Articles about Mortgages

Short sales and foreclosures are facts of life in the real estate market these days.

There is a good chance, then, that agents and clients will encounter them when they go to purchase a home or investment property.

Short Sale

Short sale means that the lender on that property wants to sell it and is going to accept less than the current owner owes on it.

Foreclosure

A foreclosure means that the lender has taken back, or is in the process of taking back, the property where the owner has fallen behind on the payments.

In either case, buyers will be dealing directly with the listing agent and the lender on the property as opposed to the seller, who is out of the loop at this point.

Processes

Dealing with the lender means that there is another set of processes to go through.

Depending on who the lender is, and authority of the listing agency hired by the lender, it may take several days or, in some cases, weeks, to learn if an offer is accepted.

Due Diligence

Once an offer has been accepted and the terms agreed upon, it is up to the buyer to do his or her due diligence as far as a home inspection.

Many of these properties are sold as is, and if a buyer has any doubt as to the soundness of anything, he or she has the right to get it inspected at his or her expense.

The buyer has a window in the contract that allows him or her to back out of the deal if there are any major issues.

Short sales and foreclosures can present challenges.

However, opportunities that short sales and foreclosures offer may be great opportunities for those who are willing to go through the process.

In a nutshell, Fannie Mae and Freddie Mac are intermediaries. They buy loans from lenders and then turn around and sell them to investors.

Most mortgages, regardless of the type, are originated with the expectation that they will be sold after they close.

Loans that are kept in-house, by a big-box lender or perhaps a smaller bank, are called portfolio loans. These loans often carry higher rates and have more stringent guidelines than other mortgages, in that the owner of them is taking all of the responsibility and the risk of the borrowers defaulting on them.

When a loan that meets specific criteria closes, Fannie Mae or Freddie Mac buys it. The loan is then bundled with other similar loans and sold to investors as one security instrument.

The benefits to the lender are twofold.

First, the lender makes money on the mortgage, both in the origination of the loan, as in fees, and when the lender sells it to Fannie or Freddie. Second, when the lender sells the loan, it now has a new supply of money with which it can write new mortgages. Once a lender receives this new money, the cycle then repeats itself with the origination of more loans.

The benefit to investors is that they can buy thousands of loans that were originated to a specific set of guidelines and determine the level of risk that is suitable.

For example, they can specify whether a loan is for a fixed-rate or adjustable-rate and what equity a borrower must have.

If you are looking to purchase or refinance a home, or apply for any type of credit, you may be having some challenges.

This could be due to items that are on your credit report.

Some type of credit repair, or restoration as it is sometimes called, may offer some benefit, depending on your situation.

Credit restoration is for people who should be able to qualify for a mortgage from both an income and asset perspective, but who have items on their credit reports that prevent that from happening.

It could be due to a medical situation.

It could also be due to a change in employment status.

When creditors place anything derogatory on your credit report, including late payments and collections, they are required to abide by the federal Fair Credit Reporting Act (FCRA).

The FCRA dictates how items are placed on a report.

The FCRA also dictates how you can dispute them.

A credit restoration agency will file paperwork with the creditors on your behalf.

The paperwork lets the creditors know they are out of compliance with the FCRA and that you would like to have the items removed. The job of the restoration company is to walk you through the entire process.

Your obligation to repay these items is a separate matter, though, from the items that appear on your credit report.

In searching for a credit restoration company, find out how long they have been in business and ask if the company is part of any trade associations that require high ethical standards.

Expect to pay a fee of $400 to $500 for the restoration work. You’ll also have to wait 45 to 90 days for your credit to be repaired, depending on what needs to be done.

Mortgage escrow accounts can be beneficial to homebuyers.

But there are a few things homebuyers should know about them.

First, mortgage escrow accounts are like savings accounts for homeowners.

Money deposited in them is used by a lender to pay your property tax or insurance bill when it is due.

With an escrow account, your lender will pay the bill from the money it collects from you each month.

In turn, you should never pay a bill for these items as long as you own your home and have the escrow account in place.

Borrowers of conventional mortgages, as in those insured by Fannie Mae and Freddie Mac, are typically required to have escrows held back with the payment while the loan balance is greater than 80% of the value of the property.

Federal Housing Administration borrowers will - almost without exception - have escrows taken out of their mortgage payment.

Lenders take a risk when they allow you to pay your own taxes and insurance.

If you default on your mortgage payment, you are also defaulting on the money that goes into the mortgage escrow account.

Property taxes collected at closing will vary from state to state.

Some states collect taxes in arrears, meaning that taxes for 2010 will be due sometime in 2011.

In other states, taxes are paid in advance of the time period they cover.

The time of year a closing takes place may make a difference as to how much you may need at the closing table, as some taxing bodies have installments due in different parts of the year.

It is best for homebuyers to check with a tax professional for details in their area.

The HomePath program has been getting a lot of attention lately. So what is it, and what can it do for you?

HomePath is a website owned by Fannie Mae that shows properties that have been foreclosed on and taken back from the owners. These are often referred to as real estate owned (REO) properties.

These properties can be in very good shape or in need of major repairs. They are often heavily discounted in price. Keep in mind, though, that whatever their condition, they are all sold as is.

Some disclosures state that anything needing attention once the closing is complete is on the shoulders of the buyer. In other words, once you own it, you own it. On the financing end, the good news is that for those who qualify, and many people do, there is no mortgage insurance required, even with down payments as low as 3.5%.

There are also no appraisals or surveys required, meaning that closing costs are lower than they would be on a traditional mortgage, as these items can cost $300 to $500 each. The mortgage rate will be slightly higher on a HomePath loan than on a traditional mortgage. That’s because Fannie Mae charges a premium to offset the fact that there is no mortgage insurance.

Plan on allowing 30 days to get to the closing table once you apply. HomePath loans are considered specialty products, and while they don’t need to go to Fannie Mae to get approved, there are only a handful of lenders that actually handle these types of mortgages.

For more information on HomePath, visit www.HomePath.com.

With the record-low interest rate environment that we find ourselves in these days, adjustable rate mortgages (ARMs) seem to be more attractive than ever. After all, ARMs often have lower rates than their fixed rate counterparts.

However, there are a few things that buyers should take into consideration before getting into an ARM.

ARMs have a fixed period in the beginning of the loan.

The lower-rate mortgages are usually the ones with the shorter initial terms.

Rates will fluctuate with indices such as Treasury bills, or the London Inter-Bank Offer Rate (LIBOR), which is the interest rate that banks charge each other for loans.

ARMs adjust only at specific intervals, such as once per year, and rates can change only a certain amount at each interval.

They have what are called floors and ceilings.

One of the biggest misconceptions people have about ARMs is that, because the rates are low, they only need to qualify for the initial rate.

This is no longer the case.

For example, if you are looking at a mortgage with an initial rate of 3.5%, but it has a ceiling or lifetime high rate of 9.5%, you will now need to qualify for the payment as if it were 9.5%.

This accomplishes a couple of important things.

First, it takes the guesswork out of wondering whether or not you will be able to handle the mortgage payment if it spikes, based on your current income.

Second, it also protects the lender in the event that the property loses significant value and you are unable to refinance to a lower rate due to equity issues.

If you’ve ever applied for a mortgage, or are planning to do so soon, you should be aware that there are a number of ways lenders and clients connect with one another.

First, lenders reach you by way of channels. There are two basic channels. The first is the retail channel, while the other is the wholesale or mortgage broker channel.

The retail channel is just as it sounds. You may walk into a branch of a bank, fill out an application and the entire mortgage process happens under one roof.

When you go to the closing table, the money you get from the lender, to either give to the seller or pay off your old mortgage company in the case of a refinance, comes from the bank’s own funds.

The broker channel is different.

Mortgage brokers, just as the name implies, broker out loans from their clients to different lenders. The processing of the loan, depending on the arrangement between the broker and the lender, will often be handled at the broker’s office. When it comes time to go to the closing table, though, the money will come directly from the lender, versus the broker.

It is possible that a lender like a big-box bank will operate both channels simultaneously, and those separate channels will compete against one another for your business - either directly to you or through a broker. This is good for you as a consumer, because you have options when you shop for a mortgage.

Remember that house you wanted a couple of years back but couldn’t afford?

Well, with the current housing market having turned in favor of buyers, now might be a very good time to take another look at possibly purchasing that property.

There is a drawback, though.

The other side of the coin is that credit terms have been tightened to prevent another housing market meltdown like the one we went through recently.

Understanding your credit score is the key to taking advantage of today’s situation.

In general, most mortgage lenders pull data from three credit bureaus: TransUnion, Equifax, and Experian.

Each bureau provides a score, and lenders use the average of the three scores to help determine whether they will let you borrow money.

Each bureau uses a similar scoring model.

The two biggest factors that influence the score are recent late payments and debt-to-limit ratios.

Recent Late Payments

If you are late on payments with your existing debt, why in the world would a lender want to step up to the plate and give you more credit?

If a buyer has a legitimate reason or explanation as to how such a situation occurred and why it is unlikely to happen again, it will likely go a long way toward getting a mortgage approved.

Debt-to-Limit Ratios

The debt-to-limit ratio is a comparison of how much you owe compared to how much you have available on a given line of credit.

Too many maxed-out credit cards will give a lender the impression that you are overextended and that you may need to pay down some debt prior to getting more credit. Maxed-out cards also tend to lower your credit score.

The price you pay for a knowledgeable real estate attorney when buying a property could be the best money that you ever spend. There are several reasons for this - one being that they have no interest in the transaction other than to see that you understand what is going on and to see that your best interests are protected.

You might be thinking that in a real estate transaction your real estate agent and loan officer are supposed to be doing this, which is true, but while most of those people do have your best interests in mind, they may come across situations that they have never seen, from a legal perspective, and will seek counsel of a real estate attorney anyway.

Another reason why you should have an attorney, especially from a home financing perspective, is to help you understand the terms of your mortgage, both at the closing table, and what could happen to it down the road.

The vast majority of mortgage professionals are looking out for your interests because that is how they do business and build a relationship with you. However, many people who are in the process of losing their homes today, especially those who bought them in the days of very loose lending guidelines, can look back at the paperwork and see that they got something other than what they thought they were getting. Many of them had no attorneys helping them.

A credible lending professional who has nothing to hide will welcome this party into the transaction.

The Reverse Mortgage (RM) is one solution for homeowners who are looking for a way to access the equity in their homes without taking on more debt.

An RM is also known as a Home Equity Conversion Mortgage (HECM), where the borrower can pull a specific amount of equity out of the property.

No payments are made to the lender until the borrower either passes on or permanently moves out of the property.

Borrowers must be a minimum of 62 years of age to participate, and they are eligible to receive a percentage of the equity in the property. The older borrowers are, the more equity they are eligible to receive.

If there are liens on the property, they are typically rolled into the RM, so it is the only lien on the property.

Other than pulling title on the property, and running a credit report on the borrower or borrowers, there is very little in the way of documentation that the borrower needs to provide at application or later in the process.

Borrowers can receive a lump sum at closing, in monthly payments or as a line of credit to be accessed when needed.

Those interested in getting an RM are required by the Department of Housing and Urban Development to attend a counseling session separate from the mortgage professional. It gives them an opportunity to ask questions.

For more information, borrowers should contact their mortgage professional.