America is a country that applauds its entrepreneurs, although you won't hear much cheering coming from mortgage bankers. That's because the self-employed-who often have complicated tax forms and show less income than their corporate counterparts-may have trouble qualifying for a conventional loan or mortgage refinance. But even a crabby banker would have to agree that there are significant reasons why the self-employed should consider becoming homeowners or tap into their home equity.
Fixed rates, shorter terms
Many people who are self-employed choose a fixed-rate mortgage instead of an adjustable-rate loan. It allows for easier planning, and there's no scrambling if your mortgage rate adjusts higher. You can also choose a shorter term, which allows you to pay off the mortgage earlier. This can result in more cash to invest in your business.
The documentation trap
It's often difficult for the self-employed to qualify for a mortgage loan due to complicated document needs and tax returns. In the past, a non-salaried worker could opt for a "lo-doc" or "no-doc" loan. But recently, the IRS has tightened guidelines for these types of mortgages, so they're harder to get. Contact your lender and find out what documents they'll need before applying for a home loan. These usually include two years of tax returns, a current profit and loss statement, and bank and investment account statements. If you're refinancing, they'll also need your pay-off balance, and information about your current mortgagor.
Deductible delight
One of the main gripes of the self-employed is that they must pay twice as much Social Security and Medicare taxes as an employee of a company. That's why the tax deductions that mortgages provide should be highly valued. The interest portion of your mortgage payment is tax-deductible, as are your property taxes. These two write-offs can help ease any heavy tax burden.
Embarking on a mortgage refinance is never an easy task, and it's particularly onerous for the self-employed. But as is usually the case for the ambitious entrepreneur, many of these obstacles are worth hurdling.
http://www.mortgageloan.com/mortgage-refinancing-for-the-selfemployed
Monday, May 28, 2007
Don't Take Advantage of Your Second Mortgage
Make no mistake-a second mortgage is a financial tool that can fix many problems. Need to finance a college education? You can tap the equity in your home for those tuition payments. Want to improve your property with a new kitchen? A 2nd mortgage gets you the cash you need. Looking to start your own business? Home equity loans can be the hero.
While it's a great tool, it does have some potential shortcomings. Counting on your home equity to double as a savings account can be a risky proposition. Here are two examples of why relying on a home equity fix can leave you broke.
1. Mortgage rate spikes can rob you blind
Let's assume that you're counting on using your home equity loan or a refinance mortgage to pay for your child's college education. Perhaps when you developed this plan, rates were low, and a home equity loan, coupled with a tax deduction, seemed like cheap, easy money. Fast forward to your child's college years. Your plan has gone awry, as high interest rates make borrowing very expensive. If this were to happen, that "cheap" money would suddenly be very expensive, making it difficult to meet your monthly payments.
2. The bubble bursts
Anyone who's suffered through the recent housing market stagnation knows the dangers of buying high and borrowing low. If you purchased a home when values were at the peak, the market may have cooled and cut into your home's equity. Suddenly, when it comes time to tap all the money that you had counted on, you find that your home doesn't appraise as highly as it once did. As a result, there's no equity to borrow against, and you're short on funds.
There's no doubt about it-home equity is a great financial tool. But as these two examples indicate, treating it as a savings account can be risky. If you're planning some significant future expenses, beef up your savings while you're building equity. There are simply too many market forces that could work against you if you don't.
http://www.mortgageloan.com/dont-take-advantage-of-your-second-mortgage
While it's a great tool, it does have some potential shortcomings. Counting on your home equity to double as a savings account can be a risky proposition. Here are two examples of why relying on a home equity fix can leave you broke.
1. Mortgage rate spikes can rob you blind
Let's assume that you're counting on using your home equity loan or a refinance mortgage to pay for your child's college education. Perhaps when you developed this plan, rates were low, and a home equity loan, coupled with a tax deduction, seemed like cheap, easy money. Fast forward to your child's college years. Your plan has gone awry, as high interest rates make borrowing very expensive. If this were to happen, that "cheap" money would suddenly be very expensive, making it difficult to meet your monthly payments.
2. The bubble bursts
Anyone who's suffered through the recent housing market stagnation knows the dangers of buying high and borrowing low. If you purchased a home when values were at the peak, the market may have cooled and cut into your home's equity. Suddenly, when it comes time to tap all the money that you had counted on, you find that your home doesn't appraise as highly as it once did. As a result, there's no equity to borrow against, and you're short on funds.
There's no doubt about it-home equity is a great financial tool. But as these two examples indicate, treating it as a savings account can be risky. If you're planning some significant future expenses, beef up your savings while you're building equity. There are simply too many market forces that could work against you if you don't.
http://www.mortgageloan.com/dont-take-advantage-of-your-second-mortgage
Refinancing Your Mortgage? Know the lingo
If the saying "familiarity breeds success" holds true, it would be in your best interest, if you're looking for a mortgage refinance, to understand the terminology. There's no need to pour over dry-as-dust mortgage textbooks. Learn a few basic terms, and you'll be headed in the right direction.
Adjustable-rate mortgage:
A loan with a periodically changing interest rate. The mortgage rate is pegged to a specific economic indicator such as treasury bills or the prime interest rate, for example. Terms can vary greatly, and often offer very low introductory rates during the early years.
APR:
The Annual Percentage Rate (APR) is intended to include all of a lender's closing costs, giving a true yearly interest rate. However, many lenders calculate their APRs in different ways.
Fixed-rate mortgage:
A loan in which the rate is set at the time of closing and is constant throughout the mortgage term.
Good Faith Estimate:
Lenders are required by law to produce a Good Faith Estimate, which details all the costs you'll be charged to close your loan.
Loan-to-value (LTV) ratio:
The ratio of your loan amount to the appraised value of your home. (Loan amount/appraised value = Loan-to-value ratio.) Generally expressed as a percentage, a higher LTV can trigger the need for private mortgage insurance or a higher rate.
Points:
A point on a mortgage is 1 percent of the total loan value. For example, a point on a $100,000 mortgage is $1,000 (.01 X $100,000).
Term:
The length of time that you have to repay your mortgage loan. Generally expressed in years, the typical term for most mortgages is 15 to 30 years.
Third party fees:
Charged by vendors, such as appraisers and title companies, these are fees that your lender uses to assess the quality of your loan.
There are plenty of other commonly used mortgage terms, but these are the basics. Study up if you have time. Like any educational initiative, it's bound to pay off in the end.
http://www.mortgageloan.com/refinancing-your-mortgage-know-the-lingo
Adjustable-rate mortgage:
A loan with a periodically changing interest rate. The mortgage rate is pegged to a specific economic indicator such as treasury bills or the prime interest rate, for example. Terms can vary greatly, and often offer very low introductory rates during the early years.
APR:
The Annual Percentage Rate (APR) is intended to include all of a lender's closing costs, giving a true yearly interest rate. However, many lenders calculate their APRs in different ways.
Fixed-rate mortgage:
A loan in which the rate is set at the time of closing and is constant throughout the mortgage term.
Good Faith Estimate:
Lenders are required by law to produce a Good Faith Estimate, which details all the costs you'll be charged to close your loan.
Loan-to-value (LTV) ratio:
The ratio of your loan amount to the appraised value of your home. (Loan amount/appraised value = Loan-to-value ratio.) Generally expressed as a percentage, a higher LTV can trigger the need for private mortgage insurance or a higher rate.
Points:
A point on a mortgage is 1 percent of the total loan value. For example, a point on a $100,000 mortgage is $1,000 (.01 X $100,000).
Term:
The length of time that you have to repay your mortgage loan. Generally expressed in years, the typical term for most mortgages is 15 to 30 years.
Third party fees:
Charged by vendors, such as appraisers and title companies, these are fees that your lender uses to assess the quality of your loan.
There are plenty of other commonly used mortgage terms, but these are the basics. Study up if you have time. Like any educational initiative, it's bound to pay off in the end.
http://www.mortgageloan.com/refinancing-your-mortgage-know-the-lingo
Cash-Out Refinance Versus Home Equity Loans
Let's say you have a home that's worth $150,000 and you owe $100,000 on the mortgage. That means you have $50,000 of equity in your home, which is like having $50,000 in a savings account. A cash-out refinance allows you to access that equity. For instance, if you need $10,000, you can refinance your mortgage so that you owe $110,000 and the lender then gives you $10,000 in cash at closing.
With a home equity loan, you keep your original mortgage and take out a second mortgage for the amount of equity you are tapping into.
Since every homeowner's situation is different, your best option will depend on your specific circumstances. Quicken Loans has several mortgage options to choose from. When you compare home equity loans and cash-out refinance further, there are four things you should consider in order to determine what's best for you:
Speed
How fast do you need the money? Home equity loans close considerably faster than a refinance – in as little as five days. That might be important to you.
Cost
Home equity loans typically require minimal fees. Refinancing, on the other hand, may carry higher loan fees and possibly points .
Rate
Because a home equity loan is a second mortgage , it typically has a higher rate than a cash-out refinance (a reflection of its higher risk to the lender). But if you already have a great rate on your mortgage, it may be worthwhile to get a home equity loan — even at a higher rate — rather than refinance and lose the low rate you already have on your first mortgage.
Term
When refinancing, you are generally limited to a term of 15 or 30 years. With a home equity loan, you have more flexibility and can take advantage of a shorter term — greatly reducing your overall interest costs.
A Quicken Loans mortgage expert can help you compare a cash-out refinance or a home equity loan. With your own personal mortgage expert to guide you, you'll have no trouble determining which type of loan is right for you.
If you still have questions, please call us at 800-251-9080 to talk to a refinance expert today. We can help you determine which refinancing option is best for your situation.
http://www.quickenloans.com/refinance/articles/cash_out_refi_vs_home_equity_loan.html?lid=731
With a home equity loan, you keep your original mortgage and take out a second mortgage for the amount of equity you are tapping into.
Since every homeowner's situation is different, your best option will depend on your specific circumstances. Quicken Loans has several mortgage options to choose from. When you compare home equity loans and cash-out refinance further, there are four things you should consider in order to determine what's best for you:
Speed
How fast do you need the money? Home equity loans close considerably faster than a refinance – in as little as five days. That might be important to you.
Cost
Home equity loans typically require minimal fees. Refinancing, on the other hand, may carry higher loan fees and possibly points .
Rate
Because a home equity loan is a second mortgage , it typically has a higher rate than a cash-out refinance (a reflection of its higher risk to the lender). But if you already have a great rate on your mortgage, it may be worthwhile to get a home equity loan — even at a higher rate — rather than refinance and lose the low rate you already have on your first mortgage.
Term
When refinancing, you are generally limited to a term of 15 or 30 years. With a home equity loan, you have more flexibility and can take advantage of a shorter term — greatly reducing your overall interest costs.
A Quicken Loans mortgage expert can help you compare a cash-out refinance or a home equity loan. With your own personal mortgage expert to guide you, you'll have no trouble determining which type of loan is right for you.
If you still have questions, please call us at 800-251-9080 to talk to a refinance expert today. We can help you determine which refinancing option is best for your situation.
http://www.quickenloans.com/refinance/articles/cash_out_refi_vs_home_equity_loan.html?lid=731
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