| The prospect of securing that dream home can | | | | loan is suitable for your needs. |
| be an uphill task for those who go about it with a | | | | Balloon mortgages |
| touchy-feely approach. You can be lumped with | | | | Balloon mortgages are loans that have a specific |
| an unsavory life time commitment or make it | | | | repayment period of 5-7 years at a fixed rate. |
| work for you, providing you get to know the | | | | Once this period is over, the borrower is |
| nuts and bolts of securing a great mortgage. | | | | expected to repay the entire loan amount. In |
| Some provide a whistle-stop tour for the | | | | balloon mortgages, once the specific period is |
| first-time home buyer so that you don't feel | | | | over, there is a spike in the payments in case the |
| short-changed on the whole experience. | | | | entire loan amount is not repaid. Therefore the |
| Start at the beginning | | | | term 'balloon' is used to describe such mortgages. |
| A good place to start is to know what criteria | | | | People who anticipate an increase in their income |
| lending houses look at while reviewing your | | | | and hope to close the loan through increased |
| application for new home plan financing. Most | | | | earnings or refinance within the specified time |
| lenders usually look at how much collateral you | | | | frame go in for balloon mortgages. Refinancing |
| can provide as security against the loan, your | | | | might make you run the risk of paying a higher |
| capacity to repay, credit history and the amount | | | | rate of interest prevailing at that time. |
| of personal equity or down payment you can | | | | Low-doc mortgages |
| make to secure the loan. | | | | Low-doc mortgages are those that require very |
| Financing basics | | | | little or no documentation and are mainly of three |
| There are different kinds of financing options | | | | types. |
| available in the market today to help individuals | | | | - No income / No asset verification (NINA) is the |
| finance the construction or purchase of homes. | | | | mortgage for you if you are not drawing a |
| Construction loans | | | | steady pay check. NINA mortgages are for those |
| Home construction requires a constant stream of | | | | who are credit worthy and never fail to pay their |
| money to keep the construction process going | | | | bills on time |
| smoothly. Construction loans help do this by | | | | - No-ratio loans are for the wealthy, who have |
| allowing you to get money in tranches at various | | | | complex financial arrangements and investments |
| stages of completion of construction. | | | | - Stated-income mortgages are available for |
| The good thing is that you only need to pay the | | | | those who work, but do not have a regular pay |
| interest component on the money disbursed until | | | | check and make a living from commissions or tips |
| construction is complete. Once complete, you will | | | | The first two types of mortgages allow individuals |
| be required to start repaying the interest and the | | | | to keep information about their incomes private. |
| principal component. Usually, construction loans are | | | | All these require very little documentation, but |
| short term. Options to convert these into | | | | require a credit report and a home appraisal. The |
| construction-to-permanent mortgage exist, where | | | | rate of interest for low-doc mortgages is higher |
| once construction is complete these loans convert | | | | and may range ¼ to 1% more than other |
| to permanent, long term mortgage loans. | | | | types of mortgages. It also depends on the size |
| You will need to have an approved builder and a | | | | of down payment (normally larger than what |
| mortgage loan approved to qualify for a | | | | conventional mortgages expect), credit score and |
| construction loan in most cases. | | | | the property appraised. |
| Interest-Only Mortgages | | | | No-ratio mortgages |
| This is a misleading name, it is really not a | | | | These mortgages exist for credit-worthy |
| mortgage it is a type of loan; what you are really | | | | individuals to expedite their loans. Such mortgages |
| getting is an interest-only payment. Eventually you | | | | are called no-ratio because the lender is unable to |
| will have to pay the loan principal also. A fair | | | | calculate the debt-to-income ratio as the borrower |
| amount of mortgages offer this option, along with | | | | does not declare it. However, the borrower should |
| others as a means of paying back your loan. | | | | declare assets such as bank savings, investments, |
| This is not a good fit for everyone. Here are | | | | stake in business, real estate, etc. |
| some reasons it might be right for you: if your | | | | Knowing the costs on mortgages |
| income is infrequent as with commissions or | | | | Regardless of the type of mortgage you go for, |
| bonuses, or if you expect to earn a lot more in a | | | | it is important for you to know the costs involved |
| few years than you do right now. Also, some | | | | - this is important as it might take a bit of digging |
| people will take the principal amount they would | | | | to get the full picture. Typical costs include lender |
| normally give to the bank and invest it in | | | | or appraisal fees, origination and discount points, |
| something else that would give them a better | | | | credit report costs, third party fees such as |
| return. There are a lot of misconceptions about | | | | attorney's fees, title insurance, amount of prepaid |
| this type of loan so it is important for you to do | | | | interest, if any, amounts for setting up an escrow |
| your research to be sure that an interest-only | | | | and hazard insurance. |