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Subordination agreements apply to mortgage customers who have more than one mortgage on a property.

For example, if you had a mortgage on your home, then decided to get either a home equity loan or a line of credit, the new mortgage would be subordinated to the first mortgage.

In mortgage terminology, the subordination agreement would put the original mortgage in what is called first position. This means if the owner of the property defaults and the property must be sold, the lender in first position would be paid back first. The lender of the second mortgage would be paid back second, if the property sale generates enough funds.

This is why the mortgage rate on a second mortgage is often higher than the rate on the first. The second lender is taking a risk that there might not be enough funds available to pay back the loan in a default situation.

To take this a step further, if a homeowner has two mortgages and wants to refinance just the first mortgage, the homeowner would have to get a new subordination agreement signed by the original second lender before doing so.

This is to keep the second mortgage in second position. Otherwise, the once-in-second-position mortgage would move to first position, and no first mortgage lender would ever allow themselves to become subordinated under a second mortgage.

If you have additional questions about this agreement or the process for obtaining a second mortgage, contact your mortgage professional for details.

It’s a good rule of thumb to check your credit report regularly, even if you’re not currently applying for a mortgage or any other type of credit.

Why? If the report contains incorrect information, it’s better to know sooner than later, especially if you do plan to apply for credit at some point. This will give you time to correct the error before it affects a transaction.

If you discover a mistake, you can approach correcting it in one of two ways.

The first and most basic approach is to contact, in writing, the credit bureau that reported the information you believe to be incorrect. The three primary credit bureaus are Experian, Equifax, and TransUnion.

Send each of these reporting bureaus a certified letter, providing as much detail as you can, including account numbers as they appear on the credit report, all relevant dates, and why you think that the information is incorrect. There are online resources to assist with drafting this letter.

The bureaus will then go to the agency that provided the information to get details of what happened. If that agency is unable to provide documentation that the debt is legitimate, it then must come off the report.

Keep in mind that the credit bureaus are not required to remove legitimate negative data from a credit report.

The second option is to go to a credit repair agency, which will do some of this work for you. However, keep in mind that these agencies charge a fee. They may also take longer to get back to you than if you did it yourself, since they will be servicing multiple clients who each demand part of their time.

If you decide to go this route, check out whomever you want to use. As with any other type of service you are shopping for, check the company’s status with the Better Business Bureau.

Additionally, your mortgage professional may have referral partners in the credit repair business to whom they can refer you. Contact this expert for more details.

You know the purchase price of the property, but what other costs might be required in order to make that home your own?

If you plan to finance your purchase, you can expect the following costs during the transaction or at the closing table.

Lender Fees. You pay these fees directly to your lender to process your loan. They include origination fees and processing fees. If you are taking out an FHA loan, you also have to pay an upfront mortgage insurance premium. Though this loan is financeable, you also have the option of paying out of pocket at closing.

Third-Party Fees. These fees are paid directly to people and organizations outside of the mortgage company who perform the necessary tasks to close your loan. These include appraisers, surveyors, and title companies.

Attorney fees are another example of common third-party fees. Some states require that attorneys be present and review documents at closing. Even if this isn’t a requirement in your state, it’s a good idea to hire a real estate attorney when purchasing a home.

The same holds true for a home inspection. While you aren’t required to get one, it’s always a good idea to do so. In most real estate contracts, you will be given a window of opportunity to have an inspection completed. Take this opportunity. Paying for this, along with having an attorney on your home-buying team, could well be the smartest money you spend in the transaction.

Reserves. Your lender may require you to put money into what is called an “escrow account.” This account is funded both at closing and each month as part of your mortgage payment. Your mortgage servicer (which may also be your lender) will pay out recurring expenses such as property taxes and homeowner’s insurance from this account when they become due. This is one way that the lender protects itself from losses.

To get an idea of exact costs in your area, or for a specific price range, contact your mortgage professional.

Talking to a mortgage professional before you start looking for a home, even if you are just thinking about looking for a home, is a good idea. Why?

Your best strategy for going into the home purchase process is to get yourself in a ready-to-buy position. This is especially true as interest rates continue to rise.

You may have checked your credit score and discovered that it is great, but there is still more to the story, such as income and assets. It’s important to be on top of all aspects of your credit.

For example, you may be timely in making all the payments on your debt each month, but your lender may recommend that you pay down or pay off some of the debt to improve your debt ratios. This may take time, and the sooner you know what needs to be done, the sooner you’ll be able to start taking care of it.

This process is also important for setting your search parameters. The last thing you want to do during the home purchase process is guess what you think you can afford and get your hopes up on a property that may be a little (or a lot) out of reach.

Another variable to consider is your real estate agent. If you plan to work with one, he or she will want to see some type of pre-qualification letter. This lets the agent know you have the means to purchase a home and in what price range he or she should help you look.

Are you ready to start home shopping?

To get started on this preapproval process, contact your mortgage professional.

A USDA loan, also known as a Rural Housing Loan, is a mortgage that is guaranteed by the United States Department of Agriculture (USDA).

It is primarily used for the purchase of homes in less densely populated areas, but it may also be used in some suburban areas. USDA guidelines define specific areas where the agency will lend money.

The process of obtaining a USDA loan is similar to what you might expect with a Federal Housing Administration (FHA) loan. USDA mortgages allow you to obtain a true zero percent down payment loan, whereas FHA requires a minimum 3.5 percent down payment. The only other traditional zero percent down payment loan that exists right now is the VA loan.

As with the FHA, the USDA requires mortgage insurance. This is to help offset some of the costs the department incurs for loans that are not paid back.

There are two components to this insurance. There is a one-time, upfront fee that is 1.0 percent of the loan amount. This fee can be financed.

The other portion is a monthly mortgage insurance premium charged at a rate of 0.35 percent of the loan balance per year. On a $150,000 loan, this would be roughly $44 per month, but this will decrease over time as the loan balance depletes.

Keep in mind that zero percent down doesn’t necessarily mean $0 out of pocket. Unless they are covered by a seller credit or gift, closing costs still need to be paid at closing.

As far as income, your eligibility is determined by how much you make in relation to the median income of the area in which you are buying. Currently, you must make no more than 115 percent of that median income to qualify for USDA financing.

As with any type of financing, your credit profile is also a factor in qualifying. For a USDA mortgage, if your score is under 640, you may be asked to provide extra documentation.

To determine whether a USDA loan might be a good option for you, contact your mortgage professional.

A prepayment penalty is a fee that is imposed if a mortgage is paid off or paid down by a certain percentage within a certain time frame in the life of that mortgage.

You may be wondering whether your current mortgage has one. Chances are that it does not. If your mortgage terms included a prepayment penalty, by law, you would have had to sign a disclosure stating that you were aware of the penalty and its terms.

Per the Dodd-Frank Act, effective July 21, 2010, prepayment penalties became illegal on most residential mortgages, so this is far less common than it used to be. However, certain types of mortgages may still have them.

The original purpose of the prepayment penalty was to protect the lender from people who frequently refinanced when rates fluctuated greatly in a short period of time. It’s also designed to protect the lender’s income. It is expensive for lenders if you either pay off or significantly pay down your loan early, since the income they earn from loans typically includes payment streams over time. This is especially true if they are servicing your loan (taking the payments, paying out the taxes, and paying insurance).

Still, in order to incur a penalty, buyers would usually have to pay off a significant portion of the loan very quickly. A typical example is to pay 20 percent of the loan in one year. On a $100,000 loan, this would require paying down $20,000 in 12 months. A homeowner paying even $1,000 per month extra on the principal would fall well short of reaching that point.

In other words, you’re probably free of any worries about prepayment penalties.

A home appraisal is similar in purpose to all other types of appraisal: to determine worth.

In the case of a home appraisal, a lender hires someone to find out what a property is worth. The lender wants to ensure that the property is worth the purchase price it will be funding.

One aspect that makes the home appraisal unique is an intermediary. When a home is appraised, the person who does the appraisal and the lender ordering the appraisal may have no direct contact with each other. There is an intermediary called an appraisal management company, or AMC, that coordinates the two. This is to avoid any type of influence on the appraiser by the lender.

Once hired, the appraiser has the job of researching other, similar properties that have sold recently in the same area. These properties are called comparables. The appraiser researches these comparables online before visiting the subject property.

After the visit to the subject property, the appraiser makes adjustments to its value, given the comparables, based on things such as lot size, number of bedrooms, number of baths, and any upgrades or renovations on the home.

During the subject-property visit, the appraiser also inspects the property for signs of disrepair, such as a leaky roof or mold. Some items may be significant enough to require correction before the lender will agree to lend money against the property.

An appraisal, however, is much less thorough than a formal home inspection, which goes into great detail with respect to the electrical, plumbing, and heating and air conditioning systems of a property.

Once the appraiser determines a value, he or she submits a report to the AMC, who will then submit it to the lender. The lender is able to question the findings if it disagrees with them, but this must be done through the AMC.

For more information on this process, contact your mortgage professional.

To answer this question, we must look back in time to the 1920s.

In that era, the typical home buyer put down 50% of the purchase price, then financed the rest of it through a five-year balloon loan. If, at the end of that five years, there was still a loan balance, the homeowner refinanced the loan.

A major challenge existed with that system: Buyers who weren’t able to come up with the 50% down payment were unable to purchase a home.

With the onset of the Great Depression, and through the 1930s, the Roosevelt administration helped set up the system of mortgages as we know them today. At that time, it was decided that a 30-year term for a mortgage was long enough to keep the payments low and short enough for someone buying their first home at a young age to have it paid off before they retired.

Fast-forward to 2018: Things are different in today’s market.

People tend to move more often than they did years ago. The 30-year mortgage is still by far the most popular term for a mortgage, but other choices may be better, given your circumstances.

Mortgages with shorter terms, such as those of 15 or 20 years, incur lower interest charges over the life of the loan. Of course, the payments are higher, but when you shop for a mortgage, you may want to consider looking into these options.

Your mortgage professional can help you explore your choices and determine which is best for your situation.

Hiring a real estate attorney is a critical part of your real estate purchase process.

Some transactions require buyers to have one. For those who get to choose, opting for a real estate attorney is a wise choice.

Why exactly would you need a real estate attorney? For the same reason that you would need one for any other legal matter – to protect your interests.

An attorney provides a second set of eyes, which you should have from the very beginning of the purchase process.

Before you sign any sales contract, regardless of your impulse or what others may be telling you, make sure that it contains verbiage that allows for an attorney review period. This allows time for your attorney to thoroughly go through it and see if there is anything of concern.

He or she can also clarify details such as what items (fixtures, appliances, etc.) are part of the purchase agreement.

There should also be verbiage in the contract that allows you to have a home inspection performed. The results of that home inspection should also be given to and reviewed by your real estate attorney.

In addition to the points discussed above, there are aspects of the transaction that you would want to discuss only with an attorney. These include matters related to the ownership of the property.

An example of this might be an incorrectly drawn lot line. That lot line, if erroneously moved three feet further out from the home, could make you the owner of a fence.

From this point forward, you would be on the hook to maintain that fence. Neither a real estate agent nor a lender should ever attempt to take on something like this.

To ensure you partner with someone familiar with all of these matters, look for an attorney who solely handles real estate transactions. Your mortgage professional is a good source for referrals.

In the world of lending, one point is 1% of a loan amount. So, one point on a $150,000 loan would be $1,500. Points, in general, may be referred to as either discount points or loan origination points.

You may have heard the term points used in a couple of different ways. One of them is probably in mortgage loan advertisements, referring specifically to how many points a lender is charging for a given rate on a loan.

For example, Lender A is offering a 5.0% interest rate on a 30-year, fixed-rate mortgage and is charging no points. Lender B is offering the same loan at a lower rate of 4.5% but is charging one point, or $1,500. Why is this?

The answer is that lenders, like any other business, need to make money to be able to stay in business. Lenders make money on loans in one of two ways.

One way is via the interest rate they charge. The higher the rate, the more money they make when they sell the loan after it closes. The other way they make money is to charge fees.

However, to remain competitive with each other in the marketplace, lenders need to offer you, the consumer, the best possible terms.

As you consider your loan options, your long-term ownership plan as well as your willingness to pay points will help determine your best strategy.

A consultation with your mortgage professional can help determine which option is best for you.