Resources
At AZ America LLC, we understand that choosing the right kind of mortgage can be
a tough decision, so here are some helpful tools to help you understand the process:
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President Obama Signs Tax Credit Bill
It's official! President Obama has signed a bill that extends the tax credit for
first-time homebuyers (FTHBs) into the first half of 2010. In addition, the extension
also opens up opportunities for others who are not buying a home for the first time.
To help you understand what the new tax credit details mean to you, we've put together
a concise overview of the new tax credit deadline, income caps, and more. Please
take a look at the concise overview below and the attachment.
TAX CREDIT OVERVIEW
Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not
owned a home within the last three years) may be eligible for the tax credit. The
credit for FTHBs is 10% of the purchase price of the home, with a maximum available
credit of $8,000
Single taxpayers and married couples filing a joint return may qualify for the full
tax credit amount.
Current Owners: The tax credit program now gives those who already own a residence
some additional reasons to move to a new home. This incentive comes in the form
of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied
a primary residence for a period of five consecutive years during the last eight
years.
Single taxpayers and married couples filing a joint return may qualify for the full
tax credit amount.
What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later
than April 30, 2010 and close no later than June 30, 2010.
What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit
has been increased. Single tax filers who earn up to $125,000 are eligible for the
total credit amount. Those who earn more than this cap can receive a partial credit.
However, single filers who earn $145,000 and above are ineligible Joint filers who
earn up to $225,000 are eligible for the total credit amount. Those who earn more
than this cap can receive a partial credit. However, joint filers who earn $245,000
and above are ineligible.
What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.
What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the
Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue
a check for the amount of the tax credit an individual is owed. Unlike the tax credit
that existed in 2008, this credit does not require repayment unless the home, at
any time in the first 36 months of ownership, is no longer an individual's primary
residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10%
of the purchase price for a home. If the amount of the home purchased is $75,000,
the maximum amount the credit can be is $7,500. If the amount of the home purchased
is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to
closing and the transfer of title, is eligible. This applies both to single taxpayers
and married couples. In the case where there is a married couple, if either spouse
has owned a primary residence in the last 36 months, neither would qualify. In the
case where an individual has owned property that has not been a primary residence,
such as a second home or investment property, that individual would be eligible.
As mentioned above, the tax credit has been expanded so that existing homeowners
who have owned and occupied a primary residence for a period of five consecutive
years during the last eight years are now eligible for a tax credit of up to $6,500.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualified purchasers
who have owned and occupied a primary residence for a period of five consecutive
years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed credits where
a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with
Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though the seller
retains legal title, the taxpayer may file for the credit. Some examples of this
would include a land contract or a contract for deed. According to the IRS, factors
that would demonstrate the ownership of the property would include:
1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer's situation,
a credit would not be due:
- They buy the home from a close relative. This includes a spouse, parent, grandparent,
child or grandchild. (Please see the question below for details regarding purchases
from "step-relatives.")
- They do not use the home as your principal residence.
- They sell their home before the end of the year.
- They are a nonresident alien.
- They are, or were, eligible to claim the District of Columbia first-time homebuyer
credit for any taxable year. (This does not apply for a home purchased in 2009.)
- Their home financing comes from tax-exempt mortgage revenue bonds. (This does not
apply for a home purchased in 2009.)
- They owned a principal residence at any time during the three years prior to the
date of purchase of your new home. For example, if you bought a home on July 1,
2008, you cannot take the credit for that home if you owned, or had an ownership
interest in, another principal residence at any time from July 2, 2005, through
July 1, 2008.
Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for
the Credit?
Yes. As long as the person they buy the home from is not a direct blood relative,
the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will
their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
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Pre-Qualification Letter
Before you begin to shop for a new home, you should set up a time to meet with us
so we can figure out how much you can afford. This will put you in a better position
as a buyer. Thats when it is important to understand the distinction between being
pre-qualified for a loan and pre-approved for a loan. The difference between the
two terms will be crucial when you decide to make an offer on a house.
To get pre-qualified for a loan, we will collect information about your debt, income,
and assets. We will look at your credit profile and assess goals for a down payment
and get an idea of different loan programs that would work for you. We will issue
you a pre-qualification letter indicating the amount you are pre-qualified to borrow.
It is important to understand that a pre-qualification letter is just an estimate
of what you are eligible to borrow, not a commitment to lend. Getting pre-approved
for a loan gives you competitive advantage when the time comes to bid on a home
because you have been approved for a loan for a specified amount.
To get pre-approved, you will complete a mortgage application and provide us with
various information verifying your employment, assets and financial status such
as W-2 forms, bank records and credit card statements. We will review your mortgage
options and submit your application to the lender that best meets your needs. Once
the application process is complete you will receive a pre-approval letter indicating
the amount your lender is willing to lend you for your home.
A pre-approval letter is not binding on the lender; it is subject to an appraisal
of the home you wish to purchase and certain other conditions. If your financial
situation changes (e.g. you lose your job), interest rates rise or a specified expiration
date passes, your lender must review your situation and recalculate your mortgage
amount accordingly.
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Getting Qualified
Should you talk to a mortgage professional before house hunting?
Absolutely! Even if you haven't so much as picked out houses to visit yet, it's
important to see your mortgage professional first. Why? What can we do for you if
you haven't negotiated a price, and don't know yet how much you want to borrow?
When we pre-qualify you, we help you determine how much of a monthly mortgage payment
you can afford, and how much we can loan you. We do this by considering your income
and debts, your employment and residence situations, your available funds for down
payment and required reserves, and some other things. It's short and to the point,
and we keep the paperwork to a minimum!
Once you qualify, we give you what's called a Pre-Qualification Letter (your real
estate agent might call it a "pre-qual"), which says that we are working with you
to find the best loan to meet your needs and that we're confident you'll qualify
for a loan for a certain amount.
When you find a house that catches your eye, and you decide to make an offer, being
pre-qualified for a mortgage will do a couple of things. First, it lets you know
how much you can offer. Your real estate agent will help you decide on an appropriate
offer, but being pre-qualified gives you the confidence to know you can follow through.
More importantly, to a home seller, your being pre-qualified is like you walked
into their house with a suitcase full of cash to make the deal! They won't have
to wonder if they're wasting their time because you'll never qualify for a mortgage
to finance the amount you're offering for the home. You have the clout of a buyer
ready to make the deal right now!
You can always use the calculators available on our site to get an idea of how much
mortgage you can afford -- but it's important to meet with us. For one thing, you'll
need a Pre-Qualification Letter! For another thing, we may be able to find a different
mortgage program that fits your needs better.
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How much can you afford?
Deciding how much house you can afford is a personal decision.Many factors come
into play.How much can I borrow? How much can I put toward my down payment? What
size monthly payment can I afford?
There are no black and white answers to these questions. Its a matter of give and
take. If you plan on a 30 year mortgage, you can probably make a lower down payment
(or perhaps no down payment at all) and still manage the monthly payments. If, on
the other hand, you plan on a 15 year mortgage, youll probably want to make a larger
down payment to keep your monthly payments in line with what you can afford.
How large a down payment can I make?
Many buyers look at their cash on hand as their only source for their down payment.
This simply is not the case. One way to fund or partially fund a down payment is
by using a gift. Parents, grandparents and other family members are often eager
to help by making a cash gift toward the purchase of your home.
There are also down payment assistance charities that can help you. And, of course,
if you are selling a home, the equity youve built up can be applied to your down
payment.
But these are not your only options. We can help you explore all your down payment
options, including low down payment and 100% mortgage financing options that might
be right for you.
What size monthly payment can I afford?
When determining what size monthly payment you can afford, youll want to consider
what other monthly expenses you have. Tangible expenses such as car payments, day
care and utility bills, all play a role in how large a monthly payment you can afford.
There are also the intangible expenses or lifestyle expenses that youll want to
consider. Things such as dining out, travel and when you buy your next car can effect
how much you can afford. Are you willing to curtail or delay some of these expenses
in order to afford a larger monthly payment?
How much can I borrow?
This is a question youll want to get answered before you begin your home search.
This is something that were here to help you with. Our
mortgage calculators will help you see how your down payment, monthly payment
and the amount you borrow are all interrelated.
We can answer any questions you may have about the mortgage process. But the best
way we can help is by getting you pre-qualified for a mortgage loan. To get started,
simply complete the form below to let us know a good time to contact you. We look
forward to helping you buy your dream home.
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15 vs 30 year Mortgages
Deciding between a 15 year vs a 30 year mortgage can be tricky. With your 15 year
mortgage, your payments are higher, but you are paying more principle back with
each payment than a 30-year fixed payment. You save interest (slightly lower interest
rate and shorter term) and cut your time with the mortgage in half.
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Using your 401k for downpayment
You've finally found the home of your dreams. There's just one thing standing between
you and your new house: The down payment.
Many home buyers today opt to use funds from their employers 401(K) program to come
up with the down payment on a house. Ordinarily, you can't take money from your
401(K) plan unless you retire, leave the company or become disabled, but many company
plans permit certain hardship withdrawals when there is an immediate and heavy financial
need, including the purchase of the employee's principal residence.
The drawback to a hardship withdrawal is that you will pay taxes and penalties on
the amount withdrawn from your plan, which often must be paid in the year of withdrawal.
And while hardship withdrawals are allowed by law, your employer is not required
to provide them in your plan. Check with your employers human resources department
if you're not sure if your 401(K) plan allows hardship withdrawal.
Another approach may be to borrow against your 401(K) often as much as 50 percent
of your account balance. You pay interest on the loan, but the interest goes back
into your account. The money you receive is not taxable as long it is paid back
and plans can give you anywhere from five to 30 years to pay back your loan.
There are risks involved in borrowing from your 401(K). If you lose your job or
leave your employer, you must pay back the loan in full within a short period, sometimes
as little as 60 days. If the money is not paid back in that time, it is considered
a withdrawal from your plan and subjected to the same taxes and penalties. And while
401(K) accounts can usually be rolled over into a new employers 401K without penalties,
loans from a 401K cannot be rolled over.
In addition, because the funds withdrawn from your account are no longer earning
compound interest, your account will be smaller when you retire. And youll be replacing
pretax money with after-tax money.
Some lenders will count the money you borrowed from your 401(K) as an additional
debt that will go along with your car payments, student loans and credit cards.
While it may seem unfair since you are borrowing your own money, most lenders view
it as a payment obligation that affects your debt-to-income ratio in qualifying
for a home loan. It may be a factor in whether you decide to make a hardship withdrawal
from your 401(K) and pay tax penalties or borrow against it.
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Documenting your Assets
A critical step in the mortgage loan application process is to verify the sources
for your down payment, closing costs and assets, as well as documenting income and
debts. The lender uses this step to determine your qualifications as a borrower.
Down Payment & Closing Costs
Documenting that the down payment comes from your savings and that you will have
savings and/or assets over and above the down payment gives the lender confidence
in your strength as a borrower and your ability to repay the loan.
Take extra care to document the sources for any monies to be used for the down payment
or closing costs.
Acceptable Down Payment & Closing Costs Sources
- Cash in a bank account
- Mutual funds / stocks / IRA / 401K
- Proceeds from the sale of another property
- Gift from an immediate relative
Assets
Collect information about your personal assets that add to your net worth and help
to prove your credit worthiness.
Common Assets Considered in a Mortgage Loan Application
- Stocks, bonds, mutual funds, 401K and retirement accounts
- Life insurance
- Personal property estimate - cars, boats, antiques, jewelry, etc.
- Other real estate or property
Income and Employment
The lender will want to confirm your current gross income and have evidence of stable
employment. Documentation requirements vary depending upon a number of factors -
including the source of income (hourly, salary, salary + bonuses, salary + commission,
commission, self-employed, etc.).
Debts
Your lender will want to review a list of all your current debts. This along with
your credit report will provide the lender with a snapshot of your obligations.
The lender will want to confirm that you will not be overextended when the mortgage
payment is added to your current debt load.
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Fixed vs Adjustable Mortgage
With a fixed-rate loan, your monthly payment of principal and interest
never change for the life of your loan. Your property taxes may go up (we almost
said down, too!), and so might your homeowner's insurance premium part of your monthly
payment, but generally with a fixed-rate loan your payment will be very stable.
Fixed-rate loans are available in all sorts of shapes and sizes: 30-year, 20-year,
15-year, even 10-year. Some fixed-rate mortgages are called "biweekly" mortgages
and shorten the life of your loan. You pay every two weeks, a total of 26 payments
a year -- which adds up to an "extra" monthly payment every year.
During the early amortization period of a fixed-rate loan, a large percentage of
your monthly payment goes toward interest, and a much smaller part toward principal.
That gradually reverses itself as the loan ages.
You might choose a fixed-rate loan if you want to lock in a low rate. If you have
an Adjustable Rate Mortgage (ARM) now, refinancing with a fixed-rate loan can give
you more monthly payment stability.
Adjustable Rate Mortgages -- ARMs, as we called them above -- come
in even more varieties. Generally, ARMs determine what you must pay based on an
outside index, perhaps the 6-month Certificate of Deposit (CD) rate, the one-year
Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds
Index (COFI), or others. They may adjust every six months or once a year.
Most programs have a "cap" that protects you from your monthly payment going up
too much at once. There may be a cap on how much your interest rate can go up in
one period -- say, no more than two percent per year, even if the underlying index
goes up by more than two percent. You may have a "payment cap," that instead of
capping the interest rate directly caps the amount your monthly payment can go up
in one period. In addition, almost all ARM programs have a "lifetime cap" -- your
interest rate can never exceed that cap amount, no matter what.
ARMs often have their lowest, most attractive rates at the beginning of the loan,
and can guarantee that rate for anywhere from a month to ten years. You may hear
people talking about or read about what are called "3/1 ARMs" or "5/1 ARMs" or the
like. That means that the introductory rate is set for three or five years, and
then adjusts according to an index every year thereafter for the life of the loan.
Loans like this are often best for people who anticipate moving -- and therefore
selling the house to be mortgaged -- within three or five years, depending on how
long the lower rate will be in effect.
You might choose an ARM to take advantage of a lower introductory rate and count
on either moving, refinancing again or simply absorbing the higher rate after the
introductory rate goes up. With ARMs, you do risk your rate going up, but you also
take advantage when rates go down by pocketing more money each month that would
otherwise have gone toward your mortgage payment.
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Bankruptcy options
A bankruptcy filing delivers a devastating blow to your credit and FICO score, but
it doesn’t mean you have to wait 10 years before you can qualify for a mortgage.
Many consumers who have filed for bankruptcy have been able to obtain a mortgage,
although it is often at a higher rate than someone qualifying for a prime or "A-paper"
loan.
While credit card companies may care about what happened before you filed for bankruptcy,
many mortgage lenders are more interested in your recovery — what you’ve done since
your filing. It won’t happen over night, but here are some tips and things to keep
in mind when you inquire about a mortgage with a tarnished credit past:
Give explanations. No mortgage lender is going to ignore the fact that you’ve filed
bankruptcy and he or she will likely want to know the cause of the filing. Your
lender will be particularly interested in whether the same situation could happen
again. Your chances of being qualified are much better if your bankruptcy was caused
by a single event such as a loss of employment or a death in the family, than if
it was the result of “just spending too much.”
If the bankruptcy resulted from a single event, it is important to show your lender
paperwork describing the incident, such as the layoff notice or death certificate.
You may also want to bring in court documents to indicate when the bankruptcy was
filed.
Demonstrate good money habits now. Many people who file bankruptcy swear off credit
altogether, however, it is important to re-establish your credit rating. Get a secured
credit card or take on some sort of loan — furniture, a car or a major appliance
— to demonstrate that you are able to make timely payments. Make sure you are making
other payments (utility bills, cell phone, etc.) on time as well. You won't turn
things around in a year but your credit score will improve over time.
Dispute any credit report errors. There’s no need to add to your troubled credit
history with errors on your credit report. Get a copy of your credit report from
each of the three major credit reporting agencies: Equifax , Experian
and TransUnion. If you encounter
any errors, inform the CRA in writing what information you believe to be inaccurate
and request deletion or correction.
Save your money. Lenders may be more willing to loan you money if you’ve saved up
a considerable amount of money for a down payment.
Live within your means. Even subprime lenders won’t risk loaning you money for an
opulent oceanfront mansion. Think small when the time comes to look for a home.
Smaller homes often mean smaller mortgages.
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Bi-weekly Mortgage
An internet search for Bi-weekly mortgage will lead you to a lot of companies offering
Bi-weekly savings program. Be very careful of these companies and their programs.
These companies charge fees to make the bi-weekly mortgage payment for you.
The enticement is that they will make bi-weekly mortgage payments for you. The real
story is that they are not actually making bi-weekly payments on your mortgage.
They are making bi-weekly deductions from your bank account. These funds are placed
into an account from which your monthly mortgage payment is made (which only takes
24 deductions - but during the course of a year 26 deductions will be made from
your account). With the extra 2 deductions, the "Service" makes an additional mortgage
payment. In other words rather than making 12 mortgage payments, 13 payments are
made.
These companies say that they are providing you a special service that you cannot
do on your own. The reality is that you can. All you have to do is make an additional
mortgage payment each year. An easy way to do this is to have your mortgage payment
automatically deducted from your account each month with an additional 1/12 payment
to be applied to the principal amount. At the end of 12 months, you will have made
an additional payment. And you won't have to pay any fees to a "Service".
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Dispute Credit Reports
Your credit reports lists a record of your credit activities. It contains all the
credits cards accounts and loans that you might have. If any account has any balance
left, that is listed as well. It can also contain negative items like collection
notices, lawsuits or bankruptcy proceedings.
The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC),
is designed to promote accuracy and ensure the privacy of the information used in
consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the
organization that provided the information to the CRA (usually the credit card company)
must correct any errors or incomplete information in your report.
If you do encounter a mistake on your credit report, several steps need to be taken
to correct the matter:
1. The first thing to do is get a copy of your credit report from each of the three
major CRAs: Equifax, Experian, and
TransUnion
2. In a written letter, tell the CRA what information you believe to be inaccurate.
Include copies (not originals) of documents that support your position. Provide
your complete name and address, identify each item in your report you dispute, and
request deletion or correction. Be sure to make copies of your dispute letter and
enclosures.
3. Send your letter by certified mail, return receipt requested, so you can document
what the CRA received.
4. The FCRA mandates that all CRAs reinvestigate the items in question usually within
30 days unless they consider your dispute frivolous. They also must forward all
relevant data you provide about the dispute to the credit card company. After the
credit card company receives notice of a dispute from the CRA, it must investigate,
review all relevant information and report the results to the CRA.
5. If the disputed information is found to be inaccurate, the credit card company
must notify all nationwide CRAs so they can correct this information in your file.
Disputed information that cannot be verified must be deleted from your file.
6. When the reinvestigation is complete, the CRA must give you the written results
and a free copy of your report if the dispute results in a change. If an item is
changed or removed, the CRA cannot put the disputed information back in your file
unless the credit card company verifies its accuracy and completeness, and the CRA
gives you a written notice that includes the name, address, and phone number of
the credit card company.
7. In addition to the CRA, you should also write to the credit card company about
the error. Again, include copies of documents that support your dispute. If you
are correct meaning the information you disputed is found inaccurate the credit
card company cannot use it again. Further, at your request, the CRA must send notices
of corrections to anyone who received your report in the past six months.
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Eliminating PMI
For loans made after July 1999, lenders are required by federal law to automatically
cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent
of your purchase price not when you achieve 22 percent equity, which will happen
much more quickly with rising property values. (Certain "higher risk" loans are
excluded.) But you have the right to cancel PMI (for loans made after July 1999)
once your equity reaches 20 percent, regardless of the original purchase price.
Keep track of your principal payments. Also keep track of what other homes are selling
for in your neighborhood. If your loan is under five years old, chances are you
haven't paid down much principal it's been mostly interest. But property values
in many parts of the country have gone through the roof lately. And that can earn
you 20 percent equity even if you haven't paid down much principal.
When you think you've reached 20 percent equity in your home, you can begin the
process of freeing yourself from PMI payments! You will need to notify your mortgage
lender that you want to cancel PMI payments and you'll need to submit proof that
you have at least 20 percent equity. A state certified appraisal on the appropriate
form (URAR- 1004 uniform residential appraisal report for single family homes) is
the best proof there is and most lenders require one before they'll cancel PMI.
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What are homeowner's insurance, private mortgage insurance and title insurance?
A homeowners insurance policy is a package policy that combines more than one type of insurance coverage in a single policy. There are four types of coverages that are contained in the homeowners policy: dwelling and personal property, personal liability, medical payments, and additional living expenses. Homeowner's insurance, as the name suggests, protects you from damage or loss to your home or the property in it.
Remember that flood insurance and earthquake damage are not covered by a standard homeowners policy. If you buy a house in a flood-prone area, you'll have to pay for a flood insurance policy that costs an average of $400 a year. The Federal Emergency Management Agency provides useful information on flood insurance on its Web site at www.fema.gov. A separate earthquake policy is available from most insurance companies. The cost of the coverage will depend on the likelihood of earthquakes in your area.
Private mortgage insurance and government mortgage insurance protect the lender against default and enable the lender to make a loan which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the down payment is less than 20 percent of the sales price. You may be billed monthly, annually, by an initial lump sum, or some combination of these practices for your mortgage insurance premium. Mortgage insurance should not be confused with mortgage life, credit life or disability insurance, which protect you and are designed to pay off a mortgage in the event of your death or disability.
You may also encounter "lender paid" mortgage insurance ("LPMI"). Under LPMI plans, the lender purchases the mortgage insurance and pays the premiums to the insurer. The lender will increase your interest rate to pay for the premiums -- but LPMI may reduce your settlement costs. You cannot cancel LPMI or government mortgage insurance during the life of your loan. However, it may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount. Before you commit to paying for mortgage insurance, ask us about the specific requirements for cancellation in your case.
Title insurance is usually required by the lender to protect the lender against loss resulting from claims by others against your new home. In some states, attorneys offer title insurance as part of their services in examining title and providing a title opinion. The attorney's fee may include the title insurance premium. In other states, a title insurance company or title agent directly provides the title insurance.
A lenders title insurance policy does not protect you. Neither does the prior owners policy. If you want to protect yourself from claims by others against your new home, you will need an owner's title policy. When a claim does occur, it can be financially devastating to an owner who is uninsured. If you buy an owner's policy, it is usually much less expensive if you buy it at the same time and with the same insurer as the lender's policy.
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Getting an Appraisal
In many cases, lenders need a professional, independent appraisal of the property
you want to buy or refinance to ensure that it is worth at least as much as they
are being asked to lend on it. If you are making a smaller down payment and have
a lower credit score, the lender is going to be even more interested in making sure
the property that will be collateral for the loan is worth lending the amount requested.
A professional, independent appraiser will usually visit your home and inspect its
interior and exterior. The appraiser doesn't want to buy your home, and isn't a
visiting head of state. So whatever you do, do not postpone the appraisal until
you get a chance to "clean up a little." Cleaning does not make your appraised value
higher! And delaying adds time to an already lengthy process.
The appraiser will form an opinion on the probable market value of the property
considering sales of similar homes in the area among other factors. He or she will
prepare an appraisal report explaining the conclusion. The appraisal belongs to
the lender considering lending money with the home as collateral. Often, you can
receive a copy of the appraisal either as a courtesy or in keeping with state law.
Let us know you're interested and we'll help.
The lender wants to know first of all whether the property is worth at least as
much as the loan amount. In the unlikely event the lender would have to foreclose,
it wants to know it should be able to recoup at least the loan amount. But if your
loan program depends on your borrowing, for example, 95 percent of the property's
value and no more, the appraisal can impact your eligibility for the loan that's
right for you. In a "close" case like that, the best solution is almost always to
increase your down payment, or we can help find another solution such as another
loan program that works.
An appraisal can cost from $200 to $500 or more for very complex properties. You
as the borrower repay the lender for its cost in paying the appraisal fee upon settlement
of the loan.
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Getting your loan processed faster
We should say that "working with us" is the first way! When you let us help you
find the loan that's right for you, you truly are taking advantage of some of the
area's best technology and expertise to get you a loan decision and funding on your
loan quickly.
But here are five "other" ways you can speed up the process of getting a mortgage
loan:
1. Have everything ready and in one place. Elsewhere on our website, you'll find
a list of things you might need in support of your mortgage application. If you
get them all together and keep them in a safe, portable place like a special pouch
or folder, you can cut down on time spent rooting around for things we may need.
Also, you'll help cut down on your own anxiety and confusion.
2. Be honest and complete when you fill out your application. "Fudging" your employment
or residence history or omitting open credit accounts you'd rather not have considered
doesn't increase your chances of getting a favorable loan. In 100 percent of cases,
it makes it harder, and take longer.
3. Respond promptly to requests for additional information. During processing, we
or the lender considering your loan may need additional information. Provide it
as soon as you get the request, or return the call as soon as you get the message.
4. Be prepared to explain derogatory items in your credit report. This is really
part of number 2 above. If you had an illness or a divorce where you missed or made
late payments, or you have other instances of late payments or delinquencies on
your credit report, be prepared to explain them. Be honest, and don't be nervous!
The loan processor isn't judging you, they're trying to fill in all the blanks in
their paperwork.
5. Let the appraiser in! The appraisal is one of the lengthiest parts of the mortgage
loan process. Studies have shown that the single biggest factor in appraisal "lag
time" is the appraiser's inability to reach the homeowner to make an appointment.
If you're refinancing and the appraiser calls to make an appointment, make it as
soon as convenient for both of you.
And remember that the appraiser doesn't want to buy your house. He or she will say
what the house is worth clean and tidy and in reasonable repair, even if you have
some dirty laundry on the laundry room floor or dirty dishes in the sink. Cleaning
doesn't get you a higher appraisal! Letting the appraiser in as soon as possible
gets you a loan faster, though.
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Escrow
To finalize the sale of the home a neutral, third party (the escrow holder, a.k.a.
escrow agent) is engaged to assure the transaction will close properly and on time.
The escrow holder insures that all terms and conditions of the seller's and buyer's
agreement are met prior to the sale being finalized, including receiving funds and
documents, completing required forms, and obtaining the release documents for any
loans or liens that have been paid off with the transaction, assuring you clear
title to your property before the purchase price is fully paid.
The documentation the escrow holder may be collecting includes:
- Loan documents
- Tax statements
- Fire and other insurance policies
- Title insurance policies
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds
Upon completion of all instructions of the escrow, closing can take place. All outstanding
payments and fees are collected and paid at this time (covering expenses such as
title insurance, inspections, real estate commissions). Title to the property is
then transferred to the seller and appropriate title insurance is issued as outlined
in the escrow instructions.
At the close of escrow, payment of funds shall be made in an acceptable form to
the escrow. As your real estate agent, I'll inform you of the acceptable form.
The Escrow Holder will:
- Prepare escrow instructions
- Request title search
- Comply with lender's requirements as specified in the escrow agreement
- Receive funds from the buyer
- Prorate insurance, tax, interest and other payments according to instructions
- Record deeds and other documents as instructed
- Request title insurance policy
- Close escrow when all instructions of seller and buyer have been met
- Disburse funds and finalize instructions
The Escrow Holder won't:
- Give advice - the escrow holder must maintain neutral, third-party status
- Offer opinions about tax implications
Mortgage Escrow Account
A Mortgage Escrow Account is established to pay on-going expenses while there is
a loan on the house. These expenses include property taxes, home insurance, mortgage
insurance, and other escrow items. Generally, the Escrow Account is partially funded
at closing and the home buyer makes on-going contributions through their monthly
mortgage payment.
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Hybrid Loans
Today homebuyers are in a unique position to combine the benefits of a fixed rate
mortgage with the savings opportunities of an adjustable rate mortgage.With a hybrid
loan (also called a fixed-period ARM or hybrid ARM) you get the best of both worlds.
A hybrid loan gives you a fixed rate term, usually three, five, seven or ten years,
with adjustable rates thereafter.These loans are typically expressed as a 3/1, 5/1,
7/1 or 10/1 ARM. The first number represents the number of years the rates are fixed.
The second number indicates the adjustment interval (how often the interest rate
will change). For a 7/1 loan, the fixed period is seven years with annual interest
rate adjustments thereafter.
The advantage of a hybrid loan is that it gives you a lower fixed rate mortgage
than you’ll typically receive with a 30 year mortgage. This is often an attractive
loan choice for borrowers who expect to be selling their home within the first 10
years. You’ll get the advantage of a lower fixed rate while you’re living in the
home. And if your plans remain steady, the adjustable rate wouldn’t be due until
after you plan to move.
Hybrid loans are also an attractive loan choice for borrowers who want an ARM, but
feel the need for added interest rate protection during their first years in the
home.
Whether you plan to move within 10 years or you’d like the added rate protection
a hybrid loan affords, we’ll be glad to help you find the best loan program to meet
your needs. We look forward to helping you!
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How to improve your Credit Score
It's virtually impossible to change your score in the time between when most people
decide to buy a home or refinance their mortgage and when they apply. So the short
answer is, you really can't "on the spot." But there are strategies you can live
with to make sure when you apply for a loan your score is as high as possible.
Make sure that the information each of the three credit reporting bureaus has on
you is consistent and up to date. Order a copy of your credit report about once
a year, and dispute any inaccuracies.
Note: Theoretically, if a series of credit reports is requested on your behalf during
a limited amount of time, your score goes down until time passes without any inquiries.
Changes in the law though have made "consumer-originating" credit report requests
not count so much. Also, a series of requests in relation to getting a mortgage
or car loan is not treated the same as a number of credit card requests in a limited
time. This is because the credit bureaus, and lenders, realize that people request
their own credit reports to keep up with what's on them, and smart consumers shop
around for the best mortgage and car loans.
Unsolicited credit card solicitations in the mail don't count against your credit
report, so don't worry.
The two main components of your credit score are your payment history and the amounts
you owe. Bankruptcy filings and foreclosures, which can stay on your credit report
for as many as 10 years, can significantly lower your score. It's never a good idea
to take on more credit than you can handle.
Late payments work against you. It's extremely important to pay bills on time, even
if it's only the monthly payment.
Dont "max out" your credit lines. Since the size of the balance on your open accounts
is a factor, lower balances are better.
It's said that by carefully managing your credit, it's possible to add as much as
50 points per year to your score.
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Mortgage saving Tips
There's a simple trick to significantly reduce the length of your mortgage and save
you thousands of dollars. The trick is to make one extra mortgage payment a year
and apply that payment toward your loan's principal.
This is the method being used by "Bi-Weekly Mortgage Reduction Services" and "Bi-Weekly Mortgage Savings Programs". Only, when you do it yourself, you don't pay a third party unnecessary set-up costs and fees!
One-time Payment
It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you to make additional payments to your principal at anytime. Perhaps, five-years after moving into your home you receive a larger than expected tax return, or an inheritance or a non-taxable cash gift. You could apply this money toward your loan's principal, resulting in significant savings and a shorter loan period.
Example:
With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan in 30 years. That equals $127,542.98 in interest payments.
If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). That's a savings of $22,832.23 in interest.
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Homeowner Deductions
Deductible Homeowners Expenses
One of the advantages of owning your own home is that the home mortgage interest
and real estate taxes paid can be deducted from your federal income tax*. To do
so, youll need to comply with current tax laws and complete the appropriate federal
tax forms and itemized deduction schedules.
Home Mortgage Interest
For your home mortgage interest to be deductible, it must be for a first or second
mortgage, a home improvement loan or a home equity loan. Additionally
- The mortgage loan must be secured by your main home or a second home
- Only interest paid for that tax year can be deducted
The amount you can deduct can be limited if your mortgage balance is more than $1
million ($500,000 if married filing separately) or the mortgage was taken out for
reasons other than to buy, build or improve your home.
Points
Points (aka loan origination fees, maximum loan charges, loan discount, or discount
points) are generally treated as pre-paid interest and, as such, the full amount
cannot be deducted in the year paid. Rather, the deduction must be taken over the
term of the loan.
Real Estate Taxes
State or local real estate taxes can be deducted from your income if they are paid
in the tax year. To qualify, the tax must be levied on the propertys assessed value,
the taxing authority must charge a uniform rate for properties in its jurisdiction,
and the tax must not be for your special privilege but for the benefit of the general
welfare.
Restrictions on Itemized Deductions
The amount of itemized deductions you can take are restricted by your adjustable
gross income. In 2003, the limits were $139,500 for single persons, persons filing
as head of household or qualified widow(er), or married persons filing jointly;
and $69,750 for married persons filing a separate return.
Non-deductible items
Many of the expenses related to owning your own home cannot be deducted from your
income tax. These non-deductible items can include:
Most settlement costs, including (but not limited to) appraisal fees, notary fees,
VA funding fees, and mortgage preparation costs
- Insurance
- Local assessments that generally add value to your home, such as sidewalks, sewers,
etc.
- Utilities
- Domestic help
- Depreciation
Check with the IRS
* The information contained in this article is for informational purposes only and
may not reflect current tax year rules and regulations. Youll need to consult with
your tax attorney, CPA, or the IRS for current tax year rules, restrictions and
regulations.
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Refinancing Options
There aren't quite as many loan programs as there are borrowers, but it seems like it sometimes! We'll work with you to qualify you for the best loan program to fit your needs. But there are some general considerations you can have in mind in advance.
Are you refinancing primarily to lower your rate and monthly payments? Then your best option might be a low fixed-rate loan. Maybe you have a fixed-rate mortgage now with a higher rate, or maybe you have an ARM -- adjustable rate mortgage -- where the interest rate varies. Even if it's low now, unlike your ARM, when you qualify for a fixed-rate mortgage you lock that low rate in for the life of your loan. This is especially a good idea if you don't think you'll be moving within the next five years or so. On the other hand, if you do see yourself moving within the next few years, an ARM with a low initial rate might be the best way to lower your monthly payment.
Are you refinancing primarily to cash out some home equity? Maybe you want to pay for home improvements, pay your child's college tuition bill, take your dream vacation, whatever. Then you'll want to qualify for a loan for more than the balance remaining on your current mortgage. If you've had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you may be able to do this without increasing your monthly payment.
You want to cash out some equity to consolidate other debt? Good idea! If you have the equity in your home to make it work, paying off other debt with higher interest rates than the interest rate on your mortgage -- for example, credit cards, home equity loans, car loans, some student loans -- means you can save possibly hundreds of dollars a month.
Do you want to build up home equity more quickly, and pay off your mortgage sooner? Consider refinancing with a shorter-term loan, such as a 15-year mortgage. Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and will build up equity more quickly. If you have had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment -- you may even be able to save! For example, let's say years ago you took out a $150,000 30-year mortgage at eight percent. Your payment is about $1,100, exclusive of taxes, insurance and so on. If your balance today is down to $130,000, you might take out a 15-year mortgage at six percent and have an almost identical monthly payment. This is a great option for people whose main goal is not to save money on their monthly payment but rather want to build up equity and pay off their home more quickly.
You want to cash out some equity to consolidate other debt? Good idea! If you have
the equity in your home to make it work, paying off other debt with higher interest
rates than the interest rate on your mortgage -- for example, credit cards, home
equity loans, car loans, some student loans -- means you can save possibly hundreds
of dollars a month.
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Commercial Loans
Conventional Financing
Conventional financing offers many traditional choices which include 15, 25 and
30 year amortizations; including a multitude of fixed, balloon and adjustable alternatives.
With conventional financing, borrowers are required to have a good credit history.
The loan-to-values on commercial properties are 75% and 80% on apartment properties.
Sub-Prime Loans
Sub-prime mortgages allow borrowers with low incomes or bad credit ratings access
to financing. They are known as "B", "C", or "D" loans and usually have higher interest
rates and fees. Often the borrower is left with a large final "balloon" payment,
which must be paid to satisfy the debt. Additionally, these type of loans are more
apt to carry a prepayment penalty.
Hard Money Loans
Regardless of your past credit history, short term financing can be arranged secured
against real estate or other financial assets. Any asset , real estate, tangible
or intangible asset that has an identifiable market in which to liquidate the asset
is eligible for a hard money lending program. Different lenders like different types
of assets ranging from securities, real estate, accounts receivables, and many others.
Non-Recourse Financing
A non-recourse financing option does not require a personal guarantee which makes
it the perfect loan program for corporate investing, partnerships, etc. Non-Recourse
financing extends the financial benefits without personal liability.
SBA Loans
The SBA enables its lending partners to provide financing to small businesses when
funding is otherwise unavailable on reasonable terms by guaranteeing major portions
of loans made to small businesses. Up to 90% financing available, SBA loans can
be closed in 30 days in most states. Funds can be used to acquire, renovate, expand,
and refinance commercial real estate.
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Determining Your Commercial Mortgage Interest Rate
Understandably, one of the first questions we’re asked from potential commercial
borrowers is “What will my interest rate be?” But the final interest rate on your
new loan will be based on your past credit history, the loan-to-value (LTV) of the
property, and other risk components associated with the deal. And before we can
provide a valid financial quote we’ll need to work together to build a suitable
package for the lender or investor to underwrite. The final rates and terms you
receive will be based largely on you – the business owner.
In addition to interest rates there are other factors you should consider if your
goal is to obtain the best overall financial package and return on your property
as an investment. For example, the terms of a mortgage loan can be just as important
as the interest rate. Any pre-payment penalties could also affect the overall cost
of your mortgage should you wish to sell or refinance the property. So it’s wise
to carefully review the covenants that the lender required on the loan.
Now that you understand how commercial rates differ from residential rates, this
is the perfect time to contact us to get started on putting together your deal.
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Commercial Real Estate Funding
If you’re new to commercial real estate financing, you’ll want to get a firm understanding of the differences between a residential and commercial mortgage loan. Residential real estate uses a debt-to-income formula for judging your ability to repay a loan while commercial real estate is based on the debt coverage service ratio formula to qualify. This means that to qualify for a commercial loan, you’ll have to know what your projected return on investment (ROI) will be when making a commercial property purchase or refinance.
The cash flow generated from your commercial real estate property will be one of the factors in determining both the value of the property as well as its future return. The type and amount of your commercial loan is also dependent on other factors, including your business and personal credit history, your net worth or financial strength, the type of property and its overall condition, its cash flow, the geographical location of the property, and the general economic outlook of the local market.
The first step to purchasing or refinancing your commercial property is to know exactly how you’ll use the property. What type of property will you acquire? How will the property be used to improve your cash flow and financial goals? How long will you hold the property? Will you be an owner/tenant or just an investor? And do you have an exit strategy? These are all questions you’ll want to think about before applying for your commercial financing.
After you’ve established the market need and use for the property, you’ll also want to analyze its current and future cash flow that will contribute to your ROI. So give us a call today, and we’ll help you get started and answer any other questions you may have.
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Information
needed for the application
We never, ever share the information provided by you with anyone except by permission
-- that is, if you're giving us information you want us to use to get you the best
loan, we use that information to tell mortgage lenders about you and convince them
to loan you money. In turn, those mortgage lenders are bound by federal law to keep
your information secure.
Here is a list of the information mortgage lenders will use to consider your loan
application.
For all loans
- Social Security Number, for borrower and co-borrower if any
- Employment History for the last two years, employment dates, addresses, salary.
Current pay stubs or W-2 forms.
- Check and Savings Accounts and Certificates of Deposit Location of bank accounts,
account numbers and balances; Address of bank if out of town Last 3 months' statements
- Stocks, Bonds, and Investment Accounts
Broker's name and address, description of stocks, bonds, etc.
Last 3 months' statements or copies of stock certificates
- Life Insurance Policies Insurance company, policy number, face amount, cash value,
if any
- Retirement Plan Approximate vested interest value Copy of latest statement
- Automobiles Make and model of automobiles, their resale value
- Other Assets Market value of personal and household property
- Liabilities and Other Non-Mortgage Debt Creditors names, addresses, account numbers
Monthly payments and balances
Other income information you may need
If you're self-employed:
- Two years tax returns, profit and loss statements, both company and personal if
separate.
- Current balance sheet and profit and loss statement if more than two months into
the new fiscal year, signed by CPA.
If you have income from:
- Commission
- Overtime
- Bonus
- Partnership
- Rental Property
- Trust
- Notes Receivable
- Interest/Dividends
You'll need two years' personal federal tax returns
If employed in family business
- Personal federal income tax returns and all schedules for the past two years
If divorced or separated
- Complete executed divorce decree and settlement agreement
- Payment history of alimony/child support over the past 12 months, if it is a financial
obligation.
If you choose to have this be considered as part of your income (you don't have
to), be prepared to provide 12 months canceled checks or bank statements reflecting
income deposits.
If you own real estate
Name and address of all mortgage lenders for the past 24 months, account numbers,
monthly payments and balances
If you've sold your home but not closed:
A copy of the sales contract
If you've sold your home, closed, and you will use the proceeds for your new down
payment:
A copy of the HUD-1 Uniform Settlement Statement
If you rent
Name, address and phone number of landlords for the past 24 months
If you're buying a home
Purchase sales contract or offer to purchase and all addenda
Furnish contract with original signatures of buyer and seller
If a source of your down payment is a gift:
Name, address and relationship of donor.
Gift funds will be verified in both the donor and recipient's accounts.
Note: Not all loan programs allow gifts to be part of your down payment.
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