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Home Buyers
What’s a mortgage? A mortgage is simply a loan create to assist you finance your new home. It indicates that a specific amount of money will be loaned at a specific interest rate for a specific term (a specified period of time after which such term is said to be ended). In addition, you agree to make timely payments throughout the duration.
Conventional Mortgage
A conventional mortgage is a fixed or adjustable-rate, fully amortized loan secured by a mortgage or deed of trust that is not insured or guaranteed by an agency of the federal government (such as FHA or VA). Most types of conventional loans are paid off over 15, 25, or 30 years.
Terms of a conventional loan differ among lenders, but basically a loan can be acquired even without a deposit. When the deposit is less than 20%, it is often necessary for the loan to have private mortgage insurance (PMI) to protect the lender. Private Mortgage Insurance (PMI), also known as Lenders Mortgage Insurance (LMI), is insurance payable to a lender that may be required when taking out a mortgage loan. It is an insurance in the case that the mortgagor is not able to repay the loan, and the lender is not able to recover its costs after foreclosing the loan and selling the mortgaged property. The annual cost of PMI varies between 0.19% and 0.9% of the total loan value, depending on the loan term, loan type and proportion of the total home value that is financed.
Conventional mortgages can be conforming or non-conforming. A Conforming Mortgage complies with specific Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) underwriting guidelines. A jumbo loan, which is also known as a non-conforming loan, is a loan that exceeds the maximum loan limits set by two large government-sponsored entities, the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Fannie Mae and Freddie Mac, respectively. Naturally, loans that conform to the limit are called conforming loans. Conforming loans are eligible to be purchased by both Fannie Mae and Freddie Mac. Conventional mortgages can have a fixed rate or adjustable rate.
Fixed-Rate Mortgages
A fixed rate mortgage (FRM) is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float.” Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, adjustable rate mortgage, negative amortization mortgage, and balloon payment mortgage. Fixed-rate mortgages give you the security of knowing your monthly principal and interest payment will not change over the life of the loan. This type of conventional mortgage also protects you from rising interest rates. No matter how high market interest rates go, your mortgage rate remains the same. Prosperity Mortgage offers a variety of fixed-rate products, with loan terms ranging from 10 to 30 years. Fixed-rate mortgages are better for those buyers who:
Plan to stay in their homes a long time
Are on limited or fixed incomes
Are buying a home at a time when interest rates are comparatively low
Prefer regular payments with no surprises
Adjustable Rate Mortgages
An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes. During the preliminary fixed period, an ARM has a lower interest rate than a similar fixed-rate mortgage, so you’ll save on your monthly payments during the early years of your loan term. Because this type of conventional mortgage offers lower upfront monthly payments, it can help you:
Save money if you expect to move or refinance. If you plan to move or refinance before the end of the loan’s preliminary fixed period, you can take advantage of lower payments without worrying about future rate increases.
Manage your cash flow in a high-rate environment. If you are buying a home at a time when interest rates are comparatively high, an ARM can help you avoid making high monthly payments right away.
Plan for future income increase. An ARM can help you keep your payments low while your income increases during the loan’s fixed period.
Purchase a more expensive home. Because your maximum loan amount is based on the initial monthly payments, you may be able to borrow more.
Potentially improve your credit standing. The lower initial rate can make your payments easier to manage, helping you improve your credit and expand your financing opportunities if you make timely payments on your mortgage loan and other credit obligations.
After the initial fixed-rate period, the remainder of the loan term is divided into adjustment periods of one year or six months, depending on the mortgage you choose. At the end of each adjustment period, the interest rate may change based on existing market conditions.
VA Loan
Department of Veteran’s Affairs Loans are government guaranteed loans available to qualified military and ex-military personnel. Generally, there are less fees, preferred interest rates and lower down payment requirements for this program.
FHA Loan
The Federal Housing Authority insures federally qualified lenders against any default payments by the borrower. While the down payment can be as low as 2.25% of the purchase price, the FHA charges the borrower an up-front mortgage insurance premium fee to obtain mortgage insurance on the loan. The fee may be collected as a lump sum at loan closing or as a periodic amount included in the monthly payment, or both. Prepaid interest, called points, may also be charged by the lender. FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers.
Financed Closing Costs
Many lenders today will assist buyers with closing costs. In exchange for paying a somewhat higher interest rate, a lender may build into the mortgage its normal charges plus pay other closing costs up to a specified amount. These plans vary widely, so study them carefully.
Balloon Mortgage
A balloon mortgage can be an excellent option for many home buyers. A balloon mortgage is usually rather short, with a term of five to seven years, but the payment is based on a term of 30 years. They often have a lower interest rate, and can be easier to qualify for than a traditional 30 year fixed mortgage. There is, however, a risk to consider. At the end of your loan term you will need to pay off your outstanding balance. This usually means you must refinance, sell your home or convert the balloon mortgage to a traditional mortgage at the current interest rates.
Posted: May 11th, 2007 at 12:11 pm
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Home Buyers
Sellers sometimes get tempted to test a higher price at first to see if they’ll be lucky enough to find a buyer willing to pay. Unfortunately, experience shows this pricing strategy rarely pays off. Instead, asking the right price from the start avoids the many dangers of overpricing.
The right sales price is based on factors like the size of the house, its amenities and features, demand for homes in your area, recent home sales, and prices of similar homes currently on the market.
You may have decorated lovingly or renovated extensively but those improvements may have a small effect on the market value of your home. Actually, personalized decorating can slow a sale unless the style has wide appeal.
Overpricing Dangers
Here are 8 reasons why overpricing your home is dangerous:
You will miss out on pent-up demand.
The most activity on a listing will come within the first 30 days. An initial high price can discourage buyers, not tempting them to wait for the price to come down.
You will raise doubts about hidden problems.
If your overpriced house stays on the market for a long time, it may eventually be seen as “stale inventory” which can suggest structural or mechanical imperfections, even after you lower your price.
You will reduce buyer pool.
Extremely high pricing will eliminate a whole class of qualified buyers. Many buyers know just how high they can go and don’t even look at homes priced above their limit.
You will risk lender rejection.
If you do get a sales contract, the contract may fall through because of its low appraisal. The buyer may not be able to borrow enough to proceed with closing.
You could sell the competition.
Overpricing helps sell other, more competitively priced homes first. Your home may be compared to underscore what a good deal another home is.
You might turn off buyers.
You may experience few or no showings because some prospective buyers who can afford the price won’t waste time with an overpriced listing. They know they can find a better buy elsewhere.
You could frustrate prospects.
Prospective buyers who may extend their best offer can become frustrated when they can’t buy the home they want at a fair market price only because an unreasonable seller insists on accepting only a premium price.
You will frustrate your own timetable.
You could also become frustrated when your house fails to sell in a timely manner. Only a price reduction is likely to help sell your house faster and meet your estimated time of moving out.
Posted: May 11th, 2007 at 12:08 pm
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Home Sellers
Many details must be taken in consideration when selecting your home; price, style, size, location. It’s probably impossible to say which factor is most important. If there is a chance you’ll be moving again in a few years, be sure you buy with a selling in mind. It’s a strong possibility that the items that make your new home a comfortable fit for you will also attract buyers later on.
For the short-term homeowner who has resale in mind, there are some special considerations:
Watch for growth potential
Look for an established neighborhood that will not inconvenienced by future growth but be enhanced by it.
Look out for resale value
Look for a neighborhood where houses sell well in any market.
Check out location
Consider all types of transportation; even those you may not use.
Schools are important
Check for quality public schools, whether or not you have young children who may be attending.
Green is good
Look carefully at the lot for trees and greenery to shield winter winds or summer heat.
Make room for visitors
Be aware of the parking arrangements for you and your neighbors.
Privacy is a plus
Consider how much privacy the house and lot provide you and your family.
Drive the commute before you buy
Check morning and afternoon drive time to work and other facilities you may frequent.
Posted: May 11th, 2007 at 12:06 pm
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Home Buyers
Fire and Hazard Insurance
At the time of settlement, many lenders will require you to provide a one-year paid receipt for a fire and hazard insurance policy, often referred to as homeowner’s insurance. These policies are available from several principal insurance companies through your agent or the insurance company of your choice.
Home Warranty
Sooner or later, problems with your home will occur. According to recent statistics, one out of 200 new homes will experience a structural malfunction that will cost an average of $30,000. A home warranty from one of our providers will give your home the protection it needs. Depending on the plan you select, coverage will include mechanical breakdowns in major systems such as electrical, plumbing, heating, and air conditioning, as well as major household appliances such as the refrigerator, oven, washer, and dryer.
Home Inspection
People can personally examine a house make out many flaws, but a professional inspector can spot more in areas not easily accessible to you. The inspector, who should be a member of the American Society of Home Inspectors, will study the structure and mechanics of the house. He will then provide you with written details on the results.
Certain detailed information could reduce the price of the house if the seller will agree the price has not already been discounted due to these imperfections. These days, several states require that sellers supply buyers with either a residential property disclosure or disclaimer statement.
Title Insurance
Title insurance provides security in case anything that has happened to the house prior to your purchase. Most lenders will require title insurance to protect their interests. Remember to ask the owner about their policy to protect your title. You may save money if you buy owner’s title insurance at the same time as mortgage title insurance, rather than buying it separately later.
As a home buyer, you may be able to save money with a reissue rate for title insurance, if the property changed hands within the last several years. Reissue rates are normally available only when refinancing, but in some areas they can be obtained on a home resale where a title search was performed relatively recently for the seller. The title insurance may allow a lower re-issue rate premium because the recent title search is still valid. Consult your title attorney and insurance company for details.
Walk-Through Inspection
The time for you to examine and note any flaws for correction by the seller is during the contract negotiation and before signing the sales agreement. The purpose of the walk-through inspection prior to settlement is to determine if conditions in the contract are satisfied.
It is your choice to perform the final walk-through inspection. The seller may or may not be present. You should be accompanied by the selling broker or the listing broker.
During the inspection, you should
Open and close all windows and doors.
Turn all faucets on and off.
Run showers and flush toilets.
Turn on the furnace and central air conditioning. In the off-season, the buyer may hire a professional to certify proper functionality.
Try all lights and switches.
Turn on the oven at bake and broil.
Test all stove burners.
Run some ice cubes through disposal to test the blades.
Run the dishwasher, washer, and dryer through complete cycles.
All deficiencies will be noted. The selling broker will organize with the listing broker and seller to make repairs before settlement. If the seller does not correct problems prior to settlement, the attorney may withhold funds from the seller.
Posted: May 11th, 2007 at 12:03 pm
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