Tag Archives: home
Home Equity Loan Rates: Why Theyre So Damn Low
Whos the “girl” thats always there for you when things go sour for you with everyone else? The answer is not your life partner or your mother, but its your home shes been there for you no matter what happened, does a good job at keeping you safe and sound, as well as “comforting” you in times of trouble. Aside from acting as a place for you to crash and relax, what else can your house do for you? For those that dont know, you can use it to pull off a home equity loan. Whats so good about this type of loan anyway? Well for starters, home equity loan rates are considered to be one of the lowest there is today, because of the loan collateral youll have to put up to apply for one.
And you know what that is, dont you, old chum? Thats your house there is a “condition” that needs to be met, in order to harvest the cheap home equity loan rates, naturally. These rates will be dependent on the equity of your house, and the lending companies will take it as one of the biggest factors for the determination of your worthiness. Im sure that you understand what that means, if not, dont break a sweat; let me explain. Equity is in some sense the “value” of your house. Its computed by simple math, and the formula thats used here is: how much of the house youve paid for so far, minus the amount you havent paid for yet.
Its a simple formula, and yet there are many out there that dont fully understand the whole thing. For every simpleton and dim-witted friend of mine out there, Ill give an example, in hopes that you ALL understand it better. Here it is: you own a house, and so far you paid for $300,000 for it. But you still have a remainder of $100,000 to pay. To solve for the equity of your abode, you take $100,000 from $300,000, which gives you $200,000. Therefore, the equity of your house is 200 grand I hope this I perfectly clear to all readers.
This isnt the only determining factor when it comes down to knowing the home equity loan rates youll get, hell no. The knowledge you have on the entire matter and process on how all of this works will be your “best friend” when it comes to talking down the rates. In order to get the best rates possible, youll have to go to a number of different financial institutions dealing this type of service. Having good negotiation skills would also be an edge. Theres a lot to take into consideration before applying for this type of loan, like whether or not the value of your shack can get you approved for the loan in the first place.
Also, youd most definitely want to be sure whether or not youre actually capable of paying off the debt when you actually do get approved. This is one of the most important things you should think about. Having defaults with your payments can spell trouble for you. Ask other people that have taken out one for themselves you might find one that has lost his home because of his incapability to pay.
What are the differences between an FHA home loan and a conventional loan?
When you are looking at the different loans available to purchase or refinance, it can be confusing. Over the past year there have been many changes in the underwriting guidelines for all mortgages. FHA has become a very popular choice for many home buyers. Lets take a look at the basic differences between an FHA loan and a conventional loan.
FHA stands for Federal Housing Administration. FHA insures loans that are made by approved FHA lenders, they do not lend directly to borrowers. FHA provides lenders with insurance in case a borrower defaults on their loan.
Fannie Mae and Freddie Mac are government sponsored enterprises (GSE). Their mission is to provide stability and liquidity to the U.S housing and mortgage markets. These GSEs also do not lend directly to borrowers, but they help to ensure that the banks and mortgage companies have funds to lend at affordable rates. These types of loans are typically conventional loans.
The FHA underwriting guidelines are generally more liberal than on a conventional loan. The minimum down payment required by FHA is 3.5%. All of the down payment can be a gift from a family member. The seller is allowed to pay up to 6% of the purchase price towards the buyers closing costs. To be eligible for the 6% from the seller, it must be negotiated in the purchase contract. The minimum credit score that most lenders will allow on an FHA loan is 580.
At this time, the minimum down payment on a conventional loan is 5% – 10%. Due to the lack of private mortgage insurance available, most lenders are requiring that the borrower have a minimum credit score of 720 for a loan to value of 90% – 95%. The seller can pay up to 3% of the purchase price toward the buyers closing costs. However, they can only pay the non-recurring costs. They are not allowed to pay the recurring costs such as taxes, insurance or pre-paid interest. On an FHA loan, they can pay both recurring and non-recurring costs.
One of the other benefits of an FHA loan is that they will allow a non-occupant co-borrower to co-sign on the loan. The income of both the borrower and co-borrower will be combined and used for qualifying. On a conventional loan, the owner occupant must qualify at 35%/43% ratios unless higher ratios are approved by the Automated Underwriting System.
Another difference between conventional and FHA loans is regarding private mortgage insurance. FHA mortgage insurance is required on all 30 year FHA home loans regardless of the loan to value. FHA has a monthly mortgage insurance premium and an upfront mortgage insurance premium. Even though it is called an upfront mortgage insurance premium, it is usually financed into the new loan. On average, the upfront premium is 1.75% of the loan amount. Once you have paid on the monthly mortgage insurance premium for a minimum of 5 years and the loan to value is 78% or below, you can get rid of the monthly mortgage insurance. Speak to your current lender for requirements to remove the PMI.
Conventional home loans also require private mortgage insurance; however, they only have a monthly mortgage insurance premium. They do not require the upfront MIP. Also, conventional loans usually only require mortgage insurance on loan to values that are over 80%. You can have the mortgage insurance removed from your conventional loan once you have paid for 5 years and the loan to value is 80% or below. Check with your current lender for specific documentation needed to have your PMI insurance removed.
Above is just a few of the differences between conventional and FHA home loans. For more information or to contact me directly, please visit