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Be a Power Buyer: The Pre-Qualification Process

by Allyson Hoffman

You're ready to buy a home, but do you really know how much you can afford?

Before you set out on your new home search, it is important to know how much you are able to afford.  This is referred to as being pre-qualified, which is different than being pre-approved and can be accomplished through a preliminary interview with your prospective lender.  During the pre-qualification process you will learn a number of different things about your finances such as:

  • How much home you can afford
  • The amount of down payment you will need
  • The minimum down payment and the advantages of higher down payments
  • What the bank feels you can afford for a monthly payment

Determining this information ahead of time will also assist your agent in finding the right properties for you to look at that fall within your budget.

The next recommended step is to be pre-approved.  This step is more involved.  Your lender will need to review your finances in greater detail, including running your credit profile, to determine how much money they can tentatively agree to loan you for your home purchase. Your lender will review the following:

  •  Gross Monthly Income
  • Credit History
  • Amount of any/all outstanding debts
  • Source and amount of money available for down payment and closing costs
  • Type of Mortgage
  • Interest Rates, etc.

Analysis of this information will allow the lender to determine two important ratios:

  • Debt-to-Income Ratio
    Your bills/debt each month should not exceed 36 percent of your gross monthly income
  •  Housing Expense Ratio
  • Your monthly mortgage payment should not exceed 28 to 33 percent of your gross monthly income

Though there may be some flexibility in these ratios (depending upon the lender and the type of loan program you prefer), submitting your information to your lender’s automated underwriting program for approval should provide you a greater sense of confidence in your ability to secure the financing you’ll need to reach your objective.   With a strong pre-approval in hand your offers to sellers should be better received and more likely to be seriously considered.  For more information on the home buying process, please feel free to contact me for additional information or assistance.

Allyson Hoffman, ABR, ACRE, CDPE, CRS, e-PRO, GRI, SFR, SRES
RE/MAX Villager
Serving Chicago's North Shore, North and Northwest Suburbs
847-310-5300
[email protected]

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Allyson Hoffman is your ultimate real estate resource for Chicago's North Shore, North and Northwest Suburbs and surrounding areas. Visit my website for detailed information regarding today’s real estate markets.

What If Your Mortgage is Sold?

by Allyson Hoffman

While it's not uncommon for mortgages to be sold, many homeowners are often surprised that this happens, especially when it happens to them.  Like other financial commodities, home loans are bought and sold on the free market like stocks and bonds. When a mortgage is sold to another financial institution, it means that the servicing rights to the loan have been transferred to a new lender. You will now send your payments to a new company that is obvious, but what else does this mean for you?

The important part is not to panic when you get the news. This transaction may be seamless or you might have problems with the new changes. As a potential home buyer or a current homeowner you should have an understanding of what has happened and what your rights are.

If this happens you will probably receive a statement when you got your mortgage that indication some level of likelihood that your loan might be sold during its life to another lender. If that does happen, then federal mandates require both the seller and the buyer of your paper to notify you of the pending sale and the closed sale.

Your current lender must notify you, in writing, at least fifteen days before your next payment is due. The lender is also required to give you complete contact information – company name, physical address, phone number and account manager of the new servicer.

The servicer buying your loan is required to provide this information to you as well. They are required to provide a direct link to a person you can speak to – not just an automated system.

This requirement protects you from mortgage scams directing you to send payments to an unknown entity via P.O. Box or wire and gives you the right to ask questions about the status of your loan and receive prompt answers. In addition, you are protected from any delinquency status for 60 days during the transition.

If you are behind in payments, your loan will likely stay put, as most aren't interested in purchasing problem loans. If you have an application in for loan modification, your loan will probably not be sold as well. However, if it is sold after you have started the loan modification process, be prepared to provide additional paperwork or even start over with the new lender.

Contact me if you have any questions about what happens when your mortgage is sold. I would be happy to help!

Image courtesy of www.gotcredit.com/Flickr.com

 

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Should You Renegotiate Your Mortgage?

by Allyson Hoffman

When the economy takes a hit, many homes in many neighborhoods are foreclosed upon. Many Northern Illinois homeowners are struggling to make the monthly mortgage payment.  Even with these tough times, the good news is that many lenders are more willing than to negotiate terms to help homeowners avoid foreclosure. By renegotiating their mortgage, homeowners may be able to get a lower finance rate as well as change your rate from a high fixed-rate mortgages or adjustable-rate.

Most lenders require that you have at least 10 percent equity in your home. You can easily check the value of your home on sites such as Zillow.com and I can provide you with a free and quick estimate of your North Shore home’s worth . In addition, most lenders typically will require that you have a credit score of at least 720 to qualify for good rates.free and quick estimate of your home’s worth  Lenders are aware of the many fiscal difficulties borrowers have in making their mortgage payments when hardships arise. However, they typically won't volunteer or advertise their help.

So if you are struggling to make your payments on time, it is vital that you take the initiative and contact your lender and give them a heads up on your current financial hardship before you miss payments.  Keep in mind that lenders have more incentive than ever to work with you. Plunging property values mean they’re recovering less now on foreclosures. Plus, many that received cash infusions from the  U.S. Treasury are under pressure to show that they’re responding to the housing crisis. 

Image courtesy of OpenClipartVectors/Pixabay.com

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Mortgage Money IS Available…For Now

by Allyson Hoffman

One comment that I hear from real estate agents and lay people alike is that “it’s hard to get a mortgage; so hard, in fact, that no one can get one”.  This is just NOT true!  In reality, lenders are lending at a healthy pace.  Interest rates continue to cooperate and there are many programs for customers.  It’s just that lenders, for the most part, only approve borrowers now that can demonstrate their ABILITY to repay (via income verification)   and their WILLINGNESS to repay (via credit scoring and automated underwriting systems).

That being said, as I look ahead, the mortgage product menu is looking a bit blurry:

Let’s start with FHA…rumors are stronger about increasing the minimum down payment from 3.5% to 5%…there is also talk of cutting back the allowable seller’s concession from 6% to 3%…but further, the maximum loan limit allowable under FHA was inflated to assist in the housing recovery and that is set to expire later this year. Predictions vary on the cut range, but I think a $100,000+ reduction is likely. Is the government trying to lessen demand for FHA insured financing? Seems like they are.

Well, what about Conventional loans? Conforming products (typically underwritten to FannieMae or FreddieMac guidelines) seem okay for now, assuming the GSEs stay in business. But, Jumbo loans (those in excess of the $729,250 amount for a one family home) are facing the 5% Risk Retention requirements being brought on by QRM Rules. How will lenders price loans where they need to set aside 5% of the loan amount in reserve?

At the same time, Jumbo lenders are starting to explore different options for qualification. I am hearing things like “average monthly deposits as support for income when tax returns might appear insufficient” and such. This looks like more aggressive lending beginning to reappear in the non-conforming world.

With inflation starting to heat up, and rates likely to move higher, look for lenders to start offering more adjustable rate mortgages to help people qualify.  It is the standard reaction when the hike in rates either scares buyers back to their apartments or puts unlocked loans which are in process in jeopardy of not remaining approved.

My advice stays the same.  Pigs get slaughtered.  If you can get a mortgage today, at these rates, and with these guidelines, TAKE IT.  Too many people will regret missing this wonderful opportunity that 2011 has presented them.

Article from KCM Blog

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Image courtesy of www.gotcredit.com/Flickr.com

What Do Mortgage Points Mean To Me?

by Allyson Hoffman

When Northern Illinois homebuyers request a quote from a lender for a home loan, they will find that the quotes frequently include both loan rates and points. Most people are confused by what exactly a point is.

Mortgage points describe certain charges to be paid in order to obtain a mortgage on a home. Each mortgage point is a fee based on one percent of the total amount of the loan

A point is a fee equal to 1 percent of the loan amount. For example, A 30-year, $200,000 mortgage might have a rate of 6 percent, but come with a charge of 1 point, or $2,000. A lender can charge 1, 2 or more points. There are two kinds of points: discount points and origination points.

 •Discount points: These types of points are really prepaid interest on the mortgage loan. Because, the more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4 points, depending on how much they want to lower their rates. The advantage to this type of point is that it is tax-deductible.
 
 •Origination fee: This is charged by the lender to cover the costs of making the loan. The origination fee is deductible if it was used to obtain the mortgage and not to pay other closing costs. The
IRS specifically states that if the fee is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs, and inspection fees, it is not deductible.

The longer you keep the property financed under the loan that has the purchased points, the more money spent on the points will pay off.  And if the homebuyer has the intention to buy and sell the property or refinance in a big hurry, the buying points will actually end up costing more than just paying the loan at the higher interest rate.

Whether or not you pay points, or how many points can be effected by a variety of factors.  The amount of money you can put down at closing and also how long you plan on staying in your home can be a factor. If you are planning to stay in your home for a long time, you may find it worth it pay points so that it reduces your interest rate. Make sure to have your mortgage lender explain these fees with you at length if you have any questions.

 Image courtesy of www.gotcredit.com/Flickr.com

 

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What is a Piggyback Loan?

by Allyson Hoffman

Have you ever heard of a “piggyback loan?' This is a home financing option where the property is purchased using more than one mortgage from two or more lenders.  While there are many variations, the piggyback loan which is also known as the 80-10-10 loan, can be typically defined as a 10 percent second mortgage coupled with a traditional 80 percent first lien and a 10 percent down payment.  This loan can be mixed in a variety of different ways to make up the difference between a conventional loan and almost any amount of down payment.

A piggyback loan is basically a second mortgage that they give you at the time of a home purchase or refinance.  These types of loans allow you, the home buyer, acquire or refinance a home with less than a 20 percent down payment or equity. One advantage to this style of loan is that the homebuyer isn’t required to carry private mortgage insurance.

Homebuyers can also use this piggyback loan as a source of funding for making a bigger downpayment on their new home. This can be to their advantage because private mortgage insurance can be quite expensive and it is not tax deductible.

 Image courtesy of www.gotcredit.com/Flickr.com 

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Why Debt-To-Income Ratio Is Important

by Allyson Hoffman

When homebuyers apply for a mortgage, the lender will look at what is called a debt-to-income ratio.  This is an important aspect and the loan could be denied if the ratio is too high. Below is more information on why is it important to you and how it effects your financing.

Debt-to-income ratio is simply a comparison of the money you earn to the money you owe. It includes credit card debt, existing mortgages, auto loans, and any other personal debt.

Your mortgage lender will look at your Debt-To-Income (DTI) to evaluate your ability to afford your new mortgage. You should have a good idea of what your DTI ratio is before you approach a lender or consider buying a new home.

You ultimately want to achieve a low DTI ratio. A high number means that you have less disposable income and less ability to maintain the home once you purchase it. With foreclosures at an all time high, lenders are not willing to assume any additional risk in lending.

Most lenders seek DTI ratios in the 20-36% range or lower, with no more than 28% of debt dedicated to the mortgage itself. While some lenders will consider higher ratios, DTIs in the upper 30% range are considered high risk.

There are several different calculators available online to help you determine your ratio, and you can always check with your financial institution for guidance on determining your DTI ratio.

Here’s a simple formula:

  1. Add all your monthly payments (mortgage or rent, car, credit cards, any other debt payments)
  2. Add your gross income (before taxes), bonuses, alimony, or any other outside income and divide by 12
  3. Then divide the total number in (1) by the final number in (2)
  4. The result is your DTI ratio


Whether you are ready to buy a new home or are just interested in your financial health, it’s a good idea to know your DTI and understand the steps to lower your ratio and become as close to debt-free as you can.

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Renegotiating Your Mortgage

by Allyson Hoffman

It is a common to find in many neighborhoods foreclosed homes due to the sluggish economy. Many homeowners are struggling to make the monthly mortgage payment.  Even with these tough times, the good news is that many lenders are more willing than to negotiate terms to help homeowners avoid foreclosure. By renegotiating their mortgage, homeowners may be able to get a lower finance rate as well as change your rate from a high fixed-rate mortgages or adjustable-rate.

 Most lenders require that you have at least 10 percent equity in your home. You can easily check the value of your home on sites such as Zillow.com and I can provide you with a free and quick estimate of your home’s worth. In addition, most lenders typically will require that you have a credit score of at least 720 to qualify for good rates.

Lenders are aware of the many fiscal difficulties borrowers have in making their mortgage payments when hardships arise. However, they typically won't volunteer or advertise their help. So if you are struggling to make your payments on time, it is vital that you take the initiative and contact your lender and give them a heads up on your current financial hardship before you miss payments.  Keep in mind that lenders have more incentive than ever to work with you. Plunging property values mean they’re recovering less now on foreclosures. Plus, many that received cash infusions from the U.S. Treasury are under pressure to show that they’re responding to the housing crisis.

 

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Mortgage Points

by Allyson Hoffman

Homebuyers who will request quotes from lenders for mortgage financing will find that these quotes will often include both loan rates and "points." For many potential homebuyers they find themselves confused as to exactly what is a point?

Mortgage points describe certain charges to be paid in order to obtain a mortgage on a home. Each mortgage point is a fee based on one percent of the total amount of the loan

A point is a fee equal to 1 percent of the loan amount. For example, A 30-year, $200,000 mortgage might have a rate of 6 percent, but come with a charge of 1 point, or $2,000. A lender can charge 1, 2 or more points. There are two kinds of points: discount points and origination points.

 •Discount points:These types of points are really prepaid interest on the mortgage loan. Because, the more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to 3 or 4 points, depending on how much they want to lower their rates. The advantage to this type of point is that it is tax-deductible.
 
 •Origination fee: This is charged by the lender to cover the costs of making the loan. The origination fee is deductible if it was used to obtain the mortgage and not to pay other closing costs. The
IRS specifically states that if the fee is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs, and inspection fees, it is not deductible.

The longer you keep the property financed under the loan with purchased points, the more the money spent on the points will pay off. Accordingly, if the intention is to buy and sell the property or refinance in a rapid fashion, buying points is actually going to end up costing more than just paying the loan at the higher interest rate.

There are many different factors that will effect whether or not you pay points as well as how many. The amount of money you have to put down at closing as well as how long you plan on staying in your house can be a factor. If you plan to stay in your home for a while, it may be worth reducing the interest rate by paying points. Be sure to have your lender carefully explain these fees if you have any questions.

Image courtesy of www.gotcredit.com/Flickr.com

Federal Reserve Ends Mortgage Purchases

by Allyson Hoffman

The Wall Street Journal recently published an article that the Federal Reserve has pledged to stop buying mortgages by March 31. This news is cause for concern for both home builders and mortgage investors as this program has been successful in helping the real estate market recover. This news also sparks fears that mortgage rates could rise and cause even more problems for the already fragile housing market.

When the economy showed signs of decline over a  year and a half ago, the government wanted to drive down interest rates for homeowners to stimulate the economy by making it cheaper to buy or refinance a house. The problem was that lenders were not issuing loans, even to homeowners with good credit. As a result, interest rates rose. 

The Federal Reserve aimed to solve this problem by buying up a lot of mortgages. Because of this, they became the largest mortgage-backed security investor in the world. In fact the total amount of mortgage-backed securities now totals more than $1.2 trillion worth in all.

The Fed was buying 90 percent of new mortgage-backed securities and now is only buying about 30 percent or less. As of April 1, 2010 they will stop buying altogether. So the question is what happens then? Barry Habib, chairman of the board of Mortgage Success Source, which tracks rates and trends for mortgage brokers, says that when the Fed stops purchasing these securities, it will leave a vacuum in the market that will push up interest rates.

What many people don’t know or understand is that the government actually has been making quite a bit of money on this program. The U.S. Treasury earns about $50 billion a year from interest that homeowners pay on loans the government owns. However, there is the risk that some of the more than $1 trillion worth of home loans that might go bad.

Displaying blog entries 1-10 of 14

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Allyson Hoffman
RE/MAX Villager
1245 Waukegan Road
Glenview IL 60025
847-310-5300
Fax: 847-400-0881

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RE/MAX Villager
1245 Waukegan Road
Glenview, IL, 60025

(847) 310-5300
[email protected]

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