Sometimes it happens. You find the perfect home to purchase but as of yet you haven’t sold the home you are vacating. You realize you need a short term cash flow relief, but are not sure where to get it. If you are certain that the current home will sell within the market you are located, consider requesting a Bridge Loan. The bridge loan is specifically set to provide relief and act as a bridge between these type of transactions. This isn’t the perfect cure all situation and should be carefully considered. For one thing bridge loans can carry a very high interest rate, although with diligence and superb shopping skills you may find a reasonable rate. The other downside is that the property you are waiting to sell often becomes the security of the bridge loan. If for any reason the property doesn’t sell, you not only have some high interest debt to deal with, but your property could be lost. As with any financial transaction of this nature, seek some professional guidance before signing anything and remember to read each document carefully to be sure that it contains only those items that you specifically agreed to.
Interest Only Loans are making a resurgence in the Home Equity and Home Buyers market. Some advertisements are touting them as the “new” option, but in reality interest only loans have a very long history. During the period of the Roaring 20s, interest only loans were the home loan type of choice in the mid-west. Then, when the Country entered the Great Depression and the bottom fell out of the stock market, lenders found themselves with a lot of foreclosures, most of which had no cash equity value available to them. At that point, interest only loans were pretty much shelved.
The same things apply to interest only loans today. Because there is not a way to promote equity in them, and because when the actual mortgage+interest payments begin, they are often way too high to afford; interest only mortgages are not for the average home buyer. Sure, they serve a purpose in investment situations where a property will not (hopefully) be held for more than 5 years. But if you are looking for loan options that allow you to gain equity and still have an affordable payment, stay away from the interest only loan product. It simply is not for you.
When shopping for a mortgage loan, most people simply look at the interest rate. If it seems reasonable, then that’s good enough for them and they sign the papers. Sometimes, however, that approach is no better than taking a stack of twenty dollar bills and lighting a match to them. The outcome is the same — you have lost money forever. For one thing, the interest rate really doesn’t tell the whole story. In addition to looking at the interest rate (yes, it is a major component to the decision), it is also important to also look at all other fees associated with the loan. Specifically, look closely at origination fees, any processing fees, and closing costs. Most lenders will provide an estimate document that has all these figures clearly spelled out. This estimate document gives you the information you need in order to comparison shop the loan figures to other lenders. Remember, this is a HUGE investment, keeping as much of your money as possible should be your first and highest priority.
A good rule of thumb for the origination fee is about 1.2-1.6%. Closing costs will generally be in the range of 3-4%. While these costs could be influenced by the location of the property, anything outside these windows should be considered suspect and investigated throroughly.
The short version of the concept it this – lenders are in the lending business to make money. Don’t simply assume they are giving you the best deal to get your business — because, truthfully, they may not be. Competition, at least in this case, can be a very healthy thing for your bottom line. Don’t hesitate to ask questions and if you don’t get the answers you need or want, pick up your paperwork and move on to the next lender. Someone will recognize what you are seeking and give give you the service you deserve.
It used to be that buying a home was part of the whole American Dream. You found a partner, fell in love, got married, and then bought the house. Today, however, more and more single people are becoming first-time homebuyers. In fact the National Association of Realtors has estimated that one in every four first time home purchases are being made by singles — with single women outnumbering the single men purchasing homes at a two-to-one ratio. It’s really not a bad idea. Buying a home provides a sense of financial security that just can’t be found through renting. Besides the obvious tax breaks, a home generally increases in value creating a stable and accessible account for future financial necessities. Not to mention there is just something about purchasing your first home that brings a sense of accomplishment that renting just can’t offer.
It is true that plugging into the equity in your home through refinancing your mortgage will wipe out credit card and student loan debt; but, it can create new problems if you keep on spending. Before taking out an equity loan it is a good idea to take a long, hard look at why you are doing so. If you are trying to keep the creditors from breathing at the door or calling on the phone a home equity loan may not be the best solution. If you are taking the equity loan out to pay credit card debt and other consumer debts, ask yourself “Are you comfortable converting short-term unsecured debt into long-term secured debt?” You could be risking your home and not really coming to terms with the spending issues that put you in this situation — and that, at least in my eyes, could be a very bad thing.
Alan Greenspan says the housing adjustment is over, or at least the worst of it. Of course, Greenspan is no longer the chair of the Fed, but he does seem to have a finger on the economy’s pulse nonetheless, and we can only hope he’s right this time, too.