The mortgage application process is all about the paperwork and you can generally determine your eligibility for a home loan in advanced of making any decisions on a particular property. There are a few things that you can do that will put you in a position of strength at the bargaining table. One of the most powerful of those is having a clear understanding of the mortgage application process and knowing exactly where you stand with the funding that you can achieve.
Gathering Information On The Uniform Residential Loan Application
Collect all of the documents that you will need and make certain that you qualify. Lenders and the financial institutions that back them have extremely rigorous standards and procedures when it comes to lending to homeowners. There is a standard procedure for qualifying the borrower.
The first documents that you will need are your up-to-date credit reports from all three of the major consumer credit reporting agencies. Go through each one with a proverbial fine-toothed comb. You want to make certain that you know exactly the finance company will find when they pull your credit as part of the decision-making process.
The Four Cs Of The Mortgage Application Process
The attributes of your financial life that are going to be examined and judged are an easy list to remember because they all begin with the letter C.
- Capacity – You must demonstrate that you have the financial capacity to make your payments now and into the future, after all, the standard terms for mortgages range from fifteen to thirty years.
- Capital – Cash is still king in this world and the more capital reserves you have the better your prospects for borrowing funds to purchase your home.
- Collateral – The value in the property that you purchase will act as the security or collateral for your loan. It will face careful scrutiny before you get the go-ahead to close the purchase.
- Credit – The reason you need to check your credit reports is because your lender will look at them very closely to determine whether you are going to be allowed to have the funds to purchase your home. Statistically, lenders know that credit history is a good indicator of character and whether you will make all of your payments on time.
Appraisal Qualifies Your Collateral
Getting an appraisal of the property you intend to purchase is the other side of the equation from qualifying the borrower. At this point you are getting the home qualified for purchase. It is the qualifying examination of the collateral that is ultimately the basis of your home loan.
Once you have taken these three steps you will be expected to write a letter of commitment. Your real estate agent should be able to help you through this final stage. All that remains is to negotiate the final details and get ready to close on your new home.
The Proactive Practice of Mortgage Pre-Approval
Real estate agents are always second-guessing inquiries about their properties and services. There is nothing they like to hear more from a prospect then that you are prequalified. It means that you are serious and that you took the time and trouble to work with a lender before you went house hunting.
So before you do anything else talk to your bank or mortgage lender and get pre-approved. This agreement in principle will make a positive impression and get the most difficult part of the mortgage application process out of the way.
Who Is The Fed? And What Does The FOMC Do?
The key to understanding the Fed and the Federal Open Market Committee (FOMC) is to know that all the cash in the country and the world is only a small fraction of the amount of money in the economy at any given time.
Most of the money in the economy is an entry in a bank ledger somewhere. The way that all of this is organized and supervised is the responsibility of the Federal Reserve (the Fed) and the FOMC.
The Fed has been in charge of United States monetary policy since 1913. There are two parts of the system for decision making about how America handles its currency policy and the basic rules about banking.
The Job Of The Board Of Governors
The Board of Governors of the Federal Reserve are the joint-captains, responsible for setting the rate at which banks can borrow money to lend and invest. They also dictate reserve requirements for funds that can be withdrawn by customer at any given time. The chair of the board of governors is currently Janet Yellen.
When Banks Borrow From The Fed
The discount rate is the rate at which banks can borrow money from the government. There are three rates the lowest is the primary rate or overnight rate that granted to the most solid and powerful financial institutions. Next is the secondary rate which banks that cannot get the primary discount rate will generally receive money at.
The last is the higher seasonal rate at which smaller banks can borrow money to cover fluctuating needs when they need it most throughout the year. The rates are what determine the lending rates on investment securities throughout the world. A change in the primary rate will ripple across markets like few other things can.
The banks are not required to have on hand all of the funds that are held in savings deposits, the reserve requirement set by the Board of Governors is only a small fraction of the funds that they have on the books. The banks use most of the money they have on ledger to lend to borrowers.
This is the reason that banks sometimes seem keen to lend money and other times less so; it all comes down to the cash they have on hand compared to the fractional reserve requirement of what they must hold.
The fractional reserve system generally works well, as long as it remains constant. Even a slight increase in the reserve requirement could send banks scrambling to call in their markers to find the extra reserves. Changing reserve requirements can have disastrous consequences and it is a serious duty that the Fed handles very carefully.
Open Market Operations
Open market operations (OMO) are the practice of selling and then buying back the bonds in an open market. This is the purview of the FOMC, the committee supervises the open market for government securities.
The three different tools of the Fed are the way that they control the conditions of the economy. It is important to home owners and borrowers because it is the basis of the rates of interest and the strength of the economy that make it ultimately possible to finance a home loan.
Ever wondered what a person should do who is currently retired from his or her job but always had a dream of buying a home? If he or she is not actively earning, then is that person eligible for a loan?
The answer to this question is very comforting. As per the Equal Credit Opportunity Act, which is a strictly enforced and followed federal law, the age of a person is a category that is protected under this Act and no lenders can discriminate a person based on his or her age. In fact refusing to give a loan to anyone solely based on age is illegal and a punishable offence.
Factors That Do Not Affect Mortgages For Retired Buyers
Besides age, other factors that should not be taken into account while lending money include the borrower’s religion, sex, color, marital status, national origin, and race. The only criteria that is to be considered while lending a mortgage is sufficient income and it doesn’t matter how the money comes to the borrower as far as it is legal.
The source of a retired person’s income can come from various sources like corporate, government or military pension; social security benefits, rent from properties, income from interests or any capital gains from investments totally qualify as valid sources of incomes which are to be considered for giving loan.
Why Retired Persons Must Consider The Mortgage Option
Even though age and retirement should not be a hassle for getting a mortgage, there are many other reasons why retired people and seniors do not like the idea of getting a mortgage. You should always make this decision cautiously and consider your repayment options in retirement. One of the risks is that a retired person living on a fixed income may not be able to make the required monthly payments, which is necessary in case of a mortgages for retired home buyers.
If circumstances turn against him and he finds himself in a situation where his expenses are higher than his income, then mortgage would be a huge problem. The solution is that you must properly check your budget and leave yourself some leeway space every month.
Another problem is death of one of the spouses; in the case we are talking about is a married couple. In case one of them dies and their source of income is the money that they get from retirement or pension plans, then some plans reduce the pension payment. This could severely reduce the money you get, which may not be sufficient to pay the mortgage.
Another area of concern is the vulnerability of retired and aged people to being scammed and cheated. The person cheating and destabilizing your financial safety net could even be someone you trusted. However, the fact remains that retired people get caught in such issues more often, as the troublemakers target them specifically.
Caution Is The Rule For Mortgages In Retirement
In short, even though age or retirement is not a factor that has the power to decide whether or not you will get a mortgage, however, there are several other risks involved in getting mortgages For retired persons. All these factors should be kept in mind before going for a long-term mortgage.
Your home’s curb appeal is the attractiveness of the first impression that strikes potential homebuyers, but there’s no need to spend a fortune on improvements. From simple upgrades to meticulous landscaping projects, there is a ton of ways to add to your home’s glamour, but the three listed below will allow you to make that dramatic difference on a budget.
Paint Your Front Shutters Trim Or Doors
A gallon of exterior paint will run you less than $100 (small houses), which should be plenty to paint your shutters, trims or front doors of your house. Painting these parts of your home can definitely revive it and add some brightness, while adding curb appeal. Bold colors work great, but ensure they match other exterior areas of the home such as the garage.
This home improvement project may take several hours depending on how big your house is, but be prepared to spend at least a day on painting.
While fixing up the exterior of your home, it is a good idea to fix your garage doors as well. If your garage door is dilapidated due to wear and tear, consider replacing it with a newer one. Replacing your garage door will also improve the energy efficiency of your home because modern doors are better insulated.
Upgrading Your Mailbox Add Curb Appeal
Regardless of whether your mailbox is located on the road or mounted on your doorstep, adding a new one will enhance your homes appearance. Mailboxes are rather inexpensive fixtures, and you can generally buy one anywhere between $10 and $100.
When you do install your mailbox, make sure you abide by all the relevant regulations of your area. Installing a full sized mailbox should take no longer than 2 hours and 30 minutes to mount on your exterior wall.
Replace Light Fixtures And Upgrade Hardware
When trying to enhance the exterior of your house, it is important not to overlook the simple things such as replacing rusty locks, and faded house numbers. Look for modern design house numbers that are rustproof and made of stainless steel, and try to match their finish with the exterior of your home. You can even add paint brushed nicked address numbers on your siding to enhance the visual appeal of your home.
When considering light fixtures, take into account their style as well as functionality. You want your light fixtures to adequately light up your entryway, and make it safer, not exemplify a dull look. To save time with installation, look for light fixtures that have the same mounting system as your current ones.
When you’re selling your home, the last thing you want is for it to go unnoticed. Adding curb appeal will definitely make a significant impact on potential homebuyers and, done right, can be enough to make them stop and stare in awe.
The term comparable sales refers to the price of any similar land or property generated at this time compared to the potential market sale value of your property, it is the most commonly used appraisal method in residential real estate. The comparable sales are used to appraise the residential homes and properties in an area. Therefore, it is a very important factor, which determines the worth of your house or any other property in the local market. And since it affects the appraisal of your property, it is important to know some of the basics of comparable sales so you can make sure your house is evaluated properly.
Understanding How Comparable Sales Work
Generally when an appraiser puts a value on your property, he or she does so by comparing it to another property close to yours. Depending on the size of your property they will look at similar homes within a half-mile radius of your home that sold within the previous 180 days, your property will be judged and a price fixed. Where no other property match the above mentioned criteria, then the appraiser uses his discretion to either go further away from your property or use some other method to put a value on it.
As we all know, no two homes are the same. Something or other will make a difference, whether it is the material used to build the house or the condition of the material used at this moment. And since the appraiser values your property using the comparable sales technique, the homes near your property with similar amenities and same number of rooms make a big difference on how much your house is worth
How Comparable Sales Can Affect Your Property Appraisal
Abnormal Comparable Sales: There are instances where a property is sold by different means and reasons than just a seller’s wishes to actually sell it. It could be that a seller had to sell the property at a price lower than the debts incurred for building it.
Another possibility is that, due to the mortgagor’s inability to pay the monthly mortgage bills, the lender foreclosed on the property. Pricing your property in comparison to such properties could lead to a loss. So, some ways to solve this is to ask for reappraisal and request the lender to get an appraiser with knowledge about your area.
Home improvements: Any property is appraised based on its condition during the sale. If you spent a fortune on refurbishing your property before putting it up for sale, but nobody in your neighborhood has changed anything, this could also reduce your house’s value. Discuss with your lender or realtor which improvements will improve the price and which will not.
It should be noted that a lender does not have the right to approach an appraiser before or after he comes to appraise the property. However this rule does not apply to buyer and seller who can regularly be in contact.
There are two ways to look at how you close your home loan. When you are taking out a home loan to buy a home, the term closing means the initial setting up the loan with your bank, as part of the escrow process. Indeed you can close your home loan faster by taking precautions before approaching the bank. Having done your homework always helps.
For example, have you received pre-approval from your lender? Do you know how much you want to spend and whether you have the funds to pay back a mortgage at today’s interest rates? If you do your homework and got pre-qualified in advance, the approach to the bank will be a lot more successful. When finding a suitable home, the figures that you need to take into account are important.
Get House Price And Details
If you have knocked the house price down enough to accommodate for any repairs and can show the bank the specific property details, you may close your home loan faster than using hypothetical figures. The reason for this is that the bank has some solid foundation upon which to base their judgment.
If you leave it to the bank to tell you how much you can spend without having a specific house in mind, you lose time and may be offered less. The fact is that banks work on the premise that you earn a set amount and that you have a set amount of debt to pay. They are not overly generous when it comes to lending above your existing debt level.
However, if you have a solid house price and can show them your security for taking out that loan in bricks and mortar, you have a better chance of getting a quicker decision.
Work Out What You Will Save On Existing Loans
Closing a new home loan to pay off existing mortgages turns out to be difficult for some. However, if you can prove to the bank that your equity in the home is sufficient to cover the amount you need to borrow, you can close your home loan more quickly. An accurate market analysis from your realtor is helpful here, at first.
However, to close the new loan the lender will order a certified appraisal of your home before agreeing to anything. This will be based on today’s market and sufficient information on what is left on your home loan. A competent market analysis will prevent any nasty surprises or delays when the appraisal comes in.
Have All Documentation And Calculations With You When Applying
It is important than there are no delays caused because you forgot to take papers with you to the bank. When you have completed tip one and two above, take all your documentation to the bank to back up your application, as this saves a tremendous amount of time. It’s easy to close your home loan if the bank is satisfied that you meet all of their criteria and your loan presents little risk. One solution is to have a folder or case in which all of the papers are put, when you initially gathered them together.
Do You Need Private Mortgage Insurance?
Good practice in real estate lending and homeownership suggests that the homeowner ought to have at least a 20% equity stake in their home. That is all well and good but it would put ownership out of the reach of most people in the country. As a nation we tend to value our homes and the majority of residences are owner-occupied. This is even encouraged by government policy.
The reason having equity is a good idea is that, with variations in the market and other risks, you might not have enough equity to pay off the balance in extraordinary circumstances, such as we have seen tragically happen to so many homeowners in, say, the last five or six years. As with many other things in this life, it is all about the risk.
So, to make it possible for more people to own homes there are two options to insure your low down payment purchase. The first is with an FHA or VA government-backed loan and insurance policy, and the other is to get a conventional loan with private mortgage insurance (PMI).
Here Are The Private Mortgage Insurance Basics
There are a few different options and you might find that you do win with the conventional loan that requires a PMI payment. Discuss this carefully with your lender to find the best option. Depending on your tax bracket you might be able to get a deduction for your monthly PMI payment.
There are some downsides to private mortgage insurance. It is not particularly cheap and it is due on the entire balance of your loan. The beneficiary is your lender not you or your heirs. That’s right! You are paying for their insurance policy.
However, if you do not have an adequate down payment home lenders will only agreed to lend to you if they have cover. Over the long term it might suit you better to find the larger down payment or refinance at the earliest opportunity. Alternatively, look into your options for an FHA or VA government-backed home-loan instead.
The Right Time To Drop PMI
It is time to drop your private mortgage insurance when your loan balance drops below 80% of your home value. That all sounds good but with the ups and downs of the real estate market of the last few years, your lender is going to be more difficult to convince.
In most cases the PMI should drop off when you reach 22% equity stake, based on your initial appraisal, as long as you have never had any delinquencies on the loan. They may add other requirements that make the process of dropping PMI cumbersome and time consuming.
Other than just patiently gritting your teeth and waiting it might be worth carefully looking at the costs of refinancing instead. Like many other financial facts of life, private mortgage insurance can be a benefit when it enables homeownership for those would not otherwise purchase the home they desire.
When two people get married, they don’t believe that anything can break up their relationship. However, it is a fact of life that sometimes it doesn’t work and ends in a divorce.
Aside from the emotional pain and custody of the children, one of most difficult questions to be answered is who gets the property and other assets. In the United States, this question is answered depending on the state where they live, if it comes under common law property state or community property state.
Divorce In Common Law Property States
Most of the states in the United States come under this category. What this term common law means in simple terms is that any property acquired by a single spouse, even during marriage, will remain with that person after divorce. However, if a property deed has both the spouses’ names, then each one gets one half of it.
Besides this, if one spouse gifts something and has both their names put in the agreement, then it belongs to both and is divided equally. To clarify, let’s consider an example. If a husband buys a car with his money and puts it in his name, then it solely belongs to him. However, if he puts his wife’s name along with his on the purchase deed, then they both have equal ownership of the car.
Some couples enter into a pre-marriage agreement wherein they decide the division of property in case of divorce. However, when it has not been decided beforehand the court makes this decision.
Divorce In Community Property States
Some of the states in the US namely California, Nevada, Louisiana, Texas, Wisconsin, Washington, Idaho, Arizona, and New Mexico come under the Community Property States. The term community property means that every piece of asset acquired during the time a couple is married automatically gets equally distributed among both. Both of them share fifty percent each.
Once two people get married, the community property they own after that point belongs to both and is divided when the couple separates. However, in these states too, assets acquired before marriage belongs to that particular spouse unless transferred or gifted to the other spouse with authentic paper work.
In these situations the spouses are not permitted to make changes to any community property without consent from both. In the event of divorce, all the community property is divided equally; assets like houses, which cannot be physically divided, are given to one and the other gets some other asset worth the value of half the house.
Exceptions to the rule
There are some exceptions to this rule of equal division of property: If one spouse embezzles the community property during or before divorce; or if one of them has taken out an educational loan. There is something called a personal injury award which goes to the injured spouse. If the couple has debts that exceed the value of the property they own, in event of divorce, the court makes the decision depending on the relative ability of the each spouse to pay back the debt.
Buying investment property can be looked at from many perspectives. With the fashion of “flipping” houses, it’s difficult to know if the market is saturated with homes for sale. However, a deeper investigation will tell you whether it’s worth buying investment property.
There are several business models that work for investment property. One is to buy at current cheap prices and hope that the market will improve. Another is to buy at rock bottom prices, renovate and sell on and the third way is buying investment property to rent it to help income flow.
Buying And Holding Property
This is only worthwhile if you see something which comes up for sale at a really knock down price. The reason that some homes do come up for sale in this way is that the owners have failed to pay off their mortgage. The home is repossessed and sold cheaply by the loan company because all they want to do is get back what is owed.
There are several disadvantages of buying a property, which is merely going to be left to sit. One is that the house will cost utility bills and housing taxes as well as insurance. Any reckoning of the viability of the investment should take into account all costs over the entire period of ownership.
Buying Investment Property To Renovate
If a home is in bad repair and you make expensive improvements these alone won’t guarantee that you will get your money back. It could potentially be a very rewarding investment. However, there are items to bear in mind when deciding. For example, what is the scope of repairs needed? What is the market that homes in that particular area is aimed toward? Is there a regular market and what is the competition?
If, for example, you buy a house you think you could make into great family accommodation and the market in that particular area is geared toward professional business people, you may be wasting your money. If there is a glut of housing available cheaply within the area of the home that interests you, similarly, there may be too much competition. All of this has to be weighed up when making the decision about buying investment property.
The amount you can gain from buying investment property for rental depends upon the amount of rent you feel you can earn from that property. This must take into account taxes, insurances and repairs of the property. People who purchase small blocks of apartments, for example, may be able to minimize expenditure. All of the properties are under one roof, repairs at the outset offset the possibility of future costs, and the apartment block may actually be in a very upwardly mobile area suited to executives.
It really depends upon what market you are aiming for and whether you can produce cost effective accommodation for others which will not remain empty for any length of time.
Thus, the question of whether to spend money on buying investment property really comes down to expertise in marketing that property, either for rental or for sale, to the right market at the right time.
From our family to yours, we hope you only the best in the New Year!