Equity is simply the value of the home minus any outstanding mortgages against the property. For example, if a home’s current appraised value is $100,000 and the existing mortgage balance is $70,000, this means that the home owner has $30,000 or 30% equity in the home. Since many home equity loans are for amounts up to 80% of the home’s value, if a home owner was using the mortgage calculator to determine the amount of equity available for a home equity loan, in this particular situation that amount would be for a $10,000 home equity loan. When using the mortgage calculator, the amount used for the existing mortgage balance can be obtained by calling the lender who holds the mortgage and the home’s current value can be ascertained by comparing recent sales in the neighborhood. Remember, the bank will make its own determination of what the homes value is by having the property appraised.
A smaller down payment is certainly a variable to consider when securing a home loan. The first consideration is to make sure the loan qualifies with the down payment amount used in the mortgage calculator. As long as the lower down payment still qualifies the borrower for a loan the next consideration is the cost of the loan. Lower down payments will generally mean a higher interest rate and higher PMI rate or mortgage insurance rate. To compare these different programs make sure you get an accurate rate quote form a mortgage company that includes the interest rate on the different down payment amounts and the rate of the PMI. With this data you can input the parameters in the comparison mortgage calculators and find out what the payment differences will be and the cost over the life of the loan. Weigh this against the use of the additional cash saved for the lower down payment and it will probably come down to a personal preference since the value of additional funds for an emergency or future purchases and investments is near impossible to quantify. A smaller down payment will have higher monthly mortgage payments and greater total costs over the life of the loan, but you would not have to use as much of your money to buy the house initially.
PMI, private mortgage insurance or simply mortgage insurance, is normally required on conforming loans with less than a 20% down payment. PMI was typically paid with annual premium added to the loan at the closing and monthly payments included with the principal, interest, taxes and homeowners insurance. The market for PMI slowly gravitated towards a higher monthly payment without the annual premium at the loan closing. The next change in payment form was PMI being paid by the lender, often referred to as lender paid PMI. With lender paid PMI the lender is covering the cost of the PMI by increasing the interest rate on the loan. Either option of monthly PMI payment or lender paid PMI are viable choices. The best way to conclude at which option suits you best is to compare the actual costs in a mortgage payment calculator. Uses the lenders paid PMI with a higher rate and compare it to the standard monthly PMI with the lower interest rate and calculate the monthly mortgage payment on these two loans. With the users input, the mortgage calculator can estimate how long you would intend to hold the loan and run an amortization schedule with the mortgage calculator to compare the total costs of each product over the time expected to maintain these loans.
Borrowed funds that are not borrowed against some form of existing equity or savings of the borrower are unacceptable sources. Cash advances, loans from family members or personal loans would all be disallowed as sources for the down payment. Cash on hand which is sometimes referred to as mattress money is also a problem. If the source of down payment funds can not be identified or sourced as income or savings it will most likely not be allowed. FHA allows certain provisions for cash accumulation if it is well documented and considered customary for the borrower, but this is an exception. Sweat equity is not allowed. Gifts from the seller are not allowed. The down payment is expected to be saved funds. If the saved funds are equity extracted from other assets of the borrower that will still be considered a form of saved funds since the borrower had in fact built up the asset used as security for a loan in the first place. All other down payment sources will be questionable. As always, apply the mortgage calculators to determine exactly what down payment level you are at and what down payment amount is needed to qualify.
After running the mortgage qualification calculator you should be able to identify which of the payments in the calculator are not related to the monthly mortgage payment. Look at these debts to see which ones may be the easiest to be reduced. The easiest payment reduction process would be to payoff one of the debts, preferably the one with the largest monthly payment. A borrower can also pay down debt. Any installment loans such as an auto loan will not typically be included in the debt ratio for qualification purposes if it has 10 payments or left remaining on the loan. A borrower can pay down an auto loan or installment loan to 10 payments or less so the debt would be excluded. A new personal loan to consolidate other bills into one lower payment is also a viable option to reduce monthly payments as well as refinancing any existing debt into a lower rate to reduce the monthly payments. A mortgage calculator allows the user to identify these debts and the monthly payments attached to these debts to investigate the best method to reduce the debt burden and move the loan request closer to a loan approval.
As you may have already concluded, there is no free lunch in the mortgage industry. No closing costs loans are a feature offered by lenders where the loan will have a higher rate than a comparable loan in which the borrower pays the closing costs. The benefit is less money is used to close the loan and the trade off is a higher interest rate for the borrower. The lender will make more money over time with the no closing cost loan because of the higher interest rate. The mortgage calculator is designed to compare these two products and explore which option best suits your needs. The mortgage calculator will help the borrower evaluate the interest rate differences, the monthly mortgage payment difference, the closing costs and the total costs over the life of the loan between the traditional mortgage and the no closing costs loan.
Loan locks are generally an option, not a requirement unless the loan transaction is ready to be completed. Loan locks are a form of rate guarantee by the mortgage lender. If the loan is not locked the interest rate on that loan can change with market interest rates anytime up until the loan closing. In order for the loan to close and the documents to be prepared the interest rate on the loan must be determined, the loan lock sets the rate so it will not change before closing. If it is early in the mortgage application process, the loan lock is generally an option to consider if the interest being offered by the bank is competitive and it appears as though rate may go higher. In some cases it can be very important to check interest rates in the mortgage payment calculator to make sure the borrower would still qualify if the interest rises before they lock the rate in.
Mortgage lending guidelines allow borrowing against a borrowers existing assets as acceptable funds for a down payment. A loan from your 401K is acceptable as is a home equity loan on one property to extract equity for a down payment on another or even a title loan against a car can be used as funds for a down payment. You would have to consult a tax advisor to be certain that the loan from a 401K will not be assessed an early withdrawal penalty. Anytime a potential borrower is estimating their short comings regarding either income or down payment, it is strongly advised that they use the mortgage calculators to see exactly what essentials of the loan requirements are missing. If the mortgage calculator illustrates that a deficiency in the required down payment is present than the options to get through this impediment should be considered before giving up on the process of securing a loan.
Down payments will be determined by the loan type and loan amount. The down payment generally has a minimum amount, for example a standard conforming loan requires a 5% down payment. Any amount over that is considered a strong factor for the borrowers as is reflects a strong propensity to save. FHA loans are often closed with the minimum down payment however the same factors are considered, a down payment above that amount is considered very favorably. The value of compensating factors should always be considered a strong positive attribute in the loan approval process. Use the mortgage calculators to ascertain just how much of a compensating factor or factors your individual loan request possesses. Examine the debt ratios as well as the down payment when utilizing the mortgage calculators.
There are certain factors in the loan approval process that are hard to rise above, then there are factors that can be over come by compensating positive factors. Poor credit is generally an issue that is hard to overcome. However, FHA loans are available for borrowers who have less than perfect credit but otherwise meet the general requirements for a home loan. The real advantage of these loans is that the interest rates are competitive with conventional loans and the down payment requirement is less than 5%. In addition the prospects of compensating factors should not be ignored. An exaggerated example may be, if a client has some slow credit but had saved to put up a down payment of 25%. That large down payment would be a compensating factor. A potential home loan applicant can use the mortgage calculators to see what compensating factors they may possess. For instance if a user was calculating the qualifying ratios in a comprehensive mortgage calculator and the debt to income ratios were significantly below the 28/36 guidelines, this is a compensating factor. If the mortgage calculator indicates the user is requesting a home loan with a down payment in excess of 5% this may be a compensating factor.
A mortgage qualification calculator or a mortgage payment calculator can be used to calculate the monthly income needed to qualify for a home loan. The mortgage qualification calculator can be used by inputting an income level, a loan term and an interest rate to determine how large a loan that income level will qualify for based on the rate and term. Now simply raise the income amount until you reach the desired loan amount. Be aware that the mortgage calculator qualification factors consider the down payment and the debt ratios. Down payments are fairly firm, they will rise if credit is less than perfect but other wise the down payment percentage and loan to value are fairly static qualifying factors. Debt ratios are guidelines. If a certain income level yields a loan amount of one number it is entirely possible to raise or lower that loan amount based on other factors such as liquid assets, credit and down payment.
Adjustable rate mortgages have an interest rate and a payment that may change over the life of the loan. A balloon mortgage is a loan that is payable before the term in which the payment is based on is reached. A balloon loan generally has payments that are based on a 30 year loan but the balance is due at some point before the 30 year term ends. Technically, the two loan types of loans are very different. To compare these two loans it would be useful to calculate the payments on the adjustable rate mortgage calculator and the mortgage payment calculator to compare the monthly mortgage payment between the two loans. Be aware that the payment on the balloon loan does not fully amortize that loan; there will be a large lump sum payment due at which time the borrower will have to refinance the balloon loan or pay it off with other funds. The adjustable rate mortgage loan will not have a lump sum payment and can be held until its term ends.
A person is considered self employed in the mortgage industry if they own more than 25% of the company they work for or they are paid as an independent contractor. A self employed borrower’s income is calculated by taking a two year average of the borrowers’ net income plus depreciation if they own the business and it has an expense for depreciation. The paperwork hurdles may be higher for self employed borrowers, they will almost always have to supply their last two years of personal tax returns and business tax returns if their income is derived from a corporation that files its own tax returns. The data to input in the mortgage calculator is the same for any other borrower. One issue that comes up moderately frequently with self employed borrowers is that the monthly gross income used to qualify and that should be used for the mortgage calculator is a two year average of net income. A standard salaried or hourly wage worker would be qualified on their most current income level, not an average. For all the mortgage calculators, if you are self employed take the last 24 month of net income plus depreciation and divide by 24 to obtain the monthly average to use as the monthly gross income figure
When the buyer of a property secures a mortgage for financing, one of the costs of obtaining the loan is title insurance. At the time of the purchase there is usually two different policies. One is the owner’s policy and protects the new homebuyer against defects in the title of the property. Defects are usually problems that arise after the loan is made and include items like unknown liens on the property, real estate tax deficiencies and question about the properties ownership. The other title insurance policy is the insurance to protect the lender against defects. The lenders policy ends when the loan is paid off. When a borrower refinances, the new lender will need title insurance to protect their interests against title defects. It is unfortunate that a brand new policy is needed for every new loan transaction; sometimes if the title insurance was procured recently the new lender may offer a discount on the cost of the title insurance. In general, the cost of the insurance will have to be paid again and should be included in the costs listed on the mortgage calculator.
A rental property can provide a significant monthly income stream and potential asset appreciation. Investment or rental properties are not without significant risk; rental properties have to be maintained, tenants have to be found, vacancies will most likely arise and time to manage these events must be allocated. Many first time rental property buyers fail to consider all of the costs involved in ownership and maintenance of these investments. A potential buyer should make sure to use the mortgage payment calculator with the interest rates and down payment that applies when securing a mortgage for a rental property. Rental properties or investment properties are considered non-owner occupied properties and have a higher interest rate and require larger down payments than an owner occupied single family home. Buying a rental property should be evaluated as if the buyer was operating a business, weigh all of the costs, potential returns and risks.