When you buy a home, or just make an offer, you will encounter the term "escrow account." Like making a friendly bet and asking a third party to hold the wager money, the "escrow agent" is the neutral party that holds funds in the interest of the mortgage lender and the borrower.
When the terms of the purchase and loan agreements have been met, the money is released. When your application is approved and the loan takes effect, the lender will likely require money for property taxes and homeowner's insurance also to be held in escrow. These funds are added to your monthly mortgage payment and disbursed when the tax and insurance bills are due.
This protects the lender by ensuring a lien isn't placed against your property for non-payment of taxes, and your home (their collateral) is protected against catastrophe. But escrow also benefits borrowers by spreading the large annual payments for taxes and insurance over twelve months.
For example, if your taxes are $1,600 per year and your insurance is $800, you're budgeting a reasonable $200 per month instead of making two big payments. Escrow accounts do not earn interest, so if you make a large enough downpayment, you may be able to avoid the monthly escrow and pay the bills directly. Ask your agent and your lender about the pros and cons.
Showing posts with label mortgage. Show all posts
Showing posts with label mortgage. Show all posts
6/4/10
Look Before You Leap
Many retirees are facing dwindling incomes from their battered investments, which explains why applications for "reverse mortgages" have risen nearly 50% in the last two years. It sounds like a great option: a lender essentially gives you a cash advance on your home's equity, which doesn't have to be paid back until you either move or "move on."
There are drawbacks hidden in the details, however. Although recent legislation has raised maximum allowable home values, the formula for determining how much you'll get includes other factors like your age and current interest rates. Your current mortgage balance and the loan's fees are then subtracted from that number.
Although loan origination fees have been capped at $6,000, the monthly mortgage insurance premiums and service charges could push the total cost of the loan up to twice that much. If you think you might move anytime soon, this just doesn't make sense.
While anyone 62 or older may qualify, it's the youngest who run the biggest risk with a reverse mortgage, because you may very well outlive the life of your payments. When that happens, the equity you would have fallen back on has disappeared.
It's best to seek other alternatives first, with your best option being to make your move now and downsize to a smaller home, pocketing the equity from your sale for the future.
There are drawbacks hidden in the details, however. Although recent legislation has raised maximum allowable home values, the formula for determining how much you'll get includes other factors like your age and current interest rates. Your current mortgage balance and the loan's fees are then subtracted from that number.
Although loan origination fees have been capped at $6,000, the monthly mortgage insurance premiums and service charges could push the total cost of the loan up to twice that much. If you think you might move anytime soon, this just doesn't make sense.
While anyone 62 or older may qualify, it's the youngest who run the biggest risk with a reverse mortgage, because you may very well outlive the life of your payments. When that happens, the equity you would have fallen back on has disappeared.
It's best to seek other alternatives first, with your best option being to make your move now and downsize to a smaller home, pocketing the equity from your sale for the future.
10/23/09
Know Your Options
If any of your friends or family have recently applied for a home loan, you've probably heard that lenders are nervous, with tough new rules and demands for stacks of paperwork. Good mortgages are still out there, but you should be prepared before applying.
First, understand how your credit score impacts the interest rate charged on your loan. If your score is 720 or higher on the scale of 850, you will qualify for the best rates. If it's between 700 and 719, you could expect 0.375% added to that rate, while a score between 680 and 699 might add 0.5%.
Next, determine how much you have available for down payment, and how that will affect your loan's terms. A "conforming loan" (that would be purchased by Fannie Mae or Freddie Mac) will require a minimum 10% down payment.
However, if you don't have that much to put down, you can investigate a Federal Housing Administration (FHA) or Veterans Administration (VA) loan. These government-backed loans are targeted towards those with lower credit scores and only require a 3.5% down payment.
You can even use this year's First Time Homebuyer Tax Credit to help pay closing costs, buy down the interest rate, or add to your minimum down payment. Just have employment, banking and tax records organized, and be patient while overworked lenders review your application.
First, understand how your credit score impacts the interest rate charged on your loan. If your score is 720 or higher on the scale of 850, you will qualify for the best rates. If it's between 700 and 719, you could expect 0.375% added to that rate, while a score between 680 and 699 might add 0.5%.
Next, determine how much you have available for down payment, and how that will affect your loan's terms. A "conforming loan" (that would be purchased by Fannie Mae or Freddie Mac) will require a minimum 10% down payment.
However, if you don't have that much to put down, you can investigate a Federal Housing Administration (FHA) or Veterans Administration (VA) loan. These government-backed loans are targeted towards those with lower credit scores and only require a 3.5% down payment.
You can even use this year's First Time Homebuyer Tax Credit to help pay closing costs, buy down the interest rate, or add to your minimum down payment. Just have employment, banking and tax records organized, and be patient while overworked lenders review your application.
9/18/09
The Goose & The Gander
When facing a mortgage default, most homeowners try to sell their home - fast. The technique that works in these stressful situations also works for the rest of sellers - namely, aggressive pricing.
As a seller, you control the three factors that determine how quickly your home will sell: marketing, condition, and price. Let's focus on that last element.
First, be clear about your goals. Can you hold out for the highest price you can get, or do you want to move on quickly? Unfortunately, the fact that you paid more than what homes in your neighborhood are selling for is irrelevant in today's market.
Forget about salvaging equity, and price your home aggressively against the competition. Overpricing keeps many buyers from even seeing your listing in their affordability zone. They'll see lower priced homes as a better value, while you'll wait until the lowballers come out of the woodwork.
Start your pricing decision with a Comparative Market Analysis (CMA) performed by your real estate representative. If you're truly motivated to sell quickly, price your home 10% lower than the selling (not asking) prices of other homes in your area.
Now your home becomes a bargain, and it will attract the attention of other agents and their qualified buyers. An attractive price, good condition and savvy marketing will result in offers and ultimately, a sale.
As a seller, you control the three factors that determine how quickly your home will sell: marketing, condition, and price. Let's focus on that last element.
First, be clear about your goals. Can you hold out for the highest price you can get, or do you want to move on quickly? Unfortunately, the fact that you paid more than what homes in your neighborhood are selling for is irrelevant in today's market.
Forget about salvaging equity, and price your home aggressively against the competition. Overpricing keeps many buyers from even seeing your listing in their affordability zone. They'll see lower priced homes as a better value, while you'll wait until the lowballers come out of the woodwork.
Start your pricing decision with a Comparative Market Analysis (CMA) performed by your real estate representative. If you're truly motivated to sell quickly, price your home 10% lower than the selling (not asking) prices of other homes in your area.
Now your home becomes a bargain, and it will attract the attention of other agents and their qualified buyers. An attractive price, good condition and savvy marketing will result in offers and ultimately, a sale.
9/14/09
One's Loss Is Another's Gain
While falling values are not good indicators for sellers, they’re great news for buyers, lifting affordability to historically high levels. For example, to purchase a median priced home of $164,600 with 20% down and an interest rate of 5.1%, a buyer would need an annual income of just under $35,000.
With the lowest interest rates we've seen in forty years, now is an opportune time to lock in a rate on a fixed loan. Rates are already showing signs of rising, and waiting too long could negatively affect your ability to secure such a mortgage.
In addition to rising interest rates, the fees on loan applications may also start increasing. This is because lenders have reassessed their risk to reward ratios in light of all the recent loan defaults. Around the corner, we might expect higher mortgage insurance premiums and closing costs, not to mention tougher and tougher terms for qualification.
With interest rates and loan fees still at very affordable levels, now is the time to make your move and secure your financial stability through home ownership. If you buy a $150,000 home today and it appreciates at a very conservative 3% annually, that home would be worth nearly $164,000 in three years.
Don't let all the negative stories about real estate blind you to the many positive factors for buyers in today's market.
With the lowest interest rates we've seen in forty years, now is an opportune time to lock in a rate on a fixed loan. Rates are already showing signs of rising, and waiting too long could negatively affect your ability to secure such a mortgage.
In addition to rising interest rates, the fees on loan applications may also start increasing. This is because lenders have reassessed their risk to reward ratios in light of all the recent loan defaults. Around the corner, we might expect higher mortgage insurance premiums and closing costs, not to mention tougher and tougher terms for qualification.
With interest rates and loan fees still at very affordable levels, now is the time to make your move and secure your financial stability through home ownership. If you buy a $150,000 home today and it appreciates at a very conservative 3% annually, that home would be worth nearly $164,000 in three years.
Don't let all the negative stories about real estate blind you to the many positive factors for buyers in today's market.
7/16/09
The Lingo of the Loan
Your real estate agent may not write your home loan, but that's who will probably be there when you begin discussing mortgage options. Knowing some of the nuts and bolts before you start your home search can help you find the right loan.
Factors affecting your terms are the amount, the length of the loan, and the loan-to-value ratio (how much of the home's value you are financing). Larger loans carry more risk to the lender, so the interest rate may be higher.
Similarly, a smaller down payment represents more risk, possibly warranting a higher interest rate. Get the best rate by putting down as close to 20% as possible.
The difference between a 15- and 30-year loan is also critical. Payments for a shorter term will be larger, but you'll build equity much faster, and enjoy a slightly lower interest rate.
Also understand the workings of an adjustable rate mortgage (ARM). You need to be fully prepared for what may happen to your payments after the first adjustment. However, something like a 5/1 ARM (a fixed rate for five years and an adjustment each year thereafter), could be a good idea if you're buying your first home and don't plan to stay longer than five years.
Discuss your hopes and objectives with an agent, who can help guide you down the road to homeownership.
Factors affecting your terms are the amount, the length of the loan, and the loan-to-value ratio (how much of the home's value you are financing). Larger loans carry more risk to the lender, so the interest rate may be higher.
Similarly, a smaller down payment represents more risk, possibly warranting a higher interest rate. Get the best rate by putting down as close to 20% as possible.
The difference between a 15- and 30-year loan is also critical. Payments for a shorter term will be larger, but you'll build equity much faster, and enjoy a slightly lower interest rate.
Also understand the workings of an adjustable rate mortgage (ARM). You need to be fully prepared for what may happen to your payments after the first adjustment. However, something like a 5/1 ARM (a fixed rate for five years and an adjustment each year thereafter), could be a good idea if you're buying your first home and don't plan to stay longer than five years.
Discuss your hopes and objectives with an agent, who can help guide you down the road to homeownership.
6/4/09
Short Sales
In areas where home prices have significantly declined, some owners find themselves strapped with mortgages that total more than their home’s value. When options such as extending the term of the loan or negotiating a lower interest rate have been exhausted, then a short sale may provide the solution.
However, short sales are complicated, requiring approval from a number of parties, so you need the representation of a professional to make sure the transaction moves quickly. You can have more than half of the paperwork done before that first offer even comes in.
Most lenders require an application package to be completed by the sellers, including a financial worksheet, as well as a letter of hardship explaining why the owners cannot continue to pay the mortgage. The real estate agent can also help with other aspects of the required paperwork, which should be assembled before the property is listed.
While the bank may be willing in such cases to accept less than the mortgage balance, the buyer's offer must still reflect a fair price under current market conditions, so be sure to consult with an agent in order to arrive at a reasonable price that will be accepted by all parties, including the lender.
Short sales may not be easy, but they do provide an "exit strategy" for homeowners most in need of a solution.
However, short sales are complicated, requiring approval from a number of parties, so you need the representation of a professional to make sure the transaction moves quickly. You can have more than half of the paperwork done before that first offer even comes in.
Most lenders require an application package to be completed by the sellers, including a financial worksheet, as well as a letter of hardship explaining why the owners cannot continue to pay the mortgage. The real estate agent can also help with other aspects of the required paperwork, which should be assembled before the property is listed.
While the bank may be willing in such cases to accept less than the mortgage balance, the buyer's offer must still reflect a fair price under current market conditions, so be sure to consult with an agent in order to arrive at a reasonable price that will be accepted by all parties, including the lender.
Short sales may not be easy, but they do provide an "exit strategy" for homeowners most in need of a solution.
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