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It is a well-known fact that one can take out an insurance policy for almost anything—weddings, body parts, alien abduction, comedy routines, so on and so forth. Insuring a property is more conventional, but many consumers are perturbed by the additional cost, which adds to the already considerable financial pressure of purchasing a home.

 

There are a few types of insurance generally associated with homeownership, the first being mortgage insurance. “MI” serves to protect lenders in cases where there’s an increased likelihood of the borrower defaulting. Borrowers that put down 20%, then, are essentially required to pay for the risk they pose to their lender. Until a borrower’s loan-to-value ratio drops below the 80% mark, they will continue to pay for that risk. Conventional loans with a loan-to-value ratio over 80% require the borrower to hold private mortgage insurance, which can be arranged by the lender, while those who take out FHA loans will also sort out their mortgage insurance through the FHA.

 

Mortgage protection insurance is slightly different, as it provides coverage in circumstances where borrowers aren’t able to make mortgage payments due to illness or loss of a job. However, such policies don’t insure against falling home prices or other mishaps that may decrease the value of the property. Their purpose is to serve the lender, not the borrower.

 

Often confused with MI or mortgage protection insurance, homeowners insurance protects the interests of the borrower. This is the policy that covers falling trees, fires, buffalo stampedes, et cetera and has no immediate connection with the financing process. Technically, homeowners insurance isn’t strictly necessary for those properties outright. Most people don’t, however, and lenders, considering that they often own a good portion of the property thanks to that substantial loan, require borrowers to take out homeowners policies.

 

 

 

 

Sometimes borrowers ask, “Why don’t your rates match the ones I see online?” It is easy to quote rates out there, but every borrower should remember that their loan is different, and that often the advertised, or publicized, rates are slightly higher due to a number of factors.

 

First, the rates in Freddie Mac’s survey (which come out every week) include average discount points paid for the mortgage. But not everyone is willing to pay points: a point is 1% of the mortgage amount, charged as prepaid interest. Many borrowers do not want to pay points, and loan officers agree because unless you’re going to live in your home for a very long time, paying points often doesn’t make sense.

 

The second reason that your rate might be different than a rate you hear on the radio or see online is that your characteristics mean price adjustments. For example, a credit score on the low side will prevent you from getting the lowest rates. Low levels of home equity will also mean a pricier mortgage rate. Focusing on LTV, for example, at least a 20% equity cushion (80% LTV) in your home for a refinance, or down payment for a purchase, will help obtain a better rate for a borrower. And if a borrower wants a jumbo mortgage, you will want 25% or 30% down for the best rates.

 

Property type also influences rates: in the current environment, liens on condos usually carry a slightly higher rate unless you want to put more money down. And if your mortgage is for a vacation home or investment property, you can also expect to pay a higher rate. And lastly, some lenders have so many loans in process that they will intentionally make their rates slightly higher in order to slow down new business. Your loan officer can help answer questions on the best rate and price combination.

 

 

 

If you want to start an argument, announce to a crowd that the economy is recovering: half will agree with you, half won’t. Certainly the recent downturn has impacted many, leading to short sales, foreclosures, and bankruptcies. And plenty of people are asking about buying a property that was involved in a bankruptcy. To answer that, the key issue is what type of bankruptcy was filed, and how long will it take to close?

 

Bankruptcy

Since most such sales come with no representations, warranties or indemnifications, attorneys representing buyers should make due diligence their number one priority. Section 363 of the U.S. Bankruptcy Code allows parties involved in a Chapter 11 or Chapter 7 (most common for consumers) proceeding to dispose of real property in order to help pay off their debts through a highly structured process aimed at getting the most out of each asset while retaining the least liability.

 

Hidden Issues

As such, properties are sold "free and clear" from all liens and encumbrances, but it's not uncommon to later discover hidden issues, experts say, and the buying process itself can present various other hurdles. The buyer should conduct exhaustive due diligence. The trustee or debtor-in-possession rarely has access to all of the materials a buyer would typically need to see before making a decision to purchase property; sometimes a debtor has destroyed the documentation prior to the bankruptcy, or not kept it in good enough shape.

 

A buyer should take advantage of the property being “Free and Clear”. Although the transfer of the property comes with no representations or warranties, it also comes with no liens or encumbrances. A buyer should enlist a knowledgeable lender and real estate professional, and be prepared to move quickly in what could be a competitive bidding environment.

 

Trustee

The main goal under any filing in bankruptcy is to give one, who is burdened with debt, a fresh start. A debtor files a petition with the court, along with a schedule of assets and creditors; a trustee is appointed to administer the sale of nonexempt property. The primary role of the trustee is to pay the secured and sometimes unsecured creditors, from the proceeds of the sale of property, and this may take up to 45-60 days to wind its way through courts – but could very well be worth it to the buyer!


In most countries 30-yr fixed rate loans are in the minority. Here in the United States, however, the majority of residential mortgages are fixed rate loans with an amortization spread over 30 years – but some argue that might be changing.

 

Customized mortgages aren’t new. Industry experts say they are seeing more and more borrowers opt for fixed-rate loans with terms other than the standard 30 or 15 years, especially when it comes to refinancing. Last year, nearly 17% of all refinanced mortgages were with “other length” fixed-rate loans, according to the Mortgage Bankers Association, which noted that in August, September and October, the share was 20 percent. Most of those “other length” loans were in 20-year mortgages, though loans are also available for 10, 25 and 40 years, and even for “oddball” terms like 23 or 12 years.

 

Most borrowers have noticed that the shorter terms are especially valuable to people refinancing after paying down their 30-year mortgage for five or seven years. If they take a 20-year mortgage, they can reduce their interest rate — and the term — and possibly even get a monthly payment the same or slightly lower than before. The 20-year mortgage is becoming so prevalent, banks are starting to sell them off to investors or in the secondary mortgage market. Many customers seeking to refinance ask for odd loan terms to avoid increasing the length of their repayment schedule. Be sure to ask your loan officer for suggestions.

 

Proponents of 30-yr mortgages counter, however, with the thinking that the Fed is buying primarily 30-yr mortgages, and that they are the benchmark. Both claims are true. But eventually rates will rise (not in the foreseeable future) and intermediate ARM loans, such as 3-yr or 5-yr products, will come back into vogue.

 

 

 

 


For some borrowers, refinancing is difficult. Underwriting and appraisal requirements have increased.  For borrowers that do meet the increasingly stringent requirements, however, today’s record-low rates offer an unusually good opportunity, and, when taking advantage of the current conditions, there are a few tactics they can keep in mind.

 

Having a solid credit score is crucial when it comes to qualifying for refinancing, and this usually means 740 or above.  Credit issues aren’t the sole premise of low-income borrowers either, as people with high credit scores who miss payments have more to lose, so to speak. It’s best to be aware of any problem areas and start repairing credit well before the qualification process begins.  Loan officers remind their borrowers that they are legally entitled to three free credit report from Equifax, Experian and TransUnion, respectively, every 12 months, which is a good place to start.

 

In terms of other qualifying factors, things are generally easier for borrowers who have at least 20% equity and who have worked the same job for at least the last two years, unless they’re self-employed.

 

New borrowers and those refinancing know that lenders typically offer several different products. Even though the national average for interest rates is at an historic low, not all loans on offer are equal.  Some of the larger institutions are also raising rates due to their pipelines nearing capacity; raising rates is meant to cut back on the volume of loans they have to process while giving profits a boost.

 

 

 

 

In addition to their products, different banks will have different loan costs.  Origination fees for a $200,000 loan can range from under $200 to $2,000, and obtaining the numbers from a variety of lenders can serve as a useful bargaining chip. Ask your Loan Officer or contact us!

 

 

 

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