Would It Be Smarter To Finance Your Mortgage Through A Fixed Rate Or An Adjustable Rate?
Personal Questions To Ask
The only way to answer this question is to know exactly what is going to take place with our economy in the next two to five years. When choosing a mortgage, you need to consider a wide range of personal factors and balance them with the economic realities of an ever-changing marketplace.
Individuals’ personal finances often experience periods of advance and decline, interest rates rise and fall, and the strength of the economy waxes and wanes.
Then you have to ask yourself:
- How large of a mortgage payment can you afford today?
- Could you still afford the payment if it increases sharply?
- How long do you intend to live in the house?
- What direction are interest rates heading?
- Do you believe the present economy will continue?
The more information and financing you have in regards to the above, the easier it will be for you to make the superlative decision.
What Are The Main Differences Between The Two Financing Plans?
Fixed-rate mortgages and adjustable-rate mortgages are the two primary mortgages types. While the marketplace offers numerous varieties within these two main loan types, the first step when shopping for a mortgage is determining which of the two loan types best suits your needs.
The fixed-rate mortgage charges a set rate of interest that does not change throughout the life of the loan. Here the total payment remains the same, which makes budgeting easy for homeowners.
The main advantage of this loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise. The downside to fixed-rate mortgages is that when interest rates are high, qualifying for a loan is more difficult because the payments are less affordable.
Although the rate of interest is fixed, the total amount of interest you’ll pay depends on the mortgage term. The trade-off for that low payment is a significantly higher overall cost because the extra decade, or more, in the term is primarily to paying interest.
The monthly payment of shorter-term mortgages offers a lower interest rate. This allows for a larger amount of principal being repaid with each mortgage payment, so shorter-term mortgages cost significantly less overall.
The interest rate for an adjustable-rate mortgage varies over time. The initial interest rate on the type of loan is set below the market rate on a comparable fixed-rate loan, and then the rate rises as time goes on.
If the adjustable-rate is held long enough, the interest rate will surpass the going rate for fixed-rate loans. These loans have a fixed period of time during which the initial interest rate remains constant, after which the interest rate adjusts at a pre-arranged time.
This initial rate can vary significantly anywhere from one month to 10 years. Also, this initial rate enables the borrower to qualify for a larger loan and allow for a lower interest rate to begin with.
The downside is your monthly payment may change frequently and if you take on a large loan, you could be in trouble when interest rates rise. Some of these loans are structured so that payments can nearly double in just a few years. The home-loan dilemma continues to be personal and influenced by our economy.
Know When To Get A Loan By Tracking Interest Rates
Many people both consumers and investors wonder when is a good time to refinance a house, get a car loan, buy bonds, etc. While there is a lot that goes into the equation one of the primary things that affect the price and value is the level and overall trends in interest rates. Lets look at a few examples of times when it is useful to know the trend in interest rates.
In 1980 housing prices suffered quite a bit. Was it due to massive leverage or excess speculation? No, it was caused by hyperinflation and the extremely high interest rates that followed. Paul Volcker was in charge of the Fed and raised rates several times in order to tame the runaway inflation. In the process of raising rates however, home values plummeted. They went down because as money got more and more expensive to borrow, the prospect of borrowing money to buy a home became less and less appealing.
As interest rates climb higher the appeal of many assets starts to lose its luster. If the cost of financing a home doubles, it is likely that you will not want to buy a new home or car. In fact if rates are going up then just about everything goes down, or at least stalls out. Take bonds for instance, if rates go up bonds go down. This relationship holds true on the other side as well since bonds go up when rates go down.
These are all reasons that people and investors should be following interest rates. So where do we find these interest rates? And which rates should we be looking at. Well there are several sites like Bankrate, Bloomberg, Stockcharts, and even the Wall St Journal that have interest rates and charts of these rates so that you can see the direction of the prevailing trend.
Look at the 90-Day Treasury bill yields for an assessment of what the Fed is doing. If T-Bill yields have been going down then money is getting cheaper and it makes sense to start looking to be a buyer. If on the other hand T-Bill yields are going up you will likely want to either postpone any large purchases or possibly get ahead of the curb and sell your home while the price is still high, as it will be harder to sell as rates get higher and higher.
Another important interest rate is that of LIBOR. Many consumer loans are tied to LIBOR and so it is a helpful gauge when tracking rates. A typical loan might be LIBOR plus 2 points meaning that the interest rate of the loan will be the LIBOR rate +2. Obviously if LIBOR is trending higher it means that money is getting more expensive and it is probably not a good time to be buying. When LIBOR is declining it means that money is cheaper and your financing costs will be lower.
Hopefully this has been helpful for you. By determining the trend in interest rates you can be far better prepared to know when to buy, when to sell, and when to do nothing. Why fly blind when you can take the global macro view and know what is going to happen.
Macro Trader Tools for Real Estate and Loans
Some of you may be wondering what on earth does real estate and real estate loans have to do with macro trading? It actually has everything to do with global macro. If you are considering the purchase of a first or second home then you should be taking the big picture into perspective before you buy your home. And before you sign a loan you should have a good idea of what the future holds for you.
If you are not tracking interest rates you could be like one of the poor souls that bought a house in 1982 when interest rates were at 15%. Can you imagine paying your mortgage with a 15% interest rate? It would be insane and yet some people did exactly that. What about when you hear from your real estate broker that rates are at new lows. Is this true or not? Most people take what the NAR (national association of realtors) and their broker say at face value but some times the truth is far from what they are hearing.
If you listen to the NAR it is always the best time ot buy a house but if you take a step back and look at the macro, or big picture you will make a better decision on whether you should buy a house, where to buy it at, and what type of loan you should buy it with. For instance where has the 10-Year Treaury note yield been at lately? What is the trend of it? If it is headed down then you might want to wait since you will be able to get a cheaper loan in a while if interest rates go lower. If on the other hand rates are headed up then you would want to get the loan as soon as possible before they rose much more.
If you are looking at where to buy house then you might want to look at the Case Shiller home indexes to see what they say. The Case Shiller data tracks twenty of the largest metropolitan areas in the country and do a good job of showing you if homes have been going striaght up, straight down, or are moving slow and steady. You would want to avoind buying in a market that is flying to the moon as it will likely fall quite hard. On the othr hand if you are looking for a vacation home maybe take a look at some of the areas that have fallen a lot and are now stabilizing. These areas would represent good value.
Finally look at things such as new home sales and bankruptcy filings. If new home sales are declining and bankruptcies are on the rise then you may want to hold off getting a home, and will definitely want to avoid paying up as these signs point to it being a buyers market where the buyer has more pricing power then the seller.
Interest rate and housing sale trends can tell you a lot about where and when to buy a home. So while you may think that you have very little in common with a macro trader you actually have everything in common as all financial transactions are macro bets.
Why You Should Consider A Mortgage Refinance With Bad Credit
When you have bad credit, you pay more for everything. You pay more for loans and credit cards. You even are often asked to pay more or put down a deposit to get a cell phone or satelite dish. If you have the discipline to take a closer look at your finances you will realize that your credit is killing your spending power.
Since most people who have bad credit are extremely uncomfortable taking out loans, they often stay in the same circumstances – for life. They accept that it will always be hard for them and seldom try to better their situation. This can sometimes mean that they pay a lot each month for interest payments that they wouldn’t have to pay otherwise.
I would like to present to you a plan that can help you to move out of this rut.
If you took out a home loan when you had bad credit, you are probably paying a lot extra. I don’t have the exact numbers on this but I’d say that the average, extra amount I see many people paying is about $400/month. So instead of paying $1400 per month on your home you’re paying $1800, or something similar. Each situation is different and the details don’t matter exactly. The point is that you’re paying extra – you have less buying power.
Right now interest rates are extremely low and it’s time to take control of your situation. You need to have a plan and execute that plan. The first thing you need to do is find someone that’s willing to help you out so that you can get control of your finances. Since you have bad credit, it’s going to be hard to do a mortgage refinance on your own. With help you can greatly improve your situation. Talk to your parents, but have a plan of attack. Let them know that this move will free up $400 (or whatever the amount is) per month that you’re going to use to rebuild your credit. Assure them that you’re in control and want to make positive changes. Family members will often react well if you have a plan that you’re willing to stick to.
People often hope that they will be able to find a mortgage refinance for bad credit on their own. Unless you’re current interest rate is REALLY bad, you won’t be able to improve it if you have a weak FICO score. If you’re above 700 you can probably handle it on your own, as long as you have steady employment.
How To Refinance Your Mortgage With Bad Credit
Again, the first thing you need to do is find a cosigner. Talk to your parents and lay out the plan of attack. Be confident as you talk to them and assure them that you are ready to take total control of your financial situation. Since you don’t have a reputation for paying bills on time (hence the bad credit score), your parents will need some reassurance that you won’t trash their credit too.
If you aren’t able to find a cosigner, talk to a professional and have them help you to examine the situation. Most people don’t know that they can really improve their credit score in a few short months by paying down the amounts they owe on their credit cards. You could be a few short months away from a huge increase in your FICO score.
I have seen quite a few situations where the right move was to sell a car or other monthly expense in order to raise a person’s abiliy to pay off credit cards. If you want to boost your credit, you really need to pay down your cards and pay them down now. Most people don’t understand that this is a really large part of your credit score and can be corrected in less than 30 days.
As you should be able to see, using a mortgage refinance can improve your credit dramatically if you use the money you save to pay down debts. This will increase your buying power and that will improve your situation.
Mobile Home Loans
Believe it or not, mobile home loans are one of the trickiest types of loans out there! We wanted to create a resource that people could use to find out what type of loan is going to be the best for their current situation.
Before we get too far into this explanation let’s cover the two basic types of loans that people generally use to purchase mobile homes:
- Mortgage Loans
- Personal Property Loans
Mobile Home Mortgage Loans
In order to qualify for a mortgage that can be used to buy a mobile home, you will need to own the land that the home will be on. You will also need to have a foundation under your home – it needs to be permanently attached to the ground. This means that the wheels and axels will need to be removed.
If you own the land where your home is and it has a permanent foundation, you can approach any lending institution for a regular mortgage loan.
Personal Property Loans
These loans can be used if your home sits on a rented space or if it doesn’t have a foundation. There are plenty of lenders who are set up to provide this type of loan. When you buy your mobile home they will probably want to put you in touch with a lender of this type.
Choosing The Best Option For You
If you can qualify for a mortgage loan, this is almost always going to be the best option. The interest rate will be lower and the terms will be better. I personally would only use a personal property loan if the mortgage option didn’t work for me.
Getting Mobile Home Financing With Bad Credit
In order to qualify for this type of loan with bad credit, you will still have to have a FICO score that’s above 550. If your score is between 550 and 620 you can expect to pay interest rates that are much higher than you would pay otherwise. If you’re between 620 and 650 you will qualify at most banks but will still be offered sub-prime interest rates.
Those that have a credit score above 720 will get the best interest rates. The lending institution will also look at your income level to determine whether you can afford to pay for the loan.
Improving Your Credit
As always, I would highly recommend improving your credit even if you already took out a mortgage loan with your current credit score. That way in the future you can do a bad credit mortgage refinance and reduce your monthly payments. Many people don’t know that you can improve your credit score by as many as 255 points by simply paying off your credit cards. The score increase can be reflected within a few short months.
What Happens To Your Mortgage
Since the fall of Bear Stearns in March of 2008 we have heard a lot of people ask how these businesses can lose so much money from some home loans so we felt it would be useful to go over what happens to your loan after you get it. We also cover a bit of how these banks and investors were able to lose so much.
After you get your loan the bank will take it and securitize it. If you get a loan from a large bank like Wells Fargo or Bank of America they might keep it for their own books but most of the time your bank or mortgage company will take the mortgage and re-sell it to a firm that will securitize it.
You see a loan is nothing more then a type of bond that you issue in order to buy a home. Like any regular bond there is a steady stream of cash flows and principal payments. Because of this investors will purchase them in hopes of getting their money plus interest back.
Typically not paying a huge amount of interest due to their nature of being asset backed by the house, mortgages are then packaged with other mortgages and securitized. This means that they are made into a readily traded vehicle that has a rating from a rating agency and has a stated yield.
So that is what happens with your mortgage. It is sold off, packaged with other mortgages, and then sold as an investment vehicle. Assuming you pay off your mortgage the investors will get their money back. If you dont pay it off then you will lose your home and the investor will receive a bit less the they planned on getting.
So how do these investors and financial institutions lose so much money? In a word, leverage. By buying massive amounts of these MBS mortgage backed seciurities and then leverging them due to their perceived safety an investor was able to get twenty and even thirty times leverage. What this does is set you up for potential disaster.
If too many mortgages default then the investor will blow up due to leverage. Say there were one hundred regular loans of the same amount. If five of them default then you may lose five percent. But what happens if you are levered up ten times? Yes, you just lost fifty percent of your money.
This is obviously really bad for the investor but in most instances the fault lies with the investor. If they dont account for the chance of something going wrong then they will lose their money eventually. You take a decent idea and leverage it up thirty times you will blow up at some point.
So who are the different investors who bought or didn’t buy these securities? Well we know that several investment banks and mutual funds lost a ton of money from the housing mess. We also know that global macro trader funds and commodity trading advisers made money. So while everyone can trade this stuff some people did the right homework and some did not.
How To Plan For New Home Loans
Getting a new home loan isn’t like walking into a 7-Eleven to buy a slurpee. Buying a new home takes persistence, work, and some smart planning. Planning to buy a home can take a few years, but you can really short-cut the process if you understand what’s going to have to happen to buy a home. I wanted to create a small resource that can help you with this process.
The first thing you need to do is gain employment. Obviously if you already have a job you’re taken care of in this area. Sometimes, however, people have some money because of an inheritence or rich parent and they try to get a home loan. This really complicates the process because most lenders want long term security.
Make sure to file your taxes. You generally will need both pay stubs and tax returns to qualify for a new home mortgage loan. This wasn’t the case a short two years ago but banks have really tightened up in today’s economic environment. There was a huge amount of fraud that went down during the last real estate bull run and it caused a lot of problems.
Save some money. The most liberal loan out there right now is the FHA loan and you will still need to save 3.5% for a down payment. The days of 100% financing are gone for now and probably won’t be back for at least a few years. If you can’t qualify for an FHA loan you will likely have to pay somewhere between 5-10% for your down payment.
Fix your credit now. The biggest thing that can be done to improve credit is paying off your credit cards completely. When you carry a high balance it can really affect your credit score. The amount of debt you carry on credit accounts can affect your score by as much as 255 points. Yikes!
New home purchase loans really aren’t much different than other mortgage loans. The bank really doesn’t care whether the home is brand new or a few years old. The most important thing to the bank is the value of the home.
There are a lot of people who are going to want to shortcut this process but that isn’t wise. You shouldn’t be buying a home if you don’t have a down payment. You shouldn’t be buying a home if you don’t have a job. You should take the time to plan so that you can stay in your home without running into trouble.
How To Successfully Complete A Home Refinance With Bad Credit
Guys I have to be 100% honest here – this isn’t an easy task. Finding a home refinance when you have bad credit isn’t going to be easy. However, once you learn the rules I think that many of you will be able to get it done.
What’s Your Credit Score Now?
The problem with putting together a resource that will help people to find a certain type of loan with bad credit is that they will have completely different levels of credit history. The only way I know to REALLY help people is by creating a list that you can use while breaking it down into sections, one for each credit score bracket.
Higher Than 720
If you’re above 720 you have what is considered to be A credit and will be able to negotiate a home refinance with any lender and will also be able to get prime interest rates.
If you fall in this area you still have relatively strong credit and will be able to refinance your home without difficulty. Most lenders would be happy to lend you money but you might be penalized slightly on your interest rate.
This category presents more risk to a bank, however, you will still be able to qualify to refinance homes with most lenders. You shouldn’t expect to get the best interest rates if you fall under this category.
People who fall under this category will have more difficulty to refinance home with bad credit. This is because they provide a lot more risk for the bank and probably have a history of paying bills late. If you fall under this category and have no history of late mortgage payments you should be able to qualify for a loan. However, if you have late mortgage payments on your credit you may have difficulty.
For the bank, providing a home refinance for bad credit is about risk management. They don’t want to lend money to people whose credit is questionable and yours is questionable if you’re in this bracket. If you aren’t able to qualify for a loan on your own you may have to find a cosigner.
If your credit score falls under the 580 range, it’s likely that you will have to find a cosigner to secure a loan. You provide excess risk for lending institutions. If I was trying to refinance my home with bad credit and I was in this category I would fix my credit as soon as possible and find a person who could help me to secure a loan by cosigning.
Many people are unaware that you can REALLY improve your credit score by paying down your credit cards. Your balances on your revolving credit lines account for more than 250 points of your credit score. If you’re carrying high balances, you are definitely getting hit on your credit. The cool thing about this aspect of your credit score is that it can be corrected within 30 days by paying off the debts.
The bottom line here is that finding a home refinance for people with bad credit might take some work. If you’re willing to do it, you can save yourself a lot of money.
Is There Such A Thing As No Credit Check Home Loans?
When you provide people with information on finances, you sometimes get asked about things that don’t really exist. One question that I’ve seen a lot of is whether it’s possible to get home loans with no credit check.
Based on two years of experience with loans, I can tell you that there’s no such thing as a home loans without getting your credit checked. However, there are ways to get home loans with no credit and there are ways to get home loans with bad credit.
No Credit Home Loans
There are actually quite a few ways to get a no credit home loan. The first is by getting an FHA loan, which is a loan designed for people who are buying their first home. Since these loans are backed by the government, banks can lend money to individuals that don’t have an established credit history. These loans are extremely useful for people that haven’t established their credit.
You can also get a home loan with no credit if you can find a cosigner. Not everyone has this option but a cosigner can generally solve most of your issues with getting loans. I personally don’t have anyone who could sign with me so it isn’t an option.
Bad Credit Home Loans
People are often scared to have their credit checked because they don’t have good credit. However, many lenders are used to working with people whose credit isn’t perfect. Your situation might not be nearly as bad as it seems. If your credit score is above 620 and you haven’t been paying your mortgage late, you are probably a decent candidate for a home loan.
How To Get A Home Loan With Bad Credit
So right now you have bad credit and you would like to buy a home. This lesson will teach you some of the things that you’re going to need to know in order to make this hope a reality. There are a lot of different options that you can look at and we’ll try to help you to determine which one is the best for you.
Find A Lender Who Specializes In Bad Credit Home Loans
To tell you the honest truth, this isn’t an easy task. The problem with going to a lender that specializes in this type of loan is that your loan will be extremely expensive AND a lot of these lenders bit the dust in the recent economic down turn. The ones that didn’t bite the dust are going to be a lot more conservative than they were even last year. That probably won’t change for a few years – lenders will remember these difficulties for quite a while.
Find A Cosigner
The easiest (and sometimes most difficult) way you can get a home loan with bad credit is by finding a person who will cosign for you. It’s easy because the bank will be a lot more likely to approve you, and it’s harder because it’s hard to get a person to cosign. This process can be a little embarrassing – I personally have a hard time asking for stuff like this. However, there’s a lot of risk there for the lender if you have bad credit. They are going to want to hedge that risk by getting the name of another person on the loan.
Fixing Your Credit
You should actually take a hard look at your credit to determine how bad it really is – and whether it can realistically be fixed within a reasonable amount of time. I have met a lot of people who thought their credit was probably ruined, only to discover that their 10-day late payments don’t affect their credit scores.
There are quite a few easy ways to improve your credit within a few months so if you’re not in a huge hurry you might be able to improve quite a bit. If you’re interested in that, follow these simple steps:
Pay down the balances on your credit cards. This aspect of your credit score is a huge percentage and you can make the most difference in the quickest time period this way.
Start paying all of your bills on time.
Make sure to have three or four open revolving lines of credit (unsecured or secured credit cards). If you currently carry a large balance on credit cards, that’s probably hurting your score more than anything else. Make sure to pay that balance down now and that will fix your score a lot during the next 30 day cycle. That will really help you to become a better candidate for a home loan and you won’t have to ask me questions like, “How can I get a home loan with bad credit”.
The Truth About Mortgage Loans For People With Poor Credit
The current economic circumstances in our country have exposed quite a few flaws in our financial system. The primary causes for the downturn were excessive speculation in the real estate market and banks providing too many mortgage loans for poor credit. In other words, banks took too many risks on individuals that have reputations for not paying their bills on time.
A bank is taking a huge risk when they decide to create a mortgage loan for poor credit individuals. If you think about it simply, these people don’t pay many of their bills and the bank has to hope that they will be the exception – for a 15, 30, or 40 year time period. As you can see, this risk didn’t work out for many banks so we saw the bankruptcy of a few large banks like Bear Stears and Merrill Lynch.
While it’s obvious now that these risks were a huge mistake, it wasn’t so obvious two years ago. Banks probably felt like they had to offer the same loans as everyone else to compete in that climate. The ones that survived are the ones that made better decisions by limiting or eliminating their exposure to the sub-prime market.
I suspect that it won’t be too many years before things turn around and banks start making the same mistakes. It might take ten years before real estate starts to move again but when it does, I’m guessing that banks will start losing perspective. A few banks will have spectacular earnings again because they will allow people to take out mortgage loans with bad credit and other banks will follow – again.
The truth about mortgage loans for people with poor credit – they’re BAD for our country. I don’t believe that it’s a human right to own a home and there’s nothing wrong with paying rent. People that make smarter decisions can buy a home and the others can rent. I have rented for years and years. I’m not ready to buy a home but it has taken a lot of time to prepare. I had to rebuild my credit and work on my professional skills. I have now done all of that and feel like I’m ready to purchase a home.
Our nation’s obsession with giving anyone the ability to buy a home is very unhealthy. It puts pressure on financial institutions AND on people. I would like to see our nation as a whole back off on the pressure to buy a home.
Requirements For Getting A Bad Credit Mobile Home Loan
Bad credit mobile home loans aren’t available for everyone. If your credit score is too low, for example, no one will want to lend you money. This article will help you to know whether you’re eligible to take out a loan of this type.
- Employment (banks are usually going to want to see an employment history of at least six months)
- Legal Age (18 in most states)
- Credit score between 620 and 720 (people who have credit scores above 720 will be eligible for prime rates and won’t need to take out a bad credit loan)
- Self-owned property where the mobile home will reside (banks don’t provide mobile home loans when the land is rented). Those who are renting the land below their mobile homes will need to instead take out personal property loans.
- If you aren’t able to meet the above criteria, you probably aren’t eligible for a regular mobile home loans for bad credit and will probably have to either find a unique lender or a cosigner.
As you can see, mobile home loans for people with bad credit aren’t always the easiest to get and there are a few hoops that you’ll have to jump through. However, they are great if you own your own land and meet the above requirements. Please let us know if you have any questions and good luck finding your loan!
Three Ways To Get Home Loans With Poor Credit
Making the decision to purchase a home is a big one and the time when you buy a home is often a turning point in one’s life. This decision is a lot more complicated if you have poor credit, because getting a loan is a lot more complicated. For people that have really bad credit, this might not be possible. However, there are plenty of people with poor credit who will be able to buy a home. This article will help you to learn how to find lenders that specialize in home loans for poor credit and will also give you some advice on making sure that you can qualify.
1. Purchase a home that has equity built in. When you buy a home that already has equity, it lowers the risk for the bank. If you don’t make your payments in that situation, the bank can take your home, sell it, and make more money back than they would if the home didn’t have equity.
There are a lot of ways that you can go about finding a home that has equity. The most common method for this is buying a home that’s distressed. In other words, find a home whose current owner is having a hard time making the payments. This can often result in a short-sale, a pre-forclosure sale, or a foreclosure sale, all of which generally result in a nice discount for the person who is purchasing the home. If you’re able to get a home for a price that’s under market value, the bank will be a lot more likely to want to work with you. It hedges their risk.
2. Find a cosigner. My sister purchased a home last month and was able to get a really good deal. She has decent credit but it isn’t perfect. The situation was helped a lot because her father in law was willing to cosign and help them out. They actually could have qualified on their own in this case but were able to get a much better interest rate because of the cosign. The cosign lowers the risk for the bank so this can push them from denying your application to giving you a loan at a great rate.
3. Improve your credit. Many people don’t understand that improving your credit can often happen within a few months. If you pay down your credit cards now and start making on time payments you’ll see a nice jump in a hurry. The revolving credit balance portion of your credit score is recalculated each month so you can make huge gains within a 30 day period by paying your cards down.
Each of these methods can go a long way toward helping you if you need home loans for people with poor credit. They will also help people that are looking to find loans with interest rates that are more favorable.