How Does a Balloon Mortgage Work?

How Does a Balloon Mortgage Work?

Balloon mortgages used to be one of the primary loan types used by people buying a home.

Although the practice of issuing these types of mortgages has recently become less popular, there are times when one could work to your advantage.

What Is a Balloon Mortgage?

A balloon mortgage is written to cover a shorter period of time than a typical home loan. In most cases, this ranges from 5 – 7 years.

During this time, you make payments on the loan. However, the payments are lower than those for a traditional loan. The terms of your balloon loan may have you paying only the interest on the loan.

This type of mortgage allows you to keep your payments low, but with the understanding that you will have one large payment at the end.

The opportunity to pay the remaining principal balance all at once can have benefits for people in certain situations. But it’s important to understand the potential challenges that can occur if you are unprepared for the end of your loan term.

What are the Pros and Cons?

The most obvious benefit of this type of loan is being able to keep your payments low. This arrangement is ideal when you know that you won’t be staying in the house for many years. People who move often for work sometimes use this balloon loans.

Buyers who are planning to fix up a house and resell it often prefer a balloon mortgage. Buyers may also benefit from this type of loan during a time when the interest rates are very high. By keeping the term short, they may be able to refinance for a lower rate at the end of the term.

The biggest drawback to a balloon mortgage is that it is risky if you are unsure about being able to make the final large payment. This often happens if your financial circumstances change, such as losing a high paying job.

You may also find it hard to make the payment if the home loses value, or if it does not sell fast enough to coincide with the end of the loan term. If interest rates continue to rise during the terms of your loan, then you may also be unable to secure lower rates when you try to refinance.

Can You Reset a Balloon Loan?

As with any type of loan, there are special circumstances that can apply. When you set up your loan, you may be able to establish that it can be reset at the end of its term. This will allow you to change to a better interest rate, or new amortization schedule, to continue to pay down the loan without having to make the final large payment.

What If You Can’t Make the Balloon Payment?

How Does a Balloon Mortgage Work?

Smart financial planning means understanding every possible outcome. If you cannot make the balloon payment, you could be forced to default on the loan. You may also be tasked with the decision of selling your home when you were not planning to do so.

The majority of those who cannot make their balloon payment either sell their property or decide to refinance the loan. In either situation, you could still come out ahead if your home has increased in value, or if interest rates have gone down. Mortgage loan options are designed to help both borrowers and lenders work out agreements that benefit everyone.

A balloon mortgage is one option you have to obtain a loan to fit your specific situation and needs. This type of loan should never be entered into lightly. Professional advice should be sought before making a decision.

Our loan specialists are ready to help you understand your best option for purchasing your new home. This includes reviewing your situation regarding a balloon mortgage.

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Why Do Home Prices Fluctuate?

Why Do Home Prices Fluctuate? Home prices are constantly changing. You may have even heard about the housing market being in the buyer’s or seller’s favor over the years.

Naturally, understanding what causes a home’s price to go up helps you pick the best time to buy or sell a house.

While the size and location of a house plays a part in the price, it also helps to be aware of the other factors that influence price fluctuations.

 

How Does Supply and Demand Affects Prices?

The biggest reason behind home prices going up and down is based upon this basic economic principle. When the supply of houses goes up, you can expect the prices to go down due to a lack of competition. Locations with a low supply of houses naturally have higher prices.

In Arizona, certain neighborhoods are experiencing a high volume of interest. These areas may require you to be competitive with your bids since there may be fewer houses available to help lower the prices. This is common in urban areas with older houses that are located near popular business districts.

Some of Phoenix’s newer neighborhoods are helping to lower the cost of housing. With so many new homes being built, buyers are often able to benefit from prices starting to stabilize.

Will Home Prices Affect Mortgage Interest Rates?

Home prices do not typically affect mortgage interest rates since these are based more upon factors such as wage increases. However, lower interest rates tend to drive up prices on homes since it means that more buyers may be flooding the market.

What Other Factors Affect Price Averages?

Why Do Home Prices Fluctuate?Price fluctuations are also caused by factors such as the location and nearby amenities. People sometimes want to move to the latest new neighborhood, and this can temporarily drive the prices up. You can sometimes see this when a large corporation opens new headquarters in an area, causing a flood of employees to move in.

The cost of construction supplies and manpower can also affect home prices. Your home may cost slightly more or less depending upon the current cost for building materials. Although this tends to be a modest contributor to home price fluctuations, it can affect a substantial area during times of heavy home building activity.

Is It Smart to Buy When Prices are Climbing?

It’s always a good idea to try to buy a house when the prices are lower. However, there are times when it is still smart to jump on a home purchase even though the prices are rising. When you factor in the current rising cost of rent, a mortgage gives you stable payments that may make the slighter higher home price worth it.

Houses also tend to increase in value over time. Buying during a rising price trend can still mean that your house becomes worth more in the end than you need to spend now. Making sure to buy a house that is in good condition helps to ensure that it increases in value. You also want to get the best rates on your mortgage loan to further increase the payback that you receive on a home investment.

Waiting for home prices to hit the ultimate low may seem like a good theory, but the recent trend does not show home prices bottoming out any time soon. Instead, it is best to focus on making smart financial choices that can help offset the cost of rising home prices in the Phoenix area.

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5 Financial Benefits: Buying vs Renting

5 Financial Benefits of Buying Over RentingIn life, being willing to make a change is critical for enjoying greater financial success.

At times, renting has its benefits. You may rent an apartment or house for its location or the ability to split payments with roommates. Yet, there comes a point when the rent cycle may be hurting you financially.

The decision to move toward buying over renting can offer you these financial benefits over time.

Choose Upgrades That Save You Money

Rental homes and apartments typically limit the types of work that you can do on the property. For instance, you may not be able to invest in solar panels or upgrade to an energy-efficient HVAC unit.

With a home, you can plan upgrades that increase the energy-efficiency of your home so that you save on heating and cooling costs each season.

Enjoy Greater Tax Benefits of Buying Over Renting

Homeowners are potentially eligible to choose a mortgage interest deduction when they do their taxes. In most cases, the majority of homeowners are able to deduct all of their mortgage interest.

This deduction also currently applies to interest payments made on loans for both primary residences and second homes.

Since tax laws change from year to year, you will need to consult with a professional to know how much savings this will bring you. However, this deduction helps to offset the cost of any interest that you pay on your mortgage annually.

If this is your first year filing taxes after buying a home, then you may also be eligible to claim things such as closing costs for even more savings.

Skip Annual Rent Increases

Today’s housing market has created a situation where property managers often increase the rent on a property each time a lease is up for renewal. This means that you could be paying more to live in a house that is a whole year older with depreciating appliances.

Once you sign on a mortgage loan, your payments will stay mostly the same each year. Being able to watch your payments stabilize as rental rates rise means you can save more money each year as a homeowner.

Gain Equity With Each Payment

In most rental agreements, all of the money that you pay goes straight to the landlord and property management company. This means that you will never see any of it returned to you in the future.

When you make a house payment, it goes toward paying down the mortgage loan and results in equity. Equity is the market value of your home with the amount that you still owe subtracted, and represents your percentage of ownership.

Build Wealth Over Time

Buying a house requires you to commit to a large investment. This can sometimes make it seem as though renting is better.

However, being able to save money on bills and future housing costs allow you to sock money away for the future. You can also strategize your home purchase so that your new house gains in value over time so that it may be worth more than you invested in the beginning.

For the average homeowner, buying a home is the biggest investment that they will make in their life. Our loan specialists are here to help you make sure that you receive the optimum financial benefits from your decision. Breaking the rental cycle can give you better financial security while also upgrading your quality of life.

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Touring Etiquette for Home Buyers

Home Touring Etiquette for Buyers

Home buyers get excited about touring potential new homes. Not only do you get the chance to find your perfect living space, but you also get to check out new design concepts that help you narrow down what you want in a home.

However, you do need to remember that this is someone else’s house, even if it is unoccupied. You may also run into situations where the homeowners are present.

Before you head out for your next house visit, be sure to brush up on these etiquette basics so that you don’t step on any toes.

#1: Be On Time

Searching for a new home sometimes means squeezing in tours after work or seeing several houses on the weekend. While life does get hectic, you need to remember that showing up late gives a bad impression to the seller and anyone else involved.

Try to plan your tours with enough time that you can arrive early. This also gives you some time to check out the overall neighborhood as you drive up.

#2: Limit the People in Your Group

Buying a house is a big decision, and it helps to have other people’s input. However, you should still limit your touring group to only you and any other people who are directly involved in the purchases.

This limits the amount of traffic coming through the home and allows you to focus on finding out the answers to your questions.

#3: Take Care Of the Flooring

Many of the houses that you tour may have brand new flooring or carpets that have just been professionally cleaned. When you arrive, look for clues as to whether or not you should remove your shoes.

For instance, some sellers place a shoe rack or disposable shoe covers nearby to make there preferences clear. If you are unsure of what to do, then follow your real estate agent’s lead. If they slip off their shoes, then you should, too.

#4: Respect the Homeowner’s Privacy

In most cases, it is generally accepted that you need to open up features of the house that will impact your daily life.

For instance, you should feel comfortable opening closets, pantries and other areas that you would not normally enter in a stranger’s house. This helps you to check the condition of these areas along with the amount of space each contains.

However, you should not open anything that the homeowner is likely taking with them or that could contain personal items. For instance, it is best to leave the medicine cabinet and dresser drawers closed.

#5: Ask Before Using the Plumbing

It is always best to handle using the restroom before you arrive for the home tour. If you find yourself in an emergency situation, asking before you go is just polite.

You may also simply want to know if all of the plumbing fixtures in the house work. Always ask the homeowner or the realtor before you flush a toilet or turn on a faucet. The water may already be turned off in an unoccupied home.

As you tour houses, remember that each one could be your future home. When in doubt, just ask if something is appropriate before you do it. This way, you can relax and fully explore the potential of the houses that you visit.

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Questions to Ask Before Buying a New Home

Questions to Ask Before Buying a New Home

If you are buying a new home for the first time, you may be wondering exactly what is involved in the process of closing on a home purchase.

You can start by asking these questions, which will help you feel confident when it comes time to finalize your new home purchase.

How Much Should I Budget?

You always want to start off as a new homeowner with confidence that you can afford the payments. Start by determining how much of a mortgage you can fit into your budget.

As you do, be sure to also take into consideration other costs that come with owning a home. Are you planning to live in a community with an HOA? If so, then those fees need to be included in your budget.

You may also need to factor in the costs for remodeling if that is something that you plan to do after you move in. Repairs and home maintenance costs are an additional item to include in your financial plans.

Can I Secure a Loan?

You may have been saving for a down payment and working on your credit. However, this niggling question is often on people’s minds.

Before you start home shopping, you should seek pre-approval for a loan. This will give you the reassurance that you need before moving forward with the next step – searching for a home. Having a pre-approval in hand also shows realtors and sellers that you are serious about buying a new home today.

What Type of Loan Should I Get?

There are specialty loans available for veterans and ones designed for first-time home buyers. You can also choose from a 15-year mortgage loan or one that spans 30 years. There is also the question of whether or not you should get a fixed or variable rate loan.

Getting a loan requires multiple decisions to be made, and the best way to determine the right answer to each is to talk to one of our loan specialists. After taking a look at your financial standing and discussing your goals for the future, we can help you make the right choices.

Does the House Fit My Preferences?

As you walk through the house, get a good feel of the layout and make sure that it will fit your needs. You should also get information on the history of the house. For example, look into whether or not the house has sustained damage from events such as a fire or flood, so that you go into your purchase with a clearer picture of what you are buying.

How Do I Compete Against Other Offers?

Obviously, you want to make an offer on the house that you can afford and that will make sense to the seller. There are a few things that you can do to make yourself stand out.

Consider sending a personal note with your offer, noting a few things that you love about the house, along with your goals for the future. This simple gesture often tugs at the heartstrings of a seller and helps them picture you living in their former home.

As you go through the process of buying a new home, more questions are sure to arise. Be sure to write them down in your home buying journal, and remember to seek answers to each one before you close on your new house. We are here to answer those questions and guide you throught the home buying process.

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What is an Extreme Buydown?

Extreme BuydownThe housing market has undergone tremendous change in recent years that affects everyone during the home buying and selling process.

Not only are home buyers concerned about rising interest rates, but many sellers are also finding that their house’s increased value makes it harder for prospective buyers to afford the mortgage.  

Fortunately, an extreme buydown is a potential solution that helps everyone achieve their goals.

What Is an Extreme Buydown? 

Buydowns have long been a strategy used by home buyers, who typically purchase points that they can use to lower the interest rates on their mortgage loan. In some cases, sellers cover these costs as part of their concessions.

While this helps make mortgage payments more affordable, it is not always enough to help a buyer afford the asking price for a home.

Extreme buydowns work a little differently since they involve having the seller offer the buyer 3% of the home’s value toward buying down the interest rate, which significantly increases the savings for the buyer.

How Does It Help Buyers? 

Offering a larger percentage to buy down the interest rate as a seller concession makes it possible for a buyer to then be able to afford a home with a higher value.

For example, being able to save $200 a month allows a buyer to now consider purchasing a house with a value that is approximately $36,000 higher than what they could afford before the extreme buydown.

As a buyer, this means that you could afford the house of your dreams or one that fits your lifestyle better without having to worry about how you will make those monthly mortgage payments.

What Are the Benefits For Sellers?

Naturally, the big question is how this helps sellers, since they are technically giving up a portion of the asking price in the deal.

Offering buyers 3% towards buying down the interest rate is a strategy that can help sell the house faster. For sellers who are currently paying two mortgages, making a fast sale saves more money over time.

 Builders and sellers who continue to stay within the same community also prefer this option, because it allows them to sell the home at its value, and the surrounding homes do not lose theirs.

In a constantly changing housing market that is tighter for both sellers and buyers, it is necessary to be willing to be aggressive with the strategies that you use, no matter which role you are playing in the home buying process.

 Keep in mind that extreme buydowns are only one of several different options that you can use to make the process easier, so be sure to work with your loan specialist to find the one that works best for your situation.

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Phoenix Home Loans – We Make it Easy

Phoenix Home Loans - We Make it an Easy Process

The process involved with getting a loan for your new home is complicated. For a first-time home buyer, just trying to understand the differences between each type of loan gets confusing.

If you have bought a home before, then you are also likely to be surprised by just how much has changed, since the requirements to get a loan are constantly being updated.

The Jimmy Vercellino Team stays up-to-date on all the latest information, so that we can guide you each step of the way toward obtaining the best mortgage loan and help you meet your goals for home ownership.

Determining Which Type of Home Loan Is Best

There are several different types of Phoenix home loans that you can get, and they all have specific benefits and requirements that you need to understand.

For instance, an FHA loan typically requires a lower down payment than a conventional loan, which can make this type of loan ideal for a first-time home buyer.

VA loans offer benefits for military members and their families, yet they do have restrictions in place that limit the size of the loan that you can get.

We will help you sort through each one of your options to find the type of loan that works best with your financial and personal situation.

Assistance with Submitting Your Documentation

All mortgage lenders require you to submit important information to document your identity as well as your current financial status.

Veterans who are applying for Phoenix home loans will also need to submit additional information such as the Certificate of Eligibility (COE) form.

Our team understands that paperwork is one of those tedious necessities that generate stress for people applying for home loans, so we do everything we can to assist with this part of the process.

For instance, we can help you request the COE form, or send you a reminder to send in a pay stub, so that you don’t miss a critical step that delays your application decision.

Understanding Complicated Loan Terms

While you may know some basic terminology regarding how Phoenix home loans work, it is also common to feel as though you’re in over your head once you start to discuss the actual loan with a lender.

For instance, you may not know what escrow is or if you need to pay private mortgage insurance. Professional loan officers know how to break down complicated terminology and mathematical figures so that it all makes sense.

Knowing Exactly What You Are Signing

At some point, you have probably heard of someone you know signing on a loan without fully understanding the terms.

One of our biggest goals is to make sure that you never get surprised by something, such as a prepayment penalty or interest rate increase.

We walk you through each part of your loan and are always willing to answer your questions – you can sign your new home loan agreement with confidence.

We believe that the excitement of buying your first home should never be overshadowed by the stress of applying for a loan. We are truly dedicated to ensuring the process of getting a mortgage loan is smooth sailing.

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Do’s and Don’ts During the Mortgage Process

Mortgage Do’s and Don’ts!

Mortgage ProcessSo you are getting ready to purchase a home? Awesome! Okay, now you might be freaking out over the mortgage process because you’ve probably heard a dozen horror stories from close friends, Uncle Joe, your Cousin Rob and of course…Mom and Dad.

The reality is that getting a mortgage loan does not have to be an overwhelming process. We believe that if you follow some simple do’s and don’ts  that you may actually be able to…dare I say enjoy obtaining a home loan. Wait, what? Did I  really just say that you could actually enjoy the mortgage process? I think I did. Okay, allow me to clarify.

With the right mortgage team (insert shameless plug) making sure that your loan is originated correctly and that all of your bases are covered you most certainly can. Okay, now back to the list. Below is a simple list that will allow you to glide through the mortgage process with ease on your next home purchase.

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What to Do After You Have Applied for a Home Loan

  1. Do – Keep things stable! Try not to make any significant life changes that could impact the buying process. For example moving large sums of money from one account to another.
  2. Do – Keep detailed records. Make sure you have access to all of the important tax and income docs, banking information, and more.
  3. Do – Provide your mortgage lender with everything they request at the beginning. This will decrease the amount of work you have to do later on in the transaction.

What NOT to Do After You Have Applied for a Home Loan

  1. Don’t – Change jobs. A job or career change can literally derail the mortgage process, causing you to kiss those soon-to be-keys goodbye.
  2. Don’t – Apply for any new debt. Any new debts could throw your approval out of whack and be the cause for decline.
  3. Don’t – Be the reason for delay. Remember your Mortgage Team has a job to do and that is to help you get into your home quickly and efficiently. Getting them everything they request ASAP helps us, help you, and in turn gets you into your home sooner.

I  hope you have found this simple list to be of value. If you are looking for a Phoenix Mortgage Lender in AZ I  would be honored to serve you. To set up your personal preliminary mortgage consultation please contact my office at 480-351-5904 today.

With Gratitude,

Jimmy Vercellino

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How to Choose the Right Type of Mortgage Loan

Hey Friends / Hey Family!!

Type of Mortgage LoanBuying a home and obtaining a mortgage is perhaps one of the largest debts you will ever acquire in your life. For this reason, we want to help you professionally manage that debt, and in order to do that we must find out what is important to you about your upcoming home purchase.

In other words, we want to custom fit this mortgage to your individual needs like a well-tailored dress for the ladies or a custom-made suit for the fellas. You feel me? Good! So let us discuss this some more. In order to choose the right type of mortgage loan for you, it’s worth mentioning the 4-5 types of mortgages that you will most likely encounter when speaking to a mortgage lender. Let us have a look below.

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1. VA Loan – This loan is available for Active Duty Service Members and Veterans that allows them to purchase a home with zero down and no private mortgage insurance (PMI).

2. FHA Loan – This type of mortgage loan allows a homebuyer to purchase a home with as little as 3.5% down, which can also be a gift. This loan also allows for prospective homebuyers with less than perfect credit to obtain a loan in as little as 2-3 years after a bankruptcy or foreclosure. The FHA loan does, however, have private mortgage insurance on the loan on an up-front and monthly  basis.

3. Conventional Loan – These loans require as little as 3-5% down and require private mortgage insurance. However, the PMI eventually drops off once you have accumulated 20% equity in your home. Keep in mind that this PMI will usually be required for a 5-year minimum before you have it removed from this type of mortgage loan.

4. Jumbo Loans – These loans are categorized as anything above the conforming loan limit of $453,100 (in most counties – some high cost counties allow you to go higher).

5. Down Payment Assistance Loans – These loans are available for homebuyers that are interested in obtaining a grant in the form of a forgivable second mortgage that ends up being forgiven in 3-5 years after you have owned the home. Remember this is a generalization as each program has different guidelines/requirements.

Now that we have reviewed each type of mortgage loan, ask yourself the question, “Which one of these mortgages would appeal the most to me?” From there, it is time to zero in on structuring your mortgage. What I mean by structuring the mortgage is ensuring that the down payment, cash to close, and monthly payment are all within your budget for this upcoming purchase. From there your mortgage provider will be able to tell you exactly how much you qualify for and off you go… Now it’s time to get your certified prequalification form and write Your New Home Story!

If you are in the market to purchase a home and would like more information on different types of mortgage loans, feel free to contact me today at 480-800-8387 or email me to schedule your preliminary mortgage consultation over the phone.

Semper Fi!
Jimmy V.

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First Time Home Buyer? Learn How Jumbo Loans Work

How Jumbo Loans WorkShopping for a home to buy can be exciting and fun. Nothing can diminish the excitement quicker than finding your dream home costs more than you’d hoped. And you discover you may not be able to get the loan from your lender.

Ever consider a Jumbo loan? Jumbo loans are an ideal option today for homebuyers who find luxury homes that fall out of the guidelines that conventional lenders must follow.

Overview

This home loan program is used when the purchase price exceeds the amount set by Freddie Mac and Fannie Mae. As of 2018, the conforming limits for mortgage loans is $453,100. This means that if the price is higher than $453,100 the loan must be classified as a J

umbo loan. Because homes are more expensive in certain areas, the conforming limits are different in these areas.

In some areas, the limit is $679,650. Areas like Alaska, Hawaii, Guam and the U.S. Virgin Islands have higher limits. The highest conforming loan limit is $721,050. In some of the high-cost areas, a home buyer can get a mortgage loan for more than $700,000 and still pay the FHA’s minimum loan down payment of 3.5%.

Jumbo Loans vs. Conforming Loans

When banks use the term “conforming loans”, what they are referring to are traditional mortgage loans given by banks and lending institutions. They’re called conforming because they conform to government guidelines regarding things like loan size, debt-to-income ratio and credit scores. Traditional mortgage loans are often referred to as conforming because they conform to government guidelines regarding things like credit, debts and loan size.

About the only similarity between conforming loans and this program is that they’re both used to purchase homes. Here are the differences between the two.

  • Jumbo loans are from the same bank that originally provides the money to the homeowner. Conforming loans come from a lender but are often later sold on the open market to government-backed lenders like Fannie Mae and Freddie Mac.
  • To be considered Jumbo loans, they must be for a certain dollar amount.
  • They are not government-backed, and usually have higher interest rates than conforming mortgage loans.
  • Conforming loans are offered at many more banks and lending institutions. The lack of availability of Jumbo loans makes them more competitive, often resulting in higher interest rates and stricter guidelines.
  • Conforming loans typically require lower down payments.
  • Conforming loans are often offered with credit scores in the 600s, while Jumbo loan customers should have credit scores of at least 700.
  • Because the dollar amounts are higher, there is more documentation involved and higher closing costs than with conforming loans.
  • Jumbo loan customers may have to have cash or savings equal to several months of mortgage payments.
  • Applicants must adhere to stricter guidelines, such as having two home appraisals.

Advantages of Jumbo Loans

Despite there being some disadvantages to, there are many times when they’re the right choice. There are pros and cons to all loan types. Here are some advantages:

  • They offer tax breaks to borrowers, who can claim interest payments on loans up to $1 million.
  • The interest rates are lower than in recent years.
  • Private mortgage insurance is not required on this mortgage program.
  • Homeowners can buy luxury homes with Jumbo loan that they might not otherwise be able to afford.
  • Customers with higher credit scores can get lower interest rates with Jumbo loans.

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