One way to understand what reverse mortgage is, is to understand forward mortgage. A forward mortgage is the mortgage you know, you borrow money, the loan is secured by your home and you pay it back. For the reverse mortgage, you also borrow money, the loan is secured by your home, but you don’t have to pay it back with money out of your pocket. Rather, the loan is paid by the equity in your home; the mortgage balance increases over time. You need to be at least 62 years old to apply and take a counseling class to obtain...
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MORTGAGE BANKS AND MORTGAGE BROKERS
You have many different choices for where to get a mortgage. There are banks, mortgage banks, and mortgage brokers. Many try to sell you their products, for example, down payment assistance, free appraisals, first-time homebuyer loans, doctor’s loans, public employee (teachers, police officer) loans, etc. hoping you’ll bite on the sales pitch in lieu of less favorable terms on the loan. Ultimately, it is the loan you will be paying back. For example, it is important to ask about the terms of the loan, the amount of mortgage insurance, if any, or if there are any other loans that are...
October 25, 2019November 22, 2020
IS IT MOVE-IN READY?
In order to get a mortgage, the property condition must be move-in ready; it must be habitable and safe. I often get asked if there is a list of items the house must have in order to meet the habitability standard, but there is not, as it is on a case-by-case basis. Here is a list of some of the items that may be required before the lender will approve the loan: ● Leaking roof must be fixed ● Pool must be filled ● Upper level decking with no railing, railing must be installed ● Exterior peeling pre-1978 paint where...
October 24, 2019October 24, 2019
DODD-FRANK ACT
The Dodd-Frank Act includes a provision that a borrower must show an ability-to-repay a mortgage to qualify. It seems silly that a law had to be passed with this provision in it as you would think someone would not make a loan unless they knew it was going to be paid back. Nevertheless, this law arose due to the absurdity of the types of loans that were being made during the mortgage crisis. Lenders initially interpreted this rule that the borrower needed to be employed, or have a steady income to qualify; this is one of the reasons why it...
October 14, 2019October 14, 2019
WHAT ARE FANNIE MAE AND FREDDIE MAC?
You may have heard of Fannie Mae and Freddie Mac. What are they, and how do they affect mortgages? Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are Government Sponsored Enterprises (GSE). They are quasi-governmental entities that were established to enhance the flow of credit in the housing industry. They purchase mortgages from lenders in the secondary mortgage market and purchase the majority of the conforming loans (i.e. loan amounts $453,100 and less). As such, mortgages are underwritten to their guidelines. The guidelines between the two entities can differ. Fannie Mae could approve some...
October 11, 2019October 11, 2019
PROMISSORY NOTE
You may hear your lender ask about the Note, or if you reviewed the Note. The Note, in this sense, is not a musical score, or something written on a post-it; it is the Promissory Note entered into between the lender and the borrower. It provides that the lender will lend a certain sum to the borrower in exchange for the borrower’s promise to pay the lender over time at a certain amount of interest. Example: A lender may lend $200,000 to the borrower to be paid on the first of every month over 30 years at an interest rate...
October 8, 2019October 8, 2019
FINANCE A SECOND OR VACATION HOME
If you are looking to finance a second or vacation home, here are some things to keep in mind: You need a minimum of 10% down payment, it is better if you can put 20% down as you can avoid mortgage insurance. Geographically, it has to make sense. There is not a rule that says the home has to be a certain amount of miles from your primary residence, but, it has to make sense that it is a second, or vacation, home. Example: In Arizona, if you own a home in Phoenix, you can have a second home in...
October 4, 2019October 4, 2019
WHY AN INVERTED YIELD CURVE IS GOOD FOR FINANCING CRE
The black economic cloud that is typically associated with an inverted yield curve does indeed have a silver lining. The correlating chart shows the U.S. Treasury rates for Jan. 2, 2018, the blue normal curve, and Aug. 13, 2019, the red inverted curve. The inverted portion of the curve doesn’t turn positive vs. the 20-day bill until about year 25. As an investor, going out a full 30 years would only get you only a few bps (basis points) more than buying a 30-day T-Bill. But we’re not considering the investment side of this; we’re looking at this as borrowers....
October 2, 2019October 2, 2019
PREFERRED LENDERS
Many real estate companies have preferred lenders to whom they encourage their agents to refer. This preferential status can be misleading. In many instances, these lenders are “preferred” because they pay a fee to the real estate company, or the real estate company enters into a joint venture with the lender. These “pay to play” lenders may not offer the best rates or costs. If your real estate agent is referring a lender to you, check to see if it is their company’s preferred lender. Then, check if it is a bank, mortgage bank, or mortgage broker. If it is...
October 1, 2019October 1, 2019
COMMODITIZATION OF MORTGAGES
All you have to do is push a button and get a mortgage? If so, what kind of mortgage are you getting? Is it the right mortgage for you? Does it matter? There is a definite trend in the media to commoditize mortgages. That is, to try to influence you that you don’t need to speak to anyone, just click a few buttons and you will get a mortgage. But, what mortgage are you getting? Are you getting a 30-year fixed? If so, what is the rate and the lender’s costs? Are you willing to pay more for a loan...
September 27, 2019September 27, 2019