What is a Short Sale?

What is a Short Sale?
A short sale is a short sale is a property that sells for less than the balance owing on its mortgage. A short sale can be an underwater home, an apartment building or even vacant land. If there is a mortgage balance that is greater than the market value of the home, that property is a short sale.

Not every property qualifies as a potential short sale in a bank's eyes. A bank must agree to grant a short sale. Banks are under no obligation to approve a short sale. Banks will grant a short sale if the bank feels it is in the bank's best interest to approve the short sale. It is in the bank's best interest to approve the short sale if the bank will make more money through the short sale than to foreclose. It is estimated that banks might save 25% to 30% on foreclosure costs to grant a short sale over a foreclosure, but some investor guidelines make it more profitable for the bank to foreclose.

What is Necessary for a Short Sale? 
Most short sale transactions are handled by real estate agents who specialize in short sales.
There are 4 essential ingredients to a short sale; however, strategic short sales, those without a hardship, are also possible.

What makes a short sale work are the following:

• An underwater home 
• A willing short sale bank 
• A seller with a hardship 
• A buyer willing to purchase the home

What Role Do Real Estate Agents Play in a Short Sale? 
Some real estate agents throw homes on the market that will never close as a short sale. That's because the agents do not always qualify the short sale sellers. Some agents place unrealistic price tags on the short sale, which the bank will never accept.

It is wise to choose an experienced short sale agent who has closed at least 100 short sales.

Here is what an agent does in a short sale:

• Determines the type of short sale. There are many types of short sales, from Fannie Mae HAFAs to regular, non-GSE HAFAs to a traditional short sale, and a few more in between. 
• Gathers the required paperwork and submits the short sale package to the bank. Sometimes agents outsource this part of the process or they might hire a third-party to negotiate the short sale. 
• Helps the seller to price the short sale home. The price needs to be attractive enough to entice a buyer to wait for short sale approval but high enough to satisfy the bank's BPO. 
• Puts the home on the market. The agent must submit all offers received to the seller. Some offers will be lowball offers because buyers don't know any better. 
• Negotiates the short sale. Sometimes sellers will hire a lawyer to do the short sale, but often it's the agent who negotiates with the bank on behalf of the seller. 
• Submits the short sale approval letter to the seller. Most sellers want a release of liability and no deficiency to do a short sale. State laws tend to govern the terms in the approval letters. 

Sellers should always get legal and tax advice before completing a short sale.

What Is the Job of a Loan Officer?

What Is the Job of a Loan Officer? 
If you have ever thought about purchasing a home, one of the main things that may go through your mind is “what is the job of a loan officer?” 


A loan officer usually works for a bank or a mortgage company that specializes in mortgage loans. 


A loan officer is a financial liaison that helps people and businesses get the funding that they need from a lender. They usually specialize in either commercial or individual mortgage loans, although they can also handle other types of credit such as personal loans. 


A loan officer will typically spend some of his day searching for potential clients to service via making cold calls. They may also use a list to work from in order to make contact with potential customers. 


Once a loan officer has secured a client, most of the time, people think of loan officers as their personal liaison between a commercial or home loan lender and the borrower. The loan officer may have a group of financial representatives or banks and lenders that they can reach out to when trying to seal the deal and secure a loan for borrowers. 


The core job of a loan officer is to help borrowers get the loan that they need, whether it is for a home or business. A loan officer may also: 

• Pre-qualify buyers for loans in certain instances 
• Help borrowers complete their applications 
• Run credit checks 
• Advise clients on how they can get the loan they need 

Qualifications of a Loan Officer
Usually you will find that a loan officer has a Bachelors degree in either business, finance or economics. Some may even have banking experience. On occasion you may even find a loan officer who has a solid background in mathematics. 


The daily duties of a loan officer vary and include: 

• Constant communication with the client and the lenders either via the telephone or over the Internet Traveling to the client or lender 
• Visiting customers 
• Drafting paperwork 
• Perform online credit checks 
• Draft correspondence 

Having a job as a loan officer will definitely require an ambitious mindset, a penchant for hard work, determination, and the ability to thrive in all environments. There will be times when the pressure is high as well as times where the work day is slow. 


As a loan officer you have to have that special something that makes people want to say yes to you. It is important to be a good salesperson, because for every 100 “nos” you will get at least one “yes.” Loan officers live by the law of averages and make every effort to get their customers the loans necessary for their needs. You will find that most loan officers are eager and determined to get their jobs done effectively.


Source:  YourDictionary

Loan Officer at Banks and Mortgage Brokers

Loan Officer at Banks and Mortgage Brokers
Loan Officers
We'll give you the average profile of a loan officer working for a mortgage broker. Knowing this may give you an insight on the guy that has your life savings in his/her hands. The average loan officer: 

• Has no college degree, may never have finished high school. 
• Makes about $1,500/month (about $500/loan) for which they typically work like dogs. Spends their day getting rejected while looking for business: visiting real estate offices, cold calling customers, going to banks looking for rejected loans, sending out mailers. 
• Gets viciously yelled at by borrowers, title companies, realtors, builders, underwriters, and his/her boss. This is part of the day, no matter how good a loan officer is. 

Loan Officers are are heavily involved in one of the biggest purchases a person makes in a lifetime, and everything about the deal looms large and frightening for the borrower. Mild mannered people turn in to screaming monsters if anything goes wrong, and there are so many things that can hold up a loan. It's not a fun business, it's stressful, hard work, and it's a good day if no one gets upset with the loan officer. Have a heart for these guys. And also realize that most of them don't respond to yelling, hysterics or threats. It's nothing new to them and will only get you an increase in loan fees as compensation for your abuse or get you terrible service. They're people, too. 


If you have less than perfect credit or a tough situation, the loan officer specializing in these non-conforming loans knows he or she will work harder for this deal and will either: 


a) hope you will be impressed enough to send many referrals in the future, or 


b) charge you more money. 


Guess which one they will usually pick? The loan officer sees an opportunity to make a little extra income. Remember the real costs involved in doing a loan. 


You should keep in mind that if you can't get an 'A' loan, the loan officer may only be able to find a loan for you which is certainly higher in interest rates, and possibly in fees, too. There are special loans for non-conforming situations. 


Especially with tough or non-conforming loans, the loan officer may charge extra points to get the loan through. How much extra is their call (and yours; you can always walk away.) However, overcharging isn't the norm: Loan officers with clients who feel they've been overcharged don't get repeat business, the real money in this industry. Unfortunately, you still need to be careful about the guy who will shaft you. Desperate people can get taken because they'll do anything to get a loan. 


If you think you're being overcharged, shop. Most brokers have access to the same products (meaning they can usually find and buy the same loans as other brokers), so call around and compare interest rates and fees, especially if you're not an 'A' loan. Don't believe the loan officer who tells you that you won't get a loan anywhere else. By shopping around, you can usually reveal who's trying to gouge you. Once you find the interest rate and fees you can live with, fill out an application at the broker's office, and lock the terms of the loan. 


A broker is your only option when: 

• you have less than perfect credit 
• are self employed (and can't prove your income) 
• just switched professions 
• or have a high debt load

Mortgage brokers can get you a loan when the banks just aren't interested in the hassle. But you will pay more in both fees and interest rates for getting your loan through. 

A bank is the best option if: 

• you have top notch credit 
• steady job/work history 
• low debt loads 
• are self-employed, but your last 2 years of income tax returns easily prove your income. 

A broker may have competitve rates/fees as compared to a bank, so don't necessarily rule out a broker even if you'd qualify for a bank loan.


Source:  CreditInfoCenter

Mortgage Broker or My Bank - Which One is Better?

Mortgage Broker or My Bank - Which One is Better?
A mortgage broker "buys" loans from a variety of mortgage lenders at a wholesale cost, and sells the loan to another mortgage banker, receiving a commission on the sale.


A banker, gets a loan from your local bank. A banker usually, but not always, has their own money to lend out and makes a profit by collecting loan fees and the interest the customer pays on the loan, called servicing fees. However, most banks package up loans in packets of $1,000,000 dollars or more and sells them to the secondary market, making a commission on the sale. Why? What are interest rates right now, 7 or 8%? The stock market and mutual funds are averaging 15% returns or more. Why have millions of dollars tied up in low return investments?


Banks 
No matter what people will tell you, your best deals usually are at a bank. I mean the same building where you get your checking and savings accounts, not a mortgage company with the same name as your local bank. This is because there aren't a lot of add-on fees and middlemen who touch your loan and get paid for it. Plus, these guys do a volume business and therefore can cut corners on costs. The employees generally don't get a commission, just an hourly rate, so they aren't looking for ways to charge you extra. (No, that doesn't happen, does it? Yeah, and I have a bridge to sell you, too.) They also may lend out their own money, making money through the servicing of a loan, not in charging origination fees.


One of the reasons that a bank is cheaper: Banks don't give out loans to anyone without 'A' credit, job stability, long-time residence and good income. If you fit their criteria, giving you a loan is practically automatic and follows the same procedure every single time, without extra work or effort on the part of the bank.


As we stated, the banks make money by processing a cookie cutter type of loan. If you don't fit the 'A' profile in job, credit, and income, forget it: why should the loan officer do any extra work if and not be paid for it? Your loan gets pitched in the reject pile automatically. It's not that you're not a good loan risk, but look at it from the loan officer's point of view.


In the banks that do pay commission, a loan may pay a flat $100 commission for every loan. Therefore, why would a loan officer work on a loan that takes the time of two easy loans? He/she would make $100 less for the same work. It's just common sense for them to pitch out a difficult loan.


And the banks that don't pay commission? Are you kidding? Why deal with the stress if you you can just stamp 'reject' on the file? Those rejected files? This is where the mortgage broker comes into play.


Mortgage Brokers 
In the mortgage broker world, you usually pay higher fees/interest rate for getting your loan through. The sharp loan officer can take a look at your application and know in advance how much effort it will be to get your loan through the system. Not every broker handles difficult loans, most prefer handling 'A' clients. Again, it's easier, like the guys working in the banks: they'd rather make a lower commission for less hassle and go for volume.


So why would an 'A' client go to a broker? The reasons are numerous: clients may not have tried the bank, the broker actually has a better deal (it happens) , either in interest or fees, or their realtor recommends them. Usually the broker, if they're good and have been in the business a while, has a regular clientele consisting of real estate agents or referrals by past satisfied customers. Buying a house is very stressful; a competent, hand-holding professional may be a service worth paying for. Keep this is mind, it's one of the things you should consider for when shopping for a loan.


Source:  CreditInfoCenter

Interest Rates are at All-Time Record Low

Interest Rates are at All-Time Record Low
Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates finding new all-time record lows continuing to help keep homebuyer affordability high. 

The 30-year fixed averaged 3.84 percent, down from its previous all-time record low of 3.87 percent last registered on February 9, 2012. 
The 15-year fixed averaged 3.07 percent, also dropping below its previous all-time record low of 3.11 percent set April 12 of this year. 
The 1-year ARM also averaged a new all-time record low in the PMMS at 2.70 percent. 

News Facts 

• 30-year fixed-rate mortgage (FRM) averaged 3.84 percent with an average 0.8 point for the week ending May 3, 2012, down from last week when it averaged 3.88 percent. Last year at this time, the 30-year FRM averaged 4.71 percent. 
• 15-year FRM this week averaged 3.07 percent with an average 0.7 point, down from last week when it averaged 3.12 percent. A year ago at this time, the 15-year FRM averaged 3.89 percent. 
• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.85 percent this week, with an average 0.7 point, unchanged from last week when it averaged 2.85 percent. A year ago, the 5-year ARM averaged 3.47 percent. 
• 1-year Treasury-indexed ARM averaged 2.70 percent this week with an average 0.6 point, down from last week when it averaged 2.74 percent. At this time last year, the 1-year ARM averaged 3.14 percent. 

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.


Source:  http://www.thenichereport.com/

Is my Home Mortgage Interest Fully Deductible?

Is my Home Mortgage Interest Fully Deductible?
Look at the following graph to see if you qualify to take a full deduction on your home mortgage.

Source: http://www.irs.gov/

Mortgage Interest Deduction

Mortgage Interest Deduction 
The mortgage interest deduction encourages homeownership by allowing you to deduct when filing your federal income tax 100 percent of the interest paid on the home mortgage


The mortgage company reports to the IRS all the mortgage interest you paid in a tax year (January 1 to December 31) and sends you a statement of total interest paid on a Mortgage Interest Statement, Form 1098. The principal portion of the mortgage is not tax deductible.

Mortgage interest can substantially reduce your tax liability. 

Step 1 
Complete IRS form 1040 by inputting filing status, income and deductions on the appropriate lines. 
Use the standard deduction, or, if you itemize on Schedule A, use your total itemized deductions, less mortgage interest. 
Calculate tax or refund due using your taxable income and the IRS-provided tax charts. 
Call this total A. 


Step 2 
Prepare a second 1040, using your mortgage interest (reported to you on Form 1098) as part of total itemized deductions. 
Use the tax charts and your taxable income to determine tax or refund due. 
Call this total B. 


Step 3 
Subtract total B from total A. 
The difference is your tax savings due to the mortgage interest deduction. 
For example, if you owed $15,000 in taxes without the mortgage interest deduction (A) and $3,000 with the mortgage interest deduction (B), your tax savings is $12,000 ($15,000 minus $3,000). 

Things Needed 

• Schedule 1040, 
• 2 copies Schedule A, 
• 2 copies Form 1098

What are Mortgage Points?

When people want to find out how much their mortgages cost, lenders often give them quotes that include both loan rates and points.

What exactly is a point?

A point is a fee equal to 1 percent of the loan amount. A 30-year, $150,000 mortgage might have a rate of 7 percent but come with a charge of 1 point, or $1,500.A lender can charge 1, 2 or more points. There are two kinds of points -- discount points and origination points.

Discount points: These are actually prepaid interest on the mortgage loan. The more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4 points, depending on how much they want to lower their rates. This kind of point is tax-deductible.

Origination fee: This is charged by the lender to cover the costs of making the loan. The origination fee is deductible if it was used to obtain the mortgage and not to pay other closing costs. The IRS specifically states that if the fee is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs and inspection fees, it is not deductible.
How do you decide whether to pay points, and how many? That depends on a number of factors, such as how much money you have available to put down at closing and how long you plan on staying in your house.Points as prepaid interest reduce the interest rate, an advantage if you plan to stay in your home for a while.
But if you need the lowest possible closing costs, choose the zero-point option on your loan program.

By the numbers ...

A lender might offer you a 30-year fixed mortgage of $165,000 at 6 percent interest with no points. The monthly mortgage principal and interest payment would be $989. If you pay 2 points at closing (that's $3,300) you can bring the interest rate down to 5.5 percent, with a monthly payment of $937. The savings difference would be $52 per month. But it would take 64 months to earn back the $3,300 spent upfront via lower payments. If you're sure you will own the house for more than five-and-a-half years, you save money by paying the points.

What is an Escrow Account?

An escrow account is used to collect and hold funds to pay your property taxes, homeowners insurance premiums or other charges when they become due.

The account is often established for you by your mortgage company when you take out your mortgage.  However, if an escrow account was not set up when you took out your mortgage, you may be able to do so now. 

Real estate taxes and insurance premiums must be paid regularly — typically, payments are due once or twice a year — and failure to pay these bills on time may cost you money in tax penalties or result in cancellation of your insurance coverage.

What are the benefits of an escrow account?

An escrow account helps you:

• Manage your budget: You do not have to make lump sum payments when your taxes and insurance are due. You have made monthly payments throughout the year to cover those obligations.
• Gain peace of mind: You don’t need to keep track of when your tax and insurance bills are due.  The payments will be made, on time, on your behalf.
• Ensure that your home is protected: With paid-up insurance coverage and taxes, you protect your investment in your home and meet your lender’s requirements.

Most mortgage companies require an escrow account for mortgages with less than a 20 percent down payment.

How does an escrow account work?

Your monthly mortgage payment includes an amount for property taxes and insurance in addition to the amount you owe for principal and interest.

The amount of your monthly mortgage payment that is for taxes and insurance is placed by your mortgage company into an escrow account. The funds can be used only to pay taxes and insurance on your behalf.

Your mortgage company pays the taxes and insurance bills for you when they are due. Your mortgage company examines any changes in your tax and insurance costs (for example, your local government may change the amount of your real estate taxes). Your mortgage company sends you a statement each year showing the prior year's activity — amounts collected from you and placed in escrow as well as the payments made on your behalf — and showing any adjustments that may be needed based on changes in your tax and insurance costs.   

Here is a simplified example* of how escrow payments are calculated:
Annual real estate taxes: $1,800 ÷ 12 months = $150 per month
Annual property insurance: $720 ÷ 12 months = $60 per month
Total monthly taxes and insurance: $210

So in this example, $210 would be added to your total monthly mortgage payment and applied to your escrow account. You might hear your total monthly mortgage payment referred to as your “PITI” — forprincipal, interest, taxes and insurance.

Do you have an escrow account?

If you are not sure if you have an escrow account, check your monthly mortgage account statement or contact your mortgage company.  Your account statement will typically indicate your “Escrow Balance” and the amount of your total monthly mortgage payment that is applied to escrow.

Should you establish an escrow account?

If you do not have an escrow account, you may want to establish one. Ask your mortgage company for more information.

Want more information?

For more information, talk with your mortgage company to determine if you are setting aside adequate funds in your escrow account or if you should set up an escrow account. Also, the U.S. Department of Housing and Urban Development offers "Frequently Asked Questions about Escrow Accounts for Consumers".

Types of Loans - USDA

USDA stands for United States Department of Agriculture.  Over the last few years USDA or Rural Housing Loan has become the hottest loan in town for most low and moderate income families.  This is because you can get a loan for 100% financing with no Mortgage Insurance.

These programs are tailored towards people who live in Rural Areas.  To determine if the house you are thinking about purchasing is in a rural area and if you meet income qualifications click on the following link:

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

There are two types of loans that USDA offers

USDA Guaranteed Rural Housing Loans
USDA Guaranteed Loans are the most common type of USDA rural housing loan and allow for higher income limits and 100% financing for home purchases. USDA Guaranteed Loan applicants may have an income of up to 115% of the median household income for the area.   All USDA Guaranteed Loans carry 30 year terms and are set at a fixed rate.


USDA Direct Rural Housing Loans
USDA Direct Housing Loans are less common than USDA Guaranteed Loans and are only available for low and very low income households to obtain home ownership, as defined by the USDA. Very low income is defined as below 50 percent of the area median income (AMI); low income is between 50 and 80 percent of AMI; moderate income is 80 to 100 percent of AMI.  You can click here http://www.rurdev.usda.gov/HSF-Direct_Income_Limits.html and see if you qualify for this loan.

Why choose a USDA Mortgage?

1. USDA loans require NO down payment
2. In some cases you can finance your closing costs, Seller can pay up to 6% of your closings costs so really you don't have to come to the table with ANY money.
3. There are NO prepayment penalties for USDA Rural Housing Loans.
4. USDA loans has no monthly Mortgage Insurance.
5. A USDA loan is available to all Rural areas of the country, provided a market exists for the property and the home meets HUD's minimum property standards.
6. You can use this loan to purchase a New or Existing one family home in Rural Areas.
7. No Manufactured Homes allowed unless it is Brand new (talk to your lender about this)
8. USDA loans are offered at 30 years terms with a fixed interest rate.

Fixed Rate Vs. Adjustable Rates - Which one is the best for me?

Fixed-rate mortgages and adjustable-rate mortgages (ARMs) are the two primary mortgage types. While the marketplace offers numerous varieties within these two categories, the first step when shopping for a mortgage is determining which of the two main loan types - the fixed-rate mortgage or the adjustable-rate mortgage - best suits your needs.

Fixed-Rate Mortgages
A fixed-rate mortgage charges a set rate of interest that does not change throughout the life of the loan. Although the amount of principal and interest paid each month varies from payment to payment, the total payment remains the same, which makes budgeting easy for homeowners.

The partial amortization schedule below demonstrates the way in which the principal and interest payments vary over the life of the mortgage. In this example, the mortgage term is 30 years, the principal is $100,000 and the interest rate is 6%.

Payment	Principal	Interest	Principal Balance
1. $599.55	$99.55	$500.00	$99900.45
2. $599.55	$100.05	$499.50	$99800.40
3. $599.55	$100.55	$499.00	$99699.85

As you can see, the payments made during the initial years of a mortgage consist primarily of interest payments.
 
The main advantage of a fixed-rate loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise. Fixed-rate mortgages are easy to understand and vary little from lender to lender. The downside to fixed-rate mortgages is that when interest rates are high, qualifying for a loan is more difficult because the payments are less affordable.
 
Although the rate of interest is fixed, the total amount of interest you'll pay depends on the mortgage term. Traditional lending institutions offer fixed-rate mortgages in a variety of terms, the most common of which are 30, 20 and 15 years.

The 30-year mortgage is the most popular choice because it offers the lowest monthly payment; however, the trade-off for that low payment is a significantly higher overall cost because the extra decade, or more, in the term is devoted primarily to paying interest. The monthly payments for shorter-term mortgages are higher so that the principal is repaid in a shorter time frame. Also, shorter-term mortgages offer a lower interest rate, which allows for a larger amount of principal repaid with each mortgage payment, so shorter-term mortgages cost significantly less overall.

Adjustable-Rate Mortgages
The interest rate for an adjustable-rate mortgage varies over time. The initial interest rate on an ARM is set below the market rate on a comparable fixed-rate loan, and then the rate rises as time goes on. If the ARM is held long enough, the interest rate will surpass the going rate for fixed-rate loans.
 
ARMs have a fixed period of time during which the initial interest rate remains constant, after which the interest rate adjusts at a pre-arranged frequency. The fixed-rate period can vary significantly - anywhere from one month to 10 years. Shorter adjustment periods generally carry lower initial interest rates.
 
ARM Terminology
ARMS are significantly more complicated than fixed-rate loans, so exploring the pros and cons requires an understanding of some basic terminology. Here are some concepts  borrowers need to know before selecting an ARM.

• Adjustment Frequency - This refers to the amount of time between interest-rate adjustments (e.g. monthly, yearly, etc.).
• Adjustment Indexes - Interest-rate adjustments are tied to a specific index, or benchmark, such as the interest rate on certificates of deposit or Treasury bills, or the LIBOR rate.
• Margin - When you sign your loan, you agree to pay a rate that is a certain percentage higher than the adjustment index. For example, your adjustable rate may be the rate of the one-year T-bill plus 2%. That extra 2% is called the margin. 
• Caps - This refers to the limit on the amount the interest rate can increase each adjustment period. Some ARMs also offer caps on the total monthly payment. These loans - known as negative amortization loans - keep payments low, however these payments may cover only a portion of the interest due. Unpaid interest becomes part of the principal. After years of paying the mortgage, your principal owed may be greater than the amount you initially borrowed.
• Ceiling - This is the highest interest rate that the adjustable rate is permitted to become during the life of the loan.

ARMs are attractive because they offer low initial payments, enable the borrower to qualify for a larger loan and in a falling interest rate environment, allow the borrower to enjoy lower interest rates (and lower mortgage payments) without the need to refinance. The ARM, however, can pose some significant downsides. With an ARM, your monthly payment may change frequently over the life of the loan. And if you take on a large loan, you could be in trouble when interest rates rise - some ARMs are structured so that interest rates can nearly double in just a few years.

Which Loan is Right for You?
When choosing a mortgage, you need to consider a wide range of personal factors and balance them with the economic realities of an ever-changing marketplace.  Individuals' personal finances often experience periods of advance and decline, interest rates rise and fall, and the strength of the economy waxes and wanes. To put your loan selection into the context of these factors, consider the following questions: 

• How large of a mortgage payment can you afford today?
• Could you still afford an ARM if interest rates rise?
• How long do you intend to live on the property?
• What direction are interest rates heading and do you anticipate that trend to continue?

An ARM may be an excellent choice if low payments in the near term are your primary requirement or if you don’t plan to live in the property long enough for the rates to rise. If interest rates are high and expected to fall, an ARM will ensure that you enjoy lower interest rates without the need to refinance. If interest rates are climbing or a steady, predictable payment is important to you, a fixed-rate mortgage may be the way to go.

Regardless of the loan that you select, choosing carefully will help you avoid costly mistakes.

Refinancing... Is it a GOOD IDEA??

What is refinancing?

Refinancing replaces your current mortgage with a new loan that has a more favorable interest rate and terms that you can afford to manage. The new loan is secured on the same property as your current loan. The new loan funds are used to pay down the current mortgage while any remaining money can be used to your best advantage.

Example: Mr. & Mrs. Lee both took out a mortgage loan worth $500,000. After 4 years, both of them paid off $250,000. Mr. Lee then took out another home loan worth $250,000 in order to repay the existing loan balance.

On the other hand, Mr. Nava took out another mortgage worth $300,000 in order to repay the unpaid loan balance which is $200,000. Mr. Nava could use the remaining balance in order to fulfill other financial obligations.

The first scenario is a simple refinance while the second is that of a "cash-out refinance".

5 Reasons why you should refinance

If you're thinking of refinancing your house, check out these 6 reasons why a mortgage refinance might be right for you.

• You want to save more:
  Your monthly payments will be reduced if you get a lower interest rate or when the term of the loan is extended. However, with an extended term, you will be paying more in interest during the life of the loan.
• You want to pay down your mortgage quickly:
  You can shorten the length of your mortgage by reducing the term of the loan. Your Monthly payments will go up, but you will be able to save more in interest payments. Moreover, you'll be debt free sooner.
• You need extra cash to pay off credit cards:
  If you have enough equity in your home, you can refinance and borrow more than the current loan balance. With the extra money, you can pay off high interest debts such as credit card balances or installment loans. This refinance loan may be tax deductible under certain conditions.
• You wish to consolidate 2 loans into one:
  If there's enough equity (due to high appreciation), you can consolidate a 1st and 2nd mortgage into a single mortgage. The monthly payment on the new loan might be lower than the combined payments on the first loan and the second mortgage.
• You want to convert an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM):
  A FRM prevents the lender from increasing your monthly interest payments over the life of the loan, unlike with an ARM. This means your monthly payments will remain the same.

When to refinance mortgage

"Should I refinance my house now?" – This is what most people ask when they're looking to reduce their mortgage payments by taking advantage of low rates. To find the answer, check out the mortgage refinance tips below:

• Build up equity:
  You can refinance when you have built up at least 10% equity in your home (Fannie Mae owned mortgages, require 5% equity). It is possible for you to refinance if you have less than 5% equity, but you may have to pay a certain amount of money in order to make up the difference in equity.
• Check if mortgage refinance interest rates are low:
  It's better to follow the 2% Rule. The 2% Rule allows you to enjoy the benefits of home refinance if the refinance interest rate is 2% lower than your current loan's interest rate. The savings in interest will help you recoup the costs of the new loan, provided you aren't planning to move soon (the break-even period). However, there are no-cost as well as low-cost refinance loans where the costs of getting the loan are included. However, these loans have comparatively higher rates than loans that do not include the refinance costs and your options are limited when the credit market is experiencing a slump. Learn more about the when to refinance rule of thumb.  
  
  As per this rule, if your rate on the mortgage is reduced by at least 2% then only you should refinance to get a benefit.
  As always, compare mortgage refinance interest rates offered by different lenders in order to get the best interest rate. This will help you save more over the life of the loan.
• Pay off any late payments:
  There is no such limit on the number of times you can go for home refinance loans. Most lenders prefer that you have no late payments in the last 12 months before you refinance.
• Remove negatives and improve your credit score:
  Get your credit report from the bureaus and review it for any negative items (late payments, collections, etc) and inaccurate items. Dispute any inaccurate items and remove them from the report. Pay off as much of your debt as you can. Otherwise, you won't get a low interest rate and may not even qualify for a refinance loan. Of course, there are lenders in the subprime lending market who may offer you a mortgage refinance loan, but it's better to avoid them as they'll charge higher interest rates and fees and could be fraudulent.

When NOT to refinance

Refinancing is not a good idea if:

• Your property value has gone down:
  If your property value goes down and you refinance up to 80% of the appraised value, your original mortgage amount may be higher than the amount you borrow. Therefore, the new loan will not be enough to pay down the existing one.
• You have been paying off the first loan for a long time:
  If you are almost finished paying off a 30 year fixed mortgage, then refinancing is not a good idea. You will lose equity in proportion to the amount you borrow over and above the remaining loan amount.
• You have used up enough equity:
  Refinancing is not a good idea if you have already reduced the amount of your equity by taking out a 2nd mortgage or a home equity loan. Refinance loans for 100% of the loan are rare, and with the mortgage market currently in a crisis, are hard to find.
• You have a few years left on the current loan:
  If there are only a few years left on your current loan, then refinancing is not a good idea. Taking out a new loan will only put you deeper into debt just when you were about to become debt free.

Refinancing makes sense for the right reasons and at the right time. You need to decide whether to opt for a simple interest rate adjustment refinance or a refinance that will provide you with extra money. If you'd like to check out what mortgage refinance rates and terms are currently available, request a no-obligation free mortgage refinance quotes from our community lenders and brokers.

Do you really want to pay your mortgage Bi-Weekly?

If you have a mortgage, you may have received and invitation from a bank or mortgage servicing company to make your payments bi-weekly.

The Good thing about this:  Paying half of your mortgage every two weeks could coincide evenly with your paycheck schedule.  Plus you can pay off your mortgage six to eight years early.

Why is it not a good idea?:  Many of the programs come with a hefty price tag.  if you are interested in paying half of your mortgage every two weeks instead of making one full payment every month, get all the details from the institution offering the program, including all of the fees and charges.

If you are serious about this, you could get the same results for free.

Myths and advantages

You need to understand what bi-weekly mortgage programs will and will not do for you.  Here are two common misunderstandings:

Paying your mortgage twice a month gives you better credit.    
NO.  Banks often use an automatic bank draft for their bi-weekly plans, which means all your mortgage payments will be made on time, and that will help your credit.  But you can get the same effect on a monthly plan using electronic bill payment or an automatic bank draft.

Paying twice a month reduces the compound interest on your mortgage.

WRONG.  In fact, even though you are paying biweekly, chance   are, your loan servicing institution is paying your loan monthly.  Which means that if you buy into bi-weekly plan, you are actually loaning the servicing company half of your mortgage payment (interest free) for at least two weeks every month.  What will reduce your interest are the two additional half payments going toward the principal each year.  In other words, by making 26 payments of half your mortgage, you are in effect making 13 monthly payments instead of 12.

Depending on the terms of your loan, and who you ask, one extra payment a year will enable you to pay for your house and average of six to eight years ahead of schedule.

The price tag
Biweekly payment programs are easy, but the convenience comes at a cost. Many lenders offer two ways to pay: upfront or as you go.

Of the top five mortgage-servicing institutions, four charge enrollment fees that range from $295 to $379. Three also levy additional charges on every transaction. If you want to pay as you go -- without the hefty upfront charge -- fees from the same top five servicers average from $4 to $9 a month.

Is it for you?
If you are wowed by the convenience of having the bank automatically draft a payment that coincides with your biweekly paycheck, don't have much discipline when it comes to money and don't mind the extra fees, then you might want to consider a biweekly payment schedule. 

Some questions to ponder:

1. How long are you planning to stay in your house? Granted, any extra money you pay to your mortgage will likely come back as equity when you sell. But if you're looking for a good deal from a biweekly payment plan, you want to be in the house a substantial number of years.

2. How close is retirement? If you'll soon be receiving your retirement money monthly, do you want to spend money setting up a biweekly payment plan?

3. Would an early payoff on your mortgage facilitate other planned financial goals, like sending kids to college, changing careers or early retirement? Or would it make those plans more difficult?

4. Is there a better way to spend this money? "Do you have a Roth IRA?" "Are you making the maximum contribution to your retirement? Something about owning your own home is satisfying. But when you're talking about looking at your home as an investment, look at all the investments you could be making with that money."

Free alternatives to bi-weekly programs

While hundreds of thousands of mortgage holders have signed up for bi-weekly payment programs, they represent only a tiny fraction of the overall number of mortgage holders, according to estimates from the top five loan service providers.

A true biweekly mortgage -- one that you set up when you buy your house or when you refinance -- is rare. Not every lender offers them. In any case, remember that it's possible to get many of the same benefits of a biweekly payment schedule for free.

Here's how:

1. Pay an additional one-twelfth of your mortgage each month. Designate on your coupon that the amount should go against the principal.
2. Contact your loan service agent and find out if you may start sending a half-payment every two weeks without enrolling in their biweekly program. Some banks flat out won't allow it. In some cases, the loan agreement prohibits partial payments. Some mortgage servicing companies will permit it -- but you must write out very specific instructions with each check so that they know where and how to apply the money. If your mortgage institution doesn't seem willing to oblige, don't try this option.
3. If you get a bonus or tax refund each year, add the equivalent of one extra payment to your mortgage. Again, tell the bank that the additional money goes toward the principal.
4. If you get paid biweekly, take half of your mortgage payment from each check and put it in a savings account. At the beginning of the month, write your mortgage check from that account. At least twice a year you'll be including the equivalent of an extra half-payment. Specify on the mortgage coupon that the additional money goes against principal.

Conditions of a Mortgage

After you apply for a mortgage and your mortgage professional submits your application for approval, the underwriter may ask you to clear certain conditions before making a decision. To fulfill these conditions, you usually need to supply additional documents to clarify financial facts within a specified period of time.

Features

• An approved mortgage usually comes with a few conditions set by the underwriter. At this stage, the underwriter usually provides you with a checklist of borrower conditions that you need to satisfy before getting a full approval. These conditions often require you to provide additional documents containing explanation, correction and verifications. Satisfying these conditions may take time because you often need to obtain documents from third parties.

Examples

• If you don't have credit histories or scores, the underwriter may ask you for payment history of utilities, such as gas and electricity. If you have unconventional income sources, you may have to get an accountant to prepare a profit and loss statement. The underwriter may also ask you to explain or correct inconsistencies in credit reports, tax statements and pay stubs. Other possible conditions include verifications of employment and income, housing history and letters from donors who provide you with funds.

Timing

• Satisfying the mortgage conditions is the stage that delays the approval of most loans. Many times, this is because various third parties take longer than expected to produce the documents you need. For example, your place of work may be going through a busy period and take more than one week to provide a verification of employment. If you have bad debt, it also takes time for you to clear the collection account and obtain relevant documents.

Clear to Close

• Once you satisfy all the conditions, the lender issues a clear to close, which means the lender will soon be ready to provide the mortgage funds. It usually takes two to three days from a clear to close for the lender to process your funds. Aiming to get a clear to close at least one full week before closing provides you with enough time in case it takes longer for the lender to process your funds.

What is a Reverse Mortgage?

Reverse mortgages are relatively new products in the world of retirement income, and there's much confusion over how they work. In essence, here's what the national trade group, the National Reverse Mortgage Lenders Association, says about them: "Reverse mortgages are available to seniors 62 years old and older with significant home equity. They are designed to enable elderly homeowners to borrow against the equity in their homes without having to make monthly payments as is required with a traditional 'forward' mortgage or home equity loan. Under a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away. Borrowers may draw down funds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as they continue to live in the home."  

May be a bad deal

Even if the reverse mortgage is not a scam, it may come with so many charges and hidden fees to make it a bad deal. And of course, the person trying to sell it to you probably won't mention that.
If you think you might be interested in a reverse mortgage, your best course would be to speak with a HUD counselor, or a financial planner who does not sell mortgage-related products.

Mistakes to avoid when you are shopping for a Mortgage

Whether you are looking for a Mortgage for your First Home or refinancing your current loan, it is important to know the most important mistakes people make when they looking to get the best deal.

• Choose the loan provider that offers the best price and rate over the telephone, TV advertising or newspaper:  If you look at all of them, you will find a lot of lenders that will beat each other at several different prices, but not one of them have the capacity nor the intention to deliver those offers.  Their intention is to get you interested, move along with the process until it is too late for you to back out.  By then, they will raise the price using a lot of tricks available.  You want to make sure you are talking to a reputable lender and one that will deliver what they are promising.  In order to determine this, they will offer you either a Fee sheet or a Good Faith Estimate.  Now a days, lenders will not issue a Good Faith Estimate unless you have decided you are going to do the loan with them.  They are bound to the fees they quote in the Good Faith and if you are not serious about using them, or you do not have a property or do not know what loan program you are going to be using, it is hard to determine what the real fees will be as they depend on third party providers also, and different loans have different fees. Still before you sign a loan commitment or give them any application fees, you want to make sure you are talking to somebody that will deliver.  Usually application fees are non-refundable.

• Request quotes for rates without giving the lender all the information about your situation:  This might affect the price, the fees and the lender will not be able to give you an accurate quote.  You have to make sure you let them know what you are planning to purchase, type of home, occupancy type, down payment, loan size, equity in the property if you are refinancing, your ability to document your income and assets, etc.  Unless they are not given all the information, they will give you a quote assuming the standard specifications and will give you a low price, this might not be realistic for your situation.
•  Shop for your mortgage on different days:  Because of the market volatility this is a huge NO NO!!  This will not be comparable...Unless you are shopping all of them on the same day, this really is useless and you are wasting your time and energy.  Shop all of them on the same day.
• Confuse a No-Cost Mortgage with as a No-Cash Mortgage:  This is one of the worst mistakes a borrower can make. "No-cash" means the borrower does not have to pay the settlement costs at closing, but the lender doesn’t pay them either. The costs are added to the loan balance, so the borrower pays them over time, with interest.  Buyer usually pays a higher interest rate on a No-Cost mortgage as the costs are calculated and are put into the loan in the interest rate.  Depending on the closing costs, if the lender needs for example $3,000 for closing costs they will charge the borrower the rate that will give them $3,000 in rebate to cover those costs.  Really they is no such thing as free in the mortgage business... you will get charged somehow.

• Select a Lender without knowing any of the other charges except points, then try to negociate them afterwards:  Before you make a decision on whom you are going to use, find out all of their fees, I will write a post in regards to this but please, do make sure you know what you are getting yourself into.  Everything costs money, Title Insurance, Escrow, Credit Reports, Appraisals, Inspections, Flood Certifications, Recording Fees... just to name a few, so make sure you do know about these fees before signing any initial documentation.