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The Basics Of Real Estate Mortgages By harrydavis Mortgages are loans that are used to purchase real estate and come in many different forms. The most common mortgages are Conventional, FHA and VA. Other types are Second Mortgages, Reverse Mortgages and Balloon Mortgages. Mortgages often involve the use of Discount Points.
Conventional Loans
The conventional loan is the most common type of used in the nation today. Conventional mortgages are loans between borrowers and lenders that aren't insured by the government. Conventional mortgages are either privately insured through private insurance companies or not insured at all. Conventional loan guidelines typically require a minimum down payment of five percent on owner-occupied (non-rental) properties. For mortgages that have a down payment of less than 20%, private insurance (PMI) is usually required. Most conventional mortgages have time frames of 15 to 30 years and may be either fixed-rate or adjustable.
Fixed rate mortgages mean that the interest is permanently "fixed" at the rate available when the was created. The interest rate never changes no matter what interest rates do later. Fixed rate loans provide a level principal and interest payment that a borrower can depend on and are especially attractive when rates are low.
Adjustable rate mortgages mean that during the first few years, the interest rate will be lower than a typical fixed rate loan but will increase (adjust) upward to rates that are prevalent at a later date. Adjustable rate mortgages are normally used only when the borrower cannot currently qualify for the normal fixed rate interest level, but anticipates a larger income in the near future. The risk for the borrower is if that extra income does not materialize or if other expenses occur later on that cause the adjusted rate to not be affordable.
FHA Loans
FHA mortgages are insured by the Federal Housing Administration, which is a division of HUD. The program was created in 1934 to stimulate the housing market during the Depression. FHA loans are insured by the government against default, but the mortgages themselves are made by major private lenders and are usually sold to investors as mortgage-backed securities by the federal housing finance agency Ginnie Mae. FHA loans are available from most of the same lenders who offer conventional loans. FHA maximum amounts are limited, and the maximum loan amount varies among geographic regions. FHA mortgages are usually on a fixed-rate with terms of up to thirty years. FHA can lend up to 97% of the home value, and can be refinanced any time without a pre-payment penalty, and without having to qualify all over again. FHA insurance makes it possible for private lenders to provide mortgages to lower income families without attaching the rates and fees that sub-prime lenders do. FHA-insured loans have become an important element in the proposed solutions to the subprime crisis.
VA Loans
VA loans are loans insured by the Department of Veterans Affairs. The program was created in 1944 during World War 2 to assist returning military personnel in buying a home. VA mortgages are reserved for those who have served in the military or are currently in the military in active or reserve status. They are also available to qualified surviving spouses. VA loan guaranty is only for owner occupied properties, which can include homes, condominiums, townhomes, 2-4 family properties and manufactured homes, as long as it is owner occupied at least in part. By example, the applicant can obtain a for a duplex, live in one side and rent out the other side. VA mortgages offer the qualified veteran or active duty military person an opportunity to buy a home up to a specified amount with no down payment and do not require Private Insurance (PMI). Like FHA mortgages, VA places a limit on the maximum amount. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a loan.
Balloon Mortgages
A Balloon is a loan that is usually a short-term fixed-rate loan with even monthly payments amortized over
Proposed RESPA Reform
Mortgage brokers may have some intrusive rules from HUD to deal with.
When I read the news on HUD?s proposed reform of the Real Estate Settlement and Procedures Act (RESPA) I was skeptical. Cathy from Sequim challenged me to read the 96-page federal register document so we could all figure out what?s going on. I am here to tell you that there is one very good change coming out of this proposal. In fact, it?s so good that I am borderline hopeful that this change might do what legislation is suppose to do and what HUD forgot to do when they signed the original version of RESPA in 1974. But first, the changes that will have many, but not all mortgage brokers screaming bloody murder:
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Neocon-omics
How much can the Fed and the U.S. government do in the face of declining housing prices?
That?s been my worry since I saw the housing bubble peak in 2005. Historically, declines in housing prices take 3-4 years to bottom, which means we still should be at least half a year away. But after that, the economy doesn?t rebound instantly. It yo-yos for a bit - essentially running horizontal.
Fannie Mae and Freddie Mac have entered into cooperation agreements with New York?s attorney general to only purchase loans that meet a new home valuation protection code, the state announced. The code is effected on Jan. 1, 2009. Under the new code, mortgage brokers and loan originators are prohibited from choosing or communicating with appraisers.
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Choosing Second-best
How to leverage your second choice into seller concessions and a better deal.
So, rather than competing for the best house and paying top dollar, you can use it as leverage to get a lower price and seller concessions on a home that could be even more ideal for you ? after you do a little work.
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Price Depression
A forecast for more housing price depression.
My theory is that housing prices will continue to wilt as long as large levels of foreclosures and new home inventories run high. These are not traditional homeowners, and are motivated to slash prices, thus continuing to depress prices.
You should try to get pre-approved by a lender prior to shopping for a home. A pre-approval is a strong marketing tool when making an offer that may contain many a number of seller concessions. Telling a seller that you are already approved for a loan makes the acceptance of a low offer or one where he may be paying the closing costs much more palatable.
US News and World Report implies (hopes?) we may be nearing a bottom in housing prices but with a mountain of resets coming in the next few months, it?s difficult to see how a bottom can be seen or even predicted.
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Strike One
A look at role of mortgage insurance in FHA loans.
Regarding the second point: By not raising the loan limits they fail in one of the 11 ways they can help. I believe they will fail in almost all, but let us have hope. To be specific as to why I support this: FHA is not a government gimme. It is a government guarantee the mortgage will be paid or the lender compensated for losses. The program pays positive cash flow to the government in that there is a type of mortgage insurance fee charged the borrower. It is reasonable and more than pays for the reimbursements made to the lenders that suffer a default.
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Who's To Blame
Mortgage brokers share the blame with the rest of the industry in the current real estate mess.
Who is not to blame for the mortgage mess? Take one step back. As lenders, money was flowing from the spigot like there was no tomorrow. As mortgage brokers, there was money to be made by cranking the faucet, and it was a foot race to see who could get to the sink first. As agents, we sang the ?Houses are expensive, but money is cheap? refrain until we were blue in the face. And, as for the consumer, it really doesn?t matter in the final analysis whether they were motivated by necessity, opportunity or unadulterated greed. We all helped make this bed in which we now must lie.
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Trying To Move
Hard to move when you're house loses value.
I will continue to work from Los Angeles while we work on selling our house, which unfortunately is bad timing as housing prices have taken a bit of a dive around here. Once we have things settled over here, we?ll pack our things and move up to Seattle.
What else can you say to such a ridiculous report, such obvious sensationalism? The sad thing is, many people will read this wild hyperbole and imagine that the TV station?s salacious report has a ?point? to it.
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Home Buyers Returning This Fall
This blogger says lower mortgage rates will drive buyers to the residential real estate market soon.
Ten days ago after the Fed calmed the markets' credit panic with a 1/2 point cut in the Discount rate, I postulated that home buyers will come back this fall when the Fed finally drops the Fed Funds rate, and mortgage rates drop. It's now almost certain to happen. Here are the parameters in play now:
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Lead Scrub Rates
A look at the cost of a lead for a mortgage broker.
Joel has a good interview with Dave Wengel of TargusInfo around Mortgage lead scrub rates. Specifically that lendingtree and lowermybills have a 15% scrub rate whereas the free ipod guys (lure people in with promise of a free ipod but they and their friends have to signup for credit cards, netflix and talk to mortgage brokers to get it) have around a 50-60% scrub rate.
Having been an FHA lender I can attest it is a pain at times. FHA requires annual financial audits of the mortgage brokers financial condition and more. We always have survived the several day pain, and the expenses tied to it, but only FHA drags brokers through this. The actual banks that sponsor the mortgage broker go through even more red tape and grief. Loan officers have to know more rules. FHA doesn?t rely on the easy automated underwriting or the quick answer from a subprime lender. FHA restricts how the borrowers pay for certain expenses and how much the lender can charge.
a stated term, but provides for a lump sum payment to be due at the end of a specified term. These mortgages can be used as either a first or second mortgage. The nature of ballon mortgages is that the principal is not paid off entirely during its term and the monthly payments are often lower than they would be in a fixed rate mortgage. Balloon mortgages are often used as a type of Second mortgage, especially when a borrower is seeking the lowest possible monthly payment in the short run. These mortgages carry an inherent risk for the borrower because that large lump sum becomes due and payable at the end of the term, so these mortgages should be used with extreme caution.
Reverse Mortgages
Reverse mortgages are becoming popular in America. Reverse mortgages were designed only a few years ago and were made to help people who have retired and stopped working, but still have to make monthly payments. They are a special type of home loan that lets a homeowner convert the equity in his/her home into cash. Reverse mortgages can be relatively complex, and their use should be considered carefully by the borrower. Reverse mortgages have been around for a long time, but it wasn't until the early 1990s that they began earning respectability after the Federal Housing Administration began insuring reverse mortgages for repayment to lenders.
Second Mortgages
These are used when a borrower needs additional financing to buy a home. Second mortgages are subordinate, meaning that in the event of default, the primary, or first would get paid off first, and then any funds remaining would be used to pay off any second mortgages. Second mortgages are also arranged for various purposes, such as financing home improvements, college tuition fees, debt consolidation or other emergency expenses. Second mortgages are available as either fixed-rate loans, or adjustable-rate home equity lines of credit. Second mortgages are based on the market value of the home minus the balance of the first mortgage. Second mortgages terms are are typically shorter than the primary term and are commonly written at a higher rate of interest, due to the inherent risk of the loan. An advantage for the borrower is that the interest paid on a second is tax deductable, whereas payments for PMI are not.
Discount Points
Discount Points are used to buy your interest rate lower and are charged as a percentage of the loan amount. Discount points are entirely optional unless they are required for you to qualify for the loan payment, due to a lower than required income or higher than expected expenses. Discount points are paid in cash at closing and are typically charged to the seller. A common arrangement is that when discount points are charged, the seller will want to increase the price of the home to cover this expense. The result is that 80% or more of the discount point cost is actually financed by the buyer. Discount points are not to be confused with an origination or broker fee and are tax deductibleonly for the year in whichthey were paid.
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