Most home buyers, even beginners, know that you don’t settle on the first home you find. You’re meant to shop around. Something else Gresham home buyers may not know, however, is that it’s wise to shop around for a mortgage, too. Finding the right mortgage loan is incredibly important. Choosing your mortgage has a big impact on your finances for the foreseeable future.
Gresham home buyers should consider all of their mortgage options before settling on just one. Here’s a quick guide to understanding mortgages as you start shopping around:
The Stages of a Mortgage Application
Pre-qualification: Before shopping for a house, Gresham home buyers should get a mortgage pre-qualification letter. In today’s competitive housing market, a pre-qualification letter lets your Realtor and other potential sellers know that you are serious about looking for a home. It acts as an assurance that you have the ability to by the home you are interested in. Remember that having a pre-qualification letter does not mean you’re approved for a mortgage. These letters informal and optional, but they just might ease sellers’ fears that financing will fall through if they accept your offer.
Pre-approval: Gresham home buyers can get mortgage pre-approval after putting an offer on a home. Getting a pre-approval involves submitting a mortgage application to the bank. The bank will run your credit and research the home you want to buy. If you meet qualifications, they’ll give you pre-approval. This means that if all the conditions are met, the bank agrees to finance the home.
Closing: This is where the mortgage is finalized and you become a homeowner.
The four most common types of institutional mortgage loans include conventional, FHA, VA, and jumbo mortgages. Gresham locals looking to buy a home should first research which types of loans they qualify for and which would be best suits your needs. Each type of loan has benefits and drawbacks.
VA loans are guaranteed by the Department of Veterans Affairs. VA mortgages require as little as no down payment, but they are only available to qualified veterans.
FHA loans are backed by the Federal Housing Administration and require as little as 3.5% down if you qualify. For Gresham home buyers who have trouble putting back savings, this can be a good option. The drawback, however, to putting less than 20% down payment is that you will be required to pay private mortgage insurance (PMI), a monthly payment used for security in case of default.
Conventional mortgages require at least 20% down and don’t require PMI. Generally, a conventional loan the best choice for Gresham home buyers who have enough money in savings to cover the down payment and associated closing costs.
Lastly, jumbo mortgages must be used if you are financing more than conventional conforming loan limits. Due to their amount, these loans have special restrictions and credit requirements.
Your repayment term is the term over which you pay back your mortgage. The two choices Gresham home buyers have for repayment terms include a fixed interest rate mortgage, where the interest rate remains the same over the life of the loan, or an adjustable interest rate, where the interest rate can decrease or increase at specific intervals such as annually.
Fixed-rate mortgages tend to be a safer option, especially for Gresham families who plan on staying in a home for more than a few years. There are many different mortgage terms to choose from, such as mortgage terms of 15, 20, or 30 years. 30 years is the most common mortgage rate terms and keeps your monthly payments low. However, while monthly payments on a 15-year mortgage are higher, you ultimately save money because there is less interested accrued over 15 years than over 30.
Adjustable-rate mortgages can save you a lot of money if you play on living in the residence a short time. Your interest rate is much lower than a fixed-rate mortgage for the first five or seven years, but will then adjusts to the average interest rate every year thereafter, which could be much higher. If you still own the home, your mortgage payment could go up dramatically, so it is riskier.
Stonebridge Mortgage Group Offers Guidance on All Mortgage Matters
Stonebridge Mortgage Group serves the greater Portland area and is located in Gresham, Oregon. Don’t wait to get quality assistance with buying your home!
Though reverse mortgages were once considered highly controversial, financial planners are beginning to see reversing your mortgage as a legitimate option for those who struggle with retirement savings. More and more people are finding it difficult to save up for a retirement fund. However, home equity “conversion” loans can aid those who have struggled to save by augmenting their retirement income. Part of the widely growing acceptance of reverse mortgages is due to the Federal Housing Administration tightening lending standards. Reverse mortgages are now a good tool for retirees.
What gave reverse mortgages such a bad reputation?
Put simply, overly aggressive brokers took advantage of the reverse mortgage system. These brokers gave loans to senior citizens who lacked financial savvy and profited from them in the form of large commissions. The system of reverse mortgages wasn’t polished enough, and during the Great Recession as many as 10% of all reverse mortgages fell into default.
Growing acceptance and higher standards
The FHA tightening the standards for those looking to reverse a mortgage helped to rectify a system that had previously made it easy to take advantage of clients. The newer standards make it harder for clients to make themselves vulnerable to financial disaster. For example, now the amount of equity a homeowner can take out in the first year is limited to 60%, removing the obvious temptation of taking out 100%. Taking out too much too soon can easily lead to the client being overwhelmed and causing their loan to go into default.
Credit standards were raised as well. Homeowners who don’t have robust finances or who have struggled with making payments in the past may now be expected to put money aside in an escrow account to cover future expenses. Additionally, to qualify for a reverse mortgage you must be at least 62. You must not only have substantial equity in your home, but also be able to keep up with taxes, insurance payments, and home repairs.
Balancing your funds while in retirement
If you decide to take out a reverse mortgage, it is recommended that you have another source of money to draw upon. For example, being able to draw funds from cash, home equity, and investments, can make your finances more stable. Having the choice to tap into different funds, depending on how the market is doing, can be extremely useful. When the markets are up, you can tap into your investments. When they’re down, you can shift to real estate.
Talk to the professionals at Stonebridge Mortgage Group about the possibility of reversing your mortgage.
For professional assistance and advice on reverse mortgages, look no further than Stonebridge Mortgage Group. If you’re ready to apply for a loan and want to go through the process online, Stonebridge Mortgage Group offers online applications. We can help you get pre-approved for a mortgage, walk you through the real estate loan process, and assist you with Stonebridge Mortgage Group serves the greater Portland area and are located in Gresham, Oregon.
A reverse mortgage allows homeowners of a certain age, 62 years and older, to borrow from their home’s equity without having to make monthly mortgage payments. As the borrower the homeowner may then choose to take funds in a lump sum, line of credit or via structured monthly payments. The repayment of the loan is required when the last surviving borrower vacates the home permanently.
On a traditional “forward” loan, you make payments and the amount you owe is reduced while the equity you have on the property increases over time. A reverse mortgage is the opposite. You make no regular payments, so as you draw out funds and as interest accrues on the loan, the balance grows and your equity position in the property becomes smaller.
How does it work?
First, you must access a portion of your home’s equity. The percentage is based on age of youngest borrower. When the mortgage is reversed, you make no monthly mortgage repayments. The funds you receive from a reverse mortgage are tax-free, and may be used for virtually anything. The loan from your reverse mortgage is repaid when you pass away or sell your home. After that, any remaining equity belongs to your heirs.
Something important to note is that in addition to the fact that there is never a payment due on a reverse mortgage, and there is also no prepayment penalty of any kind. In other words, you can make a payment at any time, up to and including payment in full without penalty.
How much can you receive on a reverse mortgage?
There are several factors that dictate the loan amount, including the age of the youngest borrower, value of the home or the HUD lending limit (whichever is less), the interest rates in effect at the time, any costs to obtain the loan (which are subtracted from the principal limit), and any existing mortgages and liens (which must be paid in full). The current HUD lending limit for 2019 is $726,525.
If there are multiple borrowers, the age of the youngest borrower will lower the amount available because the terms allow all borrowers to live in the home for the rest of their lives without having to make a payment.
Weigh the costs and benefits of taking out a reverse mortgage.
A reverse mortgage doesn’t work for everyone. If you do the math and find that, even with a reverse mortgage you will still be struggling to get by, it may be best not to use your equity at this timed. Do your research and plan carefully. Will the funds and accrued interest add up to more than your home is worth? For those who are thinking of moving to a new home anyway, it may be better to move now. Don’t use your reverse mortgage as a temporary solution.
For professional assistance with mortgages, look no further than Stonebridge Mortgage Group. You can rely on Stonebridge Mortgage Group to help guide you through the home buying process from start to finish. We help get you pre-approved for a mortgage and help with your real estate loans and other We serve the greater Portland area and are in Gresham, Oregon. Don’t wait to get quality assistance with buying your home!
At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds.
Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees.
The loan balance grows over time and interest is charged on the outstanding balance.
The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home.
Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full repayment.
David H. Steinbrugge
Stonebridge Mortgage Group Inc.
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