Preparation is key for successful mortgage application.
By Mark Nash
First time or repeat, the requirements for applying for a mortgage is constantly in the state of change. Take the time to be prepared before you meet with your mortgage banker or broker, otherwise you'll get into what I call the "document chase". This chase can be time consuming and frustrating for home buyers. Request your banker or broker to email or fax you a complete list of all the documents required to complete the application process.
Home buyers can be proactive when applying for a mortgage by following these simple tips by Mark Nash author of four books including his latest 1001 Tips for Buying and Selling a Home and as a regular columnist for RealtyTimes.com.
-Don't be alarmed or offended when asked to sign an Authorization to Release Financial Information Form. The mortgage lender will need this form to obtain your credit report, bank accounts, employment records, mortgage history and other loans and securities.
-If you are self-employed you might also be requested to sign a Tax Information Authorization form which allows the lender to request a copy of your tax returns.
-Prepare a list of your credit cards you have by type, interest rate balance due, available credit limit, and minimum monthly payments.
-Bring payroll stubs from last six months.
-Locate tax returns from previous two years.
-List your assets such as IRA accounts, securities, bank accounts, personal property such as jewelry and furniture. If you own other real estate bring addresses and fair market value information.
-Bring copies of divorce decrees, bankruptcy discharges, student loan documents, alimony and child support obligations.
-Create lists of employment and residences from the last two years. Mortgage providers want to see stability in both these areas.
-If you have an accepted offer to purchase a property, bring a copy of the contract and copies of any earnest money checks. Have available information of other parties and real estate agents connected with the contract.
-Do not deliberately falsify information on your loan application. All information will be verified through the trimerge credit report, and verification of employment and bank accounts.
-If your lender requires an application, credit check and an appraisal fee, bring these with you to the application meeting. They might not start processing your loan without them. Do not give the loan officer any money for a credit check or other fee until you are sure you want to work with this person.
-Do not give originals to mortgage lenders. Make photo copies and submit these.
-You are only required to list enough assets to show that you can qualify to borrow enough money to purchase the home you are seeking.
-Pull your own credit report before meeting with a lender. What the scores say to a mortgage lender: 800-850=Excellent, 700-800=Great, 650-700=Okay, 600-650=Marginal, 400-600=Not good, Under 400=Help!
-The short story on how a credit score is determined. Payment history=35%, Amounts owed=30%, Length of credit history=15%, New credit=10%, Type of credit=10%.
|
Private Mortgage Insurance or PMI.
By Mark Nash
Home buyers can be faced with paying Private Mortgage Insurance or PMI if they are putting less than a twenty-percent down payment on their new home. This monthly mortgage insurance remains in effect until the borrower has made principal payments to have twenty-percent equity or appreciation now vests them with at least twenty-percent equity. Some mortgage lenders now offer programs to eliminate PMI. These new programs offer borrowers a first mortgage for eight-percent, and a second mortgage for fifteen percent with a five percent down-payment. This loan is PMI-free.
Here is an example; say a buyer is purchasing a home for $250,000. The buyer could take out a first mortgage for $200,000 or eighty-percent of the purchase price. The buyer can also arrange for a second mortgage of $37,500 which is fifteen=percent of the purchase price. The buyer would then make a five-percent down payment. This is referred to a 80-15-5 program. In this situation the buyer would not be required by the mortgage lender to take out Private Mortgage Insurance, which would run about $100 dollars a month.
An additional advantage of the 80-15-5 program is that the mortgage interest on the second mortgage is tax deductible. PMI insurance premiums is not deductible, but legislation has been introduced to allow PMI to deductible as well.
|
Boomers Discover Reverse Mortgages.
By Mark Nash
As retirement looms in the not too distant future, aging baby boomers are looking for ways to tap equity in their primary residence to finance their golden years. Reverse mortgages have been around about ten years, but only in the last three have they gained prominence. A Reverse Annuity Mortgage or RAM allows those 62 years old and older who own their home, to tap equity, but not sell the property.
-In a Reverse Mortgage, the lender makes payments to the homeowner instead of the typical arrangement where the homeowner makes payments to the lender.
-Payments can be made in a variety of ways to the homeowner. A one-time lump sum payment, a line of credit, or monthly, quarterly or annual payments for lifetime or monthly, quarterly or annual payments for an agreed number of years.
-The property owned by the homeowner must be free from liens and mortgages.
-The property must be the primary residence of the homeowner and occupied more than six months in a year.
-Reverse Mortgage payoff is due upon the death of the borrower and other co-owners or borrowers or the home is not the primary residence of the homeowner.
-Consult with an tax accountant and an attorney before making an application for a Reverse Mortgage.
|
|
Reverse mortgage proceeds can play havoc with Medicaid eligibility.
By Mark Nash
Seniors looking for a way to boost income often consider reverse mortgages. Before you make the leap into this attractive way to tap your homes equity, you should understand fully some of the pluses and minus’ for this newer loan option. Reverse mortgages tap a homeowner’s equity in their primary residence either through monthly payments, one-time payouts or as a line of credit. But, beware of lenders who rush you into the loan, without providing thorough counseling.
-The amount a homeowner can borrow is based on their age, the current market value of their home, interest rates and applicable fees when they apply for a reverse mortgage.
-The up-front fees for a reverse mortgage are often much higher than other mortgage loans. These fees are called in industry jargon; front loads. Higher interest rates, origination fees and points are a significant profit center for mortgage brokers.
- To qualify for a reverse mortgage, a homeowner must be at least sixty-two years old. However, lenders prefer older borrowers, as their remaining life expectancy is lower. Banks are repaid when the owner dies, so the older the borrower at loan origination, and the earlier they will be repaid.
- Each states’ Medicaid eligibility requirements vary, but as long as your home equity remains untapped and you are occupying your home as a primary residence, the equity is not considered an asset to Medicaid. Once you tap the equity through a reverse mortgage, the income or one-time payment can be considered an asset, reducing or eliminating Medicaid coverage. Contact an eligibility specialist at Medicaid before you take out a reverse mortgage.
-Nursing home visits can also play havoc with reverse mortgage conditions. Lenders can remove owners from their homes after a specified period of time, even a short-term nursing home stay.
-While there are financial benefits to a reverse mortgage, reputable banks and concise loan agreements laying out the ramifications of a borrowers ill health are imperative to a successful reverse mortgage.
-Some senior homeowners decide selling their home and downsizing or renting is a better financial and lifestyle alternative for them than a reverse mortgage.
|
Mortgage Fraud on the Rise.
By Mark Nash
The overheated real estate market in the last couple of years created the prefect environment for mortgage fraud. I believe in the next eighteen months this issue will surpass foreclosures as the largest remnant of the real estate bubble. Identifying loan fraud is easy. Look for inflated appraisals, mortgage interest rates puffed based on biased credit scores, and inflated closing costs to the buyer. Remember, making a false statement to a mortgage lender is a crime. Run don't walk when someone asks you to do something that doesn't seem legit. It's not worth risking everything to purchase a home. Here are some quick tips to determine if mortgage fraud is going on in the purchase of your home.
-All concessions to buyer must show up on the settlement statement. Nothing can be paid outside of closing or escrow.
-If you are not going to owner-occupy a property, you must disclose this to the lender. Even if it means you need a larger down-payment or will pay a higher interest rate. Shop around for the best deal.
-If someone suggests a contract stating one price for the lender and another showing the actual price, say no, this is mortgage fraud, pure and simple. Each transaction should have only one contract to purchase.
-Don't have a friend or relative falsify a gift letter. If it's really a loan, than that's how it should be disclosed to a lender.
-All second mortgages must be disclosed to the first mortgage holder.
-Don't allow anyone to falsify statements on your loan application about debt owed, child support, or employment. And don't do it yourself, these will be verified by any lender.
-Flipping properties can induce an fraud investigation. Verify that all appraisals and documents are done according to legal guidelines.
-Report fraud to the Federal Bureau of Investigation.
|
Subprime mortgages shaking out in 2007.
By Mark Nash
All the rage in the real estate boom years, subprime mortgages could get any potential home buyer into a home, despite weak employment or credit history. No-money-down, interest-only and marginal credit-worthiness were the hallmarks of subprime mortgages. Add to the menu, option adjustable rate mortgages which feature negative amortization, no wonder defaults on these risky loans by borrowers are on the up tick. Mortgage underwriters are now growing leery of marginal borrowers with home price appreciation stagnating and weakening credit worthiness of borrowers.
Mortgage companies recently have seen 2006 borrowers who were granted subprime loans begin to fall behind in payments. Moody’s Investors Service reported a one-percent increase over 2005 in foreclosed or repossessed properties that had been closed and funded within six months in 2006. More elastic loan underwriting, which featured slim or no borrower credit, employment, income documentation has contributed to the increase in default rates.
Subprime loans feature higher origination profits from portfolio buyers for those who close them. Zealous mortgage brokers looking for increased market share in a crowded field merely fed the pipeline for Wall Street investors. The bottom feeders of mortgage brokers in the market frenzy of 2005 courted and sometimes defrauded unsuspecting subprime borrowers.
Now that the after-glow is wearing off in the slowing housing sector, underwriters are growing more conservative when reviewing applications. This new perspective will serve the housing market by eliminating marginal buyers whose new purchases return to market inventories within a year as a result of foreclosure or default. A growing share of recent home inventory is a shake out of investors (flippers) and subprime borrowers exiting the market.
|
Mortgage options for home buyers.
By Mark Nash
To first-time or even repeat buyers it can be daunting to figure out what all your martgage options are. Especially when you're time pressed to make a committment to one after you have drafted a contract to purchase a home. Here is an overview of available mortgage products. I've added common loan terms from mortgage lenders.
-Affordable housing loan: umbrella term used to cover various loan products targeted to first-time homebuyers.
-Assumable loan: existing mortgage loan that can be assumed by another person; most conventional loans are not assumable; government loans are assumable with qualification of the new person.
-Bi-weekly mortgage: one-half of the mortgage payment is paid every two weeks, resulting in one extra full payment toward principal each year.
-Blanket mortgage: mortgage secured by more than one piece of property.
-Blended rate (or wraparound) mortgage: refinancing plan that combines the interest rate on an existing mortgage loan with current interest rate for an additional amount of loan.
-Bridge (or swing): loan used to bridge the gap when someone is purchasing a new home before they have gone to settlement on their previous home.
-Budget mortgage: another name for a loan that included taxes and insurance along with the principal and interest payment (PITI).
-Installment sale (also called a land contract): usually a private agreement between a seller and buyer where title is not conveyed until all payments have been made.
-Carry-back financing: whenever a seller agrees to finance either the first or a second mortgage on the property.
-Chattel mortgage: a pledge of personal property to secure a note.
- Construction loan: short-term loan made during the construction of a house.
-Home equity loan: either a lump sum or a line of credit made against the equity in a home.
-Interest-only: Your monthly payments only cover the interest on your mortgage loan. Your payment does not include any principal payments to create equity. In a market transitioning from a sellers to a buyers market, you might loose money on the sale of your home.
-125% loan: A loan product in which you are actually borrowing 25% more than the present value of the property you are purchasing. If you should have to sell the property in the first few years, you will find yourself “upside-down” in the mortgage, owing more on the mortgage than you can sell the house for.
-Open-end mortgage: one where additional funds may be borrowed without changing other terms of the mortgage, typical for construction loans.
-Package mortgage: mortgage secured by a combination of real and personal property; often used for vacation property such as a cabin, beach condo, or ski chalet.
-Portable mortgage: new concept; mortgage loan can be carried with you from one property to another.
-Purchase money mortgage: any loan used to purchase the real property that serves as collateral but usually refers to seller-held financing.
-Reverse mortgage: special program for senior citizens (62 or older), which utilizes the equity in the seniors’ home to provide additional income without having to sell their home.
-Sub-prime loan: loan with risk-based pricing for persons unable to qualify for prime conventional loans; typically has higher rate of interest; credit scoring and appraisal are critical.
Mortgage terms.
-Mortgagee: the party receiving the mortgage, the lender.
-Mortgagor: the party giving the mortgage, the borrower.
-Mortgage: document establishing property as security for the repayment of the mortgage loan debt.
-Note: a written promise to repay a debt.
-Deed of trust: document conveying legal title to a neutral third party to provide security for the mortgage loan debt. The choice of whether to provide collateral for the loan through a mortgage or a deed of trust depends on individual state law.
-Default: failure to carry out the terms of the contract; the most important term being the agreement to make regular payments.
- Loan-to-value (LTV): percentage of what the lender will lend divided by the market value (e.g., property worth $200,000 with a LTV of 90% means that the lender will loan 90% of the value, or $180,000, and a down payment of 10%, or $20,000, will be required from the borrower.
-Qualifying ratios: the percentage of gross monthly income allowed by different loan programs.
• Front-end ratio is the amount allowed for total housing expense.
• Back-end ratio is the amount allowed for total debt. Example: Fannie Mae/Freddie Mac ratios are 28/36 or 33/38 for affordable loans. FHA ratios are 29/41.
-Points: each point is 1% of the loan amount. Lenders often charge a l% loan origination fee. Additional points may be charged to discount (lower) the rate of interest.
-Buy-down: a cash payment to the lender that lowers the rate of interest; often used a marketing technique by new homebuilders. Example: Property selling for $200,000 with a 2-1 buy down. Interest rate for first year is 4%, second year 5%, and life of the loan 6%.
-PITI: usual components of a mortgage loan: principal, interest, taxes, and insurance. Payment is attributed first to principal, next to interest. Taxes and insurance are paid from an escrow account. Interest and taxes are tax deductible.
-Principal: the balance due on the amount originally borrowed.
-Interest: the amount charged by the lender for the use of the amount borrowed.
-Conventional loan: any mortgage loan that is now government insured or guaranteed.
-Government loan: FHA-insured or VA-guaranteed loans.
-Conforming loan: conforms to Fannie Mae/Freddie Mac guidelines.
-Nonconforming loan: does not conform to Fannie Mae/Freddie Mac guidelines.
-Jumbo loan: one that exceeds current Fannie Mae/Freddie Mac loan limits.
-First mortgage (or Trust): the primary loan placed on the property.
-Junior, or second mortgage (or Trust): secondary loan sometimes used in conjunction with first mortgage or one placed sometime after closing on first; such as a home equity loan.
-Portfolio lender: one who retains and continues to service the mortgage loans in-house.
-Prepayment penalty: a fee charged by the lender if you wish to pay off part or all of the balance due prior to the scheduled end of the term; penalty not allowed on any conforming or government loans; most often seen in jumbo loans and ARMs.
-Negative amortization: occurs whenever the monthly payment is not enough to cover the interest charges for that month with the additional amount being added to the principal balance; results in an increasing principal balance rather than a decreasing principal balance as occurs with a fully amortized loan.
|
|
|