Author: production

To answer this question, we must first ask: what is title?

Title is simply who owns a property. A person whose name is on title has ownership rights to a property.

A person on title may be different than those on the loan document (those who are paying for it). This difference may occur in the case of married couples, when one spouse earns the entire income for the family, but they both have ownership rights to the property.

So, what does title insurance have to do with any of this? Title insurance is designed to protect you and your lender from third-party claims toward ownership of the property.

What are third-party claims? If you’re buying a house from someone who was sued while he or she owned it, the party suing the owner is making a third-party claim.

A common example is a contractor who wasn’t paid by the owner. If that contractor were to put a claim against the property, and you were to find out about it after you took ownership, you could potentially be involved in a lengthy and expensive legal process.

This is where your title insurance comes into play. The title insurance company researches the title of a home before your lender will agree to lend money on it and before you close on the home. This research includes court records and other sources. Then, if a situation like the one above comes up, your title insurance will bear the brunt of addressing it.

There are, in fact, two types of title insurance policies. The first is the Lender’s Policy. This is to protect your lender up to the loan amount. This policy is required in many states.

The other policy, an Owner’s Policy, can cover up to the purchase price of the property. For more details on this important coverage, contact your mortgage professional.

An assumable mortgage involves the transfer of loan ownership from one party to another. Why would anyone be interested in this method of purchase? The answer to this question lies in mortgage interest rates, which are generally going up in today’s market.

Here’s how it works. Let’s say you wanted to purchase one of two identical homes in the same area, for the same price. One has an assumable 30-year mortgage, with an interest rate of 3.5%. The current mortgage has been in place for four years, and the original loan amount was $150,000. Home #2 would require you to obtain a new mortgage, with market rates of 5.0%.

The current mortgage has a monthly principal and interest payment of $673.53. With 26 years left, this would mean that your monthly payments over that time would total $210,153.84. A new mortgage for the same $150,000 at 5.0% would generate a monthly payment of $805.23. Over the life of the loan, this would set you back $289,882.80.

Keep in mind that you may pay a higher initial price for the home with the assumable mortgage, because the lower rate will make it very attractive to other buyers looking for the same thing.

Restrictions: While both FHA and VA loans are assumable, those taken out under Fannie Mae and Freddie Mac guidelines are ineligible for transfer from seller to buyer. Also note that anyone wanting to assume a mortgage must qualify for it under current lender guidelines. Your mortgage professional can lead you through this process.

When you apply for a mortgage, your credit profile is often more important than the income and assets you can show a lender.

Your credit report is a picture, over time, of how you have managed credit. This gives a lender an idea of how you’ll manage the loan if it grants you a mortgage.

How does the lender get this report? Three credit bureaus manage credit data: Experian, Equifax, and TransUnion. When you borrow money, charge something, or make a payment, your creditor notifies one or all of these bureaus.

When you apply for a mortgage, your lender orders a credit report, which contains data from all three bureaus. Each of the three bureaus generates a credit score using a scoring model (they all use the same model), and this is included on the report.

At times, different bureaus may have different information, and hence will report different scores. The lender will use the middle score of the three as your “credit score” when evaluating your borrower profile.

There are many components that make up your credit score. Two of the most significant are your recent payment habits and your balance-to-limit ratio.

Your recent payment habits (the past one to two years) give the lender an idea of how well you stay on top of your monthly obligations. The balance-to-limit ratio takes a different perspective. It shows how much debt you have in relation to how much credit you have available.

An example of this would be multiple maxed-out credit cards. Even if you are paying all of your bills on time 100% of the time, you still may be overextended, and this will lower your credit score.

If you’d like to find out more about how credit scores are calculated or what you can do to affect your score, contact your mortgage professional for details.

There are two types of costs involved in taking out a mortgage.

First, there are the initial outlays such as down payment, appraisal cost, and lender fees.

Second, once you own the property, you’ll have ongoing expenses such as property taxes and homeowner’s insurance.

To help you manage these ongoing expenses, your mortgage servicer (which may be different than your lender) will set up an escrow account. You’ll pay into it each month as part of your mortgage payment. Your servicer will then pay certain expenses out of the escrow account on your behalf when they are due.

You may wonder why you can’t simply pay all of this on your own. In some cases, especially with larger down payments, you can. In many instances, though, particularly with FHA loans, this account is required.

There are several reasons lenders do this. The first is that it forces you to plan for expenses that will be payable eight, ten, or twelve months down the road. It also protects you from defaults. For example, if you were to stay current on your mortgage payments but fall behind on the property taxes, your taxing body could take ownership of the property.

Over time, expenses such as homeowner’s insurance may change. To adjust for these changes, once a year your escrow payment is adjusted. If too much was collected, a refund is issued. If there is a shortage, money is collected or added to future payments.

For more information on escrow accounts, contact your mortgage professional.

A HELOC is a home equity line of credit. Equity in a property is the difference between its market value and what you owe on it.

For example, a homeowner who has a property worth $150,000 and has a mortgage balance of $120,000 has $30,000 of equity in the property. To access some of this equity for your own use, you could look into taking out a HELOC.

A HELOC is a mortgage, separate from the one you may already have. To get one, you would go through a similar process as you would for a traditional mortgage. Income, assets, and credit are all considered.

Common uses for HELOC funds include home improvements and college tuition. Because it is a line of credit, as opposed to a loan, a HELOC works more like a credit card.

As with a credit card, you are able to purchase items and then pay down the balance over time. As you reduce that balance, you are then able to borrow the same money again and again.

While they operate in a similar fashion, HELOCs offer two advantages over credit cards. The first is a lower interest rate. The second concerns taxes. Often, the interest paid on a HELOC is tax-deductible.

The HELOC is a line of credit, which is different from a home equity loan. The equity loan has a fixed payment over time.

With a HELOC, the interest rate can fluctuate, so the payment amount can also change. This means that your qualifying income must be high enough that you can make the payments when they are high.

Interest rates are also typically higher on HELOCs than they are on fixed-rate mortgages. This is because, in the case of default, the first mortgage lender will get paid back first. This puts more risk on the HELOC lender.

For additional information on HELOCs, contact your mortgage professional.

Mortgage insurance is insurance that lenders take out and borrowers pay for, to help offset losses that lenders incur.

There are two types of mortgage insurance. The first covers conventional mortgages. These mortgages use guidelines from Fannie Mae or Freddie Mac.

With this type of loan, if you put down less than 20% of the purchase price, you’ll be required to pay for mortgage insurance. In the case of a refinance, if you have less than 20% equity (market value minus financed amount), you will also pay mortgage insurance.

The cost of mortgage insurance is based on the amount of equity you have in the property and other factors, such as credit scores.

At some point in the life of the loan, you will be able to remove this mortgage insurance. This typically occurs once you have built up more than 20% equity.

The second type covers FHA loans. With FHA loans, there are actually two types of mortgage insurance. One of them you pay as a one-time fee.

This is called the upfront premium and can either be paid at closing or financed into your loan. As of early 2018, this premium was 1.75% of the amount being financed.

The other type of FHA mortgage insurance is called an annual premium. It is paid on a monthly basis. Unlike with conventional loans, this premium will likely remain on the loan until the loan is paid off through the sale of the property or a refinance.

Contact your mortgage professional for more details.

A HELOC is a home equity line of credit. Equity in a property is the difference between its market value and what you owe on it.

For example, a homeowner who has a property worth $150,000 and has a mortgage balance of $120,000 has $30,000 of equity in the property. To access some of this equity for your own use, you could look into taking out a HELOC.

A HELOC is a mortgage, separate from the one you may already have. To get one, you would go through a similar process as you would for a traditional mortgage. Income, assets, and credit are all considered.

Common uses for HELOC funds include home improvements and college tuition. Because it is a line of credit, as opposed to a loan, a HELOC works more like a credit card.

As with a credit card, you are able to purchase items and then pay down the balance over time. As you reduce that balance, you are then able to borrow the same money again and again.

While they operate in a similar fashion, HELOCs offer two advantages over credit cards. The first is a lower interest rate. The second concerns taxes. Often, the interest paid on a HELOC is tax-deductible.

The HELOC is a line of credit, which is different from a home equity loan. The equity loan has a fixed payment over time.

With a HELOC, the interest rate can fluctuate, so the payment amount can also change. This means that your qualifying income must be high enough that you can make the payments when they are high.

Interest rates are also typically higher on HELOCs than they are on fixed-rate mortgages. This is because, in the case of default, the first mortgage lender will get paid back first. This puts more risk on the HELOC lender.

For additional information on HELOCs, contact your mortgage professional.

Mortgage insurance is insurance that lenders take out and borrowers pay for, to help offset losses that lenders incur.

There are two types of mortgage insurance. The first covers conventional mortgages. These mortgages use guidelines from Fannie Mae or Freddie Mac.

With this type of loan, if you put down less than 20% of the purchase price, you’ll be required to pay for mortgage insurance. In the case of a refinance, if you have less than 20% equity (market value minus financed amount), you will also pay mortgage insurance.

The cost of mortgage insurance is based on the amount of equity you have in the property and other factors, such as credit scores.

At some point in the life of the loan, you will be able to remove this mortgage insurance. This typically occurs once you have built up more than 20% equity.

The second type covers FHA loans. With FHA loans, there are actually two types of mortgage insurance. One of them you pay as a one-time fee.

This is called the upfront premium and can either be paid at closing or financed into your loan. As of early 2018, this premium was 1.75% of the amount being financed.

The other type of FHA mortgage insurance is called an annual premium. It is paid on a monthly basis. Unlike with conventional loans, this premium will likely remain on the loan until the loan is paid off through the sale of the property or a refinance.

Contact your mortgage professional for more details.

A mortgage recast is a one-time “paydown” of your mortgage, which results in a lower payment.

Sounds good, but there are some things to consider before opting for a recast.

You can accelerate the payoff of your mortgage in two main ways: The one you are probably most familiar with is when you send in a specific amount of extra money each month with your mortgage payment to be applied to the balance.

The goal is that the stream of extra payments, over time, will lower the principal balance, reduce interest expense, and thus shorten the term of the mortgage.

For example, by annually making one extra payment of principal and interest this way, over the course of 12 monthly payments on a 30-year loan, you’ve taken roughly four years off the end of the loan.

Keep in mind, though, that throughout the whole process of this “paydown,” regardless of how long it continues, the base mortgage payment will remain the same.

The mortgage recast

A recast works a little bit differently. As opposed to the example above, when you made smaller payments over time, a recast is a one-time larger payment.

The recast process includes a recalculation of the mortgage payment downward. This could be beneficial to you as your monthly mortgage payment is lower. But you may want to consider the following:

First, not all lenders offer this option. If it’s something that you are hoping to do, discuss it with your lender before making plans. Second, the lender may have a minimum “paydown” amount, such as 10% of the original mortgage amount.

Finally, the lender may charge a fee for a mortgage recast. This can range from a nominal fee to well over $500. Lenders incur expenses in offering this option, and this is how they recoup some of this expense.

To learn more, contact your mortgage professional.

Everyone knows mortgage payments are always due on the first day of the month. But, while this is correct, there’s more to the story.

If you make your mortgage payment on June 1, the principal and interest you’re paying are applied to the period of May 1 through May 31. This is called making payments in arrears, meaning you’re paying the principal and interest for the periodafter you use it.

And it’s important information to know when you are buying a home.

Why? Because the day of the month on which you have your closing will determine how much principal and interest you will pay at that time.

Take an April 22 closing: At that time, you’ll pay principal and interest to the lender from that date, April 22, through the end of the month, April 30.

As payments are made in arrears, the next mortgage payment that you make will be due on June 1. This will cover principal and interest for the month of May. The cycle then repeats itself.

So, if you close earlier in the month, say on April 4 or 5, you can expect to pay more in principal and interest than if you closed on the 24th or 25th.

This is important to know, in that it will factor into the equation when you and your mortgage professional are determining how much money you will need to take to closing.

If you have any questions about this, contact him or her for more details.