The 7 Worst Financing Mistakes First Time Home Buyers Make…And How to Avoid Them, A Free EBook

I am excited to release my new EBook for first time home buyers: The 7 Worst Financing Mistakes First Time Home Buyers Make… and How to Avoid Them.

Click here or on the picture on the right to download your free copy.

Having originated mortgages for close to three decades, I have found the topics covered in this EBook are the ones first time home buyers want to know about most. Hopefully, this EBook will help you avoid the mistakes others have made that have cost potential home owners thousands of dollars, and blown up many deals.

Here are some of the mistakes I cover in this easy read, that will help you avoid a similar fate:

  • Overextending yourself
  • Not counting the cost of bad credit
  • Not knowing your down payment options
  • Not budgeting for closing costs
  • Not getting pre-approved
  • Not choosing the right mortgage product
  • Not getting multiple lenders to compete for your business
  • and so much more…

The download is absolutely free as my gift to you for reading my blog; there is nothing to buy and no commitments to make. Enjoy it, and feel free to pass it on.

I wish you much success on your purchase.

What to Do When Your Mortgage Lender No Longer Exists

So you’ve paid your mortgage on time every month and have always made sure that you review your yearly mortgage summary from your lender. You stay on top of things and have developed a good working relationship with your lender, even though they may be thousands of miles away. Then one day you wake up to find out that your mortgage lender has been bought or sold, or even worse, they have gone bankrupt and just closed up shop!

Now what do you do when your mortgage lender no longer exists, and how does this affect your mortgage?

There is an old saying that nothing is as certain as change. It’s certainly true in modern markets where interest rates can change on a daily basis. When a mortgage lender goes out of business for whatever reason, there are typically a lot of questions from those who are used to sending in their payments every month.

The very first question is “How does this affect me?” – The good news is that in every case, even if your original mortgage lender no longer exists, your mortgage rate, payments and other terms will not change. The only thing that is likely to change is the address to where you send the payments, and even that might stay the same!

Mortgage lenders routinely buy and sell mortgage notes on the open market. In fact there are mortgage lenders out there who write mortgages for the sole purpose of selling them in the secondary mortgage market.

In years gone by when you took out a mortgage from your local bank it stayed with the bank through the entire life of the mortgage. Today, typically a mortgage will be sold an average of 1.5 times and rarely does it stay with the original lender unless they were one of the larger mortgage underwriters.

When a mortgage company ceases operation and no longer exists, that does not mean that the mortgages they wrote no longer exist. They are considered assets of the company, and are sold on the open market typically to the highest bidder. No matter how much they pay for the mortgage your rate, terms and amount due each month does not change.

The general rule of thumb, is to always mail your payments to the same address you have been mailing them until you hear from the new mortgage servicer directly. If you have automatic withdrawals from your checking or savings account, you may not have to worry about doing anything – the withdrawal may change automatically.

Above all, do not stop sending your payment in or “wait until you hear from the new company”. This will have a negative effect on your credit, and you could find yourself heading down the road to foreclosure. Banks, lenders and other underwriters have well established procedures in place for buying and selling existing mortgage notes. In the end, the only thing you have to worry about is making sure you continue to make your payments on time every month.

Are Adjustable Rate Mortgages Worth It? Part II

In part one of this two part post, I talked about the benefits and drawbacks of adjustable rate mortgages (ARM), the safeguards built in to most ARMs.in the form of rate caps, and the dangers of negative amortization.

In this post, I would like to focus on a few things that you can do to help ensure you’re making the right decision and getting the best deal that you possibly can on your adjustable rate mortgage.

Shop Around:
Don’t go with the first offer you get. It may sound ridiculous that someone who is making what is often the biggest purchase of their life would jump at the first loan that’s offered to them. But first-time home buyers, who are sometimes surprised that they’ve been offered a loan, can be especially susceptible to this type of knee jerk reaction. Also, lenders who practice hard sell techniques, indicating that the loan rates could change at any moment, can pressure consumers into making quick, ill-advised decisions.

Make Sure You Know the Terms:
You may be thinking, “Of course someone would know the terms of a loan!” This isn’t always the case. When someone is ignorant of the terms of a mortgage, they either haven’t asked the right questions, or after asking a question and getting an answer, they don’t ask for clarification if they’re confused. You must ask questions, understand the answers thoroughly and ask for further explanation if needed.

Often information regarding an ARM is given in a simple sequence of three numbers, which may look something like this—3/1/6. In this example, you’re first given the initial cap change of 3, which is the maximum change allowed the first time the rate is adjusted. This maximum is often higher than subsequent changes. The second number represents the periodic change cap. This number, which in our example is 1, is the largest interest rate adjustment allowed during all other changes. The final figure is the life cap or the maximum adjustment that can be implimented during the term of the loan. In our example the life cap is 6, which is typically the highest amount you’ll see for a life cap on a first mortgage.

Ask Yourself “What if?”:
Taking the time to ask yourself this question and answering it honestly can save you a lot of heartache and money down the line, and help you determine if an adjustable rate mortgage is worth it to you. In other words, know the effect a 3 percent rise in the interest rate would have on your pocketbook in the first adjustment period. If you procure a loan with an interest rate that can be altered every six months, could you afford a big spike in the rate? Would your ability to pay and the security of your home be jeopardized by an upward trend in mortgage rates? Look at the actual numbers.

Let’s say you’re paying $602 dollars at 4% on an ARM that totals $126,000 and the loan goes to 7% in the first year. Your payment would then be $838 per month or $232 more each month and $2,784 more a year. Remember, that elevated amount only represents the difference in interest and does not include principal, which means suddenly you’re paying a lot more for your house than you intended. How much more? Over the course of a 30-year mortgage you will have paid more than $100,000 in additional interest! That is not a bargain.

Study Financial Trends:
To help you determine if an ARM makes sense for you, take some time and get the latest information on what is happening with interest rates. Study what’s occurred over the past 12 months and read up on what the experts are predicting. Check the index your potential lender uses to determine if rates will rise, fall or stay stable. Ask the lender what index they utilize to calculate if your mortgage payment will change. They should be able to tell you this and also inform you of the margin, which is the additional amount the lender adds to the index rate. It is usually from one to three points and is constant for the length of the loan. Study the index’s past performance to determine how stable it is and how often it changes. Some indexes will be adjusted monthly.

Consider a Less Expensive Home:
This is an option about which most people do not want to think. However, your first home does not have to be your last home. Buying a less expensive home at a fixed-rate can pay dividends in the next five to ten years. By paying more than interest on a loan, the homeowner benefits in two ways.

First, because the consumer is paying principal and not merely interest, they are slowly retiring the debt on the house, building equity and actually becoming the owner of the property. If the owner sells the home ten years down the road, he or she will realize a profit that can go towards the down payment for a bigger and better home.

A fixed-rate mortgage also allows you to benefit more from any appreciation in the property. If in ten years, you’ve paid $12,000 in principal on a home worth $100,000 and that same home rises in value by 3% per year, which is a negligible amount, then you would have a home that’s worth about $134,000 and a total gain of $46,000. Imagine how helpful that $46,000 would be in purchasing your dream home!

Try to think in the long term when it comes to home ownership. It can pay off in a very short amount of time, especially if you live in an area where property and home prices continue to escalate.

So, are adjustable rate mortgages worth it?
Although an Adjustable Rate Mortgage may look promising at first glance, it does have its pitfalls. When purchasing a home, carefully consider all of your options, do your homework and think about the future and what will be best for you and your family. An ARM may help you realize the American dream of home ownership; however, securing an adjustable rate mortgage under the wrong circumstances can turn that dream into a nightmare.

Beyond rates: What the banks won’t tell you about choosing the best mortgage

Choosing the best mortgage from all the available lenders out there can be complicated. There are so many terms, features, restrictions and potential penalties to keep in mind. But at least mortgage rates are easy to compare—all you have to do is choose the lowest one, right?

Think again! Choosing the lowest rate is only straightforward if all the rates are stated the same way and include the same things. Fortunately, lenders are required to use the Annual Percentage Rate (APR) as their posted rate. So on lender websites, ads and window posters, the rate that’s quoted should be APR.

The Annual Percentage Rate is a compound rate, so it’s applied to original principal plus accumulated interest. This gives you a more accurate picture of the actual cost of the loan. To make the APR even more realistic, it not only includes all the interest costs of your loan, it also includes non-interest costs that lenders charge. Depending on the lender, this can include appraisal fees, closing costs, loan fees, loan origination fees, mortgage default insurance, creditor life insurance, legal fees and more. It’s that “depending on the lender” part you have to watch. The only way to accurately compare APRs is to look into each lender’s fine print and see what’s included in the rate it’s quoting.

Or, you could take the easier, faster, less frustrating route, and simply call me! As a Licensed NYS MLO, I have access to more lenders than you could possibly find on your own, and I fully understand all their products, terms and rates. I don’t usually advertise myself on blog posts, but I’d be happy to do a no-charge analysis of your needs, and then discuss which options work best for you. And I’ll make sure you don’t get fooled by a really low mortgage rate that could actually cost you more in the long run because of all the restrictions and penalties it includes.

Anatomy of a Mortgage

In exchange for getting this very large loan, the person then agrees to put the house up as collateral against the loan

Introduction

Mortgages were the original home loan agreement. In many ways, the mortgage changed the real estate market completely and turned it on its head in a very good way. Before the advent of the mortgage, the only way for people to go out and get what they wanted in terms of property was to pay for it outright. Since very few people possessed the means back then to pay for property outright, the ownership rights were only there for pretty much the upper middle class. From the middle class downwards, most were excluded from home ownership. Mortgages changed all of that, and to understand how profound a mortgage is, it is important to take a close look at exactly what a mortgage entails.

Agreement

The agreement for a mortgage is one that is the main point of everything else that follows. Under the agreement of a typical mortgage, the person has the ability to borrow money from a lender in order to pay for a house or a property. The amount of money they can borrow varies, but for a Conventional Mortgage, the maximum you can borrow is 80% of the lower of the appraised value or purchase price of the house. Options for mortgages above 80% are available by paying mortgage insurance, which I will discuss in another blog. In exchange for getting this very large loan, the person then agrees to put the house up as collateral against the loan, so that the bank has some way to save itself in the event that the person is unable to pay the loan back.

Interest Rates

Whenever people think about loans, very likely the first thing that they think about is interest rates. There are a number of different interest rates involved in different loans, but when you compare the vast majority of them to what is available under a mortgage, what you find is that the vast majority of those interest rates don’t really match up. The average mortgage has an interest rate attached to it of between 4% and 5% (depending on the loan to value and credit score) and the vast majority of loans that are available on the marketplace today, even if they happen to be secured loans, really can’t match up.

Repayment Terms

Just like with interest rates, the repayment terms for a number of different mortgages are very impressive when compared to a number of other conventional loans. When you’re talking about unsecured loans (i.e. credit cards), then obviously there’s going to be no comparison, but for the most part you will find that mortgage repayment terms are significantly easier to deal with than with most other loans. This is because (a) the collateral being used is extremely strong and (b) the term lengths are longer, so naturally that makes the monthly payments smaller.

Fees

There are some fees for mortgage payments relating to things like late payments and underpayments, but you will find for the most part that fees are not really that important in the grand scheme of the agreement itself. It is important to be aware of what the fees are, and to make sure to pay your mortgage back on time every month.

Closing Costs

Closing costs for a home mortgage can be significant. With the advent of the new disclosure laws that have taken effect in 2015, all fees must be disclosed by your lender at the beginning of the loan process. These fees include appraisal costs, title fees, recording and lender fees. Make sure you receive a lender disclosure at the very beginning of the process.

 

Basic Mortgage Terms You Should Know When Buying a House

Understanding these terms will allow you to avoid many of the pitfalls that exist in the real estate market

Educating yourself on the various mortgage terms you will run into will help you make better decisions when deciding which home you want to purchase. When you sign a mortgage contract, your home is used for collateral and it is your responsibility to make sure your payments are made on time each month.

The first term you should know is principal. The principal is basically defined as the amount of money you borrow for your home. Before the principal is provided you will need to make a down payment. A down payment is the percentage you will put towards the principal. The amount of the down payment will often depend on the cost of the home. Once you pay off the principal, the home is yours.

The next term you will need to know is interest. Interest is a percentage that you are charged to borrow a certain amount of money. Along with the interest rate, lenders may also charge you points. A point is a portion of the total funds financed. The principal and interest makes up the majority of your monthly payments, and this is a method that is called amortization. Amortization is the method by which your loan is reduced over a given period of time. Your payments for the first few years will cover the interest, while payments made later will be applied towards the principal.

A portion of your mortgage payments can be placed in an escrow account in order to go towards insurance, taxes, or other expenses. The next term you will hear a lot is taxes. Taxes are the amount of money that you have to pay to your state or government. When it comes to your home, these are known as property taxes. These taxes are used to build roads, schools, and other public projects. All homeowners must pay property taxes.

Insurance is another important term that you will hear in the real estate community. You will not be allowed to close on your mortgage if you don’t have insurance for your home. Home insurance covers your home against floods, fire, theft, or other problems. Unless you can afford to repair your home if it is damaged, it is usually a good idea to get insurance for your home. If your home is located within a zone that is known for having floods, federal laws may require you to have flood insurance.

If the down payment you put towards your home is less than 20% of the total value, you will often be charged additional premiums on your insurance by the lender. This is done to protect you in the event that you default on your loans and fail to make payments. Without this, many people would not be able to afford a house.

These are the basic terms you will need to know before your purchase a home. Understanding these terms will allow you to avoid many of the pitfalls that exist in the real estate market. You want an interest rate that is low, and you should always try to get a fixed interest rate if possible. This will allow you to focus your income on making payments towards the principal, and this will help you pay off the loan faster. A mortgage is an important part of your financial picture, and you want to make sure you pick a home that you can afford. If you fail to make your payments, you may lose your house.

10 Critical Questions to Help You Choose The Right Mortgage. Part III (Last part)

OK, here are the final five questions to ask your lender…

OK, here are the final five questions to ask your lender…

Can you give me an estimate of my closing fees? Every mortgage involves fees that are paid to the lender and other companies involved in the financing process. Ask for a realistic estimate of what those fees will be, based on the specific mortgage details you’re talking about. Any lender that can’t provide an estimate should be viewed with suspicion.

How much will it cost to pay out this mortgage before the term is up? Sure, you may not plan to pay out your mortgage early, but what if you need to move or refinance unexpectedly. Some mortgages with low rates have HIGH prepayment penalties which make getting out of the mortgage VERY expensive. If your plans could change, it may make sense to pay a slightly higher rate and get a more affordable prepayment penalty. Be sure to ask about the terms and conditions of any prepayment penalty. We do not charge a prepayment penalty on any fixed rate loan.

What documents will I need to provide? Every mortgage requires you to provide some documents. But the number of documents can vary. As the name suggests, “Full Doc” loans require full documentation of income, assets, debt payments, credit history, etc. “Low Doc” loans require a minimum of documentation. However, you normally have to have very good credit and a large down payment to qualify for a Low Doc loan—and they can also carry a higher interest rate. Make sure you find out all the details.

How long will it take to process this mortgage? Once your mortgage application is approved, it can take from two weeks to two months (or more!) to process and fund the loan. Because you’re going to be on a deadline (the closing date of your house), ask the lender for an accurate processing timetable. This will also help you decide whether you need to lock in your interest rate.

What are some of the things that could slow the approval process? Nobody likes surprises, especially lenders! If the information you’ve provided is complete and accurate, there should be no delays. But changes to that information can really make a difference. If during processing, your income changes, you take on a new debt, you get married or divorced, or an undisclosed credit problem comes to light, there will be delays. Make sure you know exactly what the lender needs, so you don’t accidentally leave anything out.

Use this checklist for each lending institution you contact, whether you speak over the phone or in person. It’s a good idea to do all this research on the same day since mortgage rates can fluctuate daily. Be sure to record the company name, contact name, type of mortgage quoted, interest rate, etc. along with all the answers to the questions.

And by the way, feel free to give us a try…I know all the answers!

Good luck!

10 Critical Questions to Help You Choose The Right Mortgage. Part II

The best way to protect yourself is to go through every item on this checklist with each lender BEFORE you go any farther.

Today’s mortgage market is very complex, with more choices than ever before, innovative new features being introduced every day, and unexpected conditions and fees hidden in the fine print. The best way to protect yourself is to go through every item on this checklist with each lender BEFORE you go any farther. Let’s start with the first five in this post, and then we’ll wrap things up on my next post.

 What’s the APR (annual percentage rate) on this mortgage? Be skeptical of the first rate you’re quoted. Always ask if it’s the annual percentage rate. The APR is usually higher because it includes the additional fees involved in procuring a loan. And don’t always believe the APR quoted in ads. Lenders often use bait and switch tactics: they’ll quote a low rate to get you in the door, but it may not include all the points and fees, or it may be almost impossible to qualify for.

 How much of a down payment will I need? Most mortgages require a down payment of somewhere between 5% and 20% of the loan amount. The higher your down payment, the more attractive your rate and terms will be. However, you may not be able to afford a high down payment. If you can’t manage a down payment of 20% or more, your mortgage is required to be covered by private mortgage insurance (PMI), which will involve paying an insurance premium.

 How much extra will it cost to lock in my interest rate? As you know, mortgage rates are changing all the time. If rates rise between the time you apply and your closing date, you can pay thousands of dollars extra over the life of your mortgage. Most lenders will let you lock in the rate you discuss at the time you apply so there are no surprises later. But there’s often a fee for this, so find out how much it might cost. We do not charge a fee to lock in an interest rate that is up to 60 days.

 Are you going to charge any discount points? Some lenders charge prepaid mortgage interest points that can have a big effect on the cost of your loan. Ask for full details.

 What are the guidelines I need to meet in order to qualify for this mortgage? Every mortgage has requirements that relate to your employment, income, down payment, credit history, assets and liabilities. First-time home buyer programs, VA loans and other government-sponsored mortgage programs typically offer easier qualifying guidelines than conventional loans.

OK, stay tuned for my next post, where I’ll give you the final five…

10 Critical Questions to Help You Choose The Right Mortgage. Part I

What I’d suggest is that you sit down with your spouse and consider some of the following issues. Only then will you be able to answer the questions any responsible lender will ask in order to help you choose the right mortgage, rate and features.

Before you even pick up the phone to call a lender, give some thought to your financial situation and needs, both today and in the future. No lender can provide the best mortgage for you without understanding your needs. And they’ll never understand your needs unless you can explain them clearly and specifically. Since there’s a lot of meat on these bones, I’ll start with the issues, and in my next blog post I’ll give you a great checklist that you can use with any lender before you get started.

What I’d suggest is that you sit down with your spouse and consider some of the following issues. Only then will you be able to answer the questions any responsible lender will ask in order to help you choose the right mortgage, rate and features.

• How long are you planning to live in this home?
• How are your finances likely to change over the next few years?
• Which are you more comfortable with: mortgage payments that always stay the same OR payments that rise and fall with the treasury rate?
• How soon would you like to be mortgage-free?
• When will your children be entering college or university?
• When are you thinking of retiring?

OK, now that you have your needs and goals in mind, you’re ready to start making some calls. As I said, any responsible lender will ask you a lot of questions in order to narrow down the options and select the right mortgage for you and your family. But if you want to make sure you’re getting the very best deal available—after all, that’s exactly what you deserve—you have to ask some questions too.

Stay tuned for a detailed checklist on what to ask your lender when you shop for a mortgage…