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| Financing |
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| Do I Pay Off My Mortgage | Do You Have Mortgage Fears ? |
| Down Payment Assistance | Financing | Financing and Realtors® |
| Getting a Mortgage | Keep a Financial Cushion | Lender Appraisals |
| Lenders Want to Say.. | Mortgages & Self Employment | Owner Financing |
| Shop Around for Lenders | What About Mortgage Protection ? |
| What Is A Bridge Loan ? |
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Do I Pay Off My Mortgage  |
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| You've got a little more money coming in now and wonder if you should make extra payments on your mortgage, or perhaps you wonder if you should cash in your investments and apply the money to your mortgage. Before making that decision, take a look at all the variables in your particular situation. |
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| Increasing your monthly mortgage payment by even a modest amount can save thousands in interest payments and pay your mortgage off sooner. Before you start making larger payments on your mortgage be sure that you have already built up a "cushion" of some accessible funds in case of accident or illness. Having a cushion large enough to support you and meet all of your payments for three months is the minimum you should have. |
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| It would not be wise to put all your money towards paying off your mortgage and leave yourself unprepared to weather a period of illness or unemployment. Once you do have that cushion in place then by all means pay down your mortgage. |
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| If you are in the fortunate position of having substantial funds to invest then it may be prudent to take a look at your tax situation before making the decision to pay off your mortgage. Refer to the FAQ "Down Payment Savvy" for information on deducting mortgage interest. |
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| You also need to factor in the rate of return, safety and consistency and tax payable on your investment, before deciding which course of action is prudent for you. |
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| Do You Have Mortgage Fears ? |
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| You’ve just dropped off a filing cabinet full of papers at the lender’s office, and you get a phone call asking for a few boxfuls more. |
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| Welcome to the meticulously detailed world of the loan approval process. You’re starting to feel that the loan officer has a love of paper, which is somewhere between mildly perverse and openly masochistic. Stop! Don’t take anything about this process personally. |
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| The plain fact is lenders require large amounts of documentation on a mortgage loan. Your employment history, credit rating, recent financial transactions—all of these must be carefully verified. If last month’s Visa payment was late, they might ask for a letter of explanation. If you have your own business, tax returns for at least the past three years will be requested. And they’ll probably want a year-to-date profit and loss statement, too. |
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| It’s not that they lack faith in you, it’s The Process: their regulations demand that they document everything. That loan officer with the thing for paper may know that you’re a safe bet, but the underwriters have to be sure that every loan they make could withstand the scrutiny of federal auditors and bank examiners. |
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| Amazing as it may seem, everyone who owns a home has been through this harrowing process and survived. You are not alone. |
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| Down Payment Assistance |
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| Accumulating the down payment for that first home is often very nearly unattainable for young people in the escalating prices of today's market. Increasingly, it falls to the young couple's parents to provide assistance and, too often, the need to establish clearly understood conditions under which the assistance will be provided is overlooked, or ignored completely. |
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| Sometimes, the financial assistance comes in the form of a gift and if so, an expert should be consulted to ensure that the parents' generosity doesn't carry with it unwanted implications at tax time. |
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| Alternately, the money will be a loan and the payback conditions need to be discussed fully. Should there be joint ownership and equity sharing? Will the parents be named on the ownership papers with your own? If you agree on other, more specialized arrangements, should it be spelled out with legal documentation? |
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| However the assistance is offered, its value is undeniable. Ensuring that the conditions under which it is offered are clearly understood by all concerned can only enhance that value. |
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| Financing |
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| A personally tailored mortgage loan to finance your new home may be as hard to find as the home itself. And, while no one is more qualified to find the home that will suit you than yourself, it would be wise to seek expert help to find the loan that is right for you. Luckily, that help is at hand in your Realtor®. |
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| They deal constantly with mortgage lenders as part of their business and know the reputations of local firms thoroughly. They can discuss your needs and suggest several possible firms whose loan programs are familiar to them. They know that the perfect loan for you may not be the one with the lowest rate/fee structure. |
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| Loan companies often have different standards for qualifying customers: some are willing to look at a less-than-perfect credit rating generously, while others are quite strict in that regard. A firm whose paperwork for granting a loan is extensive and time consuming may not fit your timeframe. |
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| Your professional Realtor® knows what is available and can assist your search for the loan that suits you best. |
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| Financing and Realtors® |
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| It’s always a good idea to shop around for a lender. You should look not only at interest rates, but also study the terms of the mortgage, closing costs and the reputation of the lender. Whether you are actually buying a new home or looking to refinance your present one, it’s wise to talk with a Realtor. |
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| Realtors® will know what loan packages are applicable to your situation, and can tell you how to qualify for them. Sometimes lenders with low interest rates will have very stringent guidelines for underwriting loans. They may not make loans on certain kinds of property or be willing to deal with people who are marginally qualified. |
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| A Realtor can identify companies and loan officers who will help ensure that you close on your offer. |
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| Getting a Mortgage |
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| Even though mortgage rates vary from day to day, you shouldn't delay your loan application waiting for the best rate. Lenders have many applications, both for new loans and for refinancing of older mortgages. Insure that yours is in place with the information they need to make a decision in your favor. |
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| Before applying, make sure your paperwork is in order. You will need an income statement, with proof of earnings and an itemized list of monthly expenses. Self -employed or commission income can complicate things and extend preparation time. You will need to include information on special expenses such as alimony or support payments. Make it as complete as possible. |
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| With this information in hand, move quickly, but carefully, to find the best deal that you can. This means comparing costs and terms as well as looking for the most attractive rate. Lenders want your business. You need to move quickly in today's market, but there's time to be thorough as well. |
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| Keep a Financial Cushion |
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| When you’re figuring out how much you need to buy a home don’t simply add up the down payment and closing costs. Also estimate the incidental costs: moving expenses, need for additional furniture and appliances, the cost of painting and papering walls or carpeting and refinishing floors. It’s important to leave yourself a financial cushion to cover costs of this sort. |
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| Some lenders stipulate that buyers must have such a “cushion”, equal to about two or three months of mortgage payments, set aside in a bank account. If you are putting down less than 10% on your house, this is very likely to be a condition of your mortgage loan. |
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| However, if your monthly mortgage payments are a fairly low percentage of your monthly income, you will likely be able to rebuild your savings in a short time. A lot depends on your general financial situation. Get guidance from your Realtor®. |
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| Lender Appraisals |
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| Many people think that the selling price of their home is firmly established when the amount they are willing to accept equals the amount the buyer is willing to pay. Seems simple: you sell, the other guy buys, both of you are happy. But there is another element in the drama of determining the selling price of a home. |
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| Mortgage lenders can hire an appraiser to give an independent opinion on the value of a property. If the appraised value is less than the selling price, the Realtor® who is selling on your behalf has the opportunity to defend your price. The agent can identify similar homes, which have sold for the same price, or establish comparable prices for homes in your neighborhood. |
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| If the Realtors® appeal is not successful, both buyer and seller may have to enter into careful negotiations to make the sale work. The seller may be asked to reduce the price or the buyer is required to increase the down payment. |
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| Lenders Want to Say.. |
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| The prospect of going to a lender and asking for your first mortgage can be a nerve-wracking experience. Perhaps you think that because you have not built up a strong credit history or are newly employed that the banker will just look at you over the top of their glasses like a stern old school principal and send you out of the office! If that is the picture you have, you are in for a pleasant surprise. |
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| If you look around you will see that lenders are now advertising - they are now marketing mortgages to the public. They compete with each other to make mortgage loans. Walk into any bank and you will see signs advertising their mortgages. Lending institutions are very anxious to make mortgage loans. Mortgages, unlike credit cards and lines of credit are fully secured by property and hence are a desirable investment for the institution. |
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| Lending institutions are more concerned about your future ability to meet payments than what your past history showed. A secure job and future prospects will mean more to a lender than the fact that you've been a starving student for the past few years! So look around at all those ads marketing mortgages and go in and talk to lenders. You will find that they are indeed motivated to help you in any way they can. |
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| There are also lenders who specialize in helping people who have had past credit difficulties. Go for it! Your own tiny little place that ultimately will provide you with rent free accommodation or investment dollars sure beats paying rent for the rest of your days! |
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| Mortgages & Self Employment |
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| If you are self-employed, rather than a wage earner or salaried employee, it can be difficult to find a mortgage, since lenders tend to be more cautious when they evaluate your loan application. |
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| They'll want to see your tax returns for the past few years and a record of steady earnings, particularly if you have been working in the same field for that period will help them to decide in your favor. |
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| A good loan officer knows how to "read between the lines" when viewing these records and is well aware that your accountant works hard to make earnings--and taxes--look small. |
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| You should definitely try to get pre-approved for a mortgage before launching your search for a home. Get a letter from the lender confirming the approval, so that your Realtor® can include a copy with your offer. Its presence will add credibility during subsequent negotiation, should that occur. |
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| Owner Financing |
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| If you own your house outright, or have a lot of equity in it you may wish to consider an owner financing agreement (also called vendor or seller take-back). You may wish to consider this if you do not need immediate access to all your equity in order to purchase another home. |
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| There are two reasons for considering financing a portion of your buyers purchase funds. The first is that it may make the difference in completing a sale that you are anxious to complete. For instance, a purchaser may have a down payment of 20% and financing approved from a mortgage company of 75%. Financing their shortfall of 5% could enable a sale to complete. |
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| Secondly, if you are planning on saving and investing the proceeds from the sale of your property you may be able to negotiate a better rate of return (higher interest rate) on your funds than you would receive from CD's, bonds or T-bills. |
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| If you do decide to do owner financing, you must exercise the same common sense precautions that any lending institute does. The note or mortgage must be properly and legally drawn up and you must check that you are satisfied with the buyers credit history, job stability and income. |
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| You should also be satisfied that the buyers are reputable people who will not damage the property and potentially leave you holding paper on a property that is worth less than the total of the charges held against it. |
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| Shop Around for Lenders |
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| It’s always a good idea to shop around for a lender. |
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| You should look not only at interest rates, but also study the terms of the mortgage, closing costs and the reputation of the lender. Whether you are actually buying a new home or looking to refinance your present one, it’s wise to talk with a Realtor®. |
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| Realtors® will know what loan packages are applicable to your situation, and can tell you how to qualify for them. Sometimes lenders with low interest rates will have very stringent guidelines for underwriting loans. They may not make loans on certain kinds of property or be willing to deal with people who are marginally qualified. |
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| A Realtor® can identify companies and loan officers who will help ensure that you can complete on your deal. |
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| What About Mortgage Protection ? |
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| When you take out a new mortgage you will undoubtedly be offered mortgage insurance. Having your mortgage insured so as to provide a "debt free roof" for your survivor(s) to live under is a very basic part of estate planning. Purchasing mortgage insurance is, like purchasing any kind of insurance, best researched. |
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| You may, in fact, be able to increase the amount of your present life insurance policy to cover the mortgage amount and have it cost you less than separate mortgage insurance. You should ask your insurance agent what they have to offer. |
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| If you do choose to take the mortgage insurance that is offered, check what the policy covers. The policy may cover you only for accidental death or may only pay half of the mortgage in the event of the death of one of two joint owners. |
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| Ideally the insurance covers both owners. Dealing with the grief of losing a mate and also possibly the job of being a single parent is a tremendous burden. Having a home with no mortgage payment would not remove the grief but would decrease additional financial stress. |
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| What Is A Bridge Loan ? |
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| Buying a new home when your family grows out of the one you are in, or for any other reason, can be complicated by the need to coordinate the sale of the old with the purchase of the next. |
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| Often, your offer on the new home will be made contingent on selling the home you have, but some sellers may not be in a position to accept such an offer. |
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| Since it may not be possible for you to qualify for a conventional mortgage on another house before your current home sells, you need to look at some alternatives. |
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| A bridge loan is a short-term loan that provides capital enabling you to close on the new home while you still own the old one. It is paid back, principal and interest, when yours is sold. |
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| This type of loan is available from many lenders and your Realtor® will know who they are. Some people are nervous, especially in a ho- hum real estate market, when it comes to taking advantage of bridge loan capital, but it can be the answer to nailing down the home you want instead of losing it while you wait. |
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