Getting a mortgage can be a very confusing process. There is a lot of paperwork to sign, documents to read and procedures to be followed. You’d think you were applying to go to Harvard or Yale, except they don’t require that much paperwork for you to be admitted!
Going into a mortgage knowing just a few facts will help you immensely in understanding what type of commitment you are getting into.
The first term you should understand is, amazingly, the word “term”. Term refers to the length of the mortgage you are taking out – or the amount of time you are making payments.
Many mortgages run the gauntlet of between ten and thirty years. The longer the mortgage, typically the lower your monthly payment will be (and the more interest the mortgage company makes). Generally speaking, you should go for the shortest term you can comfortable afford – you’ll save potentially tens of thousands (and in some cases potentially over a hundred thousand) dollars in interest by keeping the length of the mortgage as short as you can.
Next, understand the interest rate on your mortgage and how it is calculated. The interest rate refers to the amount of interest charges you will pay for the money you are borrowing, expressed as a decimal – such as 5.2 for 5.2%. Is it fixed or adjustable? In other words, is it the same through the life of the loan or does it change at specified periods in time? Most home buyers should try and steer clear of adjustable rate mortgages even though they can look better up front. They can often reset to higher interest rates and come back to bite you if you aren’t ready for a jump in your monthly payments!
Finally, understand what closing costs are and how they are going to affect your purchase price. Often times, you are going to be responsible for coming up with these closing costs out of your own pocket. Closing costs consists of things such as appraisals done on the house, attorney fees, notary fee, deed fee – if there is a fee they can think of it usually falls under the term closing costs! Be a smart and savvy consumer, if you see a fee that you don’t understand or doesn’t seem right – speak up! Some mortgage lenders try to sneak in any fee they can think of to make a few extra dollars profit.
Understanding these three terms can help make you a more informed home buyer and help you find the mortgage that is right for you. As with any product, it is important to shop around for a mortgage when you are considering buying a house. Even a small change in the interest rate between two lenders can often to amount to thousands of dollars in savings.
Don’t be afraid to comparison shop – it’s your money after all!
FHA loans came into existence in the 1930’s during the Great Depression in order to allow lower income Americans to borrow money for the purchase of a home. The government program was intended to provide banks with adequate insurance to insure against mortgage defaults that were subsidized by the government.
Well, the fall of 2010 should bring us a new refinance program for those with mortgages that are underwater (the mortgage amount exceeds the value of the home). However, the program is voluntary for mortgage lenders.
The government will offer cash incentives tied to the total value of loan principal reduced. To participate in the program, lenders must write down at least 10 percent of the original loan balance, and the restructured loan amount must be less than the current value of the home. After the principal write down, the new loan to value can be no higher than 97.75% of the new appraised value.
If you have a second mortgage, the lien holder must agree to subordinate their second mortgage to the new first mortgage, and must agree to write off any principal amount that exceeds 115% of current loan-to-value (LTV).
This option will be made available to homeowners with mortgages that are not currently insured by the FHA. Existing FHA-insured borrowers are not eligible for this program.
- You must be current on your existing mortgage(s)
- You must occupy the home as your primary residence
- You must qualify under current FHA underwriting requirements (after principal write down)
- Your FICO score cannot be less than 500
- Your front-end debt-to-income (DTI) ratio can not exceed 31%, and the back-end DTI ratio can not exceed 50%
- The existing lender must agree to principal write down
- The second mortgage lien holder must subordinate to the new first mortgage, and cap the balance at 115% of the value of the home.
Other measures include:
- Temporary assistance for the unemployed: the government will allow unemployed borrowers to reduce or suspend mortgage payments for 3-6 months
- Helping Homeowners Move to More Affordable Housing (HAFA): Encourage short sales and deed-in-lieu transactions as an alternative to foreclosures. The government will increase payments to mortgage service companies and second mortgage holders who agree to participate and will double relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000 from $1500.
Keep in mind the principal reductions will occur over a three-year period and it’s unclear what the impact of these modifications will have on credit scores.
Call it what you want but it seems after the past few years being a free for all for Mortgage Modification’s handed to people so far in default it’s crazy, soon there may be a program to help those who are actually making their mortgage payments on time… stay in their homes and catch a break.
The USDA Rural Development Loan is a congressional funded program. Due to the fact they are obviously showing interest in other issues at this time, we must contact them immediately explaining (and reminding them of) the obvious impacts. We have an obligation as tax paying citizens to voice our concerns and displeasures to our local Senators and Congressman. We have an obligation to work to reinstate this for our current and future clients.
Contact your Maine representatives here:
|Collins, Susan M. – (R – ME)||Class II|
|413 DIRKSEN SENATE OFFICE BUILDING WASHINGTON DC 20510|
|Web Form: collins.senate.gov/public/continue.cfm?FuseAction=Contact…|
|Snowe, Olympia J. – (R – ME)||Class I|
|154 RUSSELL SENATE OFFICE BUILDING WASHINGTON DC 20510|
|Web Form: snowe.senate.gov/public/index.cfm?FuseAction=ContactSenat…|
You may want to write something such as this sample letter:
It has come to my attention that the funding for USDA Rural Development Loans for Single Family Residences will be exhausted by the end of April 2010. This funding is vital to so many Maine home buyers in todays current economy. The fact that these funds will expire in conjunction with the termination of the federal tax credit will be a detriment to the real estate and housing markets here in Maine and across the country. Please consider applying additional funds for Maine’s USDA Rural Development Loans for Single Family Residences and/or extending the federal tax credit for first time and repeat home buyers. Our economy depends on it.
Feel free to cut/paste information from this blog post as needed. Please feel free to re-blog this information…send it to your friends, family, real estate agents, mortgage professionals, and anyone else you can think of to help. Please take time yourself to act. I ask that you please spend the very small amount of time to accomplish this request. This affects the real estate industry as a whole.
When Maine works together, we make a difference.
A home equity loan is a form of credit for which your home is pledged as collateral. Generally, home equity loans offer a fixed interest rate and a fixed monthly payment. A standard home equity loan (also called a second mortgage) is paid off over an extended period of time.
You can estimate your homes equity. The difference between the value of a property and any outstanding mortgage balance(s) or liens against it. Also referred to as owner’s interest by adding the balance of all the debts secured by your home, then subtracting the total from your home’s value.
What are the primary advantages of a home equity loan?
The two major advantages of borrowing with a home equity loan are lower interest rates and potential tax savings:
The interest rate you will pay on the average home equity loan is generally lower than the interest rate you will pay on the average credit card or any other type of non-secured debt.
For home equity loans, you can generally deduct the interest you pay. The interest you pay on credit cards and other types of personal loans is generally not tax-deductible. Consult your tax pro about deducting your interest.
Are there hidden fees? Can I make additional principal payments in order to pay off my loan early?
Yes. You may make additional principal payments. Include the additional amount with your regular monthly payment to have the additional payment applied to your account. If you wish to pay your loan in full, check your loan terms to determine if a prepayment fee will apply. Most home equity loans include a fee, which is charged upon full prepayment. If this prepayment fee applies to your loan, it will be disclosed in your final loan documents.
Your Maine Mortgage Specialist can advise you on all of your Equity Line options available within your Maine Home.
Borrowing Against Your Home has Its Benefits
With fuel, food and home prices fluctuating, families are finding that a home equity loan can provide much needed financial relief to unexpected debt and large family expenses. Because an individual’s home is, most likely, their largest asset, homeowners are using the equity in their home to fund a variety of items like medical bills, education and even their escalating living expenses. Take a closer look at the basics and the benefits of tackling current and anticipated debt by borrowing against your home.
Before you begin the home equity loan application process with a Mortgage Specialist it is imperative to know the two types of home equity loans: fixed rate and lines of credit. Both loan types are offered with loan terms that generally range anywhere from 5 to 15 years and require the borrower to repay the loan in full if the home against which they are borrowed is sold.
Though there are borrowing and term similarities, each loan has its differences. A home equity loan (also known as a second mortgage) is a fixed amount that you borrow to be paid off over a certain number of months, while the home equity line of credit (HELOC) is a variable rate. Much like a credit card, a HELOC pre-approves you, the borrower, for a certain spending limit of which you may withdraw using special HELOC credit cards or checks. Call your banker/broker to determine which loan type (fixed rate or line of credit) best fits your needs and to discuss some of the home equity loan benefits listed below.
Benefits of Borrowing Against Your Home:
More Money for Your Effort
As you may know, loan applications are quite a hassle and often don”t provide enough monetary resources to fund large purchases like remodeling your home or sending the kids off to college. Home equity loans only require one application and can provide borrowers with an easy source of large amounts of cash.
Low Interest Rate
The home equity loan interest rate is much lower than credit cards and other consumer loan rates, which is one of the reasons why so many homeowners use their home equity loan or line of credit to pay off their credit card balances. Using a home equity loan as a debt consolidation tool is a viable option for many homeowners, yet it is important that the borrower is committed to limiting any future credit card use.
With a home equity loan, you, the homeowner, can borrow a large sum of cash for any purpose you like and still deduct up to $100,000 of the interest when filing your tax returns. Typically the $100,000 can be increased for any borrowing used to improve your home, such as a kitchen or bathroom remodel. For example, a borrower may spend a total of $100,000 on hospital expenses and college tuition and $10,000 on a new roof, the interest on the entire $110,000 would be deductible as home mortgage interest.
Borrowing against your home has many benefits and can be tempting to use in order to splurge on expensive luxuries. To avoid the perpetual cycle of spending and borrowing, work with your mortgage professional and conduct a careful review of your financial situation before you apply for a home equity loan or line of credit. Your mortgage expert will not only make sure you understand the terms of the loan but also check to ensure you have the means to make the payments without compromising other bills.
I normally hate titles that are meant to scare people into reading but unfortunately this time there is no exaggeration to the severity of the issue. USDA Guaranteed Rural Development loans, one of the best low/no down payment financing programs left, has recently announced they expect to be out of the funds they use to guarantee loans by late April. If no action is taken by Congress to re-appropriate more funds then it will be the next budget year, after October, before we have this financing option again.
But the Tax Credit deadline is looming
Exactly- This funding shortfall couldn’t happen at a worse time. Now as contacts are being negotiated, applications are being taken and plans are being made to ensure buyers meet the dates of the tax credit deadline, we throw a wrench in the system. Should a buyer proceed with USDA financing if they have just received a fully executed contract? Should a buyer that has been pre – qualified for a Rural Development loan continue house shopping? What can this mean to a buyer that is already in the process too far to turn back?
These questions must all be dealt with on a case by case basis, depending on a variety of factors. One of the most important factors to consider is current and anticipated turn times for your local USDA underwriting. Here in Maine USDA is at 7-10 business days so unless you can have your loan ready to go to the USDA by April 9th, there is a good possibility you may not make the funding cutoff. This is further complicated by the fact that USDA is the only loan program that does not require HVCC type appraisal restrictions (VA is a different animal but with the same results). This means if you commit to USDA financing now and are forced to revert to FHA or another program, you may need a new appraisal.
Buyers should follow the advice of their trusted lenders and know that proceeding with a USDA loan without enough time to make this cutoff is a gamble. We truly need an act of Congress to approve additional funds for these loans. Although it seems logical that they should want to avoid such a deep blow to the housing industry at this time, we all know oftentimes there is precious little logic in D.C. If you think I’m exaggerating the seriousness of this, do know the USDA Guaranteed RD program assisted 2,125 families in home ownership in Maine alone! Sure, some may be able to qualify through another program like FHA or VA but many won’t.
Is there anything we can do to help?
Yes- please accept this call to action to contact your trade associations and express the severity of this. NAR, NAMB and the NAHB have all been made aware of this and I trust are beginning lobbying efforts to rectify it. You could also contact your members of elected officials in the House and Senator Susan Collins in the Senate and urge them to sponsor legislation and fast track it to minimize the damage a funding delay could cause. This is not a partisan issue, both sides of the aisle should be eager to approve this. This isn’t about bailing out the housing industry, it’s about maintaining funding for a loan program that has suddenly become much more popular than anyone expected due to the current environment of real estate.