Q&A Tuesday: Best advice: Understand your loan before you sign
The booming housing market in Lyon County and elsewhere in Nevada has come at the same time as an explosion in the variety of loan programs on the market, some of which can cost more than some borrowers bargain for and carry considerable risks.
Loan Officer Chandra Butcher, who with her husband, Terry, runs the Home Lone Center of La Jolla Newport Financial, at 184 S. C Street in Virginia City, offers some tips for prospective homebuyers.
Is it easier to get a loan for a home in an area that’s booming, like Dayton?
No. The area has no determining factor in most qualifying.
What kinds of loans are available?
All types. From the 30- and 15-year fixed-rate loans to one-, two-, three-, five-, seven- and 10-year adjustable-rate loans. Purchase loans with no money or little money down, refinance, equity lines and construction loans. We also have loans for manufactured homes.
What are the best loans for a first-time homebuyer?
It depends on each individual homebuyer. Some know that they will only be in the home a short time and then sell to upgrade to a larger home. For those a five-year fixed loan would be the best option. If they are unsure how long they are going to be in the home, then a 30- or 15-year fixed-rate would be beneficial.
What things should a homebuyer consider when shopping for a loan?
Again it depends on each individual homebuyer and the type of loan that is best for them. When looking for a loan you want to get quotes from different companies. You do not have to apply for a loan to get a good-faith estimate of rates and fees. You do not want to have several companies running your credit just to get quoted. Beware of the bait-and-switch, though. Some companies will quote you low just to get you in the door and then try to raise up the rates and fees on you.
What about someone who purchased a lot and wants to build a new home? What is the best loan for them?
You would be looking at a construction loan. There are several different types, fixed or adjustable, with three-, six-, nine-, 12- and 18-month construction time.
What kinds of loans should people stay away from?
Typically we steer clear of negative amortization loans. They do not usually serve any real long-term benefit to our clients. If anything, they can cause a lot of problems for uninformed borrowers. They are sold as low-rate mortgages and not clearly explained to the borrowers. You can end up owing more than what you borrowed, up to 125 percent of the initial loan amount.
Is refinancing still hot ?
We have seen some slowing in the number of refinance applications, but they are still going strong.
What should homeowners consider before refinancing?
One thing we like to look at is the benefit of refinancing. How long is it going to take to make back the refinance costs and is it beneficial to our clients’ needs. Some like to consolidate their debt when refinancing and it can have a big impact on their outgoing cash flow. We have had some clients that we do not find any benefit in them refinancing due to the loan costs and the impact these costs have on the loan. When you factor in the costs of doing the loan, for some the savings is not enough to really make a difference in the payment savings, therefore costing them more money in the long run.
What are the pros and cons of a 40-year mortgage?
There is not a big difference in a 30-year or 40-year mortgage payment. It can be beneficial if you are on a fixed monthly income and need that little extra each month.
What are the pros and cons of an interest-only loan?
Interest only loans can be beneficial for the same reasons a 40-year loan can be. It also allows you to decide if you want to pay down the principal amount of your loan or not.
Are innovative type loans such as the adjustable rate, interest only, riskier?
Some have risks, like loans with a prepayment penalty. The best way to avoid risks is to really understand your loan. I find that 90 percent of people do not read their loan papers when or after signing them. This is where the risks can be very high. As a borrower you need to really understand the type of loan you are getting and not get into something that you do not understand.
How can someone avoid being pressured into a loan that’s bad for them?
Don’t ever take what you feel isn’t right. With all the loan programs out there you should feel comfortable with what you are getting. It is our job to educate you on the loan you want that best serves you and give you options for others to consider. If you feel you are not getting what you deserve then call around and talk to other companies. Remember you do not have to apply to get a loan quote. Explain your situation and ask for a good-aith estimate in writing.