There are a variety of loans available to consumers who wish to buy a home. Out of this variety there are two major choices that most consumers will choose from. These choices are the interest only loans and the traditional loans. What’s the difference? Let’s look at these a little more closely.

An interest only loan is not a type of mortgage. This is only an option that can be attached to a mortgage. Although the interest only loans are not less costly to amortize, more than 31% of all homes in the U.S. have been issued with interest only loans. Many of these loans include refinancing as well. Interest only loans may be attractive to the first time home owners by offering low monthly payments for up to seven years, thus allowing people the opportunity to buy a home at prices they would be able to afford. During the first few years, the borrower may not have to pay down the balance of the loan, making the payments easier and seemingly more affordable. Unfortunately, once the borrower starts paying on the principle, they may be shocked to see the payments rise significantly. If the price of the home begins to stagnate or descend, the borrowers could find themselves between a rock and a hard place as the risks of default begin to increase.

Investors often flock to the interest only home loans when they have intentions on selling the property in a few years for a profit. Otherwise, first time home owners may need the interest only loan in order to qualify for the home they would like to buy. In today’s mobile society where some home owners tend to change residences every seven years, the lower monthly payments with the interest only loan can make sense. But if the home decreases in value over this time, the home owner may decide not to sell and will be left with the high back end payments they didn’t mean to make.

Many lending institutions may charge higher rates to the interest only loans because of the high risks of default. Interest only loans may seem borrower friendly on the surface and most lending institutions will be more than willing to accommodate you on this kind of a loan. But – Buyer Beware! Interest only loans are starting to drop in popularity due to the long- term interest rates dropping to record lows. These low rates are causing people to rethink their interest only loans and having them want to get out of the interested only loan and into a long term loan at a fixed rate.

As an alternative to the interest only loan, a more traditional home loan such as a fixed rate mortgage can offer the predictability of a fixed monthly payment with a choice between a 15 to 30 year loan terms. These fixed rate loans are available for both purchasing a new home or refinancing a home.

The fixed rate mortgage is a traditional loan that offers a fixed interest rate over the entire life of the loan, which can run from 10 to 30 years. With a fixed rate loan, the monthly payments for principal and interest will never change, although your property taxes, insurance and escrow may change each year. Down payments required for these fixed rate loans may be as low as 5%. This is a good deal for those who wish to have predictable mortgage payments over the entire life of the loan.

There are also those adjustable rate mortgages (ARM) that basically start at a low interest rate, with even lower monthly payments. But the interest rates and monthly payments can fluctuate regularly depending on the current market interest rates. The ARM loans have become increasingly popular with those buyers who are expecting an increase in their income over the next few years so they can buy more home on their current lower income. Confidence in their increasing income can make the higher payments more affordable, especially if the interest rates go up in the coming years.

While you are shopping for a mortgage, take advantage of the online tools that can help you learn more about the variety of mortgages offered and choose carefully what kind of mortgage loan will work in your best interests.

Mortgage rates have recently been at an all-time low, putting home ownership within the reach of more people than ever. With thousands of first-time homebuyers on the market, shopping for great mortgage interest rates has never been as popular or as easy.

With the mortgage lending industry becoming increasingly competitive, don’t be afraid to shop aggressively. Shopping for a mortgage interest rate is like shopping for any other product—the types of mortgages available to you are incredibly diverse. As with any other major purchase, you should strive to find the one that is the most fitting for your specific circumstances. Start with deciding what type of mortgage rate and payment schedule fits your situation best.

The two most basic types of mortgages are adjustable and fixed mortgages. Adjustable rate loans, also known as variable-rate loans, have interest rates that fluctuate over the life of the loan. The rate fluctuations are based on market conditions, though most adjustable rate loans come with loan agreements that specify maximum and minimum rates. When market conditions cause rates to rise, so do your loan payments. When interest rates fall, your payments are also generally lower. One of the major perks of adjustable rate loans is that they usually offer a lower initial interest rate than fixed rate loans.

Fixed rate loans have interest rates that stay the same during the life of the loan. The monthly payments also stay the same. To get a fixed rate loan, you must decide how much you can pay each month, and then choose your terms. Most terms are for 15, 20, 25, or 30 years. The traditional 30-year fixed rate mortgage remains popular because it allows homeowners to make affordable monthly payments. A 15 year mortgage is enticing because it allows you to own your house outright in just about half the time. However, a 15 year mortgage also requires you to make high monthly payments, making this mortgage option unaffordable for many homeowners.

Once you have a clear idea of what kind of mortgage is best suited for you, it’s time to start shopping for the very best rates. Start by tracking current interest rates to get an idea of current market trends. Interest rates are forever fluctuating, but learning about their recent movement will allow you to shop with confidence.

You can begin to shop for good mortgage rates in your very own neighborhood. Your local bank or credit union is a great starting point. These financial institutions are known for offering existing customers attractive terms on mortgage loans. Make an appointment with a loan officer to discuss your situation and to learn more about viable mortgage options.

Another option is to contact a mortgage broker. Mortgage brokers work as an intermediary between prospective homebuyers and lending institutions. A mortgage broker has access to the rates offered by many lenders. Within minutes, a broker can provide you with a quick comparison of rates. Sometimes it’s difficult to know if you’re dealing with a broker or a lending institution. If you’re not sure, don’t hesitate to ask.

One of the easiest ways to search for great mortgage interest rates is by logging onto one of several websites that specialize in comparing mortgage rate quotes. Many of these sites charge small nominal fees for their services, although many more will allow you a limited number of free searches. This option is well worth exploring: online lenders offer competitive rates, and you’ll be able to compare the quotes of several leading lenders in a matter of minutes.

If you think you’ve found a great mortgage interest rate that seems too good to be true, it just may well be. Go over the terms carefully, and inspect any mortgage costs that you don’t fully understand. Lenders often have different names for the same cost, so don’t be afraid to questions. You should also be wary of points. Points are finance charges (one point is 1 percent of your mortgage balance) that are often added to the total amount of the loan. They usually have little bearing on your monthly payments, but do end up costing you in the long run. As you fill out your mortgage application, make sure you lock in your rate.

Credit scoring is a system that helps you to get lower interest rates, more loans and better insurance rates. It is based off of a point value system calculated through certain companies known as credit bureaus to determine what standing you are in. By getting a certain amount of points back, you can be given a certain amount of money for a loan, have lower interest on your loans as well as lower payments due each month, receive a new credit card or deny to give you more credit.

A credit score is determined through several factors. This includes the history of your credit, your accounts, debt history, etc. With each of these factors, points are then given that determine a high or low with each part. There are several ways to keep good score through your credit so that you can benefit. The first is by making sure that your payments are always on time. Credit scores will look into the history of how efficient you are with paying your bills and credit each month. The second factor to be conscious of is how much you use your credit. The more you use your credit, and are then able to pay it off, the higher points you will receive. Your credit history and types of credit that you have will also determine the score that you will get. The better these are, the more you will be able to receive benefits.

If you already know your credit score, and need it to improve, there are several ways to doing this. The first is to determine what your credit score is. There are several places where you can get this report. If you would like to get it for free, Equifax, Experian and Trans-Union are three agencies which offer reports once a year for free. If you need a report more often than this, there are several other places that will give you a report for a small fee. Your report is broken down by payment history, outstanding debt, length of credit history, inquires on your credit and types of credit in use. There are no points that will be deducted from checking your credit report, but there will be some from repeated inquiries for the same report.

The next step is making sure that all of the information on the report is accurate. This must happen no later than thirty days after you receive the report. The dispute will then be investigated and proven either acceptable or not. By preventing inaccurate credit reporting and identity theft, your credit score will be automatically improved. You have the right to remove any negative comments on your credit report as well. After something has been disputed and if the entry is valid, you should check up on the status of it from one to two years later to make sure that it is not on your record.

The next thing to check on your credit report is the accounts or collections that are past due. By beginning to pay off outstanding payments, your credit points will increase dramatically. Make sure that whichever debt you decide to pay off will actually help improve your credit scoring. Some agencies or debt collectors will not fix your report after you have paid them. The more you can pay off your debt, the better it will be for your credit report. The best time to pay off part of this debt is right before a lender reports to the credit agency. This will show less debt by the time they give their report to the companies.

One part of paying off the debt is by eliminating credit cards if you have too many. It is advised that around four credit cards should be used to keep the best credit score, especially if you have debt. It is important not to cancel below a 50% ratio from your debt, as this will lower your credit points. It is also important not to cancel cards unless you have a one year history with them. If you have several different credit cards, you should not switch them around in order to change the rate for payments. This will show on your credit history and will lower your points.

The easiest way to establish credit is to pay bills on time. This is the highest factor that moves into credit scoring. Even if you are not able to pay off the entire balance, making some sort of payment before the bill is due will show that you can responsibly handle credit. If you don’t have any credit history, start now. This establishes credit history and will help you later on when you need a mortgage, loan or some other type of extra cash coming in. By establishing a credit history, you are showing that you can be responsible for your credit and pay your bills on time.

Taking the time to look into your credit scoring and working on improving your credit will help to establish you to be able to have lower rates, interest, as well as the ability to get a better mortgage or loan. Knowing what to look for in your credit report, then taking the proper steps in order to increase your scoring is the basic way to make sure you receive all the benefits possible in your credit.

6 Steps to Pre-Qualification

People wanting to take a home mortgage loan are mortally afraid of being considered bankrupt barely a day or so after their home loan has been approved. If borrowers have a reputation of bankruptcy or foreclosure, it can mean bad credit loans in the mortgage business. Therefore, a borrower with such a history should not expect to get the same kind of home mortgage loan as a borrower with perfect credit.

Self Pre-Qualification

Credit Score: Before trying to get a home mortgage loan, borrowers should first see realistically just where they stand with their credit rating. Do they belong to the A, B, C or D grades where A stands for perfect credit; B for a bit of tarnished reputation; C fairly bad credit; and D for very bad credit? Scoring models also make a big difference to the borrower: Here, a near perfect score is about 800 with scores getting bad as you reach the 400 mark. Some of these go by names such as FICO, Beacon or Empirica and belong to major credit reporting agencies.

Loan-to-Value Ratio (LTV): Loan eligibility also takes into consideration the ratio between the amount of money borrowed on a home mortgage loan and the real value of the property being placed as collateral. To know the value of new purchases, as a borrower, you would have to consider the lower purchase price of the appraised value. If a home owner has lived on the property for about six months or a year, coupled with refinance, the appraised value can be used in the loan to value calculation. But this distinction can also present problems as when a home is bought a home worth $100,000 at an auction for a mere $60,000.00. Credit needed over the mortgage amount is usually made from a cash down payment. When the loan available due to limited LTV does not meet the requirements of the sale price of the house in question, family support usually helps.

Debt-to-Income Ratio: You can calculate the debt-to-income ratio by adding all the borrower’s debt payments, including the home mortgage loan applied for and any other such as car loans, consumer debt, credit cards etc. Now, divide this number by the net cash available each month for the borrower’s living expenses and his debt. Lenders would not prefer this figure to exceed 40%.

Affordability: Having all these calculations at your fingertips, you should be able to judge your borrower’s affordability and exactly where he falls in the credit rating system for a home mortgage loan.

Pointers for home mortgage loan borrowers:

Points for good credit borrowers: If a borrower has a history of bad credit, lenders will charge him more points and higher rates of interest since it is a risk for a lender to deal with such a person. But borrowers on home mortgage loans with a good credit history should not enter into a loan agreement where they are forced to pay points based on a bad credit loan. After all, if a borrower has worked hard to earn good credit, he deserves the benefits.

Pricing for bad credit borrowers:

To have bad credit often means coughing up a higher rate of interest and origination fees on a home mortgage loan. Usually, points can come to the borrower in several avatars—origination fees, discount fees, broker fees or yield spread premium. Points on a loan refer to a fee that is about one percent of the loan amount. So, borrowers with good credit may often pay nothing while those with bad credit will have to pay four or five points. Sometimes, unwary customers have been asked to pay up to 10 points—something highly unwarranted. In fact, should this happen to you or anyone you know, he should consider it a red flag that someone is trying to cheat him. Of course, the mortgage broker will explain this by saying he can provide a loan where no one else will take the risk.

In such cases, finding a lender willing to help out with credit may take a little longer for the borrower but if he is diligent enough about his search, the home mortgage loan will finally materialize the way he wants it.

4 Tips to Make You More Aware

Everyone wants to buy their own home and the most convenient way to do this in a “rush, rush world” like today, is by applying for a mortgage loan. The mortgage loan business is a big one. There are hundreds if not thousands of them trying to lure you in, but you have to beware and watch out for crooked mortgage companies. These crooked companies are out there and won’t care if your loose your home, your savings or even if you go bankrupt. They especially like to prey on the first time home buyer. These companies are looking out for themselves not you, so when you start your hunt for a mortgage make sure you don’t fall into their trap, no matter how seductive their deals may sound. Here are a few tips to help you point out a crooked and fraudulent mortgage company.

1. Be aware if the lender doesn’t give you a good faith estimate of what the closing cost will be. Under The Real Estates Settlement Act they must provide you with this information within three days once you have applied for the loan. An honest lender will give this to you without a problem as they have nothing to hide. Some of the really good lenders will even give you a good faith estimate on your pre–qualifying information. Also watch out for any company that won’t give you information on any of the costs up front, such as interest and other fees.

2. Beware if the lender says it is ok for you to lie about any information, especially about your income on a mortgage loan to increase your chances of approval. Any sort of lying on any loan form is classified as fraud and is a criminal act. Besides if a lender does encourage you to do such a thing, use your common sense, if they give you the leeway to do it, then they will probably have no problem committing fraudulent acts upon you.

3. Beware of interest rates that are amazingly low or incredibly high. Low interest rates can be very tempting, especially when they beat everyone else by two or three percent. You may think that this will save you money, but in the long run it will only cost you more because most loans with a low interest rate like these tend to increase significantly throughout the time line of the loan. People with a less than perfect credit rating usually fall needlessly victim to high interest rates that are usually two or three percent higher than everyone else. There are many places online that offer to check interest rates against your credit and can give you an accurate estimate of how much you should be paying.

4. Be aware if you feel pressured into applying for a mortgage loan that you don’t understand, can’t financially afford or if you are told that you are only going to get the loan through that certain company. If you do feel unsure of anything with a loan, ask them to explain it to you in detail or go to someone else who you can trust. You may want to speak with a lawyer and ask them to go through the loan with you. If you are being pressured to go with a certain company for a loan, then don’t do it. If they can offer you a loan then so too will other companies and without all of the pressure.

When seeking a mortgage loan, make sure that the contract does not differ from the original contract. Companies that ask for more signers, credit insurance, or prepayment penalty fees are probably looking for ways to make money off of you and don’t have your best interest in mind. In this case, you should take your business else where.

These are just some of the things you should look out for when mortgage loan hunting so you are not caught in a trap by a corrupt company. If you are ever in doubt, don’t use the company, as there are many more to choose from that will be happy to take your business and will offer you assistance with anything you are unsure of.