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If you’re looking to take out a mortgage and have less than 20% to put down, it’s likely that you’ll need to pay mortgage insurance. Particularly with today’s housing and mortgage crisis, banks are careful to weigh the risks and want to be sure their investments are protected. If you’re curious about what mortgage insurance is and why you need to have it, read on.

Mortgage Insurance Basics
Unlike homeowners insurance, car insurance or other property insurance, mortgage insurance isn’t a policy you pay for to protect your own assets. It’s a policy that you pay for to protect the interests of the lender. Most banks realize that it’s risky to lend to a borrower who does not have enough collateral. Enter mortgage insurance. The mortgage insurance company agrees to share the risk with the bank in exchange for monthly mortgage insurance premiums which are paid for by the borrower. In the event that you default on your mortgage, the insurance company will pay the bank a certain % of the value of the mortgage depending on the policy you were required to purchase. In this way the bank limits its liability when it lends to borrowers who do not put a large amount down.

Why You Need Mortgage Insurance
If you don’t have at least 20% to put down, you need mortgage insurance to get a mortgage loan at all. There are a few circumstances where you can avoid paying mortgage insurance but they generally require a 2nd mortgage in the amount of at least 20% of the property value. Since 2nd mortgages typically carry a much higher interest rate, double check to see if the cost savings of not paying mortgage insurance outweighs the added interest expense of a 2nd mortgage.

How Much is it?
For FHA loans, most borrowers are required to pay 1.75% of the loan amount. This amount is usually financed and packaged as part of the loan. If you have a very high loan to value ration you may also be required to pay an additional monthly fee.

How Long Do You Have to Pay For It?
It depends on the specifics in your contract but there are some general guidelines. In most cases you need to pay the insurance for a minimum of one year. If you have an FHA loan, you’re likely looking at 5 year minimum. Additionally, most loans require that you have at least 20% equity before you can request to have it removed. The request also must be in writing.

Tax Deductible
Recently the IRS has determined that mortgage insurance can be deducted from your annual income taxes just like mortgage interest. While this doesn’t eliminate the sting of a higher monthly payment it does mean some tax savings each year that you have to pay it. Remember to take the deduction when you file taxes

At first mortgage insurance seems like an unnecessary expense. However, it’s important to realize that without mortgage insurance, borrowers who have less than 20% to put down would likely not be able to qualify for a loan at all. So while mortgage insurance is an added monthly expense it does make it possible to have a home with a lower down payment.

If you have a unique situation where you cannot qualify for traditional financing, there are other options. While banks are the more traditional method of obtaining a mortgage, they’re not the only game in town. The type of alternative financing that you can obtain will depend on your particular situation. In this article we’ll give examples of situations where alternative financing may be advantageous as well as discuss three alternative financing options.

Why Alternative Mortgages?
There are several reasons why you may be in a situation to consider alternative mortgages. Here are a few examples.

• Self-Employed – If you have fewer than 2 full years completed tax returns, you’re unlikely to be able to obtain a mortgage from a bank even if you have outstanding credit. Banks require verification of income and if you can’t prove your income they will not loan to you.
• No Down Payment – All banks require some kind of down payment even if it is only 5%. If you are unable to come up with the down payment you will need to find another way of funding at least part of your loan.
• Bad Credit – Having bad credit makes it harder to qualify for any kind of mortgage financing, particularly bank financed. Don’t give up hope though. There are methods you can try to obtain a mortgage but you should expect to pay significantly higher interest rates.

Owner Contracts
An owner contract, sometimes called an owner carryback,  is where the seller of the property agrees to sell you the property on terms instead of for cash. Most owners will not sell their property on a 100% owner contract but you can find many deals where you can get a portion of the property in an owner contract. Owner contracts are ideal for folks who need down payment assistance. Many times you can get an 80% mortgage from the bank and a 20% owner contract and end up having to put nothing down.

An owner can only lend you the money if they have equity in the property. There are definitely fewer owner contract properties on the market so expect to spend more time shopping for these kinds of purchases.

Hard Money Lenders
If you only need a short term loan, you may want to consider a hard money lender. Interest rates are typically double market rates but it can make sense if you don’t need the loan for a long term. Hard money lenders charge high origination fees and interest rates and generally limit the amount they are willing to loan. However, they tend to be less picky about bad credit.

Peer to Peer Loans
There is a new kind of loan available – peer to peer lending. These are essentially online banks where private individuals lend to each other at interest rates that are based on credit scores. They are unsecured loans and are limited to $25,000.

If you’re unable to find bank financing, don’t give up. Talk to your Realtor about working with you to find an owner contract deal, or use a combination of methods to get you into the home of your dreams.

Interest rates are at a historic low. If you purchased your home several years ago at a higher interest rate this is the time to look at your refinancing options. Refinancing doesn’t make sense in all circumstances however. Our checklist below will help you determine whether or not you’re a good candidate for a refinance.

The Equity Question
First, you need to determine if you have equity in your home or if you’re in an underwater situation. You can use sites like Zillow to determine whether or not your home is worth more than what you paid for it. Most banks will refinance up to 100% of the home’s value and some will go as high as 125%.

How Much Can You Save?
The cost savings in interest rates can be astounding. For the sake of this example, let’s assume a $250,000 mortgage at a fixed rate for 30 years. At 7% payments would be $1663 and the total interest you would pay over the life of the loan would be $348,000. At 4% payments would be $1193 and total interest payments would be $179,000. That 3% difference makes a $470 a month difference in payment and you save $169,000 in interest!

Costs and Break Even Timeline
Banks make money on mortgages in two ways. The first is the interest you pay on the loan. The second is the fees that you pay when you take out a loan. These fees can be called a number of things – points, loan origination fees and document fees. Before you decide whether or not to refinance you need to investigate what likely refinance costs will be.

If you prefer to work with a local lender, credit unions generally offer the best rates and lower fees. Make a few phone calls to determine what local closing costs would likely be. Then compare local rates and closing costs to what is being offered online.

Once you know how much it will cost in fees, you can determine how long the savings you’ll receive with the lower interest rates will take to pay off the costs you’ve incurred to refinance. If you plan on being in your home for a long period of time it usually makes a lot of sense. If you tend to move every few years however it may not make sense. Even if the costs involved do take a long period of time to break even on, it can still make sense to refinance if you need a lower monthly payment.

There are also a large number of homeowners who find themselves in a situation where they do not have enough equity to qualify. In that situation the only thing you can do is work to build equity and hope the interest rates stay low long enough for you to take advantage of them.

With interest rates in the low 4’s, chances are it will make financial sense for you to refinance. Rates can’t get much lower – take some time to talk with your lender to investigate whether you can save hundreds each month and thousands over the life of your loan.

Your monthly mortgage payment is likely the highest bill you have to pay. What if you could find a way to reduce the amount you had to pay for your home – possibly by tens of thousands of dollars? There are some techniques you can employ to start saving on your mortgage today. In this article we’ll share 3 of the top ways to save a substantial amount over the life of your loan.

Savings Tip #1 – Refinance if you have a high interest rate. Today we are seeing historic lows in mortgage interest rates. If you can lock in a fixed mortgage at today’s rates of 4% you can save over $50,000 depending on your mortgage balance.

In order to qualify for a refinance you’ll need to have a good source of income, decent credit and some equity in your home. It’s worth taking some time to investigate your refinance options before interest rates begin to climb again. Financial experts agree that these low rates cannot last forever.

Savings Tip #2 – Pay your mortgage bi-weekly. This savings tip can save you approximately 7 years of payments if done consistently. Essentially you pay half of your monthly mortgage payments every two weeks. Because there are three months of the year where there are five weeks instead of four, by making a ½ payment every two weeks you will end up making an extra payment each year. While one extra payment doesn’t sound like a lot, it can actually shave tens of thousands of dollars off the total cost of your home.

The hard part about following a bi-weekly mortgage schedule are those months were you end up making an extra ½ payment. Be sure to budget well in advance for those extra payments so that you keep on track. If you can, set up automatic payments so you don’t have to think about paying your mortgage. Also, don’t be tempted to skip one of the extra payments – the key to this plan is being consistent.

Periodically ask the bank to send you a full statement of your mortgage so that you can verify that your extra payments are being applied directly to the principle. If you ever find that they aren’t, make sure to ask that the bank adjust their records.

Savings Tip #3 – Keep your remaining term when you refinance. Many times, when you refinance, they give you a new mortgage for 30 years. This lowers your payment but extends the time you’ll be paying on your home and ultimately tacks on years of interest payments. Instead, ask that you keep your remaining term when you refinance. That way, any difference in your payment will be due to the change in interest rate – not because you’re increasing the term of your loan.

By following a few of our simple tips you can shave tens of thousands of dollars off the amount you will end up paying for your home. Isn’t that money better invested in vacations, education or home improvements? Why spend unnecessary dollars on interest when it can be easily avoided?

Before you start shopping for a home, it’s a good idea to determine the amount you will be able to afford. In these tough economic times the last thing you want to do is find yourself in a situation where you’re overextended. In this article we’ll share a few guidelines you can follow to get a good idea of how much you will be able to qualify for.  Once you have an idea of the amount of mortgage you can qualify for you’ll be able to identify the price range of homes to look at and the fun of shopping can begin.

Your Mortgage should be No More than 28% of Your PreTax Income
In order to keep your housing costs affordable, determine what your total income is. You can include all income from jobs, rental income and any seasonal or part-time income you make. Once you know your income, 28% of that is how much you can reasonably afford to spend on housing. However, that 28% needs to cover more than just the mortgage. You need to factor in other housing expenses like property taxes and insurance as well. If you’re thinking about purchasing a condo, you also need to factor in homeowners association fees.

Total Debt Must be Less than 36% of Income
This is where most folks have trouble getting qualified for the home they really want. It isn’t enough to keep housing costs under 28%, you also have to keep total debt under 36%. The first step is to determine what 36% of your income is. Next, add up all of your debt payments – car loans or leases, credit cards or student loans.  Then subtract that total debt payment from the 36% of your income and what is remaining is the amount you can spend on housing payments.

How Much Down Payment do you have?
When you determine the amount of a mortgage, it is only the amount you will be borrowing.  For example, if you have $40,000 to put down on a home then you can subtract that from the amount you will be borrowing. So a $250,000 home in this example will need a $210,000 mortgage. Larger down payments will also help you qualify for lower interest rates which will lower your total monthly housing expenses and allow you to purchase a more expensive home.

Keep Some Emergency Cash
It is tempting when you’re buying a new home to sink all available cash into the purchase. If you can, resist the temptation. Consider what kind of position you would be in if you were to lose your job, or if you have two incomes, if one of you were to lose their job. You want to try to move in with 2-3 months of living expenses in a rainy day account.

Buying a home is an exciting event. Now that you understand the amount that you can spend on housing you can start shopping with confidence for homes that are within your price range.

A home is likely the biggest purchase you will ever make. When you shop for a mortgage it is crucial that you take a few simple steps to avoid making huge mistakes that can cost you thousands of dollars. Here we present 5 of the biggest mistakes that can be made and how to avoid them.

Mistake # 1 – Not Checking Your Credit Report
Credit reports frequently have errors. Those errors can bring your credit score down and will result in you qualifying for a mortgage at higher interest rates. It may not seem like it would make a big difference, but a 1% increase from 4% to 5% on a 250,000 mortgage can increase the total interest you’ll pay by over $50,000!

Mistake #2 – Not Comparing Rates and Fees
Just because your local bank claims to have great rates and fees doesn’t mean that they really do. If you were to buy a car you’d likely visit a few dealerships before making a decision. You need to do the same thing, only more so, with a mortgage loan. Check with a few local banks and credit unions and keep track of what they charge for interest rates and fees. Then compare those quotes to what you can find being offered online. Be sure to factor in all the fees when doing comparisons. Sometimes a lender will offer a low interest rate but the closing costs are substantially more. When you compare, be sure it’s apples to apples. A little research now can add up to big savings later.

Mistake #3 – Spending Too Much
Just because you can qualify for a $350,000 mortgage doesn’t mean that you should buy a home that is that expensive. Take a close look at your financial picture and decide how much of a payment you’d be comfortable with. The last thing you want to do is get overextended.

Mistake #4 – Not Having a Rainy Day Fund
Do not put all of your savings into the purchase of your home. It’s important to have some savings available for emergencies. Ask yourself how you would manage the mortgage payment if you were to lose your job. Do you have enough to meet monthly expenses for a few months while you search for another position?

Mistake #5 – Not Getting Pre Approved
Getting pre-approved is easy and it will substantially speed up the process of closing once you decide on a home. The other thing that the pre-approval process will do is ensure that you can really qualify for a home loan. Many times banks say that they can get you approved, but when it comes down to reviewing all the paperwork they determine that they don’t actually have a program that will fit your profile. Take the time to get pre-approved, it’s well worth the investment

Buying a home can be stressful. You can reduce the stress substantially by avoiding the 5 mistakes we’ve outlined above. If you do some homework at the beginning and take the time to shop around you’ll end up saving time and huge amounts of money in the long run.

Today interest rates are at historical lows. Banks are offering rates as low as 3.75% so never has there been a better time to borrow money for a home purchase. Many financial experts are questioning how long rates can stay this low. At some point interest rates will have to increase again – and no one knows by how much. Read on to find out why a fixed rate mortgage makes the most sense in today’s financial climate.

Security in Fixed Payments
With a fixed rate mortgage your interest rate will not change over the entire length of the loan. If you obtain a 4% mortgage you will pay 4% interest the entire time. With an adjustable rate mortgage (ARM) after an initial fixed period (usually 2 to 5 years) the interest rate adjusts on an annual basis. The amount of the adjustment is usually limited to 2% per year but generally there is no limit to the total number of adjustments that can be made. The adjustment will be based off of current interest rates.

Given the fact that interest rates are so low now, it doesn’t make a lot of financial sense to purchase an ARM. In the future interest rates can only go up – leaving you footing the bill.

Keep in mind that in order to keep the security of your low fixed rate mortgage you will need to avoid the temptation of refinancing as you build equity in your home. Unless the refinance interest rate is comparable to, or lower than your initial loan, refinancing down the road can end up costing you thousands of dollars in additional interest payments.

Shorter Term Fixed Mortgages
If you can afford to pay more per month, or if you can see your way to purchasing a less expensive home you can save a substantial amount of money by choosing a 15 or 20 year mortgage rather than the traditional 30 year term.

A 20 year fixed loan for $250,000 at 4% interest will save you $66,000 compared to the same loan over 30 years. A 15 year loan will save even more – a whopping $97,000.

Shorter term loans are not without their drawbacks however. In most cases it means purchasing a less expensive loan so that you can qualify for the higher payments. Also, since interest rates are so low right now it may make sense to borrow more for your home and use the extra money you would have put toward a higher payment toward another investment strategy instead.

Interest rates will not stay this low forever. If you’ve been considering purchasing a home, this is a great time to buy. In addition to affordable interest rates houses are also at much lower prices than they have been in years. Why not take advantage of the market conditions and lock in tremendous savings for your future.

When the time comes, filling out all the necessary paperwork to qualify for a home mortgage can be daunting. If you’re a bit intimidated by the lengthy application, read on. We’ll break down the process and give you some guidance on how to make the whole experience less stressful. After taking a look at our guidelines, you should be feel more confident about completing your mortgage application.

Get Prepared
The first step is to gather all the documents that you’ll need to complete the application. You’ll need to gather the necessary paperwork for each person who will be listed on the application.

• W2′s
• Paystubs (usually for the last 3 months)
• Employment history information (Employer, address, phone number and length of employment for the past 3-5 years)
• 2 years tax returns
• 1 year of bank statements (you may be asked for additional statements depending on your lender)
• Asset statements (401k’s, stocks, bonds, etc.)
• Residence history for the last 5-7 years
• Social security number
• Date of birth

Filling Out the Application
Armed with the necessary information, filling out the application shouldn’t take too long. The application is generally broken into a few sections.

• Borrower Information – This is where you fill in your personal information. Be sure to fill in all the blanks. Missing a few questions can cause delays in processing your application.
• Employment Information – Fill in your employment history and contact information for your current employer. It can be a good idea to talk to your employer to find out how they like to handle employment verification requests.
• Income Information – Here is where you list all income. Be sure to include interest and dividend income.
• Expense Information – Fill in your monthly expenses. If you’re not certain of any of the items they ask for, go back and look at previous bills.
• Assets and Liabilities – Here is where you list all your current assets like checking and savings accounts, 401k’s, stocks, bonds and other assets you might own. You should also list your liabilities which may include credit cards, auto loans or any other type of liability.
• Signatures – You’ve made it! Sign and date the form.

A Few Tips
If you get stuck, be sure to talk to your mortgage lender or broker. They can help to answer any questions you have about the application. It’s better to ask than to answer something incorrectly. Another important thing to keep in mind is that your credit report will reveal a lot of information so don’t be tempted to hide anything on the application. Inaccurate or incomplete applications are likely to be delayed or even denied if it appears you falsified or withheld information. If you are concerned about any portion of your application (perhaps you haven’t been at your job for very long for example), it can help to write a letter explaining your situation. If you’ve been in the same industry for many years a simple letter explaining the job change and your reasons for it can go a long way to helping the lender understand your situation.

If you’re in the market for a mortgage it will pay off to spend a little time determining the type of mortgage that makes the most sense for you and your family. Mortgages are just like anything else that you purchase and it will really pay to do some research and shop around before making a final decision. As you work your way through our recommended checklist you’ll be able to quickly narrow down your choices to find the right type of mortgage. Then it’s just a matter of finding the right mortgage broker or lender.

Can you Qualify?
The first step is to determine what your credit profile is and what types of loan products you will qualify for. You can obtain your credit report for free by contacting each of the primary credit reporting bureaus – Equifax, TransUnion and Experian. Free credit reports directly from these three companies don’t generally include your credit score. If you want to see your score (which is extremely helpful) it may be worth it to sign up for a credit monitoring program that offers a free credit report with the score. These programs typically allow you to cancel within a few days which essentially gives you the credit report for free. Just remember to cancel before the initial billing cycle!

• If your credit score is above 730 you will be able to obtain great rates on a variety of loans.
• If your score is between 670 and 730 you will be able to qualify but you may pay a higher interest rate.
• If your score is under 670 you are likely to have a harder time qualifying though much will depend on the amount you have to put down.

Other factors that can impact your ability to qualify for lower interest rates include the type and length of employment ( if you’re self employed you need two years worth of tax returns) and the amount you have for a down payment. In most cases you will need 5-10% down to qualify.

ARM or Fixed Rate
The next decision you want to make is whether you want a fixed or adjustable rate mortgage (ARM). There are pros and cons of each. With an ARM you have the benefit of a lower initial interest rate. These can be great if you know that you’ll be moving in a few years or if you expect to be able to significantly pay down your mortgage principle over the initial period of the ARM. The drawbacks of an adjustable rate is that your rate can increase – sometimes significantly. With a fixed rate the primary benefit is that the interest rate will be constant for the life of the loan. With today’s historically low interest rates, a fixed rate is likely to be the best option.

Shopping Around
Once you know your credit score, you are in the drivers seat. If you belong to a credit union, check their current rates for mortgages. Then start shopping around. Check with mortgage brokers, local lenders and online mortgage companies. Do not apply for a loan until you find the company you want to go with as excessive inquiries into your credit history can lower your score.

A mortgage is a major investment so take some time and approach it with a level head. Spending a little time in advance will save you thousands of dollars over the life of your loan.