If you are renting and thinking of buying there are several things that you should know. When you get involved in the buying a house process, you will be asked to provide information about your rental situation.
A short time ago when all types of mortgage loans were plentiful you might be able to slide by without having to prove or verify much about your rental situation. Due to the implosion of the Subprime side of the mortgage world the emphasis will swing back to the Conforming side of the mortgage business.
The conforming side of the mortgage business has always been there in the sense that people that had good credit, a sizeable down payment, were good candidates for financing from an institution that provided mortgage financing.
There are two sides to the mortgage business. The conforming side, that I just mentioned and the non-conforming side that I'll discuss now. Another way to label those two sides is "prime" and "sub-prime." As you might guess the prime is the label for the conforming side and "sub-prime" is for the non-conforming side.
It has been the "Sub-prime" business that has fallen on hard times as of late. I'm sure you've seen the news reports about the massive job losses, layoffs, and closings that have occured there recently. There is an entire other story that can be devoted to what happened there.
Many apartment buildings or complexes are managed by a management company. In most cases, a lender will accept a verification of rent from the management company. If you have paid on time, you'll have no worries, but the lender will be looking to see where you've lived for the last two years, and how you've paid. One thing that can hurt you here is that if you've signed on a lease with another party and the rent ends up not getting paid as agreed, it can come back to bite you. The management company might turn it in to the credit bureaus as a collection, worst case they go to small claims court and a judgement is obtained. In either case it spells trouble for you.
If you are renting a single family residence or another type property from a private owner, absolutely never pay CASH! When you pay by cash, a paper trail is not established. Your loan underwriter has to see proof. People can go get a receipt book and make up fake receipts. Now you see why they will not accept rent receipts. The two best things you can do is pay by check or money orders, the best way being by check. The lender will want to see the front and back side of the cancelled check. Checking accounts show stability. If you don't have one, please get one. Ask for your checks to begin with a high number.
If you don't get your cancelled checks you can still prove your rent history by getting copies from where you do your banking. You should never throw away your bank statements. Many banks, credit unions, will want to charge you for those documents. If the underwriter is asking for 24 months worth, it can get costly. Ask your mortgage person if the underwriter will accept your own copies of your bank statements where you can prove the same amount came out of your account every month.
In the coming month's it will become increasingly tougher to get approved for financing. If you know what will be required and you plan for it, you'll be okay.
Thursday, August 30, 2007
Saturday, August 25, 2007
Are you looking for a new home?
It is the summer of 2007 and there are many brand new homes on the market. Herein lies a potential problem for you if you are looking for a brand new home in a new subdivision. If you have been paying attention to the marketplace, you might know that some builders are offering fantastic incentives to attract buyers. At this time in many areas, buyers are staying away in droves.
Imagine this scenario for a moment. You are driving around on a pleasant Sunday afternoon and you see a subdivision with all new houses and a new golf course. You love the model house you tour and you decide to buy. It is your lucky day because the builder happens to have that exact model as part of their unsold inventory.
The price you and the builder have settled on is for $200K. You move in, play a few rounds of golf, and all is well. Three weeks after you move in, you are driving home and you notice a new sign in front of that builders model. You are stunned because the new sign is for $175K. What happened to your $25,000.00?
Can it happen? You bet it can happen and in a market like we are currently in, I expect it will happen. You as a buyer need to be vigilant and do as much homework as you possibly can. Do you wan't to be one of the first buyers in a new subdivision or at the end of the buildout?
Imagine this scenario for a moment. You are driving around on a pleasant Sunday afternoon and you see a subdivision with all new houses and a new golf course. You love the model house you tour and you decide to buy. It is your lucky day because the builder happens to have that exact model as part of their unsold inventory.
The price you and the builder have settled on is for $200K. You move in, play a few rounds of golf, and all is well. Three weeks after you move in, you are driving home and you notice a new sign in front of that builders model. You are stunned because the new sign is for $175K. What happened to your $25,000.00?
Can it happen? You bet it can happen and in a market like we are currently in, I expect it will happen. You as a buyer need to be vigilant and do as much homework as you possibly can. Do you wan't to be one of the first buyers in a new subdivision or at the end of the buildout?
Wednesday, August 22, 2007
What you should know about "Free" Credit Reports
In 2003 Congress passed legislation that allows for every American to get a free look at their credit report once a year. You will run across many Web sites out there that will talk about "free reports."
You should know there is only one site authorized by Congress to give you that annual "free report " and it is www.AnnualCreditReport.com the toll free number is 1-877-322-8228. You will get a report but there will not be any scores on your report.
You will not need to know scores at this point. Here is some basic information about what will negatively put low scores on your record, collections, 30 day late payments, skipping out on rent payments, co-signing for a car loan that goes bad, late payments on student loans, etc.
A young college age person can damage their credit and not even realize it. One 30 day late payment, will give you a derogatory report. If you don't have any credit cards, installment loans for cars, etc., or any creditor that doesn't report to any of the three main credit agencies, it is not likely that you will even have any scores.
Be wary of the "free reports" as the chances are they'll offer you about every type of service under the sun and it will carry a price tag! You could end up with a credit monitoring service that might prove costly and maybe even some other services as well, that may have nothing to do with your credit at all, but there will be a cost.
For my money, if you absolutely think you must have your credit scores, you can get them at www.AnnualCreditReport.com for a charge of under $10.00 but your report will actually be free!
You should know there is only one site authorized by Congress to give you that annual "free report " and it is www.AnnualCreditReport.com the toll free number is 1-877-322-8228. You will get a report but there will not be any scores on your report.
You will not need to know scores at this point. Here is some basic information about what will negatively put low scores on your record, collections, 30 day late payments, skipping out on rent payments, co-signing for a car loan that goes bad, late payments on student loans, etc.
A young college age person can damage their credit and not even realize it. One 30 day late payment, will give you a derogatory report. If you don't have any credit cards, installment loans for cars, etc., or any creditor that doesn't report to any of the three main credit agencies, it is not likely that you will even have any scores.
Be wary of the "free reports" as the chances are they'll offer you about every type of service under the sun and it will carry a price tag! You could end up with a credit monitoring service that might prove costly and maybe even some other services as well, that may have nothing to do with your credit at all, but there will be a cost.
For my money, if you absolutely think you must have your credit scores, you can get them at www.AnnualCreditReport.com for a charge of under $10.00 but your report will actually be free!
Thursday, August 9, 2007
Dow Down 387? RTC? Deja Vu?
Déjà vu? The Dow down 387 on the anniversary of the RTC.
© Arthur Gahagan
Are we on the verge of a fourth government bailout? The big news today on a troubled Wall Street
is that the Dow Jones average is down 387 points. The housing news as of late has been bleak to
say the least. How appropriate is it that it comes 18 years to the day that the RTC was created.
The initials stand for Resolution Trust Corporation. It was a part of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989. Congress passed this legislation and it became law on
August 9, 1989.
The Federal Government had acted twice before in 1933 and 1985 to bail out a troubled housing
sector. I will refer to that 1989 legislation by it’s initials FIRREA for the sake of brevity for this
article. What is important to know is how the housing situation of the 1980’s compares to the
housing situation we are dealing with today in the Summer of 2007. The federal government
charged the Resolution Trust Corporation with the duties of liquidating over 750 savings and loan
institutions that had become insolvement due in part to “loans gone bad.” In their disposition
of these ( S&Ls) as they were known, it also meant that over-inflated real estate was also disposed
of. Gee, over-valued real estate, loans in default, subprime lenders gone out of business,
lenders in bankruptcy proceedings, any of this sound familiar?
To provide a little background on why what is happening today on Wall Street is so important we first
must re-visit to see how houses were financed prior to the creation of the RTC 18 years ago.
The primary places to get house financing prior to RTC and 1989 was at banks and Saving’s & Loans.
A town or city would often have an S & L and or a Bank and people would go in and create huge savings
accounts. The saving’s & loans might pay 3-4% on these “passbook “ accounts and then they would turn
around and offer home loans at maybe 7% to customers for home mortgages or loans.
With the passing of a large number of these saving’s and loans, due primarily to bad loans, etc. Wall
Street became a huge player in house financing. Mortgage Brokers, Mortgage Bankers, Loan Officers, etc.
took the place of the loan officials from many of the now defunct S & Ls. Mortgage backed securities came
into existence and here we are today. Single mortgages would be originated and wind up in what are known as
“pool’s” and become a part of investing on Wall Street. Obviously the process is much more complicated than
what I’ve described here as I’ve tried to keep it simple.
The years 2001-2005 were 5 years of a fantastic run up in house prices in many parts of the country and
investing and speculation had run rampant. Many houses were financed with 100% financing instruments
and a good number of those are adjustable type loans. Defaults are raging and the problem will worsen
the rest of this year and all of 2008. With the massive number of subprime loans in default, do you think there
are any buyers on Wall Street, or any loans being originated to sell to Wall Street?
In my opinion, it has been the housing industry that has carried our economy over the past years in this new
century. Now that it is unraveling, how long until the dreaded “r” word appears? Having been in the housing
and mortgage business for over 28 years, I would not be surprised to see another federal rescue of the housing
sector.
© Arthur Gahagan
Are we on the verge of a fourth government bailout? The big news today on a troubled Wall Street
is that the Dow Jones average is down 387 points. The housing news as of late has been bleak to
say the least. How appropriate is it that it comes 18 years to the day that the RTC was created.
The initials stand for Resolution Trust Corporation. It was a part of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989. Congress passed this legislation and it became law on
August 9, 1989.
The Federal Government had acted twice before in 1933 and 1985 to bail out a troubled housing
sector. I will refer to that 1989 legislation by it’s initials FIRREA for the sake of brevity for this
article. What is important to know is how the housing situation of the 1980’s compares to the
housing situation we are dealing with today in the Summer of 2007. The federal government
charged the Resolution Trust Corporation with the duties of liquidating over 750 savings and loan
institutions that had become insolvement due in part to “loans gone bad.” In their disposition
of these ( S&Ls) as they were known, it also meant that over-inflated real estate was also disposed
of. Gee, over-valued real estate, loans in default, subprime lenders gone out of business,
lenders in bankruptcy proceedings, any of this sound familiar?
To provide a little background on why what is happening today on Wall Street is so important we first
must re-visit to see how houses were financed prior to the creation of the RTC 18 years ago.
The primary places to get house financing prior to RTC and 1989 was at banks and Saving’s & Loans.
A town or city would often have an S & L and or a Bank and people would go in and create huge savings
accounts. The saving’s & loans might pay 3-4% on these “passbook “ accounts and then they would turn
around and offer home loans at maybe 7% to customers for home mortgages or loans.
With the passing of a large number of these saving’s and loans, due primarily to bad loans, etc. Wall
Street became a huge player in house financing. Mortgage Brokers, Mortgage Bankers, Loan Officers, etc.
took the place of the loan officials from many of the now defunct S & Ls. Mortgage backed securities came
into existence and here we are today. Single mortgages would be originated and wind up in what are known as
“pool’s” and become a part of investing on Wall Street. Obviously the process is much more complicated than
what I’ve described here as I’ve tried to keep it simple.
The years 2001-2005 were 5 years of a fantastic run up in house prices in many parts of the country and
investing and speculation had run rampant. Many houses were financed with 100% financing instruments
and a good number of those are adjustable type loans. Defaults are raging and the problem will worsen
the rest of this year and all of 2008. With the massive number of subprime loans in default, do you think there
are any buyers on Wall Street, or any loans being originated to sell to Wall Street?
In my opinion, it has been the housing industry that has carried our economy over the past years in this new
century. Now that it is unraveling, how long until the dreaded “r” word appears? Having been in the housing
and mortgage business for over 28 years, I would not be surprised to see another federal rescue of the housing
sector.
Wednesday, August 8, 2007
Magic Words for Mortgages Summer of 2007
What are the Magic Words for Mortgages in the Summer of 2007?
© Arthur Gahagan
Due to “growing industry-wide concerns “ the xyz loan program is suspended. The news today is that as
the lending industry evaluates the fall out of the loans “gone bad “ in 2007, more is yet to come. National lenders
are announcing lay-offs across a wide spectrum. As you might guess, the programs that will die first are the ones that
were easiest for “ Joe & Jane Buyer “ to qualify for. These would also be the ones that carried the greatest risk for
the lenders.
Everything goes back to Econ 101. Supply and demand is still and probably always will be the “ name of the game.”
Easy to figure out, when you think about it. When the dot-com crash occurred back around 2000-2001 where did the
money go? A considerable amount went into real estate, as financing was easy, and profits were good. In 2006 and
on into 2007, huge amounts of real estate found its way into inventory “ for sale. “ Today in many parts of the
country there is still huge amounts of unsold inventory.
Do you think that some of the investors fortunate to cash out of real estate, might have headed back to the stock
market? I think it might be a good assumption, didn’t the market recently go over 14,000 for the first time?
What do “ growing industry-wide concerns “ mean to you? It could mean a good many things that will make it harder
for you to qualify for a loan to purchase a home, or a loan to re-finance a home loan you may already be in.
The first thing that will happen is that credit guidelines will become much stricter. Underwriters will analyze
appraisals much more closely and some lenders might even cut appraisals in certain areas if they feel that a
“market is declining. “
They will lower their loan to value ratios that will cause you to have to come up with more cash as a down
payment, or to have to carry some type of mortgage insurance that will protect them in the event of your
default. Many lenders will participate more in the funding of government type loans, such as FHA, USDA,
etc. because of the safety features that are built in to those types of loan products.
Loan programs will begin to vanish from the scene for those buyers that are not considered to be “mainstream”
and by that I mean a W-2 employee, on the job at least two years, good credit, etc.
Buyers, you must realize that even if you have only one 30 day late on your credit report, you are considered to be
“derogatory.” The reality is that only about one third of the people out there even know what is on their credit
report.
Your credit is the thing you need to pay the most attention to, especially in times where financing begins to tighten.
You need to know that the history that is reflected in your credit report tells the prospective lender about the
probability that their loan will be repaid. It may come down to “will you pay” as opposed to your “ability to pay.”
If you have questions or concerns, please feel free to visit us at our blog or on our website.
Our blog info is : http://www.blog.tampabaycreditdoctor.com and our web site address is :
http://www.tampabaycreditdoctor.com
Arthur Gahagan is a real estate Broker at On Your Way Home Realty and
is also a licensed Mortgage Broker. He has authored an e-book and has been
in real estate and mortgage financing for over 28 years. If you have questions
or comments please send by email to agahagan@hotmail.com or visit the web
site http://www.tampabaycreditdoctor.com
© Arthur Gahagan
Due to “growing industry-wide concerns “ the xyz loan program is suspended. The news today is that as
the lending industry evaluates the fall out of the loans “gone bad “ in 2007, more is yet to come. National lenders
are announcing lay-offs across a wide spectrum. As you might guess, the programs that will die first are the ones that
were easiest for “ Joe & Jane Buyer “ to qualify for. These would also be the ones that carried the greatest risk for
the lenders.
Everything goes back to Econ 101. Supply and demand is still and probably always will be the “ name of the game.”
Easy to figure out, when you think about it. When the dot-com crash occurred back around 2000-2001 where did the
money go? A considerable amount went into real estate, as financing was easy, and profits were good. In 2006 and
on into 2007, huge amounts of real estate found its way into inventory “ for sale. “ Today in many parts of the
country there is still huge amounts of unsold inventory.
Do you think that some of the investors fortunate to cash out of real estate, might have headed back to the stock
market? I think it might be a good assumption, didn’t the market recently go over 14,000 for the first time?
What do “ growing industry-wide concerns “ mean to you? It could mean a good many things that will make it harder
for you to qualify for a loan to purchase a home, or a loan to re-finance a home loan you may already be in.
The first thing that will happen is that credit guidelines will become much stricter. Underwriters will analyze
appraisals much more closely and some lenders might even cut appraisals in certain areas if they feel that a
“market is declining. “
They will lower their loan to value ratios that will cause you to have to come up with more cash as a down
payment, or to have to carry some type of mortgage insurance that will protect them in the event of your
default. Many lenders will participate more in the funding of government type loans, such as FHA, USDA,
etc. because of the safety features that are built in to those types of loan products.
Loan programs will begin to vanish from the scene for those buyers that are not considered to be “mainstream”
and by that I mean a W-2 employee, on the job at least two years, good credit, etc.
Buyers, you must realize that even if you have only one 30 day late on your credit report, you are considered to be
“derogatory.” The reality is that only about one third of the people out there even know what is on their credit
report.
Your credit is the thing you need to pay the most attention to, especially in times where financing begins to tighten.
You need to know that the history that is reflected in your credit report tells the prospective lender about the
probability that their loan will be repaid. It may come down to “will you pay” as opposed to your “ability to pay.”
If you have questions or concerns, please feel free to visit us at our blog or on our website.
Our blog info is : http://www.blog.tampabaycreditdoctor.com and our web site address is :
http://www.tampabaycreditdoctor.com
Arthur Gahagan is a real estate Broker at On Your Way Home Realty and
is also a licensed Mortgage Broker. He has authored an e-book and has been
in real estate and mortgage financing for over 28 years. If you have questions
or comments please send by email to agahagan@hotmail.com or visit the web
site http://www.tampabaycreditdoctor.com
Did someone turn the faucet off?
© Arthur Gahagan
Incredible things are taking place in the mortgage world of today. As I write this
in August of 2007 there have been changes made this year that may severely
hamper your ability to purchase a home in the very near future.
In the mortgage world there exists what is known as the “Prime Loans “and
the “Subprime Loans.” In the prime loan area the lenders deal with the “best
of the best.” The borrowers here are usually W-2 employees, have a stable and
provable income, and have been great renters, paying their rent on time, etc.
On the Subprime side you have those borrowers that have bruised credit, they
might be self-employed with a difficult time verifying income, or maybe haven’t
been the best of tenents.
In recent years, especially the boom times of 2003 to 2005, there existed a loan
program known as the 80/20 Combo Loan. It became prevalent throughout the
kingdom and was widely used by many to purchase their “dream” home. If the
transaction was structured properly, it was even possible to cover closing costs
through various legitimate means, and actually come to the closing table with
very little out of pocket monies. After all, houses had always risen in value, right?
Sadly some have come to realize the fallacy of that comment. At one point in those
years I speak of, these 2/28 and 3/27 ARMs as they were known as, were the popular
choices of the day.
As of this writing today, it is difficult to find lender’s that will still offer them. Most
of the big players have dropped them like “ hot potato’s” and this at a time when
over half of the subprime borrowers would prefer that type of loan. The lenders
have dumped the programs as they view these loans as the “culprit “ that has
brought about the difficulty in the Subprime arena today. Since the start of this
year there are far fewer lenders in business than when the year started. If you are
paying attention at all, you know there is a huge mess on Wall Street. At this
point few are ready to mention the “r” word, but I will.
You see, in my opinion housing has carried the day for the economy in recent years.
It is not carrying the day now in many sectors of the country. This entire cycle
began back about 10 years ago and for reasons too numerous and complicated to
be mentioned here. The final sentences of this article will deal with the title,
“Did someone turn the faucet off?”
The reality is that the faucet has actually been turned off twice. The first time took
place at the end of 2005 and early 2006 when the investors and speculators had to
leave the market when the buyers decided that they couldn’t pad the seller’s
pockets to the tune of thousands and thousands of dollars of profits in a short time.
Then in certain areas of the country the builders flood the market with their new
inventory, priced below the market and used homes and the prices begin to recede.
Anyone know of that happening in an area near you?
In the past few months the big player’s ( lenders ) have turned the faucet off for the
80/20 Loans or 2/28’s and 3/27’s as some people refer to them.
80/20 COMBO LOAN
The example I will use to explain how this program works is to say we have
agreed to purchase a house for $100,000.00. We don’t have much money
saved and we decide to take advantage of this novel program. We are offered
a loan for $80,000.00 on what is known as a 2/28 ARM. The ARM standing
for Adjustable Rate Mortgage, which means adjustments can be made to the
payments either up or down based on certain criteria spelled out in our loan
paperwork, after the first 2 year period. This is a 30 year term by the way, thus
the second /28 after the fixed two year period. The second twenty eight year
period meaning your payment is adjustable at certain intervals spelled out
in your loan documents.
We may or may not catch the fact that in our loan documents, we’ve agreed to a
2 year pre-payment penalty. This means if we pay off the loan before we have made
24 payments we will have a stiff financial penalty for doing so. If we get in trouble,
lose our job or whatever, and our house doesn’t go up much in value, it could be
very costly for us to try and get out. We might be what is known as “upside down.”
Our $80,000.00 first lien loan represents our 80% of the purchase price and we’re
okay with our payment and our 7% rate ( even though it might go up ) later and
we have also agreed to the terms for our $20,000.00 ( the 20% portion ) of the
purchase price but this loan is known as a 30/15 Fixed Interest Loan.
We are not too thrilled with the fact that our interest rate on this loan is set to be
12.75%, but that’s okay because it is figured at a 30 year term ( to keep our
payment down ). The second part of the 30/15 is the 15 and that means our loan is
due and payable after 15 years. Notice that for the purpose of simplification here, I
have not mentioned anything about APR’s and how they are calculated. Our only
purpose here is information to make you aware.
Many of the loans I’m familiar with were known as a 3/1/6 type of 2/28 ARM.
This means there could be a rise of 3% to your 7% initial interest rate, and if your
loan documents called for it, this could be for the first 6 month adjustment period
after your initial 2 year period. The 1 meaning that other increases could be 1 %
higher at the next adjustment period, and the 6 meaning you had a lifetime cap
of no more than 6% above your starting rate. None of this or all of this could
happen. It is always wise to seek legal help in any undertaking
All ARMS are not created equal, and from here on out, might not be created at all.
You need to get familiar with terms like “index”, “margin”, LIBOR, etc.
Arm yourself with information. Be aware of what’s going on. The explanation
above left out many technical terms that come into play but I think you have
an understanding of how they work. If you need more info, let us know.
You can visit me on my blog at www.blog.tampabaycreditdoctor.com
or website at www.tampabaycreditdoctor.com
© Arthur Gahagan
Incredible things are taking place in the mortgage world of today. As I write this
in August of 2007 there have been changes made this year that may severely
hamper your ability to purchase a home in the very near future.
In the mortgage world there exists what is known as the “Prime Loans “and
the “Subprime Loans.” In the prime loan area the lenders deal with the “best
of the best.” The borrowers here are usually W-2 employees, have a stable and
provable income, and have been great renters, paying their rent on time, etc.
On the Subprime side you have those borrowers that have bruised credit, they
might be self-employed with a difficult time verifying income, or maybe haven’t
been the best of tenents.
In recent years, especially the boom times of 2003 to 2005, there existed a loan
program known as the 80/20 Combo Loan. It became prevalent throughout the
kingdom and was widely used by many to purchase their “dream” home. If the
transaction was structured properly, it was even possible to cover closing costs
through various legitimate means, and actually come to the closing table with
very little out of pocket monies. After all, houses had always risen in value, right?
Sadly some have come to realize the fallacy of that comment. At one point in those
years I speak of, these 2/28 and 3/27 ARMs as they were known as, were the popular
choices of the day.
As of this writing today, it is difficult to find lender’s that will still offer them. Most
of the big players have dropped them like “ hot potato’s” and this at a time when
over half of the subprime borrowers would prefer that type of loan. The lenders
have dumped the programs as they view these loans as the “culprit “ that has
brought about the difficulty in the Subprime arena today. Since the start of this
year there are far fewer lenders in business than when the year started. If you are
paying attention at all, you know there is a huge mess on Wall Street. At this
point few are ready to mention the “r” word, but I will.
You see, in my opinion housing has carried the day for the economy in recent years.
It is not carrying the day now in many sectors of the country. This entire cycle
began back about 10 years ago and for reasons too numerous and complicated to
be mentioned here. The final sentences of this article will deal with the title,
“Did someone turn the faucet off?”
The reality is that the faucet has actually been turned off twice. The first time took
place at the end of 2005 and early 2006 when the investors and speculators had to
leave the market when the buyers decided that they couldn’t pad the seller’s
pockets to the tune of thousands and thousands of dollars of profits in a short time.
Then in certain areas of the country the builders flood the market with their new
inventory, priced below the market and used homes and the prices begin to recede.
Anyone know of that happening in an area near you?
In the past few months the big player’s ( lenders ) have turned the faucet off for the
80/20 Loans or 2/28’s and 3/27’s as some people refer to them.
80/20 COMBO LOAN
The example I will use to explain how this program works is to say we have
agreed to purchase a house for $100,000.00. We don’t have much money
saved and we decide to take advantage of this novel program. We are offered
a loan for $80,000.00 on what is known as a 2/28 ARM. The ARM standing
for Adjustable Rate Mortgage, which means adjustments can be made to the
payments either up or down based on certain criteria spelled out in our loan
paperwork, after the first 2 year period. This is a 30 year term by the way, thus
the second /28 after the fixed two year period. The second twenty eight year
period meaning your payment is adjustable at certain intervals spelled out
in your loan documents.
We may or may not catch the fact that in our loan documents, we’ve agreed to a
2 year pre-payment penalty. This means if we pay off the loan before we have made
24 payments we will have a stiff financial penalty for doing so. If we get in trouble,
lose our job or whatever, and our house doesn’t go up much in value, it could be
very costly for us to try and get out. We might be what is known as “upside down.”
Our $80,000.00 first lien loan represents our 80% of the purchase price and we’re
okay with our payment and our 7% rate ( even though it might go up ) later and
we have also agreed to the terms for our $20,000.00 ( the 20% portion ) of the
purchase price but this loan is known as a 30/15 Fixed Interest Loan.
We are not too thrilled with the fact that our interest rate on this loan is set to be
12.75%, but that’s okay because it is figured at a 30 year term ( to keep our
payment down ). The second part of the 30/15 is the 15 and that means our loan is
due and payable after 15 years. Notice that for the purpose of simplification here, I
have not mentioned anything about APR’s and how they are calculated. Our only
purpose here is information to make you aware.
Many of the loans I’m familiar with were known as a 3/1/6 type of 2/28 ARM.
This means there could be a rise of 3% to your 7% initial interest rate, and if your
loan documents called for it, this could be for the first 6 month adjustment period
after your initial 2 year period. The 1 meaning that other increases could be 1 %
higher at the next adjustment period, and the 6 meaning you had a lifetime cap
of no more than 6% above your starting rate. None of this or all of this could
happen. It is always wise to seek legal help in any undertaking
All ARMS are not created equal, and from here on out, might not be created at all.
You need to get familiar with terms like “index”, “margin”, LIBOR, etc.
Arm yourself with information. Be aware of what’s going on. The explanation
above left out many technical terms that come into play but I think you have
an understanding of how they work. If you need more info, let us know.
You can visit me on my blog at www.blog.tampabaycreditdoctor.com
or website at www.tampabaycreditdoctor.com
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