The Four Parts of the Mortgage Payment - PITI

May 3rd, 2011

House dollars When considering how much of a mortgage payment you can afford, be sure to consider all four parts of your total monthly amount, not just the amount that you'll be borrowing. This four-part payment is referred to as PITI - Principal, Interest, Taxes and Insurance.

PRINCIPAL
This is the amount applied to the loan, which pays down the balance due.

INTEREST
Currently quite low, this percentage changes according to the economy. Based on the designated percentage rate, this is the cost charged for borrowing money.

TAXES
Once you learn what your property taxes will be, divide the number by 12. That will tell you how much you'll be adding to your monthly payment.

INSURANCE
It's best to insure your home for replacement value so you'll know if you have a total loss, you'll be able to rebuild the exact home again. Factors that determine the premiums can include the age of your home, where it's located (one issue is proximity to a fire station), materials used (brick or wood) and the size. The annual amount, divided by 12, will tell how much this will increase your monthly mortgage payment.

HOMEOWNERS ASSOCIATION DUES
Often your HOA bill is added to your escrow. If your Association annual fee is $600 per year, that will add $50 to your monthly house payment.

Obviously, it's important to take all four - Principal, Interest, Taxes and Insurance - into consideration when determining how of a house you can afford.

Should You Consider an Adjustable Rate Mortgage?

April 26th, 2011

Today's fixed interest rates remain low. Even so, some home purchasers are considering an adjustable rate mortgage (ARM). Here's a look at why it might still be the best mortgage for you.

They key feature of an adjustable rate mortgage (ARM) is that the percentage changes - or adjusts - after a specified time. However, the initial rate is quite a bit lower than the 30-year fixed rate. Often, even when the rate increases at the specified time, it can still be lower than the going rate for the fixed-rate loans.

There are 1-, 3- and 5-year ARMs which indicate how many years after the loan origination date your interest rate will change. Another variation of an adjustable loan is a 3/1, 5/1, 7/1 and 10/1. These are 30-year loans with a fixed rate for the first 3, 5, 7 or 10 years. At that specified year of the loan, it turns into into a 1-year ARM for each of the remaining years.

With today's market, houses cost less than they did a few years ago. This means people are able to buy a bigger, nicer house than could before. Add into this scenario of an ARM and you can buy even bigger or better because you will most likely qualify for a larger loan. Or, the lower interest rate means lower house payments.

Another scenario in which it makes sense to consider an ARM is if you know you will be moving within a couple years.Will you be transferred soon? Will you be starting - or adding to - your family and need a larger home? Obtaining an adjustable rate mortgage, knowing you'll be moving within a few years, could save you money due to the lower interest rates.

A lower house payment, if only for a year, can be beneficial. It's not uncommon to pay a few hundred dollars less per month during your initial year(s) of an ARM, compared to a fixed-rate loan. Using this extra money for remodeling, landscaping, purchasing furnishings, etc., can be a boost for you to get started.

Work with a mortgage broker who has extensive knowledge and experience. He or she can help you crunch the numbers and review the different scenarios to help you determine the proper loan for you based on your current situation and your future plans.

Special Homebuyer Tax Credit for the Military

April 19th, 2011

Tax Credit Last week was a special week set aside to honor our military men and women. If you are a member of the military, first of all I want to say "thank you" for your service to our country. Secondly, I want to share this information (if you know of a member of the military, please pass this on to them).

If you are thinking about buying a home, members of the military have a great opportunity. You can claim a Homebuyer Tax Credit, but you only have until April 30th of this year. This is tax credit is either 10% of the purchase price, or $8,000 - whichever is less. If this is not your first home purchase, you are eligible for either 10% of the purchase price or a $6,500 tax credit - whichever is less.

There are other benefits designed especially for you. One significant option is that you can purchase a home with no down payment! Talk to a professional mortgage broker for more information, so you can take advantage of this special tax credit designed especially for you.

Foreclosures and Fraud: A Correlation?

April 14th, 2011

Frustrated Woman New statistics that have recently been released suggest that there is a correlation between fraud and foreclosures. When reading an article in National Mortgage News, my immediate thought was, "why wouldn't that be a given?" Unfortunately, when people are in their worst situation, there are others that seek them. These fraudsters know that many are hanging by a threat and take advantage of that situation.

So, where is mortgage fraud happening most frequently?

Arizona, California, Florida, Michigan and Nevada have the highest risk of fraud. Along those lines, high unemployment and declining property values are all prevalent in these states as well.

On the other side of the equation, it makes sense that Kansas, Maine, Mississippi, South Dakota and West Virginia (the 5 least risky states) have index values that fall below the national average.

This is attributed to fraud schemes created by people who prey on those who are facing the possibility of losing their houses to foreclosure. One such scheme is a "rescue" opportunity that people, who are desperate, are likely to fall for.

Interthinx, the company who compiled the information, states that their most recent analysis shows that "fraud risk is on the rise again and that fraudsters are migrating to stay ahead of efforts to stop them." California has some of the most risky cities, with 12 of the top 20 in the nation.

Even though the economy seems to be on the upswing and unemployment figures are looking better, there are still a lot of people hurting while attempting to stay in their houses. Others are struggling to make the right purchase. If you are seeking assistance for yourself or a family member, be sure to work with a reputable mortgage broker.

Case Study: Subordinate Loan Almost Halted Refinancing

April 5th, 2011

Happy Mortgage Two previous posts discussed refinancing your current mortgage and how a subordinate loan can affect that process. But there is nothing better than a real-life situation to explain how intertwined your finances are.

A recent customer had difficulty selling their house due to the current housing market. They chose to take their house off the market and remodel instead. It would be easy to refinance, right? Their thought was that with a lower mortgage payment, they would have available funds to make the upgrades in their current home.

Here's a brief outline of what happened:

The balance owed on their 1st mortgage was $99,000 and $26,000 was due to a different bank on a 2nd mortgage.
They wanted to combine the two loans into a $125,000 re-finance.
Their house only appraised at $127,500 (seven years ago, it was valued at $141,000).
Because a different bank had the 2nd lien on the house, they had the right NOT to subordinate that loan - and chose not to - citing that the total of the loans were too close to the appraised value of the loan.

This customer was surprised, because they were never late on a payment, both hold full-time jobs and have a very good credit rating. Their hopes of remodeling disappeared. They felt all was lost, until a family member suggested they call Grandview Lending. Here's what happened next.

We found a lender that agreed to a re-fi, consolidating the two loans.
Since we serve the customer, not just the mortgage, we felt they were being over-charged for their homeowners insurance, so referred them to a different insurance agent.
The customer had closing costs, but also received a reimbursement from their escrow which resulted in little out-of-pocket expenses.
Overall, their monthly payment was lowered by about $300.
They chose to pay a higher amount per month, and will now be able to pay off their new loan about 7 years sooner.
They have a new mortgage, less costly insurance, will pay their home off sooner and have completely remodeled their current home.

Of course, not all situations turn out this way. However, there are many times we can assist those who feel they have no other options. This is the benefit of working with an experienced mortgage broker. More options, more knowledge and more alternatives.

Second Mortgages are Subordinate to the First

March 30th, 2011

A term that is not commonly known, but often taken into consideration when discussing debt, is subordinate. When you have a first, or original, mortgage and also a second mortgage, what happens when you want to sell your house, refinance or cannot make your payments? What is the 'pecking order' of importance, or are they the same?

Investopedia provides this definition: A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as a "junior security" or "subordinated loan".

They further explain that in the case of a defaulted debt, creditors with subordinated debt wouldn't get paid out until after the senior debtholders were paid in full. Therefore, subordinated debt is more risky than unsubordinated debt.

So why do you need to know this? A second mortgage is an example of subordinated debt. If you have a second mortgage, this loan is subordinate to the original mortgage. Therefore, the first mortgage has a higher priority over your other mortgage debt(s) and will be paid first if you default on your loans.

This makes sense, but it can have some negative implications if you want to refinance. The originator of the second mortgage has some say regarding what happens to your loan if you want to refinance. Because subordinate loans often have tougher requirements and restrictions (and higher interest rates), the lender can deny a request for refinance, even if your primary (or first) mortgage holder has agreed.

This decision can actually impede your desire to refinance your mortgage, even when you prove that this process would reduce your monthly debt and allow you to pay the loan off sooner.

This scenario proves the importance of working with a knowledgeable mortgage broker whether you're looking for a first mortgage, second mortgage or a refinance to merge the two.

My next post will provide a Case Study that involved a subordinate loan. You will meet a local couple who faced the issue of their second mortgage lender not 'permitting' a refinance, and how Grandview Lending was able to assist them.

Mortgage Insurance Premiums Raised by FHA

March 22nd, 2011

In my continuing effort to keep you up to date on the changes in the mortgage industry, I thought the announcement of an increase in FHA's annual mortgage insurance premium would be a timely topic. This change will take effect in April of this year, which is just around the corner.

According to HUD, the reason behind this increase is to strengthen FHA’s Mutual Mortgage Insurance Fund. This will help ensure the continuation of FHA lending. Without FHA options, fewer people would be able to purchase a home.

Key to this increase is that it only affects the FHA monthly premiums; the upfront percentage remains the same.

This table shows how the rate increase will affect a mortgage payment:

(source: Zillow.com)

The saying "timing is everything" is quite appropriate. As you can see by this table, the monthly payment for a newly purchased $400,000 home will increase by over $80. Not quite in the market for a home in that price range? The $100,000 homes will see an increase in monthly payments of more than $20; that's an extra $240 a year!

To determine what's type of mortgage is best for you, contact your trusted mortgage broker. Knowing all the facts and options available to you is the best way to approach this buying decision!

Beware of Loan Modification Scams

March 15th, 2011

Creative financing is often part of a house purchase or refinance. When the process is legal and with a trusted mortgage professional, it can be a great opportunity for both the buyer and the seller to close the deal - or for the current homeowner to remain in their home. Unfortunately, the word trusted is often forgotten when someone begins to feel desperate.

This story, coming out of New York State, is one that exemplifies why you should work with someone you know or who was referred by a friend, relative or previous customer.

According to National Mortgage News, a lawsuit has been filed against Save My Home, a group of companies that targeted low-to-middle-income homeowners who were struggling with their mortgage debt and were afraid of foreclosure.

The lawsuit charges that these "loan specialists" would find homeowners on the Internet, through cold calling or print ads. They promised to lower the monthly mortgage payments and asked for payment to renegotiate the debt for the homeowner. Other times, they told the homeowners to stop sending in their mortgage payments and that it was best to cease all communication with the loan holder. When they stopped sending in their payments, they fell further behind, increased their debt, accumulated lender fees and missed payment penalties.

Throughout this entire process, these targeted homeowners had no knowledge that there were HUD-approved housing counselors available to assist them with loan modification services. They were scammed because they believed what they were being told, they didn't investigate and were feeling desperate.

We urge you to learn from this scenario - it's just one more example of "if something sounds too good to be true..." Call a trusted mortgage broker to verify what you are being told.

Short Refi Programs Face Discontinuation

March 8th, 2011

We're hearing - if not great, at least improving - news in the housing industry. Even so, there are still many people struggling to keep their houses and hoping for programs to help them do just that. Last week, the House Financial Services Committee voted down two programs that could have provided assistance.

The Federal Housing Administration's Short Refi Program: designed to help those who are upside down (sometimes called under water) which helps homeowners obtain a new FHA-insured loan.

The Department of Housing and Urban Development's Emergency Homeowner Loan Program: designed to provide mortgage assistance to unemployed borrowers through loans up to $50,000 with 0% interest.

Both of these bills propose ending the programs and it is anticipated that they will reach the House floor soon.

Rep. Judy Biggert (R-Ill.), who co-sponsored both bills, explains why she feels they should be eliminated. "A government program that spends more to save a single borrower than it costs to buy a home is no help at all – it’s just a waste of taxpayer money. We need to stop funding programs that don’t work with money we don’t have."

On the other hand, Rep. Maxine Waters (D-Calif.), who worked with HUD to develop both programs, counters Rep. Biggert with this response. "I am very disappointed in my colleagues on the opposite side of the aisle, who in their mania to achieve fiscal austerity at all costs, moved to cut two nascent programs designed to really help struggling homeowners," Waters said.

It will be interesting to see what happens with these two programs. Whether they are closed down or remain as assistance programs, these are not the only two options. If you're struggling with your current mortgage, contact your trusted mortgage broker.

Grandview Lending has a staff of professionals ready to assist and help guide you to make the best decision that is right for your particular financial situation.

Understanding Cash-out Refinancing

March 1st, 2011

You might have chosen to remain in your home rather than move. But that decision comes with the decision to access some cash to remodel. The equity in your home could serve as a vehicle to do just that, and a cash-out refinance might be the answer.

The Top 4 "thumbs-up" of cash-out refinancing

When using these funds to pay off credit cards or other high interest debts, you'll improve your cash flow by merging all the debt into one payment. Though the payment is larger, it will most likely be less than the total of all the other bills.
With fewer bills carrying balances due, you will most likely improve your credit score.
You will realize the tax benefits of the deductible home mortgage interest.
You can use it for whatever you wish. There is a growing trend where people are using some of the money as "emergency funds" so they have it readily available.

The Top 4 "thumbs-down" of cash-out refinance

This is a new mortgage, so you will have to pay fees ranging from hundreds to thousands of dollars in closing costs.
If you borrow to the full value of your home, there is risk of being upside down if you want to sell within a few years.
You might extend the length of time you'll be making your mortgage payments, possibly going back to the full 30-year loan.
You might find yourself in worse shape. If you have difficulty managing money, you might find yourself returning to the credit card habit. Then you'll have a higher house payment, plus new debit on the credit cards you just paid off. This will place you in a more difficult place than you were prior to the refinance.

When you're ready to tap into the equity of your home, consult with a professional, dependable mortgage broker. He or she will be able to help you decide, depending on your specific financial situation and goals, which type of loan will best serve your needs.