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When considering the type of loan that you want to obtain, you might want to consider an adjustable rate mortgage loan (also referred to as an ARM). An ARM may make sense if:

  • you are confident that your income will increase steadily over the years
  • you anticipate a move in the near future and aren’t concerned about potential increases in interest rates

ARMs generally offer lower initial interest rates. Monthly payments can be lower. And they may allow you to qualify for a larger loan amount.

Make sure you understand the terms, risks and potential costs and compare all options before deciding. The attorneys at Ballaga & Freedman, LLP, can help explain any questions you may have regarding how an ARM works or whether it will work for you. Please contact us at your convenience.

Measuring your existing debts against your existing income is one part of a lender’s required assessment of your ability to repay a loan.

Like the video says:  debts are existing financial commitments; a car payment is a debt a grocery bill is not.

To calculate your debt-to-income ratio add up your monthly debt payments and divide them by your GROSS monthly income. (Gross income is generally the amount of money you earn BEFORE taxes and other deductions.) The Federally-established debt-to-income target is a maximum of 43% for Qualified Mortgages.

If your ratio is higher there may be other loans available  – however, there may also be additional questions to establish your ability to repay, and the rates may be different than those available for Qualified Mortgages.

Studies suggest that a high debt-to-income ratio puts a homeowner at greater risk of challenges making monthly payments. So consider your situation and risks carefully before exceeding that suggested ratio.

This video explains that some specific kinds of lending organizations are exempt from the ability-to-repay laws enacted in 2014.

These include:

  • Community Development Financial Institutions
  • Community Housing Development Organizations, or
  • Downpayment Assistance Providers, and
  • State Housing Finance Agencies

In addition, small nonprofit organizations that make just a few home loans, and loans made under Federal programs such as the Emergency Economic Stabilization Act may be exempt.

The laws are intended to help consumers and lenders avoid risk.  If you want to confirm a lender’s statement about being exempt from Ability-to-Repay, inquire with the Consumer Financial Protection Bureau online, or by telephone.

Private Mortgage Insurance can add a significant added expense per year to mortgage rates. Therefore, it’s worth learning when you are eligible to cancel!

For loans closed after July 29, 1999 Private Mortgage Insurance – PMI – can be removed automatically, or by request.

Provided your monthly payments are up-to-date your lender must terminate PMI when your principal balance reaches 78 percent of the original value of the home; or if you reach the midway point of the loan term such as 15 years on a 30-year loan.

Consumers also have the right to request PMI cancellation when principal balance reaches 80% of original value.

Ask your lender for the date that balance will be reached. If you are current in your payments, request cancellation in writing. Follow the steps outlined by your lender and keep copies of all documents and correspondence.

Equity is the amount of value you own in property.  In other words, equity is the difference between what you owe and what the property is worth in the current market.

In this video example, you have a house worth $300,000 today and you owe your lender $200,000.  Your equity would be $100,000.

If the house is valued at $500,000 in five years, and you still owe $150,000 your equity would be $350,000.

Equity grows as the property value increases or if the amount you owe your lender decreases.  Since your lender’s loan doesn’t go up over time, your equity will rise if the property value goes up.

Equity in a home can be used as collateral for loans, and, as a result, equity can become a key financial asset over time.  Treat it wisely.