FBC Mortgage Blog

If you are considering purchasing a new or existing home, the first step you should undertake is to obtain a mortgage preapproval letter from a mortgage lender. Getting prequalified is not the same as being preapproved for a home loan. Prequalification is a relatively simple process that is often performed over the phone or internet. The applicant supplies a brief overview of his financial situation and the loan officer provide him with a rough estimate of how much the lender will loan.

Preapproval takes that a step further. The applicant fills out a loan application with the lender in person, over the phone, or online. The loan officer returns with an amount the lender is willing to loan the applicant as well as a preapproval letter that the borrower can use when they make a purchase offer. There are many advantages to being preapproved by a lender before beginning your search for your new home.

Knowing What You Can Afford

By being preapproved for a set amount, you will only look at homes at or below that price range. You will not waste time looking at homes outside of your price range. Your real estate agent will be able to tighten the range of homes they present to you. Do not underestimate the value of your time. You do not want to waste weeks looking at a home only to find out you cannot afford it.

Greater Confidence When Negotiating 

There is something to be said for knowing how much you have in your pocket when approaching a homeowner. You know you can afford the home. That is without question, but you may be able to get the home significantly cheaper by having a preapproved loan in hand. Often homeowners are willing to take a lower price than the list price if they don’t have to waste time with an unqualified buyer. They do not want to go through the process of pulling their home off the market only to have a deal fall through because the buyer cannot obtain financing. With a mortgage preapproval letter, you are the perfect buyer and have increased power in the negotiation process.

The Ability to Close Quickly

The loan application process is often the longest portion of the closing process. By being preapproved, you have eliminated that step from the process. Lenders can immediately order an appraisal. The closing process can be shortened from a period of approximately thirty days to around 10-12 days. If the seller is highly motivated and needs to move quickly, this makes your offer that much more appealing, and you can use that to your advantage in the negotiation process.

You will inevitably go through the loan process at some point during the home buying process, but by going through the process at the beginning rather than the end, you save time and increase your negotiating power. You will only look at those homes you can afford, and you will be able to negotiate from a position of strength when it comes to the final sale price.

One irony of the real estate market seems to be that the more inventory that’s available, the harder it can be to actually get a piece of it. Buying additional homes may make sense for many, but obtaining a second home mortgage is not guaranteed, even if a buyer has already established himself with a primary home.

Mortgage Guidelines

Buyers who haven’t purchased a home, whether primary or secondary, need to understand newly enacted mortgage guidelines.Lenders now consider overall income, credit rating, assets and how much cash flow will be left after closing. Lenders also consider a buyer’s banking history and continuous employment record. Lenders may require a higher down payment and liquidity amount for second homes because the risk is higher for buyers defaulting on a second home mortgage. Rates and origination points are normally similar to owner occupied rates.

The existing home’s value and equity play a large factor with lenders for second home loans since the existing home is collateral. Less than excellent credit the lender may not approve an amount larger than the equity of the first home. In addition, the IRS imposes less favorable tax deduction rates on second mortgages.

Home Equity Loans 

Lenders like buyers who have established themselves with a primary residence may suggest  taking out a home equity loan to finance a second home. However, home equity lines often have variable rates, so buyers could end up at a disadvantage. A second mortgage, as opposed to an equity line, may also be a wiser choice come tax time.

Even with a large down payment, home equity, and sufficient cash flow, it may be harder to obtain a second home for buyers with risky credit. In addition, interest rates on second mortgages run higher because if the mortgage defaults, the law requires the first mortgage to be paid off first, creating a higher risk for the lender.

Preparing for a home loan is a substantial task for any home buyer. Obtianing a favorable home loan requires an investment in time and money but pays off in the long run by negotiating lower closing costs and cheaper mortgage terms. This helps keep down the cost of the loan. Considering the following items can help homeowners understand the mortgage process better and understand the impact of a favorable mortgage.

How Much You Can Afford

Affordability depends on key pieces of personal financial circumstances and market conditions. The health of the personal finances of a home buyer provides a basis of how much a home buyer can afford to borrow to buy a new home. One indicator of financial health is income. Income is compared against all debts and routine monthly expenses to determine how much potential disposable income may be reasonably available for a monthly mortgage payment. In addition to debts, credit history influences the interest rate on a loan. Generally, home buyers with less desirable credit histories are charged higher mortgage interest rates by lenders. Higher rates make a mortgage more expensive to repay long term. The opposite is true of home buyers with a stronger and more stable credit history.

Purchase Decisions

Conditions in the mortgage market influence the interest rates lenders offer to home buyers. In addition, government policy, investor expectations and economic activity influence the prevailing level of borrowing costs. Depending on market conditions, mortgage interest rates may be driven upward by inflation and higher economic output. Similarly, a lack of demand for home mortgages may help drive down interest rates for new home loans.

Shopping for Lenders

Comparing home loan products offered by a various lenders gives new home buyers a better possibility of finding a desirable mortgage. It is important to remember that not all mortgage lenders have the same mortgage products. Comparison mortgage shopping among different types of lenders gives home owners a broader view of the lending landscape and puts them in a better position to negotiate for lower interest rates and closing costs.

Armed with even basic research and trust worthy professional advice, home owners are more likely to make better and informed decisions. The key is to carry out due diligence on what is arguably one of the important long-term financial decisions for most home buyers.

The Home Affordable Refinance Program was put in place by the Obama administration in response borrower’s inability to refinance because of lack of equity in their homes. Put into place in 2009, it’s designed to help homeowners who owe more money than their homes are worth. Unable to refinance into lower rates and more affordable terms through traditional means, HARP will help borrowers lower there interest rates.

Eligibility
There are strict requirements to get a loan under HARP. Homeowners must currently by financed or have a loan owned by Fannie Mae or Freddie Mac that was acquired before May 31, 2009. The loan-to-value ratio on the home must be in excess of 80 percent. The payments should be current, without any missed payments in the last six months and only one in the last year.

Benefits
The major benefit of this program is that homeowners can refinance into a shorter and build up equity in their property quicker. It can reduce the risk of foreclosure for families who are otherwise trapped in a house they are underwater on, and it can ease some of their financial burden. Homeowners can also take advantage of lower interest rates, allowing them to save thousands over the life of the loan.

Limitations

In addition to having strict qualification guidelines, this program also has other limitations. You cannot borrow more than the amount that is owed, so homeowners cannot get more cash out of their home. People who are currently delinquent will not qualify, although they can qualify in the future by making all payments on time. Mortgage insurance will be required to be maintained if it is part of the existing loan. If not, it will not be a requirement of the new loan.

Deadline

This program was created in response to the housing crisis, and it won’t be around indefinitely. Homeowners must apply before the program expires on December 31, 2013 if they want to qualify for HARP and enjoy lower payments.

There are many benefits to this program. Designed to help struggling homeowners, it can provide you with terms that are more favorable and a lower payment. It will not eliminate any of the money that is owed, but it can provide you with a valuable refinance and help you avoid foreclosure or short selling your property.

A mortgage is a secured loan that lenders make to you, so that you can purchase a home . The process isn’t simple. There are several steps, requirements and terms that any borrower must be aware of when going to a bank for a mortgage. First-time homebuyers especially need the additional information.

Entering into a mortgage note without knowing about the process can prove hazardous to the borrower’s finances later. You can prevent future financial trouble by learning 12 things about the process that all buyers should know.

The Jargon 

The terms used to create and define the loan and the home lending process. Knowing the terms can help you in bargaining for the home and in shopping around for a home loan. The most important terms are the following:

Principal: the amount of money that constitutes the loan on the home you are purchasing. This is the amount of money that you will borrow.

Interest: the lenders price for loaning you the money. The first years of loan payments are primarily interest payments, to pay the lender for borrowing the money.

Points: the cost associated with buying your interest rate down. Points are a percentage of the home loan. For example 1 point is equal to 1% of the loan amount.

FICO Score: the credit score that the lenders look for when judging creditworthiness. The scores are gathered from three major credit reporting agencies, which are Experian, Transunion and Equifax.

Closing: the day that the papers are signed and the loan terms are accepted. You get ownership of the home on this day. You also take on the debt for buying it as well.

Down Payment: the money that you pay the lender before the loan is given. A down payment is a percentage of the home price. For example a 5% down payment would equal 5% of the purchase price.

These terms are important for any buyer to know and understand before embarking upon the home buying process. 

Your Numbers

When buying a home, you must know certain numbers that correspond to your personal finances and obtaining a mortgage. You must locate and always know your:

• Credit score
• Loan principal
• Interest rate
• Down payment amount
• Maximum budget for home buying
• The loan term

Knowing these numbers, especially the last one, can be a great help during the home and loan negotiations. The credit score and interest rates change often, so you may have to look them up a few times throughout the process, as needed.

Getting through the home buying process isn’t easy. Making the wrong move can haunt you for the life of the loan. If you have this basic information at your disposal, the process will become so much easier. It will make finding your dream home more of a reality than it ever was before.

The original Home Affordable Refinance Program or HARP was not as successful as it was predicted to be. Designed to increase home retention and lower monthly mortgage payments, this government program helped only eight-hundred thousand homeowners over 3 years. Considering the amount of foreclosures over that period, this program barely made a dent in helping borrowers.

One of the dominant problems with the original Home Affordable Refinance Program was that it did not take into account the fact that many homes lost a substantial amount of value in the crash. This meant that many homeowners who were making timely payments were unable to refinance because they owed more than their homes were worth.

HARP 2.0 takes this fact into account and allows homeowners who owe more than their homes are worth to participate in the program. While this new program seems better than HARP’s first incarnation, it still has strict requirements for participants.

HARP Program Requirements

• Fannie Mae or Freddie Mac must have purchased the homeowner’s mortgage prior to June 1, 2009.

• The homeowner must be current on his mortgage and have no late payments within the past 6 months. This program defines a late payment as any payment that was more than thirty days past due.

• There must be no more than 1 late payment in the last twelve months.

• The homeowner must not have previously refinanced through the Home Affordable Refinance Program.

Removing Barriers to Refinancing  

While still difficult for underwater homeowners, this new version of the government program has removed many obstacles to refinancing that were present in earlier versions of the program. In the previous version, the program limited participants to those who owed less than 125-percent on their homes.

Even with this cap, many banks refused to finance homeowners who owed more than 105-percent. The new program releases the mortgage lender from any liability and does away with the cap. Lenders have the right to place their own caps on LTV ratio, but the 3 largest banks in the United States have stated that they are willing to follow the new program’s guidelines to the letter.

Participants in this program are still subject to lenders overlays. Overlays are additional requirements that lenders can put in place beyond the program’s listed requirements. These overlays generally involve credit score, work history, income level, etc. Mortgage companies can impose overlays, but because of the release of liability, many mortgage companies are willing to offer this program with very limited or no overlays at all.

If you are a candidate for this latest government program, you should see your lender as soon as possible. Demand will be high during the initial months as struggling homeowners flood the banks with applications. You should expect delays, but if HARP 2.0 works as promised it should greatly improve home retention throughout the United States.

Contact FBC Mortgage to get started on securing a HARP loan.

To most people who own a home, it’s a generally accepted principle that having a mortgage is a normal and healthy debt to carry. After all, very few people have the funds to pay off a loan of that magnitude upfront. However, it’s actually a smart financial decision to start paying off your mortgage early for several reasons.

Debt Servicing as Investment

Most people wouldn’t look at paying off debt as a form of investment because it doesn’t pay dividends or interest. However, depending on the market and your loan, paying off your mortgage early can be a better investment strategy than actually investing the money in stocks, bonds, or other vehicles. 

For example, if your interest rate is 7%, you have to look at your other investments and ask what their guaranteed return is. If it’s less than 7%, as many investment vehicles currently are, then you are spending more on interest on your mortgage than you are earning through investments. It just makes more sense to pay off higher interest loans early so that you spend less on interest.

Mortgage Compounding Works Against You

In savings accounts and investments, compound interest is your friend and earns you more money. When it comes to debt, compound interest means that you’ll pay for your home twice in interest if you make regular payments for 30 years. The good news is that if you make just one extra mortgage payment per year, you can pay off your loan in approximately ten years or less. Even small extra principal payments early in your loan can make a big difference in the length of your loan and the amount of interest you pay.

Peace of Mind and Financial Freedom in the Future 

Making extra payments in the current years will free up your finances in the future. If you build up your equity now, you will have the option to take out a home equity loan in the future for important purchases or investments. 

No matter what your reason, choosing to pay your mortgage off early is a good decision for your financial future. For more information on paying your mortgage off early and other ways you can save money over the life of your loan, contact FBC Mortgage, LLC. Our staff can evaluate your current loan and make sure it is the right one for your housing and financial goals.

A home mortgage, for most people, is the largest debt they will take on in their lifetime. While a mortgage is a liability that you are responsible to pay, it can also be a vehicle for helping you to consolidate other high-interest debt. Here are three ways to use your mortgage for consolidating debt.

1. Use a Cash-Out Refinance

For an existing home mortgage, a cash-out refinance is one way to use your home for consolidating debt. This option involves refinancing for an amount higher than the principal owed on your current loan. For instance, if your home is worth $250,000 and you currently owe $150,000, you could refinance to a $200,000 loan and use the additional $50,000 (less closing costs) to pay off credit card or other high-interest debt. The interest rate on your new mortgage will most likely be much lower than the interest rate on your credit cards, and the debt will be easier to manage with only one monthly payment.

2. Use a Home Equity Loan

Another option to consolidate debt with a home mortgage involves taking out a home equity loan. This is similar to option one, but does not involve refinancing. You will save on closing costs, but you may have a higher adjustable interest rate than a cash-out refinance. However, the rate should still be much lower than the one you have on your credit cards.

3. Take Out a New Mortgage

Sometimes it is possible to consolidate debt when buying a new home, although it is hard because you don’t have existing equity to tap into in the home. This method may require a sizable down payment, and since some of that down payment will go towards the debt consolidation, your mortgage insurance premiums may be larger. Rather than going this route, it’s probably a better idea to use your liquid assets to pay down high-interest debt prior to seeking out a mortgage. This option has the added value of improving your credit , and thus improving your chances of getting a good interest rate when you do take out a mortgage.

No matter what options you are considering to consolidate your high-interest debt, it is important to weigh all the factors involved to make sure you are truly saving money long term. For more information on how a mortgage can help you consolidate your debt, contact FBC Mortgage, LLC now . We can provide you with a free consultation to help determine the right mortgage for you.

With the large number of distressed properties available on the market today, a savvy buyer can pick up a great bargain if they do their homework and make the right choices. A short sale (where the lender agrees to forgive some of the debt owed on a home in order to sell before it goes into foreclosure) may seem like a great way to save some money.

But this type of sale involves some significant risks. Here are some important things to take into consideration when thinking about purchasing a short sale:

What Hidden or Additional Costs Will I Incur with this Purchase?

Although a short sale can potentially be a great deal, it can also carry with it hidden costs that can add up quickly. If the seller has no funds, the buyer may get stuck paying costs normally covered by the other party, such as overdue homeowner’s association fees, back taxes, or a site survey.

How Long Can I Afford to be in Negotiations on this House?

Ironically, short sales often take longer than normal sales to close and you could be going back and forth for months with the bank that financed the seller’s original purchase. If you have a moving deadline, or if you have to stay in expensive temporary housing until closing is completed, the savings you’ll have from a pre-foreclosure may be counterbalanced by the expenses you’ll incur waiting.

How Much Can I Afford in Renovations, and How Much Work am I Willing to Do?

In a normal home sale, you have the option to request that the seller make repairs or improvements based on what’s found in the inspection. In a short sale, the home is usually sold “as-is,” so any repairs or renovations would be your responsibility. It’s important to weigh what your budget is and whether the price you will be paying is worth the hassle of fixing up the home yourself.

Although there are many factors that can sour the sale of a pre-foreclosure home, there are certainly plenty of deals out there for the buyer who is willing to look around and make a smart decision. If you are considering buying one of these distressed homes, the most important thing you can do is make sure you use a mortgage lender that is familiar with the pre-foreclosure purchasing process .