, you may still qualify if you have, say, lots of assets or make a good enough income to prove to lenders that you can handle paying back your loan.</p><br/><p>There are many different <pagelink type="wikipage" dest="Understanding-Mortgage-Types">types of mortgages</pagelink> available, but most fall into three main categories: adjustable rate mortgages (ARM), interest-only mortgages and fixed-rate mortgages. The type of loan you get will depend on your individual situation. For example, if you are someone who moves often, you may want to get an ARM. If you're looking for flexibility in your mortgage payment, you may want an interest-only loan. If you're looking for security and predictability, a fixed-rate mortgage may be best for you.</p><br/><p>Interest-only payment options are available with ARMs as well as fixed-rate mortgages and allow you to lower your monthly payment (during the interest-only period) if you need to.</p><br/><p>Even if your credit score is as low as 620, you can still qualify for a loan. If your score is lower than that, you may want to work to improve your credit score before you commit to buying a home. The higher your score, the more likely you are to get a better interest rate and better loan terms. If you're not sure what type of loan to get, speak to an experienced mortgage banker. They can answer any questions you have and steer you toward a loan that properly fits your needs.</p><br/><p>There are many personal factors which influence a loan, but you should also take into account the current mortgage environment when deciding which is right for you. The Federal Reserve announced yesterday that they would not raise short-term rates, which are tied to adjustable rate mortgages. But the fact that rates for ARMs aren't currently rising could change at any time.</p><br/><p>Long-term rates, which are tied to fixed-rate mortgages, are still historically low. They offer long-term rate stability since fixed-rate mortgages are long-term mortgages and your rate is fixed for the life of the loan. They also offer predictability which means it's easier when budgeting your finances from month-to-month.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 22:28:00 GMT http://www.zillow.com/advice-thread/What-Kind-of-Loan-Should-a-First-Time-Buyer-Get/2063/ 2012-10-12T22:28:00Z FHA loans may be what you are looking for http://www.zillow.com/advice-thread/FHA-loans-may-be-what-you-are-looking-for/2920/ <wikipage>The recent credit crunch in the mortgage industry has prompted consumers to examine their options carefully. An outstanding option for home buyers and current homeowners making a comeback is <pagelink type="external" dest="http://www.quickenloans.com/mortgage/articles/fha-loan.html" nofollow="true">FHA</pagelink> (Federal Housing Administration) loans. The desire for secure options in a volatile market is making FHA loans more attractive.<br/>But many people don't understand FHA and if it's right for them. While there's still a bevy of conventional loan options available, the guidelines have been tightened and for some people with less-than-perfect credit, FHA may be just what they're looking for.<br/><strong>Credit</strong>FHA is generally more flexible than conventional loans. Look for guidelines requiring two years from bankruptcy discharge date, paid tax liens and judgments and 3 years from a resolved foreclosure. It is even possible to qualify with no credit score, but you must be able to prove regular payment and financial responsibility in some other forms, such as utility bills or rent.<br/><strong>Income</strong>Contrary to popular belief, there is no minimum or maximum income limits for FHA. The key for qualification for income is not the type of income, but the fact a borrower can prove reliable and steady income. Even part-time income can be considered if earned for a significant period of time.<br/><strong>Down Payment / Equity</strong>The max loan-to-value ratio for FHA loans is 97%, meaning you must have 3.5% down payment or equity in the home. The bright side of buying a home with FHA is you can use gifts, grants and concession for your down payment. For a cash-out refinance with FHA, the max LTV is 95%. One thing to keep in mind is FHA does have loan limits based on geographical location.<br/><strong>Mortgage Insurance</strong>Mortgage insurance is a policy that protects lenders from losses on defaulted loans. It is required for borrowers that have less than a 20% down payment. Since FHA insures all FHA loans, the guidelines for FHA loans can be a little more lenient. FHA does require an upfront mortgage insurance premium of 1.5% of the loan amount. After closing, you will be responsible for mortgage insurance premium paid monthly for a minimum of 5 years.<br/>FHA has helped more than 30 million people become homeowners since 1934 and is becoming increasingly involved with options for borrowers who have adjustable rate mortgages that will re-set and may be facing foreclosure.<br/>As always, it is advised that you speak with a mortgage professional about your specific situation and what loan is right for you.<br/>Need a loan? Visit <pagelink type="external" dest="http://../../../../../../mortgage/Mortgage.htm" nofollow="true">Zillow Mortgage Marketplace</pagelink> where you can get numerous, free loan quotes, anonymously.<br/><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink><br/></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 22:22:00 GMT http://www.zillow.com/advice-thread/FHA-loans-may-be-what-you-are-looking-for/2920/ 2012-10-12T22:22:00Z Home Equity Loans vs Home Equity Lines Of Credit http://www.zillow.com/advice-thread/Home-Equity-Loans-vs-Home-Equity-Lines-Of-Credit/3846/ <wikipage><p>Sometimes it may feel that your every spare minute is spent working around the house. Yardwork, cleaning, home improvement. It all adds up. In fact, it all adds up in a different way as well &ndash; <pagelink type="wikipage" dest="Equity">home equity</pagelink>.</p><p>&nbsp;</p><p>Here, we'll focus on two of the three ways (the other being <pagelink type="wikipage" dest="Refinancing">cash-out refinancing</pagelink>) to tap into the equity you've built up: home equity loans and home equity lines of credit. Just read on to learn more. &nbsp;</p><br/><p><strong>What are the differences between a traditional home equity loan and a home equity line of credit (HELOC)? What are the advantages/disadvantages of each?</strong></p><br/><p>If you're a homeowner, you can borrow against the value of your house through either a home equity loan (often called a loan) or a home equity line of credit (often called a HELOC or a line). A traditional home equity loan is a closed-end second mortgage with a fixed term, fixed interest rate and fixed monthly payment (although adjustable rate home equity loans are also available). With a home equity loan, all the money is disbursed in a lump sum up front at the time of closing. A HELOC is a credit line with as little as zero drawn up front, usually with an&nbsp;adjustable rate and payment. Essentially, a HELOC is like a credit card in that you can use what you need and can repay all or the minimum payment each month.</p><br/><p><strong>Depending on the borrower, which is the right loan to pursue?</strong></p><br/><p>Generally, a HELOC is a good choice to meet ongoing cash needs, such as college tuition payments or medical bills. Those who are self employed, paid by commission or rely on a year-end bonus will also enjoy the flexibility of the credit line provided by a HELOC. Basically, a HELOC is like a checking account or a credit card, and can be paid down and drawn out again repeatedly. Conversely, a home equity loan is more suitable when you need money for a specific, one-time purpose, such as buying a car or a major renovation. It is also more appropriate for someone on a fixed income that needs the consistency of a monthly payment.</p><br/><p><strong>Which is easier to qualify for/obtain? Have lending restrictions on either type of loan become stricter? Why?</strong></p><br/><p>The ability to qualify for both home equity loans and home equity lines of credit are essentially the same. In today's market, guidelines are fairly tight with most lenders requiring a <pagelink type="wikipage" dest="Credit---What's-in-a-FICO-score">credit score</pagelink> higher than 680, and a combined <pagelink type="wikipage" dest="Loan-To-Value-Ratio-(LTV)">loan-to-value ratio</pagelink> of the first and second mortgages in the 80-90% range. Homeowners with high credit scores &ndash; above 720 &ndash; will qualify for the best rates. When exploring your options, homeowners should also consider a cash-out refinance which will generally offer a lower overall interest rate on both loans and have easier qualification guidelines.</p><br/><p><strong>Under what conditions should you avoid a HELOC? Under what conditions should you avoid a traditional home equity loan?</strong></p><br/><p>If you're on a fixed income budget and require a stable, consistent monthly payment, a home equity loan will be a better choice. HELOCs are better suited for folks who need flexibility in their monthly cash flow, or just want to have an emergency line of credit for unexpected expenses. In either case, a qualified loan consultant can help a homeowner understand the tradeoffs of each loan type, and the advantages and disadvantages of having two loans compared to a single larger loan.</p><br/><p><strong>Is now a good time to even consider one of these loans, considering the state of the lending market and real estate market? Is it better to perhaps wait until the subprime mess is further resolved or rates/terms improve for borrowers?</strong></p><br/><p>There is really no reason to wait. The present low long-term interest rates are very attractive rates in any market. The impact of the sub-prime credit crunch has been for lenders to tighten the guidelines and make these loans harder to qualify for. Again, a qualified loan consultant can quickly explain your options based on your individual situation.</p><br/><p><strong>How have home equity loans and HELOCs changed over the years? Have these products improved or become more complicated?</strong></p><br/><p>Banks have made HELOCs easier to get in recent years and have offered incentives such as no closing costs and introductory teaser rates for the most creditworthy homeowners. The ability to access your HELOC via credit card also greatly increases the flexibility of this loan.</p><br/><p><strong>Where is the best place to apply for a home equity loan or HELOC &ndash; a traditional bank/lender? A mortgage lender?</strong></p><br/><p>Banks, mortgage banks and other direct lenders will be the best choice. Some lenders have attempted to offer self-service HELOCs on their websites with limited consumer acceptance.</p><p><em><br/></em></p><p><strong>The Important Points To Remember</strong></p><br/><p>If you are thinking about a home equity loan or a HELOC, you should apply as soon as possible. The national trend toward declining home values means you will qualify for less money today than you might have a year ago. Speak to a qualified loan officer who can explain several different options, and make sure you never agree to a pre-payment penalty.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 22:20:00 GMT http://www.zillow.com/advice-thread/Home-Equity-Loans-vs-Home-Equity-Lines-Of-Credit/3846/ 2012-10-12T22:20:00Z How Do Adjustable Rate Mortgages (ARMs) Work? http://www.zillow.com/advice-thread/How-Do-Adjustable-Rate-Mortgages-ARMs-Work/2049/ <wikipage><p>In past decades, many people have been trained to think that a 30-year fixed-rate mortgage is the only way to go when it comes to getting a mortgage. They look negatively on adjustable rate mortgages (ARMs) because they fear the adjustable part. But there are advantages to having an ARM and times where a long-term fixed-rate mortgage doesn't really make as much sense.</p><br/><p><strong>Lower Rates and Payments</strong></p><p>An ARM, or adjustable rate mortgage, is similar to a 30-year fixed-rate mortgage in that it is also amortized over a 30-year period. But it's usually for shorter-term situations and generally carries a lower interest rate than fixed-rate mortgages. So if you're trying to keep your interest rate and payment low, an adjustable can be a sensible choice. And since it's a short-term mortgage, it's useful to have a lower rate and payment if you know you're only going to be in your home for less than 10 years--especially when most American families generally move within nine years or less.</p><br/><p>Some adjustable rate mortgages give you even more financial flexibility if they are available with interest-only payments. During the interest-only period, you decide if you want to pay interest plus principal or just interest alone. The rest of your money can go elsewhere, say, toward other bills or just extra spending money.</p><br/><p><strong>A Closer Look at ARMs</strong></p><p>Many people tend to shy away from ARMs for the fact that the rate is adjustable. However, there are a few caveats to this:</p><ol><li>While ARMs do have an adjustable rate, the rate is fixed for six months, one, three, five, seven, and sometimes even nine years, depending on which term you choose. The rate doesn't begin to adjust until <em>after</em> the fixed-rate period.</li><li>Although the rate can adjust up, don't forget that it can also adjust down as well.</li><li>Most people who have an adjustable rate mortgage usually refinance it when it's time for the rate to adjust. That way, they have some control over their interest rate.</li></ol><p><strong>Caps and ARMs</strong></p><p>If you have an adjustable rate mortgage and can't or don't want to refinance when it's time for the rate to adjust, it's important to understand what happens to the rate after the fixed-rate period.</p><br/><p>When the rate on an ARM adjusts, there are limitations on how much it can increase or decrease. These limitations, called "caps" include the "initial cap", the "periodic cap", and the "lifetime cap". The initial cap is the limit on how much the rate can adjust the first time it adjusts. The periodic cap is the limit on how much the rate can adjust after the first adjustment. The lifetime cap is the limit on how much the rate can adjust over the life of the loan. Different ARMs carry different caps, depending on the program.</p><br/><p>Let's say your ARM has caps of 5/2/5. The first five is the initial cap; the second number is the periodic cap; and the third number is the lifetime cap. If your rate is 6.5 percent, then the initial cap says the first adjustment is your rate plus or minus five percent--so it can go as high 11.5 percent or as low as 1.5 percent (though it's pretty unlikely that rates would change that significantly). The periodic cap says the second and subsequent adjustments are your rate (6.5 percent) plus or minus two percent--so no higher than 8.5 percent and no lower than 4.5 percent. The lifetime cap says the rate can never go higher or lower than your rate (6.5 percent) plus or minus five percent.</p><br/><p>There are times when you'd want to refinance and times when you don't. So why would you not refinance your ARM when it's going to adjust? Well, as we said, rates can go down as well as up. There are some people who are not afraid of risk and are willing to gamble that their rate could go down. To be somewhat savvy, it's wise to follow what's happening in the market to know whether short-term rates will go up or down. The Federal Reserve is usually the entity that affects short-term adjustable rates. They meet eight times a year and decide whether to increase, decrease or maintain short-term rates as a control measure over inflation.</p><br/><p>Deciding whether you should get an ARM and/or whether to refinance it is really your own decision. But if you can answer a few questions--whether or not you want a lower rate and payment; whether or not you're only going to be in your home for less than 10 years, and whether you can stand a little risk in terms of the interest rate--then, you'll be closer to making the right decision. Either way, you should confer with an experienced mortgage expert to be sure you're making the right decision.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 22:20:00 GMT http://www.zillow.com/advice-thread/How-Do-Adjustable-Rate-Mortgages-ARMs-Work/2049/ 2012-10-12T22:20:00Z How to Finance a Fixer-Upper Home http://www.zillow.com/advice-thread/How-to-Finance-a-Fixer-Upper-Home/2104/ <wikipage><p>&nbsp;</p><h2>How to Finance a Fixer-Upper Home</h2><p>A home that needs a lot of repair is what's known as a "fixer-upper" because it needs to be "fixed up." There are several reasons you might buy a fixer-upper. Because of their less-than-peak condition, it can be a less expensive alternative to buying a newer home; fixing it up may be the only way to have a home that meets your needs; you might be an investor looking to "flip" the home (fix it and sell it for a profit); perhaps the home has been in your family for generations and you want to keep it that way; or you might be someone who just enjoys the challenge.</p><br/><p>Whatever your reason, it's going to take a significant amount of cash to make whatever changes or repairs the home needs. So where are you going to get the money?</p><br/><p>Well, you could pay for the materials, home repairs and home improvements on your credit card. But these days, that's not necessarily the best use of your credit. Credit card companies are charging higher minimum monthly payments and credit card interest rates can be very high.</p><br/><p>Another way to do it would be to dip into your savings. But then, that's not the best use of your money either. What if you had an emergency that you had to deal with? Perhaps your car's engine gives out and you have to have it repaired. If you had no savings, then you might have to use your credit card. Again, with higher interest rates and minimum monthly payments, that can get expensive.</p><br/><p>Probably the best way to get the money for fixing up a home is to tap into your existing home equity. There are a few ways you can do this:</p><br/><h2><strong>Cash-Out Refinance</strong></h2><p>You can get cash from your home equity by refinancing your existing mortgage for more than the balance you owe. For example, if your existing mortgage balance is $100,000, you could refinance into a new mortgage for $150,000. You still owe the $100,000, but you'd have another $50,000 to use for the home improvements.</p><br/><h2><strong>Home Equity Loan</strong></h2><p>You could get a second mortgage on top of your existing mortgage. A home equity loan gives you a lump sum of money that's good to use for a one-time big expense. This is also a good way to get cash from your home equity, especially if you've hired someone to do the repairs and plan to pay them all at once.</p><br/><h2><strong>Home Equity Line of Credit (HELOC)</strong></h2><p>Another good way to finance the home repairs and improvements is to get a home equity line of credit (HELOC). A HELOC is also a second mortgage, but instead of one lump sum of cash, it works more like a credit card using your equity as your line of credit. You can draw from it anytime you need to and pay it off as you use it. This is very handy when you have, say, several contractors doing different work and need to pay them all at different times.</p><br/><h2><strong>Benefits of Using Your Home Equity</strong></h2><p>There are great benefits to accessing your home equity to get cash for a fixer-upper. The first is that the interest you pay on a mortgage is usually tax-deductible*, unlike the interest on a credit card. The second is that the interest rate you could get on a home loan is lower than the rate you get on a credit card.</p><br/><p>Third, there are many different loan options available these days, some with interest-only payments built into them which means that, in any given month during the interest-only period, you're only required to pay the interest portion of the monthly payment. That kind of flexibility and smaller monthly payment could make it even easier for you to handle paying for those home repairs.</p><br/><p>There are several ways to finance a fixer-upper that can give you added benefits without having to make high monthly payments or dip into your savings.&nbsp; &nbsp;So whatever your reason for buying one, you have several options that will make that home worth your while and you'll have a beautiful home to show for it.&nbsp; To explore your options, contact an experienced mortgage banker.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p><br/></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 22:00:00 GMT http://www.zillow.com/advice-thread/How-to-Finance-a-Fixer-Upper-Home/2104/ 2012-10-12T22:00:00Z What Is a First-Lien HELOC? http://www.zillow.com/advice-thread/What-Is-a-First-Lien-HELOC/2048/ <wikipage><p>To understand what benefits a "first-lien HELOC" offers, it's important to know first what it is. A first-lien HELOC is basically a home equity line of credit (HELOC) in the first lien (or first mortgage) position. Confused? Let us explain.</p><p>&nbsp;</p><p>Normally, a home equity line of credit is considered a second mortgage. And you can't have a second mortgage without a first. So, let's say you have a home worth $100,000 that you obtained with a traditional first mortgage. You've paid off $75,000 of the principal on that mortgage and you owe $25,000 (in principal). If you got a home equity line of credit, you could use the money you get from the HELOC to pay off the first mortgage. You no longer have a first mortgage, so the HELOC then becomes your first lien.</p><br/><p>When you make a mortgage payment, you're paying two basic things: principal and interest. Principal is the amount you borrowed in the first place and the interest is the fee charged by the lender for borrowing the money. There is an inverse relationship between how much interest you pay to how much principal you pay toward your mortgage. In the beginning of your loan term, your mortgage payment is mostly interest and very little principal. As the loan term progresses, you pay increasingly less interest and more principal until toward the end of your loan term when your mortgage payment is mostly principal and very little interest.</p><br/><p><strong>Why Get a First-Lien HELOC?</strong></p><p>Understanding all that, a first-lien HELOC can be very useful.</p><br/><p>Let's say you have a traditional 30-year fixed-rate mortgage that you've been paying faithfully for 25 years. You may know by now that mortgage interest is usually tax-deductible*. But now you're in the later stages of your mortgage where you're paying very little mortgage interest, as we just explained. So trying to deduct the interest from your taxes isn't offering any real benefits at this point. If you were to get a home equity line of credit, you could use the HELOC to pay off your 30-year fixed and the HELOC becomes your first mortgage, or first lien. Now you're at the beginning with your new mortgage and you can deduct more mortgage interest again.</p><br/><p>Of course, you could also get a first-lien HELOC if you've paid off your house and own it outright.</p><br/><p>Either way, now you have a mortgage that works like a credit card in that you can draw from the account at any time and pay it back if and when you draw. Having this kind of flexibility can come in handy if you need to draw from it to make ongoing home improvements and have to pay several contractors; if you have a child who's getting ready for college and you need to pay their tuition and other college expenses; or if you are thinking about buying that fishing boat you've always wanted and have to make payments on that.</p><br/><p>Remember, it's better to pay for these sorts of big expenses with the money from your home equity line rather than with your credit card because you get a better interest rate on the money you borrow and the interest on your mortgage is usually tax-deductible* whereas the interest on your credit card is not. Plus, HELOCs are tied to short-term adjustable rates which are usually lower than long-term fixed rates, so you could be getting a very good rate on a first-lien HELOC.</p><br/><p>First-lien HELOCs provide homeowners with flexibility, liquidity, great tax advantages and a low interest rate. You can make large purchases without paying high interest rates (compared to credit cards) on the money you borrow.&nbsp;</p><br/><p>*Please check with your tax advisor.<br/><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 21:38:00 GMT http://www.zillow.com/advice-thread/What-Is-a-First-Lien-HELOC/2048/ 2012-10-12T21:38:00Z reinstatement of a loan - definition http://www.zillow.com/advice-thread/reinstatement-of-a-loan-definition/2697/ <wikipage><p>Reinstatement of the loan is for those borrowers who are able to find some money to pay the mortgage payments that are behind, and bring them to the current. These costs would include whatever owed on the missed payments, and any additional late charges or attorney fees.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p><h2>Resources</h2><p><pagelink type="external" dest="http://besthomesellingtips.com/category/stop_foreclosure/" nofollow="true">BestHomeSellingTips.com</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 21:32:00 GMT http://www.zillow.com/advice-thread/reinstatement-of-a-loan-definition/2697/ 2012-10-12T21:32:00Z Using CalPERS to Purchase a Home http://www.zillow.com/advice-thread/Using-CalPERS-to-Purchase-a-Home/4064/ <wikipage><p>CalPERS Purchase Home Loan Program:<br/><br/>Qualifications:<br/>1. Must currently or previously participated in the CalPERS Retirement System<br/>2. Can be retired, inactive or currently employed by any State, County, Municipal or Legislative agency<br/>3. Purchase of Primary Residence Only and not currently have a CalPERS loan<br/><br/>Benefits to using CalPERS Financing:<br/>1. Competitive Interest Rates<br/>2. Reduced Title, Lender Fees, and Mortgage Insurance Premiums<br/>3. 103 % financing available<br/>4. CalPERS personal loan to aid with down payment at competitive interest rates against the your retirement without loosing any vested dollars<br/>5. Lock rates for 90 days with two free float downs to insure you've got best rate!<br/>6. Loans up to 1.6 Million<br/>7. Hone loans made to CalPERS employees directly support CalPERS.<br/><br/>Loan Programs Available:<br/>1. Conventional 30yr Fixed Rate, No Pre Payment Penalty<br/>2. 3/1 7/1 10/1 Arms Available<br/>3. I/O products Available but are Fico Based to qualify<br/>4. FHA Government backed loans<br/>5. Down Payment assistance programs available<br/><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 21:26:00 GMT http://www.zillow.com/advice-thread/Using-CalPERS-to-Purchase-a-Home/4064/ 2012-10-12T21:26:00Z The Truth about Payment Option ARMS http://www.zillow.com/advice-thread/The-Truth-about-Payment-Option-ARMS/1487/ <wikipage><h2>Option ARMS - Good or Bad?</h2><p>Payment Option ARMs:<br/>They come in 3 different forms, and are marketed under many different names.<br/><br/><br/>Names like...</p><ul><li>"Debt Buster"</li><li>"The Cash Maximizer"</li><li>"Easy Pay"</li><li>&nbsp;"4 Pay"</li></ul><p><br/>&nbsp;&nbsp;&nbsp; It <strong>doesn't matter</strong> if they adjust each month,<br/>&nbsp;&nbsp;&nbsp; It <strong>doesn't matter</strong> if they are fixed for 5 or 10 years,<br/>&nbsp;&nbsp;&nbsp; It <strong>doesn't matter</strong> if they are fixed for 30 years,<br/>&nbsp;&nbsp;&nbsp; The style, the index, the margin, the lender, <strong>they all don't matter!</strong><br/><br/>Payment Option ARM's have gotten a pretty bad rap lately.<br/><br/>But here's the truth ...<br/><strong><br/>They are not bad loans!</strong><br/>Surprised?<br/>&nbsp;<strong><br/>The problem is that they have been sold to all the wrong people for all the wrong reasons.</strong></p><ol><li>The loan is perfect for someone who wants to refinance or sell within 5 years of placing the loan.</li><li>It's perfect for someone who has taken the extra money they would have spent on payments and used it to significantly upgrade their home.</li><li>It's perfect for someone who has taken the extra money they would have spent on payments and used it to invest in high quality stocks or bonds.</li></ol><p>If you are not one of the 3 listed above you may be in for a rude awakening.<br/><br/>Not only is your loan going to adjust...<br/>Your minimum payment may <strong>double or triple in the near future!</strong><br/><br/>That's your Minimum Payment!<br/>Can you handle triple your minimum payment each month?<br/><br/>This has <strong>nothing</strong> to do with rising interest rates.<br/><strong>Nothing</strong> to do with interest rate or payment caps.<br/>This has <strong>nothing</strong> to do with your credit score.<br/>This has <strong>nothing</strong> to do with housing bubbles.<br/><strong>Nothing</strong> to do with your payment history<br/>And the worst part?<br/>You'll have <strong>nothing</strong> to say about it!</p><h3>6 Things You Need To Know:</h3><ol><li>Your loan has a Recast Percentage (typically 110%)</li><li>Your loan has a Recast Period (typically 5 years)</li><li>Your loan has Rate Adjustment and Payment Caps (limits)</li><li>When your loan hits either of the Recast limits it doesn't matter what caps you have, your minimum payments will double or triple.</li><li>Some lenders have tiered declining prepayment penalty systems (that's a good thing)</li><li>Your Lender doesn't want you to know this information!</li></ol><p>&nbsp;&nbsp;<br/><strong>Example:</strong><br/>Here's a scenario of a typical $400,000 loan,<br/>It was scheduled to recast in 5 years,<br/>It actually recasts in <strong>39 months!</strong><br/>&nbsp;<br/>When it recasts the minimum payments change.<br/><br/>The minimum payment went from a "reasonable" $1,487<br/>To $4,096 in one month!<br/><strong>That's a 275 % change in payment!<br/>Two Hundred Seventy Five Percent!</strong><br/>&nbsp;<br/>Here's what we know:</p><ul><li>You are not locked into riding this loan out.</li><li>In the next 24 months 3 trillion dollars in ARMs will become due.</li><li>75% of people with your type of loan make the minimum payment each month.</li><li>When they hit the recast period, they will go into foreclosure.</li><li>When they go into foreclosure, they'll drag housing values down.</li><li>When home values go down you lose equity.</li><li>When you lose equity, you lose financing options.</li><li>Many people will then not be able to refinance.</li><li>This will cascade into more foreclosures</li></ul><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p><h3>Wouldn't it be better to be in a fixed rate loan before this happens?</h3><h3>We think so too!</h3><p><pagelink type="external" dest="http://www.getprequalified.com/mortgage_article_8.php" nofollow="true">Option Arm Articles</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 21:15:00 GMT http://www.zillow.com/advice-thread/The-Truth-about-Payment-Option-ARMS/1487/ 2012-10-12T21:15:00Z Definition of Subprime Mortgage Explained http://www.zillow.com/advice-thread/Definition-of-Subprime-Mortgage-Explained/2960/ <wikipage><p>There is no official definition of what makes a loan subprime or not. One key factor in determining what kind of loan a borrower gets is his or her credit score. Credit scores can run from 300 to 850, and many involved in the business view a credit score of 620 as a historic rough dividing line between borrowers who are unlikely to qualify for a conventional, or prime loan, and those who may be able to. But there is no hard and fast cut off; many people with higher credit scores take subprime loans. In addition, not all adjustable-rate mortgages are subprime.&nbsp;<br/><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 21:09:00 GMT http://www.zillow.com/advice-thread/Definition-of-Subprime-Mortgage-Explained/2960/ 2012-10-12T21:09:00Z What Is a Balloon Mortgage? http://www.zillow.com/advice-thread/What-Is-a-Balloon-Mortgage/2114/ <wikipage><p>A balloon mortgage is a short-term fixed-rate loan in which the principal and interest payments are due for a set number of years, usually five, seven, or ten years. After that, the remaining loan balance is due in a "balloon payment," meaning you pay off the remaining loan balance in one large final payment. The balloon payment can be paid by refinancing to a new loan.</p><p>&nbsp;</p><p>Homeowners who choose a balloon mortgage do so because it comes with a lower rate (thus a lower payment) than a comparable 30-year mortgage.</p><p>&nbsp;</p><p>An adjustable rate mortgage (ARM) can also give you a lower rate as well. However, there is a difference-with a balloon mortgage, your interest rate will change only once when you refinance it. If you have an ARM and don't refinance after the initial fixed-rate period, then your ARM can adjust as often as every six months or every year. When it does, the rate could adjust to a much higher level and you could experience a payment shock.</p><br/><p>It's typical, even common, for a homeowner to move within ten years, so it can help you if you don't plan to live in your home for longer than that. How? Because it gives you a fixed rate for the term of the loan. If you have a seven-year balloon mortgage, you get a fixed rate for seven years and you wouldn't have to worry about your rate and payment going up.</p><br/><p>But be aware that the right to refinance is not guaranteed. You need to keep your credit and finances in good standing in order to refinance at a later date. There are some balloon programs that will allow you to fix a rate at the end of the balloon period (based on current market). Lenders like Quicken Loans, the nation's largest online lender, offer this type of program. Check with your lender to see if other conditions must be met.</p><br/><p>Getting a balloon mortgage is a good way to get a lower rate and payment than a 30-year fixed rate or adjustable rate mortgage if you plan on moving by the time the loan term is up. Just be sure that it is the right loan that fits your situation.<br/><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 21:05:00 GMT http://www.zillow.com/advice-thread/What-Is-a-Balloon-Mortgage/2114/ 2012-10-12T21:05:00Z Native American Home Loan Programs http://www.zillow.com/advice-thread/Native-American-Home-Loan-Programs/2416/ <wikipage><p align="left"><strong>What is the Section 184 Loan Guarantee Program?</strong></p><p align="left"><br/>Congress established the <pagelink type="external" dest="http://www.hud.gov/offices/pih/ih/homeownership/184/" nofollow="true">Section 184 Indian Housing Loan Guarantee Program</pagelink> in 1994. The program is designed to offer home ownership, property rehabilitation, and new construction opportunities for eligible tribes, Indian Housing Authorities and Native American individuals and families wanting to own a home on trust land or land located in an approved Indian or Alaska Native area.<br/><br/><strong>Does This Program Apply Only to Homes on Tribal Land?</strong></p><p align="left"><br/>This program applies to nearly any property within the State of California which is designated as an "Indian Area" as defined in The Native American Housing Assistance and Self Determination Act of 1996. Contact a Realtor for more information and to see if your area is included.<br/><br/><strong>Can I buy a New Home Using This Program?</strong></p><p align="left"><br/>In many cases, the answer is YES!</p><p align="left"><br/><strong>Who Can Qualify?</strong></p><p align="left"><br/>Local Tribes Eligible to Participate:<br/><br/>&bull; <strong>Soboba Band of Luiseno Indians<br/><br/> &bull; Santa Ysabel Band of Diegueno Indians<br/><br/> &bull; Pala Band of Mission Indians<br/><br/> &bull; Morongo Band of Mission Indians<br/><br/> &bull; Cabazon Band of Cahuilla Mission Indians<br/><br/> &bull; Barona Group of Capitan Grande Band of Mission Indians</strong><br/><br/><strong>How Much Can I Borrow?</strong></p><p align="left"><strong><br/></strong>The current loan limit is $544,000 (150% of current FHA guidelines) and includes single family homes as well as manufactured homes on their own land (Fee Simple) and permanently affixed to the land. The amount you can<br/>borrow will be determined by your current income and the amount of your current debts. Your prior credit history is not the main factor in qualifying for a 184 loan product.<br/><br/><strong>Do I Need a Down Payment?</strong></p><p align="left"><br/>Current rules require a down payment of 2.25% of the purchase price. ($2,250.00 for every $100,000.00 borrowed). This money can be from your savings, investments or can also be a gift from a friend or family member. There is no requirement for "seasoning" of the down payment.<br/><br/><strong>Do I have to Have Mortgage Insurance?</strong></p><p align="left"><br/>Private Mortgage insurance (PMI) is not required when utilizing the 184 program. Private mortgage insurance can add thousands of dollars to standard loans.<br/><br/><strong>Can I Borrow More Than The Maximum?</strong></p><p align="left"><br/>No problem. The "184 program" allows for the buyer to obtain a "conventional" 2nd trust deed when the purchase price of your home exceeds the maximum ($544,000.00). If you purchased a home for $750,000.00, you could use the 184 as the primary loan (1st) and obtain a conventional loan of $206,000.00 for the balance (2nd). Conventional terms and rates would apply to the 2nd loan.<br/><br/><strong>What About My Credit History?</strong></p><p align="left"><br/>Unlike most conventional loan programs, there are no FICO Score requirements. Some types of delinquency are O.K. and having no credit is not usually a problem either. Some delinquent accounts may need to be paid or brought current prior to funding your new loan.<br/><br/><strong>What Is The Interest Rate?</strong></p><p align="left"><br/>The 184 program utilizes FHA rates and are fixed for 30 years with no prepayment penalties.</p><p align="left">As always, contact a real estate professional for more details on this program.<br/><br/><pagelink type="external" dest="http:// https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 18:18:00 GMT http://www.zillow.com/advice-thread/Native-American-Home-Loan-Programs/2416/ 2012-10-12T18:18:00Z Financing a Home Improvement Project http://www.zillow.com/advice-thread/Financing-a-Home-Improvement-Project/4079/ <wikipage><p>It's time to do that home improvement project you've been putting off. According to David Hall, senior vice president at Quicken Loans, good results hinge on three important key factors:</p><br/><p><strong>Choosing the Right Project</strong></p><p>The right project can dramatically increase the resale value of your home. Most experts agree that kitchen remodels, bathroom remodels and second-story additions yield the highest return on investment.</p><br/><p><strong>But be careful not to over-improve</strong>.</p><p>It's difficult to recover the investment in a home that's already more valuable than most others in the neighborhood. And remember, eclectic tastes probably won't appeal to mainstream home buyers.</p><br/><p><strong>Finding a Good Contractor Work with an experienced contractor who'll finish your home improvement project on time and on budget.</strong></p><p>Talk to friends, neighbors, and co-workers - they're great sources for a referral. Also drive around your neighborhood and look for signs posted at job sites. That's a great way for you to view a contractor's work first-hand.</p><br/><p><strong>Deciding on the Right Financing Option</strong>.</p><p>While some people use cash or credit cards, others find that leveraging their home equity or refinancing their mortgage and getting cash out are far better options.</p><br/><p><pagelink type="wikipage" dest="Home-Equity-Loans-and-Lines">Home Equity Loan</pagelink>.</p><p>This is a second mortgage secured by the equity in your home, typically with a fixed mortgage rate. Rates may be somewhat higher than your first mortgage but they're typically better than interest rates on credit cards. And remember, the interest you pay on a home equity loan may be tax deductible whereas the interest paid on your credit card probably is not.</p><br/><p><pagelink type="wikipage" dest="Home-Equity-Credit-Lines">Home Equity Line of Credit</pagelink>.</p><p>This is a variation of a home equity loan. You'll get a revolving line of credit secured by the equity in your home that you can repay and draw on, as needed. It's ideal for major home improvements projects where you need to make multiple payments to a contractor over an extended period of time. Interest rates are typically variable and you may pay a nominal account fee each year.</p><br/><p><strong>Cash-Out Refinancing</strong></p><p>With a "cash-out refinance" you refinance, your existing mortgage into a new mortgage that consists of your original mortgage plus the amount of home equity you decide to draw upon.</p><br/><p>Here's an example: Let's say you owe $100,000 on a $200,000 house and you need $20,000 for a kitchen remodel. You can refinance your original mortgage into a new one for $120,000, extracting that $20,000 which you'll receive as one lump sum payment (when you close on your loan).</p><br/><p>A cash-out refinance may allow you to secure a lower mortgage rate and the interest you pay is usually tax-deductible*.</p><br/><p>One issue that frequently arises is the current value of your home does not allow you to obtain the cash required for the renovations via a cash out refinance or home equity loan or line of credit.&nbsp; Renovation financing is available.&nbsp; Renovation financing allows you to include the improvements in the value of the home allowing you to access the equity that you will be creating by renovating your property.</p><br/><p>* Please consult your tax advisor.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 18:15:00 GMT http://www.zillow.com/advice-thread/Financing-a-Home-Improvement-Project/4079/ 2012-10-12T18:15:00Z Should you leverage your home? http://www.zillow.com/advice-thread/Should-you-leverage-your-home/2224/ <wikipage><p><br/> <strong>Should You Leverage Your Home or</strong></p><p><strong><br/></strong></p><p><strong>Pay It Down Rapidly?<br/></strong> <strong>&nbsp;</strong></p><br/><p>There is a great debate within the inner-mortgage circles these days. Should loan professionals encourage clients to borrow as much money as possible? Or would consumers benefit more if they understood the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.</p><br/><p><strong>Leveraging Your Property.</strong> In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example:<br/> &nbsp;<br/> If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity.<br/> &nbsp;<br/> Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.</p><p><br/> As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.</p><br/><p>However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.</p><br/><p><strong>Paying Your Home Down Rapidly.</strong> There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.</p><br/><p>It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.</p><br/><p><strong>Conclusion.</strong> So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.</p><br/><p>The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.<br/><br/> If you find this subject intriguing and would like to know more, recommended reading is <em>Missed Fortune 101</em>, by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than this article.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 18:15:00 GMT http://www.zillow.com/advice-thread/Should-you-leverage-your-home/2224/ 2012-10-12T18:15:00Z Home Equity Loans and Lines http://www.zillow.com/advice-thread/Home-Equity-Loans-and-Lines/95/ <wikipage><p>If you've ever asked yourself "What the heck's a HELOC," then you've come to the right place!</p><p><br/>There are two types of home equity borrowing: home equity <em>lines of credit</em> and home equity <em>loans</em>.</p><p>&nbsp;</p><ul><li>A <strong>HELOC,</strong> or <strong>Home Equity Line of Credit</strong>, is the right to borrow money from a lender up to a certain amount of money. The "line" is a credit line guaranteed by your house, meaning that if you can't live up to the terms of the line, then the lender has a right (after a few nasty letters) to foreclose on your house. Typically HELOCs (pronounced HEE-lock) have floating interest rates that can change periodically.</li></ul><p>For example, a borrower might obtain a $75,000 HELOC at "prime plus one." This means that the interest rate is one percentage point higher than the <pagelink type="wikipage" dest="Prime-Rate">Prime Rate</pagelink>. If Prime is 5.5%, then the HELOC is 6.5%. Remember: The rate is tied to the Prime and could change as much as at every billing date. (The change can be dramatic; e.g., in April of 2007, the Prime Rate was 8.25 percent, whereas in June of 2003, it was 4.25 percent.)&nbsp;&nbsp; Many HELOCs today have a fixed rate feature sometimes called a "Fixed Rate Partition" that allows the borrower to lock a portion of the loan amount at a fixed rate for a period of time.&nbsp; This feature varies greatly between different lenders.<br/><br/><strong>Who should get one:</strong> Someone who might need extra cash for home improvements, or is looking at borrowing money to buy a different house (in addition to a mortgage).<br/>&nbsp;&nbsp;&nbsp; <strong><br/>Who shouldn't:</strong> Do not use a HELOC to splurge for things like vacations or to finance other consumer debts, like credit card purchases (unless you then plan to tear those cards up!). HELOCs are guaranteed by your house, which means the stakes are very high.</p><br/><ul><li><strong>Home Equity Loans</strong> are when a lender gives you a set amount of money and you pay it back over a fixed payment schedule. Typically these loans have fixed interest rates. This is a better option for someone who wants to lock in a fixed interest rate, either because they think interest rates are going to increase or because they like the certainty of knowing what their payment schedule will be.</li></ul><p>A home equity <em>loan</em> also is a better option than a home equity <em>line</em> if you know exactly how much money you need to borrow and when you want to borrow it.<br/><br/><strong>How to get one:</strong> You can get a home equity loan or line either from a <pagelink type="wikipage" dest="Types-of-Lenders">mortgage broker</pagelink> or from a bank directly. These loans are also called "second mortgages" because they are typically obtained after the home has been purchased with a first mortgage loan.</p><br/><h2>Taxes and Interest</h2><p>Are HELOCs tax deductible? Sort of. Like first mortgage interest payments, home-equity borrowing differs from credit card debt in that you can deduct the interest on your tax return. But this only applies if you itemize your deductions. Also, the tax deduction on interest is limited to loan amounts up to $100,000, with some restrictions.<br/><br/>What determines the interest rate? The <pagelink type="wikipage" dest="Loan-To-Value-Ratio-(LTV)">Loan to Value Ratio</pagelink> and your <pagelink type="wikipage" dest="Credit-Report">credit score</pagelink> determine the interest rate of a home equity loan or line. If your credit score is excellent (760), you may be able to get an interest rate at the prime lending rate, or possibly lower. A good credit score (700-760) will likely get you an interest rate that is about the same as the prime rate. Poor credit will likely result in rates of 1 - 5 points higher than the prime rate. Except in some cases, you should be able to avoid fees such as application or appraisal fees, though you might get hit with an annual fee or a small "recording" fee.</p><br/><h2>The Good News</h2><p>Home equity lines can be used by the borrower to pay for anything. You literally get a checkbook for the HELOC and you can write checks to your heart's content until you've maxed out the line's limit. Although HELOCs were originally designed for homeowners to pay for home improvements and other house-related projects, nowadays borrowers use home equity lines for almost anything. Most HELOCs also have online Internet access so you can pay bills online using your HELOC just like you would with a regular online checking account.<br/><br/>HELOCs and home equity loans can also be used as second mortgages at the time of purchase. Frequently they are the second purchase mortgage for 10, 15, or 20 percent of the purchase price when buying a home. Home buyers can avoid buying <pagelink type="wikipage" dest="Private-Mortgage-Insurance-(PMI)">mortgage insurance (PMI)</pagelink> if they take out two loans instead of one, with no single loan exceeding 80 percent of the purchase price. HELOCs can fill this gap, wherein the first mortgage is frequently 80 percent of the purchase price and the HELOC is the second mortgage.<br/><br/>Like a credit card balance, you can pay down a HELOC at any time, without penalties.</p><br/><h2>The Not-So-Good-News</h2><p>Home equity lines are serious stuff, since they're secured by your house. If you can't meet the payment obligations such as your minimum monthly balance, your homeownership is in jeopardy.&nbsp; Make sure you do your homework and fully understand all the consequences as well as the benfits.&nbsp; What may be a quick fix for debt relief or vacation plans could end up costing you your best investment.&nbsp; &nbsp;<br/>&nbsp;</p><h2>Real Life Example</h2><p>Bonnie is buying a $300,000 home and has $30,000 saved for her down payment. She needs to borrow the remaining $270,000. She works with a <pagelink type="wikipage" dest="Types-of-Lenders">mortgage broker</pagelink> to take out a first mortgage for 80 percent of the purchase price ($240,000) and a Home Equity Loan for 10 percent&nbsp; ($30,000). The terms of the home equity loan are fixed at 6 percent. On closing, she ends up with a $30,000 home equity loan, in addition to her $240,000 mortgage. She may pay a slightly higher interest rate on the Home Equity Loan than on her first mortgage, but that interest is tax deductible, whereas the <pagelink type="wikipage" dest="Private-Mortgage-Insurance-">Private Mortgage Insurance</pagelink> premiums she would have had to pay with a mortgage greater than 80 percent would not have been.&nbsp;</p><br/><h2>Real Life Example</h2><p>Harriet wants to remodel her kitchen because she loves to cook. Also, she has heard that a modern kitchen will help her resale value when she sells the house. (She has used the <pagelink type="zillowpage" dest="/learnmore/CreatingEstimate.htm" nofollow="false">My Estimator</pagelink> tool on Zillow, and knows that in her area kitchen remodels are good investments.)<br/><br/>Harriet goes to her local bank where she has a checking and savings account and gets a HELOC. The bank orders an appraisal to see if the house value justifies the HELOC. It will also check to see how much <pagelink type="wikipage" dest="Equity">equity</pagelink> Harriet has in the house. Her house appraises for $400,000 and she has a mortgage with $50,000 remaining on it, so the bank knows there is $350,000 of equity there ? plenty to support a $25,000 home equity line of credit.<br/>Borrow<br/>Harriet uses the $25,000 line to buy a new refrigerator and oven, and to pay the contractor who does her remodel.</p><p><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p><br/><p><strong>Next article: <pagelink type="wikipage" dest="Refinancing-Your-Home">Refinancing Your Home</pagelink></strong></p><p><strong>Previous article: <pagelink type="wikipage" dest="Types-of-Lenders">Types of Lenders</pagelink></strong></p><br/><h2>Related Links</h2><ul><li><pagelink type="wikipage" dest="Refinancing-Your-Home">Refinancing Your Home</pagelink></li><li><pagelink type="wikipage" dest="Understanding-Mortgage-Types">Understanding Mortgage Types</pagelink></li><li><u><pagelink type="wikipage" dest="Choosing-a-Lender">Choosing a Lender</pagelink></u></li></ul><p>&nbsp;<pagelink type="zillowpage" dest="/mortgage-rate-explorer/United-States_30-Yr-Fixed-Mortgage_High-Credit_High-Down_1Mo-Span" nofollow="false">--&gt; See Mortgage Rates in Your State</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 18:13:00 GMT http://www.zillow.com/advice-thread/Home-Equity-Loans-and-Lines/95/ 2012-10-12T18:13:00Z Non-Traditional Mortgage Loans http://www.zillow.com/advice-thread/Non-Traditional-Mortgage-Loans/4091/ <wikipage><p>Lenders are creative when it comes to loans to enable people to own a home. That sounds very American, but sometimes the loans are issued regardless of a buyer's ability to pay. In recent years, when the housing market was hot, non-traditional loans sprouted up like dandelions on your front lawn. And then when the housing market melted, the crabgrass spread in the form of foreclosures.</p><br/><p><strong>Non-traditional loans include:</strong></p><ul><li><pagelink type="external" dest="http://../../../../../../mortgage/help/Types-Of-Mortgages-And-Home-Loans.htm" nofollow="true">Interest-only</pagelink> loans mean the buyer pays no principal and only interest for a period of time. Payments are low because the buyer is not paying anything down on the principal, though he can if he wants (though few do). If this is a short-term loan, buyers can benefit from the reduced payments &mdash; it enables them to borrow more in the loan amount. But it all depends on the length of the interest-only period; the shorter the better.</li><li><pagelink type="external" dest="http://../../../../../../mortgage/help/Types-Of-Mortgages-And-Home-Loans.htm" nofollow="true">Payment-option ARMs</pagelink> let the buyer choose from a selection of payments: negative amortization, interest only, or fully amortized. The buyer has to be careful not to pile up an even higher debt by always choosing the lowest payment.</li><li>Zero-down loans do not require a down payment, so the loan amount, as a percentage of the purchase price, is usually higher than the <pagelink type="external" dest="http://www.fanniemae.com/aboutfm/loanlimits.jhtml?p=About Fannie Mae&amp;s=Loan Limits" nofollow="true">Fannie Mae guidelines</pagelink>; if the borrower gets a second mortgage to cover the amount above the guidelines, it's called a "piggyback loan" or a "purchase money second mortgage." Ditto if the borrower does not have enough for a down payment, and gets two mortgages instead. (See <pagelink type="external" dest="http://../../../../../../mortgage/help/Types-Of-Mortgages-And-Home-Loans.htm" nofollow="true">Understanding Types of Mortgages and Home Loans</pagelink>.)</li></ul><br/><p><strong>Traditional loans</strong> are those where the principal and interest are paid in an agreed-upon payment schedule, with a down payment that fits within the usual parameters. Fixed and conventional ARM loans fall into that description.<br/><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink><br/></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 18:06:00 GMT http://www.zillow.com/advice-thread/Non-Traditional-Mortgage-Loans/4091/ 2012-10-12T18:06:00Z HELOC for Investment Property http://www.zillow.com/advice-thread/HELOC-for-Investment-Property/2179/ <wikipage><p>A HELOC for investment property is a Home Equity Line of Credit, which can be used to purchase an investment property. It is a way to release equity from your home or, if you prefer, a way to borrow money against the equity in it. It is also another form of mortgage and is similar to a home equity loan. &nbsp;<br/><br/>The main difference between a heloc vs home equity loan is the way you are able to access the line of credit. A home equity line of credit (HELOC) has an open-ended line of credit or a revolving line of credit similar to a credit card.<br/><br/>The point of a HELOC for investment property is that the equity in your house is just sitting there, doing not very much. Why not put it to work again, doing something else? If you can use that capital you have there to buy another place (the investment property) then you are earning the returns from two properties instead of just one. Sounds like a pretty good idea, really.<br/><br/>Selling your house to buy the investment doesn't sound like the point at all. You'd still only have one property. Refinancing or re-mortgaging can be done but that gives you the equity in a single check which may not be how you want to do it. A HELOC for investment property establishes a credit line for you to use, rather than giving you all the money at once. So you can establish what you can afford first, then go house-hunting. Or perhaps you will be receiving income from the investment which you can use to reduce the line of credit, over and above the agreed monthly payments you will be making. What a HELOC really gives you is flexibility which is something that can often be put to good use in investing.&nbsp;&nbsp;<br/><br/><br/><pagelink type="external" dest="https://plus.google.com/116010607353595760297/posts?rel=author" nofollow="false">By Diane Tuman</pagelink></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 18:00:00 GMT http://www.zillow.com/advice-thread/HELOC-for-Investment-Property/2179/ 2012-10-12T18:00:00Z All About FHA Loans http://www.zillow.com/advice-thread/All-About-FHA-Loans/4088/ <wikipage><p><strong>What is an FHA loan?</strong></p><p>It's a bit of a misnomer, since Federal Housing Administration (FHA) loans are not loans at all. What they do is <strong><em>insure loans</em></strong> so that lenders can offer mortgage assistance to people who:</p><ul><li>Have fair or poor credit</li><li>Have a low down payment (must have at least 3.5%)</li><li>Have undergone bankruptcy</li><li>Have been foreclosed on</li></ul><p>Essentially, the federal government insures loans for FHA-approved lenders so that lenders reduce their risk of loss if they lend to borrowers who could default on their mortgage payments. The FHA program has been in place since the 1930s to help stimulate the housing market by making loans accessible and affordable. Traditionally, FHA loans have helped military families who return from war, the elderly, handicapped, or lower-income families, but really, anyone can get an FHA loan - they are not just for first-time home buyers.</p><br/><p><strong>What are the advantages of an FHA loan?</strong></p><p>An FHA loan is the easiest type of real estate mortgage loan to qualify for because it requires a low down payment and you can have less-than-perfect credit. Also, because FHA insures your mortgage, lenders are more willing to provide loans. Another advantage of an FHA loan is it's assumable, which means if you want to sell your home, the buyer can "assume" the loan you have. FHA loans can be used for a home purchase or a refinance.</p><br/><p><strong>What do I need to qualify for an FHA loan?</strong></p><ul><li>Must have steady employment history or worked for same employer for the last two years.</li><li>Must have valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your state.</li><li>Must make a minimum down payment of 3.5% on the house and it can be gifted by a family member (conventional financing does not allow gifting).</li><li>Must have a property appraisal from an FHA-approved appraiser.</li><li>Mortgage payment (including principal, interest, property taxes, property insurance) needs to be less than 31% of your gross monthly income.</li><li>Monthly debt (mortgage, credit cards, auto, student loans, etc.) cannot be more than 43% of your monthly income.</li><li>No minimum requirement for credit scores, but past credit performance will be scrutinized. FHA-qualified lenders will use a case-by-case basis to determine an applicants' credit worthiness.</li><li>Must be two years out of bankruptcy, with good credit.</li><li>Must be three years out of foreclosure, with good credit.</li></ul><br/><p><strong>What are the disadvantages of an FHA loan?</strong></p><p>You knew there had to be a catch and here it is: Since an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront -or, it can be financed into the mortgage -- and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.</p><ul><li><strong>Upfront mortgage insurance premium (MIP)</strong> &mdash; Appropriately named, this is an upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.</li><li><strong>Annual MIP (charged monthly)</strong> &mdash; Called an annual premium, this is actually a monthly charge that will be figured into your mortgage payment. It is based on a borrower's loan-to-value (LTV) ratio and length of loan. There are two different Annual MIP values: 0.50% and 0.55%. If the LTV is less than or equal to 95 percent, a borrower will pay 0.50%. For LTVs above 95 percent, annual premiums will be .55%. Example (for LTV less than 95%): $300,000 loan x 0.5 = $1,500. Then, divide $1,500 by 12 months = $125. Your monthly premium is $125 per month. In most cases, this cost will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -- whichever is longer.</li><li><strong>Property needs to meet certain standards</strong> &mdash; Also, an FHA loan requires that a property meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).</li></ul><p>Important note: Prior to Oct. 1, 2008, premiums were figured using a risk-based calculation, taking into account a borrower's credit score and loan-to-value ratio. However, on Oct. 1, 2008, a one-year moratorium was instituted on this method by the Housing and Economic Recovery Act of 2008. Keep current on the premium costs for FHA loans by visiting the <pagelink type="external" dest="http://www.hud.gov/buying/loans.cfm" nofollow="true">U.S. Department of Housing and Urban Development (HUD)</pagelink>.</p><br/><p><strong>How large of a loan can I get?</strong></p><p>While the FHA does not have income or location restrictions, there are <pagelink type="external" dest="http://www.hud.gov/offices/hsg/sfh/lender/sfhmolin.cfm" nofollow="true">maximum mortgage limits</pagelink> that vary by state and county.</p><br/><p>Due to tighter lending standards on conventional loans, FHA loans are becoming increasingly popular. For more information on FHA loans, visit the <pagelink type="external" dest="http://www.hud.gov/buying/loans.cfm" nofollow="true">U.S. Department of Housing and Urban Development (HUD)</pagelink>.</p><br/><p>Interested in FHA loans? Visit <pagelink type="zillowpage" dest="/mortgage/Mortgage.htm" nofollow="false">Zillow Mortgage Marketplace</pagelink> and get loan quotes free and anonymously.<br/><br/><pagelink type="wikipage" dest="All-About-FHA-Loans">By Diane Tuman</pagelink><br/></p></wikipage><br \><br \>1 reply Fri, 12 Oct 2012 17:56:00 GMT http://www.zillow.com/advice-thread/All-About-FHA-Loans/4088/ 2012-10-12T17:56:00Z