We are letting down existing borrowers

Given that even a hint of a change to (BBR) over the past seven and a half years has been rare, you can fully understand why the market has taken such a keen interest in MPC pronouncements over the past couple of months. This month’s cut to Bank Base Rate was widely anticipated but still seemed rather momentous given the lack of movement over that period.

The suggestion from many commentators is that the cut will herald something of a ‘new age’ for the remortgage market, which (we are told) has been waiting on a BBR move – in either direction – since January 2009. Whether this becomes reality is another matter, and will of course depend much on how lenders react.

That said, there are a group of borrowers – whose true size we are yet to get a full handle on – who will find themselves stuck in the same position regardless of whether rates fall or rise. These ‘mortgage prisoners’ appear locked in limbo, some for unfathomable reasons, and it was therefore no surprise to see the Association of Mortgage Intermediaries (AMI) recently hitting out at both the regulator and lenders for what they see as inertia when it comes to helping these borrowers move away from their current (often SVR) rates to those which are far more competitive in today’s mortgage market.

AMI puts the ‘mortgage prisoner’ number at somewhere near one million and says that in certain sectors there are great swathes of borrowers unable to do anything but stay put. These include (perhaps unsurprisingly) interest-only borrowers, those who want to borrow into retirement or are currently in retirement, the self-employed and contract workers, foreign currency workers (whose product access has been hit considerably by the changes brought about by the MCD), and expatriates.

While AMI believes these borrowers are the worst affected in this post-MMR environment which brought in far tighter affordability measures, there are of course what we might call, ‘standard mortgage holders’ who have also been turned down for a remortgage despite the fact the transitional arrangements brought in by the MMR were designed to allow lenders to smooth their path. Of course, this is only for those not wishing to add to their borrowing, but even now it seems incredibly odd that a borrower who is currently affording their higher monthly mortgage payment, is still being turned down by a lender for a product which would actually see them with a less costly mortgage.

Now, of course, to give the FCA a fair hearing it has been very vocal in urging lenders to use the transitional powers as set out and to ensure borrowers are not left on rates which clearly disadvantage them, when (technically at least) they should be able to remortgage to a more competitive rate. However, turning theory into practice is a rather different situation, and you can (sort of) understand why lenders are cautious – perhaps far too cautious – when it comes to determining affordability under the MMR rules, rather than those in place beforehand. After all, the regulator’s train of thought is on tightening affordability/underwriting rather than loosening it.

That said, something has to give and there has to be a considered appeal to lenders to treat customers fairly in these circumstances. The FCA appears to be suggesting that because it has only looked at those customers who had mortgages approved, it’s not in a position to comment on those who were turned away. This clearly needs to be changed, because as any intermediary will tell them, the numbers of rejected borrowers are substantial and, while they are living through a period of ultra-low mortgage pricing – which has just got lower – they are not able to benefit from it.

One can understand the situation where the existing borrower wants to borrow more – of course the necessary affordability checks need to be maintained – but a simple product transfer or remortgage to a new lender should not be out of the question for those who simply want to move to a different product/rate. AMI appears to be calling for this situation to fall within the regulator’s review of responsible lending, and it’s hard to disagree. At the moment we as an industry are letting down existing borrowers who could, and should, be allowed to move. It’s time we rectified this.

source: mortgageintroducer.com

Mortgage Pre-approval: Why You Want It & What to Do if You Can’t Get It

When you’re searching for a new home, few steps are as important as getting pre-approved for a mortgage loan.

Not only does it help you as a buyer, but sellers will view you as a better candidate. And if you get involved in a bidding war for your dream home, it helps to be the kind of buyer that sellers consider reliable.

How a mortgage pre-approval works:

First, you send documents proving your income to a mortgage lender. These documents can include your last two paycheck stubs, last two months of bank statements and last two years or income-tax returns. Your lender then studies these documents to verify your monthly income. Your lender will also run your credit to determine your credit score.

Once your lender has this information, it will tell you how much mortgage money it is willing to lend you. It will also give you a pre-approval letter stating this amount.

Why is a mortgage pre-approval important?

1. Streamlines Your Search

By pre-arranging financing, you can save a considerable amount of time. Because a lender will examine your credit report, pay stubs, bank statements, etc., they can tell you exactly what you’re qualified to borrow. That way you know what your price range is so you only look at homes you can afford. Rather than looking at a myriad of properties, you can narrow your search down to a handful and examine those in great detail.

You’re also less likely to be let down or become disillusioned when you fall in love with a property, only to find that it’s out of your price range. This can save you from a lot of frustration and expedite your search.

2. Sellers Take You More Seriously

When a seller has multiple buyers interested in their property, it’s important to stand out from everyone else. In the event that there were three other buyers, and you were the only one with a pre-approval letter, you would have a much better chance of getting the seller’s attention.

That’s because you have direct evidence of your ability to obtain financing. It also shows that you’ve put in the effort to get pre-approved, which proves you have a genuine interest in buying. This should reduce any skepticism or anxiety that a seller may have, and they’re likely to give you more consideration than other candidates.

3. Increased Leverage When Negotiating

Because of the effort you’ve put forth and tangible proof of your financial backing, this can really work to your advantage when making negotiations. According to Ray Mignone, a certified financial planner in Queens, New York, “pre-approval carries more weight when you go to negotiate a deal. It gives you bargaining power.”

Being pre-approved means that it’s basically a done deal, and you don’t have to go through the process of applying for a mortgage in the future. If a seller is faced with your offer and a slightly higher one from another buyer who hasn’t been pre-approved, this can often persuade them to go ahead and accept your offer. If the seller has no other offers, then you may be able to buy their property at a reduced price, and they may be more flexible with their terms.

Taking the time to go through the pre-approval process for a mortgage has some distinct advantages. Once a lender gives you the green light, it can help you find a great property at a fair price while eliminating a lot of hassle.

What if I can’t get pre-approved for a mortgage?
 

Getting denied for pre-approval should not discourage your efforts, although you may need more time to prepare for this large purchase. Therefore, here are five things you can do if you can’t get pre-approved for a mortgage loan.

1. Ask for an explanation

Mortgage lenders are helpful and they’ll provide a reason for the rejection, plus advice on how to proceed. Several factors can disqualify you for a mortgage loan, such as inadequate income, a low credit score and questionable employment. However, if you take a lender’s advice and make the necessary improvements, you might qualify for financing in the future.

2. Build your bank account

When applying for a home loan, the lender will ask for copies of your bank statements. This is to ensure that you have enough cash for your down payment and closing costs. In addition, some lenders want to see a 2 to 3-month cash reserve after paying mortgage-related expenses. If you will not have a cash reserve after paying closing costs and the down payment, the lender may recommend that you postpone buying a house until you’ve saved additional money.

3. Add points to your credit score

A conventional mortgage loan requires a minimum credit score of 650 or higher. Therefore, if you’re turned down for a mortgage due to a low credit score, take steps to build your credit. This can be as simple as paying all your bills on time over the next 6 to 12 months, or paying off a credit card to decrease your credit utilization ratio, which will subsequently raise your FICO score.

4. Increase your income

On the other hand, you might have excellent credit, but not enough income to qualify for a mortgage loan. There are several ways to approach this dilemma. Speak with your lender to see if you can qualify for a lesser amount; or if your spouse works, perhaps you can apply for a joint mortgage, at which time the lender uses your combined income to determine affordability. And if too much debt prevents a pre-approval, paying off credit cards and other loans — student loans, auto loans and personal loans — can increase purchasing power and help you qualify for the desired amount.

5. Wait until the two-year mark

Employment gaps can be the kiss of death when applying for a mortgage loan. For the most part, mortgage lenders require 24 months of consecutive income. Therefore, if you’re just entering the job market, or if you were unemployed in recent months, the lender may reject your application and require that you wait at least two years before re-applying for a mortgage loan.

Bottom line

Applying for a mortgage loan will have its share of obstacles, especially since lenders have tightened their requirements. However, if you carefully prepare for a purchase, you can successfully meet a lender’s qualifications and get the keys to your new home.

source: totalmortgage.com

Tread Carefully when Buying or Selling a Short Sale Home

Short sale properties are sold for less than what’s owed on the mortgage loan. It’s a provision for homeowners who can’t afford their mortgage payment, and it’s a way for these borrowers to avoid foreclosure.

A short sale can also be advantageous for buyers. These properties are sometimes cheaper, so you can buy more house for your money—but don’t get excited too quickly. Whether you’re a buyer or a seller, there are definitely some reasons to stop and consider if you want to go down the path of the short sale.

 Buying a short sale home

Short sales are often fixer-uppers


Short sales are sold as-is, and in many cases, these homes need a lot of work. Because the previous owner had financial hardships, he probably didn’t have resources to keep up with home maintenance and repairs.

From a price point, a short sale can be an excellent deal, but you’ll need money to improve the interior and exterior of the home. This includes updating the kitchen and bathrooms, replacing the flooring, painting the walls and making other structural improvements. It’s the perfect property if you don’t mind some renovations, but if you’re looking for a move-in ready property, a short sale may not be the right property for you.

Not every house qualifies for a short sale


Some home sellers and real estate agents don’t fully understand how short sales work, and they might list the house as a short sale before getting permission from the bank.

Before bidding on a short sale, speak with your real estate agent so he can confirm that the seller’s bank is aware of the situation. There are rules for short selling a property. For example, the seller must prove there’s some sort of financial hardship, and they must have defaulted on their mortgage loan. Additionally, a seller cannot request a short sale if he’s filed bankruptcy. Don’t waste time bidding on a property that doesn’t meet a lender’s short sale qualifications.

Short sales have a lengthy approval time

Even if you’re pre-approved for a mortgage and ready to purchase, you’ll need to be patient. Buying a short sale takes longer than buying other properties. With a non-short sale property, you can realistically close within two to four weeks. Since there’s a lot of back-and-forth and red tape with short sales, it can take as long as 90 days to purchase these homes—that’s if the bank approves the sale. At the end of the day, you need the lender’s approval, and the bank can decide at the last minute not to approve a short sale, putting you back at square one.



Selling a short sale home

Short sales produce potential tax problems


What many people don’t realize is that if your lender allows you to sell your home at a loss, you may be liable for taxes on the losses incurred by the lender.  The IRS considers a short sale loan forgiveness.  Loan forgiveness is considered debt discharge income (DDI), and DDI is taxable.

If a lender forgives more than $600 of principal, they might send you and the IRS a 1099-c form, and you are required to report the loss as income.  In many cases whether you have a tax liability or not will depend upon your lender.  Some lenders will report the DDI to the IRS, others will not.


In addition to DDI, there can be other tax implications with a short sale


Take for example the case of someone who bought a $100,000 home.  The market did well and the property increased in value to $125,000.  At the peak, the borrower taps the home’s equity and took out a second mortgage for $50,000. Now the borrower has a house worth $125,000 and $150,000 worth of mortgages (first and second).

The market stagnates and they sell the house in a short sale for $125,000.  For tax purposes, they have actually made $25,000, despite being $25,000 shy of breaking even on their mortgages.  This is because the sales price exceeds the tax basis of the home.  Mortgage debts do not factor into gain-on-sale calculations.  This is in addition to the taxes that must be paid on $25,000 worth of DDI.  It is possible that the $25,000 gain may be excluded from taxes as a result of the federal home sale gain exclusion tax break.

Now take the example of a person who purchased a home (to be their primary residence) for $100,000, the market improves and the house appreciates to $125,000.  The homeowner borrows $50,000 against their home equity, and now has $150,000 worth of mortgage debt. Then the market declines and the house is worth $75,000 and is sold in a short sale. The borrower is left with $50,000 worth of DDI, but they have also incurred a $25,000 loss on the property.  The borrower may not deduct the loss.  This is because you may only claim losses on investment or business properties, not principal residences.

There are some circumstances where DDI can be exempt from taxes. If the debt write-off is deemed a gift, discharged in bankruptcy, or you were insolvent (have debts that are in excess of your assets) at the time the lender forgave your debt, your DDI may be exempt from taxes.

Consult an accountant, lawyer, and mortgage professional when undertaking a short sale

There are many benefits, but some downsides associated with short sales.  In addition to DDI taxes, increasing numbers of banks are making the borrower sign a promissory note for the lender’s losses or agreements that allow the bank to pursue the borrower for deficiency when selling a home in a short sale.

 Bottom Line

If you’re not in a hurry to purchase a home, a short sale might be the answer. On the other hand, if you’re looking for a quick and simple sale, and if you don’t have the patience for a lot of back-and-forth negotiations with the mortgage lender, you might do better skipping a short sale and buying a traditional listing.

source: totalmortgage.com

How to Close Your Mortgage Like a Pro

Finalizing a deal and closing your mortgage can come with plenty of obstacles, especially if it’s your first time. In some cases, major setbacks can arise that result in delays and unnecessary stress.

However, understanding common complications and preparing yourself ahead of time should make your closing go through without a hitch.

Go Over Your Paperwork

During the closing process, you’ll sign several documents. These include the HUD-1 settlement statement, which lists all the costs related to the sale of the home; the final Truth-in-Lending statement, which details the costs associated with your mortgage loan and its interest rate; the mortgage note, a document stating that you promise to repay your mortgage loan and spelling out what recourse your lender can take if you fail to do this; and the mortgage or deed of trust, which provides you lender with a claim against your home if you don’t follow the terms of the mortgage note.

Once these documents are signed and you present your cashier’s or certified check to the title company, the title agent will make copies of the documents you signed and any other paperwork about your new home for you. You’ll also receive the keys and garage door openers to your new home.

To save time, you should double and even triple check all pertinent documents to ensure that they have been prepared correctly. Check the personal information and home address for any misspellings. Look at payment amount, interest rates and any other numbers for errors.

If anything looks questionable, contact your lender as soon as possible to have the issue resolved. Be sure to get everything organized and you may want to make copies just in case something is lost. To take it one step further, you can scan and save documents digitally onto your computer or on a Cloud-based platform.

Write Down a List of Questions

As your closing draws near, you will probably have some questions for your lender and real estate agent. Writing these questions down and contacting the appropriate party in advance should clear everything up. If you need to take care of something, you can handle it before the finalization and save yourself from frustration.

Take a Final Walk Through

Although you will probably be quite familiar with your new property, it’s a good idea to give it one last walk through a day or two prior to closing your mortgage. This is a good time to check to see if the seller has lived up to their end of the deal and that there are no glaring issues. Make sure that there hasn’t been any recent damage and that plumbing and electricity are working correctly.

If they were supposed to make renovations or repairs, everything should be completed. If the seller agreed to leave you with certain appliances, these items should be accounted for. In the event that the circumstances aren’t what you agreed to, you will need to contact your real estate agent immediately.

Transfer Utilities Ahead of Time

Before the actual closing date, you will want to transfer all utilities accounts to your name. This is especially important if you plan on moving into the property immediately after closing your mortgage. Just ask the seller for a list of all utilities companies and contact each one. If there are any problems, they can be addressed and there will be less on your plate once the deal is finalized.

Know Your Closing Costs

There can be several additional fees that contribute to closing costs. Some of which include inspection charges, attorney’s fees, a loan origination fee and escrow deposit. Consequently, you need to know precisely what you will owe in order to close.

According to Zillow, “home buyers will typically pay between about 2 and 5 percent of the purchase price of their home in closing costs.” That’s why you should have this money ready to go beforehand and have quick access to it.

Bring Your I.D.

Every buyer needs to bring a government-issued photo I.D. Most people will bring a driver’s license. The closing agent will make copies of these pieces of identification.

Bottom Line

The closing process can be a nerve-wracking one. You are, after all, making what is probably the biggest purchase of your life. Knowing how the process works and what is expected of you can ease some of this stress. And if you have any questions during the closing, make sure to ask them. This is not the time to be timid.

source: totalmortgage.com

Understanding Settlement Statements: How to Decipher Yours Before Closing on Your Home

One of the most important documents you’ll receive as you draw closer to closing on your new home is called Good Faith Estimate, which is a precursor to the settlement statement that defines the financing of your home closing. This detailed piece of paperwork may seem like it needs its own decoder ring to understand, but you can use this simple guide to understand your Good Faith Estimate.

 Property Information

When you receive your Good Faith Estimate, double-check that the information about your new home is accurate, including the address, purchaser name and date. The date is especially important because estimates of the closing costs like interest and taxes can vary based on this date.

The other important date to review is the deadline to lock in the offered interest rate. Your lender may require you to pay a fee to lock in that interest rate and may also requires you to close the loan by another deadline to guarantee that rate.

Costs and More Costs

While applying for your mortgage, you probably discussed potential monthly costs with your broker. Under the “Summary of Your Loan” area, actual interest and recurring costs are further defined. Verify whether your interest rate can change over time or if you will face any penalty for making early payments. In this area, you’ll also learn if your mortgage lender will require you to pay a portion of your homeowners insurance and property tax every month with your housing payment — called escrow charges — or if you can independently pay these charges.

Origination Charges

Your mortgage company may charge you fees for originating a loan on your behalf, including fees to lock in rates or process your paperwork. Some of those fees may be collected up front, while others are included in your closing costs. You may also agree to pay additional charges called “points” to lower your interest rate. Your mortgage company may provide several rates: in general, lower rates cost more to lock in at closing, while higher rates reduce your closing costs.

Settlement Charges

Settlement charges often include

    Surveyor fees
    Legal recording fees
    Title fees
    Prepaid insurance and taxes
    Appraisal fees
    Credit report fees
    Courier fees
    Attorney fees

An estimate of these fees will be included under your settlement charges. As a buyer, you can request that the seller pay certain fees entirely or that they pay a percentage of the total settlement cost as part of your price negotiation.

Homework

On the final page of your Good Faith Estimate, you’ll have room to do more homework. Although you may have talked to only one lender, you can still investigate other interest rates or options. Take the time to go through these numbers. Refinancing can be expensive and time consuming, so locking in the loan with the best available rate and lost costs can save time and money in the long run.

Now that you better understand your Good Faith Estimate, you will be well prepared to review your HUD Settlement Statement at closing and know what fees and costs you will bear.

source: totalmortgage.com

What is a Mortgage Broker?

At some point in the mortgage process, you might find yourself wondering what a mortgage broker is, and why you might choose to work with them.

Who they are

Put simply, a mortgage broker is a middleman between the borrower and the bank or mortgage lender. They’re kind of like a borrower’s Sherpa, leading them to the summit of the perfect loan.

It doesn’t matter if a client is looking to refinance or purchase a new home, the mortgage broker will do their part to help them qualify. Just remember that since they are a middleman with no affiliation to anyone except themselves, they will inevitably take their slice of the pie (more on that later).

What they do

The first thing they will do is gather all of the necessary information. That means income, asset, and employment documentation, plus a credit report. The mortgage broker will then look over all of the borrower’s information and decide what the best way to obtain financing will be. This means, they’ll advise the borrower on the loan amount, the loan-to-value ratio, and the type of loan.

When the specifics of the loan have been decided on, the broker will submit the loan to a lender they work with to gain approval. Throughout the process, the broker will talk with the bank and the borrower to make sure both parties are on the same page.

Pros

One of the major benefits of using a mortgage broker is that they can shop around with multiple banks and lenders to find the best rate/loan program. This is in contrast with a loan officer, who’s confined to the lender they work for, so if you get declined that’s the end of the road.

With a mortgage broker, if a borrower gets declined they’ll just move on to another lender. It’s also possible that a mortgage broker will be working with fewer clients, and will therefore be more available for any questions/concerns a borrower might have.

Cons

In reality, there’s no guarantee that they’ll search high and low for the best loan. It’s entirely possible that they’ll steer the borrower toward a loan that makes them the most money.

It’s important to ask for multiple quotes from as many lenders as possible. Of course, the only way a borrower can be sure they are getting the best deal is to do their own research.

How they make their money

There are a few different ways a mortgage broker can get paid. Typically, they charge loan origination fees and/or broker fees. This usually amounts to 1-2% of the loan, and can either be paid up front or added into the loan. Because of the Dodd-Frank Act—no hidden fees are allowed—the broker must be willing and able to tell you exactly what each and every fee is for.

source: totalmortgage.com

Why Your Mortgage Lender Asks for More Than Is Required

It’s no secret that there is a lot of confusion surrounding mortgages. One of the main gripes is that requirements aren’t the same across different banks and lenders.

See why every mortgage lender will disappoint you for more on that.

Unfortunately, it’s very difficult for lending standards to be uniform from bank to bank because of the complexities of mortgage financing.

First off, no two borrowers are the same, so just because your neighbor got approved over at Wells doesn’t mean you will.



The same goes for properties – like snowflakes, no two are exactly the same…well, maybe some tract homes are, but their locations aren’t.

There are also many different types of loans, including those backed by the government, such as FHA and VA, and those quasi-backed by the government, such as Fannie Mae and Freddie Mac.

For the record, that latter group of mortgages is also backed by you, the taxpayer, thanks to the reckless lending that took place before the latest mortgage meltdown.

The risk appetite of lenders is also quite variable.

Overlays Add to the Confusion

On top of this already confusing situation is the prevalence of credit overlays, which are additional requirements individual banks and lenders put in place above what is asked of them when receiving a guarantee from Fannie, Freddie, and Ginnie Mae.

For example, even though you technically only need a 500 credit score to qualify for a FHA loan per HUD, most lenders ask for much higher scores.

This is a common type of overlay, in fact, the most common, according to a recent survey conducted by Fannie Mae.

But instead of originating mortgages based on agency guidelines, skittish lenders are requesting higher credit scores, lower LTV limits, lower DTI ratios, and more paperwork.

Just take a look at the chart above and you’ll see that nearly half of banks that impose overlays want a higher-than-necessary credit score.

If you’re wondering why they do this, it’s for two main reasons. First, they want to make higher quality loans, which should keep their default risk low and profits high.

Secondly, they implement such overlays to reduce the chances of having to repurchase loans they sell to investors.

Call the overlays a buffer or a cushion to keep the lender at arms length from any nasty situations that may arise, even if unnecessary.  It’s like when you overpack your suitcase just in case…

Finding a Lender That Doesn’t Impose Overlays

While you might be annoyed that your lender is requiring more than Fannie, Freddie, or Ginnie require, know that not all lenders impose overlays.

In fact, only about 41% of lenders that deliver loans to the GSEs or Ginnie Mae said they apply overlays.

And most (64%) do so on a “limited basis,” meaning on 20% or fewer of their loans.

However, overlays are more common on loans acquired or originated via the wholesale channel, which includes correspondents and mortgage brokers. If it’s not happening under their roof, requirements will likely be more stringent.

For the record, large and mid-sized lenders are the most likely to apply overlays, while smaller institutions are more likely to originate based on agency guidelines.

Credit unions are the least likely to impose overlays (84% don’t), followed by depository institutions (73% don’t).

Conversely, 61% of mortgage banks are likely to ask for more than is necessary.

So if you can only qualify for a mortgage based on the agency guidelines, perhaps seeking out a smaller credit union or local bank is the way to go.

Of course, results may vary, but this does give us an idea of where it might be easier to get a loan.

source: thetruthaboutmortgage.com

How to Simplify the Home Buying Process

As a first­-time home-buyer, the home buying process can be intimidating and stressful. This is brand new territory for you. And since you don’t know what to expect, you might not realize how slow and complicated the process can be.

But even if you’re new to the “home buying game” and slowly learning the ropes, there are simple ways to streamline a purchase and minimize stress.

1. Organize your documents ahead of time

 

When you apply for a mortgage loan, the first thing a lender will do is request financial documents. This includes your tax returns from the past two years, recent paycheck stubs and copies of bank account statements.

If you’re not organized, finding these documents can be tedious and time-consuming. So make sure you have a system where all your financial information is located in one place and easily accessible.


The sooner you locate and forward these documents to the mortgage lender, the sooner the bank can process your application and get you approved for a loan.

2. Get pre­-approved before shopping

 

Some first­-time home-buyers don’t understand the importance of a mortgage pre-approval. Pre­approvals aren’t required to make an offer on a house, but they can streamline the process since you’ll already have financing in place. 

A pre-­approval involves completing an official mortgage loan application and going through the underwriting process, with the lender checking your credit and verifying your employment and income.

 

Once you’re pre­-approved, you know exactly how much you can spend on a property, plus you know your estimated mortgage rate before shopping for a home.

3. Check your credit beforehand

 

You might think you have excellent credit, but your credit report can paint a different picture. To avoid any surprises when applying for a home loan, check your credit report beforehand.

You can order a free report each year from AnnualCreditReport.com. Check the report for errors and unfamiliar account activity which can be a sign of identity theft. Mistakes on your credit report can lower your credit score and jeopardize qualifying for a mortgage.

4. Know what you’re expected to pay a lender

 

Speak with your mortgage lender to find out how much you’ll need for a down payment. Down payment minimums vary depending on the type of mortgage.


For example, a conventional mortgage loan requires a down payment between three percent and 20 percent, whereas an FHA home loan requires a 3.5 percent down payment.


You will also need cash for closing costs, which can be as much as two percent to five percent of the sale price (unless the seller agrees to pay all or a percentage of your closing costs).

5. Make sure your realtor understands your needs

 

Be as specific as possible when speaking with your realtor. If your realtor understands exactly what you’re looking for in a property, you won’t waste time looking at homes that don’t meet your needs.

For example, how many bedrooms and bathrooms do you need? Are you seeking new construction or a resell? What type of square footage do you have in mind? What’s your price range? Do you prefer a specific neighborhood or school district?

Bottom Line

 

There’s nothing more thrilling than buying a home — especially if you’re a first-time buyer. But the stress of getting a mortgage and negotiating a purchase can overshadow the excitement. The above tips, however, can reduce the risk of setbacks and speed the process so you can quickly move into your new place.

source: totalmortgage.com

6 Reasons Your Mortgage Was Rejected

You might be eager to jump into homeownership. Unfortunately, several things can derail a home purchase.

A mortgage rejection is frustrating and discouraging, but it doesn’t mean you’ll never be able to buy your own place. Here’s a look at six of the biggest threats to homeownership.

1. Co-Signing loans

Whether it’s your child, your sibling or your best friend, cosigning a car loan, a student loan or any other loan for another person can threaten homeownership. This is because the loan shows up on your credit report and you’re listed as a joint borrower.

Understandably, you’re not the primary account holder. However, you are held responsible for the loan if the primary borrower defaults. Cosigning a loan increases your debt-to-income ratio, and unfortunately, the more debt you have in your name, the less you’re able to borrow when buying a home. And sometimes, cosigning a loan can push your debt-to-income ratio over the limit allowed by a mortgage lender, which means you’re unable to get a mortgage until this debt is no longer in your name.

2. Job hopping

You might be a free spirit who

3. Not having a large enough savings account

Nowadays, lenders don’t only ask to see paycheck stubs and tax returns. They also request bank account statements. They’ll look at your savings accounts and other assets to see whether you have enough funds for a down payment and closing costs. And unfortunately, if you don’t have a sizable savings account, a lender might reject your application until you’re able to build your fund.

4. Not enough credit activity

If you get a credit card to build your credit history, make sure the bank issuing your card reports to the credit bureaus on a regular basis. When applying for a mortgage, the bank will check your credit history. And if you have non-existent credit, this can be just as damaging as having bad credit. Before applying for a credit card or any line of credit, speak with creditors and make sure they’ll report your credit activity to the bureaus every single month.

5. Credit report mistakes

The worst thing you can do is fully trust your creditors to report accurate information on your credit report. Creditors make mistakes, and sometimes they report a late payment or a collection account in error. So you need to check your own credit report at least once a year for accuracy.

If you notice an error, contact your creditor immediately to resolve the issue, or file a complaint with the credit bureaus. Credit report errors can reduce your credit score. And depending on the severity of an error, your credit score might be too low to qualify for a mortgage.

6. Poor credit habits

Mortgage lenders have relaxed their guidelines, and you can get a conventional mortgage with a credit score as low as 620 and an FHA mortgage with a credit score as low as 500. But although lenders have lowered their credit score requirements, your recent credit activity must be positive. For that matter, some banks will reject your mortgage application if you have more than one or two late payments in the past 12 months.

The Bottom Line?

Buying a home is a major accomplishment. Instead of wasting money on rent every month, you can start building equity and increasing your net worth. However, several things can put the brakes on buying a house. If you can identify potential threats to homeownership, it’ll be easier to make decisions that will help you reach your goal.

loves to change jobs every six months to 12 months. But unfortunately, job hopping is a sign of instability. And from a lender’s viewpoint, you’re not stable enough to buy a home. Lenders want to see steady income and employment. Ideally, you should stick with the same employer for at least 24 months before applying for a mortgage. If you must switch jobs, remain in the same field. Additionally, your new income must remain the same or increase.

source: totalmortgage.com

New FHA Home Loan Guidelines for 2015

If you need a low-down payment mortgage and you don’t have the best credit score, an FHA home loan can help you get the keys to homeownership. The FHA home loan program has been around since 1934 making homeownership affordable for many.

With the new year underway, the Federal Housing Administration recently announced changes to its program for 2015—changes that benefit many would-be buyers and anyone refinancing to an FHA home loan.

1. Reduced Mortgage Insurance Premiums

FHA home loans only require a 3.5% down payment, which has been a godsend for borrowers who can’t save the traditional 20%. Unfortunately, anyone who puts down less than 20% is required to pay an annual mortgage insurance premium (MIP), which is paid over 12 installment payments and included in the mortgage payment. Borrowers who pay MIP have higher monthly payments than those who don’t, but there’s good news for anyone who closes on an FHA home loan after January 26, 2015.

On January 9, 2015, the Federal Housing Administration announced an upcoming reduction in annual mortgage insurance premiums. For borrowers, this means more money in their pocket every month. This change applies to mortgages greater than 15 years. The reduction of 5% will reduce current mortgage insurance premiums from 1.35% to 0.85% for borrowers to put down less than 5%, and from 1.30%  to 0.80% for borrowers who put down more than 5%.

2. Elimination of Post-Payment Interest Charges

Some conventional mortgage loans charge a prepayment penalty, which is a fee borrowers pay their lender for paying off the mortgage in full within the first two to three years. FHA home loans have something similar, called a post-payment interest charge.

Basically, if you pay off your mortgage early either by selling or refinancing, your mortgage lender might charge interest for the entire month, regardless of when you actually paid off the mortgage. For example, if you paid off a mortgage on September 3, your lender would charge interest through September 30. New rules, however, get rid of this extra cost. Post-payment interest charges are eliminated beginning January 21, 2015. Lenders can only charge interest up until the date a borrower pays off his loan.

3. Advance Notice for Rate Adjustments

Adjustable-rate mortgages typically start with a rate lowered than fixed-rate mortgages. Unlike a fixed-rate, which has a set rate for the life of the loan, an adjustable-rate mortgage has a temporary fixed rate —  one to five years — and then the rate adjusts annually depending on the market. Previously, FHA home loan lenders gave borrowers a 25-day notice of rate increases. Effective January 10, 2015, lenders must give borrowers with an FHA-insured adjustable-rate mortgage a 60- to 120-day notice of any changes to the monthly payment. This provides borrowers additional time to prepare for higher mortgage payments.

Buying a house is arguably one of the most expensive transactions you’ll ever make in your life. And unfortunately, lack of funds is a home buying hurdle for many people. However, with an FHA home loans, affording a property has become much easier.

source: totalmortgage.com

Should You Refinance with Your Current Lender?

Refinancing a mortgage is essentially getting a new home loan to replace an existing one. Some people apply for new financing to lower their interest rate, change their mortgage terms, remove a name from a mortgage or tap their equity. However, after you decide to refinance, the next step is choosing a lender.


Just about every bank offers mortgage refinancing, and many lenders will vie for your business. You can apply with any bank or mortgage broker, but there are good reasons to refinance with your existing lender.

Potentially receive a better mortgage rate

Mortgage lending is a competitive business, and if you’re a long-term customer, the bank undoubtedly wants to retain your business. For that matter, refinancing with an existing lender can potentially result in a cheaper mortgage rate. This doesn’t mean you shouldn’t shop around and compare rates with other banks. You never know, a competitor may offer a better deal. If your existing lender is determined to keep your business, the bank may agree to match your best quote.

Streamlined process

Since you have a history with your lender, refinancing with the bank might be quicker than refinancing with another financial institution. Mortgage lending requires a lot of documentation. This includes tax returns, paycheck stubs, bank statements, and information about your various other assets. It can take days to gather your documentation, and it takes additional time for the mortgage lender to review this information. To accommodate existing customers, many banks streamline the approval process. They might request fewer documentation, resulting in a faster process.

Fewer closing costs

Closing costs average two percent to five percent of the loan amount, according to Zillow. And unfortunately, this is one costs many don’t consider when refinancing a mortgage loan. You can pay this expense out-of-pocket, or the lender can wrap closing costs into your new mortgage loan, increasing the total loan balance. Refinancing with an existing lender can prove cost-effective because the bank might eliminate a few mortgage-related fees, resulting in cheaper closing costs. For example, they might waive the appraisal, the title search fee or reduce the loan origination fee.

Avoid a prepayment penalty

A prepayment penalty is included with some home loans, and the purpose is to deter a borrower from refinancing the mortgage before a certain amount of time has elapsed — typically two to five years.
If your mortgage has a prepayment penalty and you refinance during the penalty period, the bank might charge a fee, such as six month’s of interest. This is a tactic used by lenders to stop mortgage borrowers from going elsewhere too soon. This way, the bank can recoup some of their investment plus interest. But if you refinance with an existing lender, the bank might waive the prepayment penalty since you’re remaining a customer.

Bottom Line

Refinancing can help you secure a better, cheaper mortgage. You don’t have to stick with your current lender, but there are sound financial reasons of doing so. Understand, however, that to enjoy the perks of refinancing with an existing lender, the bank must own your loan. If the bank sold the mortgage to a third-party lender, it has to adhere to this lender’s refinancing guidelines, in which case you may not receive the same benefits.

source: totalmortgage.com

Four Things You Need to Do Before Listing Your House

If you’re eager to sell your home and buy a new one, you might rush to put your house on the market. However, you should take a step back and really assess the situation. If there’s a lot of competition in your local market, your property can sit for several months with little interest. This can be frustrating and discouraging. For that matter, don’t rush. Here are four things you need to do before listing your house for sale.

1. How much do I owe?

 

Emotions may persuade you to sell your house quickly. Maybe you’re expanding your family and need a bigger home. Regardless of the situation, you need to crunch the numbers and determine whether now’s the right time to sell.

Take into consideration how much you owe the mortgage lender. Visit your lender’s website or call the bank to get a payoff amount. Once you have this information, determine how much you’ll need to sell the property for. A real estate agent typically requires a 6% commission, and if proceeds from the sale will go toward the down payment on the next property, decide how much you’ll need to profit from the sale.

For example, if you owe the bank $140,000, and realtors charge six percent commission, and you need a $7,000 down payment to purchase a new property, given these numbers you’ll need to sell for at least $155,400. The next question is: can you sale for this amount?

You may think you can get a certain price for your home, but the local market ultimately determines the value of the house. A realtor can provide comparable sales and statistics to help you understand what similar homes have sold for in recent months, or you can hire an appraiser to assess your home’s value.

2. Realtor vs. For Sale By Owner

 

Most home sellers prefer using a real estate agent to handle the transaction. The realtor is responsible for listing the house, marketing the property, arranging showings, plus they can help with paperwork and answer questions. However, after completing market research and getting an appraisal, you may decide that you can’t afford a six percent commission, and selling the home yourself might be the only alternative. You don’t need a realtor to sell your house, just make sure you know what you’re getting into before handling the sale yourself. You’re responsible for the marketing and the meetings with potential buyers.

3. Get pre-approved

 

Before listing your house for sale, get pre-approved for a new mortgage. The truth of the matter is, there’s no point in selling your house if you don’t qualify to buy a new one. A pre-approval is a simple process that takes less than a week. Basically, you complete a mortgage application, submit your income information and the lender pulls your credit. Based on this information, the bank determines if you qualify for a mortgage, and how much you’re eligible for receive.

4. Tour other homes for sale

 

Because many homebuyers seek move-in ready properties that require minimum improvements, you’ll need to compare your home with other houses on the market. You don’t have to invest a ton of money in total renovations, just know that the more modern the space, the easier it’ll be to sell. Visit similar homes for sale in your area to assess the competition. If your sale prices are comparable, but these homes are staged, updated and in better condition than your property, your home might not sell as quickly.

To make your property more appealing to buyers, de-personalize the space so that potential buyers can envision their family living in the home. Choose neutral colors for the wall and replace worn items, such as the carpet, appliances, fixtures, tile floors and windows. Most buyers aren’t looking for perfection, but at the same time, many aren’t going to purchase a home that requires thousands of dollars in improvements — unless the price is low enough.

Final Word

 

Home selling is a competitive game, especially when there are many homes on the market. However, if you do preliminary work and research the market, and if you know what buyers want, you can sell faster and move into a new place sooner.

source:  totalmortgage.com

Three Unique Ways to Pay Your Mortgage

If you’re a homeowner, you know the importance of making regular monthly payments. This protects your credit score, and helps maintain a good relationship with your mortgage lender. However, if you start to experience payment problems, or if you want to pay off your mortgage sooner, options are available to you. The truth is, there are many creative, unique ways to pay your mortgage — and most ways are financially beneficial. 

1. Rent a room in your home as office space
Maybe you’re not comfortable with the idea of getting a roommate. However, if you have free space or an empty room on the property, consider renting this space as office space.

Some home-based business owners seek a separate office space for work, especially if they have young children at home and find that it’s too difficult to concentrate. They might not be able to afford space in an office building, but they may have resources to rent space in a converted garage, a finished basement or a detached room on your property that’s suitable for an office.

You can rent your extra space on a monthly basis, and then use funds to help cover your mortgage payment if you’re having difficulties. Since this money counts as rental income, set aside about 20 percent to 25 percent for income taxes.
 
2. Use a credit card to pay your mortgage

The idea of using a credit card to pay your mortgage may sound scary, but this method has its benefits. It’s an opportunity to accumulate credit card reward points faster.

If you have a credit card with a rewards program, then you probably know that you can earn miles or points for every dollar you spend. Once you’ve earned enough points, you can redeem these for flights, hotels, gift cards, merchandise, cash or statement credit. However, to benefit the most from a rewards program, you have to use your card often.

Some banks do not accept credit card payments, such as Bank of America. So, speak with your mortgage lender to see if this is an option. If you use a credit card to pay your mortgage, make sure you immediately pay off this charge. Don’t charge your mortgage and then carry the balance from month-to-month.

3. Pay half your mortgage every two weeks

You might be unable to afford a 15-year or a 20-year mortgage. Even so, if you’re adamant about paying off your home sooner, consider a bi-weekly payment schedule.

Speak with your lender to see if they’ll accept bi-weekly payments. If so, you’ll pay one half of your mortgage payment every two weeks. This is the equivalent of one extra mortgage payment a year — which may not appear to make a difference. However, one extra mortgage payment a year reduces your total interest charges and reduces your mortgage term by seven or eight years.

Bottom Line:
Getting creative with your mortgage is one of the fastest ways to eliminate the debt sooner. And if you’re having payment problems, creativity can help you drum up cash and keep your mortgage loan in good standing.

source: totalmortgage.com

Bank of America to Pay $500M to Settle Investor Lawsuit

NEW YORK -- As soon as Bank of America puts one mortgage-related lawsuit behind it, another always seems to rear its head.

The bank announced Wednesday that it would pay $500 million to settle a class-action lawsuit led by pension funds and other investors who say they were misled about $350 billion worth of mortgage-backed investments they bought from Countrywide, a mortgage lender Bank of America Corp. (BAC) bought in 2008. The bank portrayed the settlement as good news because it resolved the bulk of securities claims related to residential mortgage-backed securities.

But financial analysts, in a conference call to discuss the bank's first-quarter results, peppered bank executives with questions about another pending settlement. Bank of America is still waiting for court approval for a similar settlement it made with Bank of New York Mellon Corp. (BNY) almost two years ago. If it doesn't get the go-ahead, Bank of America could have to spend more to resolve the claims.

Bank of America's stock slumped nearly 5 percent to $11.70. While its earnings were just shy of what analysts expected, it was the bank's latest liability from mortgage lawsuits that "seems to be the big question for investors," banking analyst Meredith Whitney said on the conference call.

Chief Financial Officer Bruce Thompson told analysts that the bank felt "very good" about settling the pension funds' lawsuit. But he acknowledged the uncertainty of potential lawsuits and declined to predict how much the bank might have to spend on litigation in the future.

"I don't think anyone is going to ever, at this point, declare complete victory," Thompson said, though he added that the bank was moving through "this pipeline of items" in "a pretty meaningful way."

 Bank of America's current troubles are the latest fallout from its decision to buy Countrywide, which was known for making exotic mortgages that later went bad as borrowers defaulted. The purchase catapulted the bank into a spot at the top of the nation's mortgage scene, but it's been an albatross ever since, bringing lawsuits, investigations and quarterly losses. Hard-to-predict legal expenses have been a bane to Bank of America and throughout the banking industry.

It was just last quarter that two mortgage-related settlements overshadowed the bank's results. In early January, the bank took a charge of $2.7 billion to settle a dispute with Fannie Mae, which forced Bank of America to buy back mortgages it had sold to the agency before the crisis. It also took a $1.1 billion charge to settle government accusations that it and other banks had wrongfully foreclosed on some homeowners. The charges sent fourth-quarter earnings down sharply.

Brian Moynihan has been wading through issues dating back to the financial crisis ever since he became CEO in 2010, and would very much like to put them behind him. Asked on the conference call about a report that he was pushing for revenue growth, Moynihan replied that it wasn't a new strategy, just a bigger focus as "legacy" issues get resolved.

"As the other issues go away," Moynihan said, "this is what the team has to be focused on."

More on the bank's results:

• The new settlement: Bank of America is paying $500 million to settle a lawsuit brought by the Maine state retirement system and other investors. They bought mortgages that Countrywide had made and bundled together into securities. The investors say they were misled about the quality of the loans. The settlement still needs court approval.
• The pending settlement: Bank of America agreed in 2011 to pay $8.5 billion to settle claims brought by Bank of New York Mellon, which made similar accusations about mortgage-backed investments owned by institutional investors for which it acted as trustee. That settlement also still needs court approval, and if the judge doesn't accept it, Bank of America could be exposed to more potential claims and litigation expenses.
• What happened this quarter: Results from the different business units were mixed. "We feel like we made a lot of progress this quarter," Thompson said on a call with reporters, "and there's a lot more to do."

Charge-offs, or loans the bank doesn't expect to collect on, were down, and the bank set aside less money for loans that might go bad. The unit that handles troubled mortgages continued to shrink. Revenue and profits were up in wealth management as clients shifted more assets to Bank of America. Commercial loans were up.

The investment bank advised more companies on deals and underwrote more bond offerings, but it had to set aside more money for potential loan losses. Revenue from trading bonds and commodities slipped. Consumer loans also slipped.

• The mortgage market: The bank funded $25 billion in home loans, up 56 percent from a year ago. Bank of America has been changing the way it thinks about mortgages. It's been adding workers to drum up new business, but instead of cranking out as many mortgages as possible -- a common strategy before the financial crisis -- now it's focused on making mortgage loans to people who are already customers. It has stopped buying mortgages made by other lenders.

The overall mortgage unit, however, continued to lose money. The bank sold some of its rights to service mortgages, which crimped revenue, and the profit margins for making mortgages are lower across the industry. Legal expenses also weighed it down.

• Cost cutting: Bank of America has been focused on slashing expenses. It trimmed nearly 16,000 jobs over the year, or nearly 6 percent of its workforce, reducing its headcount to 263,000.

Bank of America has closed 260 branches, or 5 percent of its total, leaving it with roughly 5,400 locations. Moynihan said the bank is responding to the preferences of its customers, many of whom are comfortable banking via cell phone and don't need the branch as often.

• By the numbers: The bank reported earnings after paying preferred dividends of $2.3 billion in the first quarter, soaring from the $328 million it earned a year ago. However, the 2012 results were also obscured by an accounting rule that forced the bank to record a charge because the value of its debt had risen.

Per-share earnings amounted to 20 cents. That missed the expectations of analysts polled by FactSet, who had expected 22 cents a share.

Revenue was $23.9 billion after stripping out an accounting charge. That was down 8 percent from last year, but it beat analysts' expectations of $23.3 billion.

source: dailyfinance.com