Seven Things Your Agent Should Know About Your Mortgage Approval

Most experienced real-estate agents are aware about all the nitty-gritty’s of the mortgage loan approval process, but there are certain vital details that tend to get overlooked. Eventually, these can result in a delay or denial of the purchase. Some of the aspects that can undergo a change, and can impact your home loan financing are:

  • New regulation

  • Appraisal guidelines

  • Updated disclosures

  • Mortgage rate pricing-premiums

  • Credit score or bad credit rules

  • Rescission deadlines

  • HOA insurance requirements

  • Secondary approval layering

  • Property type

  • Title

  • Property flip rules

  • Others

Seven Important Things

The current-day lending environment is highly volatile and it is crucial for home-buyers to obtain a full mortgage loan approval that very clearly defines all the contingencies related to an individual home buyer’s situation. Ideally, these are the things you should be looking at before you spend time looking for new home with your real estate agent. These are the things your agent should always keep in view while you are being shown new properties, which will help in easy mortgage approval:

  • Property Type- High-Rise, Town House, Condo, Single Family Residence, Shoe House or Dome Home

  • Residence Type- Understanding whether you have to sell your 1st home before buying another
  • Mortgage Rates / Lock-in- Typically, mortgage rates have a 30-day lock-in period. If you are looking for a new mortgage rate, you will have to switch to a new mortgage lender

  • Headline News or Employment- This relates to income security, periods of unemployment and job changes

  • Title or Property Flip- If a property has been bought by an investor and then sold within 30-90 days of the purchase; it’s called a property flip. Some lenders have stringent rules around these kinds of transactions and will take this into consideration in the mortgage loan approval process

  • Homeowner’s Association Insurance- Certain lenders need that Condos & Town House communities have enough insurance & reserves coverage related to specific ratios on the units that are owner-occupied vs. rented ones

  • Appraisal Ordering Procedures- There are frequent changes to appraisal ordering guidelines as regulators implement numerous new consumer-protection laws created in an effort to prevent foreclosure epidemics in the future

Though there are a number of things that your agent will have to look into and keep in view, these 7 points are important to understand. And as a buyer, if you want easy mortgage approval, it becomes all the more important for you to be aware of these things too. Contact ResMac Home Loans for any other mortgage-related information you need.

 

April 1, 2010 by · Leave a Comment

Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Every home buying situation is unique, but there are a number of buyers who qualify for a mortgage loan on another home, while they still reside in their first home. There are a number of reasons why people opt for a 2nd home. Their family might be growing and they feel the need for a bigger house. In some cases, people get a job transfer and have to relocate to a new home. The question here is- are you required to sell before you buy?

Things to Consider

The answer is not a straightforward yes or no as there are a number of factors that come into play. If you are in a strong financial position, you qualify and can afford your present residence as well as the proposed payment on the new home, then you will not have to sell the first home.

Even if you do qualify for a mortgage loan on a second home without having to sell the first, there are some other considerations you will have to take into account. When you plan on maintaining multiple properties, you will also have to factor in all the additional expenses such as:

  • Mortgage payments

  • Higher property taxes

  • Hazard insurance

  • Unexpected repairs

  • Others

Can You Rent Your Current Property?

There are different possibilities in this scenario as well:

If you do not qualify to carry mortgages on both the houses, you might have to rent the first property to offset your mortgage payment. In this scenario, the lender will then generally count only 75% of the total monthly rent that you will receive.

There is another aspect which has to be taken into consideration. Most lenders have a reserve requirement & equity ratio, and this can be a big hurdle in your path. In some cases, if you plan on renting out your existing home, you are required to have a minimum of 25% of equity to offset the payment with the rent that you will receive.

Without that large amount of equity, you’ll need a significant amount of money in the bank and will have to qualify for mortgage payments on both homes. If you do not qualify for both the mortgage payments, you will obviously have to sell the current house before you buy the new one. For more information about how the process works, contact ResMac Home Loans today.

 

April 1, 2010 by · Leave a Comment

What Do Appraisers Look For When Determining A Property’s Value?

Most homeowners are under the impression that the actual value of their property is determined once the appraiser conducts a physical property inspection. The fact is that the appraiser already has quite a fair idea about the value of the property even before they schedule the appointment to look at it.

The bright spot is that you don’t really have to worry about getting the place cleaned up in order to up the value of your property. Though a clean house will definitely make it simpler for the appraiser to clearly notice all the improvements, any “clutter” that you have around the house is not really going to affect the appraisal unless it is damaging to the structure itself.

Factors that Matter

The important things that will be addressed in the appraisal are:

  • Site- The location, topography, view, external factors, zoning, landscaping features, lot size and highest & best use

  • Design- Quality of the construction and finish work, any fixed appliances/defining features

  • Condition- The age of the structure, renovations, deterioration, additional features and upgrades

  • Health & Safety: Code compliance and structural integrity

  • Size- The Above-grade & below-grade improvements

  • Neighborhood- Does the property conform to the neighborhood?

  • Parking: Carports, garages, shops etc

  • Functional Utility: Is your property functional in terms of style & use?

Things to Focus On

The appraisers are going to look at things like the condition, overall design, upgrades, finish, functional utility, defining features, number of rooms, square footage and health & safety items. Ensure that all the smoke and carbon monoxide detectors are in working order.

This is important because 50% of weightage in the appraisal is given to the security factors in the property. The appraisal should be carried out by a licensed and qualified appraiser who is familiar with the neighborhood & the type of home that you are buying/selling/refinancing.

Note- For conventional loans that have originated on/after 1 May 2009, neither the homeowner nor the lender can decide which appraiser will inspect the property. The person will be chosen at random from a common pool of licensed & qualified appraisers. For latest updates and information, contact ResMac Home Loans today.

 

March 29, 2010 by · Leave a Comment

Where Does My Earnest Money Go?

Many homeowners who want to buy property offer a certain amount of earnest money or hand money to the property sellers. Typically, earnest money is the deposit that a buyer pays to the seller so that the latter will hold the property he/she intends to buy. Depending on which state the deal is taking place in, the earnest money deposit check might be kept in escrow accounts that are non-interest-bearing. They will be held here till the related deals reach closure.

Generally, the earnest money check is applied to down payments for the property sale & closing costs requirements. A real estate earnest money deposit check & the manner in which it is applied is based on the purchase agreements that the deposit supports. Generally, real-estate purchase agreements have all the details noting what will happen to the earnest money deposit that the buyer has made, under different scenarios.

Earnest Money Amounts

In very hot markets, most real estate agents recommend that the earnest money deposits should be for 2-3% of the actual offer that is being made. In slower markets, the earnest money deposits that sellers ask can be significantly lower. Deposits of $10,000 and above come with bank & lender reporting requirements & are not really advisable. It must be understood that when you tie up a large amount of money in this manner, you will not be earning any interest on it.

Earnest Money Refunds

At times, property sellers & buyers make incorrect assumptions about these deposits. Some property sellers also mistakenly believe that if a sale fails, it automatically gives them a right to the earnest money check. Similarly, some buyers presume that even if the deal fails, they will get back all their earnest money. The fact is that in most real estate deals that fail, earnest money deposits that the buyers have made; end up with them, but the cancellation fees get deducted from the amount. Most property purchase agreements make note of when this money is refunded & to whom.

The Considerations

It goes without saying that when a real estate transaction fails, both the buyer and seller end up hotly disputing the earnest money deposits. Real estate experts always recommend that a property seller should not be permitted to hold the buyers’ earnest money deposit. The title company, real estate broker or settlement/escrow agent involved in the property sale holds these earnest money deposits. For more details about earnest money and mortgages, contact ResMac Home Loans.

 

March 28, 2010 by · Leave a Comment

Renting vs Buying A Home

When you are choosing between buying a home and renting, there are a number of things you will have to take into consideration. This debate is a never-ending one and some people will swear that buying a house makes more sense from the perspective of an investment, while there are some who will say that renting is the way to go. There are definitely some tax advantages to owning real estate and you can potentially earn equity/ pay off the mortgage note after a certain number of years. Let’s take a look at the benefits of both:

Benefits of Renting:

  • The costs of acquisition are lower- Unless you are able to qualify for a zero down mortgage loan & the closing costs are paid by the seller, typically, you will invest around 3.5-7% of the purchase-price for the down payment & closing costs if you have an FHA mortgage. In case of a conventional loan that figure will be in the 13%- 23% range, in comparison to the cost of around 1 to 3 months of a rent payment.

  • Lower Qualifying Standards- FHA & some government-insured mortgage programs have much more flexible qualifying guidelines in comparison to most conventional home loan programs. But when it comes to paperwork, property management companies and most landlords do not ask for much

  • Freedom To Move – When you choose to rent, it’s also much easier to move once the contract expires. If you are new to a community, or have a job that requires you to relocate frequently, renting is a much better option

  • Lower Maintenance & Cost – When you live in a rented place the property management company will fix anything that breaks etc within 48-hours or less. You also don’t have to pay any property taxes, carry homeowners insurance or worry about rising interest rates

Benefits of Owning:

  • Dependent on HOA and county rules, you can have pets without paying hefty deposits

  • Choose the color of your walls

  • Have peace of mind security

  • Enjoy certain tax benefits

  • Have stability

  • Property will appreciate

In addition to this, your net worth increases and there is potential for earned equity. And so, both these options have certain advantages. The choice you make will be dependent on your specific situation. Contact ResMac Home Loans for more detailed information.

 

March 28, 2010 by · Leave a Comment

What Does Title Insurance Protect Me From?

Whenever you buy a home/property, you expect to also enjoy some benefits from that ownership. For instance, you expect to be able to actually occupy & use the property as you like, and to be free from debts/obligations that are not created/agreed to by you. You also want to be able to pledge or freely sell your property as a security for any loan, if required. A title insurance is specifically-designed to cover all these rights that you bargain for.

How it Works

When title insurance is included in the purchase of a property, your title insurer becomes accountable for all the legal expenses incurred to defend the property title, in the event that someone challenges it. There are a number of situations in which you might require title insurance and the company that is responsible for it then takes on all the legal expenses to effectively defend that property. The condition being that you must own an interest in that property. In the event that the defense is unsuccessful, you are reimbursed for any value-loss of that property.

What is Covered?

Title insurance is also referred to as an Owner’s Policy. Generally, it is issued in the actual amount of the real-estate purchase. You pay a one-time fee at the time of closing & it is valid for the entire time that you/your heirs have an interest in that property. Only this kind of an owner’s policy provides full protection to the buyer in case any problem arises in the title. Title Insurance generally covers:

  • Forged deeds, undisclosed heirs, wills, mortgages, releases & other documents

  • Deeds by minors

  • False imprisonment of that land owner

  • Documents that are executed by any revokes/expired power of attorney

  • Fraud

  • Probate matters

  • Deeds & wills by a person who is of unsound mind

  • Rights of any divorced parties

  • Conveyances by any undisclosed divorced spouses

  • Adverse possession

  • Forfeitures of the property on account of criminal acts

  • Defective acknowledgments because of improper/expired notarization

  • Tax record errors

  • Mistakes & omissions that result in improper abstracting

Though these are the general things that are covered, certain coverage might not be available in a specific area/transaction on account of regulatory/legal/underwriting considerations. For more information about title insurance and how it works, speak with experts at ResMac Home Loans.

 

March 28, 2010 by · Leave a Comment

Understanding the FHA Mortgage Insurance Premium (MIP)

* Disclaimer – all information in this article is accurate as of the date this article was written *

The FHA Mortgage Insurance Premium is an important part of every FHA loan.

There are actually two types of Mortgage Insurance Premiums associated with FHA loans:

1.  Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding

2.  Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance

Conventional loans that are higher than 80% Loan-to-Value also require mortgage insurance, but at a relatively higher rate than FHA Mortgage Insurance Premiums.

Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition.

Without FHA around to insure the lender against a loss if a default occurs, high LTV loan programs such as FHA would not exist.

Calculating FHA Mortgage Insurance Premiums:

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP varies based on the term of the loan and Loan-to-Value.

For most FHA loans, the UFMIP is equal to 2.25%  of the Base FHA Loan amount (effective April 5, 2010).

For Example:

>> If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500

>> The UFMIP of 2.25% is multiplied by $96,500, equaling $2,171

>> This amount is added to the base loan, for a total FHA loan of $98,671

Monthly Mortgage Insurance (MMI):

  • Equal to .55% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95% and the term is greater than 15 years
  • Equal to .50% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years
  • Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is between 80% – 90%, and the term is greater than 15 years
  • No MMI when the loan to value is less than 90% on a 15 year term

The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.

For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments for at least 5 years.

For mortgages with terms 15 years or less and a Loan -to-Value loan to value ratios 90% or greater, the MMI will be canceled when the loan to value reaches 78%.  *There is not a 5 year requirement like there is for longer term loans.

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Related Articles – Mortgage Approval Process:

March 28, 2010 by · Leave a Comment

First-Time Home Buyer Credit Checklist

For a first-time home buyer, the entire process of acquiring a new mortgage can be quite overwhelming. There are a hundred details to keep in mind, various guidelines and some unavoidable hurdles that you will encounter. Since there are so many considerations, take a look at these buying first home tips and list of Do’s & Don’ts you can follow right through the mortgage approval process and it might help in easing smoothening the path a bit:

 

DO:

  • Continue working at the job you are at

  • Keep all your accounts updated

  • Ensure that you make all your house/rent payments on schedule

  • Ensure that your insurance payments are current

  • Maintain a steady credit – bad credit negatively impacts a loan approval

  • Call Res Mac Home Loans if you need any questions answered

DON’T:

  • Make any major purchases such as a boat, car, home theatre, jet ski etc

  • Open any new credit cards

  • Apply for additional credit

  • Transfer balances from 1 bank account to any other

  • Take out loans for furniture

  • Pay off any collections or charge-off accounts

  • Close any of your credit cards

  • Max-out on credit cards

  • Consolidate your credit debt

Maintain Your Credit- worthiness

One of the most important buying first home tips is that when you are in the midst of applying for a new mortgage, your financial status should be stable till the point your loan gets funded & recorded. Any bad credit/ the inability to make the required down payment can put a damper on your home buying plans. Looking at your credit-worthiness and ensuring that it stays that way is the best way to eliminate some of the uncertainty surrounding the approval of your loan.

There could be instances where even certain minor changes can have a negative impact on your credit rating which could lead to your loan being denied. It’s also important that you get the smallest of doubts about the loan process cleared with your loan officer and maintain a simple buying first home guide. This will go a long way in making your loan approval successful. Speak with experts at ResMac Home Loans for any other information you need.

 

March 28, 2010 by · Leave a Comment

Should I Refinance or Get a HELOC For Home Improvements?

For homeowners who are interested in making certain property improvements without dipping into their savings/investment accounts, you can either opt for a (HELOC) – Home Equity Line of Credit or a refinance.

Things to Consider

When you are deciding which option to choose, you should know what the differences are:

  • Timeline- This is one of the primary factors that has to be taken into account. Even before you look at the interest rates, you will have to consider the timeline or the actual duration that you will be keeping the home. This will decide exactly how many months or years you will need to pay-back the money you have borrowed.

    Are you planning on some home improvements in order to get top dollar on the sale of the house or are you looking to add some extensions to make your home more comfortable and spacious? This is an important question you have to ask yourself as the 2 types of loans will provide you the same result – they will give you the funds you need, but they serve very different purposes.

A HELOC is ideal for short-term goals & has adjustable rates that might change on a monthly basis and you might end up paying a very high interest in one month and a much lower one in another.

  • Costs / Fees- You will also have to know what the closing costs for each loan will be. This is also related to the timeline considerations. A HELOC will generally cost much less than a full refinance.

  • Interest Rate- This is one of the first things that borrowers will look at. Everyone looks for the lowest interest rate possible. But when it comes to home improvements, the interest rate is not always as important as understanding what the risk level of that particular loan is. If you need a loan for the short term- a HELOC will be more suitable even if the interest rate is higher.

Your choice between a HELOC and a full refinance depends of the level of risk you are willing to take over the time frame that you require the money. For more information and to understand whether a HELOC or a full refinance will be suitable for you, contact ResMac Home Loans.

March 28, 2010 by · Leave a Comment

Calculating The Net Benefit Of A Refinance Transaction

Calculating the net benefit of refinancing can be a challenging task if you do not understand what to calculate. We are going to focus on the net benefits of refinancing from the standpoint of lowering your interest rate.

Although there are several reasons to refinance, lowering your mortgage rate to save on interest payments over the term of the loan is the most popular.

Calculating the actual savings can be a tricky chore unless you know the difference between cash flow savings and interest savings. If your refinance objective is to only save on the interest by lowering your rate, then the interest savings should be done with the calculations below.

Calculating Interest Savings:

(Loan Amount x Interest Rate) / Months in year = Interest paid per month

($200,000 x 6% or .06) / 12 = $1,000.00

*Remember to do the calculation in the parentheses first*

We now know that you are paying $1,000.00 per month in interest. You should take the new interest rate you are getting with your refinance and calculate what your new interest payment will be.

($200,000 x 5% or .05) / 12 = $833.34

Now we need to find out the difference between the two interest rates.

Current Interest Payment – Proposed Interest Payment = Interest Savings

$1,000.00 – $833.34 = $166.66

Now you have figured out that by dropping your interest rate 1% on $200,000 you will be saving $166.66 per month or about $2,000 per year.

Awesome!

Anyone would want to save $2,000 per year, where do I sign… right? Not so fast, you’ll want to calculate the break-even point to find out how you will benefit after your closing costs.

Net Benefit Formula (Break-Even):

(Closing Costs – Escrows) / Interest Savings = Month of Break-Even

($6,000 – $1,000) / $166.66 = 30 Months

In other words, it will take 30 months for you to recoup the cost of your refinance. If you plan to keep your mortgage for at least 30 months then you might want to consider this deal.

Okay, now we can calculate your net benefit for refinancing with one more calculation.

(Monthly Savings * Months you plan to keep mortgage) – (Closing Costs –Escrows) = Net Savings

($166.66 * 120 months) – ($6,000 – $1,000) = $14,999.20

If you kept the mortgage for 120 months (10 years) you would save $15,000.

Okay, now you can find out where to sign.

Calculating the net benefits of a refinance is crucial in determining if it is strategic for you to refinance. Keep in mind that each mortgage is slightly different and you may need to adjust calculations accordingly.

……

Frequently Asked Questions:

Q:  I heard that I should only refinance if I drop 1% on my mortgage is that true?

Some people say ½% , 1% to never. Every mortgage is different.

For Example: A no cost loan can have a 1 month break-even point with only a .25% drop in interest rate. Now that you know how to calculate your net benefit, you are able to figure out what may be best for your situation.

Q:  Why can’t I just compare my current payment to the proposed payment and figure out my net benefit?

You could just compare just the two payments if you wanted to find out your cash flow savings, but the current and proposed loans may have two different amortizations.

Let’s assume you currently have a 15 year mortgage and you’re comparing it to a 30 year mortgage. If both loans have the same interest rate and loan amount but the amortization is different, your interest savings per month would be $0. However, you are going to show a cash flow savings with the 30 year mortgage because of the longer amortization.

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Related Article – Refinance Process:

March 28, 2010 by · Leave a Comment