Mortgages

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					Mortgages
             Home Loans
• Home Loans are referred to as mortgages
• First home loans offered were in to 1930’s
• 67% of all American own their homes
     Who Provides Mortgages?
•   Banks and Credit Unions
•   Developers
•   Mortgage Brokers
•   Mortgage Companies
•   Idaho Housing
•   Home Owners
            Prequalification
• Preapproved for a mortgage before you
  begin looking for a home
  – Let’s you know a head of time how much
    house you can afford
  – Tailors your search for houses in the right
    price range
  – Strengthens your bargaining position – less
    contingencies, the easier the offer is to accept
  – Can lock you in to a good interest rate
           Down Payment
• Amount required to put up to purchase a
  home
  – Conventional loans are given through
    commercial banks and require a 20% down
    payment
  – VA are given through the Veteran’s
    Administration and require no down payment
  – HUD requires a 3% down payment
  – FHA varies in the amount down
       Assumable Mortgages
• You assume or take over the original
  owners loan
• VA & FHA can usually be assumed if you
  qualify
• Eliminates closing costs
• Take over the interest rate on the original
  loan, could be lower than current rates
• Usually requires larger down because you
  are buying the original owners equity in
  the house
        Dealing with a Lender
• Balance Sheet – income vs. expenses – can you
  afford additional debt
• Need to survey the property or have a recorded
  deed with a survey recorded
• Home Inspection – protects you
• Application fee and loan origination fee covers
  the processing ($250 + 1% of loan)
• Commitment letter sentt when accepted, spelling
  out how much you can borrow and for how long
  the offer is good for
• If denied, try another lender
                   Closing
• You will write many checks, sign your name
  countless times, and sift through mounds of
  paper
• But when you walk away with the keys to your
  house – the American dream is realized for you
• You will receive a good faith estimate a couple
  days before the closing
• Title Insurance
• Proof of Insurance
• Points
• Filing Fees
• Real Estate Taxes
• Escrow for taxes and insurance
            Mortgage Rates
• Fixed or Conventional – set at closing
  – Don’t benefit from change in interest rates
    over time
  – Principal and interest are paid in equal
    monthly payments over installments of 15-30
    years
  – Pay one extra payment a year at the same
    time every year – 30 year loan paid off in 15
    years
                    ARM
• Adjustable Rate Mortgage
  – Rates change on a regular basis – usually
    once a year
  – Why we have foreclosure problem today
  – Tied to index like Treasury Bills
  – Get you with teaser rates of 5%, then raise up
    to 14.5% over time
  – Hard to budget for
              Refinancing
• When interest rates go down – may want a
  lower rate
• Needs to be at least 2% lower than current
  rate
• Can help you consolidate if you have
  equity – but don’t roll credit card into this
  unless you are stupid, desperate, or have
  no brain left in your head
              Foreclosure
• When you fall behind in your mortgage
  and the bank is repossessing your home
• Usually you are six months in arrears
• Don’t ignore the problem - it is an
  elephant in your living room
• Contact your lender right away and try to
  work something out with your lender
• Don’t fall for some foreclosure scam artist
• You will feel vulnerable – seek help –
  liquidate assets if you can first
          Second Mortgage
• Use your home as collateral for a loan for
  other things
  – Home Improvements
  – Consolidate credit card loans
  – Car loan – deductible on taxes – car loans are
    not
  – Usually not for as long as a mortgage
  – Can be very expenses – add to your debt
         Reversible Mortgage
• The RAM is a special type of loan that works in
  reverse — the lender makes monthly payments to you
  based on the equity of your home.
• These instruments are gaining popularity with older
  homeowners who want to use the equity in the home
  to supplement their income.
• The lender will appraise the home value and make a
  home loan based upon a percentage of the current
  value.
• The homeowner retains ownership. The lender
  will then allow you one of four payment options:
  – Lump-sum payment
  – Equal monthly annuity payments to the homeowner
    for up to the amount of equity in the home. The
    number and schedule payments depend on the equity
    in the home and age of the recipient.
  – An equity line of credit that the borrower can draw
    upon as needed
  – Combination of annuity payments and equity line
• No payments will be required as long as the
  borrower remains in the home.
  – Payments are made when the homeowner dies,
   sells, refinances, or moves.
          Selling Your Home
  – Average person stays in home from 5-7 years
  – Find out what your house is worth – free
    market estimates
  – Make it look good inside and out
  – If it doesn’t sell within the first month – you’re
    too high
• Profit or Loss – Profit (Capital Gains)
  – Basis – what you paid for your house,
    including improvements, etc.
  – Selling Price

				
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