How to Break Down Loans for 2020 

“The problem I’ve encountered is I’m not sure how to get approved for another mortgage given my low income after the first home.” ~ Greta B.

Navigating through the last quarter of 2020 is hard enough. The confusion continues with problems qualifying for mortgages and refinancing. Some of you may think about selling a home or vacation property, while others need to stay with their current loan. But, which is the best options? In this week’s article, Feeney’s team of experts gives you information to consider with the mortgage ‘SmackDown’ for 2020.

“We found a condo we love, and the seller accepted our offer. We secured a mortgage through the broker. At this point our troubles begin.” ~ Signed, Desperate for Answers

The financing side of buying a home can feel overwhelming. You’re not alone if you’ve been stressing out about your loan. Many people are experiencing confusion during this crazy time. Approval is only one aspect.  For home buyers and owners, knowing this information will give you guidance. Use the intel to have qualifying questions for your lender which will clear the air. 

Is Your Credit Score a 640 or Higher? 

Most loan officers will run your credit to pre-qualify you before looking at properties. This allows the buyer a chance to see what their options are for buying. Sometimes, the Realtor® will want you to have a number to shop so they may show properties, respectively. If you’re at the beginning phase of buying a home, you’ll want to partner up with a qualified mortgage professional to get this clarification. The information in this article provides valuable insight to educate you beforehand.

Credit Unions versus Nationwide Lenders 

It is important to note: There’s a good possibility the credit union will give you the best deal and service. While there’s no guarantee, it’s worth exploring as these financial institutions charge fewer fees and lower rates. Not to mention, they are easier entities for approval. Consider your CU when comparing which loan to attach. 

Be Wary of Negative Amortization Loans 

Consumer Financial Protection Bureau states: 

Amortization means paying off a loan with regular payments, so that the amount you owe goes down with each payment. Negative amortization means that even when you pay, the amount you owe will still go up because you are not paying enough to cover the interest.  This can put you at risk for foreclosure if you run into roadblocks for paying the loan. Be sure to speak with a pro to know the loopholes. 

Do You Know How a Non-Warrantable Condo Can Affect your Future? 

For those of you thinking about purchasing a condominium in Loveland, be sure you’re looking at warrantable condos. Non-warrantable condos are too risky to buy, according to Fannie or Freddie. There may be some strict rules with portfolio loans where you will need additional information.

What is a Portfolio Loan? 

With the onset of COVID-19, some homebuyers found a portfolio loan to be acceptable. These are also good for someone who owns a business or has experienced some credit hiccups with Coronavirus lockdowns. While this loan offers relief with some things like down payment, they are higher interest rates. They aren’t as flexible, and a lender can charge more than what you’d pay on a conventional loan. (It is always best to speak with the pros to see if this is right for you.)

“My mother-in-law is having problems with her mortgage company. At the beginning of the year they had suddenly said she was behind in paying ~$10,000 out of nowhere with no notice of her missing payments” 

Balloon Mortgages Can Spell Trouble 

A balloon loan is often a recipe for disaster because of the terms. At the end of the loan, you will owe a lump sum which can cause a lot of grief. Make certain you understand the terms of this option. Most people will opt in for a more traditional loan such as a 30-Year-Fixed to avoid having a huge payment down the road and risking credit or having to foreclose. 

Rocket Mortgage states the following for Balloon Mortgages: 

The difference between a balloon loan and the other loans is balloon loans have a lump sum payment at the end of the loan, while other loans fully payoff at the end. They accomplish this through amortization. 

30-Year-Fixed is Popular for 2020

With rates as low as 3%, this turns out to be the ideal mortgage for most. There are excellent incentives for those who qualify. Remember, they will require many borrowers to carry PMI or mortgage insurance when they are first time home buyers. 

Are 2-3-Year Adjustable Loans a Good Idea?

A 2-3-year adjustable loan can be another great way to buy a home with lower monthly payments. However, set a reminder to refinance before the end of the term. Also, the market is unpredictable where you can’t see the future. Many of those who lost their home during the last housing bubble of 2008 were on adjustable rates, causing their payment to skyrocket. If you plan on staying in the home for a long time, a 30-year fix may make more sense.

A 5-Year Interest Only Loan is Dangerous for Some, but Heaven for Others

In most cases, this is a great loan for those of you needing a break during these trying times. This loan is also good for real estate investors who want to maximize their investment in a short time. For example: If you’re looking to buy a rental property, this might be a good way to go as you can charge rent while paying on the loan. Warning! These loans are going to balloon up after the 5th year where refinancing is a must. 

USDA Loans are Excellent for People with Low Income or Who Want to Live in Rural Areas 

Loveland, Colorado is a diverse place to live with something for everyone. The USDA are rural development loans where buyers can sometimes qualify for 0% down payment. You can use them for building or buying, but you need to find something outside of city limits. You will need to have a credit score around 640 or higher for this financing option. 

Is an FHA Loan Your Best Bet?

An FHA or Federal Housing Administration loan is something many first-time home buyers will benefit. Many people with a low credit score and a low-down payment may find attractive. You can use these for new construction or renovating your current property. 

VA Loans Provide Best Options for Military Families 

A VA backed loan provides options and benefits for those who enlist as active duty or retired. It means these types of loans make it easier for military families to get housing and sell a home in the event they may have to deploy. If you’re in the service, be sure to ask about this as a best option. 

A Note About PMI as a Temporary Requirement

When our first-timers apply for a home loan, they find banks are requiring mortgage insurance. This acts much like a first and a second loan. After some time, it’s good to merge the two. It’s important to know this insurance isn’t the same as homeowner’s insurance, which people use for repairs. This mortgage acts as a buffer in the event the new mortgagee cannot meet their payments. 

Jumbo Loans Exceed the Limit of $484,350

A Jumbo Loan or jumbo mortgage is not like a traditional loan. They design the financing for luxury properties and exceed the limits set by the Federal Housing Finance Agency. Many of our affluent buyers use these for their vacation properties. Or most times, if the homeowner buys an estate. 

Interest Only Loans are Exactly That, Interest Only…

For those looking to get housing for a short time or as investments, this mortgage might be okay. Remember, none of the money is paying down the loan as it’s only paying on the interest. Not a good loan for everyone. 

Is HELOCs a ‘Has Been?’ 

Few of today’s home buyers are using these loans as they are a Home Equity Line of Credit. This may not be a trend for 2020, but keep in mind, they primarily use these 2nd mortgages for renovations and act like a HUGE credit card that’s at its limit. Be sure to understand the perimeters and how it affects your credit. You will also need a healthy credit score to get one of these home loans. 

Vacation Home Loans Could Mean Renewed Interest for High End Buyers 

Lenders don’t always consider Vacation Homes part of the luxury. Be sure to understand the real estate taxes and your cost of ownership. On the flip side, some homeowner’s rent out their vacation properties as Airbnb or FlipKey properties to offset costs. It’s always best to consult your tax professional. 

Construction Loans can Help Finance Your Dreams 

With land throughout Northern Colorado, there’s a good chance you’re dreaming of building rather than buying an existing house. However, you’ll want to buddy up with a good lender for these loans as they aren’t the same. The loans are shorter term and offer higher interest, which may be okay for some and not so attractive to others. It’s up to you to figure out the best route. We’re always here to guide you. 

We have covered almost every type of loan on the market for this year. Be sure to speak with a licensed loan officer for your most beneficial route. In the meantime, I’m always a text or call away for your straightforward approach. 

Contact me for property listings in the Northern Colorado area.