The
overall length of time/ no. Of years,
you plan to stay in the property.
If you wish to stay in the property for
a period of 7 years or less, one of the
best options for you would be, to consider
an intermediate adjustable loan program
with a rate that is fixed for a 5-7 year
period (i. e. a rate that is fixed for
approximately an equal no. Of Years).
If you don’t require a long term
financing, please don’t go for it
because a long-term loan program (i. e.
a 30 year fixed) might also require you
to pay the higher rate meant for these
types of loan programs. Another important
thing to keep in mind is, to consider
minimal closing costs (in case you wish
to own the property for 7 years or less)
for short - term loan programs.
Please make sure, you
don’t opt for high closing costs
because a short-term loan program doesn’t
give you the opportunity to recover the
price for such high closing costs.
The right loan program that matches your
current individual financial priorities.
If you want rapid repayment of the home
loan, a possible option could be a 15-year
loan program or possibly an adjustable
rate loan program with a lower rate of
interest. This could be further supplemented
by additional payments towards the principal
to retire the mortgage loan early. Making
payments towards the principal amount
should easily enable you to afford a progressively
lower required payment every month as
the mortgage loan is recast (and thus
the interest is calculated afresh). Going
for principal reduction payments means
your future payments would be based on
the existing home loan balance vs. the
original balance. This flexibility of
payments is not possible with a fixed
rate home loan though (here your monthly
payments are going to be the same throughout,
regardless of any principal reduction
payments) .
On the other hand,
if you worry about the cash flow every
month, you need to consider a loan program
that gives you a variety of payment options.
Some adjustable loan programs are available
that allow you to choose from a no. of
payment options every month ( i.e. interest
only, allowing for negative amortization,
30 year fixed rate fully amortized or
15 year fixed rate fully amortized). So,
depending upon your cash flow every month,
you can go for varied payment options
each month to suit your pocket.
You
anticipate receiving funds in the near
future that would permit you to pay down
your home loan balance.
If this is true in your case, you may
simply choose a home loan where the interest
rate is fixed for a Shorter
Term to suit your specific
situation, and this is possible in case
of an ARM with a rate fixed for 1-5 years,
if it actually suits you time wise. Once
you receive the funds, you can use them
to pay down the balance on your existing
home loan (you could go for a refinance).
If you currently have an adjustable loan
program that is scheduled to recast, you
may choose to pay down the balance. This
option can afford you a lower monthly
payment and you don’t need to go
for refinance either.
Your credit history/credit report is important
For people with a not-so-good credit history,
it is best to discuss their case openly
with their home loan consultant. It is
highly advisable you review your credit
report together with him/her. The market
for bad credit mortgage or sub-prime mortgage
has grown significantly these days so,
you needn’t worry much. In fact,
this scenario has enabled the mortgage
lenders to compete with each other and
offer competitive interest rates with
a wide variety of loan programs.
If you
are willing to improve your credit ratings,
it is advisable to go for short term financing
and rebuild your credit ratings after
which you can go for refinance.
If
you already have high credit ratings,
it’ll always go in your favor because
there are loan programs that allow discounts
for people with such good credit. And
if you have high equity too, in your property,
which should be a little more than 20-25%,
you are eligible for further discounts.
You
are unable to document your income sufficiently
(or you are self-employed)
In this case, you can opt for a home loan
that does not require verification of
either income or assets (NINA, or No Income
No Asset mortgages). If you provide less
documentation you may go for a quick qualifier,
easy qualifier home loans etc. But remember,
the less the documentation the higher
the interest rate will be for you. Some
of these loan programs require a high
level of equity in the property as well.
Thus each of these loan programs could
have both, a higher interest rate as well
as higher equity requirements.
Gathering the documentation you
may need to supply with your mortgage
application
It is indeed very important to gather
the documentation you may need to supply
with your mortgage application. And it
is advisable you do it much in advance.
The kind of loan you select will determine
the exact documentation you need to attach
with the mortgage application. We have
listed below some of the requirements
for your convenience. These can be roughly
divided into 4 categories.
Income Related Documentation:
- W2 forms required
for the last 2 years.
- Last 2 pay stubs
(covering 1 month) need to be attached.
- If 25% or more of
your income is through self-employment,
overtime, commissions, or employment
by a relative, you need to attach signed
1040s for the last 2 years, all schedules
etc.
- You need to attach
proof of the business tax returns you
filed for the last 2 years, if you own
25% or more of a business.
- Attach income statement
from your current business.
- Any available proof
of Social Security, pension, or disability
income etc.
Asset
Related Documentation:
- Bank statements
for the last 2 months required.
- Proof of investment
in the last quarter or trust accounts.
- US savings bonds,
copies of stocks, bonds etc.
- IRA accounts or
Current statement for 401(k).
- Documents related
to the house/real estate/property you
own currently: proof of address, current
value, loan balance, monthly payment,
and rental income etc.
- You need to attach
listing agreement and sales contract
(if selling your current home).
- Estimated value
of cars/automobile and any other important
asset.
Liability
Related Documentation:
- Proof of any financial
liability/liabilities (a complete list
of current debts and minimum monthly
payments).
- Any cancelled cheque/cheques
in the last 12 months (front and back)
for rent or land contract or verification
from your landlord.
Purchase
Property Related Documentation:
- Sales Contract is
required.
- If you are buying
this property from a realtor, the MLS
information sheet is required.
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