Author: simonpayn13

If you’re looking to buy a townhouse or condominium, it’s important to note there are some significant differences between the two.

A condo is more of a legal definition than anything, referring to how the property is owned and managed.

If you were to purchase a condo, as opposed to a townhouse, you would own just the structure. The land under it would be part of the large parcel on which all the units and the common areas sit. In a townhouse, you own the land under your home.

In a condo, you pay into a blanket condo insurance policy that covers the unit itself.

This insurance, by the way, covers the structure but none of the contents of individual units. In a townhouse, you pay for your own individual policy.

Services such as landscaping and repaving of the common parking lots will often be handled by both types of associations, but condo associations will be more likely to manage minor items such as trim painting and snow removal and major maintenance such as roof replacement.

Roof replacement is more specific to condos in that they are more likely to share common roofs. Thus, it would be challenging to replace specific sections of one part versus the entire roof itself. For this reason, condo association dues can be significantly higher than dues for a townhouse.

When you’re looking to purchase a condo, make absolutely sure that you understand how much the fees are. They will increase over time as maintenance expenses rise.

Now more than ever, opportunities to purchase and profit from investment properties are everywhere.

If you’re thinking about purchasing an investment property, though, there are a number of things you need to know about the financing. For example:

Down Payment:

Expect to put down a minimum of 25%. While minimums used to be much lower and are currently much higher than what you would expect to put down on a property in which you intended to live, lenders are protecting their interests by requiring investors to have a significant stake in the property. You are much more likely to want to make an investment property work for you, through thick and thin, if you have a significant financial interest in it.

Assets:

Be prepared to have six months of liquid assets on hand for each investment property that you own. Lenders are requiring this, as they expect some type of vacancy rate in the property, and you will need to be able to cover the mortgage during these times.

Credit:

As you might imagine, credit requirements are steeper than they would be if you were purchasing your own home. Look to have a Fair Isaac Co. (FICO) score above 700 and no major credit dings, such as bankruptcies or foreclosures, for many years prior. If you are overextended with your existing debt, you will have more of a challenge qualifying.

Types of Mortgages:

Typically, when you buy an investment property, you will use conventional financing requirements. The only exception to this would be Federal Housing Administration loans whereby you can purchase a multiunit property under the condition that you live in one of the units.

Down payments will be lower than with conventional arrangements, but you will still have to pay for mortgage insurance.

If you are planning to purchase a home, but have limited funds or credit challenges, a rent-to-own option may be the best way to go.

A rent-to-own option, also known as a land contract, has many benefits, some of which can include the application of some of your rent money toward a down payment, some type of seller credit at closing or a financial goal to strive for while you move toward the purchase of the property.

Another benefit is that there would unlikely be a commissioned real estate agent involved, meaning that the seller/landlord can pass that savings on to you.

By working with your mortgage professional, you can set a course of action so that you’ll be ready to go when the time comes to purchase the property.

This preparation may include the paying off, or paying down, specific debt to get your financial ratios in line with lender guidelines.

Another reason to hold off on the purchase of a property might be for some type of credit repair or restoration, allowing you to either qualify for a mortgage or qualify for a lower interest rate after specific steps are taken.

Contacting a local real estate agent to get a value on the property before signing a contract is a good idea, as your lender will send out an appraiser during the application process before lending money on it, and you want to make sure that your purchase price is in line with what the market will bear.

Always make sure that you have your attorney look at any contract and financing paperwork before you sign.

Did you know that you may still be able to refinance – even if you have little or no equity in your home?

With record-low interest rates holding firm, it might be wise to look at your options.

There are two big myths going around today about refinancing.

The first myth is that you need at least some equity in your home.

The second myth is that if you have less than 20% equity in your home, you will have to have mortgage insurance.

Both are false.

Which program you can use to refinance will depend on whose guidelines were used to underwrite your mortgage when you acquired it.

Chances are your mortgage was underwritten by Fannie Mae, Freddie Mac or the Federal Housing Administration (FHA).

Both Fannie Mae and Freddie Mac offer refinancing programs that allow homeowners to borrow up to at least what they currently owe on their mortgage, provided the property will appraise out to that amount.

The Federal Housing Administration has what is called a Streamline Refinance.

The Streamline Refinance allows owners to refinance without any appraisal at all, provided they meet other requirements.

For the Fannie Mae, Freddie Mac and FHA programs, owners will need to be current on their existing mortgages.

A good place to start is to call a real estate agent and get a comparative market analysis. This tells a homeowner what value an appraiser will likely return should the owner decide to refinance.

The analysis is normally done free of charge and will give the owner an in-depth analysis of what comparables are selling for in the same area, and for how much.

One of the best things that you can do when you apply for a mortgage is to, as the Boy Scouts say, be prepared.

With all the scrutiny that loan files undergo these days, the better documentation you can provide up front to your lender, the more smoothly the process will go.

Nothing slows the mortgage process more than underwriters having to spend two or three days asking for and then reviewing items that should have been asked for or that were asked for at application but you never provided.

Following are some documents you need to keep your mortgage application on track:

Income:

Thirty days of pay stubs and two years of federal tax returns are pretty much standard.

Contact information for employers over the previous two years is also important, especially if you have had multiple employers.

Each one has to be contacted in the verification process, and the easier you can make it for the lender, the better.

Assets:

The last two months of bank statements are standard.

If you are showing either large deposits or withdrawals on the statements that you submit, be prepared to fully document these items, as lenders will want some type of paper trail as well.

Other Information:

Information like the past two years of residency is important, especially if you have lived in multiple places.

This means you’ll need the names and phone numbers of landlords and/or homeowner associations.

As with income, the easier you can make it for the lender, the more easily the file will move.

The name and contact information of your real estate agent (in the case of a purchase), real estate attorney and insurance agent will be invaluable.

Now that the school year is over, it might be time to think about where your children are going to live when they go to college. The Federal Housing Administration (FHA) has a great program that will fit this bill perfectly.

It is called the Kiddie Condo loan program, and it allows parents and their children to be on a mortgage together.

To qualify, the student must be at least 18 years of age so he or she can sign the real estate contract and mortgage application with the parent(s).

There is a minimum of 3.5% down, as with a traditional FHA mortgage. Minimum credit scores vary by lender but will probably be in the range of 640 for both parent and student, and neither can have big items like recent bankruptcies, foreclosures or late payments on their records.

The student can have minimal credit, but what he or she does have must be fairly clean, as in no recent late payments for such things as cars, credit cards or cell phones.

If the student has income, so much the better, but he or she will need to be able to prove that the income will continue while he or she is in school.

If the student does have income he or she can use, both the student and parent together need to be able to qualify for both the property the parent currently owns, if there is any, plus the new one.

To follow this scenario through to an exit strategy, both parties will be on the mortgage until the property is either sold or the student refinances the parent off it.

Short sales and foreclosures are facts of life in the real estate market these days.

There is a good chance, then, that agents and clients will encounter them when they go to purchase a home or investment property.

Short Sale

Short sale means that the lender on that property wants to sell it and is going to accept less than the current owner owes on it.

Foreclosure

A foreclosure means that the lender has taken back, or is in the process of taking back, the property where the owner has fallen behind on the payments.

In either case, buyers will be dealing directly with the listing agent and the lender on the property as opposed to the seller, who is out of the loop at this point.

Processes

Dealing with the lender means that there is another set of processes to go through.

Depending on who the lender is, and authority of the listing agency hired by the lender, it may take several days or, in some cases, weeks, to learn if an offer is accepted.

Due Diligence

Once an offer has been accepted and the terms agreed upon, it is up to the buyer to do his or her due diligence as far as a home inspection.

Many of these properties are sold as is, and if a buyer has any doubt as to the soundness of anything, he or she has the right to get it inspected at his or her expense.

The buyer has a window in the contract that allows him or her to back out of the deal if there are any major issues.

Short sales and foreclosures can present challenges.

However, opportunities that short sales and foreclosures offer may be great opportunities for those who are willing to go through the process.

In a nutshell, Fannie Mae and Freddie Mac are intermediaries. They buy loans from lenders and then turn around and sell them to investors.

Most mortgages, regardless of the type, are originated with the expectation that they will be sold after they close.

Loans that are kept in-house, by a big-box lender or perhaps a smaller bank, are called portfolio loans. These loans often carry higher rates and have more stringent guidelines than other mortgages, in that the owner of them is taking all of the responsibility and the risk of the borrowers defaulting on them.

When a loan that meets specific criteria closes, Fannie Mae or Freddie Mac buys it. The loan is then bundled with other similar loans and sold to investors as one security instrument.

The benefits to the lender are twofold.

First, the lender makes money on the mortgage, both in the origination of the loan, as in fees, and when the lender sells it to Fannie or Freddie. Second, when the lender sells the loan, it now has a new supply of money with which it can write new mortgages. Once a lender receives this new money, the cycle then repeats itself with the origination of more loans.

The benefit to investors is that they can buy thousands of loans that were originated to a specific set of guidelines and determine the level of risk that is suitable.

For example, they can specify whether a loan is for a fixed-rate or adjustable-rate and what equity a borrower must have.

If you are looking to purchase or refinance a home, or apply for any type of credit, you may be having some challenges.

This could be due to items that are on your credit report.

Some type of credit repair, or restoration as it is sometimes called, may offer some benefit, depending on your situation.

Credit restoration is for people who should be able to qualify for a mortgage from both an income and asset perspective, but who have items on their credit reports that prevent that from happening.

It could be due to a medical situation.

It could also be due to a change in employment status.

When creditors place anything derogatory on your credit report, including late payments and collections, they are required to abide by the federal Fair Credit Reporting Act (FCRA).

The FCRA dictates how items are placed on a report.

The FCRA also dictates how you can dispute them.

A credit restoration agency will file paperwork with the creditors on your behalf.

The paperwork lets the creditors know they are out of compliance with the FCRA and that you would like to have the items removed. The job of the restoration company is to walk you through the entire process.

Your obligation to repay these items is a separate matter, though, from the items that appear on your credit report.

In searching for a credit restoration company, find out how long they have been in business and ask if the company is part of any trade associations that require high ethical standards.

Expect to pay a fee of $400 to $500 for the restoration work. You’ll also have to wait 45 to 90 days for your credit to be repaired, depending on what needs to be done.

Mortgage escrow accounts can be beneficial to homebuyers.

But there are a few things homebuyers should know about them.

First, mortgage escrow accounts are like savings accounts for homeowners.

Money deposited in them is used by a lender to pay your property tax or insurance bill when it is due.

With an escrow account, your lender will pay the bill from the money it collects from you each month.

In turn, you should never pay a bill for these items as long as you own your home and have the escrow account in place.

Borrowers of conventional mortgages, as in those insured by Fannie Mae and Freddie Mac, are typically required to have escrows held back with the payment while the loan balance is greater than 80% of the value of the property.

Federal Housing Administration borrowers will – almost without exception – have escrows taken out of their mortgage payment.

Lenders take a risk when they allow you to pay your own taxes and insurance.

If you default on your mortgage payment, you are also defaulting on the money that goes into the mortgage escrow account.

Property taxes collected at closing will vary from state to state.

Some states collect taxes in arrears, meaning that taxes for 2010 will be due sometime in 2011.

In other states, taxes are paid in advance of the time period they cover.

The time of year a closing takes place may make a difference as to how much you may need at the closing table, as some taxing bodies have installments due in different parts of the year.

It is best for homebuyers to check with a tax professional for details in their area.