Anthony MaroneSenior Loan Officer NMLS#: 1190158
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The 30-year fixed-rate conventional mortgage is by far the most popular type of home loan in New Jersey and nationwide. In this article, we’ll look at the primary components of this mortgage option, and when it might make sense to use it.
Features of the 30-Year Fixed-Rate Loan
Home buyers and homeowners in New Jersey have a lot of options when it comes to mortgage financing. There are many different loan products available today, and they all have unique features.
The most popular loan option is the 30-year fixed-rate conventional mortgage. But what does this terminology mean to you, as a borrower? Let’s take a look.
Nearly all home loan options are made up of three primary components:
- Loan term — The “term” of the mortgage loan refers to how long you have to repay it. With all other things being equal, a longer term will result in a lower monthly payment since the payments are spread out. As you might have guessed, the 30-year fixed-rate mortgage has a repayment term of 30 years.
- Loan type — Mortgage loans in New Jersey can either be conventional or government-backed. “Conventional” is a term used for home loans that are originated (and sometimes insured) within the private sector, with nogovernment backing. FHA and VA loans, on the other hand, are insured or guaranteed by the federal government. Conventional mortgages are the ...
Home buyers in New Jersey who make smaller down payments often have to pay for a mortgage insurance policy. Depending on the type of home loan being used, either FHA mortgage insurance or private mortgage insurance might be required. This article explains the differences between these two types of coverage, and how they could affect you as a borrower.
FHA Mortgage Insurance vs. PMI in New Jersey
Mortgage insurance is usually required when a smaller down payment results in a higher loan-to-value ratio. For example, when a conventional loan accounts for more than 80% of the home’s value, a mortgage insurance policy is usually required. This is just a long-time industry requirement.
As mentioned above, there are two main types of mortgage insurance, and they have different features and requirements. These policies generally fall into one of the following categories:
PMI for Conventional Loans
- Private mortgage insurance (PMI) is associated with conventional loans, meaning those that are not guaranteed or insured by the government.
- PMI is typically required whenever the loan-to-value (LTV) ratio rises above 80%. Thus, New Jersey home buyers who make down payments below 20% often have to pay for private mortgage insurance.
- The cost of PMI can vary based on several factors. Premiums typically range from 0.3% to 1.5% of the loan amount, paid annually. But they can fall outside of that ...
There’s nothing like tax reform to create confusion among taxpayers. Previously, we wrote that home equity loans in New Jersey (and nationwide) would no longer be tax-deductible, thanks to the new legislation signed into law on December 22. Most major news sources were reporting the same.
As it turns out, there’s more to this story. The Internal Revenue Service recently published a news release to clarify this issue and to eliminate some of the confusion. (It seems that even the CPAs were scratching their heads over this one.)
What you need to know: The interest paid on home equity loans in New Jersey could still be tax-deductible, if the funds are used to “buy, build or substantially improve” the property used to secure the loan.
Interest on Home Equity Loans Deductible in Some Cases
On February 21, 2018, the IRS issued a special advisory to explain that, in many cases, taxpayers can continue to deduct interest paid on home equity loans. The fact that they even issued this advisory indicates the widespread confusion over the subject. In fact, they mentioned it directly:
“Responding to many questions received from taxpayers and tax professionals, the IRS said that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled.”
Home buyers in New Jersey tend to have a lot of questions when it comes to closing costs and who pays them. One common question is: Can the seller pay some or all of the buyer’s closing costs in New Jersey? Should the buyer ask for this kind of contribution? Is it rare or common?
The short answer is that it’s all negotiable. Trends and customs can vary depending on the current state of the real estate market. In some cases, the seller might agree to pay some of the buyer’s closing costs. This is called a “concession.” But there are a lot of important factors to consider. So let’s start with the basics.
What Are Closing Costs?
The collective term “closing costs” refers to the various fees that must be paid to close a real estate transaction. In New Jersey, as in most states, it’s common for both the buyer and seller to have their own closing costs during a home sale.
- It’s typical for sellers to pay for the real estate agent commissions, transfer fees relating to the sale of the home, and (in some cases) their own attorney fees. There might be other seller-side costs as well, in addition to these.
- The buyer usually pays for most of the fees relating to the mortgage loan (if a home loan is being used), along with the property appraisal, survey and title-related fees.
Can the Buyer Ask the Seller to Pay?
Getting back to the question at hand: Can the seller pay the buyer’s closing ...
Home buyers in New Jersey tend to have a lot of questions relating to home inspections and appraisals. While these two procedures share some similarities, they have different purposes and objectives.
Home inspections are generally not required in New Jersey, but highly recommended. Appraisals, on the other hand, are required when a buyer is using a mortgage loan to finance the purchase.
Home Appraisal vs. Home Inspection
Let’s start by distinguishing the two kinds of property assessments. While they are often confused as being the same, home appraisals and inspections are actually different procedures with different objectives.
- A home inspection is a thorough but non-invasive evaluation of the property’s overall condition. The American Society of Home Inspectors (ASHI) defines it as “an objective visual examination of the physical structure and systems of a house, from the roof to the foundation.” The primary objective here is to assess the condition of the property.
- A home appraisal is a review of the property to determine its fair market value, based on current real estate market conditions. The appraiser will prepare a comprehensive report that includes sales data supporting his or her determination of value. Here, the primary objective is to determine the value of the property.
So there are some similarities ...