40 Year Mortgage A New Option For A New Era

The 40 year mortgage makes monthly home payments more affordable, especially in areas where the real estate prices have skyrocketed. It is an attractive tool for homeowners who might otherwise be priced out of the housing market entirely.

In order to understand the 40 year mortgage, we have to look at the history in which the concept came about.

The ìstandardî 30 year fixed rate mortgage was developed in the 1930s. In 1935, the average home cost $3450 and the average salary was $1600. That means, the average home cost just over two yearsí salary.

Fast forward to today. In 2005, the median home price in California was $524,000 while the average salary in that state was $43,000. As you can see, homes now cost ten times annual salary. This makes spreading the payments out over a 40 year mortgage quite attractive.

Another difference was that in the 1930s, people bought homes that they would live in until they died and then pass down to their children. Today, people live in a purchased home for just 8 to 10 years on average.

All of this makes the lower payment 40 year mortgage an attractive option for people whose home purchase is a temporary investment.

A 40 year mortgage may offer you a lower monthly payment. You may also be able to obtain a secure, fixed rate. But these mortgages typically have a balloon payment at the end of thirty years. AT that time, you have to refinance the loan or pay off the remaining balance.

A 40 year mortgage has lower payments than the 30 year fixed mortgage because it stretches out the amortization schedule over a longer period. The loan is actually only for 30 years, but is amortized over 40 years, thus the balloon payment.

An alternative to the 40 year mortgage is the interest only loan as it offers a similar low payment schedule. In some ways, the 40 year mortgage is more attractive though, because it allows you to build at least some equity in the home.

Both the 40 year loan and the interest only loan allow you to purchase a more expensive home than you can afford with the same amount of cash. A $200,000 home would be $100 per month cheaper with a 40 year mortgage than it would be with a 30 year fixed rate mortgage.

The people who will benefit most from 40 year mortgage plans are those who donít plan on moving from their home during the mortgage period. If you do move, you risk leaving the home during a downturn in the market which puts your entire investment at risk.

It made a lot more sense to take out 40 year loans when it looked like the housing market would continue to rise from year to year. In a depressed market, you need to be sure that you will be in the home for a long time before you take out a 40 year mortgage.

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Hot Mortgage Terms You Need To Know

Are you considering purchasing a new home? If you are, you should know that this may very well be a very good time to buy a house. The housing market is sluggish, which means that prices tend to be lower and so do interest rates. Also, there are more houses from which to choose. This surplus of houses on the market is good for the buyer; basic laws of supply and demand dictate that the more there is of something (in this case houses), the less it tends to cost.

If you are going to purchase soon, however, it is important that you understand the terminology used regularly in the real estate world. Common mortgage terms include interest rates, length or term of loan, closing costs, variable rate loans, origination fees, document taxes, home equity, acceleration, amortization, conventional financing, down payment, FHA loans, fixed rate loans, points, and private mortgage insurance (PMI).

The interest rate is the amount of money the lender is charging you in order to borrow the loan. This is expressed in terms of percent. Of course, the lower the interest rate, the less the cost of the loan.

The term of the loan is also referred to as the length of the loan. This is how long you will be expected to make payments on the mortgage. In years past, most mortgages were twenty years. Now, thirty years is most common.

Closing costs are any fees associated with the actual transaction of buying and selling a home. These include realtor's fees, title insurance fees, document stamp taxes, the cost of necessary repairs to the home (if the repair company has agreed to be paid at closing), points, and other miscellaneous costs.

Variable rate loans are the "opposite" of fixed rate loans. With a variable rate loan, the percent you pay in interest can go up and down according to the prime interest rate. With fixed rate loans, the interest percent remains the same throughout the life of the loan.

Points, also called loan discount points, are fees that are charged to the buyer from the lender. These fees are prepaid interest and can add quite a bit of cost to your closing. One point is equal to one percent of the loan amount. If you are borrowing $100,000 and are assessed one point by the lender, you will have to pay $1000 of prepaid interest when all the paperwork is done at your closing.

Private mortgage insurance (PMI) is a type of insurance that allows the buyer to put down a smaller down payment on the home. Many lenders will require that you purchase PMI if you are putting less than twenty percent down.

A down payment is the amount of money you are paying out of your own pocket toward the purchase of your new home. The selling price of the home (plus all fees and other costs) minus the amount of the mortgage is equal to your down payment. Most lenders require you to have a down payment of twenty percent or carry PMI.

How to Buy a Foreclosure Three Stages of Foreclosure Sale

If you have cash on hand or good credit, you may be wondering how to buy a foreclosure. There has never been such a good time to get into real estate investing. The bottom has fallen out of the market and there are far more sellers than buyers. Further, the real estate market should recover by 2011, so you will only need to hold on to your investment for a limited period of time before you can expect to make a sizable return. So, here’ how to buy a foreclosure.

The first step in how to buy a foreclosure is determining what stage of foreclosures you want to pursue. You can buy a home that is still owned by the mortgage holder which is known as pre-foreclosure investing. Immediately following the bank foreclosure, there is a sheriff’s auction where you can pick up homes. Then, if the home is not sold at that auction, it becomes part of the lender’s auction and is considered a bank foreclosed home. There are advantages and disadvantages for each step.

How to Buy a Foreclosure as a Short Sale

When you buy a home in pre-foreclosure, it is known as a short sale. A short sale provides a win-win-win situation. You get a home in good condition at a discounted price. The homeowner gets to walk away from the home without a deficiency judgment. The bank, while taking a loss on the overall price of the mortgage, gets a bad debt off the books and doesn’t have to take possession of the property.

Short sales look good on paper. But, in reality, they are more complicated. This is because so many things can go wrong. The bank may show initial interest in the sale and then back off when they realize how much they will have to discount the mortgage. The investor may find that they cannot come up with the financing. The homeowner may come up with another source of funding that allows them to stay in the home. Some studies have shown that as many as 85 percent of short sales initiated fall through.

Still, a successful short sale provides a lot of benefit for the investor. The homes purchased in this manner are usually in the best condition of any foreclosed properties. Also, it is possible to find short sale investments in areas where there aren’t too many vacant properties, a necessary feature for flipping a house.

How to Buy a Foreclosure at Auction

If the bank and the homeowner cannot come to any agreement, the lender has no option but to proceed with the foreclosure. One of the legal requirements in most states is that the house be put up for auction immediately. The bank can then sue the homeowner for the difference between what the house fetches at auction and what they owe. This is called a deficiency judgment.

When you buy a home at foreclosure auction, you probably wonít have much competition. In fact, most of the time, the bank simply purchases the home itself for $1 more than the amount owed.

How to Buy a Foreclosure from a Bank

When the bank buys the foreclosed house at auction, it becomes part of their inventory. They are not equipped to be real estate moguls. They want to get rid of the property. Because they have so many properties these days, they are beginning to work with private real estate agents who specialize in bank foreclosures, to help them get rid of excess inventory. If you are new to foreclosure investing, you would be well served to hook up with an agent who has contacts with a bank in order to find the best properties.

How to Buy a Foreclosure and Get Listings

If you choose to purchase a foreclosure independently, you will need a good source of listings. While technically possible to develop a list of pre-foreclosures, auctions, and bank owned properties yourself, it is often more reasonable to subscribe to a service which compiles this information for you. At around $40 a month, it is well worth the money for any serious investor.

Pros And Cons Of Interest Only Mortgage Loans

Have you been looking into the prospect of buying a home? If you have, you may have heard about interest only mortgage loans and may be wondering if getting an interest only loan is the right option for you. What exactly are interest only mortgage loans? As the name implies, this type of mortgage is set up so that the borrower (you) pays only on the interest of the loan rather than applying part of the payment to interest and part to principal. Of course, this is not done for the entire life of the loan. When the mortgage is set up, the interest only payment is set up for a set number of years only.

Once that set number of years is up, the borrower "trades in" his interest only mortgage loan for a more traditional one in which he begins to pay down the principal balance as well. Typically, interest only mortgage loans are set up with payments being applied to interest only for the first ten years, and then the loan is changed.

The reason that many folks have been interested in interest only mortgage loans is that they allow the borrower to have a much lower payment for those first ten years. Since you are not paying any principal, the resulting payment is lower than it would be with more conventional financing. If you are buying the house as a home and anticipate having an increased income as time goes on, you may be able to qualify for the interest only mortgage loan because of this lower payment that reduces your debt-to-income ratio. If you are an investor, the interest only mortgage loans allow you to keep more cash flow to make home improvements in anticipation of selling or just to keep more of your money in your pocket if you are interested in selling the property relatively quickly.

There are disadvantages to interest only mortgage loans, as well, however. The major disadvantage is that it is more risky to the borrower. With more traditional financing, you are building equity in your house right from the very start, albeit not a lot at first, as even with traditional loans, the majority of your payments go toward interest in the beginning. With interest only mortgage loans, however, you are building absolutely no equity. Equity comes from paying down the principal, and since you are not paying any principal, you are not building any equity.

What is the problem with not building any equity? Well, you are running the risk of not being able to afford the higher payments when the interest only years come to a close, as these payments will likely be higher than they would have been with a different loan. So, if your career does not bring in the kind of money you expected, you may find yourself unable to meet the payment. Also, you may be unable to sell the house when you are ready to sell if that particular period of time is a buyer's market. Too, you will be unable to get a home equity loan (refinance) because refinancing is based on the equity in your home, and with interest only mortgage loans, you build no equity.

Home Foreclosure Listing Best Way to Find Your Dream House

A home foreclosure listing may be the best way for you to find the house of your dreams or to start building a real estate empire. You can find a home foreclosure listing on the internet. There are a variety of free sites with individual bank listings. If you are serious about finding a home in this way though, you may wish to purchase a subscription service that combines lists from all over the internet.

There are many different kinds of listings. Pre-foreclosure home foreclosure listing is one that lists homes where the homeowner is behind on their mortgage payment. While traditionally people got behind on their mortgages when they lost their job or had major medical issues, currently many homeowners are in trouble because of badly written loan agreements.

When home prices were on the rise, many mortgage brokers wrote stated income or ìliar loans.î These loans had introductory ìteaser ratesî of one or two percent. Some even included a period where the homeowner paid interest only. Of course, after a couple of years, this introductory period was up. The assumption was that at this point the homeowner would either be able to refinance and sell the home. When the real estate bubble popped, this became impossible.

As a result, there are any number of homeowners in pre-foreclosure desperate to find an investor who will participate in a short sell scheme to help them salvage their credit. When you get a home foreclosure listing, many of these pre-foreclosure homes will be available.

In a short sale, the investor purchases the home for less than the mortgage amount. The bank writes off the difference because it takes a bad loan off the books. The home owner walks away from a terrible situation without a foreclosure on their records. Everyone wins.

When a short sale has not been made, you get the next kind of home foreclosure listing: the foreclosure auction. When a bank is forced to foreclose on a home, after the court declares that the bank can sell the property, there is an auction which can sometimes take place on the courthouse steps. If you have a home foreclosure listing service, you will be alerted when these auctions are taking place. There is often limited competition at these auctions and you can pick up investment real estate for a song.

Often there are no qualified buyers at these auctions and the bank buys the home themselves. This presents you with the third kind of opportunity to use a home foreclosure listing: the bank owned property. When a bank owns a home, it has a number of problems. First of all, they are not in the business of renting out or selling homes at their maximum value. That means that these properties often sit unsold for a length of time. During that time, the bank must pay taxes on the property. An uninhabited home also loses value over time as people do not do the maintenance and upkeep on it. Vandals may also deface the home. If there are too many vacant homes in the neighborhood, the value of all of the properties also decline.

For these reasons, the banks are eager to get rid of the properties they own. They generally sell the homes at a 20 percent discount from their appraised values. If you can get a home foreclosure listing of bank owned properties, you can get yourself a deal.

Having a home foreclosure listing is just one step of the process though. You need to have the education to know how to take advantage of troubled real estate and also the financing to be able to pull off the investment.

Armed with information, financing, and a home foreclosure listing, you are on your way to becoming a real estate tycoon.

Land Foreclosures Allow Savvy Investors to Get a Great Deal

Land foreclosures allow savvy investors to purchase a piece of land in order to build a dream house, lucrative commercial property and more. If you have cash on hand, land foreclosures allow you to get a bargain price on prime property.

Land foreclosures are pieces of property that were financed and the owners have defaulted on payment of the loan. As a result, it has been repossessed by the lender. The lender, however, does not want the property. They want the money for the property. As a result, they are looking for a new buyer and are often willing to part with it for below appraisal price.

The longer a lender has land foreclosures on their books, the more eager they are to dump them. Whoever owns the land must pay the property taxes. Because this land is not generating any income for the lender, it represents a net drain. That is why lenders are so eager to get rid of land foreclosures.

You can buy land foreclosures at three stages. The first stage is pre-foreclosure. In pre-foreclosure, the original owner still owns the property but is behind on the payments. If they can arrange a sale with an investor, they may be able to save their credit. The lender is motivated to work on the terms of the sale with the investor because they do not want to take on responsibility for the property if the owner walks away.

In may ways, you are doing everyone a favor when you buy a piece of property in pre-foreclosure. The land owner gets to walk away with their debts clear. The lender or bank does not have to assume the property. And, you get a deal.

If no pre-foreclosure sale is made and the owner defaults, the lender must pursue a foreclosure which ends when the property is sold at auction. Land foreclosures can often be picked up for a song on the courthouse steps.

But, often there are no buyers at auction and the bank buys the property themselves. At this point, they will publish a list of land foreclosures that they are willing to sell at a discount just to get them off the books. Typically, investors pick up land on the bank’s books for 20 percent or more off the appraisal price.

If you are planning to invest in land foreclosures, it is important to become familiar with the process of buying. This is a unique form of real estate investment and there are many traps for the novice buyer. You should know that up to 85 percent of short sales never go through – largely because the investor either doesn’t know the process well enough to carry it out or because their own financing falls through.

Land foreclosures can be a good way to build your wealth. You may be able to get your dream property for a song. But, if you are unprepared to finish the deal, be prepared for a lot of heartache when it comes to land foreclosures.

How to Buy Foreclosed Homes A Guide for Beginning Investors

Many people see the current economic crisis and housing troubles as an opportunity in disguise. This is how you can make the most of it and how to buy foreclosed homes.

The first step in how to buy foreclosed homes is to understand what these homes are. These are properties that lenders have taken back because the homeowner has not been able to repay the mortgage. The home was used as collateral and the home was repossessed.

The next step in how to buy foreclosed homes is finding a list of these distressed properties. You can scour the internet and look for individual lists or pay a small fee for a subscription fee that gives you access to a large database of homes. You can also work directly with one of the increasing number of real estate agents who are dealing primarily in foreclosed properties.

Next up in how to buy foreclosed homes is understanding the financial realities of such properties. For instance, distressed homes sell for as much as 30 percent off the appraised value. However, often they have significant property damage that must be considered. Recent reports have shown that property owners who are getting evicted from their homes are ripping out the copper pipes and selling them for scrap. While this will be considered in the appraisal price, the reality of largely rebuilding what is essentially a shell must be taken into consideration.

Another factor is whether there are a lot of empty homes in the neighborhood. People don’t want to move into these so called “ghost towns,” so in many cases, the property values continue to decline.

If you find a property that makes sense from a financial perspective, the next thing in how to buy foreclosed homes is to check the tax lien status. Many of these abandoned properties have unpaid property taxes on them. Find out who will pay them. If you will be responsible for thousands of dollars in tax liens, make sure you figure that into your financial assessment of the home.

Once you have determined that the property makes sense from a financial point of view, the next step in how to buy foreclosed homes is to secure financing. Unless you have hundreds of thousands of dollars in capital sitting around, buying distressed homes requires that you be able to access financing for the properties. Having a good credit record helps, but in these troubled economic times, banks are being difficult about lending to everyone.

The final thing you need to know about how to buy foreclosed homes is that the paperwork will be more complicated than it is when purchasing a home in the traditional manner. This is especially true when a government agency is involved. But even if you are dealing with a lender only, the paperwork is enormous. You may need to consider having an experienced foreclosure real estate agent or even a real estate attorney involved in the transaction.

Becoming educated in all the steps of foreclosure buying is important before you invest the time in pursuing a deal. That’s how to buy foreclosed homes.