Category: Finance

Discount Points

Normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.

On purchase transactions, it is also common to have a temporary buydown. In the situation, your initial interest rate will be 2% lower than your “true rate for the first year, 1% lower for the second year and than ease into your interest rate for the remainder of your mortgage loan. This will often make more sense than an interest only mortgage because the initial rate will be lower and you will still be making principal payments. This is also an excellent time to make additional payments to reduce your principal even further.

It is generally advisable to pay discount point s if your lender is having trouble qualifying you for your mortgage because of your debt to income ratio.

If you plan on living in your home for a longer period of time paying discount points to have a lower interest rate can be a great advantage.

You can save tens of thousands of dollars by paying a couple grand to buy down your rate. Contact a loan professional to do an analysis to show you the cost savings of paying discount points.

When paying discount points one has to understand the difference between cost and price. When a loan is amortized over the 30 year period the total payment for the loan is the cost. You have to refer to a amortization schedule to understand how much the loan will cost over the term of the loan. When paying points (lower price) to buy down a rate you are saving money (lower cost) over the life of the loan.

Homeowners who are “cash rich and income poor” often choose to pay discount points to buy down the interest rate. With a lower interest rate, these homeowners can often qualify for a mortgage loan amount that he would otherwise not qualify with his income.

If you only plan on staying in the property for a few short years then it might be to your advantage to not pay discount points and go with the higher rate. Seeing the difference on a spread sheet or using a financial calculator will help you make the decision that is right for you.

Points, sometimes referred to as Discount Points are different than origination fees, and are a source of confusion for many borrowers. Although “points” are a part of your closing costs, they are not considered loan fees. They are an optional way to buy the interest rate up or down. Interest rates are generally quoted in increments of eighths. Usually, the lower the interest rate, the more points you will be required to pay.

You can also use discount points as a tax deduction when federal income taxes become due.

In mortgage terms, this is commonly used to buy down your interest rate. Discount points are usually any percentage, paid in addition to the origination fee. A “point” is one percent of the loan amount.

Paying a discount point or points in order to lower the interest rate when refinancing into a long term fixed rate mortgage often makes good sense. The discount points can usually be financed into the loan.
Even with a higher loan principal to cover the points, the borrowers monthly payment is usually lower due to the lower rate of interest charged.

The discount point is pre-paid interest so you should know how long you will be in your home to see if it makes sense for you. The longer you will be in your home the more you will realize a greater savings.

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Mortgage After Bankruptcy

Many people who have filed bankruptcy in the past apply for credit the wrong way.

They fill out a credit application and hope for the best. Best case, they probably end up paying a lot more in interest and finance charges – hundreds or even thousands of dollars more, depending on what they’re buying.

Time will be your biggest Allie when trying to re establish credit after bankruptcy. BY taking the time to open smaller accounts paying them on time and slowly moving on to larger accounts you will see your score jump. But none of this will happen in a matter of days or weeks. Have the patience and the plan and your credit will once again be good to perfect even with a bankruptcy in your past!

Remember that credit reports are not always entirely accurate, so it is important that you check it for any errors, particularly if your credit score is in such a precarious position. One amendment in your favor could mean the difference in being turned down for a home loan and being accepted.

If you have a mortgage, but then declare yourself bankrupt, you can keep your property but may only maintain a certain amount of equity within it. The equity levels are known as the homestead exemption and vary from state to state.

Many times people believe they cannot get back on their feet after a bankruptcy, but usually it is a clean start. This would be a good time to ask your mortgage consultant on what your options are .

Having a perfect mortgage history after bankruptcy will help you when applying for credit.

That said, in this article we are going to talk about the RIGHT way to apply for credit and loans. So what is it? Well there are three steps:

1) Learn how to increase your credit score

2) Know the credit approval process

3) Know how to apply for credit and loans

Now, you want to get all three of these steps right. Not just one or two, but all THREE! See if you miss one, or don’t do it just right, you can end up paying $100s, $1,000s or $10,000s in additional interest and finance charges, depending on

Here are the three steps in more detail…

Step One: Learn how to increase your credit score.

Increasing your credit score is a key factor in lowering the interest rate you pay on loans and getting approved for them as well. Unfortunately, there are a lot of myths out there that can actually hurt your credit score.

There a number of ways to increase your credit score. One way is to watch your credit card balances. Lenders don’t like to see them go above 50% of the available credit limit.

For example, if you have a credit limit of $3,000 and you’re current balancing owing is $1,800 (60%) that can hurt your credit score. In this situation, there are two ways you can fix the problem.

First, of course, is to pay the balance down so that it’s less than 50% of the credit limit. The other way is to get a credit limit increase:

If you can get a credit limit increase to $5,000 that will means you will be at less than 50% of your credit limit ($1,800 balance versus $5,000 credit limit). And you didn’t have to pay down the balance by a penny!

Another way to increase your credit score is to add years of positive credit history to your account. Most people don’t know about this and it’s 100% legal. But that’s another article in itself.

The point I am trying to make is that there are a number of strategies you can use to increase your credit score. Best of all, many of them can be implemented quickly and easily.

Step Two: Know the credit approval process

What do potential lenders look for? Here you need to know the questions to ask. For example, do they work with people who have had a bankruptcy in the past? What is the minimum credit score they want to see? These are just the initial questions.

There are a number of other questions. There are also a number of items that send up red flags if a lender sees them on your credit application – ones that could jeopardize your chances of qualifying for the loan or cost you more money in interest.

Another factor when applying for credit and loans is timing. You don’t want to apply for credit and loans until you’ve increased your credit score (most people make this mistake).

That brings us to step three…

Step 3: Know how to apply for credit and loans.

Knowing which lenders to approach and how to negotiate with them is also really important.

Apply for a loan or credit with the WRONG lender and you’re practically guaranteed to be turned down; or, you end up paying a pile of interest.

Then there’s there is the negotiation process. This especially important when you’re buying a car – for example, people will spend a lot of time negotiating the price of the car they’re buying and the value of their trade in (if they have one) – and STILL be taken advantage of. They don’t know how to REALLY negotiate for a car.

Think about it. How often do you buy a car? If you are like most of people it’s probably once every so many years. Now, how many times a day do you think a busy car dealership negotiates with buyers? Multiply that by weeks, months and years and you can see that they have slightly more experience.

You should now have an idea of the RIGHT way to apply for credit after bankruptcy. Though I wasn’t able to go into detail on ALL of the strategies you can use to increase your credit score and qualify for credit and loans at more reasonable rates this should at least give you a starting point.

For more info contact your mortgage consultant.

After a bankruptcy, it is important that the consumer re-establish his/her credit. This is accomplished by opening credit accounts and using them responsibly, avoiding any late payments and high balances.

How a borrower has re-established and used credit after a BK is one of the primary considerations of the lender when deciding to approve a home mortgage to a borrower with a past bankruptcy.

One way to obtain a credit card if your credit scores won’t allow you to qualify is to apply for what they call a secured credit card. You can get this from your local bank. In this case you would put up $100 dollars as a safeguard to allow you get a credit limit of $100-$200. Only use this for items you would normally buy such as groceries and pay it off every month. This will give you one open trade line. You may need a few open tradelines to qualify for a mortgage.

Even though the credit card is secured by your own funds it is very important that you make timely payments. Any late payments after a Bankruptcy will severely limit your options.

Refinancing your mortgage after bankruptcy and making timely payments can help you rebuild your credit to potentially higher levels than even before your bankruptcy within as little as two years.

Bankruptcy laws are always changing and may or may nor affect your current living situation. Always consult a professional regarding the ramifications of filing bankruptcy.

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Alternative Mortgage Program

There are still many alternative mortgage programs available to consumers. Some of the more common names of these aggressive mortgage programs are: Pay Option ARMs, Smart Choice Loans, Smart Loans, Interest Only Loans, Pick A Payment Loan, 1 month Option ARM, 12 month MTA Pay Option ARM, Cash Flow Option Loan, Option ARM, Choice Option Loans, Choose a Payment Loans, Secure Advantage, and many others.

Some aggressive mortgage programs were sold to the wrong types of borrowers within the last 3 or 4 years. Because of uneducated consumers who only made minimum payments on their loans some borrowers now have mortgage balances that are now higher then the house is worth.

An aggressive mortgage program is one that uses more leverage or makes a lower payment than usual. These loans can be well suited for borrowers with stable income, high assets or consistent cash flow.

Aggressive mortgage programs are available in all shapes and sizes, and can be viewed as aggressive for the investor (lending more money against a home than they would otherwise, with a low monthly payment) or aggressive for the borrower (deferring interest, making a small down payment).

Many aggressive programs such as the pay option arm, and other interest only loan products are ideal for investors who seek to maximize cash flow while obtaining the lowest cost mortgage that suits their investment strategy.

Many aggressive loan programs are beneficial for those who receive large annual bonuses as part of their compensation package. Many executives enjoy a low monthly payment and can make an annual lump sum payment to their mortgage to pay down the balance. This allows for effective household budgeting during the course of the year.

One of the most aggressive mortgage programs created was the Minimum payment option arm. This program allowed 4 option payments and included negative amortization for those who wanted the ultimate in leverage.

Available Mortgage Loan Products
Purchase Transactions including first and second trust mortgages
Refinance Transactions for Rate and Term as well as Cash-Out Refinances
Stand-Alone Second Mortgages (Home Equity Loans -HELOAN and Home Equity Lines of Credit -HELOC)
Construction Loans
Government Loans such as VA and FHA

Where can I get some Information?
On this web page you can subscribe to, or unsubscribe from our mailing list.

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Good Credit Loans

Loans for People with Good Credit

“A” credit loan – A mortgage for a very stable borrower with excellent employment and credit history. These are sometimes called “vanilla loans” because the meet general mortgage guidelines and are easy to complete. This type of loan/borrower often qualifies for the most attractive rates available. A credit score of 720+ is one of most important criteria in establishing a “A” rating.A credit is a very loose term that applies to basically just having good credit with a good score. You can have perfect credit, no lates ever, no collections and no derogatory credit ever and still have a low credit score and not be considered “A” credit. There may be many reasons for this low score. You may be maxed out on all of your revolving credit (credit cards and such) and have a lot of inquiries. These two items can negatively affect your score and remove you from the A credit classification.

When shopping for a “A” paper credit loan, it is important to remember that this does not necessarily guarantee a low rate. Adjustments will be made to an interest rate for such factors of;
Cash-out of equity
Income ratios
Loan to Value ratios
etc. Ask your mortgage professional about what adjustments will affect your interest rate and payment.

“A” paper loans are for borrowers with good credit and work history and are commonly referred to as conforming loans because they conform to standards set by Fannie Mae and/or Freddie Mac. Loans that do not conform to standards set by Fannie Mae and/or Freddie Mac are called “Alt-A” loans. Probably due in a large part to the complex nature of life in our current times, less and less borrowers are falling into that perfect, vanilla, “A” borrower category. The mortgage market has reacted to this fact and offers a large variety of alternative A and subprime loan programs so that home ownership is possible for just about everyone.

Available Mortgage Loan Products

Purchase Transactions including first and second trust mortgages
Refinance Transactions for Rate and Term as well as Cash-Out Refinances
Stand-Alone Second Mortgages (Home Equity Loans -HELOAN and Home Equity Lines of Credit -HELOC)
Construction Loans
Government Loans such as VA and FHA

Where can I get some Information?

On this web page you can subscribe to, or unsubscribe from our mailing list.

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