Author: production

Many states have different laws regarding property ownership rights, including the nine states that are considered “community property” states.

If you have issues relating to property ownership, it can be confusing. Discuss your concerns with your real estate attorney.

There can be a number of possible reasons why a home purchaser may want to waive ownership rights to a property.

If, for example, one of the buyers is in some type of legal or financial situation that may impact ownership of the property, waiving his or her rights may be a solution.

To remove someone’s ownership rights, an attorney can file what is called a “quitclaim deed.”

This is a legal document that permits a person to waive all ownership interests in a property.

At some point in the future, when legal or other financial issues are no longer a concern, the original title holder can re-add the individual who had waived his or her ownership rights by having another quitclaim deed filed.

One interesting fact: an individual with poor credit, to the point of being unable to qualify for a mortgage, can still be on the title of the property.

To clarify: Only the credit of the borrower whose income and assets will be used to repay the loan will be scrutinized and approved if appropriate. The other buyer – whatever his or her credit – can still be an owner of the property and therefore listed on the title.

In general terms, you should be careful about asking someone to be on a property title with you, especially if that person doesn’t have any responsibility for paying for it.

In some scenarios, when and if you want to have that person removed from the title, you may not be able to, and selling the property without his or her consent may also be an issue. Your real estate lawyer can advise you on these concerns.

A title represents ownership. The title documentation that you have, or will have, when you purchase a home, will be called either a “deed of trust,” or a “mortgage,” depending on your state.

When you hear the word “mortgage,” you may be thinking of a payment that needs to be made monthly. In fact, what you are paying each month to your lender is called a “note payment.”

Owner vs. borrower

Ownership is entirely different. It has nothing to do with making monthly payments. The title says who owns the property; the “note” says who is paying for it. When you sign this note at closing, you are promising the lender you borrowed from that you will pay back the loan at the terms specified. And you also put up your ownership interest (title) of the property as collateral against the note. As long as you keep the payments on the house current, it remains yours.

But what about foreclosures? A foreclosure is the process whereby the lender exercises the right to take ownership of a property when a borrower is far enough behind on the note payment to warrant it. These terms are all spelled out in the loan documents that you sign.

There are, in fact, many different ways to hold title, including “tenants in common” and “joint tenancy with right of survivorship.” They apply when the title holders are alive as well as after they die. Your real estate attorney can explain the available ways of holding title.

Spring may bring thoughts of your dream home – and what better time for a home search than now?

By the time summer comes you could be happily ensconced in your new home. Think outdoor living and a relaxed intro to a new neighborhood.

But before the dream turns into a full-fledged home search, there are several things to consider. One of the most important is your credit score and what that score may mean as far as your mortgage options.

To advance to the search phase, you’ll need to know what your credit score looks like now and where it ultimately needs to be for you to be in a position to purchase a home. So now is an ideal time to contact your mortgage professional to review your credit.

Indeed, you can pull your own credit, but what you need is a way to interpret what’s on the report and how it will impact you throughout the lending process. Many things that you may see as minor on your report may actually make a significant difference in accessing the programs and interest rates you want.

For example, if you carry a lot of credit card debt or if one card has a higher balance than most lenders feel is appropriate, that’s a negative. But if your mortgage advisor draws this to your attention, you’ll have time to pay off or reduce your balance before you start to search.

And the sooner you start, the sooner you can be in your dream home.

To some, including property taxes in your monthly mortgage payment is a no-brainer; for others, not so much. Must your property taxes be included in your mortgage payment or can you pay them separately?

The answer depends on the type of mortgage and your equity in it (the value of your home above what you owe on it).

And it boils down to the risk that lenders are prepared to take.

In addition to the risk your lender incurs on the loan amount, there is a risk that the borrower won’t make his or her property tax payments.

And even a property with a paid-up mortgage can still be taken by a governing body, such as a tax assessor, for nonpayment of taxes.

Borrowers who have little savings after their down payment may be unable to put away sufficient money to pay their monthly property taxes. Lenders are concerned about what may happen if unforeseen expenses occur.

Federal Housing Administration mortgage programs require that all mortgage payments include property taxes, mortgage insurance, and property insurance.

This is, in part, due to the fact that many buyers put down as little as 3.5% and may have less-than-ideal credit.

With conventional or Fannie Mae-type loans, each individual lender has its own escrow requirements, mostly based on down payment amount and credit profile.

While lenders may be likely to waive escrow requirements for someone putting down 35% to 40%, they would be unlikely to do so for a borrower with a 15% to 20% down payment.

Even with a very large down payment, the lender may charge a premium in the form of a rate increase to waive escrow and cover the added risk.

And for the borrower, there’s this positive take: Isn’t it better to include these costs in the mortgage payment than to worry every month about how to cover them?

Your bank statements, like your credit report, are a window to your finances and your life. They are so much more than showing a lender your assets.

Lenders are looking for things like checks that have been returned for insufficient funds. If they discover these, they will want to get to the bottom of what happened. Was it caused by a bad check written to you? Was it mismanagement of your own finances? How did this happen? How often does this happen? What will keep it from happening in the future, if they loan you money for your new home?

Other red flags lenders watch for include large, nonpayroll deposits that seem to have no source. Was it the proceeds from the dining room set at the garage sale last month? Was it a reimbursement check for the office supplies you recently purchased? You may be asked to write a letter of explanation for items like these during the mortgage process.

If the deposit is a gift from someone for your home purchase, and that person is an eligible donor, the lender may ask for a signed gift letter. This must state that the deposit is for the purchase of the home and that there is no expectation of repayment on your part. The lender may also ask for proof from the donor of his or her ability to give you this money. The donor must verify that it came from a legitimate source, such as a bank account, where it has been for several months.

Why does the bank need such detail? It’s because there is a good chance that your loan will be sold to investors, perhaps multiple times. Investors will take a peek through the lender’s financial window, and your lender wants them to like what they see.

Good question. There are a few good reasons for this.

The first is to properly set your expectations as a buyer. This sounds basic, but what if you think you can afford more than you actually can?

What if you start shopping, find your dream home, then discover you aren’t qualified to buy it?

You’re setting yourself up for disappointment as your dream home slips away.

Second, your mortgage professional will be able to tell you what you can use for income and assets, and can pull your credit.

This credit pull is reason enough to get prequalified. Yes, you are able to pull your own credit score, but you still need to know the impact of this score.

Your mortgage professional can tell you how it will affect your interest rate and for which programs you qualify.

This is valuable information to have as you start to shop.

Third, if you need to pay down or pay off debt to get your debt ratios in line, it’s better to know sooner rather than later.

If you find out what you need to do after signing a home contract, you might not have the time line or resources to take care of it all before closing.

This could spell disaster.

Lastly, you should get preapproved so real estate agents and sellers will take you seriously.

Some may not talk to you at all without a preapproval. Having that preapproval letter in hand will set you apart from unqualified buyers and take you a long way in the home-buying process.

Ask your mortgage professional for more details on how to get preapproved. His or her assistance will be invaluable as you begin the search for the perfect place to match your budget and lifestyle.

This is an important question for all home buyers, but especially those who are buying for the first time.

Everyone’s situation is different, so answer this question with the following information:

How long do you plan on owning the property? If you plan on staying for three to seven years, you have alternatives to the traditional thirty-year mortgage. These include adjustable-rate mortgages (ARMs) and some type of balloon loan, both of which normally have lower rates than the fixed-rate thirty-year products. But note that they also may have downsides, so do your research.

Also consider whether your plans are likely to change. If you’re unsure, you may be better off with a thirty-year fixed product. Otherwise, when you have to refinance three to seven years later, you may find that interest rates are significantly higher than they are today.

How much are you able to put down on a property? The more of a down payment you are able to put down, the better the position you’ll be in. If you can make a down payment of 20% on a conventional (Fannie Mae) loan, you can avoid mortgage insurance, eliminating a factor that will add to your overall cost of owning the mortgage. If you choose an FHA loan, the size of your down payment is less important, as you’ll most likely have two types of mortgage insurance in any case.

Do you want a fifteen- or thirty-year loan? A fifteen-year loan, while it often offers a lower rate than its thirty-year counterpart, comes with a significantly higher monthly payment. However, if you can afford it, you could save thousands (if not tens of thousands) in interest over the life of the loan. Another option is the twenty-year mortgage, which will also accelerate the paying down of the mortgage. Your mortgage professional can help you decide which term is best for you.

With the new year upon us (along with the lure of spring house-hunting season) your to-do list may include the purchase of a new home.

If so, there are a few important things you should bear in mind as you start your search.

Consider these tips from financing professionals:

Know your credit profile. Nothing is more important than your credit profile in qualifying to purchase a home. A good profile puts you ahead of the game. Talk to your mortgage professional to see what you need to do, if anything, to put you into the ideal home financing position. This may include paying down – or paying off – debt. This may take time, so the earlier you can get input from your mortgage pro, the better.

Know what you can realistically afford. Before starting the home-buying process, establish what you can afford now, and most important, what you may be able to afford should family, interest rates, or employment status change. Having a clear picture of what you are able to pay for housing, month-in and month-out and under various scenarios, is essential so you can confidently proceed with the home-search process.

Be patient. Chances are the purchase of a home is the most important decision you will ever make, especially if you’re a first-time buyer. There are many steps on the path to home ownership, and obtaining financing is just one part of all of this, albeit one of the most important. Take everything one step at a time, be patient, and all will fall into place.

Your goal throughout the mortgage process is to demonstrate that you can afford a mortgage. So when borrowers apply for a mortgage, and there’s a section on the application that asks them to list their debt, many borrowers get concerned: just exactly what do lenders mean by “debt”?

According to Merriam-Webster’s online dictionary, “debt” is an amount of money that you owe to a person, bank, company, etc. Lenders look at it to assess your credit worthiness, using debt-to-income ratios to ensure you can handle monthly payments and repay your debts.

Debt falls into two categories: installment debt and revolving debt.

Installment debt includes items such as car loans, where the payment and interest rate are fixed for the entire term of the loan, and you know exactly when that loan will be paid off. Car loans, and other types of installment debt with ten months or less to pay off, must be listed but don’t need to be included in your debt ratios.

Revolving debt includes credit cards and other lines of credit. The payment amount and interest rate may fluctuate monthly, and there is no set date as to when it will be paid off.

Other monthly expenses such as gas, food, and clothing aren’t included in debt calculations for most mortgages. Lenders take these expenses into account but don’t verify them.

One exception is Veteran’s Administration loans, which you may want to investigate if you’re eligible. This is one situation where you will be asked to provide a list of these other expenses. The VA loan program uses them in what is called a “residual income calculation.”

In most cases, the less debt you have, the better. However, this doesn’t mean that you shouldn’t have any debt at all. Having some credit available is beneficial, especially if it’s paid in full, monthly.

Your mortgage professional can tell you more.

Equity is the difference between what you owe on your home and what it’s worth. For example, if you buy a home for $100,000 and obtain an $80,000 mortgage, your equity is the difference, which is $20,000, or 20%. Equity in your home will change as the value and your outstanding mortgage balance change.

As equity grows over time, you can use it in different ways. For example:

If you want to sell it and buy another home. You can take the equity in your existing property and use that as a down payment on a new property. Investors often use this technique because they use less of their own money.

Tap into your home equity by taking a loan or a line of credit against it. For example, if your home’s value is $100,000, and your mortgage balance is $70,000, your equity will be $30,000. You can borrow, say, half of that from a bank to use for any purpose (such as renovations or to purchase a new home).

In this example, you can also take a second mortgage for up to $15,000. But if you already have a mortgage on your home, it may be more challenging to arrange than the first. And interest rates will be higher.

Second mortgages are riskier, so lenders charge higher interest rates. The reason: If you default on either the first or second mortgage and the property is sold, the first mortgage holder will be paid back first. The second lender takes second place.