What is a Subprime Mortgage?

February 22nd, 2011

Anyone who listens to the news, reads a newspaper or surfs the internet has heard the term subprime mortgage. This past year has been riddled with stories about mortgage fraud, delinquencies and foreclosures. All of these are good reasons why it's best to work with a reputable mortgage broker. This ensures you receive the proper guidance and education necessary to make a proper decision when buying your home.

With all the talk about subprime mortgages, I thought it would be helpful to explain what is often called a "bad credit" mortgage. This type of mortgage is offered to potential buyers who have a high debt-to-income ratio, cannot verify their income or have a poor credit history.

Subprime mortgages:

involve higher risk, so require a larger down payment
have higher interest rates (from 1% - 5% higher) due to that risk
frequently have a higher loan-to-value ratio
commonly include a prepayment penalty
often include a balloon payment

If you have a credit score of less than 620, a subprime mortgage might be the answer for you if you're having difficulties qualifying for a conventional loan. If you currently own a home, you can use a subprime loan to clean up your credit. Once that has been accomplished, you can then refinance for a lower rate on the balance that remains on your mortgage.

If you believe you qualify for a subprime mortgage, whether for a purchase or refinance, we'll be happy to work with you to determine the best alternative for you and your specific financial situation.

Will the Wealthy See a Cut in Their Mortgage Deduction?

February 15th, 2011

There are a number of news articles and blogs - along with many interesting comments - regarding yesterday's release of President Obama's 2012 budget. One item of interest is the home mortgage deduction.

Interest on a home mortgage is currently deductible on an income tax return, filed jointly, if the loan is less than $1 million ($500,000 for individuals). The reason for the loan - whether for a home purchase or remodel - doesn't matter. If you have a mortgage loan, you receive the deduction.

Included in this new budget, homeowners that make over $250,000 and file a joint return ($200,000 for individual returns) would see their interest deductions decreased.

Will this discourage people from buying a house? Will this discourage retirees from purchasing a vacation home? Will this affect the housing market right when it's starting to improve? Will this help the national deficit? There are a lot of questions to be answered.

What do you think?

Understanding the Closing Process

February 8th, 2011

As the housing market sees a slight improvement, and many sources are stating the general public is feeling better about the economy, it seems natural that we'll see an increased interest in house hunting. With that comes more houses on the market, more houses purchased and more mortgages written.

So let's say you found your dream home, and today is closing day. What is going to happen?

In a nutshell, Closing is the final step in the loan process, when ownership becomes yours. The title is transferred from the seller to you, the buyer. You'll sign the loan documents and will receive ownership of one more thing besides your house - you now own the mortgage!

Three terms to help you prepare - Closing Statement, Closing Costs and Closing Process.

Closing Statement

This is a detailed statement listing all of the charges you will pay, plus the loan funds you will receive.

Closing Costs

These costs are all the fees paid by you, the borrower, at closing. They include origination fees and loan processing fees.

Closing Process

You'll feel like you're signing your life away with all the papers that require your signature. You will:

Sign documents. These will be the agreement between you, the buyer, and the lender (terms and conditions of the mortgage) and the agreement between you and the seller (transferring ownership).

Pay closing costs and (possibly) escrow items.

Be sure to review all closing documents before signing them. If you have any questions, do not hesitate to ask. This is a major financial commitment and you must understand each step of the process and each document you sign.

At this point - congratulations! - the house is yours!

Home Sales on the Rise - LOVE it!

February 1st, 2011

February is the month we will hear the word "love" quite often as people think of Valentine's Day. People love their wife, husband, parents, children and pets. This over-used word also states that we love specific foods, warm weather, a certain jacket, a favorite restaurant, a walk on the beach ...

So I'm going to use the word for one more topic - home sales. The Census Bureau recently stated that 2010 had the lowest home sales in almost half a century, to the tune of only 321,000. That was a drop of over 14% from 2009, and the 5th consecutive year of decreasing sales.

So, what's to love? December saw a rise in sales. And according to National Mortgage News, new home supplies dropped from 8.4 months in November to 6.9 months in December. Additional good news: across the nation, mortgage brokers are now seeing an increase in purchase applications.

This, along with other economic indicators, shows that we are slowly pulling out of the recession. It appears that we are going to be able to love 2011. This means you might be able to start looking for the house you would love to have. And while looking, planning and preparing, it's probably time to give your current house that tender, loving care to get it ready for market.

And when you're ready, Grandview Lending would love to take care of your mortgage needs!

What Is A Home Appraisal?

January 25th, 2011

When you are applying for a home loan, whether to purchase a new home or to refinance your current home, you will need an appraisal. The best person to help guide you through this process is your mortgage broker.

An appraisal is, in essence, an opinion of the value of your home, determined by a licensed individual. The appraiser is normally chosen by the lender. Included in the report is the neighborhood, comparisons of other similar homes, what they are selling for, and the condition of your home. This completed assessment will normally cost between $300 and $500.

Preparing for an appraisal is the same as preparing to sell or show your home. Maintenance inside and out is essential. Inform him or her of new windows, flooring, a newly finished basement and any other remodeling recently completed.

When the numbers come in

If the appraisal comes in lower than you expect, it can affect or even prevent getting the loan. If you're buying, you can offer more down or the seller can lower the price - either way could allow the transaction to be finalized. If you're refinancing, you could dispute the appraisal. You will need to do a comp analysis to see where the differences are, and what might make your home more valuable. Verify that the appraiser is familiar with your town or neighborhood, specifically. You can also request a different appraiser for the second opinion.

Always remember that you want your house to show well so your appraisal will be as high as possible. And also remember that an appraisal is an opinion which can be changed, if you can provide the proper information to support your request.

Bi-weekly Mortgages Help Save Interest

January 18th, 2011

Most likely you've received your Mortgage Interest Statement, Form 1098, in the mail. This form shows the amount of interest you paid last year on your mortgage. Most people look at this statement with a sigh, seeing how much is going to interest rather than the balance of the loan.

If you're looking for a way to reduce the amount of interest, and pay your mortgage off sooner, you might want to consider a Bi-weekly Mortgage. This is a fixed rate mortgage that is scheduled for payment every two weeks instead of the normal once-per-month schedule.

The bi-weekly payment is half of the monthly payment, so most months you pay the same amount as you would with a monthly payment. However, paying every two weeks means you make 26 payments - or two extra payments - at half the amount, instead of just 12 per year.

You will reduce the interest amount paid, which results in a larger savings in interest payments. Also, the additional payments allow for a faster repayment of the loan amount, thus building up equity faster.

If you're considering a new mortgage, check with a professional mortgage broker. We, and I'm confident others, will welcome the opportunity to apply your numbers and show you the results of a regular, 30-year fixed mortgage and a bi-weekly mortgage. Then, with the knowledge in hand, you can make the decision that is best for you and your financial situation, as well as your long-term goals.

Common Mistakes Mortgage Shoppers Make

January 18th, 2011

Quote Buying a home, and getting a mortgage, is probably the biggest financial decision you’ll ever make. Shopping for a mortgage isn’t like shopping for car insurance or buying something at the mall. It’s a totally different experience. Therefore, it’s best if you learn from other mortgage shoppers’ common mistakes so you can avoid making them yourself.

Calling and getting a quick rate quote. Unfortunately, if you do this, you’ll just be wasting your time. You need to find a lender who asks questions, so he really understands your particular financial situation. This way the lender can find a mortgage solution that’s right for you.

Comparing apples to oranges. You may think you can call a few lenders over a couple days and get some quotes. The process just doesn’t work this way. The rates and costs are always fluctuating, so the quote you may get is only good for that day until you lock the rates in. So you can’t truly compare quotes unless you get them all on the same day within an hour or two of each other.

Getting an estimate without providing all the facts about your financial situation. All the lenders you talk to need to have all of the same information ( your credit score, down payment amount, loan size, type of property, etc.) in order to analyze your situation and give you an accurate quote.

Working with a lender you don’t trust. You may encounter lenders who promise the “best deal.” Unfortunately, if it seems too good to be true, then it probably is. You should always work with a reputable mortgage broker. Ask family members, friends or co-workers for recommendations of lenders they’ve worked with. Also check out the lender’s client testimonials.

Everyone wants the best deal, because no one likes to overpay. Therefore, by following these tips, you’ll avoid making costly mistakes when looking for the right mortgage for your financial situation.

High Foreclosures Dismay Ben Bernanke

January 11th, 2011

There are a lot of people wanting to sell their houses today. Drive through most neighborhoods and you'll see a plethora of choices.

Many have been on the market for over a year, and are still up for sale. Some have stopped even trying, realizing it's a lost cause right now.

Some of the reasons people can't sell are:

they have lost equity in their house, keeping them from making enough to move up
they owe more than the house is currently worth
there aren't enough buyers who can afford to purchase
the prospective buyers can't sell their house

An article in National Mortgage News reports that Federal Reserve Board Chairman Ben Bernanke used the word "dismayed" when discussing the declining home values and high foreclosure rates that continue to occur. When addressing the Senate Banking Committee, he made some key points:

the Treasury Department has been very innovative in devising loan modification and other programs to address foreclosures. "There have been sincere government efforts to address the problem but they run into lots of bureaucratic and other difficulties".
unemployment is 10% (this past Friday, it dropped to 9.4%.)
there are a high number of vacancies which reduces the value of the neighboring homes

These factors, according to Bernanke, is "affecting household wealth, consumer spending and confidence." He is asking for principal reduction programs to "create incentives for homeowners to stay in their homes."

This might stop the flight of people who can afford their mortgage, but choose to walk away from them because they are upside down so severely they don't see a way out. If they can receive a principal reduction, they will be in a better position to sell and move up. Unfortunately, Senator Jeff Merkley, D-Oregon, noted that there hasn't been much action taken on such a program.

If you are feeling overwhelmed with your mortgage, are wanting to refinance to take advantage of the current low interest rates, or have questions about what's the best option for you, contact a trusted mortgage broker for assistance.

Ways to Avoid Foreclosure

January 11th, 2011

When homeowners buy a home, the last thing they’re thinking about is losing their home to foreclosure. But in the past few years, millions of Americans have lost their homes or are in the process of foreclosure. There are several reasons why homeowners may stop making timely mortgage payments, including loss of employment, divorce, sudden illness or medical emergencies, or inability to pay an adjustable mortgage rate that increases.

If you’re having difficulties paying your mortgage, by following these steps, you may be able to keep your home and/or protect your credit rating.

Negotiate with your lender. Depending upon your particular situation, your lender may:
- Wait to take legal action and agree to a repayment plan based upon your financial situation, called forbearance. You’ll be required to provide information to your lender to show you can meet the requirements of the new payment plan.
- Waive the payments, called debt forgiveness. (This rarely happens.)
- Agree to a repayment plan that spreads out your missed payments over a longer term.
- Allow you to refinance your mortgage, or change your loan terms, or extend the amortization period, called mortgage modification.
- Allow you apply for another interest-free loan to pay the missed payments, called a partial claim. This is only available on certain government loans and if you met the loan criteria.
Get government help. Contact a HUD-approved housing counseling agency for information on services and programs offered by Government agencies. If your home was bought with a Veterans Administration (VA) guaranteed loan, contact your nearest VA office for information.
Sell your home by yourself or through a real estate agent to pay off your mortgage loan to avoid foreclosure. You will need to discuss this with your lender to see if you qualify for this option. Consider selling your home as a short sale if the home is worth less than the amount you owe. You or your agent will need to talk with your lender to see if they’ll agree to a short sale. While a short sale does affect your credit rating, it won’t be as bad as a foreclosure.
Deed your home back to your lender, which will cancel the foreclosure. However, deeds-in-lieu of foreclosure will affect your credit the same as a foreclosure.

Above all else, beware of scams. If it sounds too good to be true, it probably is.

If you are feeling overwhelmed with your mortgage or you have questions about what's the best option for you, contact a trusted mortgage broker for assistance.

No Crystal Ball for the Mortgage Industry

January 4th, 2011

Tradition has it, in any industry, that early January is full of predictions. The same is true with the housing and mortgage industry. I've been reading many blog posts and newsletters, and though I'm not one to predict, I wanted to share what others believe lies ahead for us in 2011.

So, what is going to happen to the real estate market? I've read that some think home prices will rise in 2011. Kerry Kurry of Housing Wire expects home prices to rise in 40% of the major metro markets. Others, according Bob Willis with Bloomberg, believe we're in for a long recovery due to foreclosures and excess inventory. He reports that too many of both of these categories will keep the housing prices down.

So what about mortgage rates? Though this is my world, I still won't make a prediction! I'll defer to the NY Times article that quoted HSH Associates, an independent publisher of mortgage and consumer loan information. Their take on mortgage rates is summed up this way: "With this year’s historically low rates, there is a good chance that we have peaked, give or take a few basis points.” And now, of course, you're expecting me to tell you mortgage rates will go down. Writing for Financial Edge, Michele Lerner presents a mixed bag of predictions, but does state that a drop in mortgage rates for jumbo loans is highly likely.

So, what's really going to happen? Obviously, even the experts are in disagreement. Predictions are, in actuality, best guesses. Current mortgage rates are historically low. Home prices are, as well. (Ask anyone who placed their house on the market in 2010). Because of these two scenarios, right now is a great time to buy. Other than that? I'll keep you posted on changing trends during the year.

The one thing I can predict - actually, guarantee - is that Grandview Lending is dedicated to help you secure the right mortgage for your individual situation. Of that, I am completely confident!