Isaac F. Davis asked:




Many VA borrowers ask about private mortgage insurance (PMI). PMI is a lender-charged fee on mortgages with more than 80% loan-to-value (LTV) ratio. VA loans never require PMI, and it’s important to understand why this is such an attractive feature.

For conventional and other type mortgage programs, PMI functions as insurance against loss in case of foreclosure. VA loans are backed by the federal government, so VA-approved lenders don’t need added PMI.

The savings a VA borrower can experience by not paying PMI are big. Typical rates for PMI on a $200,000 conventional loan are around $120 per month or about $1440 per year. A conventional borrower would need to bring twenty percent cash down at closing in order to avoid monthly PMI charges. Even though VA loans require no money down at closing, they never require PMI.

PMI is a reality for most other mortgage borrowers. And, once PMI is charged, there is no legal obligation by the lender or the servicer of the loan to cancel PMI. Even if the borrower pays the mortgage down to an 80 percent LTV ratio, he or she may still be paying PMI. To cancel PMI, the request must come from the loan servicer. This will often require an appraisal to verify that there is 20 percent equity in the financed property. An appraisal may cost the borrower from $300 to $450 and is yet another expense that VA borrowers can skip by using the veterans’ home loan program.

Sometimes people in the market for a home loan can be attracted to mortgage products marketed as no-PMI loans. Buyer should be aware, that loans advertised as “no PMI required” may simply be lender-paid PMI loans with higher interest rates. In these cases, the borrower would ultimately pay for the PMI indirectly through higher monthly mortgage payments. With VA loans, a borrower will never see PMI disguised as anything else, especially not jacked up interest rates to offset the cost of lender-paid PMI.

Certain non-VA borrowers may be able to avoid PMI by utilizing a second mortgage as a piggyback second. A piggyback second can sometimes help when a borrower has less than twenty percent down. For instance, an 80/10/10 program would mean that 80 percent of the value of the property is financed with the first mortgage, 10 percent is financed by the second and the borrower puts 10 percent cash down. A common disadvantage to the piggyback-second method of avoiding PMI is that interest rates on second mortgages are typically higher than those for first mortgages.

After analyzing all the different issues associated with PMI, a no-PMI VA loan looks better and better. No PMI is just one of the many advantages associated with the VA home loan program. Some of the other benefits of VA loans include:

Zero Down 100% LTV on purchase and refinance loans Less stringent qualifying standards Low interest rates No prepayment penalties Cash-out and debt consolidation refinance Streamline rate reduction refinance.

Diane

Moises Reyes asked:




Be More Informed By Understanding Your Home Loan Mortgage Lender Options

If you’re looking to purchase a home, then it’s important to understand that the first step in the home buying process is to choose and meet with a lender. Before obtaining a home loan mortgage, it’s in your best interest to understand the different lender options available so that you can make the best decisions possible and ensure that the home buying process is a rewarding experience.

Types of Lenders

There are several different types of financial institutions that offer mortgage loans. These include mortgage banks and credit unions, among others. Federal and state agencies regulate most of these lenders and require them to follow federal and state mortgage law.

• Mortgage Brokers

- A mortgage broker is a middleman, representing a wide variety of lenders ranging from online mortgage companies to traditional national banks. They act as intermediaries who sell home mortgage loans for individuals or businesses. As the mortgage market has become increasingly competitive in our society, the role of mortgage brokers has overtaken traditional banks and lending institutions as the largest sellers of mortgage products. Although brokers will often offer a greater variety of lending options, they may also be less regulated depending on the state.

• Mortgage Banks

- A mortgage bank is a lender that specializes in originating and selling home mortgage loans directly to consumers. The key difference between a mortgage banker and a mortgage broker is that a mortgage banker funds its lending with its own capital, obtaining their funds by selling their loans in the secondary mortgage market. Once they originate a loan, they place it on a warehouse line of credit until they can sell it to an investor such as Fannie Mae or Freddie Mac.

• Banks and Credit Unions

- National banks and credit unions raise money to fund mortgage loans through their customers’ checking and savings accounts and certificates of deposit. They provide loans to individual consumers or businesses with the money they have on deposit. Larger institutions may also sell mortgage-backed securities in the financial market to obtain funding to sell mortgage loans to customers. When banks and credit unions make a mortgage loan, they will either hold it in portfolio or sell it to large secondary mortgage market investors such as Fannie Mae or Freddie Mac.

• Savings and Loan Associations

- A savings and loan association (S&L), or “thrift,” specializes in accepting savings deposits and making loans, particularly mortgage loans, and they are owned by and operated for the benefit of its members. In other words, a savings association member is a stockholder in the company, which is typically incorporated and must adhere to federal or state incorporation requirements.

Carla

Kristin Abouelata – Home Loans asked:


When deciding upon a home mortgage, one of the most common options to consider other than a fixed rate loan is an ARM loan. ARM is an acronym for adjustable rate mortgage. With this product, a starting rate is fixed for a certain period of time, and then when that time is up, the rate can adjust depending upon a pre-determined index and margin. This period can be from anywhere of 1 month or 10 years, and can reflect principal and interest or sometimes interest only payments. The adjust results in the mortgage payment either increasing or decreasing. There is also a cap on how much the interest rate can go up or down.

Many people today are afraid of ARM loans and automatically only consider a fixed rate loan when applying for a mortgage. Depending on the market, this philosophy is sometimes the most economical route. But many times it may be worth your while to consider an ARM loan.

Within the past year or so, there wasn’t any real discernable advantage to considering an ARM over a fixed rate loan. The rates were comparable. But lately, the rates in general have crept up and, when comparing them, the ARM rates can have a healthy edge.

When I take a loan application, I ask my customer what their future plans are. Only going to be in town for a couple of years? Do you work for a company that relocates often? Do you plan to expand your family any time soon? Answering yes to any of these questions is a trigger for me to present an ARM loan as an option. The average homebuyer only stays in their home 7.5 years. I recently had a customer who knew she would be in town for only 3-4 years. The difference between a fixed rate and an ARM rate was .375%. The ARM rate was fixed for 5 years before any adjustment would occur. No brainer.

There are a myriad of mortgage products out there for the consumer to consider. Ask questions of your loan officer, and more importantly, expect your loan officer to ask questions of you. And if you can’t sleep at night because you know that one day that ARM loan can adjust, just remember one thing. You can always refinance your loan when that time comes. Now, get some sleep.

Kristin Abouelata mortgage website



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