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Mortgages 101
A mortgage is loan offered by a lender for the purpose of buying property. The word comes from the old French word ‘mort’, which means deed, and ‘gage’, the old English word for pledge. A lender provides the money for your home purchase after you sign several documents stating that you will pay the lender back, plus a hefty amount of interest. If you fail to pay, the lender gets your home in exchange for the amount you still owe.
There are several types of mortgages, but most fit into one of two categories. Adjustable rate mortgages start off with a low interest rate; this rate might stay the same for the first six months to a year or two, depending on the terms of your mortgage. After that, you’ll be paying interest rates based on whatever the current market rate is. It might start out low, at 4% or even less in some cases, but can go up to three or four times that amount during the course of the loan. It depends entirely on what the current interest rates are at any point and time.
With a fixed rate mortgage, the rate you sign up for is the rate you have throughout the length of your loan. If you sign up now at 5.5%, you will be paying that same rate 20 years from now, as long as you don’t refinance your loan. If you are staying in your home for longer than five years, a fixed rate mortgage is often your best option.
Most lenders want 20% of the home’s purchase price as a down payment, not counting fees and closing costs. If you cannot provide that amount, you will have to pay private mortgage insurances (PMI) until you have paid that 20%. If you have good credit, you may qualify for an FHA loan with only 3.5% down. Buyers with poor credit will be asked to pay 10%.
When you refinance a loan, you are taking out a second mortgage to pay back the first. Refinancing a mortgage allows you access to your equity; it also gives you a chance to get a better interest rate. If interest rates have dropped significantly since you took on your mortgage, or if your credit rating has greatly improved, refinancing might be a good way for you to lower your monthly payments.
When you first take out a mortgage, most of your monthly payments are paying off interest. As you continue to make payments, the amount of interest paid drops down, and by the end of your loan, you are paying almost entirely on the home itself, known as the principle. This is known as amortization. It’s frustrating to see the amount you owe on the home barely decreasing as you make your first several payments, but you will eventually pick up speed (as principle payments go up and interest payments go down) and start seeing a sizable dent in the amount you owe.
Mortgages can be very confusing, especially for a first time home owner. Make sure you are working with a lender that will happily answer all of your questions, in a way you can understand, and don’t hesitate to ask. It’s always better to ask too many questions than to walk away confused and unsure of what you’re agreeing to when you accept a mortgage.
Paperwork to Have Before Buying a Home
If you are considering buying a home then you know, there is much to think about before making such an important decision. You have to consider location, cost, schools, the maintenance that goes into a home, and much more. All of these things are very important before buying a home, but some other important things like paperwork may be even more important when buying a home. If you do not have proper paperwork then you can lose the deal and the home. Here are some tips on the proper paperwork needed to buy a home to help you get started.
Ask your Syracuse real estate agent for advice
As a real estate agent, it is there job to know what kinds of paperwork are needed to buy a home. They are a great resource in helping with the whole home buying process and making sure you have the proper paperwork needed to buy the home of your dreams.
Current Pay Stubs
It is important for sellers to know that you have a steady income and can afford to purchase the home. This is why you should have at least your last two pay stubs with you before buying a house. It is important however to make copies of these and do not give out the originals.
W2 Documents
This is your wage and tax return for the last year, given to you by your employer. It is important that lenders get the last two years of W2’s from each home buyer to help you get the home loan you may need to make the purchase.
Federal Tax Returns
Bring your tax returns for the last year or the last two years of tax returns if you have not yet filed your taxes. It is important to make copies of these and not give out the originals. It is a good idea to include all schedules and make sure they have your signature.
Bank Statements
It is important to have copies of your bank statements ready for a lender. They may want two or three months worth of bank statements, so make sure you either ask your agent or lender what they will require from you. It is a good idea to include every page of the bank statements when giving them to the lender.
Buying a home means that there is much to consider and do before you can actually own the home. Many people do not think about the proper paperwork they will need until the last minute but it is very important. Having the paperwork you need, will help ensure that you can buy and enjoy the home you want far into the future.
A Guide to Reverse Mortgages
If you’re a senior citizen, you are probably aware that the money you had saved for retirement isn’t stretching as far as you thought it would. If your health, or the health of your spouse, has begun to fail, you may be faced with the tough choice of whether or not to move into an assisted living community or trying to afford staying in your own home while paying for additional in-home care. Staying in your own home is expensive, and you might need an additional stream of income to make it work.
This is where the reverse mortgage comes in. After years of paying on your mortgage, you have build up equity. You might even have your home entirely paid off. You can take this equity and trade it in for extra money for your living expenses.
The first step is to contact your lender, who will determine what your home is worth, and how much money you qualify for. You then have a choice; monthly payments, a line of credit, or a lump sum payment. This is money you will receive without needing to pay it back on a monthly basis. The payments (if that is what you have chosen) will continue until you move out of the home.
At that point, however, all the money you have received from the bank will come due, plus interest. If you have sold your home, the money would come from the sale, and anything left over would go to you. If you stay in the home until your death, the amount you have borrowed from the bank will be due before the home can be transferred into someone else’s possession. Again, this amount is covered by the sale of the home. The remaining money will be divided among your heirs, according to your will.
If you need extra money for expenses, a reverse mortgage might be a great solution to your problem. However, if you have family that you plan to leave the home to, a reverse mortgage can make it very costly for this to happen. Your family would have to repurchase the home from the bank, for whatever the amount due is.
If you are thinking about getting a reverse mortgage, you will want to discuss everything with your family, so they know what to expect after you pass on. You will also need to go through financial counseling (provided by the US Department of Housing and Urban Development), so that you are better able to understand how a reverse mortgage works, as well as any details of this arrangement you need to be aware of.
Preapproval for a Mortgage
Before you buy your first home, your Syracuse real estate agent will probably recommend that you take the time to get preapproved for a mortgage. Taking the time to narrow down lenders and get a definite highest amount that you can spend on a home can save you a lot of time and frustration down the road.
Once you know what you can spend on a home, you no longer have to waste time on homes you can’t afford. Instead of looking out homes outside of your price range, you can concentrate on the ones will be able to buy. This will save you a lot of energy and probably even speed up your search for a home. It also allows you to worry about something besides the price of a home when you’re looking at it, freeing you up to pay more attention to the finer points of the homes you look at.
Once you have found the perfect home, you can make an offer, confident that you have the financing to back it. Sellers will appreciate knowing that you have already been approved for a mortgage for the home; they won’t be put into the situation of trying to close the property only to have financing fall through at the last minute. If there are multiple offers, this could give your offer the edge it needs over the others. This will work in your favor even more if the sellers are hoping to close as soon as possible. Instead of closing after a month or more, it may only take a couple of weeks. Being preapproved for a mortgage also gives you a great bargaining position. Because sellers know that your financing is a sure thing, they may be more willing to work with you during the negotiation process.
It is important to know that being preapproved is considerably different than being prequalified. When you are preapproved, you’ve essentially gone through the entire mortgage approval process. The preapproval letter you’re given states that you will be getting a mortgage for up to a certain amount. This is usually only good for a limited amount of time, depending on the lender, but you should have plenty of time in which to find a home.
A prequalification letter is based on a much simpler process. The lender looks at briefly at your current financial status, and lets you know how much of a loan you could afford. This is not the same as what you will actually be getting for a mortgage, and it is non-binding. There is no promise implied in any of the letter. The loan amount, interest rate and terms will all be determined when you apply for the actual loan.
Guidelines for Short Sales Set by Treasury
Last Monday the U.S. Treasury set guidelines to speed up short sales of homes and make other loan modifications to try to keep foreclosures from rising. The Home Affordable Foreclosure Alternatives program provides financial incentives for making short sales simpler. This program involves a lender to agreeing to pay the sale price of a home and pay off its mortgage even when the price is short of the price owned by the homebuyer.
This program also includes guidelines such as setting limits on the amount of time it takes a bank to accept an offer, helping borrowers with their debt and limiting claims from lenders. Even though this Home Affordable Foreclosure Alternatives program has good intentions to help, it has had limited success in doing so. Due to this limited success on Monday more pressure was put on mortgage companies to make the trial of 650,000 modifications permanent.
Short sales are a big favorite of real estate agents and other community group over foreclosure properties because they help with the borrower’s credit rating and leave the property in better condition than when the homeowner got evicted. However, agents have complained about short sales because of the lenders not following through and whether or not they will hold the buyer responsible for the debt in the future.
These new requirements and guidelines include mortgage servicers having ten days to approve or disapprove the request for a short sale and it also requires the lender to release the borrower from all debt. It also does not allow mortgage companies to reduce real estate agent’s commissions on a short sale.
This new program seems to have all the best intentions and if it is able to succeed further and in more areas, it could be very good news for homebuyers and also real estate agents. It may help the housing market as well because more people will be able to afford a home. So, home buyers and agents should look out for updates on this and other future programs to benefit homebuyers.
References and for more information visit:
http://news.yahoo.com/s/nm/20091130/bs_nm/us_treasury_shortsales
Is Paying off Your Mortgage A Good Idea?
The recent recession has taught most Americans one thing: there is no such thing as a sure thing when it comes to financial security.
This has also opened up a new awareness of credit and debt. To avoid falling behind in the case of a job loss, it pays to not have any major payments to make every month. The less you have to pay to others, the more of a cushion you have in case things go wrong. But should that mean rushing to pay off your home?
Probably not.
It’s really a numbers game. If you have an extra $200 dollars a month to put towards debt, you should be concentrating on the debt with the highest interest rate. If you have a credit card charging you 15%, and a mortgage charging you 8%, pay off the credit card first. Work your way down to the lower interest rates when trying to pay off debt.
Don’t assume that you should tackle the big ticket purchases (your home) first. Once the items with the highest interest rates are taken care of, go for the smallest balances. These bills are usually the quickest to pay off, and getting them taken care of can provide a sense of accomplishment. They can also keep you motivated on paying off futher debts.
After that has been taken care of, start putting together a savings account, if you don’t already have one. Having a cushion to cover you in case of a sudden reduction in income, due to illness or job loss, will do more good than being ahead on your mortgage. Ideally, you want to aim for 3 months worth of expenses, at the very least.
Instead of paying off your mortgage at this time, start putting money into investments. Stocks and bonds give you more for your money than paying off your mortgage would. If you can put $200 a month into an investment opportunity that gives out 8% interest, your money is working harder for you than if you were to pay off a mortgage with 7% interest. You should also be putting money into an IRA for retirement.
That being said, there is a pleasantly secure feeling knowing that you own your home outright, and even if a financial crisis happens down the road, there is no way to lose your home. If your going to pay off your loan, remember to check first for prepayment penalties, which can equal around $6,000 depending on your loan.
Five Ways to Encourage Foreclosure
No one wants to buy a home, and then lose it to foreclosure. It happens, though, even if you do everything right when buying a home.
There are some things that buyers do, however, that just encourage a foreclosure. Here’s what not to do when buying if you want to keep your home.
- Attend a “no money down” seminar. Most banks won’t even discuss a no money down loan with you anymore, but there is almost always one bank looking to make a profit. In exchange for a 15% interest rate, with the entirety of the loan due within five years, you might be able to get a no money down mortgage. But what happens in five years when you’re still living in the home, and can’t make the balloon payment? You’re going to lose the home.
- Putting your entire savings into buying a home. A down payment and closing costs are expensive. So is hiring a moving truck and getting any extra items you needed for your new home. That’s not an excuse to go overboard and clear out your entire savings account. Don’t assume that you can just start making up the difference again in your next paycheck, or that you should be able to turn to your credit cards for emergencies. Homes are expensive, and you need to have the money set aside for emergencies or to cover a mortgage payment or two if your income is suddenly reduced.
- Don’t take the good advice offered to you buy your real estate agent, mortgage broker, and other professionals you will be working with when buying a home. Don’t assume that you know everything, just because you’ve read a couple books on real estate. These people are professionals, and they want you to move into a home that you like, and one that you can afford. They aren’t giving you advice just to close the sale and collect their fees.
- Choose the most expensive home. Just because you’ve been prequalified for a $300,000 home, does not mean that you can easily afford the payments for that home. Find out how much you can reasonably afford (plan on 33% of your take-home income), and keep to that amount. Overextending yourself will only get you into a home that you can’t actually afford.
- Significantly changing your financial picture before close. Yes, it would be nice to have a new car sitting in your new driveway, or to buy the furniture set you’ve been eyeing as a housewarming gift to yourself. Don’t do it. Your credit score is affected by your available amount of credit. If you use that credit to buy any extras, that can change what the bank can offer you for a loan. It also affects what credit you have available in the case of a financial emergency. Don’t lose the home of your dreams because you just had to have that new dinette set.
No one wants to lose their home. Unfortunately, sometimes things happen beyond your control. Some things, however, you can control. Avoiding these common buyer traps, though, and you’ll be in better shape to keep your finances in good shape, and to avoid foreclosure.
Graduated Payment Mortgages
If you are a first time buyer or just a buying that only has a certain amount of income right now, finding financing to help you purchase that new home may be a challenge. You do have options though and one of them is a graduated payment mortgage. This type of mortgage has a lower payment in the beginning to help you get started. This may be a good option, especially if this is your first home. Here are some tips about graduated payment mortgages to help you out. This way you can have less to worry about and just enjoy your new home and future.
Ask your Syracuse real estate agent for advice
Real estate agents know that financing a home plays a big role in whether or not you can afford to purchase a home. They can help you go over your options or help you find a lender that can help you out. They are a great first resource.
Starts out with lower payments
Graduated payment mortgages start out with lower payments that increase over the next few years. This allows you to have more money while you are looking for a better job or waiting on a promotion.
Allows you to save for later
This loan allows you to save money for later for home repairs or remodeling or just to budget more for those later increased payments
Good for starter homes
If you only plan to stay in the home for a few years and then move, this is the loan for you, because it has those lower payments in the beginning and may not increase until your income does, so it is good for first homes or starter homes.
Has a fixed rate and maturity
This loan has a fixed interest rate and maturity so that is good since the payments may increase over the years. Just make sure you budget well for the increases that will happen.
If you are just starting out and this is your first home, there is so much to think about and consider. Following these tips and advice about graduated payment mortgages will at least help get you started and give you one less thing to worry about. This way you can focus more on your future and your new home.
NAR: Housing Tax Credit Is Working
Consumers are just starting to see the first glimmers of a bright future for the housing market and the overall economy. It’s up to Congress to make that glimmer a reality by building on the momentum created by the $8,000 home buyer tax credit. That’s what National Association of REALTORS® First Vice President Ron Phipps, told the Senate Banking, Housing and Urban Affairs Committee Tuesday during a hearing on “The State of the Nation’s Housing Market.”
One of the key ways to do that is for Congress to extend the home buyer tax credit, “The data on the present home buyer tax credit show that the credit has had its intended impact—sales have jumped in recent months to a projected 5.1 million for the year and housing inventory has been trimmed, thus stabilizing home prices noticeably,” Phipps said. He also pointed out that each home sale generates approximately $63,000 in additional economic activity, providing a tremendous economic boost to the national economy.
“But it is a fragile recovery, and now is the time to build on home sales momentum by extending the tax credit throughout 2010 and expanding it to all home buyers,” he said. The present credit, due to expire on November 30, cannot help new purchasers now who write a contract today—they won’t be able to close before the deadline, and will lose out on the credit, said Phipps. “Without congressional action now, the market and our national economy may freeze again—possibly as soon as this month.”
Make Loan Limits Permanent
Phipps called upon Congress to take action on a number of additional fronts to strengthen the recovery. First, make the FHA and Fannie Mae/Freddie Mac loan limits permanent; these are set to expire on December 31. “Maintaining current loan limits would ensure that families have access to low-cost financing to purchase homes and can refinance problematic loans into safer, more affordable mortgages,” Phipps said.
Secondary Mortgage Markets
In addition, Congress should continue the federal government’s involvement in the secondary mortgage market. “Without the government’s involvement in the secondary mortgage market, market participants will have no incentive to reach out to lower-income, creditworthy consumers. We must ensure that the housing market works in all markets and at all times, and that mortgage capital is provided to all potential and qualified purchasers in a way that promotes sustainable homeownership,” said Phipps.
—NAR
Fewer Short Sales Come Up Short
While obstacles to short sales remain, real estate practitioners say the process is becoming more efficient. Rather than waiting six months or more to push through a deal, agents say banks are more willing to negotiate prices up front.
“My gut feeling is that short sales seem to be the preferred avenue for distressed property now,” says Cindi Hagley of San Ramon, Calif.-based Windermere Welcome Home. “It’s cheaper for [banks] to do a short sale than go all the way to foreclosure.”
The short-sale process has become more manageable now that banks are willing to pre-approve prices, reach out to underwater borrowers who have listed their homes for sale, implement Web-based systems that manage the short sale process, and add staff dedicated to short sales.
Additionally, the U.S. Treasury is set to implement a streamlined short sales framework and offer incentive payments of $1,500 to home owners and $1,000 to both loan servicers and second-lien holders.
Borrowers also prefer short sales because Fannie Mae requires them to wait only two years to own another home or even less than that if they were not delinquent. By contrast, those who lost their homes to foreclosure have to wait five years.
Source: San Francisco Chronicle, Carolyn Said (10/21/09)