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Writing With a Specific Purpose

December 21st, 2010

It has been just a little more than a year ago when I started this blog. When I decided to jump into blogging, I knew I had to have a focus and purpose. What I chose was to use this medium as a way to reach out and create communication to provide some insight into the sometimes confusing and often seemingly complex mortgage industry. This past year I shared the ups and downs (unfortunately more downs than ups), in an attempt to keep you up to date on what's happening with interest rates, the housing market and some general information I thought would be of interest. I also covered some of the key mortgage terms and discussed - very recently -  some unique, creative types of loans available.

But the purpose of this specific post is to wish each of you a very Merry Christmas. As we all spend time with family and friends - exchanging gifts, sharing meals and enjoying each others' company, let's all take a moment to appreciate what we have. No matter our situation, we don't have to look far to find someone who is less fortunate and possibly even suffering, cold or hungry.  I hope you'll join me in being ever so thankful for all with which we are blessed. 

Merry Christmas!

Mike Farrell

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Rent to Own Could Be the Answer for Buyers and Sellers

December 14th, 2010

Reports are out that the economy is improving, and some have even stated that the recession is officially over. Most also agree that it's going to be a long recovery in the real estate market. Therefore, I have shared with you alternatives to traditional mortgages. During the past few weeks you've learned about Seller Carry Back, Land Contracts and Short Sales.

Another option that might help you purchase or sell a home during the economic recovery is Rent to Own (or Lease to Own). If you've purchased your new house, but can't sell the "old" one, you might want to consider this alternative. Paying two mortgage payments can be difficult at best. Another scenario that could encourage a Rent to Own transaction is when you have a serious prospect who just can't come up with the required down payment.

Quite simply, the renter pays an established amount each month to live in the house (just like renting). The difference is, a portion of each monthly payment is applied toward a down payment and the rest is income for the seller. At the end of a pre-determined period, the renter has the option to purchase the house. The money paid as part of the rent is applied to the down payment.

This benefits the buyer/renter by being able to purchase the home they want, while being given the time to accumulate the down payment. The term of the agreement also gives a trial period in the house before buying. This allows for the opportunity to "try it out" to see if there are any major expenses that will be required.

Conversely, during this agreement period, the buyer is responsible for all repairs and maintenance as though they had already purchased the house. On the financial side, a normal contract requires the buyer to pay an option fee at the beginning of the agreement, plus a penalty fee if late on the rent payment(s).

This Rent to Own option can lessen the risk to the owner, a great benefit. When compared to "just renting it," the buyer normally takes much better care of the house because it is, in essence, his. If the renter does break the contract, the seller retains the option fee and the rent he has received as income.

Two major chances the seller takes are 1) if the buyer backs out, the selling or renting process begins all over again and 2) a buyer with the ability to purchase cannot buy the house because of the current agreement with the renter/buyer. 

Though all transactions have an element of risk, these options can be the answer for a number of buyers and sellers. As I always suggest, discuss all options with a professional mortgage broker before making a decision. You might just find you have more than one alternative.

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Seller Carry Back Is Financing Provided By Owner

December 7th, 2010

The two previous posts discussed what some might call "creative financing". In these tough economic times, people are finding unique (or little known) ways to enable the sale or purchase of a home. These non-traditional transactions help 1) buyers who might not normally qualify, 2) sellers who are having difficulty selling and 3) stimulate the local real estate market. No matter what your financial situation is, a licensed, professional mortgage broker is a valuable resource who can help you determine the best type of loan for your situation.

Basically, and simply put, seller carry back financing is owner-provided financing. This can be a win/win for both the buyer and the seller. The increasing interest of this type of financing is due to the difficulty some are having when applying for a traditional loan.

The seller offers to “carry back” the loan to enable the buyer to purchase the house directly from the seller. Both sign a promissory note that states the buyer will pay a designated amount, plus interest, on a scheduled monthly basis. The only difference between this and a traditional loan is that the seller receives the payments instead of a bank.

Just like a traditional loan, title is transferred and the buyer takes possession of the property. If the buyer does not continue making payments, the seller can legally foreclose and take back the property. At that point, he or she can sell it, this time with a traditional mortgage, or seller carry back again.

Some seller-financed transactions might be disallowed due to the SAFE Act, which was passed in 2008. This applies even when originating all loans - even seller carry-backs on your own home. An exception is when the homeowner sells to immediate family members. Sellers may also carry back, only every three years, on their own house to a non family member.

I participated in the small think tank group that helped develop and write the state test that was implemented two years ago to meet the requirements of the SAFE Act. Briefly, it serves as protection for the buyers, requiring that anyone originating a loan be licensed by the state. Who better to assist you, than a mortgage broker who knows this law from the ground up?

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Land Contracts - Who Owns the House?

November 30th, 2010

In my last post, I explained a short sale and how it can benefit buyers and sellers. Many people have poor credit scores due to the current economy. Let's say you were off work for quite a while and fell behind on your bills. You're now back to work, and meeting all of your monthly obligations. Things are looking up for you! However, your credit score will take a while to reflect this.

Unfortunately, you might be in a situation where you're being told you don't qualify for a mortgage. First, before you do anything else, check with Grandview Lending. We have a variety of mortgage options and one might be a good fit.

An alternative for those who cannot qualify is a land contract. You would make scheduled monthly payments to the seller who holds the title (has ownership) to the property. And he will do so as long as you have a balance remaining. As soon as the house is paid off, the seller will give you the deed.

You can choose to pay off the balance sooner than the contract requires by paying more each month or by a lump sum. Some have a scheduled date for the buyer to take ownership through a traditional mortgage. This is beneficial to give you a few years to build your credit back up to where it needs to be.

One major advantage when buying a house on land contract is that you don't have to make a large down payment. There are disadvantages as well, and the biggest one is that the seller often charges more because you're not required to make a large down payment, and he knows that you don't have many other options.  

I'm familiar with one couple who sold their house on land contract and required no money down and the buyer basically just took over the payments. At the end of five years, as stated in the contract, the buyer then purchased the house via a traditional mortgage for a predetermined price. The sellers had moved out of town, couldn't sell their house and didn't want to continue to make two house payments. The buyer had filed for bankruptcy a few years prior, so was unable to purchase through a traditional mortgage. This was a win/win, as both parties benefited. 

Before you make any purchase or any agreement, discuss all of your options with a qualified, experienced mortgage professional.

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Facing Foreclosure? Consider a Short Sale

November 23rd, 2010

As a mortgage professional, I am always reading articles that discuss real estate and mortgages. A recent article on CNNMoney.com discussed how banks are more efficient and are expediting short sale approvals due to the distressed properties throughout the United States.

A short sale allows homeowners to sell their houses for an amount that is less than what they owe on it. According to Redfin, a real estate web site, it used to be very difficult to sell a house using this method, and often the application was "lost" for months on someone's desk. But the market is different today. Lenders lose, on average, 30% on a short sale. But comparing that to the normal 50% loss on a foreclosure, it's clear why lenders are taking a positive stand on short sales today.

It is projected that short sales might accelerate an end to the foreclosure crisis because it will help people get out from under an upside down situation and replace that homeowner with one more capable of handling the payments.

One big advantage a short sale provides is that you will receive less of a hit on your credit scores. A foreclosure can negatively affect your FICO scores by approximately 200 points, while a short sale results in an average decrease of 100 points.

As with any situation when it comes to buying or selling a home, consult with a professional mortgage broker to ensure you're receiving proper guidance. Grandview Lending will walk you through a variety of scenarios to determine the best approach according to your situation.

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Think You Can't Buy a House? Think Again!

November 16th, 2010

In this economic period, many real estate investors are wanting to sell some of their houses. On the other side of the fence (or transaction), there are quite a few people renting who want to purchase. There are also first-time home buyers, families who have out-grown their starter home and boomers looking to downsize. But these sales and purchases aren't happening as quickly as most would like, and it's often because the buyer doesn't qualify for a mortgage. 

One of the reasons is poor credit scores. Peoples' credit has been damaged due to a disruption in employment, a cut in pay or reduced number of hours an employee is allowed to work. Whatever the reason, many who used to have great scores are now doing their best to recover to a respectable numer. So how do they buy a house? And if you have one to sell, how do you sell it?

There are many creative (and legal) alternatives to the conventional mortgage. For example, there are short sales, land contracts, rent-to-own options and sometimes the seller will carry the mortgage. Over the next few weeks, we will cover some of the most common, creative alternatives.

So don't give up. Talk to a professional, well-established mortgage broker to assist you. We're standing by...

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Buying a Second Home

November 9th, 2010

Unless you have no access to radio, TV, newspapers or the internet, you are aware of the difficulties the housing market is experiencing. Evictions, foreclosures, and people just driving away in the middle of the night are stories you hear every day. In this bleak time, though, there is also opportunity.

Many people have been planning and dreaming for years to own a second home. A growing number of baby boomers are retiring, and that means more people entering the "snow bird" category - living in the Northeast or Midwest during the warm weather, then becoming a snow bird in the winter when they head to Florida or Arizona. Some seek solitude in a weekend get-away home. Still others are looking for a place to vacation, then rent the house for income the other months of the year - with the intent to someday retire there. Do you fall into one of these categories? 

Now is the perfect buyer's market. Many locations are experiencing more than a 30% decrease in home values.

Purchasing a second home can be a great investment, but it's more difficult than a first-home purchase. It's best to have your first home paid off, or very close to being so. It is not uncommon to pay higher interest rates or to be required to make a larger down payment with a second home mortgage. All of these issues make it extremely important to work with a professional mortgage broker.

 

Pursue your dream.

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Two points - and we're not talking basketball

November 2nd, 2010

When you're preparing to purchase a house or refinance your current mortgage, you'll hear the term "points". This is a term that describes charges that you'll pay to the lender. There are two different types of points - origination points and discount points. 

Origination points are strictly an expense to obtain a loan to cover the lender's expenses. There is no benefit for the borrower, plus these charges are not tax deductible. Therefore, it is in your interest, as a borrower, to locate a lender - or a specific loan - where there is no charge for origination points.

On the other hand, discount points are paid to obtain a loan at a lower interest rate. Best described as pre-paid interest, it is equal to 1% of the total principal amount of the loan. If you're borrowing $150,000, each point will cost you $1500. Each point purchased will lower your interest rate. Either the buyer or the seller can pay the points, and it is not uncommon to share or split this fee. These dollars are tax deductible as home mortgage interest if itemized on Schedule A of your Form 1040.

So how do you decide whether to purchase points? How long you plan to remain in this house is a key issue, because you'll need to figure if the savings in interest will offset the up-front payment.

A professional mortgage lender who has your best interest in mind will help you with the calculations and guide you in the right direction. 

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No Tax Deduction for Mortgage Interest?

October 26th, 2010

In 2007, 36 million taxpayers claimed the mortgage interest tax deduction. This is one of the biggest - if not THE biggest - deductions the average American can claim. The thought of losing this option is unthinkable to many of us, but Steve Kerch made provided some interesting information on MarketWatch that might just support such a move.

He states that there is little evidence that the deduction encourages homeownership, which has been a goal since the end of World War II. Statistics show that 36 million people use the deduction, and that equates to just 23% of all taxpayers (a huge minority).

So, will we see this change in our taxes soon? Kerch doesn't think so. He said, that "the only way the mortgage-interest deduction will ever seriously be in play would be as a part of a complete overhaul of the U.S. tax code.

I'm guessing that will be a long way off, if ever.

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Refinance and Modification - What's the Difference?

October 19th, 2010

We all are hearing about home loan modifications and refinancing as opportunities for those who are struggling financially to stay in their homes. So, what's the difference between the two? Here are the basics, but before you decide, talk to a trusted mortgage broker so you know you're making the right decision.

Refinancing basically means that you pay off your current mortgage with a new mortgage that has better rates, payments and terms. You will have title, escrow and appraiser fees as well as taxes to pay with a refinance. Normally you are required to have equity in your home, a good credit score and proof of income.

Home Loan Modification is the process of changing the terms of a mortgage to a more affordable monthly payment, and a good credit score is not required. Often a lender will choose to modify the loan instead of foreclosing. With a modification, you have to show proof that your current loan creates financial difficulty. For those who have lost their job or have any other financial hardship, modification may be a good solution.

Which option is best? It depends on your situation. Understanding the pros and cons of each will help you decide. Just remember, there are a variety of options to help you stay out of foreclosure.

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