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Often the unemployed and disadvantaged feel over looked when it come to getting real help with lowering their mortgage payments, or even getting a temporary break from paying their mortgage. Recently there was a program put in place by many home lenders to assist unemployed struggling home owners who are needing help with their mortgage.

If you are a home owner or the spouse of a home owner who is unemployed you stand a great chance of getting your house payments deferred for up to 3 month. Think about it, you could get to skip 3 mortgage payments while you are looking for new employment. Usually your mortgage is just about the highest monthly obligation you and your family has to pay monthly. With your mortgage being temporarily eliminated you might find it a lot easier to make your other financial obligations. Your unemployment needs to have been fairly recent, and you can not be more than 60 days behind on your payments at this point. If you are beyond 60 days past due on your mortgage there are other programs available to assist you with getting a loan modification even if you are unemployed. I educate my local community on how to lower their mortgage payments with their mortgage company the free, or least expensive way. Home owners are often happy they took the 1st step towards relieving the financial pressures off their family.

A mortgage loan modification can lower your mortgage payments, put your past due payments and all other expenses to the back of your mortgage loan, and bring your mortgage current with the credit reporting agencies. If your bank loan is modified you will get to start over with a modified mortgage payment usually at a lower monthly payment. It is a fresh start for the financially strapped consumer in turbulent financial times. You will be able to find the latest mortgage loan modification information that will benefit you always.

Mortgage Loan Basics

To understand loans and mortgages we need to understand loan limits first. If your loan amount exceeds the amount below, you will qualify for a Jumbo Loan, which carries higher interest rate.

One-Family (single family homes) $417,000

Two-Family(duplex) $533,850

Three-Family (triplex) $645,300

Four-Family (fourplex) $801,950

FIXED Loans:

30 Year Fixed Mortgage Rates

This loan program is fixed for 30 years. Your interest rate will not change for 30 years. This is ideal for people who plan to stay at their present property for a long period of time.

20 Year Fixed Mortgage Rates

Fixed for 20 years. Your payment will be higher than 30 year fixed loan because your loan term is only for 20 years. Interest rate will not change for 20 years.

15 Year Fixed Mortgage Rates

15 year fixed loan has a loan term of 15 years and will not change during this period. Your monthly payment on this loan program will be much higher than 20 years fixed or 30 years fixed. Use this loan program if you plan to sell your home in 5-8 years. Interest rate will not change for 15 years.

ARM (Adjustable Rate Mortgage)

ARM Loans are fixed for a certain period of time, where after that period ARM loan becomes an adjustable loan. How do they work?

Each ARM Loan Program has these options:

1) Index: Most common index-LIBOR

2) Margin: Is given to you by your lender, and it is the difference between the index rate and the interest charged to the borrower

For example 5/1 ARM. This loan is fixed for 5 years after which in 6th year it becomes an adjustable loan. Your loan officer will tell you what your index is and what your margin is. Usually 5/1 arm is tied to 1-year treasury index and margin is around 2.00%-3.00%

Your index + margin = Fully Index rate. Your new note rate (interest rate) after 5th year.

What about the 6th year? What would your payment be?

Let’s say that your loan officer told you that your margin is 2.5% with 1 year treasury index. You will have to look up 1 year treasury index for a specific month.

1 year treasury as of Oct.2005 is 4.18, and you know that your margin is 2.5%. Therefore you new interest rate is 1 year treasury 4.18% (index) + 2.5% (margin) = 6.68% for the beginning of 6th year.

Index rate are move on monthly basis, therefore your payment may fluctuate each month. In most cases banks wills end you a statement advising you that your rate will change.

3) To protect consumers from high index rates, lenders implemented a CAPS.

An example of this is a 2/6 cap, which allows the interest rate on your ARM loan to go up or down by no more than two percent every adjustment period, and has a total limit of six percent for cumulative changes. Therefore a 2/6 cap on a 5% ARM will allow a maximum rate (6 + 5%) of no more than 11%.

In some cases you will see 2/2/6, which means 2% adjustment with 2 year prepayment penalty and total of six percent of cumulative changes.

4) With an arm you can have either a fixed rate or you can choose an Interest Only structure loan.

1/1 ARM Mortgage Rates

1 year ARM (Adjustable Rate Mortgage) is fixed for 1 year and in 2nd year it becomes an adjustable.

3/1 ARM Mortgage Rates

3 year ARM (Adjustable Rate Mortgage) is fixed for 3 years and in 4th year it becomes an adjustable.

5/1 ARM Mortgage Rates

5 year ARM (Adjustable Rate Mortgage) is fixed for 5 years and in 6th year it becomes an adjustable.

7/1 ARM Mortgage Rates

7 year ARM (Adjustable Rate Mortgage) is fixed for 7 years and in 8th year it becomes an adjustable.

10/1 ARM Mortgage Rates

10 year ARM (Adjustable Rate Mortgage) is fixed for 10 years and in 11th year it becomes an adjustable.

Interest Only Loans

For example, if a 30-year fixed-rate loan of $100,000 at 8.5% is interest only, the payment is .085/12 times $100,000, or $708.34. This is an example of interest only payment.

Each loan payment consists of Interest and Principal. Here you will be paying an interest each month and your principal will be adding to your balance, thus increasing it. You may also pay both principal and interest.

If a lender offers you an Interest only Loan these loans are tied to an index just like ARM loans.

MTA Index: The MTA index generally fluctuates slightly more than the COFI, although its movements track each other very closely.

. 1 Month MTA ARM Mortgage Rates

. 3 Month MTA ARM Mortgage Rates

. 6 Month MTA ARM Mortgage Rates

. 12 Month MTA ARM Mortgage Rates

COFI Index: This index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

. 1 Month COFI ARM Mortgage Rates

. 3 Month COFI ARM Mortgage Rates

LIBOR Index: LIBOR is an international index, which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the CMT index and is more open to quick and wide fluctuations than the COFI.

. 6 Month LIBOR ARM Mortgage Rates

. 12 Month LIBOR ARM Mortgage Rates

Pay Option ARM Loan

Pay Option ARM in a new loan program allowing customers to choose from up to 4 different payments. This loan program is part of an ARM, but with added flexibility of making one of the 4 payments.

Your initial start rate varies from 1.000% to anywhere around 4.000%. The initial start rate is held only for one month, after that interest rate changes monthly.

4 major choices are:

1) Minimum payment: For the first 12 months interest rate is calculated using the start rate after that interest rate is calculated annually.

Example:

Loan Amount: $200,000.00

Initial Rate: 1.25%

Index: 3.326 (MTA as of October 2005)

Margin: 2.75%

Payment Cap: 7.5%

Fully Indexed Rate: 6.076% (index + margin)

Minimum Payment Changes:

Year 1 $666.50 Minimum Payment

Year 2 $716.49 = $666.50 + 7.50%

Year 3 $770.22 = $716.49 + 7.50%

Year 4 $827.99 = $770.22 + 7.50%

Year 5 $890.09 = $827.99 + 7.50%

The Option ARM’s 7.5% payment cap limits how much the payment can increase or decrease each year, except for every fifth year (beginning in the 10th year on certain programs), when the cap does not apply. In the event your balance exceeds your original loan amount by 125% (110% in N.Y.), the payment amount may change more frequently without regard to the payment cap.

Because you are paying “minimum payment” this option will defer a payment of an interest which will be added to your balance.

Minimum Payment Adjustment Period: The minimum payment is usually set to 12 months, unless negative amortization limit is reached.

Minimum Payment Cap: This is a limit on how much the minimum payment can change. Your payment cap will be 7.5% for the first five years. On your next payment due, your minimum payment cannot increase or decrease more than 7.5%. If it does than a loan is recast.

Recast (Recasting) or re-calculating your loan is a way of limiting negative amortization (neg-am). Option ARM’s recast every 5 years. When the loan is recast, the payment required to fully amortize the loan over the remaining term becomes the new minimum payment

2) Interest Only Payment: With Interest Only you will avoid differed interest, because you are paying principal and interest. If you pay only Interest or Principal your loan balance will increase because you are adding either principal payment or interest payment to your loan balance, thus leading towards Neg-Am Loan.

Your payment may change on monthly basis based on ARM index (LIBOR, COFI, MTA).

3) Fully Amortizing 30-Year Payment: It’s calculated each month based on the prior month’s interest rate, loan balance and remaining loan term. When you choose this option, you reduce your principal and pay off your loan on schedule.

4) Fully Amortizing 15-Year Payment: It is calculated from the first payment due date.

Negative Amortization loan (Neg-Am Loan)

Negative amortization loans calculate two interest rates. The first is called the payment rate the second is the actual interest rate. The true interest rate is calculated as simply the index plus the margin without periodic caps. Borrowers are given a choice of which rate to pay. Thus advertisers of negative amortization loans often refer to these loans as “payment option” loans.

A loan that allows negative amortization means the borrower is allowed to make a monthly mortgage payment that is less than the interest actually owed during that month. For example, let’s say we have a $200,000 loan with an adjustable rate that’s currently sitting at five percent. Simple interest on this loan is easy to calculate. Multiply the interest rate by the loan amount and you have the annual interest of $10,000. Divide $10,000 by 12 months and the monthly “interest only” payment is $833.33 or simply here is the formula for your monthly payment for interest only loans: loan balance x interest rates / 12 = monthly payment.

Now, let’s say that there’s a provision in the loan documents that allow the borrower to make a minimum payment based on a “payment rate” of four percent. So your lowest payment would be $666.67 because the “payment rate” is based upon four percent, not the actual interest rate, which is five percent.

So if you make make the lowest allowable payment you are actually losing $166.67 in equity. The balance of the loan increases to $200,166.67.

Exotic Mortgage

You may have heard this term before. So what are they?

The latest and most exotic mortgages out there include:

1. The 40-Year Mortgage: This is similar to a 30-year fixed rate mortgage, except the payment is being stretched over an extra 10 years. The lender will charge a slightly higher interest rate, as much as half a percentage point.

2. The Interest-Only Mortgage: With an interest-only mortgage, the lender allows the borrower to pay only the interest for the first so many years of a mortgage. After the grace period, the loan essentially becomes a new mortgage with the interest and principal being stretched only the remaining years. Please refer above for Interest Only Loans.

3. The Negative Amortization Mortgage: This interest-only type of mortgage allows a buyer to pay less than the full amount of interest. The difference between the full interest payment and the amount actually paid is added to the balance of the loan. Please refer above for more information.

4. The Piggy Back Mortgage: This is actually two mortgages, one on top of the other. The first mortgage covers 80% of the property’s value. The second covers the remaining balance at a slightly higher interest rate.

5. 103s and 107s: You may not need to save for a down payment at all. You could borrow 3% or 7% more than your home is even worth. These loans give you the option of borrowing money needed for closing costs and moving costs. You can include it all in the mortgage.

6. Home Equity Line of Credit: These aren’t just for those who own a home! They are commonly known as HELOCs, and they can finance an original home purchase using a credit line instead of a traditional mortgage. HELOCs are variable-rate mortgages tied to the prime rate. If you use this mortgage as your first mortgage, all of the interest is tax deductible.

The basic FHA loan which falls under section 203b is an effective mortgage insurance loan provided by the HUD/FHA to protect lenders against risk of default.

Section 203b is the basic FHA loan which is a mortgage insurance program form for single families. This housing loan is provided by the HUD’s FHA or the Federal Housing Administration to insure the mortgage loans made by the qualified private lenders to people refinancing or purchasing a primary residence. This is also commonly known as FHA One to Four Family Mortgage Insurance and it is still an important tool in the form of a government loan which is used by the federal government to a great effect to expand financial mortgage assistance to first time home buyers and other borrowers, who do not qualify for conventional loans for mortgage on affordable terms and also for those individuals who live in underprivileged areas, where it is harder to get mortgage facilities. The FHA Mutual Mortgage Insurance Fund, protect these obligations and it is maintained by borrower premiums entirely.

The basic FHA loan program is an effective tool in the hands of FHA and it is governed by HUD. It is a government loan program which provides insurance mortgage assistance to lenders against the risk of mortgage defaults from qualified or eligible buyers. The mortgage insurance can be used to finance the purchase of existing or new one to four family housing as well as to settle debts. The section 203b of the housing loan has several important benefits:

The requirements of down payment can be low. Unlike the conventional insurance mortgage loans, which requires frequent down payment of 5 percent or more of the total purchase price of the house, the FHA approved single family mortgages which falls under section 203b, reduces the rate of the down payment to 3.5 percent. This is simply because the insurance mortgage provided by the FHA allows borrowers of the loan to repay approximately 96.5 percent of the total value of their house or property purchase price through mortgage repayment. The fees charged by the lenders in order to provide basic FHA loan assistance to the borrowers are regulated by the FHA, as the FHA impose limits on the fees. The fee charged by the lenders, which include processing and administrative cost may not exceed more than one percent of the loan amount received by the borrower. The insured amount is fixed by the HUD and it depends on geographic locations.

The lending institutions or agencies that provide this housing loan assistance are approved by the FHA. Thus, FHA approved banks, loan agencies and mortgage companies are authorized lenders of the basic FHA loan.

Most of the financial institutions are reluctant to offer mortgages to contractors due to the difficulty they might face in meeting their loan requirements. Due to this risk, most of the banks and building societies ignore contractors, even if their income is higher than their counterparts who have stable salary. With a contractor mortgage, this is no longer a problem, the lender looks into their contract as the basis of their repayment capacity.

Even if the banks are willing to offer mortgages on the basis of self assessment, they try to exploit them and charge them a higher rate of interest. Lenders feel that a contractor mortgage is a riskier one and they need to compensate for the risk involved in lending. However, now the scenario is changing. Many lending institutions have come forward to offer these types of mortgages on the basis of their income verification and contract rate.

It is not an easy task for a contractor to avail it due to the unsteady nature of his/ her work. Especially if the economy is not so good, the task becomes really difficult. However, there are specialised lending institutions catering to the need of it with different modes of repayment depending upon the suitability and nature of their work.

In order to make repayment of the contractor mortgage, the contractor can make small payments over a period of time with the condition to make a lump sum payment at the end of the contract. However, like other mortgages, it is not easy for a them to make payment on monthly basis. So the contractor can opt for repayment in quarterly installments. In this case the contractor needs to rely on small jobs in order to make these funds available rather than concentrating on big projects.

It is better to approach an independent financial advisor that can help with the process of application of the mortgage. They can also explain the different payment options you have available and work for you to achieve the best rate. Whether you are a big contractor having specific job or a freelancer doing hourly work, the financial advisor will have the best solution to assist you.

If you are currently renting and plan to purchase a home in the future you need to understand how your rent payments affect getting approved for a mortgage loan.

First thing, if your credit scores are very high then your rent history may not be an issue at all.

However, if your rent history is needed for approval of your home loan then you will need to provide proof of that rent history and some forms of proof are not acceptable.

If you rent from a rental management company then you will need to provide either a letter from the rental company on their letterhead or the mortgage processor will send the rental management company what is called a ‘verification of rent’ form to be completed showing your rent history. The lender must be able to find this rental company’s phone number listed in the telephone directory. This prevents some friend of the borrower from posing as a rental company.

If you rent from a private individual then you will generally need to provide copies of the last 12 months of checks or money orders showing the rent that you paid. Hand written receipts are not acceptable. The lender considers hand written receipts unacceptable because the borrower could have just anyone write a receipt for them.

The lender is trying to determine if you have been truly paying your rent on time and that you are a good credit risk.

A lot of people pay their rent in cash to a private individual. That is maybe good for the landlord but it doesn’t do the renter any good at all because those handwritten receipts are not acceptable for obtaining a mortgage loan. If the landlord doesn’t want to accept a personal check, at least pay with a money order and keep a copy of the money order as a receipt.

You generally need at least two years of rent history with no late payments.

If you are not following these guidelines then you may want to change how you are handling your rent now so it won’t be an issue when you apply for your first mortgage loan.

If you are in a position that you will need a bad credit mortgage loan then a good, well documented rent history is very important.

As a mortgage loan officer I have interviewed applicants who didn’t understand the importance of their rent history. Some applicants had paid cash and had only hand written receipts. Others had paid with a money order but didn’t save their money order receipts, so they had no proof that would meet the underwriting guidelines.

So be diligent and attentive to how you handle your rent payments. It will benefit you in the future.

Sub-prime lenders now offer financing packages with zero down. Interest rates are higher on these types of loans, but they make purchasing a house easier. And unlike a conventional loan, there is no private mortgage insurance required. There are two types of zero-down mortgage packages, each with their own requirements.

Types Of Zero-Down Loans

100% financing, as it names implies, offers complete financing of your property. The other option, 80/20, finances your mortgage with two loans. Both loans may be carried by your lender, but sometimes the seller or a second lender is required to carry the 20% mortgage.

100% financing is easier to deal with, but not all lenders will offer this type of home loan. 80/20 financing is more common, but takes some negotiation if the seller is involved.

Qualifications For Zero-Down

Each lender has their own criteria for determining who will qualify for a zero-down loan. Most sub-prime lenders require any bankruptcies or foreclosures to have been at least twelve months ago. A conventional loan requires these to be discharged two to four years ago.

While a credit score of 600 or higher is best, large cash reserves can also qualify you. Six to twelve month’s worth of cash reserves in the form of savings, money market, or other liquid assets are considered ideal.

If you choose 80/20 financing with the seller carrying the second mortgage, you can qualify with sub-prime lenders with a score of 560.

Zero-Down Sub-prime Lenders

You can find zero-down sub-prime mortgages with both conventional and niche sub-prime lenders. Make sure that you request quotes from as many mortgage lenders has possible to be sure you find the lowest rate and best terms.

You will also want to decide what type of mortgage you want. An ARM is easier to qualify for and has lower rates. A fixed rate mortgage offers the security of a constant interest rate over the life of your loan.

Typically an ARM will be a better deal if you plan to refinance within a couple of years. After you have improved your credit history, you can refinance for a conventional mortgage with low interest rates.

To view our list of recommended subprime mortgage lenders online, visit this
page: Recommended Bad Credit Mortgage Lenders Online.