Home ownership is a dream shared by people all over the world. Knowing, in advance how much home you can afford and how much that home will cost every month can save you much time, effort, and frustration. Why spend time researching homes and visiting homes only to find out afterwards that you can’t afford or won’t qualify for your dream home.
Another advantage of pre-qualifying is that sellers are more likely to accept purchase offers from buyers if the offer is accompanied by a statement from a lender that the prospective buyer is able to qualify for, and close on the purchase. In addition, the processing of the buyer’s loan will be much more efficient because the buyer began the paperwork before the contract was accepted.
In order to be properly qualified, a prospective buyer will need to provide certain information and documentation to his lender. @ minimum a lender will need the following:
Income information supported by two years,
W-2 forms and current pay stubs for all wage earners.
Self-employed borrowers should provide 2 years income tax returns. This will allow the lender to determine accurate income upon which to calculate a monthly mortgage payment.
Documentation for assets which will be used for the purchase. This would include all cash and stock account statements and gift information, if a gift is being received. This will not allow the lender to fund the down payment, closing costs, and deposits for prepaid items.
A list of all the borrowers current liabilities including the total amount owed and the monthly payment. The lender needs their information to calculate the maximum monthly payment for which the borrower qualifies.
Other documentation, which should be provided, if applicable, includes divorce decrees, separation agreements, disability and unemployment income and retirement benefits.
This documentation will enable the lender to fine tune his numbers and give the borrower an accurate figure for the purchase price and monthly payment for which the borrower can qualify. This will guarantee that the entire transaction will go smoothly.
You’ve just settled on your new home. It’s an exciting time and you’ve got a lot of great plans for family’s future in your wonderful new home. But you’ve also got a new debt-a rather large one- for a thirty year duration. Should you try to pay this loan off sooner by prepaying on it? If you decide to prepay, how much should you pay, how often should you prepay, and what are the mechanics to make sure your payment is properly credited?
As to whether or not to prepay, the answer is based on simple economics. If, for example, your mortgage carries an interest rate of six percent (6%), this means that any prepayment you make will earn six percent. (saving six percent on your mortgage is the same thing as earning six percent). If you have another investment that earns more than six percent, you would be better served by not prepaying your mortgage, but investing in the alternative investment.
If you decide that your best bet is to prepay your mortgage, you have several choices at your disposal. There is a program known as a “bi-weekly mortgage”. The bi-weekly mortgage works in the following manner: If your monthly mortgage payment is $2,000; over the course of a year you would pay a total of $24,000. Under the bi-weekly plan, instead of making one monthly payment of $2,000, you would make a payment of $1,000 every two weeks. At the end of the year you would have paid $26,000 on your loan ($1,000 x 26 payments). This is the equivalent of making one extra monthly payment of $2,000. The extra payment will go toward loan principal and will have the effect of paying the loan off sooner. You may also voluntarily elect to pay more than $1,000 every two weeks. The choice is up to you. The more you pay every two weeks, the sooner your loan will be paid off. Many lenders are not set up to receive bi-weekly payments from their borrowers. There are companies that will handle your bi-weekly payments for you and turn the funds over to your lender. This is done by directly debiting your bank account every two weeks. There is usually an additional charge every time the account is debited. You must make certain to have the funds available in your bank account at the time designated for the charge to your account. This can sometimes be difficult for families with a limited budget. There is also the bi-weekly cost for the service. In spite of these costs, a bi-weekly mortgage program can significantly reduce the term of your mortgage depending on the interest rate and the amount of the prepayment.
Another method to use for prepaying a mortgage is to voluntarily add extra money to your normal monthly payment. Any monies so designated can be shown right on your payment coupon in the box marked “extra principal”. This will go directly toward reducing your loan principal. For example, on a $250,000 thirty year mortgage at 6% interest, the monthly principal and interest payment is $1,499. Adding an additional $100 per month to the payment for a total of $1,599 would reduce the term from thirty years to twenty-five and a half years. This would generate a net savings of more than $50,000 over the life of the loan. An additional $200 per month would reduce the term to twenty-two years, three months for a net savings of $86,000 over the life of the loan. The benefits of utilizing this method are: (1) There is no additional cost to you to implement this plan and (2) You don’t have to prepay every month. The prepayments are voluntary and if you’re unable to make the additional payment in a particular month, there’s no penalty for not doing so, as long as you make the regular monthly payment.
There is one additional method to utilize for making prepayments. You can add a lump sum to your regular monthly payment any time you choose. For example, if you have received a tax refund or a lump sum bonus, that amount can be added to your regular monthly payment. Under this method you are not making regular additional payments every month. Even though these payments can be made on an irregular basis, they will also serve to reduce your loan term.
If you begin making prepayments and decide to sell your home or refinance your mortgage before its full term, you will also benefit from prepaying because your principal balance outstanding will still be less than it would have been by making only the regularly scheduled payments.
Regardless of which method you choose, prepaying your mortgage can be a fairly painless way to generate significant long term savings.
For most people, the first time they ever hear the term “title insurance” is when they are in the process of purchasing a home. They immediately believe that this insurance provides protection in case the family’s breadwinner dies, the property will be paid off with the insurance policy’s proceeds.
HERE’S WHAT TITLE INSURANCE REALLY DOES
Title insurance is a contract wherein the insurance company agrees to protect the insured party for losses resulting from clouds on title, claims, unknown liens and other title defects that occurred prior to settlement. Title defects include unpaid real estate taxes and assessments,forgery on a prior deed or an unknown heir of a prior owner who has an interest in the subject property. Title insurance is paid for only once and remains in force and gives protection against any defects which existed prior to the date of settlement.
TWO TYPES OF TITLE INSURANCE
There are two types of title insurance: owner’s title insurance and lender’s title insurance. When a homebuyer borrows money from a lender to consummate the purchase of the home, the lender will require that a lender’s title insurance policy be obtained. This policy will protect the interest of the lender up to the amount of the loan. Owner’s title insurance is optional. The homeowner can purchase a policy to protect his interest in the property. The amount of coverage in an owner’s policy is equal to the purchase price of the home.
THE DIFFERENCE BETWEEN TITLE INSURANCE AND OTHER TYPES OF INSURANCE
When an individual buys homeowner’s (fire and casualty), auto, health or life insurance, the purpose of the insurance is to protect against calamities which may occur in the future. Title insurance is the only type of insurance which protects against events which happened in the past, prior to the issuance of the policy. When a real estate contract is signed, a title search must be completed before settlement can occur. Title searches examine land records to determine if the home is encumbered by any mortgages or other liens, encroachments, rights of way and easements. Once these items are discovered in a title search, they can each be dealt with appropriately. In the event any of the foregoing were in existence prior to settlement and were missed during the title search or not dealt with properly, title insurance would step in and protect the homeowner and lender from loss.
Title insurance is a wise purchase for homeowners. For a one time premium a homeowner can have the peace of mind to know that the largest investment he will probably ever make is well protected.
The current real estate meltdown engulfing our country has led to the renewed popularity of the real estate short sale. A real estate short sale comes about when the value of a home drops below the amount owed on the outstanding mortgage. If the mortgage holder agrees to accept a loan payoff for the lesser amount, the transaction can be completed. For the current homeowner who is in a negative position, the short sale allows him to exit a difficult situation without enduring a foreclosure and totally destroying his credit. The buyer gets to purchase a new home at the current market value, which is usually substantially less than the current owner paid. The lender gets something right now for its mortgage without having to initiate expensive foreclosures and without having to own and manage homes which it may have to take back at auction.
This is how things should work in a perfect world, but as we all know, our world is somewhat less than perfect.
With real estate values plunging and homeowners attempting to relieve themselves of homes that are worth less than the outstanding mortgages against them, banks are being overrun by short sale requests. As real estate values continue to drop, short sale requests will continue to increase. The short sale request usually consists of a sales contract, an appraisal showing the home’s current value, a hardship letter from the homeowner and copies of the homeowner’s tax returns and current pay stubs. The lenders must then review the application, which can take months to complete. The lenders have said that the reason for these lengthy reviews is not only the sheer volume coming at them, but because many of the packages submitted for review are incomplete. Lenders must spend time reviewing a file and determining that a decision can’t be made because of missing or incomplete documentation. The agents are asked for the proper information, which again, must be reviewed. The amount of time spent on a file is now doubled.
It becomes impossible for the buyer to schedule a moving date because the date can’t be determined. If a prospective short sale buyer sells his current home, he may be forced to find temporary lodging for his family while waiting for his offer to be accepted, if at all.
If the new home has a second mortgage as well as a first mortgage, a second lender must be dealt with, in addition to the first mortgage holder.
These difficulties have driven many agents away from short sales. With a traditional sale, they know what to expect during the process and can usually close these transactions within thirty to sixty days, instead of five to six months. Closing a short sale can often lead to a bargain property, but like so many other things in life, care must be exercised.
