Wednesday, November 22, 2017


What Options Do I Have For Financing A Mortgage?

June 8, 2016 by  
Filed under Business, Money, Opinion, Weekly Columns

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(ThySistas.com) The most stressful part of obtaining a mortgage is cobbling together a big enough deposit to be able to fund the initial purchase. And then, there’s the home loan itself; they’re tricky to get, especially for youngsters and first-time buyers.

Fortunately, there are dozens of options when it comes to mortgage financing, and it’s a safe bet to assume that one is right for you. It’s not a process to be rushed! You have to carefully assess your financial situation, look at all your choices, and be honest and sensible.

  1. Saving for a deposit

Deposits can range from anywhere between 10% and 20% for first-time buyers. This could mean you need to slap down a whopping $20,000 on a $100,000 property, which isn’t too easy to save up. There are several ways to make money fast, but even ‘fast’ takes time.

That being said, some types of mortgage only require a down payment of 3.5% (more on that later). These are rare, though, and it’s always best to have more in the bank than you need, to cover fees and such. Alternatively, you can roll these fees into the loan, but that raises the cost of your monthly repayments.

You have to bear in mind your location, too. If I wanted a mortgage in New York, for example, I’d need a much larger deposit than in Ohio. House prices are much higher in NY, meaning a larger mortgage and deposit is required upfront.

Ask your parents to take out a loan

The bank of mum and dad never seems to stop giving, and it can blackcouple-NEWHOMEprove useful here too. Once you’ve sat down with your parents and they’ve agreed to help you out, you have several avenues to take.

Option one; have them take out a loan to give to you. Your parents will have a much broader financial background and (hopefully) a much more varied, stable credit history. As a result, they’re more likely to be approved for a loan – and land a big one. This can then be passed onto you, which can fund your deposit.

Alternatively, they can simply give you a lump sum they may have accrued over the years. To make this eligible to use in a deposit, you’ll need a signed letter from your parents.

This letter will need to state the amount they’re lending you, and most importantly – that you don’t have to pay them back.

This means that the bank won’t have to factor this ‘loan’ into your monthly outgoings looking ahead. If you do have to pay it back, the letter should state this too – though it’ll work against you in terms of landing a mortgage in principle.

Savings accounts

If you already have a nice sum of cash in your current account, consider moving it into a savings accounts. These accounts will allow you to accrue more interest due to higher rates, which can grow your deposit more quickly.

For example, if I moved $2,000 from a 2% interest current account to a 4% interest savings account, I’d get $80 instead of $40. A small difference, but a difference nonetheless! Some accounts have interest rates as high as 5%, so it’s up to you to shop around.

Alternatively, savings bonds exist which tie you into a set contract. Savings bonds are useful if you have a chunk of cash that you don’t need to touch for a while – maybe you wish to move house in three years time.

The concept is simple. You’ll find a bank account with a set term – between two and five years – then the interest rate will be locked for that period. Are interest rates declining? Doesn’t affect you! Yours is locked.

This makes them risky, though. What if interest rates begin to rise? Yours won’t. Also, most accounts don’t allow you to withdraw the cash without a penalty – usually a loss of interest. However, traditionally, savings bonds possess high interest rates, meaning they’re a good way to boost your pool of cash.

Stop renting

In truth, renting is dead money. If you’ve moved out of the family home and are paying for your own accommodation, consider moving back in. It’s unlikely your parents will charge more than you’re already shelling out! Plus, you won’t have to worry about bills and food shopping as much. The savings will quickly add up.

Yes, that means you’ll have to stay under their roof for longer, but you’ll be able to save more, more quickly. Plus, if you have a tough week and miss a payment to your parents, they won’t get angry and throw you out. Hopefully.

Help to buy ISA

A help to buy ISA is an account that will gift you 25% of the amount you’ve already saved. Saved $8,000? You’ll get $2,000 for free! If you’re saving for a deposit, this is invaluable. You can save a hefty sum over a number of years, and your ISA will be topped up without you even lifting a finger.

  1. Types of financing options

Seller carry back loan

A seller carry back loan is a loan made by the seller, to the buyer. The seller will be the one who provides the buyer a mortgage to purchase the seller’s property. This way, the seller will act as the lender and the buyer will own the property.

If you’ve been through the traditional mortgage channels and been unsuccessful, a carry back loan could be a suitable option for you. There’s plenty of information on this type of loan, like this page from California Mortgage Advisors. As is the case with any home loans, there are several inherent risks, so make sure you choose wisely.

A shared ownership mortgage

As the name implies, a shared ownership mortgage offers you the chance to only own half a property. You can live in it as normal, but you’ll buy part of it and rent the rest. This means you’ll never fully own the house, but it can mean you can get on the property ladder quicker.

This is because you’ll only need a mortgage for the part of the house you own. For example, if it’s a $100,000 property, you’ll own $50,000 and will need a mortgage/deposit to cover that. As such, you’ll need a smaller deposit and could have lower monthly repayments. Just bear in mind that the property will never fully be yours!

Find a guarantor

Some mortgages on the market allow you to use a guarantor to help you buy a property. This is risky for the guarantor in question, as it involves them using their own home as security for your mortgage. This is only possible if they own their home outright, or at least own a sizeable chunk of it.

This works by using the home as collateral against your mortgage repayments. If you fail to repay on time or can’t keep up, that person’s home could be at risk. Finding a guarantor could mean you can get a home much more quickly, but it’s also not to be taken lightly.

FHA loan

A Federal Housing Administration loan is available for pretty much any kind of buyer, from first time to seasoned veterans. In this case, the government will insure the lender against any losses that may be incurred by the borrower not being able to pay.

Plus, an FHA loan allows you to make a deposit as low as 3.5%, which is useful if you’re struggling to save up. Although, if you followed those tips in the first part of the post, I don’t see why you would!

A fixed-rate mortgage

As the title implies, a fixed-rate mortgage is a loan wherein the monthly repayments are fixed. They will never change, whether you take out a 15, 20 or 30 year term. This means you will know exactly how much you need to pay out each month, for the duration of the loan.

The interest rate won’t change either, so the impact of the market won’t affect you. All you have to worry about is meeting that initial monthly price, for the next 30 or so years. Your monthly repayments might be higher than usual, to compensate, but it won’t be noticeable.

VA loan

If you’re a qualified veteran, you may be eligible for a Veterans Affairs loan.

VA loans are also suitable for actively serving soldiers and even members of the National Guard. VA loans require no down payment, though the borrower will have to pay a funding fee.

This fee, like similar mortgage fees such as conveyancing, can either be paid upfront or rolled into the loan. VA loans are guaranteed by the Department of Veterans Affairs, which makes this a good option for those who have served/are serving.

In conclusion

It’s not rocket science – the bigger the deposit you have, the easier it will be for you to secure a great home loan. This can often mean waiting a little while before buying, but it’ll pay off in spades.

Yes, you may have to live with your parents a while longer, or be stuck in a house you hate for a while longer. But in ten years, in twenty years, when you have low monthly repayments and a comfortable property, you’ll be glad you did.

Staff Writer; Shawna Moore


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