Real Estate Information Archive

When it comes to borrowing money, many loans offer benefits beyond simple financing. With that in mind, it’s important to understand how one type of loan may be right for making home improvements, while another may be a better match for financing a wedding. The key is to research the various types of loans, know what services they're designed to provide and then choose the one that best fits your financial needs.

Credit card, personal and home equity loans are all great options to help finance purchases and achieve financial goals. Here's a rundown of how each type of loan works:

Credit card – Many people don’t realize that credit cards are actually loans, and users can make those loans as short-term or long-term as they need. Some credit cards provide low- or no-interest, short-term financing as long as the monthly statement is paid in full and on time. Users also have the option to turn their credit card balance into a longer-term loan, which may result in higher interest rates. Some credit cards may also charge an annual fee. Credit card loans can be used for common household expenses like groceries, gas or even to make automated payments for items like a magazine subscription. And if the user's credit limit is high enough, credit cards can be used to fund larger expenses like furniture or electronics.

Personal loan – Having a balance on more than one credit card can be a burden, especially if the rates are high. To help manage their budget, many consumers opt to use a personal loan to consolidate their higher-interest loans. Using a personal loan to pay down debt may save borrowers on interest payments if the rate on the personal loan is lower than on the credit card. Additionally, personal loans can give people more control over the size and timing of monthly payments.

Personal loans can be used to pay for major events or expenses, such as a wedding, a big trip or those unexpected life moments such as a child’s new braces or an emergency car repair. Additionally, approved borrowers can receive their money quickly.

There are also online resources, such as financial calculators, that can help borrowers visualize what their finances will look like when taking on a personal loan.

Home equity loan – Once a homeowner has earned equity in their home, she or he can use that as collateral to get a loan for large expenses. Many homeowners obtain a home equity loan to finance a very costly home repair or home renovation project. This allows them to use their equity to potentially help increase the home’s value, and may increase resale profits. Other uses for home equity loans include consolidating large debt or paying for major expenses like medical bills. Typically, home equity loans have a fixed interest rate, terms and monthly payments. Interest on a home equity loan may be 100 percent tax deductible. Borrowers should consult their tax advisor about any benefits a loan may bring.

Loans can help borrowers regain control of their finances but are not “one size fits all.” Different types of loans should be used for different types of expenses. The key is for borrowers to consider the type of expense they are looking to fund, the available loans and lender offerings, and determine which type of loan is most suitable for them. (BPT)

Information courtesy of Chester County PA Realtor Scott Darling.

Although the housing market has been unpredictable in recent months, the existence of a seller’s market and the availability of low interest rates are providing incentives for potential buyers. Obtaining a mortgage, especially one which is attractive to you, is not as easy as it was a few years ago. As a result of the extreme increase in the number of foreclosures, banks have raised their lending standards for all borrowers, and there is little reason to believe that these stringent requirements will lessen anytime soon. This tight credit situation affects would-be buyers of Chester County real estate in numerous ways, among them down payments, credit scores, documentation, debt-to-income ratio, and appraisals.

        1. Down payments: Requirements will be higher. Generally speaking, to get the best interest rate you need to put down at least 20% of the purchase price of the Chester County real estate. FHA loans are available for a down payment of only 3% to 5% but these loans will include additional costs for insurance and a slightly higher interest rate.

        2. Credit scores: You will most likely need a score of 730 for the best rates, whereas the average score for an FHA borrower is about 690. Financial advisors strong urge you to obtain a copy of your credit report six months before loan shopping (you are entitled to one free report from each of the three bureaus annually at www.annualcreditreport.com) and examine it carefully to detect any errors/misinformation.

        3. Documentation: Be prepared! Lenders will ask for a great deal of documentation regarding your salary, savings, job stability, debts, and the like. You will need to provide pay stubs for the past 30 days; W-2 forms for the past two years; bank, retirement, and investment account statements; and a listing of debts and monthly expenses. Monthly housing expenses should not exceed 28% of your gross monthly income, and total debt should be less than 37% of that amount. If you are self-employed, you will also have to submit two years of tax returns and possibly a profit-loss statement.

        4. Appraisals: Gone are the days of a sure-thing, easy appraisal. Lenders today want a thorough inspection of both the interior and exterior or your Chester County real estate, and the less money put down, the more extensive the scrutiny of the home’s market value. It is wise to include an appraisal contingency in your offer so that your earnest money deposit will be returned to you if the appraisal fails to meet the negotiated price.

How can you find the best rates? Check out available interest rates daily and discloses the best “par rate.” In addition, if you provide contact information, the site will forward that information to the local lender offering the best rate.

If you are considering refinancing your Chester County real estate, take advantage of this calculator to help determine if this is a good financial move for you.

You should also avail yourself of the consumer-friendly good faith estimates (GFE) that lenders are required to give you and with which you can compare offerings. (Search online for “HUD + good faith estimate” for an example.) This form clarifies the type, rate, and features of the loan for which you’re applying. These rates are guaranteed, and if the charges are underestimated, the lender, not you, if responsible for the difference.

To a Chester County home loan shopper, there may seem to be an endless--and confusing--array of mortgage types. Of course you want to choose the option that is best suited to your current and future financial situation, but understanding the terminology, types, and monetary ramifications is not always easy. Mortgages generally fall into four categories (fixed rate, adjustable rate, step, and balloon) according to the interest rate and duration of the loan.

Basic terminology;

    Fixed rate--The interest rates do not change during the life of the loan, thus allowing you to know the amount of your payments.

    Adjustable rate (ARM)--the interest rate is tied to certain indexes plus a margin and can fluctuate up or down, thus affecting each payment,

    Step--the interest rate and monthly payment remain the same for a specified period of time. After that the interest will change to the prevailing rate and will remain there for the duration of the loan.

    Balloon--a loan payment that expands after a certain amount of time. Basically it functions similarly to a fixed rate mortgage in the earlier months/years with a delayed steep increase at the end,

The following information, courtesy of Mortgages.Interest.com, outlines the type of mortgage, the loan characteristics, and the situations most appropriate for each one. If, for instance, you plan to live in your Chester County real estate more than 10 years and desire stability in payment amounts, then a fixed rate mortgage is for you. If, however, your finances are currently strained, but you know that in 5 to 10 years your monetary situation will improve or that you will most likely move within 10 years, then an ARM or balloon mortgage may be better for you. Being familiar with these options allows you to discuss them intelligently with your real estate agent and/or lender and then select the type which best fits your circumstances.

 Fixed rate mortgage (30, 20, 15, 10 years)*

• Interest rate & monthly payment remain the same for the entire term of the loan

• plan to live in property more than 10 years

• like total payment stability

0/1 year adjustable rate mortgage

• Interest rate & monthly payment remain the same for 10 years

• Starting the 11th year, interest rate adjusted every year, so payment is subject to change every year for remainder of loan

• plan to live in property more than 10 years

• like initial payment stability, can accept later changes OR

• plan to move within 10 years

•   want loan to remain in force in case plans change

7/23 (2-Step) or '30 due in 7' mortgage

Interest rate & monthly payment remain the same for 7 years

• Conversion option: On the 8th year, interest rate adjusted to reflect prevailing interest rates, resulting payment will remain the same for remainder of loan

• plan to live in property more than 10 years

• can tolerate one payment adjustment OR

• plan to move within 7 years

• want to remain in force in case plans change

7/1 year adjustable rate mortgage

• Interest rate & monthly payment remain the same for 7 years

• Starting the 8th year, interest rate adjusted every year, so payment is subject to change every year for remainder of the loan

• plan to live in property more than 7 years

• like initial payment stability, can accept later changes OR

• plan to move within 7 years

• want loan to remain in force in case plans change

7 year balloon mortgage

• Interest rate & monthly payment remain the same for 7 years

• At the end of 7 years, loan is due in full. Borrower must refinance into new loan at prevailing interest rates

• plan to live in property more than 7 years

• are willing to refinance at prevailing market rates OR

• plan to move within 7 years

• like payment stability

In addition, there are variations of the ARM, step, and balloon mortgages which differ primarily in the duration of the loan and of the planned residency.

Another good source of information for first-time Chester County home buyers is the Department of Housing and Urban Development (HUD), an agency which oversees FHA loans. This type of loan is particularly useful if you have little money for a down payment, less than great credit, or large monthly bills. An FHA loan requires as little as 3% down (and it can be a gift from a relative or friend). In terms of your credit rating, the FHA is primarily concerned that for the past two years you have paid bills in a timely manner and have been steadily employed. With FHA you have to wait only two years after declaring bankruptcy, and your debit-to-credit ratio can be higher than for a conventional loan. You can qualify for an FHA loan if your monthly payments are no more than 43% of your income, and, as with conventional loans, you can choose from many types.

Of course, there are some negatives to consider before taking on an FHA loan. Interest rates generally run about 1/8 of a percentage point higher than conventional rates, but the real disadvantage of an FHA loan is that the borrower must pay an up-front insurance premium of 1.75% of the mortgage if the down payment is less than 20%. This cost can, however, be added to your total loan amount.

So there you have it--an easy-to-understand guide to mortgage types. As always, you should feel free to contact me anytime with questions. I am glad to recommend a number of outstanding mortgage lenders if you are interested in talking with one.

To a home loan shopper, there may seem to be an endless--and confusing--array of mortgage types. Of course you want to choose the option that is best suited to your current and future financial situation, but understanding the terminology, types, and monetary ramifications is not always easy. Mortgages generally fall into four categories (fixed rate, adjustable rate, step, and balloon) according to the interest rate and duration of the loan.

Basic terminology;

    Fixed rate--The interest rates do not change during the life of the loan, thus allowing you to know the amount of your payments.

    Adjustable rate (ARM)--the interest rate is tied to certain indexes plus a margin and can fluctuate up or down, thus affecting each payment,

    Step--the interest rate and monthly payment remain the same for a specified period of time. After that the interest will change to the prevailing rate and will remain there for the duration of the loan.

    Balloon--a loan payment that expands after a certain amount of time. Basically it functions similarly to a fixed rate mortgage in the earlier months/years with a delayed steep increase at the end,

The following information, courtesy of Mortgages.Interest.com, outlines the type of mortgage, the loan characteristics, and the situations most appropriate for each one. If, for instance, you plan to live in your Chester County real estate more than 10 years and desire stability in payment amounts, then a fixed rate mortgage is for you. If, however, your finances are currently strained, but you know that in 5 to 10 years your monetary situation will improve or that you will most likely move within 10 years, then an ARM or balloon mortgage may be better for you. Being familiar with these options allows you to discuss them intelligently with your real estate agent and/or lender and then select the type which best fits your circumstances.

 Fixed rate mortgage (30, 20, 15, 10 years)*

*Interest rate & monthly payment remain the same for the entire term of the loan
*plan to live in property more than 10 years
*like total payment stability

0/1 year adjustable rate mortgage1

*Interest rate & monthly payment remain the same for 10 years
*Starting the 11th year, interest rate adjusted every year, so payment is subject to change every year for remainder of loan
*plan to live in property more than 10 years
*like initial payment stability, can accept later changes OR
*plan to move within 10 years
 *want loan to remain in force in case plans change

7/23 (2-Step) or '30 due in 7' mortgage

Interest rate & monthly payment remain the same for 7 years
*Conversion option: On the 8th year, interest rate adjusted to reflect prevailing interest rates, resulting payment will remain the same for remainder of loan
*plan to live in property more than 10 years
*can tolerate one payment adjustment OR
*plan to move within 7 years
*want to remain in force in case plans change

7/1 year adjustable rate mortgage

*Interest rate & monthly payment remain the same for 7 years
*Starting the 8th year, interest rate adjusted every year, so payment is subject to change every year for remainder of the loan
*plan to live in property more than 7 years
*like initial payment stability, can accept later changes OR
*plan to move within 7 years
*want loan to remain in force in case plans change

7 year balloon mortgage

*Interest rate & monthly payment remain the same for 7 years
*At the end of 7 years, loan is due in full. Borrower must refinance into new loan at prevailing interest rates
*plan to live in property more than 7 years
*are willing to refinance at prevailing market rates OR
*plan to move within 7 years
*like payment stability

In addition, there are variations of the ARM, step, and balloon mortgages which differ primarily in the duration of the loan and of the planned residency.

Another good source of information for first-time Chester County home buyers is the Department of Housing and Urban Development (HUD), an agency which oversees FHA loans. This type of loan is particularly useful if you have little money for a down payment, less than great credit, or large monthly bills. An FHA loan requires as little as 3% down (and it can be a gift from a relative or friend). In terms of your credit rating, the FHA is primarily concerned that for the past two years you have paid bills in a timely manner and have been steadily employed. With FHA you have to wait only two years after declaring bankruptcy, and your debit-to-credit ratio can be higher than for a conventional loan. You can qualify for an FHA loan if your monthly payments are no more than 43% of your income, and, as with conventional loans, you can choose from many types.

Of course, there are some negatives to consider before taking on an FHA loan. Interest rates generally run about 1/8 of a percentage point higher than conventional rates, but the real disadvantage of an FHA loan is that the borrower must pay an up-front insurance premium of 1.75% of the mortgage if the down payment is less than 20%. This cost can, however, be added to your total loan amount.

So there you have it--an easy-to-understand guide to mortgage types. As always, you should feel free to contact me anytime with questions. I am glad to recommend a number of outstanding mortgage lenders if you are interested in talking with one.