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We offer a complete line of Texas
mortgage loans, Texas home equity loans and Texas mortgage refinance loans for
all types of borrowers with low Texas mortgage rates.
The Different Types of Texas Mortgage Loans,
Texas Home Loans and Texas Loan
Programs
For starters, mortgage loans are a completely different animal than, let’s say
auto loans or furniture loans. Mortgage loans and their interest are calculated
more complexly. Auto loans and such are calculated by a very simple standard. I
will illustrate more information later on. But for now, let’s take a look at
some of your loan product options.
Let me start by listing several of the main ones:
10,15,20,25 and 30 year fixed
1,3,5,7 and 10 year ARMs
Interest Only
FLEX Loans
80/15/5
80/10/10
80/20
Jumbo
Expanded
Expanded Level (EA1 etc)
Home Equity
HELOC
Purchase Money 2nd
Subordinate 2nd
Balloons
Pay Option ARMs
Refinance
FHA and VA Loans
Sub Prime Loans
If I left any out, I will address them later. In the mean time, here are two
very important terms. Principle, which is basically the balance on
your new loan and also, interest, which is charged against your
principle balance. The two terms interact with each other and from here onward
will be enjoined as Principle and interest.
Principle and interest is your base monthly payment before any
other charges like taxes and insurance.
30 Year Fixed (10,15,20,25 and 30 year fixed)
Let’s start with the easiest one. The fixed product is basically what it appears
to mean. The rate is fixed for a period of time. Be it 10 years or up to 30
years. The rate doesn’t change and neither does your principle and interest
monthly payment. Anytime you apply for one of these loans, you need to ask your
loan officer for an amortization schedule so you can see how the interest and
principle is divided over the course of the loan term. These loans are the most
commonly used and aren’t at all glamorous, but they are the safest of any of the
loans. Nothing changes over the loan term and nothing will.
ARMs (adjustable rate mortgages) 1 Year to 10 Years
These loans are amortized or calculated based on 30 years. However, the terms
change depending on the ARM type. For example a 3 year ARM may start out with a
rate of 6.75% for the first 3 years, but may adjust after the initial 3 year
period. Several factors are involved that include the type of index or security
these loans are attached to. A 3 year ARM could be based on the 3 year T-Bill or
a LIBOR index. It doesn’t really matter unless you have the savvy to predict the
future.
One of the main reasons someone would select an ARM might be they are living in
a city for a short time like 3 years and want to take advantage of a lower rate
for a specified length of time. Here’s an example. Suppose Henry is transferred
to Houston for his job to work on a project for approximately 3 years. He checks
rates and finds a 3 year ARM is being offered at 5.75%. In contrast, a 30 year
fixed is offered at 6.25%. Since his duration in Houston is only 3 years, he
takes advantage of the 3 year ARM product.
These loans carry a certain level of risk and aren’t for everyone. If you don’t
completely understand them, stick with a fixed rate for the purpose of safety.
Sub Prime Loans
Sub prime loans are for borrowers that basically have the
ability to pay monthly payments but have credit report glitches and overall
problems. Even though a borrower may have some bad credit issues, a loan is
still obtainable. Rates may be higher, but as time progresses a sub prime loan
is an opportunity to improve overall credit and still buy or refinance a home.
Interest Only Loans (I/O)
Generally these products are for the mindful investor that realizes conserving
capital for other investments. The interest only option is lower in payment and
can be offered with any loan product including a fixed product like the 30 year.
However, interest only really means you are paying rent to have the luxury of
living in a home. It’s true anyone can pay towards their principle at any time
to lower their balances. But some people are sold down the road with interest
only loans thinking they are somehow building equity which isn’t remotely true.
Most importantly, interest only is an option for a short length of time so watch
out! If the option is attached to an ARM, your payment may be out of reach!
If you aren’t an investor, the only reason you would have to use this type of
loan option would be to have control of the amount of principle you pay every
year. That’s IF you pay principle every year. If you are buying a new home for
the very first time, avoid this one!
FLEX Loans (Flex 100 and Flex 97)
These loans provide flexibility to borrowers with limited funds that don’t have
the capacity to put down 5 to 20 percent. The most common is the FLEX 100 which
in essence is 100% financing. This is a good option if you qualify and it’s
easier to get into than an FHA or a VA loan. The other is the FLEX 97 which is
merely a 3% down payment product. It’s the same vehicle as the Flex 100 and
easier to get approved for than FHA and VA loans. Both of these Flex products
require less paper work all around. BECAUSE OF THE AMERICAN
ECONOMY, FLEX 100 LOANS NO LONGER EXIST!
80/15/5, 80/10/10 and 80/20
This explanation might be more understandable with a calculator in hand. These
loans require a 1st and 2nd lien. The reason why is you need 20% down to avoid
paying PMI or mortgage insurance. Here are some examples:
Let’s say you have a 100,000.00 house you are buying. In the case of any of
these loans, 80,000.00 or 80% would be your first lien. Depending on your down
payment of 0 to 5%, your second lien could be:
5,000.00 for the 2nd on the 80/15/5
10,000.00 for the 2nd on the 80/10/10
0 for the second on the 80/20
80/20s are mostly no longer available due to all the foreclosed homes popping up
all over the United States. The FLEX 100 is the only viable program for 100%
financing.
If you don’t have or don’t want to put down any money, you had better have a
good sense of planning along with good credit. Otherwise, you shouldn’t be
buying right now. Foreclosure hurts all of us and will haunt you for years to
come.
80/20 LOANS NO LONGER EXIST DUE TO THE AMERICAN ECONOMY!
Jumbo Loans
Basically, in the eyes of the lenders that be, any loan amount greater than
417,000.00 is considered a Jumbo loan. Jumbo loans can be fixed, interest only,
pay option ARMS or any other type of ARM product. Jumbo rates are always higher
and always will be. Loan amounts can be as high as 10 million dollars. The
private banking sector ordinarily handles huge loan amounts in excess of 10
million dollars, so if you are reading this, you aren’t a candidate. Neither am
I. So don’t be offended.
Expanded Loans
These loans are generally for self employed business owners and professionals
like doctors or lawyers that mainly expense their living through their business
operations. Thus, these products are more lenient in terms of documentation and
records. However, the rates are always marginally higher than your average fixed
loan product. These loans are also available in ARM scenarios and other
situations like Jumbo loans.
Many business owners and professional take all available measures to avoid
paying too much income tax so their ventures may survive. These loans are
available to these folks.
Expanded Level (EA1 etc)
These loans are generally the alternative to a borrower who doesn’t quite
qualify for a conventional standard 30 year product or the like. What I mean is,
if I put your information through the process, underwriting may come back with
an alternative instead of a denial. The alternatives are the levels or for
example a loan finding like EA1. An EA1 is an underwriting system finding that
has concluded you aren’t a standard candidate, but you might be the next level
of risk for a loan. The rate offered will be somewhat higher, but you aren’t
denied. These levels have other margins of risk that are level 2 and level 3 or
EA2 and EA3.
They aren’t intended to offend anyone or paint an inferior picture of someone’s
situation. They are designed to give you the availability to borrow now at a
slightly higher rate with out going to the sub prime loan sharks at an extremely
higher rate. If your loan officer returns with a Level EA1 verdict, take it. It
would pointless to shop around to get the same answer.
Texas Home Equity Loans
Are you in a pinch and need some money? Do you need to pay for a child’s college
tuition or a remodeling job on your kitchen? Take out an equity loan.
Equity loans allow a borrower to borrow some of their equity built into their
home value. Here’s an important and over looked fact: in the state of Texas you
are only allowed to borrow up to 80% of the value of your home. That number
includes what you currently owe. Here’s an example: Your house is worth
200,000.00. You owe 135,000.00. The maximum amount you can borrow is 160,000.00
or 80% of 200,000.00. You must subtract what you owe, 135,000.00 from
160,000.00. The amount you are able to collect from this type of loan is
25,000.00 minus closing costs. You must have all your ducks in row documentation
wise.
HELOC (Home Equity Line of Credit)
If you don’t want to refinance the whole thing, just borrow the equity in the
form of a line of credit. These loans aren’t subject to much scrutiny, but can
be hard to obtain and the rates are a little higher. You have to have good
credit and all Texas laws still apply with regard to how much you can be loaned
against your home.
Purchase Money 2nds and 2nds in General
These loans are basically serve several purposes. A 2nd is a 2nd lien. Be it for
an 80/15/5 or an 80/20 or even a HELOC. A 2nd lien is another loan on your home
in addition to your main loan or your 1st lien. 2nds can be paid off early
without a penalty.
Balloon Loans
Balloons are similar to ARMs. There is a specified beginning term just like a 3
year ARM except the balance becomes due at the end of the initial term. For
example, with a 3 year balloon, instead of the rate adjusting the principle
becomes due. Your options are few but they are reasonable. You can convert your
balloon to a fixed loan with most lenders or you can refinance. The interest
rate stays the same for the first 3 years or any term set for that matter.
Pay Option ARMs
Pay Option ARMs or NegAm loans usually offer a few distinct payment options
every month. You can pay the minimum payment based on the low start rate of 1%
or whatever it is. You can pay just the interest for that month or you can pay a
full payment based on a 15 or a 30 year fully amortized loan.
If you elect or decide to make the minimum payment each month, the remainder of
the interest you owe for that month gets added to your principle balance. There
is a limit to how long you can make the minimum payment. Some lenders cap off at
115% of principle while others cap off at 125% of principle.
These loans were intended for borrowers that possessed a body of financial
planning knowledge and wealthy people that understood the process. Ever since
banks and lenders began to offer these loans to average borrowers, the entire
nation become abundantly faced with foreclosures and borrowers with negative
principle balances. Hopefully, these loans will become illegal soon. If you have
one, get it modified by your lender or find a way out like selling or
refinancing. If you don’t understand what I am talking about here, don’t try one
of these. You will fail and loose your home eventually.
Texas Mortgage Refinance
Many folks took advantage of lower rates shortly after 911 and due to the
internet were made aware of how competitive rates were from company to company.
Thus, people refinanced rates thought to be low at the time they purchased OR
loans became available to those that thought they were stuck with a higher bank
rate of sorts. Refinance is an option if the terms and the rates are better and
save money. Some people in subprime and FHA/VA loans refinance to take advantage
of both lower rates and better terms that include no PMI.
FHA and VA Loans
Although these loans aren’t credit score driven, they take into account all debt
past and present regardless of your explanation. Closing costs are not rolled up
into the loan like people think they are and PMI is paid upfront and financed
into the loan raising the loan amount. There are alternatives that are cheaper.
However, if you don’t have any regular credit accounts, these loans utilize
other forms of credit like phone bills, electricity, rent and such. Be aware,
these loans are costly and require a longer process and out of pocket expense
compared to, for example a Level EA1 loan. FHA and VA loans pay a better
commission to mortgage shops and are pushed as the savior to all. Ask a lot of
questions and get another opinion.
From time to time, I’ll review this page and add anything I might have missed.
And of course the easiest way to get questions answered is to call me
281-597-9234 or e-mail me.
Thanks
Vinni
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