Long gone are the days of stated income loans or no doc loans. In today’s market if you cannot document your income or assets you are just about out of luck. There are a handful and I really mean a handful of lenders that entertain no income or asset type loans. If you are able to find one it is because they are a portfolio lender. Aside from being lucky enough to find this type of lender do not expect the rate to be anything close to where conventional rates presently are. Expect close to or around double digit rates.

 

Here is what is left in the way of financing:

100% Financing

-Qualified VA loans

-Qualified USDA loans

 

90.01-97.5% Financing

 

-FHA or VA if you are a veteran is going to be your best bet for this type of loan

 

90.00% and under

 

-Fannie Mae or Freddie Mac these are your conventional loans and these are your bets choice

 

Jumbo Mortgages

 

Fannie, Freddie and FHA have programs that are referred to as “High Balance Conforming Loans”. It is not available to every person rather state specific counties that are designated “high cost living” areas. In CT this loan is available for Fairfield County only and the loan limit for a single family home is $511,750.

 

Anything above $511,750 and you are looking at a jumbo mortgage. You will be able to find financing with most lenders although not all up to $1.5 million. After that it is slim pickings. The jumbo mortgage market has really taken a setback amidst the financial crisis. There is basically no secondary market for banks to sell these loans which is why financing loans over $2 million has become more difficult.

Applying for and shopping mortgage rates is a click away www.EversleyCapital.com

 

Last week according to the Wall Street Journal the “Countrywide” name will be no more. As of April 27 Bank of America will re brand the name to “Bank of America Home Loans.” This will close the chapter on a lender that rose to the top of its industry and then amongst the financial crisis saw itself fall to the bottom were Bank of America stepped in and bought the company for pennies on the dollar.

 

Since the Bank of America acquisition Countrywide has been marred with lawsuits and complaints. The name change is clearly a move to shift away from the now “tainted” lending name. It will certainly bring to end a once household name in lending. It also turns the page to a new chapter, one filled with a mountain of uncertainty in the mortgage industry.

If you have not already heard this is the part that you need to pay close attention. Under the new stimulus bill that President Obama just signed was the extension of the “first time home buyer tax credit.” If you are a first time home buyer and I will clarify what that constitutes you are potentially eligible for an $8,000 tax credit. You need to close on the purchase between the dates of Jan. 1, 2009 and Nov. 30, 2009.

 

A very important part to understand is the “tax credit” is refundable. When I say refundable I am referring to a tax refund. A couple scenarios here will show what I mean. If you do your tax return and are looking at a refund you can get your tax refund as well as the $8,000 tax credit. Same would hold true if you owe Uncle Sam money after figuring your taxes and you apply the tax refund, it could alleviate your tax liability. Keep in mind that you need to qualify for the credit. Here is a list of what qualifies and what would not.

 

·         Dates are from Jan 1 –Nov 30 2009

·         $8,000 or 10% of the homes worth whichever is less

·         First time home buyers only

·         First time home buyer may also be someone who previously owned a home but not in the last three years

·         You must live in the home for a minimum of three years

·         Individual borrowers must make less the $75,000

·         Joint borrowers combined must make less than $150,000

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There is a misconception surrounding biweekly payments that a lot of borrowers have. It is no doubt correct to say that biweekly payments can save you money. It pays your mortgage off quicker and helps build up equity faster. However often times lenders use intermediary companies to handle and set up the biweekly payments. These companies often charge upwards of $500 dollars to set up the biweekly account as well as charge a per transaction fee.

 

The misconception here is you really do not need to pay anybody to set this up. The whole notion behind the biweekly payment is by paying your mortgage every two weeks you are making 26 payments a year which equates out to 13 monthly payments per year or one extra payment. Why pay a third party upwards of $500 for this option as long as you are self disciplined enough to make an extra payment per year keep your set up fee and per transaction fee for yourself.

 

The bottom line here is the faster you pay off your mortgage the better. However there is no need to pay someone to help you facilitate this goal. With some simple self discipline you can save your money and achieve the same goal. And if you happen to find a lender that offers this service for free, great take advantage of it otherwise you can very easily do it yourself.

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As we head into the spring housing market there a lot of great homes that are out there. You have your pick of the litter so to speak of homes. There are some incredibly cheap finds out there, you just need to be patient and look. If you are a first time home buyer now is as good a time as any to look for your first home. First off, if you are a first time home buyer and close on a purchase between now and the end of the year you can qualify for an $8,000 tax credit. That is a big incentive that the Government is giving to help stabilize the housing market. Aside from the tax credit and the fact that there are great buys to find out there here are some highlights to follow if you are a first time home buyer. Happy house hunting.

·         Find a seasoned real estate agent. One that knows the market you are looking in.

·         Get pre approved before you start looking at a home. There is no point in looking if you cannot secure financing to purchase it.

·         Some bullet points of what to expect as far as mortgages go

1)      Putting less than a 10% down payment, FHA is most likely your best bet for financing

2)      Any down payment over 10% and a conventional mortgage is your best choice

3)      The least amount that you can put down is 3 ½% through FHA. Although in some instances for those that qualify you can still get 100% financing through a VA loan or through a USDA loan.

4)      If you have low to moderate income and are looking to purchase a moderately priced home as a first time home buyer you may want to check and see if you qualify for a CHFA loan

·         Ask your real estate agent or lender to explain the process and steps with you in the beginning. The more that you know about the process the smoother the transaction will be. Besides getting a good idea of how the process takes place keeps everyone involved on the same page.

Applying for and shopping mortgage rates is a click away www.EversleyCapital.com

Just to refresh everyone. PMI or (principal mortgage insurance) is required when you are purchasing a home and are receiving conventional financing or FHA financing and your down payment is less than 20%. In fact if you are putting down more than 20% you should seek conventional financing as FHA requires PMI at any LTV or loan to value.

 

The same holds true for refinances as well. If you are refinancing and have less than 20% equity in your home you will have PMI. If you have more than 20% you will be looking for conventional financing and not FHA.

 

In past years PMI was never tax deductable, which is why a lot of people looked to “piggy back” mortgages to finance purchases or refinances that did not have a lot of equity. They would use a first mortgage at 80% loan to value and seek a second mortgage to make up the difference. Also they are referred to as 80/10/10’s or 80/15/5’s meaning an 80% first mortgage 10% second mortgage and 10% down payment or equity. Same scenario holds true for the 80/15/5.

 

Federal Law in recent years has changed that. They have allowed PMI to be tax deductable. In fact it was just extended through 2010 and has been in effect for transactions that closed from 2007-2010. Federal law allows borrowers who have up to $100,000 in adjusted gross income to deduct 100% of their PMI premium. Borrowers with adjusted gross income between $100,000 and $109,000, their deductions are allowed to be phased out in 10% increments.

 

Applying for and shopping mortgage rates is a click away www.EversleyCapital.com

 

UPDATE:

 

            I recently wrote that the Real Estate investor in this market, you know the one who has a long history of owning and managing properties had been squeezed out. Freddie Mac and Fannie Mae both adopted guidelines stating that if you have more than four mortgaged properties they will not finance the fifth property. That left investors virtually UN mortgage able.

 

 

            This guideline was extremely hard to wrap my hands around. Why shun the one borrower that has the ability to become a buyer in this market? Aside from being sarcastic who limits the type of borrower who has a proven track record of owning multiple properties, paying their bills on time and quite simply is an investor? In a beaten down real estate market the first two types of borrowers that are going to start the buying recovery are first time home buyers and investors. The first time home buyers are going to see value in buying cheap property and the investor obviously said is looking for that great investment.

 

            Thank God somebody at the top of the GSE’s decided to use some common sense and revise their previous stance. In a memo from Fannie Mae, announcement 09-02 they have since revised their policy. They have issued guidelines for borrowers to finance up to 10 properties.  

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The 1031 exchange or “the real estate exchange” or “tax deferred exchange” as it is also known as was created by the I.R.S in the early 90’s. It is a great tool for the real estate investor. In fact one that I believe that is not used enough.

In a 1031 exchange there is a sale and purchase of “like” properties. Using the 1031 exchange can offset and even sometimes avoid capital gains tax. KEEP in mind there are very important and strict guidelines to adhere to. Definitely consult your accountant as well as your attorney when looking to perform the transfer.

The main benefit of doing a 1031 exchange is the potential offset of capital gains but also the ability to sell an investment property and use the proceeds at a later date to purchase a like property.

Some of the highlights are that the properties need to be “like” properties. Selling a single family and purchasing a single family. Not selling a multi family and buying a condo. The transaction has an allotted time frame window where the purchase needs to take place. All proceeds from the sold property must be used in the purchase of the new property. There must be an actual exchange overseen by a Qualified Intermediary.

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Abstract   of title- A written history of all the transactions that bear on the title to a specific piece of land. An abstract of title covers the time from when the property was first sold to the present. Used by the title company to produce a title binder

Acceptance- A property seller’s formal, written approval of a buyer’s offer

Acre- A plot of land 180 by 242 feet is one acre.

Ad valorem tax- A tax based according to item value only, usually property tax based on the just or fair market value of the property.

Add on Interest-  Interest that is computed at the beginning of the loan, then added to the principal, so that all must be repaid, even if the loan is paid off early.

Addendum- Any change made to a contract

Additional principal payment- Extra money included with a loan payment to pay off the amount owed faster. Over time, this practice reduces the amount of interest paid.

Adjustable gross income- All the income you received over the course of the year such as wages, interest, dividends and capital gains minus things such as business expenses, contributions to a qualified IRA, moving expenses, alimony and capital losses. The adjusted gross income is used to calculate federal income tax.

Adjustable rate mortgage (ARM)- Home loan in which the interest rate is changed periodically based on a standard financial index. Most ARMs have caps on how much an interest rate may increase.

Adjustment period- The time between changes in the interest rate in an adjustable-rate mortgage.

Agency closing- The use of a title company to supervise the meeting where the property is transferred and mortgage is settled. As opposed to having an attorney conduct the closing

Agreement of Sale- A document in which a property’s buyer and seller approve the price and other terms of the transfer of title.

Alternative mortgage- A mortgage that is not a conventional type loan

Amortization- The payment of a debt in installments over an agreed-upon period, during which principal and interest are paid off.

Amortization schedule- A detailed table showing the amortization of a loan which includes the beginning principal amount, period payments, the interest portion of each payment, the principal reduction portion each payment, and the ending balance.

Amortization term- The time required to amortize (repay) a mortgage loan. The amortization term is usually expressed in months. A 30-year fixed-rate mortgage, for example, has an amortization term of 360 months.

Amount Financed- The amount of the original money borrowed

Annual percentage rate (APR)- A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing.

Application fee- Fee charged for processing a loan application

Appraisal-  An estimate of market value placed on all real property, based upon like comparables. For example a colonial is compared to a colonial

Appraisal fee- The cost of having an appraiser determine the value of the property

Appraised value- The actual market value determined by the appraiser

Appreciation- An increase in the value of a property

APR- A yearly rate of interest that includes fees and costs paid to acquire the loan. Lenders are required by law to disclose the APR. The rate is calculated in a standard way, taking the average compound interest rate over the term of the loan, so borrowers can compare loans. In mortgages, it is the interest rate of a mortgage when taking into account the interest, mortgage insurance, and certain closing costs including points paid at closing.

As is condition- A stipulation that a property or item is sold in its current physical state, with no warranties.

Asking price- The amount of money the seller requests for the property

 Assessed value- A state or local government’s determination of a property’s worth for tax purposes.

Assessment-  A state or local government’s determination of a property’s worth for tax purposes. Also a levy placed on a property, in addition to property tax, to pay for improvements such as sidewalks or street lighting.

Assignor- A person who transfers property to another.

Assumable mortgage- A home loan that can be transferred to another borrower under the existing terms

Assumption clause- A provision in a mortgage contract that allows a buyer to take responsibility for the loan from the seller.

Assumption fee- A lender’s charge for updating records when a buyer takes responsibility for a mortgage from the seller.

Back end ratio- The sum of the house payment and all other monthly debt like credit cards, car payments, student loans and the like that are divided by before-tax income.

Backup offer- A second offer for a property if the existing one that is first falls through

Balloon mortgage- A loan that has regular monthly payments which amortize over a stated term but call for a final lump sum (balloon payment) at the end of a specified term, or maturity date, such as 10 years.

Bank- An institution that acts as a financial intermediary by receiving money from depositors and lenders and also lending to borrowers. A bank must be chartered and meet certain criteria. Chartering is done by the Comptroller of the Currency for national banks, by the Federal Reserve System for state member banks, by the Federal Deposit Insurance Corporation (FDIC) for insured banks, and by state regulatory agencies. Also referred to as a commercial bank.

Bargain sale- Transfer of a property for less than market value

Basis point- One one-hundredth of a percentage point. The difference between 4.13 percent and 4.14 percent is one basis point.

Bidding war- Multiple, competing offers for a piece of property or item that escalate the price.

Bilateral contract- A legal agreement in which both parties promise to give each other something. A purchase agreement in which the buyer promises to give money and the seller promises to transfer property is a bilateral contract.

Binder- A temporary insurance contract that provides proof of coverage until a permanent policy can be issued.

Biweekly mortgage- A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 biweekly payments are each equal to one-half of the monthly payment. The result for the borrower is a substantial reduction in interest payments because the mortgage is paid off sooner.

Blanket mortgage- A loan secured by more than one property. Usually refers to commercial property.

Borrower- The person who is applying for the mortgage

Boundary- The line dividing adjacent properties.

Breach of contract- Failure to abide by terms of a legal agreement

Breach of covenant- Violation of a promise made in a contract or property deed.

Break even point- In home finance, the break-even point often refers to the time it takes to recoup the costs of refinancing a loan or paying discount points.

Bridge loan- A loan that “bridges” the gap between the purchase of a new home and the sale of the borrower’s current home. The borrower’s current home is used as collateral and the money is used to close on the new home before the current home is sold. Some are structured so they completely pay off the old home’s first mortgage at the bridge loan’s closing, while others pile the new debt on top of the old. They usually run for a term of six months.

Broker premium- Sum paid to a mortgage broker as the “middleman” in the mortgage process between the lender and the borrower. Lenders offer brokers wholesale rates; brokers add a surcharge to cover the cost of underwriting to arrive at the rates charged to borrowers.

Broom clean- Ready to be cleaned and painted. The term does not mean immaculate or spotless or even necessarily clean.

Buy down mortgage- A home loan in which the lender charges below-market interest in exchange for discount points.

Buydown- The process of trading money for a lower mortgage rate. The borrower “buys down” the interest rate on a mortgage by paying discount points up front.

Buyer broker- One who earns a commission from the buyer of a property in exchange for finding a seller and assisting in negotiation.

Buyers Agent- In real estate deals, it is an agent who represents and owes allegiance and fiduciary obligations to the buyer.

Buyers Market- The condition when sellers significantly outnumber buyers, driving prices down.

Buyers remorse- A buyer’s second thoughts after closing on a house

Bylaws- The written rules governing an organization such as a homeowners association.

Cancellation Clause- A provision in a lease or other contract that spells out under what conditions the parties can call off the deal.

Cap- The top limit on the amount the interest rate can increase during a single time period of an adjustable-rate mortgage. Every ARM has two caps: a periodic cap, which limits the periodic changes to the interest allowed in the loan agreement, and a lifetime cap, which governs the total increase that can be imposed during the life of the loan.

Cash flow- The money an investment produces after subtracting cash expenses from income. It is typically used in commercial real estate

Cash out refinance- The taking out of a new mortgage on the same property in which the amount borrowed is greater than the amount of the previous mortgage. The difference is taken out in cash.

Central bank- Regulates monetary policy for a nation, such as the Federal Reserve Bank does in the United States, or a group of nations, such as the European Central Bank. Typical functions include issuing currency, adjusting interest rates to control the supply of credit, regulating banks, and ensuring smooth functioning of financial markets.

Certification of deposit index- A table of interest rates paid on certificates of deposit that is used to determine interest-rate changes for adjustable-rate mortgages.

Certificate of eligibility- A document that verifies that the bearer is eligible for a loan guaranteed by the Veterans Administration.

Certificate of occupancy- Authorization by a local government giving permission for someone to live in or use a building that has just been constructed or renovated.

Chain of title- Legal records that trace ownership of a property from the most recent owner to the original owner.

Charge off- An unpaid portion of a bill that a lender has accepted will never be paid and has recorded on the books as a bad debt. It is a serious negative item on a credit report.

Clear title- Ownership of property that is free of all claims or disputed interests

Closing- The meeting at which a sale is completed. It is also where the signing of a refinance will take place

Closing costs- Expenses incurred by buyers and sellers when transferring ownership of property. Closing costs include lender fees, title charges, government recording fees, escrow and pre-paid items. There are also closing costs associated with a refinance as well

Closing statement- A standard form that discloses costs at completion of the sale of real estate, including discount and origination points, settlement fees, title insurance, brokers’ fees and commissions and money set aside in escrow. Typically called a HUD-1 statement.

CLTV- The total amount of all mortgages on a property. For example if a borrower has a 100k first mortgage and a 30k second mortgage they owe 130k. If the property is worth 200k the CLTV would be 65 percent

Collateral- Property pledged as security to a debt. If the borrower fails to repay the loan, the lender may gain ownership of the collateral and sell it to recover the money.

Combined loan to value ratio- Also called the CLTV, the total amount of all mortgages on a property. For example if a borrower has a 100k first mortgage and a 30k second mortgage they owe 130k. If the property is worth 200k the CLTV would be 65 percent

Commercial property- A property that is zoned for business use and not residential.

Commitment- An agreement, often written, in which a lender promises to lend money on certain terms for a specified period.

Commitment fee- A sum paid by a borrower to a lender in exchange for a promise to lend money on certain terms for a specified period.

Comparables or comps- Used in real estate appraisals. Using like properties. For example a colonial is compared to a similar colonial with the same amenities, square footage etc.

Comparative market analysis- A method of estimating a property’s value by comparing the sales prices of similar properties that have sold recently. This is typically done by a Real Estate agent who is looking to list a sellers property for sale

Conditional commitment- A promise by a lender to make a loan if the borrower meets certain requirements.

Condominium- A type of property in which owners hold title to the space they occupy in a multi-unit dwelling. The property is divided between living units and common areas such as parking lots, driveways, elevators, and recreation areas such as playgrounds and swimming pools. Common areas are collectively owned by all owners.

Conforming mortgage- A conforming mortgage is one that meets the requirements to be eligible for purchase or securitization by one of the government-sponsored enterprises such as Fannie Mae or Freddie Mac

Construction loan- A short-term, interim loan to pay for building a house. The lender pays out the money in stages, called draws, as work progresses.

Construction to permanent loan- A loan that pays first for construction, then for a long-term, traditional mortgage, as distinct from a construction loan followed by a separate mortgage loan.

Contingency- A condition that must be met for the property sale to go through, such as a satisfactory home inspection or approval for a mortgage.

Contract- In real estate parlance, the contract is the legal document by which buyer and seller make offers and counteroffers. The real estate contract describes the property, includes or excludes items in the property, names the price, apportions the closing costs between the parties and sets forth a closing date. When buyer and seller agree on terms and sign the same document, the property is said to be “under contract.” More formally known as agreement for sale, purchase agreement or earnest money contract.

Contract for deed- An agreement for sale of property in which the buyer takes possession while making payments, but the seller holds title until full payment is made. Also called a land contract.

Contract for purchase- A document in which a property’s buyer and seller approve the price and other terms of the transfer of title. Also known as an agreement of sale, a purchase contract or a sale contract.

Conventional mortgage- Usually refers to a fixed-rate, 30-year mortgage that is not insured by the FHA or Veterans Administration. It is a Fannie Mae or Freddie Mac mortgage.

Convertible mortgage- An adjustable-rate home loan which the borrower has the option at specified times of changing into a fixed-rate loan.

Convertible arm- An adjustable-rate home loan which the borrower has the option at specified times of changing into a fixed-rate loan.

Conveyance tax- A tax on the transfer of real property.

CODI- A table of interest rates paid on certificates of deposit that is used to determine interest-rate changes for adjustable-rate mortgages.

COFI- A yield index based upon the cost of funds to savings & loan institutions in the San Francisco Federal Home Loan Bank District. It is one of the indexes commonly used to set the rate of adjustable rate mortgages

Credit - Money that a lender gives to a borrower on condition of repayment over a certain period.

Credit Bureau - A company that collects and sells information about how people handle credit. It issues credit reports that list how individuals manage their debts and make payments, how much untapped credit they have available and whether they have applied for any loans. The reports are made available to individuals and to creditors who profess to have a legitimate need for the information. The three major national credit bureaus are Equifax, Experian (formerly TRW) and TransUnion. Often called credit reporting agency.

Credit history- A history of a borrowers repayment over time.

Credit rating- A judgment of someone’s ability to repay debts, based on current and projected income and history of payment of past debts. Sometimes expressed as a number called a credit score.

Credit report- The collected data of your past repayment history. It is used to determine if you are able to qualify for any new debt based on your past history

Credit reporting agency- A company that collects and sells information about how people handle credit. It issues credit reports that list how individuals manage their debts and make payments, how much untapped credit they have available and whether they have applied for any loans. The reports are made available to individuals and to creditors who profess to have a legitimate need for the information. The three major national credit bureaus are Equifax, Experian (formerly TRW) and TransUnion. Often called credit reporting agency.

Credit score- The rating number of your credit history.

Credit repair agency- A company that sometimes for a fee will help in cleaning up a persons credit report. Fixing any errors or having negative information removed

Creditor- Is any person or company to whom you owe money to

Debt consolidation- The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. It’s also called a consolidation loan.

Debt to income ratio- The percentage of before-tax earnings that are spent to pay off loans for obligations such as auto loans, student loans and credit card balances. Lenders look at two ratios. The front-end ratio is the percentage of monthly before-tax earnings that are spent on house payments (including principal, interest, taxes and insurance). In the back-end ratio, the borrower’s other debts are factored in.

Deed- A document that provides title to property and is filed with a country recorder.

Deed in lieu of foreclosure- A deed in lieu of foreclosure is a real estate transaction in which the owner is behind on the payments, and relinquishes all ownership rights to the mortgage lender. The lender, in many cases, forgives the outstanding debt. In essence, the owner hands the keys to the lender and walks away.

Deed of trust- A legal agreement that allows the lender to ask a title or escrow company to begin foreclosure proceedings on a property if the borrower stops paying the loan.

Default- Failing to fulfill your obligation of the loan. For example falling behind on payments

Delinquent mortgage- A home loan in which the borrower has failed to make payments on time, as specified in the loan agreement.

Depreciation- The gradual loss of value of a building or other property because of age or natural wear. Automobiles in particular depreciate steeply in their first few years. In taxes, this is the deduction you are allowed for the wearing away and expensing over time of such items as office equipment, vehicles, buildings and furniture. For tax purposes, the IRS determines the amount of time such material is expected to last, and you depreciate, or spread the cost of, the asset over its estimated useful life rather than deducting the entire cost in the year you got it.

Disclosed dual agency- Disclosed to all parties involved

Discount point- A sum a borrower pays to a lender to decrease the interest rate of a mortgage. A point equals 1 percent of the loan amount.

Discount rate- The interest rate at which financial institutions that are members of the Federal Reserve System (Fed) may borrow on a short-term basis directly to cover temporary deficiencies in the bank’s reserves. Banks borrow from the Fed as a last resort because frequent borrowing would raise concern by bank regulators.

Distressed property- Property that is in poor condition, or whose owner is in poor financial condition.

Down payment- An initial, partial payment on a purchase.

Draw- A payment, made periodically, to a construction contractor or subcontractor as work progresses. A draw is part of a construction loan.

Draw period- On a line of credit, the draw period is the fixed time when a borrower can make withdrawals from the account. Once the draw period expires, borrowers may be able to renew the credit line or may be required to pay the outstanding balance in full, or over time.