Author: production

For first-time home buyers in particular, home financing documentation can be confusing.

The document that shows how much you owe your lender is called a “Note,” and you make a note payment monthly.

But when you purchase a home, the document that shows who owns the property is called either the “Mortgage” or the “Deed of Trust,” depending on the state you live in. Both are called “security instruments,” and they do basically the same thing but go about it in different ways.

If you live in a mortgage state and you default on the note, you will work directly with the lender, who will go through the court system to reclaim the property.

This can be a drawn-out process and includes court filings and specific time periods that have to be given to you, allowing you every possible opportunity to reinstate (get caught up on) the note.

Depending on the caseloads of both the court and lender, this could take from three to six months to well over a year to complete.

If you live in a Deed of Trust state, there is a third party, called a “Trustee,” who will intervene on behalf of the lender in the case of default.

Unlike the lengthy judicial process described above, this will happen much more quickly, as the trustee has the right (as provided for in the Deed of Trust) to take ownership and sell the property in order to recoup the lender’s money.

Your mortgage advisor can elaborate on these security instruments.

Financial investors essentially have three choices when they invest their money: stocks (equities), bond funds, or a mix of the two. Bonds tend to offer lower returns, but are less risky. Stocks are riskier, but have the potential to offer higher returns.

Many investors have money in both and are constantly balancing their portfolios based on the current state of the financial markets and what they expect to happen in the future.

Two of the bond-type options available to investors include:

• US Treasury bonds (also referred to as Treasury notes), which carry terms that can vary from one year or less up to 30 years. Regardless of their term, they are solid investments.
• Mortgage backed securities (MBSs), in basic terms, are large bundles of mortgages, often numbering in the thousands that are bought and sold in the financial markets. Chances are that the mortgage you have now, or will have in the future, will find its way into one of these bundles. MBS products compete with Treasuries for investors’ dollars.

So, what does all of this have to do with fixed mortgage rates?

As the US government adjusts the Treasury bond rates to manage economic policy, mortgage backed securities look more or less attractive to investors: when Treasury rates increase, MBS fund managers will instruct the lenders from whom they buy mortgages to start increasing their mortgage rates.

Investors, who know that Treasury products are highly secure, are less likely to want to take more risk for the same return were they to go with the MBSs.

However, if the rate of return on an MBS is higher than that of a Treasury product, this will catch the attention of investors, even though there is more risk. MBSs will become more attractive, no matter which way Treasury rates are moving.

Need more information? Contact your mortgage professional for details.

Before you begin your home search. Before you contact a mortgage professional. Even before you attend your first open house, there’s something you need to do. You need to take inventory of your financial situation, both as it is now, and what it could be in the future.

Families grow. Employers (and jobs) come and go. Unexpected situations, such as medical issues, arise. What would your financial situation look like if any (or all) of these events occurred? Once you’ve purchased a home, will you still be able to save for a rainy day? It’s something to think about now.

While you’re thinking about the “what ifs,” you may want to consider a fixed-rate loan. If economic factors drive up rates and the cost of other goods and services, a fixed rate will help ensure that at least your monthly mortgage payment will remain constant.

The takeaway: Despite what real estate agents, loan officers, and well-meaning friends and relatives think you should do, bear in mind that whatever you conclude is a realistic monthly mortgage payment is the right amount for you. After all, it’s you – and only you – who must make that payment every month.

You need to start your home-buying journey knowing what works for you; once you make this decision, everything else will flow from it. Now you can find the right real estate agent, start your search, and confidently contact your mortgage professional to start the process.

Because now you know what you can afford.

In this era of probably-soon-to-be-gone low interest rates, homeowners may be asking themselves if now is a good time to refinance their homes.

To be able to answer this question, you need to first answer these three questions: Will a lower rate actually work in your favor? How much will the refinance (refi) cost? And how long do you intend to own the property after the refi?

To put this into numbers, let’s say your remaining mortgage balance is $150,000, and it will cost you $2,000 to lower your rate by one-quarter of a percent.

We’ll assume that you’ll pay the closing costs out of your own pocket.

You’ll go from 4.75 percent to 4.5 percent. Your current mortgage payment (on your original, 30-year, fixed-rate $160,000 mortgage) is $834.64 per month. Your payment at the new rate will be $760.03. This is a monthly savings of $74.61.

To calculate the time required to recoup the costs of the refi, we need to take the $2,000 cost and divide it by the monthly savings.

In this case it would be $2,000/$74.61, or 26.8 months.

So if you are planning on staying in your home for more than two years, it would be worth your while to contact your mortgage professional and explore your options.

Of course, larger loan amounts will have a shorter payback period, and smaller loan amounts will take longer to recoup with the same interest rates.

A change in interest rate of greater than 0.25 percent will also shorten the time required to justify the costs of the refi.

For example, a drop in the interest rate of 1/2 percent in the above case would make the new rate 4.25 percent and provide a monthly savings of $96.73 per month. The recoup period would be just over 20 months.

Contact your mortgage professional to help you adjust the above scenario to your own situation.

As the old saying goes, an ounce of prevention is worth a pound of cure.

This has never been more true than with regard to your credit report, especially when you get ready to finance a home. Understanding your credit report before you attempt to finance a home may pay you huge dividends in reduced time and stress.

A credit report is basically a report card that lenders use to determine how you manage your credit.

By knowing what’s on that report, and also being aware of what your lender will see when you attempt to finance a home, you’ll be prepared and your expectations will be set.

It’s important to bear in mind the fact that you may have to take some action based on information found in your credit report.

As upsetting as it may be to realize you’ll need to pay down or pay off debt, which could take several months depending on the amount, it’s even more upsetting to not know until it’s too late.

Plus, if there are incorrect items on the report, you’ll have time to correct or dispute them.

And time is of the essence; even a very simple transaction, such as making a single payment, may take 30 days to show up on a credit report.

More involved issues, such as disputing a transaction or removing incorrect information on a credit report, may take much longer. The more ahead of the curve you are in this process, the better off you’ll be.

Because interest rates have been so low for so long, you can’t blame people for believing this is the norm.

But families who financed homes in the 1980s know otherwise. In fact, if it were 1980, you would be looking at mortgage rates that were in the 13-15 percent range, as opposed to today’s rates of 3-5 percent.

Rates can and do swing widely.

While it’s unlikely that rates will increase to this level anytime in the near future, if you’re purchasing a property in 2016 (especially if you are a first-time buyer), you may want to discuss your home financing options with a mortgage professional.

Renters in particular should be concerned about predictions that rent increases nationally are expected to outpace increases in housing prices in 2016; as a renter, at least get a picture from a mortgage professional of the alternatives available to you in the current low-rate environment.

The state of interest rates is really only one factor of many you need to consider if you are buying a home in the near future.

You also need to be aware of other factors that come into play, including your assets and your credit.

Down payments, closing costs, and other expenses incurred in the process require assets; if you need to start saving now, you’ll need to know how much.

And if your credit rating needs attention – such as paying down debt to get your debt-to-income ratios in line, or addressing items on your credit report – start now and you’ll be ahead of the game when you’re ready to launch your home search.

Even if you are planning on purchasing a home within a longer time frame (three to six months), you’ll want to discuss with a mortgage professional what may lie ahead, how to manage your expectations, and what actions to take now.

Whether you are looking for a home for a family member or want to create a new income stream by becoming a landlord, a multiunit residential property may be just what you need.

Multiunit properties with two to four units may be financed using the same mortgage programs you would use to purchase a single-family home. Anything larger would be considered a commercial property.

It’s important to be aware that, if you are planning on renting out one or more of the units, you, the buyer, must live in one of them as your primary residence. Unless you do, you would have what lenders would consider an investment property, and you would be unable to finance it using traditional residential financing.

Down payments

If you are looking for conventional financing, meaning a Fannie Mae loan, and you are planning on taking out a fixed rate mortgage, plan on a 15% to 25% down payment, depending on the number of units. With FHA you can put down as little as 3.5% for a two-unit property, and as much as 5% on one with three or four units.

Rental income

In purchasing a multiunit property, Fannie Mae differs from FHA when it comes to using rental income to qualify. With Fannie, future rental income (as established by an appraiser as fair market value for the area) can be used to qualify for a mortgage; however, for an FHA mortgage, you’ll need two years of proof of landlord experience if you want to use some rental income to qualify.

In any case, you’ll only be able to claim 75% of it as income, as there is what is called an occupancy rate in place.

Financing a residential multiunit property can be challenging. Involve your mortgage professional at the beginning of the process; he or she can help you select the financing option that’s right for you.

If you are either short of a down payment or have credit challenges to overcome (and if you are prepared to overcome them), a rent-to-own property may be a good – even great – way to move toward home ownership.

Typically, a rent-to-own agreement, also known as a land contract, is an arrangement between a property owner/landlord and a tenant. The expectation is that at some point the tenant will purchase the property for a fixed price on a predetermined date, providing, of course, that he or she can become qualified to do so. That may mean repairing or rebuilding that credit over the period you are renting your potential home.

To safeguard the property owner, most contracts require a nonrefundable deposit in the event that you are unable to become qualified to purchase the property.

If you are seriously thinking about entering into one of these agreements – and don’t want to lose your deposit – your mortgage professional should be part of the process from the very beginning. He or she will pull your credit then prepare a strategy to get you where you need to be in the allotted time frame.

This time frame is key: credit repair can take one or more months, and it’s extremely important that you realize this and set your expectations appropriately.

You probably won’t be using a real estate agent in this process, so it’s vital you have a real estate attorney to review your contract and answer questions that come up during the process.

Your real estate agent and your mortgage professional are highly qualified to assist you in the purchase of your home.

They’re the linchpins of your home-buying team, and they should be all you need to make it to the closing table. Well, almost.

While these two professionals are experts in their individual areas, you will almost definitely also want to have a real estate attorney on your home-buying team. There are several reasons for this.

The most important reason involves title or ownership issues regarding the property you want to buy, such as an old or existing lien.

Your other two professionals will quite rightly be uncomfortable offering you advice on these issues, which can get very involved very quickly; title issues usually aren’t within the scope of their expertise.

The other area where a real estate attorney will be invaluable is in contract review. It’s always to your benefit to have a second set of eyes on this document.

If something was overlooked in the contract or phrased in a way that was different from your understanding of it, your real estate attorney will catch it.

If, for example, you were expecting the appliances to come with the property and the seller hoped to remove them, a contract that is unclear on this point may mean the appliances end up with the seller.

Your real estate attorney, not the seller or the seller’s attorney, will ensure it’s spelled out clearly at the beginning of the process.

Purchasing a townhome or, even more so, a condo works just a little bit differently from purchasing a residence, which typically isn’t subject to some type of homeowner association (HOA).

When you purchase a townhome, you will own both the structure and the land underneath it.

With a condo, you will own the structure, but the land it sits on will be part of what is called the common parcel.

With townhomes, association fees tend to be lower, though it’s likely that fewer services will be provided.

Condo associations tend to be more hands-on, with responsibility for painting or refacing the outside and common areas of the building, landscaping, and other maintenance tasks.

Your monthly dues will reflect this.

Before deciding to purchase your dream townhome or condo, sit down with your real estate attorney and scrutinize the association bylaws to make sure you understand them. You also need to get a clear picture of the finances of the association.

Unlike with a single or detached family home, the HOA is a very important consideration when purchasing a townhome or condo association, and you need to make sure it’s financially sound.

The last thing you want to do is to purchase a property whose association is mismanaged or, worse yet, on the verge of financial collapse.

Your lender will go through all this information very carefully during the lending process, looking for situations that either exist now or could become issues in the future. But you need to understand it yourself, too.

There are many great townhome and condo developments out there. Lower-maintenance living is ideal for some, particularly downsizing retirees and those who don’t have time for, or don’t enjoy, home maintenance.

However, make sure you know what you are getting into before-not after-you purchase a home that comes with an HOA. Your real estate agent, mortgage professional, and real estate lawyer can help you get the information you need.