We live in a time of great temptation, with satisfaction just a click away. Still, nothing beats knowing you’re financially secure.
If your credit score is a little banged up, the loan interest rates you’re offered can be very different from what you see advertised.
Potential Homeowners looking to finance a home purchase will want to be sure to ask the following questions.
Are you a first time homebuyer? What is your credit score? First time homebuyers have a number of options available to them. There are many low down payment financing options available. FHA loans generally have a lower interest rate for qualified buyers. There are state and local down payment assistance programs. Some programs allow for [...]
Here are some questions to help you make a decision about when to refinance.
Owning a home may be your single largest investment. Yet the value of this investment depends on the amount of equity you build, how well you maintain your home and whether you take steps to improve its function and appearance. What is home equity? Home equity refers to the current market value of your home [...]
Owning a home is a big responsibility and it's the single largest investment most people will ever make. Building a household budget will help you save money and help you keep up with your expenses. Track your income and spending The first step toward building a household budget is getting into the habit of tracking [...]
The second element was HARP. Contrarily to Home Affordable Modification Program (HAMP), the Home Affordable Refinance Program (HARP) was setup for homeowners who were on time with their mortgage payments but were not able to refinance due to the fact that their homes had lost equity since they bought it.
HARP was a win-win for both the economy and consumers. There was higher household cash flow as consumers could lower their mortgage rates and pay lower mortgages. This gave them more cash to spend and help boost the economy.
The program was a success. It has been used over three million times since its launch. HARP mortgage rates are low because the rates are related to the price of Fannie Mae and Freddie Mac mortgage-backed securities, and these securities are pricing near their best levels since 2013.
However, HARP loans are not for everyone—they are for homeowners with existing conventional loans only. So, homeowners with VA loan, FHA loan or USDA loan cannot use HARP loan. And, even when mortgage holders meet these criteria, they cannot have been delinquent on their mortgage more than once in the past 12-month period. Additionally, the mortgages that qualify for HARP must have been generated and approved before June first of 2009.
Many Americans would argue that HARP has not been enough, especially when we consider the insult added to injury with the nearly trillion-dollar bailout that came off the backs of American taxpayers. While HARP has resolved some issues for some mortgage holders, other programs have also been of use, while others never came to full fruition.
Source Material:The Mortgage Experts
Doing the Math
As an example, assume a borrower is looking to finance $160,000. To get an accurate calculation, you must also factor in the borrower's tax rate and the loan's interest rate. In this case, taxes are 25 percent and interest rates are at five percent for a 30-year loan, and four-and-a-half percent for a 15-year loan.
With a 30-year mortgage, the borrower will end up paying $859 per month plus taxes and insurance. Over the loan's lifetime, the borrower will also pay interest in the amount of $149,211, bringing the total price of the home to $309,211.
With a 15-year mortgage, the borrower's mortgage payments will be $1,224 per month, which is $365 higher than the 30-year mortgage. On the other hand, the borrower will pay just $60,318 in interest over the life of the loan, bringing the total price to $220,318. This is a savings of $88,893.
Other Things to Consider
Although the math is fairly straightforward, life is not always so clear cut. Before you finance what will likely be the most significant purchase of your life, consider several other important factors.
Can You Afford a Higher Payment?
If your budget is always stretched thin, a 15-year mortgage might not be for you. It is better to pay more interest over time than to fall behind on your mortgage. Aside from the obvious foreclosure risks, missing too many payments can wreak havoc on your personal credit. If you dislike the thought of paying more interest, you can pay down your loan faster by making double payments whenever you have the funds.
What Are Your Long-Term Investment Goals?
Do not sacrifice your other assets and investments just to pay off your home more quickly. Before you pick one term over the other, think hard about the state of your investments. If you are nearing retirement age, financial planning experts like Kerry Hannon of Forbes.com recommend taking less risks with your money. If a 15-year mortgage will stretch your budget too thin, you won't have anything left over to contribute to your retirement funds. If retirement is a long way off, you can probably afford to take on a bit more risk. In that case, a 15-year mortgage makes more sense.
Because buying a home involves such a significant amount of money, it is always wise to consult with a knowledgeable mortgage lending expert before making a final decision. Your lender can advise you of the pros and cons of the various mortgage options so you feel confident about your choice.
Although HARP loans are like traditional refinance loans in many ways, there are also some important differences. As with standard refinance loans, HARP applicants must submit a loan application, go through the underwriting process, and pay refinancing fees. On the other hand, HARP refinancing does not require home owners to have equity in their homes.This is a big change from traditional refinancing, which imposes strict equity requirements on home owners.Who Is Eligible?
Before applying for a HARP loan, it is important to determine if you meet the program's requirements. Although the financial criteria for HARP qualification are quite flexible, other requirements are rather narrow in scope.
Home owners must be current on their existing mortgage. Additionally, you must be able to show at least one year's worth of timely payments. Home owners must have no late payments within the previous six months and are allowed just one 30-day late payment within the past six to 12 months.
HARP loans are available for primary residences, second homes, and investment properties.
- Your home's fair market value must have declined since your purchase.
- You must be underwater on your mortgage. Specifically, your loan-to-value ratio must be greater than 80 percent.
- Your original mortgage must be guaranteed by Freddie Mac or Fannie Mae.
- You must have closed on your original home loan before May 31, 2009. Home owners who closed after May 31, 2009 are not eligible for the program.
HARP loans offer home owners several benefits.
No mortgage insurance. Many home owners discover that refinancing will require them to pay costly mortgage insurance, which protects lenders from an owner's default. With a HARP loan, you are not required to pay mortgage insurance, even if you owe significantly more than your house is worth.
More flexible underwriting requirements. To make the program accessible to more people, HARP underwriting guidelines are significantly more lenient than those of traditional refinance loans. This means that borrowers with less than stellar credit or a high loan-to-value ratio are eligible.
Lower closing costs. Closing costs are capped, which makes the HARP loan an attractive option for home owners who qualify.
No appraisal. In many cases, there is no appraisal requirement. Skipping the appraisal saves home owners both time and money.
Better mortgage terms. HARP loans offer more attractive mortgage conditions, such as lower interest rates and shorter loan terms.
If you are struggling to get by, a HARP loan could help you avoid foreclosure. Although the federal government has extended the program once already, it has made no announcements regarding an additional extension. If you meet the program's criteria, it is important to submit your application before the December 31, 2015 deadline.