Additionally, according to the National Association of Realtors, the median price of a home is now $172,000. While these innovative approaches may enable more people to become homeowners, they also can pose a number of risks which may outweigh the benefit of ownership.
When You're Stretched, You Can Skip: Countrywide Home Loans now offers a loan option-known as "PaymentPower," which allows a borrower to skip a mortgage payment every so often. PaymentPower permits qualified borrowers to skip up to two mortgage payments per year for a maximum of ten skipped payments over the life of the loan. It is available on loans up to $333,700 with 30-year fixed interest rates in Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Massachusetts and Washington. If a borrower elects PaymentPower, there are two options to choose from: 1.) One-time upfront fee with no additional charges for skipped payments. The fee ranges from $1,000 to $1,250, based on a loan amount of $200,000.
2.)"Pay per skip" option which necessitates a smaller upfront fee plus a per skip fee based on the original loan amount (typically, $100 to $230 for each missed payment).
According to Countrywide, the math is as follows: On a 30-year fixed rate loan amount of $150,000 at 7 percent, with monthly taxes and insurance totaling $300, one skipped payment would be $1297.99. After one payment is skipped, the loan is re-amortized and results in a new payment of $1306.65, an increase of $8.66. Mellody's Tip: Keep in mind that in essence, you are paying extra fees for the option to skip payments twice a year and those skipped payments are simply added back on to your original balance, meaning you will pay more in interest overall. If your income is seasonal this may be an option for you. In addition, if you miss a payment you do not have to worry about the adverse impact on your credit rating.
Fix-Up Your Mortgage: Another creative mortgage available these days is a "fixer-upper" mortgage which means your loan will not only cover the cost to purchase a house, but will also include the funds to make home improvements. Typically, the loan amount is based on the lesser of either the project cost or the "as completed" value of the property. The benefit of such a mortgage is that the interest on the cost of your improvements may be tax-deductible, and you have the ability to begin renovations immediately.
Several national and regional banks, including HSBC, North American Mortgage (a division of Washington Mutual) and Wells Fargo offer fixer-upper loans.
Keep in mind that given the added risk for the lender, interest rates on this type of loan may be slightly higher than a traditional loan-usually one-eighth to one-quarter of a percentage point higher. In addition, you may need to have plans in place when you meet with the lender and the lender generally remains involved throughout the renovation project, with appraisers having to sign-off on all final projects.
Mellody's Tip: When considering this option, beware of the additional costs associated with this type of loan, such as multiple appraisals. Also, over the life of the loan, the interest paid on the cost of your renovations may be significant, meaning it might be more economical to take out a home equity loan or line of credit which may have lower interest rates.