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Its a Jungle Out There!

Because there is so much money and so many different professionals are involved in the real estate purchasing process, there is always room for professional incompetence or outright fraud. Here are some things to look out for in the team that assists you in your purchase.

Real Estate Agents: This is the key person on your team! Make sure he or she is competent! We cannot stress this point more! Do your homework. All real estate agents must be licensed by the California Department of Real Estate. Visit the Department’s web site (www.dre.ca.gov) to determine the license status of an agent.

Also, talk to others who have used the agent. This is the one person you really need to trust in this process.

There are some unscrupulous lenders out there who only want their commission or points from a loan and couldn’t care less if you are getting the best loan product. There are some lending tactics that are outright fraud.

Beware of the following illegal lending practices and predatory lending tactics:
Flipping the frequent making of new loans to refinance existing loans
Packing selling of additional products without the borrower’s informed consent
Charging of excessive fees
Bait and Switch offering of very attractive terms which are not available and then pressuring the borrower into more expensive terms and hidden fees
Door-to-Door High Pressure Sales typically trying to sell home improvement contracts funded by home equity loans usually with less than desirable terms
Trust Selling salespersons who try to gain your trust based on some common background and then sell you something that might not be in your best interest
No Job! No Problem! encouraging home equity loans to those with no job or bad credit with the knowledge that the borrower will probably lose their home because they can’t make the payments
Pressuring for Immediate Sale insisting that a loan contract be signed immediately before the good deal is gone.

Prior to using the services of a mortgage broker or lender, make sure they are properly licensed by checking the California Department of Corporations web site (www.corp.ca.gov) and/or the California Department of Real Estate’s web site (www.dre.ca.gov).

Home Inspectors: The competency of this person is key in making sure you’re purchasing a structurally sound, safe home. A home inspector who misses details can end up costing you tens of thousands of dollars in the long run. Or worse, missed details could cause you or a family member harm because of bad wiring, cracked glass and other hazards.

Escrow Officer: The escrow officer is the referee in the home buying game. Just as with your favorite sport, an incompetent  or cheating  referee is a huge headache. If bad calls are made on the part of the escrow officer, it can cost you large amounts of money or kill the whole deal.

Tax Advisor: A tax advisor can be a great asset to you financially. Finding out that certain expenses are not tax deductible after-the-fact can put you in a real bind with the IRS. Ask your real estate agent, family members, friends or others you trust if they can recommend the services of a reputable tax advisor in your area.

Deciphering Your Home Loans Good Faith Estimate

By: G. M. Filisko

Knowing how to read your good-faith estimate can help you save money on your home loan.

When you’re shopping for a mortgage loan, it’s sometimes hard to understand the jargon lenders use in the good-faith estimate explaining the costs and fees you’ll pay when taking out a mortgage.

When you apply for a mortgage, the lender has three days to give you a good-faith estimate of the fees and interest rate you’ll pay, as well as other loan terms.

Here are five tips for using the new three-page form to your advantage.
When you apply for a mortgage, the lender has three days to give you a good-faith estimate of the fees and interest rate you’ll pay, as well as other loan terms. Here are five tips for using the new three-page form to your advantage.

1. Know which fees can increase and by how much
In the past, lenders provided an estimate of the costs involved in getting your home loan, and if those costs rose by the time you closed on your home, tough luck. The good-faith estimate shows some fees the lender can’t change, like the loan origination fee that you pay to get a certain interest rate (commonly called points) and transfer costs.

The form also lists the charges that can increase by up to 10%, like some title company fees and local government recording fees. The lender must cover any increase over that amount.

Finally, the good-faith estimate lists the fees that can change without any limit, such as daily interest charges.

2. Look for answers to basic loan questions
In the summary section, lenders explain your loan’s terms in simple language. Can your interest rate rise If so, a lender must spell out how much the rate can jump and what your new payment would be if it does. Can the amount you owe the lender increase, even if you make your payments on time If it can, a lender must show you the potential increase.

3. Evaluate the “tradeoffs” on a loan
In the new “tradeoff table,” you can ask lenders to provide details on the tradeoffs you can make in choosing among home loans. If you’d like the same loan with lower settlement charges, how will the interest rate change If you’d like a lower interest rate, how much will your settlement charges increase

4. Compare apples to apples with the shopping chart
Included on the good-faith estimate is space for you to list all the terms and fees for four different loans, so you can make side-by-side comparisons.

5. Know what’s missing from the good-faith estimate
The new form lacks some key information, such as how much you’ll reimburse the sellers for property taxes they’ve already paid on the home. It also doesn’t tell you the amount of money you’ll have to bring to the closing table. Some lenders have created supplemental forms providing that information. If yours hasn’t, ask for it.

More from HouseLogic
More on the new good-faith estimate form (http://www.houselogic.com/articles/homebuyer-tax-credit-what-you-need-know/)

Other web resources
The new U.S. Housing and Urban Development good-faith estimate (http://www.hud.gov/content/releases/goodfaithestimate.pdf)

More on shopping for a loan (http://www.hud.gov/offices/hsg/ramh/res/Settlement-Booklet-January-6-REVISED.pdf)

G.M. Filisko is an attorney and award-winning writer who has encountered many settlement statements that bore no resemblance to the lender’s good-faith estimate. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Make Your House FHA-Loan Friendly

By: Terry Sheridan

Know the basics of FHA loan rules and you stand a better chance of selling your house or condo.

Make your house FHA-friendly, and it will appeal to more homebuyers. Why Because the Federal Housing Administration is insuring the mortgage loans used by about 30% of today’s homebuyers.

If your house passes the FHA rules, it will appeal to buyers who plan to use an FHA-insured mortgage. If your house doesn’t qualify for an FHA loan, you’re cutting out 30% of potential buyers.

FHA is especially important to first-time homebuyers and those with small downpayments because it allows borrowers with good credit to make a downpayment as low as 3.5% of the purchase price.

Here’s how to make your home appealing to FHA borrowers:

Know the FHA loan limits in your area
Start by checking to see if your home’s listed price falls within FHA lending limits for your area (https://entp.hud.gov/idapp/html/hicostlook.cfm). FHA mortgage limits vary a lot. In San Francisco, FHA will insure a mortgage of up to $729,750 on a single-family home. In the White Mountains of New Hampshire, the loan limit is $271,050.

Home inspections
Most buyers will ask for a home inspection, whether or not they’re using an FHA loan to buy the home. You must give FHA buyers a form (

http://www.ncradon.org/docs/foryourprotection.pdf) explaining what home inspections can reveal, and how inspections differ from appraisals.

How much do you have to repair
If the home inspection reveals problems, FHA will not give the okay to buy the home until you repair serious defects (

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/05-48ml.pdf) like roof leaks, mold, structural damage, and pre-1978 interior or exterior paint that could contain lead.

Dealing with FHA appraisers
Help the lender’s appraiser by providing easy access to attics and crawl spaces, which usually must be photographed, says appraiser Frank Gregoire in St. Petersburg, Fla. Your buyer can hire his own appraiser to evaluate your home. But FHA only relies on reports by its approved appraisers. If the two appraisals conflict, the FHA appraisal preempts the buyer’s appraisal.

Help with FHA closing costs
Most FHA buyers need help with closing costs, says mortgage banker Susan Herman of First Equity Mortgage Bankers in Miami. So a prime way to make your house FHA-friendly is to help with those costs. FHA currently allows sellers to pay up to 6% of the sales price to help cover closing costs, but is considering lowering that limit to 3% in the fall of 2010.

If you’re selling a condo
FHA also has to approve your condo before a buyer uses an FHA loan to purchase your unit. Be sure your condo is FHA-approved for mortgages (

https://entp.hud.gov/idapp/html/condlook.cfm). The list has been updated, so if your association was approved a year ago, check again to make sure it’s still on the approved list.

FHA generally won’t insure loans in condo associations if more than 15% percent of the unit owners are late on association fees. Ask your property manager or board of directors for your association’s delinquency rate.

Other rules cover insurances, cash reserves and how many units are owner-occupied (

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46aml.pdf) and the types of condos that can be purchased with an FHA mortgage

(http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46bml.pdf).

FHA sometimes issues waivers for healthy condominiums that don’t meet the regular rules. If your condo isn’t FHA-approved, it doesn’t necessarily have to meet every single rule to gain approval. Ask your REALTOR® to consult with local lenders about getting an FHA waiver for your condo if it doesn’t meet all the requirements.
FHA also limits its mortgage exposure in homeowners associations. With some limited exceptions, no more than 50% of the units in an association can be FHA-insured (

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46aml.pdf).

FHA loans for planned-unit developments
FHA no longer requires lenders to review budgets and legal documents for planned-unit developments.

More from HouseLogic
Show Your Support for FHA (http://www.houselogic.com/articles/show-your-support-for-FHA/)

Other web resources
Why Ask for an FHA Loan (http://www.hud.gov/fha/choosefha.cfm)
Find a State Program to Help Homebuyers Afford Your Home (http://www.hud.gov/buying/localbuying.cfm)

Terry Sheridan is an award-winning freelance writer who has covered real estate for 20 years, and has owned and sold three homes.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

What You Must Know About Home Appraisals

By: G. M. Filisko

Understanding how appraisals work will help you achieve a quick and profitable refinance or sale.

When you refinance or sell your home, the lender will insist that you get an appraisal–an opinion of the value of your home based on what similar homes in your area have sold for in recent months.

Here are five tips about the appraised value of your home.

1. An appraisal isn’t an exact science
When appraisers evaluate a home’s value, they’re giving their best opinion based on how the home’s features stack up against those of similar homes recently sold nearby. One appraiser may factor in a recent sale, but another may consider that sale too long ago, or the home too different, or too far away to be a fair comparison. The result can be differences in the values two separate appraisers set for your home.

2. Appraisals have different purposes
If the appraisal is being used by a lender giving a loan on the home, the appraised value will be the lower of market value (what it would sell for on the open market today) and the price you paid for the house if you recently bought it.

An appraisal being used to figure out how much to insure your home for or to determine your property taxes may rely on other factors and arrive at different values. For example, though an appraisal for a home loan evaluates today’s market value, an appraisal for insurance purposes calculates what it would cost to rebuild your home at today’s building material and labor rates, which can result in two different numbers.

Appraisals are also different from CMAs, or competitive market analyses. In a CMA, a real estate agent relies on market expertise to estimate how much your home will sell for in a specific time period. The price your home will sell for in 30 days may be different than the price your home will sell for in 120 days. Because real estate agents don’t follow the rules appraisers do, there can be variations between CMAs and appraisals on the same home.

3. An appraisal is a snapshot
Home prices shift, and appraised values will shift with those market changes. Your home may be appraised at $150,000 today, but in two months when you refinance or list it for sale, the appraised value could be lower or higher depending on how your market has performed.

4. Appraisals don’t factor in your personal issues
You may have a reason you must sell immediately, such as a job loss or transfer, which can affect the amount of money you’ll accept to complete the transaction in your time frame. An appraisal doesn’t consider those personal factors.

5. You can ask for a second opinion
If your home appraisal comes back at a value you believe is too low, you can request that a second appraisal be performed by a different appraiser. You, or potential buyers, if they’ve requested the appraisal, will have to pay for the second appraisal. But it may be worth it to keep the sale from collapsing from a faulty appraisal. On the other hand, the appraisal may be accurate, and it may be a sign that you need to adjust your pricing or the size of the loan you’re refinancing.

More from HouseLogic
How to use an appraisal to eliminate private mortgage insurance (http://www.houselogic.com/articles/cancel-your-private-mortgage-insurance/)

Understanding the assessed value of your home for tax purposes (http://www.houselogic.com/articles/why-real-estate-assessments-matter/)

Understanding the amount at which to insure your home (http://www.houselogic.com/articles/homeowners-insurance-are-you-over-or-underinsured/)

Other web resources
More information on appraisals (http://www.appraisalinstitute.org/profession/appraiser.aspx)

How to improve the appraised value of your home (http://www.appraisers.org/Consumer/ConsumerLibrary/SoftHousingMarketMakesforaHardSell.aspx)

G.M. Filisko is an attorney and award-winning writer who’s had more than 10 appraisals performed on her properties in the past 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Lender or Broker?

Make an Informed Decision

When it comes time to look for financing for your upcoming purchase, there are a couple of options. You can go directly to a lender or use a mortgage broker. Your real estate agent may have a list of good lenders and mortgage brokers in your area. In addition, most major daily newspapers have home buying sections in their weekend editions. This is another good place to find information about lenders and mortgage brokers in your area. And finally, a simple search on the internet will turn up many suggestions for home loans.

A lender typically is a bank, mortgage company, credit union or savings and loan. A mortgage broker is a middleman who is usually independent of a lender. Mortgage brokers arrange loans from various sources and earn a commission for their services.

Some lenders will charge for the pre-approval process given the extra effort involved. However, do not choose a lender solely because they don’t charge for this process. Look at all of the costs involved!

To choose a good lender, do research on those in your area. Check interest rates, fees and loan terms against other lenders. Just be sure to take the time to research and compare different lenders so you get the best deal. Often, lenders will look for borrowers without any special circumstances. That is, they’ll want a good or better credit score, documented income, and a standard piece of property to lend on.

Comparing mortgage brokers is a good idea too. If one happens to offer rates and terms that are drastically better than anyone else out there, this could be a warning sign! Remember, if it sounds too good to be true, it usually is. A good mortgage broker will be able to do your mortgage shopping for you. They’ll compare rates and fees, while looking for a lender that suits your individual needs. They should also be able to explain the details of the loan to your satisfaction. In addition, if any of the special circumstances discussed above low credit scores, undocumented income or a unique piece of property apply to you, a good mortgage broker can help make a difference.

Find the Home Loan that Fits Your Needs

By: G. M. Filisko

Understand which mortgage loan is best for you so your budget is not stretched too thin.

It’s easier to settle happily into your new home if you’re confident you can afford it. That requires that you understand your mortgage financing options and choose the loan that best suits your income and ability to tolerate risk.

The basics of mortgage financing
The most important features of your mortgage loan are its term and interest rate. Mortgages typically come in 15-, 20-, 30- or 40-year lengths. The longer the term, the lower your monthly payment. However, the tradeoff for a lower payment is that the longer the life of your loan, the more interest you’ll pay.

Mortgage interest rates generally come in two flavors: fixed and adjustable. A fixed rate allows you to lock in your interest rate for the entire mortgage term. That’s attractive if you’re risk-averse, on a fixed income, or when interest rates are low.

The risks and rewards of ARMs
An adjustable-rate mortgage does just what its name implies: Its interest rate adjusts at a future date listed in the loan documents. It moves up and down according to a particular financial market index, such as Treasury bills. A 3/1 ARM will have the same interest rate for three years and then adjust every year after that; likewise a 5/1 ARM remains unchanged until the five-year mark. Typically, ARMs include a cap on how much the interest rate can increase, such as 3% at each adjustment, or 5% over the life of the loan.

Why agree to such uncertainty ARMs can be a good choice if you expect your income to grow significantly in the coming years. The interest rate on some-but not all-ARMs can even drop if the benchmark to which they’re tied also dips. ARMs also often offer a lower interest rate than fixed-rate mortgages during the first few years of the mortgage, which means big savings for you-even if there’s only a half-point difference.

But if rates go up, your ARM payment will jump dramatically, so before you choose an ARM, answer these questions:

  • How much can my monthly payments increase at each adjustment
  • How soon and how often can increases occur
  • Can I afford the maximum increase permitted
  • Do I expect my income to increase or decrease
  • Am I paying down my loan balance each month, or is it staying the same or even increasing
  • Do I plan to own the home for longer than the initial low-interest-rate period, or do I plan to sell before the rate adjusts
  • Will I have to pay a penalty if I refinance into a lower-rate mortgage or sell my house
  • What’s my goal in buying this property Am I considering a riskier mortgage to buy a more expensive house than I can realistically afford

Consider a government-backed mortgage loan
If you’ve saved less than the ideal downpayment of 20%, or your credit score isn’t high enough for you to qualify for a fixed-rate or ARM with a conventional lender, consider a government-backed loan from the Federal Housing Administration (http://www.hud.gov/fha/choosefha.cfm) or Department of Veterans Affairs (http://www.homeloans.va.gov/vap26-91-1.htm/).

FHA offers adjustable and fixed-rate loans at reduced interest rates and with as little as 3.5% down and VA offers no-money-down loans. FHA and VA also let you use cash gifts from family members.

Before you decide on any mortgage, remember that slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment. To determine how much your monthly payment will be with various terms and loan amounts, try REALTOR.com’s online mortgage calculators (http://www.realtor.com/home-finance/financial-calculators/mortgage-payment-calculator.aspx).

More from HouseLogic
Evaluate Your Adjustable Rate Mortgage (http://www.houselogic.com/articles/evaluate-your-adjustable-rate-mortgage/)
Show Your Support for FHA (http://www.houselogic.com/articles/show-your-support-for-FHA/)

Other web resources
How much home can you afford (http://www.ginniemae.gov/2_prequal/intro_questions.asp Section=YPTH)
Why ask for an FHA loan (http://www.hud.gov/fha/choosefha.cfm)

G.M. Filisko is an attorney and award-winning writer who’s opted for both fixed and adjustable-rate mortgages. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Visit houselogic.com for more articles like this. Reprinted from HouseLogic with permission of the NATIONAL ASSOCIATION OF REALTORS
Copyright 2010. All rights reserved.

Q-A Series – MORTGAGE INSURANCE

Q. WHAT IS MORTGAGE INSURANCE

Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%.

Q. HOW DOES MORTGAGE INSURANCE WORK IS IT LIKE HOME OR AUTO INSURANCE

Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

Q. DO I NEED MORTGAGE INSURANCE HOW DO I GET IT

You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.

Q. HOW CAN I RECEIVE A DISCOUNT ON THE FHA INITIAL MORTGAGE INSURANCE PREMIUM

Ask your real estate agent or lender for information on the HELP program from the FHA. HELP – Homebuyer Education Learning Program – is structured to help people like you begin the homebuying process. It covers such topics as budgeting, finding a home, getting a loan, and home maintenance. In most cases, completion of this program may entitle you to a reduction in the initial FHA mortgage insurance premium from 2.25% to 1.75% of the purchase price of your new home.

Q. WHAT IS PMI

PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI’s usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.

Do They Really Like Me

GETTING A LOAN

Once you ve figured out what amount of loan you re able to comfortably afford, it s time to talk to a mortgage lender.

Check to see if the home you re considering purchasing is in a special bond assessment district. Some homes in California can be assessed yearly bond fees  for up to 30 years or more  for things like school improvements, levee protection, new roads, street lights and so on.

Home Buyer Hint

Loan Pre-Qualification
Getting pre-qualified for a loan is a pretty casual once-over of your financial situation. You provide a mortgage broker or lender with financial information, and they give you a non-binding letter indicating how much you could possibly borrow.

The lender does not verify any of the information you give them. This gives you a good  jumping off point in deciding the price range you can afford.

Loan Pre-Approval
Getting pre-approved for a loan is a much more rigorous process. A lender will verify all of the information you ve provided including income, debts, employment and cash on hand. The pre-approval process signifies to a seller that you are a very serious buyer. The lender provides you with certain guarantees that they are ready, willing and able to fund a loan.

Check with your real estate agent to determine if you should get pre-qualified or pre-approved for your loan prior to house shopping.

Q-A Series – GENERAL FINANCING QUESTIONS:THE BASICS

Q. WHAT IS A MORTGAGE

Generally speaking, a mortgage is a loan obtained to purchase real estate. The “mortgage” itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

Q. WHAT IS A LOAN TO VALUE (LTV) HOW DOES IT DETERMINE THE SIZE OF MY LOAN

The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay,$2,500 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.

Q. WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH

Fixed Rate Mortgages: Payments remain the same for the the life of the loan

Types
– 15-year
– 30-year

Advantages
– Predictable
– Housing cost remains unaffected by interest rate changes and inflation.

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits

Types
– Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is clue or refinanced (though not automatically)
– Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan
– ARMS linked to a specific index or margin

Advantages
– Generally offer lower initial interest rates
– Monthly payments can be lower
– May allow borrower to qualify for a larger loan amount

Q. WHEN DO ARMS MAKE SENSE

An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren’t concerned about potential increases in interest rates.

Q. WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS

30-Year:
– In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions.
– As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.

15-year:
– Loan is usually made at a lower interest rate.
– Equity is built faster because early payments pay more principal.

Q. CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE

Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.

Q. ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don’t have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

Q. HOW LARGE OF A DOWN PAYMENT DO I NEED

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you’ll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you’ll also need money for closing costs, moving expenses, and – possibly -repairs and decorating.

Q. WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT

The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner’s insurance, and mortgage insurance (if applicable).

Q. WHAT FACTORS AFFECT MORTGAGE PAYMENTS

The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

Q. HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN

A lower interest rate allows you to borrow more money than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate “lock-in”which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.

Q. WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN

If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.

Q. WHAT ARE DISCOUNT POINTS

Discount points allow you to lower your interest rate. They are essentially prepaid interest, With each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases With each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

Q. WHAT IS AN ESCROW ACCOUNT DO I NEED ONE

Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner’s insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner’s insurance, make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments.

What You Need for a Mortgage Your Lender Checklist

  • W-2 forms  or business tax return forms if you’re self-employed  for the last two or three years for every person signing the loan.
  • Copies of at least one pay stub for each person signing the loan.
  • Account numbers of all your credit cards and the amounts for any outstanding balances.
  • Copies of two to four months of bank or credit union statements for both checking and savings accounts.
  • Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
  • Addresses where you ve lived for the last five to seven years, with names of landlords if appropriate.
  • Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.
  • Copies of your most recent 401(k) or other retirement account statement.
  • Documentation to verify additional income, such as child support or a pension.
  • Copies of personal tax forms for the last two to three years.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

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Daniel Andrade, REALTOR® DRE #: 01849983
Century 21 My Real Estate Co
7825 Florence Avenue, Downey , CA 90240
call today 323-215-9836
daniel@mynewhouses.com

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