While a 10 year mortgage loan is not for everyone it does have some great benefits. If you are currently shopping for a home loan or looking to refinance don’t overlook your other financing options besides the traditional 30 year fixed rate mortgage.
One of the greatest benefits of a shorter term mortgage, such as the 10 year fixed, is that the interest rate is much lower than longer term loans such as the 30 year fixed. Mortgage interest rates on shorter term loans can be 1-1.5% lower than 30 year fixed rate loans. This results in thousands of dollars saved in interest over the life of the loan.
Tax season is in full swing with the April 15th deadline fast approaching. Now is a good time to gather your financial information to make sure you have everything organized when it comes time to pay your taxes within the coming month.
If you've purchased a home last year or done a mortgage refinance you will receive a Form 1098, which includes the amount of mortgage interest that you paid during the year. In most cases that amount is tax-deductible. You'll need to file an itemized Schedule A, but the savings will be worth it. Also, every dollar used to finance home improvement projects up to $100,000 reduces your taxable income dollar for dollar.
Your home is one of the largest tax write-offs you will have and will increase your refund (or decrease what you owe). So if you bought a home in 2013, make sure you receive all of the tax deductions and tax credits to which you’re entitled for the year. Here are some tax deductions for home mortgage interest and other home tax deductions:
· Property taxes and real estate taxes
· Mortgage interest paid
· Points you paid when you bought the house
· The interest on up to $100,000 borrowed on a home-equity loan or home-equity line of credit
· The premiums you paid for private mortgage insurance (for mortgages issued after 2007)
· Home improvements required for medical care
Many homebuyers use gifts from relatives and friends to help fund the down payment for their home purchase. It is very important to make sure the gifts you are receiving are traceable so lenders know where your money is coming from. Part of the mortgage process involves the lender to verify all your financial accounts so a proper paper trail is necessary in order for your loan to be approved.
First you will need to obtain a gift letter that can be provided by your lender that includes the amount of the gift, the property address, the relationship of the gifter to the giftee, and a note that states the gift is not a loan and will not be repaid. After all parties sign the letter, a check should be written out with the exact dollar amount stated in the letter. Note that a photocopy of the check will be required by the lender.
When depositing the check, remember to make the deposit into the account from which your money at closing will be taken from. Also, only deposit the gift funds and do not make any other transaction, don’t forget your receipt which will be required by the lender.
The last thing you should be aware of is that not all types of mortgage loans have the same guidelines for down payment gifts. Some require the down payment to be at least five percent of the borrowers own funds and others do not have any limits. Speak with your mortgage lender before starting the gifting process to prevent any setbacks.
While going through the mortgage process there are many questions that you will have for your lender. Below are some of the more overlooked parts of the process that are equally important:
Annual Percentage Rate (APR): While the interest rate is used to calculate the monthly payments it does not reflect the overall cost of borrowing which is why the APR is important to discuss. The annual percentage rate is a better representation of what the loan is costing you because the APR factors in other costs associated with the loan beyond the interest rate. Some of these costs may include origination fees, mortgage insurance, closing costs, and more.
Escrow Taxes and Insurance: Ask your lender if an escrow account is required. Some borrowers use escrow accounts to ensure that insurance premiums and taxes will be paid on time. Money is deposited into the escrow account at closing and portions of your monthly mortgage payment are also deposited into the account. When the taxes and insurance payments are due, the lender pays them from your escrow account. There are several factors that may determine whether you need to escrow, for example, if the down payment is under 20% or there is minimal cash flow.
Prepayment Penalty: While not common anymore in the industry you may want to double check if your mortgage has a prepayment penalty. This is an agreement you must sign that binds you to pay a penalty if you prepay the mortgage before a specific time period. Many loans don’t allow prepayment penalties but it doesn’t hurt to double check with your lender.
What Not to Do Before Closing: While your loan is working its way through the mortgage approval process there are certain aspects of your financial status that you should be aware of. Lenders will be double checking your employment status and credit score among other things to ensure your financial stability and your ability to repay the loan. During this process hold off on making any large purchases, moving money around in your bank accounts, or making large deposits. These things could all put a red flag on your file which will hold up the process and could possibly hurt your chances at getting a loan.
Servicing: Often times homebuyers, especially first time buyers, may not realize that their loan will be sold and serviced to someone else. This means you may not be sending your mortgage payment to the lender that originated your loan. This is a common practice in the industry and you will always be notified of these changes.
In order to provide consumers with a safer mortgage market the Consumer Financial Protection Bureau (CFPB) has laid out some new rules for 2014. The new rules ensure responsible lending, covering both underwriting and servicing of home loans.
The new regulations include the Ability-to-Repay (ATR) and the Qualified Mortgage (QM) rules, which went into effect on January 10, 2014. The first rule, ATR, enforces lenders to ensure consumers can truly afford a mortgage based on verified and documented information such as income and assets, employment status, debt-to-income ratio, credit history, etc.
The QM rule prohibits risky loan features such as negative amortization, interest only payments, balloon payments, and loan terms over 30 years. The QM rule also puts limits on points and fees as well as requires a debt-to-income ratio of 43% or less. This new type of mortgage helps promote ethical lending practices by making lenders accountable for providing responsible financing to consumers as well as giving consumers more legal rights.
Over 90% of the loans approved today would be considered a qualified mortgage therefore the new mortgage rules shouldn’t have a significant impact on housing. Some buyers may have a tougher time qualifying such as first time homebuyers, but working with a knowledgeable loan officer and realtor is the key to a smooth home buying process.
The start of the New Year brings change to the housing market. Below you will find tips on what to expect from the real estate and mortgage industry in order to help you with your financial decisions in 2014.
First off there are new mortgage regulations out this year that ensures lenders verify that borrowers have the ability to repay their loans. This means tighter lending standards for you but if you are organized and prepared you should have any problems. Stay on top of your finances always keeping records of your assets and where your money is coming and going as well as take good care of your credit.
Mortgage rates are likely going to continue to rise this year. Last year rates were on the rise due to the Federal Reserve announcing their plan to reduce the pace of their economic stimulus program. This program has helped keep rates low for several years and as this goes away rates will be climbing. As a result don’t wait around for a lower rate, because you just might miss it; lock as soon as you are content with the numbers.
Because rates are higher than they were in early 2013 many feel they have lost the opportunity to refinance. This may not be true and it doesn’t hurt to check with your loan officer. There are many benefits to refinancing and it may make sense to refinance before rates get higher.