Mortgage Basics: The More You Know, The Brighter Your Future

Mortgage Basics:

The More You Know, The Brighter Your Future

Whether you’re a first-time home buyer, you’re moving up to accommodate a growing family, or down-sizing empty-nesters, the more you know about mortgages, the more likely you are to find the best mortgage to suit your needs today and in to the future.

 By becoming an educated consumer you become your strongestSteve Herndon Loans asset in shopping for and securing a mortgage. You ask the right questions. You understand the pros and cons of different types of mortgages. You’re better prepared to negotiate the right terms for your situation.

Knowledge empowers mortgage consumers, so the more you know about obtaining financing from a mortgage lender, the better “deal” you get.

Most of us believe that a mortgage is simply money borrowed from a lender to purchase a home, but, in fact, a mortgage is much more than dollars and cents. It’s knowledge and sense.

 A mortgage is a long-term commitment, a partnership with a lender, a legal agreement and a financial responsibility. It’s also an opportunity to live in the best investment you’ll ever make. Consider this:

Let’s say you buy a home for $200,000. You make a down payment of $20,000 and borrow $180,000 from a mortgage lender to reach the $200,000 needed to buy the home.

 Steve Herndon LoansFive years go by and now the house is worth $250,000 when you sell it. Even so, you only pay back the mortgage lender the $180,000 you borrowed (less the amount paid off) and you collect the entire $50,000 profit. And in all that time, your investment kept the rain off your head. So, let’s start with some mortgage basics.

 A Mortgage Isn’t Just Dollars and Cents

Indeed, today most of us think of mortgages in terms of money. A mortgage is a loan from a lender that’s used to purchase property. The mortgage loan is secured by the property, protecting lenders.

 The agreement between home owner and lender, sometimes called the mortgage deed or mortgage note, describes in legal terms, important loan features including:

  •  a repayment schedule, sometimes called an amortization schedule
  • the rate of interest charged by the lender
  • when payments from the home owner are due
  • any fees associated with late payments or other services provided by the lender
  • fixed monthly payments for a set period of time – from 12 months to 30 years
  • the lender’s legal obligations
  • the homeowner’s legal obligations
  • detailed terms and conditions associated with the mortgage loan itself 
  • a highly-organized set of “rules” to protect both home owner and lender should the unexpected become reality

 In fact, a mortgage is the security a lender puts into your property. As a consumer, it’s imperative to learn all you can about mortgages in order to find the best mortgage for you and your family.

 Compare features and look for innovative lending solutions from professionals who guide you throughout the loan application process. These highly-trained professionals provide the information you need to obtain the best type of mortgage loan from the best source.

 

Types of Mortgages

  • fixed-rate locks in the interest rate for the term of the mortgage
  • variable rate in which the interest rate changes over time, up or down
  • residential mortgages for homes
  • commercial loans for commercial properties
  • non-owner occupied mortgages for real estate investors
  • jumbos (mortgages generally over $417,000)
  • government-assisted mortgages for low-income home buyers
  • reverse mortgages that enable home owners to remain in their homes
  • Refinance loanthat swap one mortgage for a better one as the economy changes

Mortgage Loan Sources

There are many sources for mortgage loans including:

  • your local bank
  • regional and national banks
  • mortgage banks
  • mortgage brokers
  • government agencies (for qualified borrowers)
  • private investors (rent to own)

Because there are so many types of mortgages and so many sources for a mortgage loan, it pays to shop around and compare interest rates, fees and penalties, length of the mortgage agreement and special terms for specialty mortgages.

Learn all you can about the process of obtaining a mortgage. What’s required and how does the process work?

Ask questions. Lots of them!

Home ownership starts with obtaining a mortgage. Owning a home is a great investment. It gives you the freedom to make changes to your property to suit your tastes and needs now and tomorrow.

So shop around. When it comes to securing a mortgage loan, the right fit gets you the right home, and we all know…there’s no place like home – your home.

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Excellent News USDA Funding Approved!

USDA Home Loans Funding Approved for fiscal year 2012 which ends September 30th, 2012
December 14th, 2011 10:47 AM

Great news!!

USDA Rural Development has received funding for USDA loans from Congress through their 2012 fiscal year which ends September 31st, 2012.

Below is a copy of the memo.

SFH Origination Updates

From the National Office in Washington DC.


 

December 1, 2011

 

UPDATE – FISCAL YEAR 2012 COMMITMENT NOTICE!

Purchase funds that were received under the FY12 Continuing Resolution (CR) remain available. Therefore, Rural Development will continue to issue commitment authority for purchase transactions without interruptions for the remainder of FY12.

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Temporary Loan Limits Return for all FHA Loans in High Cost Areas

Temporary Loan Limits Return for all FHA Loans in High Cost Areas

Recently, the President signed into law a new bill H.R. 2112, called the Consolidated and Further  Continuing Appropriations Act of 2012. In response to this new legislation, HUD has issued Mortgagee Letter 2011-39 detailing the acceptance and timing of the return to higher FHA loan limits.

Here are the limits for our most immediate areas;

Lake County                                               $401,250
Marin County                                             $729,750
Mendocino County                                     $512,500
Napa County                                               $729,750
Sonoma County                                          $662,500

Please feel invited to contact me should you have any questions!

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VA Loan Limits for 2012 – California

VA Announces 2012 VA Loan Limits for California

The VA has announced 2012 VA Loan Limits that become effective Jan 1, 2012 and last until Dec 31, 2012.   The VA Loan Limits in 2012 are capped at $625,500 due to changes in the formula the Veterans Administration is required to use.

Loan Limits in California counties such as Alameda, Contra Costa, Marin, San Benito, San Francisco, San mateo, and Santa Clara are now at $625,500.    Los Angeles and Orange Counties are now at $621,000.   Santa Barbara county is at $598,000, and San Diego has a $477,000 VA Loan limit for 2012.

Please see the entire list of CA VA Loan Limits below,  any counties not listed have a $417K VA Loan Limit for 2012.
VA Loans are available for higher loan amounts than the County VA Loan Limit.   The County VA Loan Limit is the full amount for 100% VA Financing.   VA  allows you to exceed the county limits as long as there is sufficient equity or down payment to reach the VA Guarantee requirements of 25%.  

STATE COUNTY 2012 VA LIMIT
CA ALAMEDA $625,500
CA CONTRA COSTA $625,500
CA LOS ANGELES $621,000
CA MARIN $625,500
CA NAPA $460,000
CA ORANGE $621,000
CA SAN BENITO $625,500
CA SAN DIEGO $477,000
CA SAN FRANCISCO $625,500
CA SAN LUIS OBISPO $457,700
CA SAN MATEO $625,500
CA SANTA BARBARA $598,000
CA SANTA CLARA $625,500
CA SANTA CRUZ $610,650
CA SONOMA $419,750
CA VENTURA $518,650
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Home Mortgage Deduction

70 percent of home ownership tax benefits go to middle class households that earn less than $200,000 a year. Out of 75 million home owners, 35 million claimed the exemption. Think about how that might impact the housing market.

 

Save My Mortgage Interest Deduction

 

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Labor Day

Many holidays in this country are associated with either battles or rememberances of specific people, races or nations. However, Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers.

On June 28, 1894, Congress passed an act making the first Monday in September of each year a legal holiday in the District of Columbia and the territories.

Today, Labor Day is often associated with picnics, the end of summer, and the beginning of the new school year. Enjoy your time off, and remember those who toil for you!

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What is FHA financing?

I’ve been in the real estate business all my adult working life so I’ve become very familiar with FHA loans. In fact, the first three properties I purchased were with FHA financing.  Just what is an FHA mortgage?  Who can obtain one?  What are the advantages and disadvantages compared to other types of home loans?

What is FHA?

FHA stands for the Federal Housing Administration, a government agency that promotes access to home ownership and stability in the mortgage market. Originally established as a New Deal program during the Great Depression, it operates as part of the Department of Housing and Urban Development (HUD).

What’s an FHA mortgage?

The FHA doesn’t actually make home loans to borrowers, but insures mortgages that meet certain standards. This guarantee allows certain types of borrowers to obtain mortgages on more favorable terms than they could in the private mortgage market. The actual loans are made by private lenders who are authorized to deal in FHA mortgages. The loan is insured by FHA and mitigates loss a lender may realize on that loan.

Who can obtain one?

FHA mortgages have traditionally been targeted at first-time homebuyers or those of low-to-moderate incomes. But over the past few years, they’ve grown increasingly popular among all types of borrowers as one of the few remaining ways of getting a mortgage with a minimal down payment. They’re available to virtually any Santa Rosa and Sonoma County resident who can meet the minimum income and credit requirements; unlike many other mortgage assistance programs, there’s no income cap limiting the maximum income a borrower can have and still qualify.

What are the main advantages and disadvantages?

The biggest attraction of an FHA loans are 1) down payments as low as 3.5 percent of the loan amount, 2) relatively soft credit requirements and 3) simplified refinancing if rates should drop at a later date. If you’re buying a fixer-upper, you can also borrow money for repairs and renovations and have it rolled into the mortgage.

On the downside, the disadvantages are 1) higher costs than other comparable mortgages, due to upfront and ongoing fees for FHA mortgage insurance and 2) there are limits on the maximum amount you can borrow, which varies by region. Basically, if you have the means to qualify for a conventional mortgage or are looking to buy a high-end home, you might not want to go the FHA route.

What about interest rates?

 Interest rates on FHA mortgages are generally comparable to those on conventional home loans, sometime running a bit higher, sometimes a bit lower. A bigger factor, however, is FHA mortgage insurance, which effectively boosts your interest rate by 0.25 percent to 1.15 percent, at least for the first few years. Interest rates for FHA loans aren’t set by FHA but by the market and can differ from lender to lender.

What is FHA mortgage insurance?

The cost of mortgage insurance is the one big downside to an FHA mortgage. It’s the fees the FHA charges to enable it to make loans with minimal down payments and relatively easy credit requirements. For starters, you pay an upfront insurance premium equal to one percent of the loan amount at the time of closing. On top of that, you also pay an annual insurance premium, which is combined into your monthly mortgage payment. The annual insurance premium takes the place of private mortgage insurance (PMI), which you have to pay on conventional mortgages when you put less than 20 percent down. However, it tends to be more expensive. Whereas PMI is typically about 0.64 percent of your loan balance (annual charge) on a 30-year fixed-rate mortgage, the FHA annual mortgage insurance premium on the same loan is either 1.15 percent on mortgages with 5 percent down or less, or 1.10 percent for 30-year loans with more than 5 percent down. On 15-year fixed-rate mortgages, the annual FHA premium is either 0.50 percent for mortgages with 10 percent down or less, or 0.25 percent for loans with more than 10 percent down.

The good news is that the insurance premium can be cancelled once you reach a loan-to-value ratio of 78 percent (22 percent equity) or after five years, whichever comes last. The premium may also be tax deductible, but check with your tax professional.

How much can I borrow?

Currently, the maximum you can borrow with an FHA mortgage is based on median property values in the area the property is located. As of Oct. 1, 2011, however, the maximum limit is scheduled to drop to $625,500 and many high-value counties will see their maximums cut even further. The $271,050 standard limit will remain in place.

What sort of credit do I need?

Officially, you can obtain an FHA mortgage with a FICO credit score as low as 500. Keep in mind, however, that’s the FHA minimum – the individual lenders who actually make the loans often demand a score of at least 620-640. If you’re below that, you might consider working with a mortgage lender to who’s willing to lend to you or waiting until your credit improves.

Remember, just like with a conventional mortgage, a lower credit score means you’ll have to pay a higher interest rate, so you might want to work on improving your credit for a year or two before seeking a mortgage.

Other credit requirements are fairly borrower-friendly. You must not have had a foreclosure or deed-in-lieu sale within the past three years, a Chapter 7 bankruptcy in the past two years, or a Chapter 13 bankruptcy in the past year. Exceptions may be made for extenuating circumstances. Again, remember that these are FHA minimum standards and individual lenders may not be quite so accommodating.

Are there other benefits?

One of the great things about an FHA mortgage is that they’re easy to refinance if mortgage rates drop. As long as you’re current on your payments, you can qualify for an FHA Streamlined Refinance without the need for an appraisal, credit check or income documentation. It’s nearly automatic. However, there are fees involved and you cannot take cash out of the transaction. If you need to do a cash-out refinance, you can apply for a standard FHA refinance of your mortgage.

If you’re buying a fixer-upper, you can also borrow the money you need for repairs or renovations through a HUD 203(k) loan and have it rolled into the purchase mortgage, with the amount available to borrow based on the estimated improved value of the home. They don’t just hand you the money, however – the program does include certain stipulations to ensure the funds are used for improvements.

Please feel invited to contact me should you have any questions.

 

 

 

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USDA Loan changes

If you plan to buy a home or refinance your current USDA loan with a U.S. Department of Agriculture, or USDA, loan, you had better act soon. These loans, which are one of the few options for low-cost, no down payment mortgages, are about to get more expensive.

Borrowers have until Sept. 30 to receive the Conditional Commitment from USDA to close on USDA mortgages if they want to avoid a new annual fee that will increase monthly payments and in some cases prevent applicants from getting loans.

USDA loans currently don’t require mortgage insurance premiums. They require only an upfront guarantee fee of 3.5 percent of the total mortgage amount. The one-time fee is added to the total balance of the mortgage and financed into the loan.

On Oct.1, that 3.5 percent fee will decrease to 2 percent. But the USDA will implement a new annual fee of 0.3 percent of the balance of the loan. This fee will be added to the monthly payments and run for the life of the loan, slightly diminishing each year, based on outstanding loan balance.

Refinancers will have to pay the annual 0.3 percent fee, plus the current one-time upfront guarantee fee of 1 percent of the total of the mortgage. The upfront fee will stay unchanged for refinances.

The USDA insists this new fee is not an insurance premium, but rather a fee designed to make the program self-funding. Regardless, as far as your pocket is concerned, this is much like the mortgage insurance premium in most home loans.

How much of a change in payment?

In terms of how much more you’ll have to pay per month, it’s not the end of the world. For a borrower who needs a mortgage of $300,000, that translates into a monthly payment increase of about $81.25, assuming the interest rate is about 4.0 percent. Like the guarantee fee, the new fee can be financed into the loan, which means you could still get a USDA mortgage without a down payment.

But the slight monthly payment increase can easily disqualify borrowers, depending on their debt-to-income ratio, which is the formula used by lenders to measure your debt expenses versus your income.

Your total DTI should be no higher than 41 percent for USDA loans. Please call if you have any questions about the new changes, I would be happy to elaborate.

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Buying a home is cheaper than renting!

Yesterday it was reported in a CNNMoney.com article that purchasing a home is less expensive than renting in 74% of the major cities in the U.S.

I don’t necessary recommend links to articles like this because, as always, there is information in the article that is either inaccurate or that is not helpful.

For example, this  article talks about how purchasing can be more affordable than renting, however they also talk about how you need 20% down payment, which we all know is completely wrong. See my blog and web site that shows of several small and NO down payment loans that are very affordable and very available today!

Here is the link to the article for your own review

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Can I Qualify for a Home Loan Today OR how do you know if you don’t APPLY?

Without a doubt the single BIGGEST misunderstanding in today’s real estate market is that loans to purchase a family home or an investment property are impossible to get. This couldn’t be farther from the truth. There are many different types of loans available for today’s home buyers and investors. Depending on your income, your credit score and where you are planning to purchase, you would be very surprised at not only how easy it really is but how attractive the terms really are. The reality is that you do have to apply and you will have to document everything and that means everything. Doing so you will be rewarded with loan terms, cost and a payment that is overwhelming affordable. Taking the necessary steps now will put you in a position to hear from your lender; “You Are Pre-Approved”! Now you are ready to make an offer on your new home with full faith and confidence with the terms and conditions of your loan!

 

Here are a few loan types that are very popular and effective in today’s market and one of more may be tailored to fit your needs.

 

FHA (Federal Housing Administration)

  • 3.5% Down Payment
  • Minimum credit scores do apply
  • 6% Credit from Seller to assist with closing costs.
  • No Income Limits
  • Single Family Residence and one to four family residential units (Condo complex’s must be FHA approved)
  • This loan may be used more than once

 

USDA (United States Department of Agriculture)

  • 100% Financing  
  • A minimum credit score can apply but is not always required!
  • Income Limits which are based on family size
  • Location of property (since these loans are designed to assist buyers in agricultural areas, I have found many properties in Healdsburg, Windsor, Sebastapol, Cloverdale and even parts of Santa Rosa qualify) call on us to help located a home for you in a USDA approved area.

 

Conventional Loans

  • In some cases as little as 5% down!
  • Minimum credit scores do apply but are much lower than you may think!
  • In some cases up to 9% is seller credit for closing costs

 

VA (Veterans Administration)

  • 100% financing
  •  Seller can pay 100% of discount points and borrower’s non-recurring closing costs.
  • Seller can provide an additional amount not to exceed 4% of the estimated reasonable value to assist the borrower’s payment of buydown points, prepaid expenses and funding fee.
  • Minimum credit scores do apply
  • This loan may be used more than once!

 

 

 

 

 

Did you know that if you have not owned a home in the past 3 years you are once again considered a First Time Home Buyer?

 

There are government programs that offer grants to assist first time home buyers. Ask your lender if you qualify for any government grants or try the following websites to see what grants are available.

 

 

A qualified lender will know the different types of loans available, grants available and which loan type you qualify for. While some lenders will specialize in certain types of loans, if asked they will research other loan types for you.

 

It’s as easy as 1.2.3…..

1. Pick up the phone and call a lender or ask your Real Estate Agent for a referral

2. Honestly discussing your financial situation

3. Walla!!  Find out you qualify (or find out what steps you need to take to qualify in the future)

 

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