Wednesday, June 10, 2015

Compare home loans to save

The elusive “cheapest mortgage” spurs home loan hunters to scramble the market for weeks before settling on a good deal. But while it’s easy to compare interest rates, few learn what it really takes to find the cheapest mortgage until they’re paying more than they have to.
The first thing to look for in the search for the cheapest mortgage is the rate. For instance, on a $250,000 home loan over 25 years, 1 percent could make the difference of almost $50,000 in repayments over the life of the loan.


However, what could make a home loan even cheaper is how quickly you pay it off. For example, on a $250,000 loan over 25 years at a rate of 7 percent, total repayments may exceed $530,000. Compare this to an 8 percent loan that you pay off in 15 years, with total repayments of around $430,000. Even with a higher interest rate, paying off the loan sooner could save you $100,000 in repayments.
Another neat trick is to pay your mortgage weekly instead of monthly, which over time can save you a few thousand dollars through compounding. 
What you need to know
One thing to be aware of when hunting for the cheapest mortgage is the introductory rate. These can seem like the best deals in the market, with low rates for the ‘intro period’. However, the bite can come when customers don’t satisfy certain terms and conditions, meaning that slip ups could force you into much higher rates for the rest of your loan.
You should also think carefully about the features and services you will need for your loan. For example, if you believe that you will need to often suspend or make extra payments, having a loan that helps you avoid fees for that can save you hundreds of dollars each time you skip a payment.
And be aware the cheapest home loan for your neighbour may not be the home loan deal for you. Consider your financial situation and history with loan repayments before you sign off on a flashy promotional deal. Research the cheapest rates today to get a feel of the terrain, and hunt until your heart’s content to secure that perfect home of yours. 

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Get help choosing your home loan

Whether you're a first home buyer, refinancing your home loan or purchasing an investment property, we'll help you make a more informed decision and try to save you time and money.
We compare some of the lowest home loan rates on the market with mortgage interest rates from hundreds of lenders available to compare. Whether you're after a fixed rate home loan, variable rate home loan or a split rate option, you can search, compare and apply for over 2000 home loans all through the one site.
It pays to compare mortgage interest rates, but it's also important to compare a home loan's fees and other features because these can vary widely between lenders and can significantly impact the overall cost of borrowing by tens of thousands of dollars, if not more – money that is better in your pocket!
To see if you have a competitive mortgage interest rate, or if you are in the market for a new one, compare mortgage interest rates by clicking on the home loans tab and select a loan amount and you'll receive immediate results.
If you would like to get some help completing the home loans form or learn more about the home loan market, get tips and information then read our Home Loans Guide. Not only is this a step-by-step guide to help you stay on track, it has a useful checklist of costs.
Our home loan calculator is another great tool that can help you estimate mortgage repayments, calculate the interest you might save and the time you could shave off your loan by making additional repayments.

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First home buyers home loan

The task of buying your first home can be an extremely daunting prospect. It is hard enough trying to save for your deposit when you're already paying rent and other bills. To help ease the strain of your first home loan purchase it is imperative to do your homework and aim to find on of the best possible home loans at an affordable price.

First home buyer loans are offered to help prospective first home buyers to enter the property market sooner. There are a number of premium first home buyer loans available offering low variable interest rates. These loans often appeal to anyone who qualifies for the First Home Owners Grant. The grant varies by state, but is a halpful leg up into the property market, particularly in capital cities which have seen major price growth and affordability issues over the past decade or so.
Many first home buyers also get some loving assitance from parents or relations. This can come in different forms, such as a gifting of some or all of the deposit, or offering to sign up as a guarantor on the loan. A bigger deposit by way of a gift, or a guarantor signing up as support can mean a first home buyer can avoid the dreaded extra expense of Lenders Mortgage Insurance, otherwise known as LMI.
LMI is often mistaken as insurance to protect the borrower. This could not be further from the truth. LMI proectes the lender from borrower defaults, the borrower certainly does not get scott free. In the worst case scenario that you cannot afford to pay your home loan and go into serious default, the house may be sold by the lender to recoup the money owed. If there is a gap between what is owed and what the house is sold for, LMI fills the gap for the lenders benefit.
One of the most reliable ways to avoid the cost of LMI in the first place, and reduce the chance of default in future, is dedication to a regular savings plan in the lead up to your first home purchase. By proving to yourself and the lender that you can afford the and stick to a budget for long enough to save a big deposit, you will be far better placed to take the leap into home ownership. And after all, a bit of delayed gratification never hurt anyone!

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Can You Really Buy a Home With the Section 8 Program?

The Section 8 housing program provides rental assistance for low-income families. What many people don't realize is that it can also help them buy a house.

Why does the government do that? Under Section 8, qualified families can have a portion of their rent paid through what's called the Housing Choice Voucher Program. The reasoning behind the homeownership program is that, rather than giving that money to a landlord every month, the government might as well allow recipients to use those same funds to buy a home instead.
In many areas, Section 8 recipients can buy a better place to live than they could rent for the same subsidized monthly payment. Homeowners also have a personal stake in the maintenance of theproperty, so they tend to keep the place up better than subsidized rental units often are. Finally, owing their own home allows them to build equity in an asset that can eventually help them attain a higher standard of living.

Section 8 housing voucher basic requirements

A few misconceptions should be cleared up right off the bat. First, this is not a program that provides a "free house" to the unemployed. Unless participants are elderly or disabled, at least one member of the household must be working full-time. Second, the family must pay part of the monthly housing expenses themselves, a portion equal to 30 percent of their adjusted income. So the merely unemployed are not eligible.
To be eligible, a family can earn no more than 50 percent of the median income of the area in which they reside, adjusted for family size. So if the median income in your area is $50,000, you can earn no more than $25,000 a year to be eligible.
On top of that, program guidelines require that at least 75 percent of the vouchers be allocated to families earning no more than 30 percent of the local median income - so if you're in the 30-50 percent range, you may have difficulty getting accepted.
The voucher programs, both for homebuyers and for rentals, are administered through local public housing agencies (PHAs). To be accepted into the Homeownership Voucher program, you need to be referred by your local PHA. Not all PHAs participate in the program, although most do.

Getting approved can be tough

Even if your family meets the guidelines, this can be a difficult affordable housing program to get into. In recent years, only about 1,000-2,000 families nationally have been accepted into the program each year. On top of that, participating PHAs maintain waiting lists for the program that can be quite lengthy - often several years. Furthermore, the lists may open up to new additions only rarely, and then be closed again after just a few days.
You are not eligible if you are currently receiving Section 8 rental assistance for living in a federally subsidized housing project, but may be eligible if you are receiving Section 8 rental assistance for a non-project unit.

Work and income requirements

The work requirements specify that at least one person in the household be working full-time, defined as a minimum of 30 hours a week. On top of that, there is a minimum income requirement that the adult family members combined earn at least 2,000 times the federal minimum wage each year, currently $7.15 an hour. Done by one person, that would be nearly a full year of 40-hour weeks at minimum wage, the traditional definition of full-time work.
Welfare benefits cannot be including in calculating qualifying family income unless the family qualifies as elderly or disabled.
A different minimum applies for families classified as elderly or disabled. In that case, the minimum annual family income must be no less than 12 times the monthly Supplemental Security Income benefit for a single individual living alone.
As mentioned above, participants must pay a portion of the mortgage and other monthly housing expenses. This amount is typically based on 30 percent of the family's adjusted income. The voucher covers the rest. Covered monthly housing expenses include not only the mortgage, but also property taxes, homeowners' insurance, and allowances to cover utility payments and repairs. Principle and interest costs of loans for major repairs or to make the home accessible for a handicapped family member may be included as well.
You're also responsible for making any down payment required for the mortgage, although many states and localities offer separate down payment assistance programs you may be able to take advantage of. If you can qualify for this program, there's a good chance you'll be eligible for one of those as well.

15-year limit on assistance

A few other things to note. The financial support is not open-ended. In fact, the vouchers will be provided for a maximum of 15 years (10 years if the mortgage term is less than 20 years), unless the head of household is elderly or disabled. So for a standard 30-year mortgage, the homebuyer vouchers will only get you halfway there. At that point, you'll need to be able to take over responsibility for the entire mortgage payment, taxes, insurance and utilities yourself.
You may also be subject to the Federal Recapture Tax if you sell the home at a profit less than nine years after purchasing.
Further information on the HUD Homeownership Voucher program, including links to a list of local public housing agencies, is available from the Department of Housing and Urban Development by clicking the link shown.
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Selling Soon: Pay Down Mortgage or Save Your Cash?

It's not an easy decision: You plan to sell your home in the near future and buy a new one a few years from now. You have extra money coming in each month. Should you send those extra dollars to your lender with each payment to whittle down the principal balance of your mortgage before it's time to sell your home?

Or does it make more sense to save that money so that you can use it for a larger down paymentor to cover the closing costs on your next mortgage loan?
Not surprisingly, the answer to this question depends on several factors: How much money do you already have in the bank? Do you owe more on your mortgage loan than what your home is worth? Are you downsizing or upsizing with your next residence?
"There are many factors to consider," said Lisa Featherngill, managing director of wealth planning at the Winston-Salem, North Carolina office of Abbot Downing and a member of the National CPA Financial Literacy Commission. "And sometimes emotions can get in the way. People get emotional over their homes. And sometimes those emotions become more important to them the real financial facts."

Liquidity is king?

Brian Koss, executive vice president of Mortgage Network in Danvers, Massachusetts, says that it almost never makes sense for owners who are preparing to sell and buy to pay down the principle balance of a mortgage instead of saving money.
That's because buyers often need large sums of cash during the homebuying process, even if they are selling a home at the same time. They might expect to make a sizable profit on their sale, a profit that they can invest in the down payment and closing costs on a new mortgage. But the timing often doesn't work out: How can buyers cover their down payment or closing costs if they haven't yet received the cash from their home sale?
"There are so many needs for liquidity during the process," Koss said. "Even if you are going with a low-cost, low-down-payment mortgage, you never know what you are going to need money for. Maybe you'll need repairs on your new home. Maybe the fees or closing costs are going to be higher than you thought. There are moving costs to worry about. I never hear people say that buying a home was less expensive than they thought. And if you have savings built up to help cover these costs? That can make all the difference."
Koss said, too, that today's low mortgage rates means that it makes more sense to save than to pay off a home loan. If your mortgage has an interest rate of in the 3-percent or 4-percent range, and that mortgage interest is tax deductible, paying down your loan's balance might not provide enough of a financial benefit to make it worth your effort.

No equity - or negative equity - and buying up?

Of course, there are always exceptions. Couples who lack equity in their home - they might even owe more on their loan than their home's current value -- or who plan to buy a larger, more expensive home with their next purchase might do better to pay extra on their current mortgage's principal balance each month, said Featherngill.
These buyers might want to put down a larger down payment on their next more expensive home so that their new mortgage isn't too large. Owners who pay down their existing mortgage can build equity and earn more money at sale. They can then put these larger proceeds into a larger down payment.
Featherngill says that these same owners could choose to stow their extra cash in a savingsaccount or other investment vehicle. The problem, though, is that if these owners want to sell in just two or three years, they might not have enough time to earn a high enough return on these deposits to make them worth their while.
"If you are looking at short-term options, even the best of the money-market accounts or savings accounts are paying out interest of less than 1 percent," Featherngill said. "Putting your money into the mortgage might provide you with a bigger impact."

Plenty of equity?

Owners who already have a significant amount of equity in their homes have more flexibility when it comes to any extra cash they are receiving each month. This is especially true for those owners who have enough equity in their homes to cover their down payment and closing costs on their next mortgage.
And if you have plenty of equity and you're downsizing, buying a smaller, less expensive home? Then you have loads of options when it comes to any extra money coming in each month.
Featherngill says that these owners should resist the temptation to pay down their mortgages and instead use that money in some other way.
That "other way" might mean investing extra money in a savings vehicle, money that owners can later tap to help furnish their new home. Or it might mean something else, Featherngill said.
"Are they maximizing their retirement savings? If not, they can use that extra money to add more to their retirement savings," she said. "Do they need to save for a child's college education? If they are going to have enough equity in their home, it makes sense to use that extra money for some other financial need, not to pay down even more on their mortgage loan."

In the middle?

But what if you're in the middle? You have equity in your home, but not that much. You'll make a profit on your home sale, but not enough to cover your down payment or closing costs on the next home you are buying.
Armando Roman, managing principal of Scottsdale, Arizona's Axiom Financial Advisory Group, says that he advises homeowners to be cautious: Save extra money for an emergency fundinstead of sinking them into larger monthly mortgage payments. Why? You never know when something expensive in your current home will go on the fritz.
"What if your water heater breaks or you suddenly get a leak in your roof?" Roman asked. "You'll need to fix that before you sell your home. You need to have your home in its best condition. That can be expensive. If you don't have savings built up, something like a broken water heater can cause some real financial problems."
You can never predict when something will go wrong with a home, even if you're the type who remains vigilant with servicing and maintaining your home's expensive appliances.
"It feels good to pay down extra on the mortgage," Roman said. "I understand the feeling of accomplishment that brings to reduce your debt. But I always get nervous when people don't have a cushion. If you don't have a large enough amount of savings, what will you do if something goes wrong before you put your home on the market ? You might have to resort to putting those repairs on a high-interest-rate credit card."
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How Soon Can You Get a Mortgage After Foreclosure?

People who lost their home to foreclosure during the Great Recession are becoming eligible for mortgages again, mainly for the simple reason that they waited seven years until the black mark came off their credit report.

But what can other boomerang buyers - those who lost a home to foreclosure and are ready to buy again - do if they want to get a home loan before seven years after a foreclosure? There are some options, though they include paying a premium in interest and a down payment.
Even with a foreclosure on your credit report for seven years, its impact on your FICO score - the most widely used credit scoring system - will lessen over time during those first seven years, according to the Fair Isaac Corp, developer of the FICO system. If all of your other credit obligations are kept in good standing, your FICO score can rebound in as little as two years.

A growing market

More than 5 million American families lost their homes to foreclosure between 2007 and 2014, according to the Wall Street Journal.
Of the 910,000 whose credit reports showed they had foreclosure proceedings between October 2007 and October 2008, 264,400 had no evidence of a foreclosure on their credit reports by October 2014, according to Fair Isaac Corp., which developed FICO scores. That number will rise by up to 645,600 by the end of 2015, according to FICO.
That leaves about 4 million families who lost their homes to foreclosure who may still have it listed on their credit reports. That's a lot of people who potentially may want to buy a home within seven years of foreclosure.
To be approved for a home loan within seven years of a foreclosure, here are some loan options and things to do:

Improve your credit score

FICO credit scores range from 300 to 850 and most mortgage lenders require at least a 620 to 660 score. The better the score, the more favorable the loan terms that are usually offered.
FICO scores have increased for people with foreclosures coming off. The Journal reports that 12 percent of the people, or about 109,000 who had foreclosure proceedings on their credit reports between October 2007 and October 2008 had a FICO credit score of at least 680 by October 2014. That's up from 6.2 percent in October 2012 and 4.4 percent in October 2010. Keeping current with other loans since foreclosing likely improved their credit scores.
"Foreclosure in general has a huge impact on credit, right off the bat," automatically dropping a credit score 200 points, says Jeremy Schachter, branch manager at Pinnacle Capital Mortgage in Phoenix, Ariz.
The three major credit reporting firms start the seven-year clock from the date the lender reports the borrower missing a payment that eventually leads to foreclosure.
"Foreclosure is a pretty significant, damning thing on your credit report," Schachter says.

Prove extenuating circumstances

Lenders that offer conventional mortgages may still offer you a loan within seven years of a foreclosure if you can show that extenuating circumstances led to you losing your home, Schachter says. These can be hard to prove, and may need to be dire, he says.
For example, if your wife died and she was the family breadwinner, and you lost your home, that could be an extenuating circumstance. Or you could have been laid off.
"It's hard because underwriters don't want to sign their name off on this loan because it's going to be subjective," Schachter says.

FHA loan

The Federal Housing Administration, or FHA, has a three-year wait for foreclosures. There are a few drawbacks that go beyond overlays that banks may impose with stricter lending criteria because they don't think the minimum standards set by the Department of Housing and Urban Development and other government agencies are high enough. The funding fee of 1.75 percent of the loan amount is rolled into the FHA loan, which goes to the FHA, Schachter says.
The FHA also has a loan limit that's based on the average home sale price in the area. Maricopa County in Arizona, for example, has a $271,050 FHA limit, he says.
FHA mortgage insurance premiums dropped in January to .85 percent for 30-year fixed loans up to $417,000. The sticking point, however, is that FHA loans require mortgage insurance for the life of the loan. That may be OK for someone three years after a foreclosure, but as it gets closer to seven years, they may want to refinance into a conventional loan, says Jeff Onofrio, branch manager of AnnieMac Home Mortgage in Mount Laurel, N.J.
"I would look at it as a short-term fix" to build equity, Onofrio says of an FHA loan before a foreclosure comes off a credit report.
An FHA loan requires a 3.5 percent down payment - with or without a foreclosure on your record - versus as low as 3 percent for a conventional loan.

FHA extenuating circumstances

A combination of the two above options is the FHA Back to Work - Extenuating Circumstancesmortgage loan program that offers a loan one year after foreclosure.
To qualify, applicants must show that they had at least a 20 percent reduction in income that lead to the foreclosure, says Michelle Black, a credit expert at HOPE4USA.com, a credit education and restoration program in Charlotte, N.C.
Tax returns showing that income has since bounced back to its previous state or higher must be submitted. And, credit reports and scores must meet the lender's minimum qualifications and borrowers must have re-established a responsible credit history with on-time rental housing payments for a year. HUD-approved housing counseling must also be completed.

VA loan

Veterans can get a loan guaranteed by the Veterans Administration two years after a foreclosure. However, if they had a foreclosure on a VA loan to begin with, they may not be eligible for another one, Schachter says.

Niche products

Groups of investors offer niche loans that are 3-4 percent higher than normal rates, and can be obtained a year after a foreclosure with a 25 percent down payment, Schachter says. These can often be found through mortgage brokers.
Some are offered as quickly as a day after foreclosure. Whitney Fite, president of Angel Oak Home Loans in Atlanta, says his company offers what it calls a Home$ense" program to people with bad credit a day after they've had a foreclosure settled.
It offers a 30-year fixed mortgage at 6.49 to 8.99 percent with a minimum 20 percent down payment.
Such a loan can make sense for someone who wants to buy a home soon and plans to refinance later when they can get better terms, Fite says.
The average home loan through the program is $250,000, he says. The average loan to value is 77 percent, with a 23 percent average down payment of $50,000 to $60,000. The average customer has a 670 credit score.
It has another program, called Portfolio Select, that offers a 5.5 percent interest rate with 20 percent down two years after a foreclosure.
"A lot of times it's a one-time credit event," Fite says of a foreclosure.
"Bad things happen to good people, and this is an underserved area of the market that we're trying to serve," he says.
Alternative mortgage startup Privlo specializes in lending to borrowers with complicated finances, such as self-employed workers, small business owners and credit rebuilders with recent foreclosures. Someone with a foreclosure a year ago who has a credit score of at least 550 and has an otherwise clean credit history can get a loan, says Privlo founder Michael Slavin.
Its interest rates typically fall between 5.25 and 9.25 percent, with a minimum 20 percent down payment.
"A recent foreclosure doesn't mean that you can't get a mortgage," Slavin says. "There are alternative lenders like Privlo who work with credit rebuilders and understand that there are people who deserve a second chance at homeownership."
Paying bills on time and not maxing out credit cards is important to the lender, he says, helping to give the impression that a borrower isn't living beyond their means.
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