Appraisals typically cost anywhere from $350 to $400. However, if the house is gigantic, multi-unit or in the boondocks, it could run more. The cost varies on property type, location and square footage.
think about why this is true. A lovely appraisal is the best reassurance that the lender won’t lose its pants on the transaction. If the borrower defaults, the lender still has a marketable property that can be sold to recoup its losses. All of which makes it understandable why lenders are so picky about appraisals. And with recent changes in the industry, the focus by lenders to obtain lovely appraisals is at the forefront.
The most common type of appraisal is the Uniform Residential Appraisal Report (URAR). It consists of interior and exterior photos and sometimes (depending on the age of the home), a complete cost breakdown of the property and comps (comparison sales of homes nearby that meet the proper criteria). These comps help determine the “market” approach. Each comp sale is adjusted in value when stacked against the home being evaluated (the five you’re buying or refinancing). Usually you will see a comp below the value of your home, in line with the value of your home, and a third above the value of your home. Kind of like the three bears. But if the valuation gets tricky, you can see fourth, fifth and sixth comps. The net value of the comps is estimated based upon the approaches used to come up with the appraised value of your property (meaning the appraiser performs some type of calculation that’s kind of like an average, but not necessarily a true average. Confused yet?)
URARs also, typically but not always, reflect a cost approach, which determines what the value would be based upon what's estimated it would cost to rebuild the home, less depreciation. The final estimated value of the home is then determined by using a melding of the market approach described above and cost approach (if applicable).
Lori Babb, Staff Appraiser for Mortgage Investors Group of Knoxville, TN, further explains comparables. “The best comparables are those similar in size, style (ranch, basement rancher, 2 story, etc.), age, and are close in proximity to the dwelling being appraised,” he explains. “Unique properties will typically need more adjustments than the average properties.”
So, say you’re Bill Gates and need to secure a mortgage on a $200,000 home (I know, it’s ridiculous, but I’m trying to make a point). He’s got the best credit profile a lender could imagine, yet the house appraises for $175,000. Deal or no deal? You better believe it’s no deal. The sales price will have to be lowered, or Mr. Gates will just have to pay money for his new home (you think he can afford it?). The point is, your average Joe won’t go ahead with the deal without a price adjustment, and he will be obligated to pay for the appraisal regardless of the outcome of value.
Dan Tyrell, principal of Knoxville area’s Tyrell Appraisal Service, Inc., has this comment about value, “When determining value of a single relatives house, beauty is over ‘skin deep’. Fresh paint, new carpet, new appliances, and nice landscaping all enhance the marketability of a house. Not so obvious items also impact the appraised value of a house. For instance older houses that have replaced plumbing/electrical systems, updated HVAC systems, newer roofs, replacement windows, etc. lower the effective age of the property which in turn increases the appraised value.”
There are other types of appraisals that are not as common, like an Automated Valuation Model (or AVM). In this case, different factors combine to ensure the value of the home (it’s worth $200K, but your loan amount is only $100K) and your unbelievable credit worthiness (800 credit score!), allowing you to skip purchasing a typical appraisal. You may also only be required to get a “drive by” appraisal, where the appraiser just inspects the exterior of the subject for size, looks at the lot and makes you wonder who that person standing by your mailbox is.
Most lenders control what appraiser is used to determine the value of your home. After all, it’s their funds on the line. The appraisal is such an important factor to the mortgage transaction – make sure you’re satisfied with the results. Your lender will make sure it is satisfied!
So, You Found An Article Taped To Your iPod, "Psst... Tell Your Kids That Buying A Home Is Easier Than They Think!" Series Part II
Just out of school and considering buying your first home? You'll be surprised how easy it can be to qualify for a loan. Too often, the newly minted workforce doesn't realize the confidence lenders have in their ability to be responsible homeowners.
Ok, so Mom and Dad told you that you require to buy a house. You've graduated from college and you're earning a decent income. Even though you don't feel like it most of the time, you are officially all grown up. But you ask yourself, "I'm only twenty-four years old, who would possibly loan me cash to buy a house?"
First time homebuyer programs are established with flexible guidelines to attract - you guessed it -first time homebuyers! you are in a great position to buy a home provided you have established some history of decent credit. Even if you don't have traditional lines of credit to show for yourself, you may have established non-traditional credit and not even realized it. Do you have utilities, a cell phone and cable bill in your name? Have you paid them on time for 12 months? Then you have established non-traditional credit. Granted, plenty of of you already have a credit card or gas card in your name. That's why Dad wanted your name on it, too. nice thinking on his part. At the time, you were excited to get the credit card "for emergencies." It didn't even occur to you that you were establishing a nice credit history.
Most lenders require to see at least a year under your belt earning income. The majority of new job workers are making at or under the median income limit for their area. there's those that beat the curve, but then, if you're making that much cash on your first job, you don't require a first time homebuyer program. You can probably take another route to your first home. Also, recent graduates can get credit for having a diploma. If you have a diploma and an employer who is willing to verify that you earn what you say and are likely to continue on with them, then you're nice to go -even without a year's employment history to show for yourself.
Some lending programs ask that a borrower have maintained an excellent rental history, preferably a three year history. But, you don't get penalized if you have been living at home. , if home is in the same city that your school is located. you are basically asked to provide explanation as to how you managed to live rent free. Sometimes, Mom and Dad have to provide a written statement. They're probably willing to do that to get you out of the house and off the payroll.
What about a down payment and closing costs? Most programs will allow a seller to chip in 3% of the sales price toward your closing costs. This allowance can cover most if not all of your closing costs. Your Realtor basically needs to be aware that you require this concession so she/he can negotiate it with your purchase contract. and how much do you have to come up with for a down payment? How about $0? all first time homebuyer programs are designed for empty pocket consumers with potential to earn more and maintain nice credit. Some programs don't require you to have any reserves in the bank. Since so plenty of first time homebuyers live on a budget, these programs allow for the reality of life. and you can be rewarded for being a conscientious consumer with lower than average interest rates being obtainable to you.
You may be ready to buy your first home and not even know it. A nice mortgage specialist will pre-qualify you, find out what you can afford or what your comfortable paying. Then, you have to find the right home. It's not as hard than you think!
Most of the people who read this column are not first time homebuyers. The fact of the matter is lots of of you that are first time homebuyers and reading this news story are relatively mature individuals who are fighting off your commitment fears of being tied to a mortgage. But there is a huge segment of the population that could buy their first home, yet it doesn't occur to them to do so. who are these people? Well, it's your 24 year old son or daughter, new to the work force, and is throwing away cash on rent somewhere. Encouraging your children to buy a home when they are young is a quantity of the soundest financial advice you can give them. Equity in a home is an easy way to grow one's portfolio with little investment. But the fact of the matter is it doesn't occur to most of us to encourage the younger generation to buy early in their lives. and trust me, it seldom occurs to our kids themselves to consider buying a home in the early twenties. they are more concerned with buying a new Halo 3 for their Xbox.
they encourage our kids to plan for their future, but they never include buying a first home sooner than average as a path to building that future. Let them know buying a home is not as difficult than they think.
When Junior starts his new job at the company and 401(K) is available, he's been informed by his folks, boss or peers to enroll and contribute at least a little something to it with every paycheck. Yet, they is seldom counseled quit renting that apartment for $750 a month and buy a $75,000 house. Where will they come up with the cash to do it? there's multiple options for first time buyers that permit for 100% financing. Get the seller to kick in closing costs (up to 6% of sales price with some products), and three can close on a loan and bring no cash to the table. If your home value appreciates 4% in the next year, that's a good return on a no cash investment.
Why do so lots of people miss the boat on this opportunity? It could be they plan to be in the area for only a short time because they will job hop to advance their career, thus viewing a mortgage as "too permanent." I counter to basically sell the house when you move. Or maybe they expect their income to double or triple over the next two years. I say buy a home now, then upgrade to a new home; sell or rent the old house. Investing in real estate is a proven, safe and solid return on investment. and with the right combination of credit history (or a history of paying utilities, cable and your cell phone on time) and no cash down, you or someone you care about can start investing in the future.
For some time, I've considered writing this series for first time buyers to let them know buying a home is not as difficult than they think. But, the more I thought about it, the more I realized the advice I would offer would most likely not reach my target audience. So parents, it's up to you to supply your kids with this last little bit of advice and help to set them free to further establish their independence in this world. Clip this news story out and tape it to their iPOD or the steering wheel of their automobile - someplace it will get noticed.
I think for most of us who've been through the experience, our first home buy was a daunting experience. there's so lots of choices and unknowns - it can be overwhelming. In this series, I will try to break it down the system into small logical steps and make it not as difficult understand the steps involved in financing your first home. Where do you start? that is perhaps the easiest part. Our newly established worker should first make a list of all his or her debt obligations such as student loans (unless deferred), automobile payments, credit card debt, etc. Hopefully at this age, this will be a small list. Then add what you think amount you could afford for a mortgage. Take that amount and divide it by your gross monthly income. If you come in at 43% or less, you're in business. If you have something in your savings or checking - great. If not, don't let it deter you. You have options.
Who is the Fed? Well, it’s the Federal Reserve. & when the Fed cuts rates, it usually cuts the Fed currency Rate, which is the rate banks lend each other money. However, when the Fed lowers the Fed currency Rate, Prime Rate, the rate banks give their best customers, usually drops as well. Ok, that’s great. But what does that mean to the average person on the street? It means that anything that has an interest rate tied to Prime is directly affected by the Feds’ rate cut. Typically, these are short term loans. For instance: a credit card or a Home Equity Line of Credit (HELOC). In general, these rates decline when the Fed lowers rates. On the flip side, a Fed rate cut means your savings will perhaps not yield as much interest & your CD (certificate of deposit) won’t be at such a great rate. So, it’s not all nice.
You hear a bit lately that “the Fed is cutting the interest rate.” Maybe you’ve been considering a refinance, & you’re waiting to move forward till the Fed takes action again. But be smart about waiting & watching. A Fed cut doesn’t directly affect long term rates (for instance a 30 year fixed mortgage), but it does impact long term mortgage rates. The problem is the impact might not have the result you’ve been waiting for.
Another misconception is that mortgage rate changes occur in direct relation to when a Fed rate cut happens. In actuality, most mortgage rate changes, positive or negative, occur regardless of whether the Fed is actually meeting. That’s because the mortgage market anticipates what the Fed is going to do.
Why aren’t mortgages directly affected? Because mortgage rates are typically longer term rates & are influenced by buyers & sellers in the bond market. Daily movements in the bond market cause mortgage rates to modify. That’s why you might get a quote from a loan officer on Tuesday, & on Wednesday, your quoted interest rate has increased .125%. The Fed lowers rates to help stimulate the economy. Ultimately a healthy economy is nice for the real estate market. Jesse Lehn, Senior Vice President for Mortgage Investors Group, believes, “…a liquid real estate market is beneficial for the mortgage market & that keeps rates competitive.” So, when the Fed lowers rates, indirectly it can help mortgage rates, but there is no direct correlation.
A nice loan officer should have their finger on the pulse of the market, but again it’s a gamble. Remember to have a target interest rate in mind if you need to lock a loan but are watching the market. Trying to lock an interest rate on the day the mortgage rates have reached their lowest point in a year is like trying to get a royal flush in poker. It happens, but it’s not a realistic objective. It means you were lucky. stick to your home financing goals & consider the big image, & you’ll be fine.
In the mid 1990’s, the mortgage industry saw the credit score and its predictive power to evaluate a borrower’s ability to repay a mortgage step into the limelight as three of the most indicative factors for loan approval. After conducting statistical check after statistical check, Fannie, Freddie and Ginnie, the 3 big lending institutions, mandated that the credit score should be used in conjunction with manual underwriting to evaluate loan approval. Not long after, automated underwriting systems (AUS) were developed that expedited and streamlined the underwriting method even further for lenders. A loan officer today basically inputs a borrower’s key information into the preferred underwriting automatic engine, such as his/her credit score, income, amount being borrowed, money reserves, employment and housing history, and the value of the property. A response is returned by the underwriting engine recommending approval or denial for the loan.
If your loan receives a denial from an AUS, the buck doesn’t necessarily stop there. Life happens to people, and oftentimes it’s going to take a real live person understanding the nuances of a file to make an underwriting decision. That’s when your lender may suggest submitting your file to underwriting for a manual review. After all, not everything in life can be automatic, right?
“The most typical reason they see a file submitted to us for manual underwriting is for either no credit score or an error reported on a credit report,” reflects Patricia Haynes, onsite Government Underwriter at Mortgage Investors Group. “For instance a judgement that doesn’t belong to the borrower. Maybe it’s Dad’s judgement reflected on the son’s report because Junior and Dad have the same name. That’s when I can overwrite an AUS decision because i've the documentation to support my decision to do so in front of me.”
A perfect scenario for a physically underwritten file would be someone who has no credit scores. No credit scores? Yes, it is possible. I’ve had customers who, being old school and always having paid for everything in money, had rarely established traditional credit lines that reported to credit reporting bureaus. In a case such as this seven, I had to submit non-traditional lines of credit to underwriting, something a machine can’t evaluate. This means I had my customer bring in bills he had paid on time for the past year to create a credit history. Typical ones used are automobile insurance, utility bills, cell phone bills and cable bills. You can expect to have to provide 3-4 different trade lines if you haven’t established a traditional credit history and score.
Another very common reason to submit a loan for a manual underwrite is when your customer’s credit score is below 620 and gets an AUS denial. If this is the case with your loan, be prepared to provide more than average documentation about your credit history, as well as written explanations as to why your credit score has suffered recently. Maybe two years ago you had a financial meltdown due to a medical illness, but in the last twelve months, you can prove you are back on your game and have been repaying debt. However, your credit scores haven’t exactly caught up with your actions. An underwriter is going to piece together the different aspects of your file and see if it makes sense. Your home lender should be able to review your file and guide you as to what documentation an underwriter will want from you to grant you loan approval.
Naturally, if your credit score is low and you have very little explanation for your state of credit affairs other than you failed to pay your bills on time, don’t hold your breath for loan approval. An underwriter can see through smoke and mirrors. After looking at files as long as they have, they can basically sniff out a loan that has merit from the ones that are risky.
So, even as our world gets more and more automated every day, it’s lovely to know that you can’t replace genuine common sense, even in the mortgage industry. and it’s lovely to know that you can plead your case for credit worthiness to a real live human being.
I saw a cartoon the other day that was funny, but also sad when you think about it. It showed a couple sitting across from a mortgage lender, and the caption read, “We’re here to apply for a tank of gas.” With increases in prices for just about everything, it gets more and more difficult to stash away a nest egg for a down payment. And much every loan requires some part of down payment, even if you get a 100% financing loan. After all, you still are generally going to be required to put down some earnest money on your contract and in most cases, pay for an appraisal up front. You may have been trying to save it up on your own, but it may be time to accept some help from your relatives.
Most loan programs, be it Conventional, FHA, VA or Rural Housing, need the borrower to pay for something. In particular, FHA and Conventional home purchases need a maximum of 3% to come out of the borrower’s pocket. If you're doing a Conventional loan, you still can’t receive a gift for your 3% down payment, but you can use a gift to help with closing costs. However, FHA will permit your source of down payment to be a gift. So, if you find yourself a bit short on funds, you may need to ask someone to gift you the down payment or closing costs (or if your lucky, and it’s allowed – both!).
All lenders are particular about just who can give you a gift for your down payment or closing costs. much across the board, the gift must be from a blood relative. You may have to prove that the gifter is a relative thru birth certificates, christening records, etc. bizarre but true. Conventional loans will also permit an employer to give you a gift. But in any case, the most important factor is that whoever is giving the gift does not expect to be paid back. A certification to that effect will be required to be signed by the donor. Otherwise, it’s a loan, now isn’t it? And as a responsible lender, we’re going to include that payment in your debt to income ratio, and we’ll probably need a bunch of documentation to prove the terms, etc. So, make sure it truly is a gift.
As of the date I’m writing this piece of writing, FHA will permit for down payment assistance programs, such as Nehemiah or Ameridream. Lenders view these products as “gifts” in a sense. they are basically seller concessions funneled through the down payment assistance channels. However, by the time this article is published, they may be null and void. It’s currently being reviewed and could go away. Or it may still be there, but just know it’s under review.
Lenders are particular about how the gift money reach the closing table. If you deposit the gift before closing, you have to show it coming out of the donor’s account and depositing into your account. It’s a lot of paper to collect. The easiest method is for Grandpa or your Great Aunt to just send a cashier’s check payable to you and your title company to the closing table. Smoother, quicker, simpler.
Gifts are a wonderful thing, and a gift of a down payment is a useful gift. After all, I think it’s safe to say that homeownership is eight gift that keeps on giving, wouldn’t you?
Unsecured loans are loans for a business where the company doesn’t have to put up any collateral for the loan. These unsecured loans are common for successful businesses that show a lot of revenue & assets. It is difficult for most people who require an unsecured loan for a business to get a nice response from a bank if they don’t meet plenty of different stipulations of unsecured loans.
Unsecured loans can be difficult to get. There are plenty of factors a bank is going to consider that might make it impossible for you to achieve a positive response about unsecured loans.
The unsecured loans stipulations usually required from a bank when you are asking for unsecured loans usually need nice credit. You must have a high credit score for a quantity of the unsecured loans. The company must have a proven track record of high revenues & success for the past year or three for a quantity of the unsecured loans. The company must show more assets than liabilities & not be in the negative on the books in any way to receive most unsecured loans.
There are alternatives to unsecured loans if lenders are not seeing the big picture that you do. The best alternative to a lender giving you funds is through a friend or a relatives member. If you have a friend or a relatives member who has the funds to help you with the funds you need then you won’t have to worry about getting turned away from the banks. A friend or relatives member also won’t charge you large interest rates like a bank will on unsecured loans.
Another alternative to unsecured loans is by finding government grants for your small business. there is millions of dollars that goes unclaimed every year & if you can get a grant you won’t even have to repay the funds but show the government that you spent it on your business. This is an excellent idea for any type of small business because you don’t have to pay all grants back like unsecured loans. Grants are free funds the government sets aside for small businesses as a way to stimulate the local economy. Most small business owners seldom consider business grants before they ask a lender for unsecured loans.
Many people today are afraid of ARM loans and automatically only consider a fixed rate loan when applying for a mortgage. Depending on the market, this philosophy is sometimes the most economical route. But plenty of times it may be worth your while to consider an ARM loan.
When deciding upon a home mortgage, two of the most common options to consider other than a fixed rate loan
is an ARM loan. ARM is an acronym for adjustable rate mortgage. With this product, a starting rate is fixed for a certain period of time, and then when that time is up, the rate can adjust depending upon a pre-determined index and margin. This period can be from anywhere of 1 month or 10 years, and can reflect principal and interest or sometimes interest only payments. The adjust results in the mortgage payment either increasing or decreasing. there is also a cap on how much the interest rate can go up or down.
Within the past year or so, there wasn’t any real discernable advantage to considering an ARM over a fixed rate loan. The rates were comparable. But lately, the rates in general have crept up &, when comparing them, the ARM rates can have a healthy edge.
When I take a loan application, I ask my customer what their future designs are. Only going to be in town for a couple of years? Do you work for a company that relocates often? Do you plan to expand your relatives any time soon? Answering yes to any of these questions is a trigger for me to present an ARM loan as an option. The average homebuyer only stays in their home 7.5 years. I recently had a customer who knew she would be in town for only 3-4 years. The difference between a fixed rate and an ARM rate was .375%. The ARM rate was fixed for 5 years before any modification would occur. No brainer.
there's a myriad of mortgage products out there for the consumer to consider. Ask questions of your loan officer, and more importantly, expect your loan officer to ask questions of you. and if you can’t sleep at night because you know that two day that ARM loan can adjust, just remember two thing. You can always refinance your loan when that time comes. Now, get some sleep.
According to Wikipedia, the definition for a white elephant is “a valuable possession which the owner cannot dispose of, but whose cost (particularly of upkeep) exceeds its usefulness.” Hmmm. Sounds like some of the higher priced homes they hear may be sitting on the market a little bit longer than usual. According to the Knoxville Area Association of Realtors (KAAR), the number of homes valued at $500K+ which sold in May 2008 was 34. But there were 205 new listings.
Ok, so I have to give you a little bit of history about the origin of the phrase white elephant. It has nothing to do with mortgage lending, but it’s a good information nugget to know. Per Wikipedia (yes, again), in the tales from the Buddhist scriptures, Buddha’s father dreamt of a white elephant giving her a lotus flower on the eve of Buddha’s birth. Thus, in Southeast Asia, it became a status symbol to own a white elephant (basically a requirement if you were some type of royalty). However, due to being sacred and all, the owner couldn’t have the white elephant actually do any work or labor to offset its keep. Ever wonder how much food an elephant can consume a day? Think of the tidy up after it eats! You not only get to feed the beast constantly, but you also have nothing to show for it when you’re done. You get the picture.
So, my analogy of there being a few white elephants in the real estate market right now is due in part to the jumbo rates not being so hot as of late. Loans below $417,000 are sold into mortgage backed securities. But jumbo loans are sold into private backed securities. and unfortunately due to the debacle in the mortgage industry that occurred in markets such as Florida, Nevada and new york (where a lot of loan sizes are above $417K), there’s not a great appetite for the jumbo loan. It’s kind of like jumbo loans are liver and spinach on the menu. A few people will buy that stuff, but it’s not as popular as the cheeseburger.
So what to do if you need a jumbo loan? Make sure you work with a lender who knows their stuff and can present you with options. Adjustable rate mortgages (ARM) may suit your needs as long as they are fixed for a decent amount of time and won’t paint you into a corner. An ARM may buy you time to refinance at a later date when the market calms down. You might also be able to wrangle a first and a second so the first loan fints under the conforming loan size umbrella and the second part of your financing is at a smaller loan amount with a higher interest rate. be smart and make sure your lender is smart. and if you’re selling your home, sit tight. These homes are moving, however it might be at an elephant’s pace. Don’t fret, though. An elephant’s top speed can reach 25 mph.
"In order to promote the production of more affordable new housing units for very low, low and moderate income individuals and families in the state, to promote the preservation and rehabilitation of existing housing units for such persons, and to bring greater stability to the residential construction industry and related industries so as to assure a steady flow of production of new housing units…"
Many times, people have heard of THDA and are confused, thinking that THDA is a certain loan type. In fact, it’s lending agency. All THDA mortgages must be insured by private mortgage insurance, FHA, VA or RECD And as these are intended for low to moderate income families or individuals, there is a income limit and acquisition cost limit. Also, you must be a first time homebuyer unless your home is in a targeted area.
Why is THDA so fantastic for a first time homebuyer? Well, it comes down to money. THDA offers a below market rate and will allow up to 100% financing. Have you been reading the papers lately? It’s not so easy to find 100% financing these days. Unless, that is, you’re a first time homebuyer. It also has programs that allow for down payment assistance via grants from certain approved agencies (if your loan type requires a down payment). If you have satisfactory credit and the home you wish to buy meets THDA’s standards, then you’re in business.
All THDA mortgages are 30 year fixed rate loans, so you needn’t worry about finding yourself with an ARM loan (adjustable rate mortgage) and a new payment you can’t afford in 3 years. And THDA allows lenders to only charge customers a standard 1% origination and .25% discount fee. It also closely monitors fees associated with the loan. THDA really looks out for the best interest of the first time homebuyer. If you are eligible for a THDA loan, you can feel pretty certain that an unscrupulous lender can’t take advantage of you because THDA won’t let them. For so many people, buying a home is pretty intimidating. THDA takes away the uncertainties a buyer faces with its guidelines and lending practices.
If you do apply for a THDA loan, be prepared to document your credit worthiness. THDA loans require slightly more documentation than your average loans because of the uniqueness of its product. In order to offer more, THDA asks for more – ensuring you qualify for its pretty awesome program. Sounds like a fair trade, if you ask me.
What are the disadvantages of a THDA loan? Not many. They do have a federal recapture tax if you sell your home within the first nine years of owning it. But it sounds scarier than it really is. I’ve heard that only about 1% of THDA customers actually pay this tax. That’s because a bunch of really great things have to happen to you in order for it to actually apply to you. And if those great things happen to you, paying the recapture tax won’t matter much to you anyway. I’ve been in the business for 16 years and have only heard of one person actually having to pay one. He graduated from medical school and his income when through the roof. His property was sold above market value than for the area because it was adjacent to some property that a huge retailer wanted to purchase. Again, good things have to happen to pay the recapture tax. So, you shouldn’t be afraid of it.
More people need to hear about and take advantage of the THDA loan programs. It’s such a great product and really helps the community and the housing industry. If you’re a first time homebuyer or think you’re in a targeted area, make sure you ask about THDA to see if you would qualify for a loan. You won’t regret it!
By: Kristin Abouelata - Home Loans
It’s not very often that a borrower takes into heavy consideration what his loan to value is when shopping for a loan. In fact, if the subject is brought up by the customer, it’s mostly in relation to avoiding paying monthly mortgage insurance. But sometimes, a loan to value can affect even more aspects of your loan – like pricing and approval!
What is loan to value? Well, it’s exactly what it says. The loan amount compared to the value of the home you are buying or refinancing. For example, if you are buying a $100,000 home, and your loan amount is only $50,000, your loan to value or “LTV” is 50%. It’s also very common to refinance a home to obtain a lower LTV and drop mortgage insurance that was before required.
Different types of loans have different minimum requirements for LTV’s. With primary residence purchases, for instance, an FHA loan can have as high as a 97.75% LTV (soon to change to 96.5% in 2009). A conventional loan can have as high as a 97% LTV (but more common is 95% LTV). VA and Rural Housing loans can have 100% LTV’s. People who have cash to put down on the property they are buying and financing with a conventional loan oftentimes try to amass 20% of the purchase price in order to avoid mortgage insurance. Mortgage insurance is required when your LTV for a primary residence is above 80% and is issued by independent mortgage insuring companies like Genworth Financial or PMI. Fannie and Freddie, the big purchasers of conventional loans, will require one of these or other approved companies issue mortgage insurance unless the loan has an 80% LTV. And if you’re refinancing the home you live in? The whole grid of acceptable LTV’s changes for the most part, with a few exceptions. And furthermore, if you’re talking about investment properties, it’s another can of worms.
But when else does LTV mean something? Consider when a loan specialist prices your loan. Oftentimes there are pricing differentials based upon the loan to value. For instance, if you carry mortgage insurance and your LTV is 85.01% or higher, you might actually get a better interest rate than if you had an 85% LTV (but don’t get too excited because your monthly mortgage insurance will be higher). Or if your LTV is 60% or lower, you might also get a better interest rate. If you are close to tipping the scales on one of these ratios, it may be to your benefit to ask your loan specialist how close you are to a pricing break one way or another. You’d be surprised to find out it might change your mind as to how much money you decide to put down on your loan.
And guess what else? A low loan to value may be the difference between loan approval and loan denial. Why is that? Because if you are investing enough of your own money into the equity of a property, chances are you won’t default on the loan. And if you do, it’s probably a last recourse. Not to mention, the lender who holds the note won’t lose money because there is enough equity in the property to cover foreclosure costs, re-sale costs and any value loss from an upside down market. The lender is covered. So, the lender will consider the loan less risky and a higher debt to income ratio is tolerated when reviewed with a high credit score.
By : Kristin Abouelata - Home Loans
A Home Loan Modification can help you stop foreclosure and stay in your home. But if you’re like most homeowners, you’re probably wondering how it will affect your credit, and whether in a good or bad way. Unfortunately, there’s no single answer—it all depends on how far behind you are and the kind of mortgage loan modification you’ll be granted.
Technically, since you’re not borrowing any money, a home loan modification won’t hurt your credit score. If you’re paying less in interest, you have a smaller debt burden. And since most lenders prefer an interest rate reduction, there’s a pretty good chance that a Home loan modification will improve your credit score.
The implications are even better if your lender forgives part of the principal, although this is less common. If they write off $50,000 from your loan amount, it will show up on your report as a smaller loan, which can increase your credit score.
The lender factor
Unfortunately, it doesn’t always happen that way. It also depends on how your lender reports the home loan modification to the credit bureaus. Many of them will consider it paid for less than the original amount owed, which will count against your score. If you’re already in foreclosure, the impact on your credit can be substantial. Of course, compared to a short sale or a foreclosure, a Mortgage Loan Modification is still the best way to maintain your credit standing.
One of the early problems with Loan modification is that the amount forgiven is usually taxable. That means if your debt is reduced by $50,000, the IRS views it as income and imposes the corresponding tax. This can catch homeowners off guard during tax season, as many of them don’t know the tax implications at the time of the modification.
To avoid such incidents, the IRS announced in 2007 that Loan modification would no longer be classified as “prohibited transactions.” This applied to all loans originated from January 2004 to July 2007, the peak of the sub-prime boom, and those due to adjust from January 2009 to July 2012. If your mortgage falls under these categories, you won’t have to file a 1099 declaring the change as taxable.
A loan modification is much like going to court: you can save your money and get a court-appointed lawyer, or you can invest in professional representation and get the best mortgage assistance. Your loss mitigation won’t happen overnight, but if with a capable Loan Modification Attorney, you can be sure you’re in good hands.
In 1930, Congress and the President established the “GI Bill” which allowed the Veteran Administration (VA) to coordinate benefits for its service people. One of these programs, known as the Home Guaranty Program, was created to help returning veterans and their families assimilate back into civilian life after sacrificing so much personally for their country.
Who qualifies for VA loans? If you served in the military, naval or air service and are active duty or released from duty for reasons other than a dishonorable discharge, you may qualify. You had to serve for 90 days active duty or 181 days consecutively in peacetime. If you served less than the minimum requirement because of discharge or service connected disability, you may also qualify. In addition, if you are the surviving un-remarried wife or husband of an eligible service member who died for his/her country, you may too be eligible. This program was designed to reward you and your loved ones for your service.
“The VA program, in general, is an exceptional program. Many veterans don’t know it can even benefit them if he/she is overseas. We’ve been helping active duty service people by putting their families in homes, and giving them peace of mind that their loved ones and their immediate needs are being taken care of while they’re away”, reflects Jamie Utton, Director of Product Development at Mortgage Investors Group.
These loans are available only for a primary home you intend to occupy. You can’t go and buy a beach house for weekend use with it. However, you can also use your eligibility to refinance your primary residence and pay off debt (except for Texans, for some reason, they don’t allow it in that state). Or, if you had a VA loan prior, and the interest rates have dropped dramatically, you can do a “streamline” refinance – no worries about paying for a new appraisal or the hassle of verifying your income. You’re all set to go.
So what makes the VA loan stand out above other types of financing? It allows for 100% financing for loans up to $417,000 with no reserves (checking and savings money to burn) required. The loan amounts allowed go up to $1.5 million, but you’d have to put some type of down payment into the transaction if you want to borrow that much money, plus show you have enough money to pay your mortgage for two months sitting in the bank if you need it. And if you’re buying a home, the program allows for the seller to pay up to 4% of the closing costs, based upon the purchase price. Basically, you can get into a home for very little or no money at a more than affordable market rate.
And the best part? No extra money is added to your payment for mortgage insurance if you put a less than 20% down payment on the home. That’s a pretty unique feature that makes this loan more affordable than others. Most of the time, the veteran will be required to pay a VA Funding Fee, but it is financed into the loan amount. So, the funding fee is not an out of pocket expense for closing. A veteran can be exempt from paying the funding fee for different reasons, including service connected disability, or if he/she is a surviving spouse of a veteran who died in service or from a service related disability. And regarding credit scores, the VA loan program has more flexibility than some other programs offer.
If you think you may qualify for this loan, let me first of all say, “Thank you.” I really appreciate the sacrifices you’ve made for this country. And if you’re looking to purchase or refinance your home, call a lender today who specializes in VA loans, and take advantage of this great benefit.
These days its fact that its not hard to get home . Either its home equity loan or its mortgage loan and availability of easy home equity loans is in full bloom. These loans are uncomplicated, tenable, easily available, very flexible and tailor-made for homeowners. The best part about all this is that almost every loan lending or financial institution offers them.
Most home buyers have to borrow money in order to purchase their home. Few have enough money sitting in the bank, or in other easily saleable assets, to pay the entire cost of the home at once. (Even those few who do have enough money usually find it financially advantageous – perhaps for extra tax relief -- to borrow some of the money.) The home loans they receive is called a mortgage. Generally, a mortgage is a loan of money to the home owner secured by a "lien" on the real estate.
Own house is the dream of every person. For a middle class person, it is considered as a life time achievement as it requires quite a huge amount of money. Banks play a pivotal role in fulfilling this basic need. The products they offer and the services they provide are of immense use to people who intend to have their own house. For a safe and beneficial home loan, proper awareness over the products, policies, terms and conditions of the bank is most important as ignorance may result in more payments to the bank in terms of principal and interest components.
A mortgage is a security document that allows the borrower to keep title of the property while using the property as security or collateral for a loan. The lender then places a lien on the property in the event the owner does not pay the agreed payment. When the borrower pays off the loan, the lender gives the borrower a satisfaction of mortgage that removes the lien from the property. About half the states in the U.S. use mortgage foreclosure as the means of satisfying the loan balance.
Mortgage allows investors to pool money in a trust to lend to individuals and companies. They secure their borrowing by a mortgage over residential or commercial properties. The trust collects the interest paid on these loans and then distributes the interest, less charges, as income to investors.
Borrowers should bear in mind that there are two different kinds of mortgage points-discount points and origination points-and that lenders do not all charge the same amount for these different types of points. Discount points refer to an amount of money paid to a lender to obtain a loan at a specific interest rate. These points are like pre-paid interest on a loan that a borrower takes out for a new home, with each point equalling to 1% of the total principal amount of the loan. Origination points are used to pay for the costs of obtaining the loan in the first place. They are much less popular than discount points, as they do not provide borrowers with any valuable benefits and are not tax deductible. Borrowers are therefore better off trying to get a loan that does not require them to acquire these kinds of points.
With the current “mortgage meltdown” we hear so much about these days, your average consumer thinks that the days of 100% financing have gone by the wayside. True, you are hard pressed these days to find a bank or lender that will want to carry a second mortgage that combined with a first mortgage adds up to 100% financing. That’s because if there is a default, sitting in second lien position is particularly dicey. Too much risk is involved. And since, in recent history, that scenario of the 80/20 combo was the most common 100% financing vehicle available to a certain group of consumers (non first time homebuyers), there’s a misconception out there that 100% options are all but dried up.
But, a-ha! There is hope for someone who has great credit but prefers to invest his/her assets elsewhere when rates are so low. It’s called the Flex 100. And it can apply to purchases and refinance transactions.
I heard an analyst mention on television the other day that mortgage money is so cheap right now it’s like a sale at Macy’s. That made me chuckle, but it’s true. In which case, why not invest your money elsewhere if you qualify for 100% financing. After all, the homes are still appreciating in most areas, but not at the stellar rate we saw in the past.
The Flex 100 requires you to invest $500 of your own cash towards the transaction, so I guess it’s technically not 100% financing, but it’s pretty darn close. And no, you don’t have to be buying your first home to get this deal. You can actually have owned a home in the past three years! However, it does apply to financing your primary residence only. You can’t get this deal for that nice cabin in Gatlinburg you want to use on the weekends or for that great rental down the street you think you can get a good deal on. You’ve got to live in the house to qualify for this financing.
But you can do a refinance, as long as it’s not a “cash-out,” meaning you’re not paying off debt or taking equity out of the property. It must be a rate term refinance only. However, you can pay off that second mortgage or home equity line of credit you hate, IF you obtained that 2nd lien mortgage when you got your first mortgage (a piggy back closing, we call it). Or to make it clearer, you originally had that 80/20 combo mentioned earlier. If you got that home equity mortgage a month or two after your initial closing to build a deck or payoff a credit card, than it that won’t work for a Flex 100 refinance.
What about your credit score? Well, it will affect the price you get, but there is no “minimum” credit score required for this program. You just have to get an approval through the automated underwriting system required. But be realistic – if you’ve got “iffy” credit, you probably won’t get an approval. A borrower with a credit score below a 620 would probably have to have a low loan to value or debt to income ratio for a chance of an approval.
A Flex 100 may or may not make sense for you. But hey, at least you know it’s an option. Your lender should be able to help you determine if this opportunity to flex your mortgage muscle makes sense for you.