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Short Sales are Often Long and Frustrating

A short sale can be a great way to get out of your mortgage before you decide to simply walk away. But do you have the patience to wait for the process to go through?

With many homeowners owing more on their home than what it is worth, short sales are becoming very common. A short sale occurs when a homeowner essentially makes an agreement with their lender to sell the home for a reduced price in exchange for the lender forgiving the remaining balance on the loan. However, the homeowner must prove financial hardship in order for the lender to even consider doing a short sale on their home.

While this type of financial help has helped thousands of distressed homeowners get out from under a home loan that is causing stress, financial difficulties and other frustrations, doing a short sale is not an easy process. In fact, with the inventory of homes that are on the block for foreclosures or short sales, it can take as long as six months for a short sale to even get processed.

A longer process is most common if your home has a second mortgage or mortgage insurance, according to Ellen Mahoney, the president of Complete Title Services’ loss mitigation department in Michigan. The reason these types of short sales take longer is because many times the mortgage loan is sold to another lender or investor in the years following the purchase of the home. These lenders or investors then purchase insurance on the real estate to help minimize their risk and protect their investment. In most cases, neither the homeowner nor the bank that originated the mortgage is aware of this extra insurance policy. According to Mahoney, these transactions through which the mortgage was sold create a major disruption to the short sale process due to additional paperwork and research.

Often these complexities and associated disruptions and length cause homeowners to tired of waiting for the process to go through; they end up just walking away from their mortgage.

But sellers are not the only ones who get frustrated by the length of time and complexities for a short sale to go through. Third party buyers get turned off as well. Brian Pannebecker of Michigan made an offer on a home going through a short sale in Michigan only to have the bank reject the offer. This made him rethink his idea of buying a short sale home and he bought a foreclosure in Florida instead. He says the entire process from the time he made his offer until the closing process was completed was only about six weeks.

Banks are, however, trying to streamline the process so it goes much faster for homeowners who want to get out from underneath their mortgage. Chase, for example, is now averaging 5,000 short sales each month. According to spokesperson Mary Kay, the average short sale through Chase takes an average of 30 days for approval. Other banks are trying to do the same thing and the federal government has instituted a program – the Home Affordable Foreclosure Alternatives Program – to help streamline the process to help the maximum number of troubled homeowners.

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Rookie Mistakes When Applying for a Mortgage

Are you new to the mortgage loan process? Don’t make these rookie mistakes or you may find yourself paying a lot more than you need to for your mortgage loan.

When it comes time to buy a car, would you walk into the dealership and say, “I don’t know much about buying cars, but I’d like to buy one today”?

There aren’t many people who would buy a car that way. So why is it so different when applying for a mortgage?

Many first-time home buyers will check with a few mortgage lenders when they want to apply for a mortgage and they will say that it is their first time buying a house and they don’t have much experience doing it. This is a red flag and a big mistake that many rookie home buyers make, according to Carolyn Warren, the author of “Mortgage Rip-Offs and Money Savers.” She says first-time home buyers who approach the mortgage lenders with this type of attitude might as well hold a sign on their foreheads that reads, “Please charge me more – I won’t know the difference.”

Recent surveys have shown that nearly half (about 44 percent) of potential home buyers admit that they are neither knowledgeable nor confident about mortgages or the mortgage lending process. Nearly half of the home buyers who participated in the survey only answered about half of the basic mortgage questions that they were asked. In addition to that, about 37 percent of the ones surveyed thought that “pre-qualifying” for a mortgage loan meant that they already had guaranteed financing for the loan. More than half (57 percent) admitted that they did not know how adjustable rate mortgages actually worked.

One of the reasons fewer home buyers know the basics about a mortgage loan is due to new regulations in the mortgage industry. One of these new guidelines, as part of the Real Estate Settlement Procedures Act, requires that lenders give the mortgage borrowers a Good Faith Estimate which includes the terms of the loan, interest rates, settlement costs and other information. Many borrowers will submit all the necessary paperwork and then feel obligated to use the services of that lender because of the time that they spent working with the buyer.

Another reason that home buyers don’t know much about the mortgage industry is simply because they don’t take the time to learn about it. Instead of sitting down and spending time with potential lenders or with a trusted financial advisor, they trust that the lender is going to give them a good deal on a mortgage loan without learning much about what the terms entail. There are also hundreds of books, websites, articles and more about the mortgage industry so you can at least educate yourself on the process before you agree to anything when you buy a home. Talk to friends and relatives who have purchased homes before to find out what to expect and what you can do to protect yourself during the entire process.

Unfortunately, there are shady mortgage lenders that can give other lenders a bad reputation. They grossly overcharge for closing fees, origination fees and much more. If you don’t shop around and educate yourself, you could be a victim of one of these lenders. Take some time to do your homework and read the fine print. Buying a home may be the most important financial decision you will ever make. Make sure it counts.

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What You Need to Know About Private Mortgage Insurance (PMI)

Private mortgage insurance is a topic that few home buyers educate themselves about. Here is a brief explanation about PMI so you can make a more informed decision with your next home purchase.

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If you have been shopping for a home, you have probably heard the term “private mortgage insurance,” or PMI. But do you understand the ins and outs of this type of insurance?

PMI is typically a requirement for home buyers who put less than 20 percent down on their home. This is designed to protect the lender’s interest in the loan in case you default on your mortgage payments. But just because you are paying PMI each month doesn’t mean you can just walk away from your home or stop making payments without any consequences. If you default on your mortgage loan, the bank will still repossess it and come after you financially.

PMI protects the lender this way: If you put 10 percent down on your home and you default on your mortgage payments, the insurance company will pay the lender the difference between your down payment and the 20 percent required for the home. In this instance, the insurance company would pay the bank 10 percent of the home’s value because you have already put 10 percent down on the home.

This might seem unfair to some home buyers. After all, the lender gets financial protection and YOU have to pay for it? But if you think about it, the lender is the one taking all the risk. Before PMI was as common as it is today, banks wouldn’t even think about giving someone a mortgage loan if they didn’t have a large down payment because it was just too risky. But with PMI, some lenders have given loans with 0 percent down because they know they will recoup their losses from the insurance company. So in essence, PMI offers you a way to buy a home without the obstacle of saving up thousands of dollars for a down payment.

Your PMI payment is typically included as part of your mortgage payment. If you have a small down payment, your PMI is going to be higher. Also, you don’t get to choose the insurance company. The lender chooses it for you and the payment will automatically be added to your mortgage loan.

Once you own 22 percent (in most cases) of your home, your PMI is automatically canceled by the insurance company. They are required by law to do so, but it never hurts to check your mortgage statements to make sure you are not getting charged for insurance that you no longer need. You can also contact the insurance company to cancel the policy once you own 20 percent of your home instead of waiting until you own the extra two percent.

Here’s some good news: If your home increases in value, you suddenly have more equity in it which means you can cancel your PMI sooner. For instance, if you put down $10,000 on a $150,000 house and the value of the house increases by $20,000 in the first few years, you now own 20 percent of your home because you can combine the $20,000 and the $10,000 that you put down on the house.

Private mortgage insurance isn’t necessarily a complicated issue. Your mortgage lender should be able to answer your questions about PMI so you know exactly what you are paying for and how long you have to pay it.

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Four Options to Consider If Your Mortgage is Underwater

Are you underwater on your mortgage? If so, do you know what your options are?

Are you like thousands of other American homeowners who owe more on their home than what it is worth? These days, it’s not an uncommon scenario with the current housing market. Fortunately, there are options for people who find themselves in this type of financial situation. Here are a few of those options to help you get through the mess the best way possible.

1. Consider Refinancing

Under the government’s Home Affordable Refinance Program, many troubled homeowners are finding the relief they need by refinancing with lower mortgage rates. And since the government is extending this program until June 2012 (it was originally scheduled to end at the end of in the summer of 2011), it is not too late to apply for this type of help. If you qualify for the program, it is very similar to a conventional mortgage loan with a few differences, the biggest being a lower rate for mortgage insurance if you have less than 20 percent equity in your home. This program is also only available for homeowners with mortgage loans through Fannie Mae or Freddie Mac.

2. Consider a Short Sale

Thousands of homeowners have benefitted from doing a short sale on their home when they are underwater on their mortgage. With a short sale, the mortgage borrower gets the lender to agree to sell the home and then forgive the remaining debt. As an example, if the borrower owed $200,000 on a home and the home was currently worth $100,000, the borrower may convince the lender to sell the home for $150,000 and forgive the other $50,000 of the mortgage debt. This is a great option if you can convince your lender to agree to it, but you also have to prove a financial hardship and exhaust all of your available resources (such as retirement accounts, savings accounts, etc.) in order to qualify for a short sale.

3. Consider a Loan Modification

A loan modification is a popular choice among mortgage borrowers who get underwater on their homes. With this option, the borrower asks their lender to modify the loan. This can include lower mortgage rates and lower payments for either a temporary time period or permanently. In many cases, the lender may extend the term of the loan so the monthly payments are lower or they might allow the borrower to pay any missed payments at the end of the loan term. Only in rare cases, however, do loan modifications result in a reduction in principal.

4. Consider Staying There

Owning a home is more than just a financial decision. Homeowners have a sense of pride that they take in their investment. There is also a sense of obligation among many homeowners to follow through with the agreement they signed regarding paying off their home. In addition, many people are emotionally attached to their home. As a result, why not just stay and pay off the balance? Even if you owe more than what it is worth, the market could increase in the near future and your home could rise in value to what it was when you bought it. Either way, if you stay in your home, you can keep making the payments as scheduled and live your life the way you’ve been doing since you signed the mortgage loan papers.

There are many decisions to make when you are underwater on your mortgage. The toughest decision may be to stay in your home either by refinancing or simply continuing to make your payments as scheduled and riding out the mortgage crisis that we are in. But there is certainly no shame in choosing to leave your home and cutting your losses. Just know what you are getting into with any decision that you make.

Understanding Amortization and How the Mortgage Loan is Paid Down (and Off)

Before purchasing a home it is important to review and understand mortgage amortization or how your mortgage loan will amortize.

If you have recently started looking for a home or researching the mortgage industry, you have probably heard the term “amortization” more than just a few times. The word sounds fancy, but it involves a very simple concept. Here is a brief discussion about what amortization means so you can have a better idea about what lenders and mortgage professionals are saying when they use that word.

  • In basic terms, amortization or mortgage amortization refers to reduction in the principal balance of the loan over time due to payments allocated to principal (as opposed to allocated to mortgage interest or to “servicing” the mortgage) on a fixed schedule.
  • The word “amortization” is derived from the Latin root “mors,” which literally means “to die.” So you can think of amortization as “killing” your mortgage loan over time through scheduled payments.
  • At some point, your mortgagor will present you with an amortization schedule. This schedule demonstrates how much of each mortgage payment will be applied to the interest on the loan and how much is applied to the principle of the loan – or, to amortizing the loan. An amortization schedule will ordinarily show that where you have a constant interest payment, a greater part of each payment over time will be allocated to amortization of principal than in the month before. Comparing amortization schedules for different loans (ie., for a 15 year mortgage versus a 30 year mortgage) will demonstrate that greater amounts of each payment are allocated to amortization in the shorter duration mortgage as the mortgage needs to be killed more quickly. Comparing amortization schedules can also help you to understand the interest rate risks involved in Adjustable Rate Mortgages (ARMs).
  • Interest-only mortgage loans are, by their very nature, loans that are non-amortizing for a certain period. An interest-only loan has a non-amortizing period (or could even have a negative amortizing period where the mortgage balance increases) for the first few years or even first half of the loan term. This period is then followed by an amortizing loan in which the borrower amortizes the principal more quickly. Lenders, in principle, like making interest-only mortgages because they increase the principal mortgage balance remains outstanding at its highest principal value for a long period of time, enabling the bank to maximize the mortgage interest that it is receiving. However, homeowners, should be seeking to amortize or gradually kill off a mortgage and gain equity in their homes. Many borrowers in the 2000’s got into a lot of trouble by using interest-only mortgages to borrow amounts on homes that they would not have been able to afford if they were required to take out an amortizing mortgage and have part of their monthly payment allocated to killing the principal at the time of their home purchases.

These are just a few facts to help you understand what amortizing is and what mortgage professionals mean when they use the term. Hopefully this will help you be more informed during your home buying experience so you can make a well-educated decision about the terms of your mortgage loan.

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Tips for Getting a Mortgage for the Self-Employed

Have you been told that you cannot get a mortgage loan because you are self-employed? While it may be more difficult to do, it is simply not impossible.

Being self-employed can be a great way to make a living. It has the advantage of making your own hours and being your own boss. But it also has its disadvantages. Getting a mortgage when you are self-employed is one disadvantage because it is more difficult to qualify for a mortgage loan. It is not, however, impossible to do. Consider these tips if you are self-employed and you are looking for a mortgage loan.

Keep Records of Your Income

If you are self-employed, you should be keeping good records at all times. But for the purposes of qualifying for a mortgage loan, it is essential to have good records of your income. Some of the documentation you will need to provide to show that you have an income that qualifies for a mortgage loan may include your tax returns for the last few years, documentation of your investments and interest that you are receiving from those investments, your bank statements and even some receipts from the last few months which will help demonstrate your current income.

Work with a Mortgage Broker

This tip isn’t just for the self-employed, but the self-employed can benefit greatly from using a mortgage broker. A mortgage broker often offers more options for a mortgage loan because they know which banks and lenders are more likely to work with a buyer who is self-employed. A mortgage broker can find those lenders and save you hours and hours of legwork trying to find that information on your own.

Have a Significant Down Payment and Good Credit

As a self-employed person, you tend to be a greater risk to banks than buyers who are employed. As a result, most lenders are going to require a sizable down payment of at least 20 percent of the purchase price of the home. Some lenders may even require more. You will also be required to have next-to-perfect credit in order to be considered by most lenders for a mortgage loan. You may have to have a credit score of 720 or even higher. It’s not impossible to get a mortgage with a lower credit score, but you will be paying a higher interest rate based on how low your score is.

Be a Secondary Applicant

If you are the husband and you are self-employed and your wife has a steady job with a steady income and a W-2, you may need to put your male pride aside and be the secondary applicant for the mortgage loan so your wife can be the primary applicant. If she has a steady job, you will have a better chance of being approved and at a lower interest rate than if you are the primary mortgage loan applicant.

Get a Co-Signer

Co-Signers for mortgage loans are nearly impossible to get. Many buyers do not even want to ask anyone to cosign for their mortgage because it is such a huge responsibility. But if you have a parent or family member who is willing to do it, you could increase your chances of being approved for a home loan despite the fact that you are self-employed.

Buying a home as a self-employed buyer may take some extra work and extra steps, but it can be done. Just know what your credit score is and how much you can afford before you begin your search.

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How to Use Twitter when Searching for a Mortgage Deal

There are several websites available to help you stay informed about the mortgage industry and the latest listings. But did you ever think that Twitter would be a useful tool to use when searching for a home?

Twitter is one of those social media and networking websites that started out slow but has gained momentum in recent months as a great tool that can serve a variety of purposes. But did you ever think about using Twitter as a tool when searching for a home or mortgage? If not, you could be missing out on a useful resource that can help you save money when you buy a home.

Here are some ways that you can use Twitter to find a great deal on a home or mortgage:

  • Find and connect with local realtors. More and more realtors are setting up Facebook, Myspace and Twitter accounts to increase their web presence and to connect with potential buyers in their local area. By connecting with these local realtors, you expand search opportunities and you can find about new listings as they happen.
  • Get informed about mortgage news. When something happens in the mortgage industry, you want to know how it is going to affect you whether you are a potential buyer or a seller. By using your Twitter account, you can subscribe to mortgage websites and get a link tweeted to you when a news story occurs in the mortgage industry. This can help you stay informed about all the latest news so you can make an informed decision.
  • Get the latest information on mortgage rates. It seems like mortgage rates change all the time. In fact, they are typically updated each week. When you have a Twitter account, you can have the latest mortgage rates tweeted to you so you can take notice of the trends and take advantage of the rates when they drop.
  • Subscribe to bloggers who blog about the mortgage industry. There is a lot of stuff that happens in the mortgage industry that you won’t find on some news websites but you will hear about it from various blogs. Find a few bloggers that you like and subscribe to their posts to help you stay informed.

These are just a few of the ways that Twitter can help you find a great price on a home and stay up to date on the latest listings and happenings in the mortgage world. You can also subscribe to our website and get updates when new articles are posted as well.

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