Phil White's Mortgage Blog

Differences between Fixed-Rate and Adjustable-Rate Mortgages

Fixed-Rate Mortgages

In a nutshell, a fixed-rate mortgage charges a set rate of interest that doesn’t change throughout the life of the loan. At the beginning of a fixed-rate mortgage, the payment will consist of mostly interest with a smaller amount of principal. However, as time goes on, this proportion will reverse so that you're paying more and more towards principal and less and less to interest.

The primary advantage of a fixed-rate mortgage loan is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise. Fixed-rate mortgages typically vary little from lender to lender. Although the rate of interest is fixed, the total amount of interest paid depends on the mortgage term. The most common fixed-rate mortgages are 30, 20 and 15 years.

The 30-year fixed-rate mortgage is the most popular choice because it offers the lowest monthly payment; however, the trade-off for that low payment is a significantly higher overall cost because the extra decade, or more, in the term is devoted primarily to paying interest. The monthly payments for shorter-term mortgages are higher so that the principal is repaid in a shorter time frame. Also, shorter-term mortgages offer a lower interest rate, which allows for a larger amount of principal repaid with each mortgage payment, so shorter-term mortgages cost significantly less overall.

Adjustable-Rate Mortgages

In a nutshell, the interest rate on an adjustable-rate mortgage (ARM) varies over time. The initial interest rate on an ARM is set below the market rate on a comparable fixed-rate loan and will stay at that level during it's fixed period, which can last anywhere from one year to 10 years. As a rule of thumb, the shorter the initial fixed period, the lower the initial rate. After that fixed period, however, the rate can move higher (or lower) depending on a number of factors.

FHA Financing for Condos - What You Need to Know

Customers looking to purchase a condo using FHA financing should be aware that there are specific FHA requirements for all Condos. HUD/FHA requires that a condominium project be approved prior to issuing an appraisal or completing financing. There are many condo projects that are already FHA approved.

Click here to go to HUDs search for FHA-approved condominium projects. You can search by location, name, or status.

If the condo you're interested in is already FHA approved, FHA financing should be available for FHA qualified customers. If the condo you're interested in is NOT already FHA approved, the property may still qualify for a Spot Condo option. The Spot Condo program has very strict criteria, but is designed for projects that have not previously been approved by FHA and where there is little likelihood that the project’s homeowners’ association would make the required changes to its legal documents to obtain FHA approval. In this case, the HOA must provide certain documentation and answer specific questions to confirm they meet the requirement for the Spot Condo option.

So if you're planning on using FHA financing to purchase a condo, make sure your first step is knowing if the condo project you're interested in is FHA Approved!

What's in My Mortgage Payment?

If you have a fully amortized loan, your monthly mortgage payment includes at least two pieces: the portion going directly to principle (the money you've borrowed) and a second amount that goes toward interest (the cost of borrowing the money).

If you have an interest only loan, you pay only the interest and no portion goes to principle. However, homeowners typically have the option of paying down the principle on an interest only loan, or paying extra principle on a fully amortized loan.

For many homeowners there is a third part of the mortgage payment called the escrow or impound account. This is an account that your lender maintains for you to pay for things like homeowners insurance and property taxes. This is the element of the monthly payment that can go up or down even in a fixed-rate mortgage, based on your individual insurance or taxes going up or down.

Together, these elements are called PITI:
  • P — Principal
  • I — Interest
  • T — Taxes
  • I — Insurance

Homeowners must pay property taxes and they must have some type of homeowners insurance. Depending on state laws and other factors, most lenders require homeowners to pay into an escrow account. This account serves as a holding and keeps enough money to cover your property taxes and homeowners insurance for when they come due on an annual or bi-annual basis. You pay into this account each month as part of your mortgage payment. When your taxes and insurance come due, they are paid out of your escrow account, by your lender.

Free Bi Weekly Payment Option

Bi-weekly payments are a convenient option for many people because mortgage payments are split in half and paid every 2 weeks.  This can cut off as much as 5 years off your mortgage depending on the rate and balance. It is a free service offered to Wells Fargo Home Mortgage customers.

Your Home^® Appreciation Program 
Accelerated Ownership Plan^SM 

The Wells Fargo Accelerated Ownership Plan is an automatic payment program that drafts half your monthly mortgage payment every two weeks. As a result, you: Will lower your interest expense over the life of your loan. Will build up your home equity faster than you would have under your regular monthly payment schedule. May be able to pay off your mortgage years earlier than originally scheduled. Avoid the hassle of writing and mailing mortgage checks every month. With a draft every two weeks, you’ll be making 13 monthly payments each year. That extra payment reduces your outstanding loan balance and your interest expense. There are no sign-up or transaction fees associated with the plan and enrolling for the Accelerated Ownership Plan over the phone is easy: Read the Terms and Conditions and retrieve the authorization code listed at the bottom of that screen or you can find this code on the back of your mortgage statement, Call your special Your Home customer service representative at 1-800-267-0773. Give your representative the authorization code. (Sorry, we are unable to enroll customers over the phone without this code).

Terms and conditions may be found at: https://www.wellsfargo.com/mortgage/articles/aop_terms.jhtml

To Learn More, visit: https://www.wellsfargo.com/pdf/mortgage/housingmuscle.pdf

Please note, because no two loans are the same, the best way to set this up is to call the Wells Fargo Customer Service line at 1-800-267-0773 to speak with a representative about your options.

Understanding your Credit - Key Factors

Your credit is very important when it comes to determining mortgage eligibility and can be a factor in several other areas as well. Are you concerned about your credit rating?  Just about everyone has something in their past credit that is less than perfect.  The most important thing is to learn what is on your report, determine what impact that information has on your credit rating, and work on repairing any damage or correcting any misinformation that may exist on your report.  There are three main credit bureaus to which most creditors such as credit card companies, banks and leasing agencies provide information.

·      Equifax: 1-800-685-1111 or www.equifax.com

·      Experian: 1-888-397-3742 or www.experian.com

·      TransUnion: 1-800-916-8800 or www.transunion.com

Every time you apply for credit you’re allowing lenders to see your credit report. And other creditors with a qualified purpose — such as sending you a pre-approved credit card offer — can check your report without your permission. So shouldn't you see what they're seeing?

Be proactive and check your credit report on a regular basis. Not only will you be better prepared for negotiations with lenders, you can also get early warning signs of fraud.

When and how to get your report
You should review your credit report from the three major U.S. credit reporting agencies (Equifax, Experian, and TransUnion):

·      At least once a year

·      Especially before making a large purchase, like a house or a car

You can order credit reports from all three agencies at the same time from Fair Isaac Corporation.

Free credit reports
Credit agencies charge a small fee for reports. However, you are entitled to one free credit report from each of the three major credit agencies once a year. You must order your free credit reports through www.annualcreditreport.com.

In addition, you’re entitled to a free report:

·      Within 60 days of being denied credit, insurance, or employment

·      Once a year if you’re unemployed and plan to look for a job within 60 days

·      If you’re on welfare

·      If your report is inaccurate because of fraud, including identity theft

How to fix errors on your report
If you find an error, fill out the dispute form provided by the credit reporting agency. The credit reporting agency must investigate and respond to you within 30 days. You can get your credit report from many sources, but only the credit agencies can actually correct the data on your report. Contact the three major credit agencies directly:

·      Equifax: 1-800-685-1111 or www.equifax.com

·      Experian: 1-888-397-3742 or www.experian.com

·      TransUnion: 1-800-916-8800 or www.transunion.com

If you are in the process of applying for a loan, immediately notify your lender of any incorrect information in your report. Your lender will need to reorder your credit report and score once any changes have been made to your information at the credit reporting agency. Fixing small errors may have little or no effect on your score, but correcting significant errors may have a much more meaningful impact.

How mistakes are made
When a credit report contains errors, it is often because the report is incomplete, or contains information about someone else. This typically happens because:

·      The person applied for credit under different names (Robert Jones, Bob Jones, etc.).

·      Someone made a clerical error in reading or entering name or address information from a hand-written application.

·      The person gave an inaccurate Social Security number, or the lender misread the number.

·      Loan or credit card payments were inadvertently applied to the wrong account.

Some incorrect data, however, is an indication that you have been the victim of fraud or identity theft (for example, someone has applied for credit in your name or used your credit without your permission). It's crucial that you catch these mistakes and take action to fix the data on your report.

Some Tips for Keeping Your Credit at it's Peak

Each month, your credit holders report information to the 3 credit bureaus about your current balance, minimum payment requirement, and payment history. Everyone wants to have great credit, but not everyone knows the best steps to take to help improve and maintain their credit. The following are some basic ways to assist your overall credit profile.

Pay your bills on time, especially mortgage or rent payments. Apart from extreme circumstances like bankruptcy or tax liens, nothing has as big of an impact on your credit history as late payments.

Don't max out available credit on credit card accounts.  Your credit score may be affected based on the appearance that you are having trouble managing your finances.

Don't apply for too much credit in a short amount of time. Multiple requests for your credit history (not including requests by you to check your file) can affect your score.

Be neat and consistent when filling out credit applications. This will ensure that all of your information is recorded in a single file, as opposed to multiple files or, worse, someone else's file.

Periodically check your credit history for errors.  Be aware of your credit history. Know where you've opened credit in the past, and if you've applied for anything recently. If creditors you are unfamiliar with are reporting on your credit report, be sure to address these as they may be potential errors.

Please let us know if you'd be interested in a credit review opportunity!

Please Contact Phil White   480-430-3080

Mortgage Glossary

Abstract of Title

A written history of ownership to a specific area of land. An abstract of title covers the period from the original source of title to the present time and summarizes all subsequent documents that have been recorded against that area.

ACH (Automatic Clearing House)

Electronic Drafting system that debits an authorized bank account and electronically transfers funds scheduled for remittance.

Addendum

An agreement or list that is added to a contract, agreement, or other document such as a letter of intent. FHA and VA require that an addendum be added to or incorporated in a sales contract, if it is written prior to the appraisal.

Additional Principal Payment

A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjustable Rate Mortgage (ARM)

A mortgage in which the interest rate is adjusted periodically according to a pre-selected index.

American Land Title Association (ALTA)
A national association of title insurance companies, abstractors, and attorneys specializing in real property law. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title policy forms.

Amortization

Payment of a debt in regular, periodic installments of principal and interest as opposed to interest only payments.

AmortizationSchedule

A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Balloon Mortgage

A mortgage that has level monthly payments that will fully amortize it over a stated term, but which provides for a lump-sum payment to be due at the end of an earlier specified term.

Bankruptcy

A proceeding in a federal court in which a debtor, who owes more than his or her assets, can discharge personal liability for his or her debts. This affects the borrower's personal liability for a mortgage debt but not the lien of the mortgage.

Biweekly Mortgage

A mortgage with payments due every two weeks, totaling 26 payments a year.

Borrower

A person (also known as mortgagor) who receives funds in the form of a loan with an obligation to repay principal with interest.

Bridge Loan

A form of second deed of trust or mortgage that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.

Buydown

Money advanced by an individual (builder, seller, etc.) to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years

Cash

Currency, checks and other negotiable instruments acceptable for direct deposit by a bank.

Cash to Close

Liquid assets that are readily available to be used to pay the closing costs involved in a closing of a mortgage transaction.

Cash Reserve

A requirement by some lenders that buyers have sufficient cash remaining after closing to make the first mortgage payment.

Cash Out Refinancing

When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.

Closing

The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.

Closing Costs

Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves an origination fee, discount points, appraisal, credit report, title insurance, attorney's fees, survey, and pre-paid items such as tax and insurance escrow payments.

Closing Statement

A form used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance. Also referred to as a HUD or HUD1 Settlement Statement.

Co-Borrower

Additional borrower(s) whose income contributes to qualifying for a loan and whose name(s) appears on documents with equal legal obligations.

Collateral

Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Commitment Letter

A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Deed

The legal document conveying title to a real property.

Deed of Trust

An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary) and reconveyed upon payment in full.

Default

The failure to perform an obligation as agreed in a contract.

Delinquency

A loan payment that is overdue but within the period allowed before actual default is declared.

Department of Housing and Urban Development (HUD)

A governmental entity responsible for the implementation and administration of housing and urban development programs. HUD was established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency.

Department of Veterans Affairs (VA)

A cabinet-level agency of the federal government. The Servicemen's Readjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan Guaranty program, which encourages mortgage lenders to offer long-term, no down payment financing to eligible veterans by partially guaranteeing the lender against loss upon foreclosure.

Deposit

A sum of money given to bind a sale of real estate. Also known as earnest money.

Disclosure

Information relevant to specific transactions that is required by law.

Discount Point

A point paid to the lender to permanently buy down or lower an interest rate. It is usually a percentage of the loan amount.

Down Payment

Money paid to make up the difference between the purchase price and the mortgage amount.

Earnest Money

A portion of the down payment delivered with a purchase offer by the purchaser of real estate. Delivered to the seller, or an escrow agency, by the purchaser with the purchase offer as evidence of good faith. Also known as a deposit.

Effective Interest Rate

The actual rate of return or yield to an investor. The actual rate of interest paid by a borrower.

Equal Credit OpportunityAct (ECOA)
A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.

Equity

The ownership interest; i.e. portion of a property's value over and above the liens against it.

Equity Loan

A loan based on the borrower's equity in his or her home.

Escrow

An item of value, money or documents, deposited with a third party, to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. In some parts of the country, escrows of taxes and insurance premiums are called impounds or reserves.

Escrow Account

The segregated trust account in which escrow funds are held.

Escrow Agent

The person or organization having a fiduciary responsibility to both the buyer and seller (or lender and borrower) to see that the terms of the purchase/sale (or loan) are carried out. Also called escrow company or escrow depository.

Escrow Payment

That portion of a mortgagor's monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also called impounds or reserves in some states.

Fair Credit Reporting Act (FCRA)

This law requires consumer reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.

Federal Home Loan Mortgage Corporation - FHLMC (FREDDIE MAC)

A quasi-governmental agency that purchases conventional mortgages in the secondary mortgage market from insured depository institutions and HUD-approved mortgage bankers. It sells participation sales certificates secured by pools of conventional mortgage loans, their principal, and interest guaranteed by the federal government through the FHLMC. It also sells Government National Mortgage Association bonds to raise funds to finance the purchase of mortgages. Popularly know as Freddie Mac.

Federal National Mortgage Association - FNMA (FANNIE MAE)

A taxpaying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) as well as conventional home mortgages.

Fee Simple

The greatest possible interest a person can have in real estate, including the right to dispose of the property or pass it on to one's heirs.

First Mortgage

A real estate loan that has priority over any subsequently recorded mortgages.

Fixed Interest Rate

An interest rate which does not change during the loan term.

Fixed-rate Mortgage (FRM)

A mortgage in which the interest rate and payments remain the same for the life of the loan.

Foreclosure

A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.

Gift Letter

A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."

Good Faith Estimate (GFE)

A document which tells borrowers the approximate costs they will pay at or before settlement, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker or mortgage broker, if any, must deliver or mail the GFE to the applicant.

Hazard Insurance

A contract whereby an insurer, for a premium, undertakes to compensate the insured for loss on a specific property due to certain hazards (i.e. fire).

Home Equity Line of Credit (HELOC)

A form of revolving credit in which your home serves as collateral.

Home Equity Loan

A revolving line of credit or loan based on the equity in the mortgagor's house. The property is the security for the loan, which is usable for any purpose.

Home Mortgage Disclosure Act (HMDA)

Federal legislation which requires certain types of lenders to compile and disclose data on where their mortgage and home improvement loans are being made.

Homeowner's Insurance

An insurance policy that combines liability coverage and hazard insurance.

Homeowner's Policy

A multiple peril insurance policy available to owners of private dwellings which covers the dwelling and its contents, as well as personal liability.

Housing Expense Ratio

The relationship of a borrower's monthly payment obligation on housing (PITI and other applicable housing expenses) divided by gross monthly income, expressed as a percentage. Also called the top ratio.

Income/Expense Ratio

A qualifying ratio used in underwriting a residential mortgage loan which computes the percentage of monthly income required.

In File Credit Report

Unverified credit report which may contain unchecked, duplicated, or overlapping data. It is often used for a quick look at a prospective borrower's credit history.

Installment

The periodic payment that a borrower agrees to pay a mortgage lender.

Insured Loans

A loan insured by HUD-FHA or a private mortgage insurance company.

Interest

Consideration in the form of money paid for the use of money. Also a right, share or title in property.

Interest Rate

The percentage of an amount of money which is paid for its use for a specified time.

Interest Rate Cap

A provision of an ARM limiting how much interest rates may increase per adjustment period. See also Lifetime cap.

Interest Rate Floor

On a floating rate instrument, the lowest the interest rate may go.

Investment Property

Real estate owned with the intent of supplementing income and not intended for owner occupancy.

Joint Tenancy

An undivided interest in property, taken by two or more joint tenants. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Judgment

Final determination by a court of the rights and claims of the parties to an action.

Late Charge

The penalty a borrower must pay when a payment is made after the due date.

Lender Paid Mortgage Insurance (LPMI)

Insurance in which the cost of the mortgage insurance is included in the interest rate. Although the interest rate is slightly higher with LPMI, this option usually results in a lower monthly payment and a larger tax deduction.

Lien

A legal claim or attachment against property as security for payment of an obligation.

Lifetime Cap

A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Limited Partnership

A form of business ownership that consists of one or more general partners who are fully liable, and one or more limited partners who are liable only for the amount of their investment.

Line of Credit

An agreement by a commercial bank or other financial institution to extend an open-ended line of credit up to a certain amount for a certain time to a specific borrower. (See also home equity line of credit.)

Liquidity

The ability to readily convert assets or investments to cash.

Loan-To-Value Ratio

The ratio between the amount of a given mortgage loan and the lower of sales price of appraised value.

Lock-in Period

A specified number of days before loan closing during which the range of rates available to a borrower is protected from financial market fluctuations in interest rates. Locking does not guarantee what specific rate will apply at closing, as that depends on specific transaction characteristics and the borrower's credit profile.

Loss Payable Clause

An insurance policy provision for payment of a claim to someone other than the insured, who holds an insurable interest in the insured property.

Manufactured Home

Factory-built or prefabricated housing, including mobile homes.

Margin

The set percentage the lender adds to the index rate to determine the interest rate of an ARM.

Market Value

The most probable price which a ready, willing and able buyer would pay and a willing seller will accept, both being fully informed under no pressure to act. The market value may be different from the price a property can actually be sold for at a given time (market price).

Maturity

The termination or due date, on which final payment on a loan must be paid in full.

Mobile Home

A factory-assembled residence consisting of one or more modules, in which a chassis and wheels are an integral part of the structure, and can be readied for occupancy without removing the chassis and/or wheels.

Modular House

A factory-assembled residence built in units or sections, transported to a permanent site and erected on a foundation. Excludes mobile homes.

Monthly Payment

Usually, the amount of PITI (principal, interest, taxes, and insurance) paid each month on a mortgage loan.

Mortgage

The conveyance of an interest in real property given as security for the payment of a loan.

Mortgage Broker

A company that for a fee matches borrowers with lenders.

Mortgage Commitment

An agreement between lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type, term and amount.

Mortgagee

The lender on a mortgage transaction.

Mortgage Insurance

See private mortgage insurance.

Mortgage Insurance Premium (MIP)

The consideration paid by a mortgagor (borrower) for mortgage insurance -either to the FHA or to a private mortgage insurer.

Mortgage Note

A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.

Mortgagor

The borrower in a mortgage transaction who pledges property as security for a debt.

Negative Amortization

A loan payment schedule in which the outstanding principal balance goes up, rather than down, because the payments do not cover the full amount of interest due. The unpaid interest is added to the principal.

Non-Conforming Loan

Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines.

Note

A general term for any kind of paper or document signed by a borrower that is an acknowledgment of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee.

Occupancy

The use of a property as a full-time residence, either by the title holder (owner-occupancy) or by another party through a formal agreement (rental).

Origination

Securing a completed mortgage application from a commercial or residential borrower.

Origination Fee

The amount charged for services performed by the company handling the initial application and processing of the loan.

Payoff Figures

The unpaid principal balance and escrow amounts to be used for payment in full of the mortgage or for closing sale of the property.

Percentage Point

One percent of the loan or a measure of the interest rate.

PITI (Principal, Interest, Taxes, and Insurance)

The most common components of a monthly mortgage payment.

Planned Unit Developoment (PUD)

A comprehensive development plan for a large land area. A PUD usually includes residences, roads, schools, recreational facilities, commercial, office and industrial areas. Also, a subdivision having lots of areas owned in common and reserved for the use of some or all of the owners of the separately owned lots. See also DeMinimus PUD.

Plans And Specifications

Architectural and engineering drawings and specifications for construction of a building or project. They include a description of materials to be used and the manner in which they are to be applied.

Points

A one-time charge by the lender to increase the yield of the loan; a point is 1% of the amount of the mortgage.

Power of Attorney

A legal document authorizing one person to act on behalf of another.

Preliminary Title Report

The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.

Prepaids

Closing costs related to the mortgage loan which are collected at loan closing - including per diem pre-paid interest and initial deposits of monthly escrows of taxes and insurance.

Prepayment Penalty

A fee charged to a borrower who pays off a loan before it is due.

Prequalification

The process of determining how much money a prospective home buyer may be eligible to borrow before a loan is applied for.

Primary Residence

A residence which the borrower intends to occupy as the principal residence.

Principal

The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Principal Balance

The remaining balance due on a debt, exclusive of accrued interest.

Private Mortgage Insurance

Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default.

Processing

The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.

Purchase Contract (Agreement/Offer)

An agreement between a buyer and seller of real property, setting forth the price and terms of the sale. Also known as a sales contract.

Qualifying Ratios

Guidelines applied by lenders to determine how large a loan to grant a home buyer.

Quitclaim Deed

A deed relinquishing all interest, title, or claim an owner has in a property. A quitclaim deed implies no warranty.

Real Assets

Real estate or real property owned by an individual or business.

Real Estate Settlement Procedures Act (RESPA)

A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances.

Real Property

Land and that which is affixed to it.

Refinancing

The repayment of a debt from the proceeds of a new loan using the same property as security.

Satisfaction of Mortgage

The recordable instrument issued by the lender verifying full payment of a mortgage debt.

Second Home (Vacation Home, Weekend Home)

A residence other than the borrower's primary residence which the borrower intends to occupy for a portion of each year. Must be suitable for year-round occupancy.

Secondary Mortgage Market

A market where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Second Mortgage

A mortgage that has rights that are subordinate to the rights of the first mortgage holder.

Security

In lending, the collateral given, deposited, or pledged to secure the payment of a debt.

Security Instrument

Mortgage or deed of trust evidencing the pledge of real estate as collateral for the loan.

Security Interest

The interest of a creditor in the security collateralizing an investment.

Section 203(k) Loan Program

HUD's primary program for the rehabilitation and repair of single-family properties. A 203 (k) loan is a first mortgage that covers the costs of rehabilitation and purchase or refinance of an eligible property. The goals of the Section 203(k) loan program are community and neighborhood revitalization and expanded opportunities for homeownership for low-and moderate-income families.

Seller Contributions

Payment by the seller or any other interested party of some or all of the purchaser's usual closing costs. Investors and insurers sometimes limit the amount of seller contribution and require lenders to adjust the property's value if contributions exceed limitations. Undisclosed seller contributions (such as decorating allowances, appliances, or payment of moving expenses) are made to borrowers outside of closing and are also subject to investor and insurer restrictions.

Tax Lien

A claim against property for unpaid taxes.

Tenancy

The use of real estate under any kind of right of title.

Term

The time limit within which a loan must be repaid.

Title

The legal evidence of ownership rights to real property.

Title (Insurance) Company

A company that confirms the legal owner of a property, as well as insures a home owner and lender against a loss that could result from a title dispute.

Title Insurance

An insurance policy that protects a lender and/or homebuyer (only if homebuyer purchases a separate policy, called owner's coverage) against any loss resulting from a title error or dispute.

Title Insurance Policy

A contract in which an insurer, usually a title insurance company, agrees to pay the insured party a specific amount for any loss caused by defects of title on real estate in which the insured has an interest as purchaser, mortgagee, or otherwise.

Title Search

An examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate.

Transfer Tax

State or local tax payable when the title passes from one owner to another.

Trust Deed

The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee to ensure the borrower's fulfillment of an obligation. A mortgage.

Truth-in-Lending Act

A Federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms and financial institutions.

Underwriting

Analysis of risk and setting of an appropriate rate and terms for a mortgage on a given property for given borrowers.

URLA

Uniform residential loan application.

Wholesale Origination

A loan origination strategy by which loans are purchased from mortgage brokers, mortgage bankers, or other loan originators (banks, thrifts etc.) The loans may be purchased prior to closing, at closing or after the loans are closed depending on the arrangement between the originator and the wholesale lender. Wholesale origination enables a lender to acquire mortgage servicing rights without incurring the fixed costs associated with a retail origination strategy.

Yield to Maturity

The lender's percentage of annual return on actual funds loaned, assuming that the loan will be paid in full at maturity.

 

If you don't see a specific mortgage term you're looking for above, email us and we can go over the specifics with you!

The right way to shop interest rates

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Shopping Rates?

HERE’S THE INSIDE SCOOP ON HOW TO DO IT RIGHT!

First:  make sure you are working with an experienced, professional loan officer.  The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way.  But how can you tell? 

Here are FOUR SIMPLE QUESTIONS YOUR LENDER ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY.  IF THEY DO NOT KNOW THE ANSWERS…RUN…DON’T WALK… RUN…TO A LENDER THAT DOES!

1) What are mortgage interest rates based on?  (The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.  DO NOT work with a lender who has their eyes on the wrong indicators.)

2) What is the next Economic Report or event that could cause interest rate movement? (A professional lender will have this at their fingertips. 

3) When Bernanke and the Fed “change rates”, what does this mean… and what impact does this have on mortgage interest rates?  (The answer may surprise you.  When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”.  These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like.  On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change.  This is due to the dynamics within the financial markets in response to inflation.  For more information and explanation, just give us a call).

4) Do you have access to live, real time, mortgage bond quotes?  (If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing.  Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future?  No way!)

Be smart...  Ask questions…  Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make.  You might do this only four or five times in your entire life… but we do this every single day.  It’s your home and your future.  It’s our profession and our passion.  We're ready to work for your best interest.

Shopping Rates Part 2

Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.

First, IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS.  But you didn’t really need us to tell you that, did you?  Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook.  Is there a prepayment penalty?  If the rate seems incredible, are there extra fees?  What is the length of the lock-in?  If fees are discounted, is it built into a higher interest rate? 

Second, YOU GET WHAT YOU PAY FOR.  If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder.  Best case, expect very little advice, experience and personal service.  Worst case, expect that you may not close at all.  All too often, you don’t know until it’s too late that cheapest isn’t BEST.  But if you want the cheapest quote – head on out to the Internet, and we wish you good luck.  Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience.  Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run.  This is the largest financial transaction most people will make in their lifetime.  That being said – we are not the cheapest.  Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS.  When looking at estimates, don’t simply look at the bottom line.  You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls.  And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line!  APR?  Easily manipulated as well, and worthless as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND.  This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm.  On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate.  Either of these balances might be right for you, or perhaps somewhere in between.  It all depends on what your financial goals are.  A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY.  This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis.  For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison.  You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, our advice to you is to be smart.  Ask questions.  Get answers.

As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.

Please call us with any further questions you may have at this time – we are ready to work for your best interest!

Phil White 480-430-3080

2008 Federal Tax Brackets and Mortgage Interest Deduction

Did you know that income taxes are paid in income brackets?  The first $8,024 of income for everyone is paid at 10% tax bracket.  Then $8,025 - $32,550 is paid at 15% tax bracket.  The next level is income earned at $32,551 - $78,850 is taxed at 28% and so on.  The above example is based on a single tax payer. 

A majority of tax payers fall into the 28% tax bracket for all income earned above $32,551 up to $78,850.  Once you add in State taxes which is approx 4% - 7% tax payers are paying a total of 32% -35% in this income range.  This is why having a home and using the mortgage interest, property taxes, and home owners insurance is important to lower your taxable income. 

Example:  If a person makes $75,000 per year as a single income earner they are paying approx 32% -35% income tax on income earned above $32,551 up to the $75,000.  Lets say they own a home and the mortgage is $250,000 at 6.5% interest.  That is a total of $16,250 per year in mortgage interest plus approx another $2,750 per year in property taxes and insurance.  That is a total of $19,000 per year they can potentially subtract off of the top of their income.  So that means that $19,000 per year of the income that they would have paid at 32% -35% in income tax is gone because of the home ownership and the benefits of being able to write it off as a tax deduction.  So that $19,000 in income taxed at say 32% would have been $6,080 that would have went to the IRS but it stays in the consumers pocket because of home ownership and being able to use it as a tax deduction!

Tax Bracket Thresholds (2008) Bracket Single Head of Household Married/Joint Married/Separate 10% 0 0 0 0 15% 8,025 16,050 16,050 8,025 25% 32,550 43,650 65,100 32,550 28% 78,850 112,650 131,450 65,725 33% 164,550 182,400 200,300 100,150 35% 357,700 357,700 357,700 178,850

Note:  I am not an accountant or C.P.A.  I have learned this information from two different C.P.A.'s that I work with on a regular basis.  You are welcome to call them if you need a good C.P.A.  Each situation is different for all people.  I am simply trying to provide an example to help people understand the importance of home ownership. Thank you and I hope this information is helpful to you.

Phil White 480-430-3080

You could benefit from a 4.625% Rate for Short Term use.

The FED started lowering PRIME since August 2007.  It currently sits at 5% and is expected to stay low for the rest of this year at the very least.  There seem to be many consumers out there that have short terms needs for their home financing.  I have been putting several people into a rate as low as 4.625% by paying off their first mortgage with this variable rate program. 

There are no catches to this program. Everything I pointed out below are the important terms you need to know about this program.  Again it is good for short term use.  the two most popular have been if someone is selling their home in the next 1-2 years and second it is good to take advantage of 4.625% and then be on a rate watch list and lock into a 30 year when rates go down.  That way we are timing the market for a good 30 year fixed loan and while you do that you get 4.625% in the mean time.

• Minimum Loan amount is $100,000
• Max of 70% loan to value.  We cannot do these if the home will not appraise for 70% of the value based on the loan amount.
• NO CLOSING COSTS
• Rate as low as 4.625% with excellent credit.  (rate is PRIME minus .375% = 4.625%)
• Rate is variable and floats with PRIME.  Note that Prime is a rate that could change when the FED meets every 6 weeks.  A majority of the time PRIME does not change more than .25% - .50%.  That is one of the reasons why I really like this program. 
• No Prepayment Penalties
• Interest Only or Principal and Interest Payment
• Payment on $100,000 = $385  Payment on $200,000 = $770, $300,000 $1,155, ECT.

This is a great program to take advantage of for people who want short term money.  Examples below of people who I have done this loan for include:

1. People who plan to have this loan for say 2 years or less.  if so why not take advantage of 4.625% and a rate that can be managed because if it does change it will only happen when the FED meets and it doesn't change much when they start raising it.  I would say it is a safer variable rate because of those things.
2. I have done this loan for people who will be refinancing soon into a 30 year fixed but say the rates on the 30 year fixed are a little high right now.  People can easily get into this 4.625% rate and then time the market for the 30 year fixed by being on a rate watch list and when the rates come down we lock them in.  There are NO FEES to do this equity line so what do you have to loose.

Above are just a couple of examples of why you might want to do this for your mortgage loan providing the home will appraise high enough to do something like this.  if you have any questions please feel free to contact me.

Thanks,

Phil White 480-430-3080

Hope for Home Owners

Hope for home owners is part of thew new law past by President Bush on July 30th, 2008 this year.  The new law is the Housing and Economic Act of 2008.  The new law is made up of 789 pages of things to help fix the housing industry. 

One of the provisions in the law is a plan to help distressed home owners called "hope for home owners".  Please keep in mind that the information I am about to provide was collected from a well respected company called Mortgage Market Guide.  It is a multi million dollar company that offers breaking news on the mortgage industry and how it relates to the economy. 

Hope For Home Owners is a program to help home owners stay in their homes rather than go into foreclosure and have to leave the home.  Below is the most recent information I have received regarding the program.

1. The housing and economic Act of 2008 made this program possible past on July 30th, 2008.  There are several provisions in the law.  Attorney's and others that are apart of Wells Fargo have to break down all the specifics of the new provision and then teams have to implement the new program so that we can offer it to consumers.  Because of that we have not received all the information yet as to when it will become available and exactly the parameters of the program.
2. The provision does not require lenders to participate although Wells Fargo Home Mortgage has stated that they will participate in the program. 
3. My understanding is that it will be available to customers who are in a distressed home that is worth less than they currently owe on their mortgage.  I have heard that there will be several different ways a consumer can qualify for the hope for home owners program but as of know I have received information that it will be offered to people who are having a hard time making their payments and can not refinance into a standard loan because the home is worth less than owed.
4. If the lender agrees to participate the lender will have to take a loss on the loan and the customer will be able to refinance into an FHA loan at 90% of the CURRENT value of the home.  For Example:  Customer owes $220,000 on a home and is having a hard time making the payments. The home is worth $200,000 currently.  90% of $200,000 is $180,000.  So....The lender will have to take a $40,000 loss and the home owner will be able to refinance into a 30 year fixed FHA loan with a new loan balance of $180,000.  A perfect example in this situation might be someone who had a 5/1 ARM and the rate just went to a high variable rate and they can no longer afford their payments nor refinance because the home is worth less than owed.  This way they get a new lower mortgage amount on a 30 year fixed loan.  Overall a great program.
5. There are advantages for the lender as well.  The first 5 years from the time the lender agrees to do this the lender will receive most of the upside equity if the customer sales the home.  I have not been given exact percentages or numbers yet.  After 5 years it is my understanding that the home owner will split 50/50 with the lender any upside equity based on the value used at the time of the sale.  I think it is still a good deal for the consumer because they were forgiven of $40,000 in mortgage debt anyways. 
6. The home owner will still have to provide full proof of income documentation to show that they can afford the new 30 year fixed FHA mortgage payment.  So although the lender may be willing to participate the home owner will have to qualify for the loan as well. 
7. Again the loan program will be a 30 year fixed FHA loan. 

Overall I think this is a great way for lenders to keep a home owner in their home and get a bad loan off of their books and for the home owner to get out of a bad loan as well and into a safe 30 year fixed loan.  Both the lender and the home owner are in a win win situation that avoids the possibility of foreclosure. 

if you have any questions or comments please fire away!

Phil White 480-430-3080