6 Pervasive Home Loan Myths You Need to Stop Believing Right Now

As you make your way from prequalification to signing an agreement, you may encounter certain fallacies and misconceptions during the home-buying process. While it’s a grave obligation to take your elders and peers’ suggestions into consideration, you shouldn’t believe everything and follow their words like a sheeple.

Myth 1: The interest rate is directly proportional to the loan cost

Fact: Your annual percentage rate (APR) is a bare-bones number that represents the actual yearly cost of your debt over the term of the loan and not the interest rate. An APR includes all financing charges, fees, and additional costs associated with a loan such as closing costs, underwriting fees, interest, mortgage insurance, and more. Before getting your hands on a particular home loan product, it’s best to compare all the mortgage types based on their APR rather than the interest rate. if your lender offers a 5 percent interest rate, it doesn’t mean this rate is the cost of your loan.

For a quick understanding: Let’s say your friend lends you $30 for a year at an interest rate of 10 percent. By year’s end, you owe him 30+(30*10%) = 30+3, which means a total amount of $33. Now, 3/30=0.10, so the APR is 10 percent. It is a one-year loan period with an interest rate and APR of 10 percent each.

Now suppose you borrow $30 from your friend for a year at 10 percent interest, and he also charges you an additional fee of $5. At the end of the year, you have to repay him a total amount of $38 (30+(30*10%) = 30+3+5). Now, 8/30=0.266, so the APR is 26.6 percent. For a one-year loan period, your interest rate is 10 percent and APR is 26.6 percent.

It’s a huge difference, isn’t it? The same way, while applying for a residential property loan, even a small application or administration fee can make a big difference.

Myth 2: Put at least 20 percent down payment (DP) on the table

Fact: It’s just a big fat misconception. Many home shoppers struggle to come up with a 20 percent DP, however, the low-or-no-down-payment loans can help them obtain the keys to their dream house by paying peanuts. The minimum DP required for conventional and FHA loans are 3 and 3.5 percent respectively. Some special loan programs such as VA & USDA even allow borrowers to acquire a home loan without an upfront cost, i.e., zero percent DP. While it’s possible to get these mortgages with as little as 0 to 3 percent DP, conventional wisdom says it’s best to put a 20 percent upfront payment on the property. This 20% rule is considered ideal because:

•    It provides significant financial benefits to the purchasers;
•    It improves your chances of getting qualified for a loan;
•    Buyers can avoid paying private mortgage insurance (PMI);
•    Shoppers can make smaller monthly payments;
•    It builds instant equity into a property, and;
•    You will pay less over the life of the mortgage (Lower interest rate & closing costs).

Myth 3: 30-year loans are always the best bet

Fact: Traditional mortgages are most common and popular options, but they aren’t necessarily the best bet for everyone. Keep in mind that it’s all about your personal comfort level when it comes to finances.

Borrowers can also opt for 10, 15, & 20-year or even 5-year home loans. Benefits of short-term mortgages are:

•    You don’t have to pay a hefty balloon amount;
•    You can save heaps of cash;
•    Most short-term loans offer lower lending rates, and more.

Myth 4: A longer loan tenure is better than the shorter one

Fact: Not completely true! Both have their own pros and cons.
Impact of a sustained loan repayment period on EMI:

Positive:
•    You need to pay a lower equated monthly installment.
•    You can reduce your liability when you have surplus money.

Negative:
•    A substantial increase in the acquisition cost of the property.
•    You are liable to pay more interest to your lender or bank.

How short-term tenure influences EMI:

Positive:
•    You can pay off your mortgage as quickly as possible.
•    Short-term loans mean lower principal & interest rates.

Negative:
•    You will pay wads of cash for EMI.
•    You might lose a perfect opportunity to lower your tax liability.

Myth 5: You need a perfect CIBIL score

Fact: It’s no secret that your three-digit FICO score can make-or-break your financial future. Having an excellent or good score (700 to 800) increases your chances of being approved, helps you lock in lower interest rate & better loan terms, and gives you access to better credit cards deals. However, it doesn’t mean you can’t get a mortgage without a perfect score. For example, a Federal Housing Administration (FHA) loan allows home shoppers to qualify for a credit with CIBIL score in the range of 500 to 579, but they’ll need to put 10 percent DP. With a score of 580 or more, mortgagors need to put as little as 3.5 percent only.

Typical minimum CIBIL score by mortgage type:

•    FHA loan – 580+ (500-579 can do a magic too)
•    VA loan – 620+ (some lenders require 580)
•    USDA loan – 640+
•    FHA 203K loan – 620+
•    Conventional loan – 620+

Under certain circumstances, borrowers can even score a loan with as low as 500 credit score.

Myth 6: Always say ‘YES’ to lower interest rates

Fact: It is one of those fables that have some truth to them. Undoubtedly, obtaining the best interest rate and loan terms on a residential property is necessary, but you should not take only these two factors into account when making a decision.

Some banks or mortgagees may offer you a handsome interest rate of 2 percent, but later they may shock you by unilaterally imposing their exorbitant hidden costs.

How would you feel if your parents promise you a gift on your graduation and then go back on that promise? You would feel betrayed! The same way you might get fooled by #lower interest rates that lenders offer. Remember, there can be numerous expenses and hidden charges included in your ‘Almost Interest-Free’ loan, including:

•    Processing & documentation fees;
•    Set up & closing costs;
•    Private mortgage insurance (PMI) charges;
•    Notary & lender’s attorney fees;
•    Legal & conversion fees, and;
•    Pre-payment charges.

In addition to these, there are various hidden costs applied by lenders to make more money out of you. Therefore, it’s always advisable to check with your bank or creditor on all these costs to avoid any future surprises.

We hope this blog post has helped you clear the misty fog of myths and outright lies around the residential property loans. Moreover, if you are looking for a proficient and competent home loan provider in California, then contact us for a quote. Call us at +1 (951) 634-2477 or drop a message at bb@arrowfinancialco.com.

Searching and Securing the Best Home Loans Now Made Easy

One of the most important parts of the 21st century is a loan. It is a tool which enables us to fulfill those needs which require huge expenditure such as buying a house. Many of us rarely have enough savings to make such purchases on our own.

Home Loans allow us to purchase our dream home without worrying about the huge sticker price that comes along with it. Further, houses are one of those assets that will keep on getting pricier; whatever they cost today, it will be a lot more couple of years later.

All the more to reason to buy one at the earliest, isn’t it? This is why many people are going ahead and purchasing a residential estate with the help of mortgages. However, there are many loan options available which often confuses the masses.

If you are someone who knows squat about residential loans but want to choose the best one, then you are at the right place. Let’s understand the available options and figure out which one will best suit your needs. Let’s begin then, shall we?

• FHA Loans
Some loans are offered by Federal Housing Administration (FHA) through FHA-approved lenders. They are backed by FHA which means that even if you default on the mortgages, FHA will pay the lender. This eliminates the risk from the mix, which is why lenders easily offer these loans.

The good thing about FHA loans is that they require minimal down payment of just 3.5%, and the interest rate is lower than the market rate. Also, they are easy to qualify as your credit score just needs to be over 580. In case it is 500-579, you can still qualify by making a 10% down payment.

If you are someone with less than stellar credit and limited savings, then this really is one heck of an option!

• VA Loans
The Department of Veterans Affair (VA) also offer loans to former and active members or to the spouse of a member who died or got injured while on service. Just like FHA Loans, these are insured by Department of Veterans Affair and offered by VA-approved lenders.

What makes these loans desirable is the fact that they can be availed without making any down payment at all, as the loan-to-value ratio goes up to 100%. This means that the borrower doesn’t need to spend a dime to purchase a home.

In case you do not want to break the bank or have no savings at all, then this is one of the best bets for you! Of course, you will have to be eligible in order to secure the loan.

• USDA/RD Loans
United States Department of Agriculture and Rural Development (USDA/RD) also provides Residential Property Loan Services to the people who are interested in buying a house in the suburbs. The loan is granted by a USDA-approved lender and backed by USDA itself.

The added benefit of choosing this loan type is the interest rate it offers which could be as low as 1% (depending on region). Also, it is a zero down payment loan which means you can get a loan on the complete amount!

If you want your home to be away from the hustle and bustle of the city, then a USDA Loan can be the way to go about it. Not only the debt will be cheap, but also you can have total peace of mind while living in a beautiful area.

• Conventional Loans
Unlike the earlier alternatives, Conventional Loans are not secured by any government agency such as FHA, VA, or USDA. They include the following types: -

• Fixed Rate Mortgage (FRM) – On the basis of interest rate, there are two types of mortgages – Fixed Rate Mortgage or Adjustable Rate Mortgage. In FRM, the interest rate does not change over the course of the loan. This means that your mortgages will remain indifferent to any fluctuations in the market. This could be a good choice if you are planning to stay in your new home for the longer haul.

• Adjustable Rate Mortgage (ARM) – ARM is totally opposite of FRM. Honest to its name, the interest rate keeps on changing as per the market conditions. However, many lenders offer a fixed rate for the initial years which is lower than the market rate. It is advisable to consider this option if the rates are likely to fall or if you are going to stay in the new house for a short time.

• Jumbo Mortgage – If the amount of loan exceeds the set limit of Fannie Mae or Freddie Mac (GSE or Government Sponsored Enterprise), then the loan is considered as a Jumbo Loan. These loans cannot be sold, guaranteed, or securitized which makes them a bit risky for the lenders. But if your dream home costs a little more than the average house, then a Jumbo Loan can help you to own it.

This was all about finding out which Home Loans best suit your needs. The fact that there are so many options available means there that is a type of loan available for everyone who needs one! If you are looking for a residential property loan provider in Rancho Cucamonga, then you can contact us for a consultation and commitment-free quote.

Property Loans - Bridging Distances between Dreams and Reality

Here is a quick question for you; if a person has not accumulated a lot of wealth, does he/she not have the right to dream? Should he/she not aspire to something bigger and work to achieve it? If you think he/she should, how will one do so without sufficient money?

 

There are billions of people out there who want something but unable to get it, as they do not have the required funds for it. This includes everything from buying one’s own vehicle or home to starting a business. So, the question still persists, how?

Luckily, loans assure that people can do what they desire in terms of property ownership! Loans are of different types, and each one can assist you in its own unique way. Let’s take a look at some of them: -

•    Commercial Property Loans
Many of you are budding entrepreneurs. So in order to expand or start your firm, the first thing you need is a place for work. This is where a commercial property loan provider can help you to get your hands on a good piece of land for your venture.

•    Residential Property Loans
With the rising inflation levels, savings have dropped considerably. If you want to purchase a new home, perhaps your first one, you may need a loan for the same. You should start looking for a good residential property loan services provider for getting the best loan terms.

In addition to mortgage loan programs, you can also get loans for travel, renovation, education, etc. You get the funds that you need to fulfill your desires and stay happy!