Author: simonpayn13

The HomePath program has been getting a lot of attention lately. So what is it, and what can it do for you?

HomePath is a website owned by Fannie Mae that shows properties that have been foreclosed on and taken back from the owners. These are often referred to as real estate owned (REO) properties.

These properties can be in very good shape or in need of major repairs. They are often heavily discounted in price. Keep in mind, though, that whatever their condition, they are all sold as is.

Some disclosures state that anything needing attention once the closing is complete is on the shoulders of the buyer. In other words, once you own it, you own it. On the financing end, the good news is that for those who qualify, and many people do, there is no mortgage insurance required, even with down payments as low as 3.5%.

There are also no appraisals or surveys required, meaning that closing costs are lower than they would be on a traditional mortgage, as these items can cost $300 to $500 each. The mortgage rate will be slightly higher on a HomePath loan than on a traditional mortgage. That’s because Fannie Mae charges a premium to offset the fact that there is no mortgage insurance.

Plan on allowing 30 days to get to the closing table once you apply. HomePath loans are considered specialty products, and while they don’t need to go to Fannie Mae to get approved, there are only a handful of lenders that actually handle these types of mortgages.

For more information on HomePath, visit www.HomePath.com.

With the record-low interest rate environment that we find ourselves in these days, adjustable rate mortgages (ARMs) seem to be more attractive than ever. After all, ARMs often have lower rates than their fixed rate counterparts.

However, there are a few things that buyers should take into consideration before getting into an ARM.

ARMs have a fixed period in the beginning of the loan.

The lower-rate mortgages are usually the ones with the shorter initial terms.

Rates will fluctuate with indices such as Treasury bills, or the London Inter-Bank Offer Rate (LIBOR), which is the interest rate that banks charge each other for loans.

ARMs adjust only at specific intervals, such as once per year, and rates can change only a certain amount at each interval.

They have what are called floors and ceilings.

One of the biggest misconceptions people have about ARMs is that, because the rates are low, they only need to qualify for the initial rate.

This is no longer the case.

For example, if you are looking at a mortgage with an initial rate of 3.5%, but it has a ceiling or lifetime high rate of 9.5%, you will now need to qualify for the payment as if it were 9.5%.

This accomplishes a couple of important things.

First, it takes the guesswork out of wondering whether or not you will be able to handle the mortgage payment if it spikes, based on your current income.

Second, it also protects the lender in the event that the property loses significant value and you are unable to refinance to a lower rate due to equity issues.

If you’ve ever applied for a mortgage, or are planning to do so soon, you should be aware that there are a number of ways lenders and clients connect with one another.

First, lenders reach you by way of channels. There are two basic channels. The first is the retail channel, while the other is the wholesale or mortgage broker channel.

The retail channel is just as it sounds. You may walk into a branch of a bank, fill out an application and the entire mortgage process happens under one roof.

When you go to the closing table, the money you get from the lender, to either give to the seller or pay off your old mortgage company in the case of a refinance, comes from the bank’s own funds.

The broker channel is different.

Mortgage brokers, just as the name implies, broker out loans from their clients to different lenders. The processing of the loan, depending on the arrangement between the broker and the lender, will often be handled at the broker’s office. When it comes time to go to the closing table, though, the money will come directly from the lender, versus the broker.

It is possible that a lender like a big-box bank will operate both channels simultaneously, and those separate channels will compete against one another for your business – either directly to you or through a broker. This is good for you as a consumer, because you have options when you shop for a mortgage.

Remember that house you wanted a couple of years back but couldn’t afford?

Well, with the current housing market having turned in favor of buyers, now might be a very good time to take another look at possibly purchasing that property.

There is a drawback, though.

The other side of the coin is that credit terms have been tightened to prevent another housing market meltdown like the one we went through recently.

Understanding your credit score is the key to taking advantage of today’s situation.

In general, most mortgage lenders pull data from three credit bureaus: TransUnion, Equifax, and Experian.

Each bureau provides a score, and lenders use the average of the three scores to help determine whether they will let you borrow money.

Each bureau uses a similar scoring model.

The two biggest factors that influence the score are recent late payments and debt-to-limit ratios.

Recent Late Payments

If you are late on payments with your existing debt, why in the world would a lender want to step up to the plate and give you more credit?

If a buyer has a legitimate reason or explanation as to how such a situation occurred and why it is unlikely to happen again, it will likely go a long way toward getting a mortgage approved.

Debt-to-Limit Ratios

The debt-to-limit ratio is a comparison of how much you owe compared to how much you have available on a given line of credit.

Too many maxed-out credit cards will give a lender the impression that you are overextended and that you may need to pay down some debt prior to getting more credit. Maxed-out cards also tend to lower your credit score.

The price you pay for a knowledgeable real estate attorney when buying a property could be the best money that you ever spend. There are several reasons for this – one being that they have no interest in the transaction other than to see that you understand what is going on and to see that your best interests are protected.

You might be thinking that in a real estate transaction your real estate agent and loan officer are supposed to be doing this, which is true, but while most of those people do have your best interests in mind, they may come across situations that they have never seen, from a legal perspective, and will seek counsel of a real estate attorney anyway.

Another reason why you should have an attorney, especially from a home financing perspective, is to help you understand the terms of your mortgage, both at the closing table, and what could happen to it down the road.

The vast majority of mortgage professionals are looking out for your interests because that is how they do business and build a relationship with you. However, many people who are in the process of losing their homes today, especially those who bought them in the days of very loose lending guidelines, can look back at the paperwork and see that they got something other than what they thought they were getting. Many of them had no attorneys helping them.

A credible lending professional who has nothing to hide will welcome this party into the transaction.

The Reverse Mortgage (RM) is one solution for homeowners who are looking for a way to access the equity in their homes without taking on more debt.

An RM is also known as a Home Equity Conversion Mortgage (HECM), where the borrower can pull a specific amount of equity out of the property.

No payments are made to the lender until the borrower either passes on or permanently moves out of the property.

Borrowers must be a minimum of 62 years of age to participate, and they are eligible to receive a percentage of the equity in the property. The older borrowers are, the more equity they are eligible to receive.

If there are liens on the property, they are typically rolled into the RM, so it is the only lien on the property.

Other than pulling title on the property, and running a credit report on the borrower or borrowers, there is very little in the way of documentation that the borrower needs to provide at application or later in the process.

Borrowers can receive a lump sum at closing, in monthly payments or as a line of credit to be accessed when needed.

Those interested in getting an RM are required by the Department of Housing and Urban Development to attend a counseling session separate from the mortgage professional. It gives them an opportunity to ask questions.

For more information, borrowers should contact their mortgage professional.

It’s no secret there will be fallout from the generally poor economic environment we’ve all lived through over the past few years. As a result, you may be wondering what the current guidelines are with regard to purchasing a home after either a bankruptcy or a foreclosure.

For starters, it’s important to note that guidelines for conventional financing through Fannie Mae and Freddie Mac are different than guidelines for Federal Housing Administration (FHA) loans.

It can be difficult getting a mortgage with adverse credit terms. Before starting the process, it’s important to know the lay of the land.

The following information may help:

Bankruptcies

There are two types of bankruptcies that people can go through, regardless if they own a home. They are Chapter 7 and Chapter 13. In Chapter 7, debt is wiped clean from the record. In Chapter 13, some type of payment plan is put into place to repay the debt

Conventional lenders will look at finances for at least four years after the dismissal date of either type of bankruptcy, while the FHA will look at two. Both depend on you having a solid credit history since the bankruptcy.

Some FHA borrowers with a Chapter 13 bankruptcy may be able to get a mortgage if they can prove to the lender, via the court system, that payments have been made in a satisfactory manner for a minimum of 12 months.

Foreclosures

The FHA is generally looking for three years from the completion date of a foreclosure before a purchaser can buy again. With conventional financing it is five years.

A deed in lieu of foreclosure will make you eligible for an FHA mortgage in three years as well.

This is where – instead of going through the foreclosure process – the owner agrees to give back the property to the lender in exchange for keeping a foreclosure off of their credit report.

If you’ve been thinking of purchasing or refinancing a home that is in need of repairs, the Federal Housing Administration (FHA) 203(k) rehab loan might be of interest.

There are two types of 203(k) mortgages: streamlined and standard. The streamlined version is for smaller projects and is a less-involved process.

Purchase and refinance transactions work similarly to one another in that the process starts with both an appraisal of the after-improved condition, and contractor estimates. Once values are determined, and the existing structure plus the improvement costs will support those values, the next step involves an FHA consultant.

The consultant, required by all 203(k)  lenders, oversees the project on behalf of both the lender and the buyer, or in the case of a refinance, the homeowner.

Once the FHA consultant has inspected the property and reviewed the project plan, the loan process moves forward.

The verification process includes checking out the general contractor who will be doing or overseeing the work, and ensuring that the contractor has a line of credit. Third parties must be doing the work, as opposed to you or people you know in the trades, so the lender knows the work is getting done by qualified people and that the draws that the lender sends are being used for their intended purposes. Draws are given out at certain points in the process, and some money is withheld until the end to make sure all the work is done. Contact your mortgage professional for more details.

With all the talk these days about mortgage insurance, now may be a good time to understand what it is and how it works.

First, homeowners insurance, also known as hazard insurance, is different than mortgage insurance. Hazard insurance is taken out by a homeowner to insure the property itself. Mortgage insurance is a policy that lenders take out to insure themselves against you defaulting on your mortgage. Some conventional and most Federal Housing Administration FHA) loans carry mortgage insurance.

Conventional Loans

All conventional loans where the loan-to-value ratio is greater than 80% will require some type of mortgage insurance. This insurance is paid monthly with the mortgage payment, and the rate will vary based on the loan-to-value ratio.

Existing homeowners who had more than 20% equity but now have less than that due to declining property values and are looking to refinance may still be in luck.

Many of the refinance programs that are available, specifically on mortgages that were insured by either Fannie Mae or Freddie Mac, have provisions where mortgage insurance can remain off the loan.

Check with your mortgage professional for more details.

FHA Loans

FHA loans have two types of mortgage insurance associated. The first is called the upfront mortgage insurance premium. This fee can be financed and is 1% of the base loan amount. If you borrow $100,000, your loan will carry a premium of $1,000, making the amount you borrow $101,000. Then you will still have a monthly mortgage insurance premium. A 30-year, $100,000 loan would have a monthly mortgage insurance payment of $70.83. This is calculated by multiplying the loan amount of $100,000 by .0085 and then dividing by 12. Some FHA 15-year mortgages have the monthly mortgage insurance waived.

The opportunities for purchasing investment properties in the current market are unprecedented due to historically low mortgage rates and home prices. Investors purchase homes for one of two reasons. The first is to repair and then resell the property. The second is to rent out the property so they have an income stream.

In either case, buyers need to make whatever scenario they are looking to make happen work on paper before doing it for real – in other words, they have to run all the numbers. This means getting input from outside experts such as real estate agents, appraisers and contractors, all of whom can provide buyers with the information they need to make an informed decision. Investors should plan on putting 25% to 30% down on an investment property and have a minimum credit score of 720. Any late mortgage payments in the prior 12 months, or bankruptcies in the previous seven years, will make them exempt from the program.

The Federal Housing Administration (FHA) does no investment property financing, with the exception of multi-unit properties where the owner intends to occupy one of the units. This means the FHA will likely use Fannie Mae or Freddie Mac guidelines.

Investors should plan on paying a higher interest rate on any investment property mortgage. As far as assets go, lenders will be looking at six months of mortgage payments, including taxes and property insurance. This may be in the form of a checking or savings account, or a percentage of some type of retirement account such as a 401(k).