Calvin Law's Blog
Many people own homes through a mortgage agreement. Traditional mortgages are primarily fully amortized or gradually paid off with regular payments over the lifetime of the loan. Each payment contributes to both the principal and the interest.
A balloon mortgage is a short-term home loan with fixed-rate monthly payments that only take care of accrued interest on the loan for a set period. It also has a large “balloon” payment to cover the rest of the principal.
The payment plan is based mainly on a fifteen- or thirty-year mortgage, with small monthly payments until the due date for the balloon payment. These low regular payments partly cover the loan but require paying the remainder of the unpaid principal as a lump sum. Selling the house or refinancing the balloon loan before the payment is due is how most buyers approach this situation.
Key Issues with Balloon Mortgages
Lenders present a deadline by which the balloon payment is due (three- to seven-year period). The enormous amount is often more than borrowers can easily handle at once.
Paying only interest on a loan does not allow equity to build. Many homeowners use equity as a means to complete home improvements or other projects. Building equity also helps homeowners when it comes time to sell their home because a traditional mortgage reduces over time.
Why People Opt for Balloon Loans
It is possible to refinance a balloon mortgage or sell the property before the balloon payment is due but it can be difficult to do so. A dry housing market, job loss, or low credit score are potential obstacles. Lay-offs and depressed home values can trap buyers in their balloon loans. Without the option to sell, refinance, or fulfill their balloon payments, borrowers may end up in foreclosure.
The One True Strategy
Traditional loans are generally safer than balloon mortgages. To keep housing costs at a minimum, use a balloon mortgage if you are sure you can exit before the balloon payment comes due. Otherwise, it is best to remain in the realm of traditional loans.
Review the pros and cons of taking a balloon loan before committing to it. Speak to your financial planner or realtor for professional guidance.
Buying a home will likely be the most important and expensive purchase you ever make. And, although that might seem like a scary commitment, it’s one well worth it. It’s an investment in your future. There are many benefits or perks that come with owning a home.
Equity: Owning your own home typically comes with gaining equity. Every month that you pay your mortgage, you are increasing your equity. And as long as the market continue upwards, your home and the equity you’ve gained will hold significant value.
Privacy: Privacy is a large perk of owning your own home. This is more so possible when owning a single-family home in a rural location, but many duplexes and condos also provide opportunities for privacy. And in many cases, since you own the home,you can put up your own privacy such as planting arborvitae trees along your properties edge.
Tax Advantages: One of the biggest perks when owning a home is the ability to deduct mortgage interest on your federal income taxes. This will be a significant amount for the first few years of your mortgage, making this a huge benefit. Although, the amount of interest paid decreases over the years, there will still be deductible interest paid in the last few years of your mortgage.
Space: Houses will almost always provide you with more space than an apartment—and it will certainly have more space than your childhood bedroom. The space will be all yours, which means not having to share with other renters or your parents. Of course, home location and the market come into play here, but for the most part you will get more square footage for your money—as landlords charge high rents to cover things like water, electricity, snow removal, or still charge high rent prices and do not cover any of those other expenses.
No restrictions: There are many restrictions that come with renting or living in a condominium. These restrictions could include no pets, parking restrictions, outdoor updating restrictions and many other different types of constraints. When you own your own home, you make the rules. If you want to put up a fence, you can. And if you want to put an addition on your house, you can do that too. Just be sure to check with your town before beginning any construction projects.
Establishment: Buying a home provides you the ability to set down roots, to be established. Although, not a benefit to some, it is to many. Buying a home provides you with ownership and a sense of freedom. You now have the opportunity to invest in something that is yours. You can make updates to the bathrooms, add a pool in the backyard, and paint the front door any color you want—because it’s yours.
A home is often the foundation of one’s life and who can deny its appeal with these perks discussed above? So, what are you waiting for? Start your search today!
There is a reason why online lenders like Quicken Loans have amassed millions of customers over the past few years. Actually, there are a number of reasons. Here are a few just for starters.
Anyone with a phone or home internet connection can apply for a house loan online. Wherever you are in the country, you can ask for a house loan, and get it at a competitive rate. To be considered for a mortgage by a bank, you will need to be an account holder with them. Then you will need a bank official to walk you through the application process. Online lenders strive to make their application procedure easy to follow so you can do it yourself from start to finish with minimal guidance. Better Mortgage has been feted for its intuitive online process.
Getting approval for your mortgage application from conventional banks can prove to be like waiting for a miracle. Scrutiny on applications is tighter now more than ever in the wake of the recent financial crisis. You may have to wait for more than a month before you get a green light on your mortgage. Online lenders allow you to begin the process online if you’re interested in the product and are agreeable with the terms. Some, like Quicken Loans, promise to get your approval within a matter of minutes. Online mortgage providers will even allow you to complete the entire process online, giving a provision for you to upload all supporting documentation to their website securely.
You will find most, if not all, the information you need to decide on your loan on the lender’s website. Most of them have embedded a loan calculator on their webpages, which allows you to work out how much you will need to pay every month if you input the price of the house and your initial deposit. Even after you secure the mortgage, you can keep track of your repayment schedule without having to call or visit a branch.
A low credit score will quickly undo your application for a mortgage with JP Morgan Chase, Wells Fargo or any other traditional bank. After burning their fingers during the housing crisis, few of them are willing to take on the risk of FHA-backed house loans. This kind of loan was the low-hanging fruit for many first-time aspiring homeowners as well as those with lower-than-average credit ratings.
Browse through this independent review of online lenders if you intend to invest in a new pad soon.
Buying a new home is something to which a lot of people look forward. Although it involves a lot of planning, stress and negotiating, the sense of fulfillment that comes when you finally move in is always an extraordinary feeling. However, at the same time, buying a new home is more than just signing some papers and moving in. If you plan to stay in your new home for a long time, then you want to be sure about it.
- First of all, the location is essential. You want to be sure that the house you pick is in a neighborhood that you will be comfortable living in. If you would rather live in a quiet community with gated houses and the works, then it means you have to avoid great homes in super urban places because it might not work for you. Or if you are an outdoor person, living in an apartment block close to the center of the city may not be for you. So before you make any decision, you might want to check out other streets around you and see the kind of vibe you sense. Drive around the neighborhood at different times of the day to discover how it changes throughout the day.
- Check for any potential risks that could prove dangerous for you and your loved ones. Some homes are built in areas that are prone to floods, wildfires, or even earthquakes. You want to be informed and aware so that even if you decide to move, you would have taken the necessary precautions. Is the house prone to a termite infestation? Are there lots of snakes or bears around? These are questions you shouldn’t forget to ask.
- Finally, learn to trust your guts about any home that you go to see. Pay attention to your first impressions as they are often quite correct. And not just first impressions but lasting impressions also. I am an advocate of coming back to check up the house again to be certain that you still feel the same way when you see it again. Homes are like shoes sometimes, and they may not just be the right fit for you. Learn to trust your intuitions and inner feelings about a piece of property; they are often entirely accurate.
Although buying your first house can be a little bit frightening, it should not be if you have a clear plan to get the funds you need. Aside from the mortgage process that may be confusing, every other thing is irrelevant because all you want is to ensure that the house is your choice and that it readily fits your needs.
Many of the things that homeowners keep worrying about are not worth the stress. Here are five things that you should not worry about when you buy your first house:
1. Poorly fitting furniture
You can replace furniture that doesn't fit into your new home or give it away to some charity. You can also resell furniture items still in good condition. However, if you continue to like it, you can decide to keep it and put it in storage. After all, this is just your first house. If it doesn't fit in here, it will work in the next one you buy.
2. Wall paints
You have every right to pick the color of your new home. First-time homeowners, however, are found guilty of expecting things to look a certain way and get disappointed when they are not. If you don't like the paint, you can always change it to your taste. If you love the color, but it looks worn out, you can still have it repainted when you can afford the cost.
3. Decorations are worn out
There's no doubting the fact that some homes may look outdated and worn-out already, but you need to understand that upon acquiring your new home, there will be plenty of time to bring it up to your standard. Sometimes, kitchen and bathroom remodeling are the only areas that’ll cost you some cash. Other times, there’s a lot more to do to bring it up to your style. Check and confirm before buying to know where you will be spending money.
4. Outdated kitchen
The kitchen may not be entirely what you want. What's more important is how you evaluate the house in terms of infrastructure. Take a look at the roof, plumbing, and the electrical systems; make sure they all are in place. If everything looks and works perfectly, then you can prepare for a kitchen remodeling when you can afford it.
5. No children, no problem!
If you do not have children, then you should not worry too much about space, the quality of schools in the area, and the nursery facilities. While you may be tempted to worry about where your future children will go to school and where you can drop them off when you are going to work, the reality is that when children come, you will likely be in another phase of your life, getting ready to move to a larger home perfect for children.
Have a clear set of goals and objectives when buying a home for the first time and discuss them with an experienced, local realtor to help you make the right decisions.