The circumstances for an individual can change rapidly especially when people start to age. If the person has taken a home mortgage, its repayment can become difficult with time when or after a person crosses a certain age. Therefore, a reverse mortgage provides the perfect opportunity for the homeowner that are above the age of 62 to receive tax-free cash against their home equity. They can then use the cash to pay off the mortgage or/and to cater other expenses such as medical costs, home renovation, or/and to meet day to day expenses. The paying-off of the mortgage eliminates the monthly mortgage payments which in turn gives the individual the chance to use their income for other expenses. Having said that, the individual still has to pay homeowners insurance and property taxes.
The reverse mortgage is payable after or when the last surviving member of the home decides to either leave the place, passes away, or decides to sell off the property. In either of the three conditions, the property is sold. The money that is received from the sale is used to pay off the reverse mortgage and the remaining, if any, is given to the left behind heirs.
What Are the Requirements?
Individuals with past or recent military experience can avail the most economical monthly mortgage payment option known as the Veterans Affairs Mortgage. Supported by the United States Department of Veterans Affairs, the mortgage is mainly designed to offer a relatively cheaper, low income option for individuals that have served in the military and want to purchase their first home.
The VA mortgage is easy to attain as there is a leverage given on the debt ratio and the credit score requirements to the applicant. It is because of such easy stipulations and the following benefits that several low-income individuals and families have successfully been able to purchase their home.
Benefits for the applicant:
The United States Development Authority guaranteed home loan is designed to benefit families that are unable to purchase a home in the urban areas of the country and at the same time, it helps in populating the rural regions. The USDA home loan comes with zero down payment and anyone that does not own a home already and earns 115% of the area’s median income qualifies. But, the loan is only for certain selected areas and the positive point is that not all areas are rural. Some may be defined as suburban.
The Federal Housing Authority guaranteed loan is a perfect opportunity for low-income earning individuals and families to purchase a home with only 3.5% down payment and little to no closing costs. The following are the further benefits that individual can take advantage of:
The Federal Housing Authority guaranteed 203k is a loan that allows the applicants to finance the purchase of a home and/or to use it for renovation. But, the renovation should be completed in six months. The houses that qualify must not be livable without renovation and should either be a one to four-unit property. The condos and townhome owners can apply for the loan but only for an interior renovation.
The self-explanatory term is a loan for plus size homes. The homes that are above the conforming loans limits can be purchased with the help of Jumbo Mortgage. The threshold for the loan is $424,100 for normal territories and $636,150 for high-cost areas. There is a total of 3143 counties in the US and adjoining areas that contain such housing markets.
Not backed or guaranteed by Government Sponsored Entity, these loans are considered to be the safest types of mortgages. The conventional loans have two types, the amortized and adjustable. The amortized can be funded by any lender and the important factor is that the loan to value (LTV) cannot be less than 80%. The adjustable conventional loan is where the loan is fixed for a minimum of 3 and maximum of 7 years with the rest of the time (27 to 23 years) being subject to changes. The latter is better for people whose income tends to fluctuate. Advantages of Conventional loan:
Step 1: Getting pre-qualified for a mortgage or Obtain a pre-approval
Before shopping for your dream home, you will need to know how much you can afford to qualify for a mortgage based on your financial circumstances.
Step 2: Deciding on a down payment: Can you afford 1%, 3%, 3.5, 5% and 10%? Generally speaking, lenders expect homebuyers to have enough money available to make the down payment - usually up to 20 percent of the asking price for the house and to pay closing costs (3 percent to 6 percent of the loan amount). The following sources for a down payment can be considered: savings, stocks and bonds, mutual funds, employee savings plans, Individual Retirement Accounts, even gift of money from parents or relatives that need not be repaid or grants from a nonprofit housing assistance organization for a part of your down payment.
Step 3: Locking in a mortgage rate: Interest rates are extremely volatile. If interest rates are generally increasing, an early rate-lock would save you money.
Step 4: Applying for a home loan: Submit all loan documents to your lender including the purchase contract.
Step 5: Mortgage loan processing and appraisals: During this step in the mortgage process, the lender will collect the information needed to process your loan. The appraiser will go to the home and appraise it based on the sales comparison in the neighborhood.
Step 6: Receiving a home loan approval / Loan Commitment: The lender will review the completed application and verify information included to make a credit decision on the application
Fixed-Rate Mortgage: A Fixed Rate Mortgage help borrower obtain the security of a stable monthly payment throughout the life of the mortgage. Secondly, it leverages 15- and 20-year fixed-rate mortgages to build equity more quickly. Generally speaking, the shorter the term of a loan, the lower the interest rate.
Adjustable-Rate Mortgages: Variable or adjustable loan is loan whose interest rate fluctuates over the period of the loan. The periodic adjustments is based on changes in a defined index, are made to the interest rate.
Balloon loans: Balloon loans are short-term fixed-rate loans that have fixed monthly payments based usually upon a 30-year fully amortizing schedule and a lump sum payment at the end of its term. The advantage of this type of loan is lower monthly payment. The disadvantage is that at the end of the loan term, the borrower would need to pay off a lump sum to the lender, either through a refinance or from the sale proceed.
Option ARM: This loan program is an adjustable rate mortgage with added the flexibility of making one of several possible payments on your mortgage every month.
No Down Payment Loan (100% Financing) -- 80/20 Option: The main advantage of this type of loan, also known as 100% Financing, is the ability to buy a home with almost no money down
Combined (Hybrid) Loans: Hybrid loans, is a combination of fixed and ARM loan.
Graduated Payment Mortgages (GPMs): The mortgage starts low and steadily increase at fixed times. The advantage of this type of loan is that a lower initial payment allows you to qualify for a larger loan amount.
Buydown Mortgage: It is the type of loan with an initially discounted interest rate which gradually increases to an agreed-upon fixed rate usually within one to three years.
Interest Only: An interest-only payment option is offered on a fixed rate (FRM) or adjustable rate (ARM) mortgages or on option ARMs. The option to pay 'interest-only' lets you pay only the interest portion of your monthly payment for a fixed period (three, five, seven or ten years). At the end of that period, your loan becomes fully amortized, thus resulting in greatly increased monthly payments.
It is extremely important to choose the type of loan that will best suit your current circumstances. No one can tell you what is good for you. Ultimately, the decision lies with you. The right type of mortgage chiefly depends on how long you plan on staying in the house and the amount of monthly payment you can comfortably afford. If you don't plan to stay in your house for at least.
5 to 7 years, it will be reasonable to consider an Adjustable Rate Mortgage, Balloon Mortgage or Two-Step Mortgage.