Tag Archives: mortgage

5 MORTGAGE-RELATED TERMS EXPLAINED

You have a lot to consider when shopping for a mortgage, and you don’t want unfamiliar lingo bogging you down. Before you begin the process of buying a new home, get comfortable with these five key mortgage terms.

  1. Fixed-rate mortgage: With a fixed-rate mortgage, your interest rate stays the same for the entire loan, which means your monthly payments do too. That predictability can help with budget planning, but fixed-rate loans sometimes come with a higher interest rate than other loans.
  2. Adjustable-rate mortgage (ARM): Your payments on an ARM stay the same for a set period but then change annually according to federal interest rates. While unpredictable on the back end, the initial rate is often lower than a fixed-rate loan.
  3. Closing costs: At your closing, you’ll be required to pay for various services associated with your purchase, like paperwork processing and credit reports. To avoid any surprises, carefully review the loan estimate form you receive from your lender. This document, which is sent to most borrowers within three business days of receiving an application, outlines your estimated closing costs.
  4. Escrow: When making an offer on a house, a homebuyer submits earnest money that goes into escrow, an account held by a neutral third party. Those funds are then disbursed once the deal is finalized. You may also pay into escrow if your lender requires you to pay a portion of your real estate taxes each month. That money is then used to cover the bill when it’s due.
  5. Private mortgage insurance (PMI): If your down payment is less than 20 percent of the full cost, your lender may require private mortgage insurance. You typically pay PMI along with your mortgage, though it drops off once your loan balance reaches a certain marker (usually 80 percent of the original loan).

Learning these and other relevant terms can help expedite the process of getting a mortgage, leaving you to focus on finding the perfect home.

CFPB Proposes Two-Month Extension of Know Before You Owe Mortgage Rule

Proposal Open for Public Comment Until July 7th

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today issued a proposed amendment to the Know Before You Owe mortgage disclosure rule, which proposes to move the rule’s effective date to October 3, 2015. The rule, also called the TILA-RESPA Integrated Disclosure rule, requires easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for a homebuyer. The Bureau is issuing the proposal to correct an administrative error that would have delayed the effective date of the rule by at least two weeks, until August 15 at the earliest.

The CFPB is proposing a new effective date of Saturday, October 3. The Bureau believes that moving the effective date may benefit both industry and consumers with a smoother transition to the new rules. The Bureau further believes that scheduling the effective date on a Saturday may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems. A Saturday launch is also consistent with existing industry plans tied to the original effective date of Saturday, August 1.

The proposal will be open for public comment until July 7.

A copy of the proposal is available here:http://files.consumerfinance.gov/f/201506_cfpb_2013-integrated-mortgage-disclosures-rule-under-the-real-estate-settlement-procedures-act-regulation-x-and-the-truth-in-lending-act-regulation-z-and-amendments-delay-of-effective-date.pdf

The Buying Process

Via: Texas Association of Realtors

Buying a home can get quite detailed. Here are the steps to take to ensure you’re prepared for the exciting road ahead.

Choose a Texas REALTOR®                                             

Why?  A Texas REALTOR® will help you with all the following steps and more.  He or she will save you time and money by researching properties based on your criteria, helping you secure the best mortgage rates, counseling you on the offer amount and terms most favorable to you, and negotiating on your behalf. Ask your friends and relatives for their recommendations, or use the Find a Texas REALTOR® search.

buyers agent

Decide What You Want

Before you start looking, make a list of what you want. Then assign each item a priority. Some areas to consider are:

  • Location: How close do you want to be to your job, shopping, the kid’s schools, or entertainment?
  • Type of home: A single-family house typically provides the most space and gives you fewer restrictions on customizing your home. But a condo offers amenities without yard work—for a price.
  • Age of the home: Existing homes have mature yards and established neighborhoods; however, they require more maintenance. Although new homes aren’t always without problems, they usually require less maintenance initially. Of course, you may have to put in landscaping and endure nearby construction.

Know What You Can Afford                          credit questions

Consider these factors:

  • Downpayment: Most loans require a downpayment. The amount varies, but 20% of the purchase price is typical. If you’re a first-time buyer or fall below certain income thresholds, you may qualify for affordable-housing programs.  Generally, a higher downpayment means better loan terms and a lower interest expense on the mortgage.
  • Qualifying for a loan: A lender will determine how much he thinks you can afford based on your income, employment history, education, assets (e.g., bank account balances, other property, insurance policies, pension funds), and debt.  Check your credit report before the lender does to clear up any problems.
  • Your comfort level: You don’t have to spend $200,000 on a home just because the lender says you can afford a $200,000 home.  Do some math and determine what you’re comfortable spending.

Make an Offer

You’ve figured out your home-search criteria and what you can afford. Now find a house and make an offer.  Your Texas REALTOR® is invaluable in this part of the process that involves many steps, including:

  • Preparing a contract and the myriad details on it
  • Handling negotiations with your best interests in mind
  • Juggling inspections and option periods.

    Secure Financing

    Unless you’re paying cash for the home, you’ll need a loan. Keep in mind the true price of financing goes beyond the interest rate alone.  Consider items such as points, total lender fees, term of the loan, and penalties for early payment.  The lender will likely require an appraisal to verify that the home is worth the cost of the loan as well as a physical survey.  Repairs may be required.  Insurance must be purchased.  All these conditions and others must be satisfied before a transaction can close.

    Close the Deal                                        FTHBA2

    After weeks or even months of research and decision-making, you close the transaction, usually at the title company’s office. The title agent ask you to sign many, many documents and will explain each one.  You’ll present a cashier’s check to the seller, sign another document that itemizes closing costs (the lender will have given you an estimate in advance), and pay your share of the closing costs.  In return, you will receive a deed, transferring ownership rights to you.

What is the CFPB?

Hello my future home owners!

I don’t know if you have heard but there is a new sheriff in town when it comes to your finances and that sheriff is the CFPB (Consumer Financial Protection Bureau).

CFPB

What are their jobs? Well let me tell you.

Consumer Financial Protection Bureau

Educate: An informed consumer is the first line of defense against abusive practices.

Enforce: Supervise banks, credit unions, and other financial companies, and we enforce federal consumer financial laws.

Study: Gather and analyze available information to better understand consumers, financial services providers, and consumer financial markets.

Now you may be asking, “Well how will this effect my home purchase?” The simple answer is that after August 1, 2015 there will be some major changes to the way your mortgage loan is handled. This is all for your protection but the new process may lead to longer closing periods. The normal closing periods are about 30-45 days. After August 1, 2015 you may have to wait 60+ days.

If you want to know more feel free to visit the CFPB website at: www.consumerfinance.gov

Fear of Low Down Payments Mostly Unwarranted

 

 

 

Via; KCM Keeping Current Matters

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After it was announced that Fannie Mae and Freddie Mac would again make available mortgage loans requiring as little as a 3% down payment, many people showed concern. Were we going back to the lower qualifying standards of a decade ago that caused the housing market crash? Won’t lower down payments dramatically increase the default rates? Will we again be faced with an avalanche of short sales and foreclosures?

The simple answer is – NO. Let’s look at the data.

While it was happening (2011)

Back in 2011, as we were just recovering from the worst of the Great Recession, many organizations were looking for the cause of the massive default rate on mortgages.

The National Association of Realtors (NAR), the Center for Responsible Lending (CRL), the Mortgage Bankers Association (MBA), the National Association of Home Builders(NAHB), the Community Banking Mortgage Project and the Mortgage Insurance Companies of America (MICA) issued a white paper on the subject titled: Proposed QRM Harms Creditworthy Borrowers and Housing Recovery.

Let’s look what the report says:

“In the midst of a very fragile housing recovery, the government is throwing a devastating, unnecessary and very expensive wrench into the American dream. First time homebuyers will have to choose between higher rates today or a 9-14 year delay while they save up the necessary down payment…

High down payment and equity requirements will not have a meaningful impact on default rates. But they will require millions of consumers, who are at low risk of default, to either put off buying a home or pay unnecessarily high rates. The government is penalizing responsible consumers, making homeownership more expensive or simply out of reach for millions. We urge regulators to develop a final rule that encourages good lending and borrowing without punishing credit-worthy consumers.”

The report actually studied the impact a higher down payment would have had on the default rates of loans written from 2002 through 2008. The report states:

“…moving from a 5 percent to a 10 percent down payment on loans that already meet strong underwriting and product standards reduces the default experience by an average of only two- or three-tenths of one percent… Increasing the minimum down payment even further to 20 percent… (creates)  small improvement in default performance of about eight-tenths of one percent on average.”

Today  (2014)

Just last week, the Urban Institute revealed data showing what impact substantially lower down payments would have on default rates in today’s mortgage environment. Their study revealed:

“Of loans that originated in 2011 with a down payment between 3-5 percent, only 0.4 percent of borrowers have defaulted. For loans with slightly larger down payments—between 5-10 percent—the default rate was exactly the same. The story is similar for loans made in 2012, with 0.2 percent in the 3-5 percent down-payment group defaulting, versus 0.1 percent of loans in the 5-10 percent down-payment group.”

Bottom Line

We believe that the Institute concluded their report perfectly:

“Those who have criticized low-down payment lending as excessively risky should know that if the past is a guide, only a narrow group of borrowers will receive these loans, and the overall impact on default rates is likely to be negligible. This low down payment lending was never more than 3.5 percent of the Fannie Mae book of business, and in recent years, had been even less. If executed carefully, this constitutes a small step forward in opening the credit box—one that safely, but only incrementally, expands the pool of who can qualify for a mortgage.”

Debunking 4 Myths about Buying a Home

Via: KCM Crew

Labyrinth-of-truth

A recent study by the Joint Center for Housing Studies at Harvard University revealed when renters were asked why they do no plan to own in the future, financial constraints were a more common response than the perceived lifestyle benefits they may receive from renting. Today, we want to go over those financial challenges and see if we can put some fears to rest and also clear up some misconceptions. Here are the top four financial hurdles that cause renters not to buy:

You Cannot Afford a Home

Well over 50% of renters consider this as a financial barrier to homeownership. However, study after study has shown us that there are major misunderstandings about what is required to purchase a home.

The biggest misconception is the amount of a down payment required. A recent surveyrevealed that 44% of respondents believed that a 20% down payment was required. In actuality, mortgages are available with as little as 5% down (and even 3% in certain situations).

The same survey showed that 30% of respondents believe that only individuals with ‘high incomes’ can obtain a mortgage. In actuality, there are several programs intentionally created to help moderate income families buy a home of their own (look at the FHA program for example).

You Do Not Have Good Enough Credit to Get a Mortgage

The survey mentioned above showed that 64% of respondents believe they must have a “very good” credit score to buy a home. Most people don’t realize that the average credit score for closed loans has actually dropped 24 points in the last two years. For more information on credit scores click here.

It’s Not a Good Time to Buy a Home

Determining when is the right time to buy a home from a pure financial calculation can be difficult. There are two elements of the cost of a home: the price of the house and the mortgage interest rate. When considering a purchase, you want to have at least an indication where prices and mortgage rates are headed. According to over 100 experts, house values are expected to increase by almost 20% between now and 2018. AndFreddie Mac recently projected that mortgage rates would be as much as one full point higher by this time next year.

With both prices and interest rates projected to increase, now is the perfect time to buy a home.

It’s Cheaper to Rent than Buy

This is a myth that doesn’t want to die. However, Trulia recently reported that, in fact, buying is actually dramatically cheaper than renting. Here is what they said:

“Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. In fact, buying is 38% cheaper than renting now, compared with 35% cheaper than renting one year ago.”

Bottom Line

If you are even thinking about buying, get the facts from a trained professional. You may be pleasantly surprised by what you find out.