Shopping For A Hazard Insurance Policy

When shopping for a hazard insurance policy, something called “bundling” can actually save you quite a bit of money that most people aren’t aware of.

Many of the big insurance companies price their insurance rates to attract a particular segment of the market. They usually price their hazard insurance policies to attract homeowners who need to insure not only their homes with hazard insurance, but also their cars with car insurance and lives with life insurance.

The big insurance companies want customers who will stay with them for years vs shopping around for a better deal every six months.  So, to give customers an incentive to stick with them, they offer discounts if you use the company for all three (hazard, auto, life) lines of insurance.

Companies offer “multiline discounts” to attract customers who will need more than one type of insurance. These companies offer a cheaper rate to insure both your house and car than if you insured each one separately at different companies.

The same goes if you add a second car or a life insurance policy – the discounts keep adding up.

Did you know that big insurance companies will offer discounts of up to 40% on your hazard insurance if you also have your car insurance and life insurance with them?

Combining hazard, car and life insurance policies all with one company can save you money.

The big insurance companies are sometimes not competitive on price if you only have one line of insurance with them.

You can save up to 40% by combining your hazard, auto and life insurance policies with one company.

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Frequently Asked Questions:

Q. How much can you actually save when you combine insurance policies with one company?

It varies by company, but with some of the large insurance companies, it will save you up to 40%.

Q. Why are the large companies sometime so far off when it comes to price on my hazard insurance?

Large companies often give significant discounts if you have your hazard, auto and life insurance with them – and they actually *want* to be higher in price if you only have one line.

People with only one line of insurance switch more often according to the statistics.

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Related Articles – Mortgage Payments:

• Mortgage Payment Basics
• Who Owns My Home If I Have A Mortgage?
• Why Do I Need Mortgage Insurance?
• Understanding An Amortization Schedule
• Shopping For A Hazard Insurance Policy
• Understanding the FHA Mortgage Insurance Premium (MIP)
• Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

Facts About Identity Theft:

It’s estimated that there were 10 million victims of identity theft in 2008, and 1 in every 10 U.S. consumers have reported having their identity stolen.

The U.S. Department of Justice reported in 2005 that 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised).

And, the U.S. DOJ also reported that those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000.

What Is Identity Theft?

According to the United States Department of Justice, identity theft and identity fraud “are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person’s personal data in some way that involves fraud or deception, typically for economic gain.”

Such personal information may include your name, address, driver’s license number, Social Security number, date of birth, credit card number or banking information.

Victims of identity theft can spend months trying to restore their good name.

Most victims do not realize it has happened until they get denied for a mortgage or a credit card.

Ten Ways To Protect Your Identity:

1.  Dumpster Diving –

Avoid “dumpster diving” by shredding all papers that contain any personal information.

Criminals sift through trash looking for the following:

• Bank Statements
• ATM Receipts
• Canceled Checks
• Credit Card Statements
• Credit Card Purchase Receipts
• Credit Card Solicitations (unopened “pre-approval” solicitations)
• Pay Stubs
• Tax Documents
• Utility Bills
• Expired Identification Cards (Drivers License, Passports…)
• Expired Credit Cards
• Medical Statements
• Insurance Documents
•  

2. Personal Info / Phone Calls –

Never provide personal information, including your Social Security number, passwords or account numbers over the phone or internet if you did not initiate the call.

If you are asked for any type of personal information, before giving any information, ask the caller for their name, telephone number and the organization that they are representing.

You should then call the company using the customer service number the company provides with your account statement.

Do NOT call the number you were given by the caller.

To reduce the number of solicitations you receive, you can sign up at the do not call registry:

• web:    http://www.donotcall.gov

3. Look Over Your Shoulder –

Avoid “Skimming and shoulder surfing.” (Never let your credit card out of your sight)

Pay with cash. Try never to let your credit card out of your sight to avoid a fraud scheme known as “skimming”.

Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an “inside job” by a dishonest employee of a legitimate merchant. The thief can procure a victim’s credit card number using basic methods such as photocopying receipts or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ credit card numbers.

Be aware of people “shoulder surfing”. This is when they are looking over your shoulder or standing too close trying to obtain your PIN number when making purchases with your debit card.

They may also be listening for your credit card number.

4. Secure Your Mail –

Always mail your outgoing bill payments and checks from the post office or a neighborhood blue postal box and never from home.

Pick up your incoming mail as soon as it is delivered. The longer it sits the better chance a criminal has of stealing it.

• Get a P.O. box.
• Lock Your Mail Box

Contact your creditors if a bill doesn’t arrive when expected or includes charges you don’t recognize. It may indicate that it was stolen.

5. Read Credit Card Statements –

Review account statements to make sure you recognize the purchases listed before paying the bill.

If your credit card holder offers electronic account access, take advantage and periodically review the activity that is posted to your account.

The quicker you spot any unauthorized activity, the sooner you can notify the creditor.

6. Monitor Credit Report –

Review your credit report at least once a year to look for suspicious activity. If you do spot something, alert your card company or the creditor immediately.

7. Email Links –

Never click on a link provided in an email if you believe it to be fraudulent.

Keep in mind, no financial institution will ask you to verify your information via email.

Criminals may link you to phony “official-looking “ web site to confirm your personal information. This is known as “phishing”.

“Phishing” is the criminally fraudulent process of attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy entity in an electronic communication.

8. Opt Out –

Opt out of credit card solicitations. (Take your name off marketer’s hit lists)

You can opt out of credit card solicitations by calling 1-888-567-8688 to have your name removed from direct marketing lists.

You can do this online at OptOutPrescreen.com, which is the official consumer credit reporting industry opt-out website for the three credit companies:

• Experian
• Equifax
• Trans Union

9. Safeguard Your Social Security Number –

Protect your Social Security number.

Never carry your Social Security card or anything else with your social security number on it in your wallet or purse, along with your driver’s license.

Do not put your Social Security number or driver’s license number on any checks you may write.

Only give out your Social Security number when absolutely necessary.

10. Read Privacy Policies –

Find out what company privacy policies are. (Know who you are dealing with)

When being asked for your Social Security number or driver’s license number, find out what the company’s privacy policy.

Inquire as to why it is being asked for.

Ask who has access to your number.

Ask if you can arrange for them not to share your information with anyone else.

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Related Credit / Identity Articles:

• Understanding Credit
• Top Credit Do’s and Don’ts To Bear In Mind When Getting A Mortgage Approval
• Is There A Rule-Of-Thumb Regarding The Number Of Credit Lines To Have Open?
• Alternate Sources For Establishing Credit

While the actual credit score has a big impact on a loan approval, it’s not the only component of the credit scenario that underwriters consider for a mortgage approval.

Since loan programs, individual lenders and mortgage insurance companies all have their own credit report restrictions, it’s difficult to define a standard Rule-of-Thumb to follow.

However, the number of “Open and Active Trade Lines” seems to be the common denominator in most approvals.

A trade line is basically a credit card, installment loan or other credit liability that is reported to the credit bureaus and displayed on a credit report.

Credit Trade Line / Approval Bullets:

• Banks usually won’t count a trade line that is less than 12 months old.
• The minimum number of trade lines most lenders find acceptable is 4 open and active trade lines.
• Lenders like to see at least one credit line of $5,000, or all credit lines to total $1,000 or more.

Exceptions To Trade Line Rules:

Interestingly enough, a recent list of Mortgage Insurance requirements included a favorable trade line requirement, which read:

Min 3 trade lines @ 12 mo reporting. Cannot be ‘authorized user’

Basically, this means as long as the lender, and the loan program allow for less than 4 trade lines, this mortgage insurance company will accept only 3 trade lines that are in the borrower’s name.

Another exception to this rule is if you have no FICO score, and no negative trade lines.

In this case you may qualify for an “alternative credit” loan. The most common loan of this type is insured by FHA, but there are select programs that are usually targeted to assist people whose culture does not trust or use banks.

Borrowers applying for a non-traditional credit loan will still need to prove they have successfully paid their bills on time for 12 months by clearly documenting at least four creditors.  A verification of rent from a property management company, power, utilities, cell phone… are alternative sources of credit that can be used.

*A letter from a landlord or creditor stating that the bills were paid on time is not acceptable forms of proof.  Lenders will need canceled checks and / or copies of bank statements to start out with.

Since not all companies report to credit bureaus, it’s possible to get a free credit report at AnnualCreditReport.com to verify your total reported trade lines.

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Related Credit / Identity Articles:

• Understanding Credit
• Top Credit Do’s and Don’ts To Bear In Mind When Getting A Mortgage Approval
• Ten Things You Can Do To Protect Your Identity
• Alternate Sources For Establishing Credit

While the basic Rule-of-Thumb for acceptable credit history is a minimum of four trade lines documented on a credit report, there are alternative methods of building a credit picture that an underwriter can use to make a decision for a loan approval.

For potential home buyers with little or no credit history, keeping records for 12 months of paying bills on time is essential for mortgage loan approval.

In fact, loan officers will appreciate receiving proof that you have paid a variety of accounts regularly and on time. Even if you do not have a credit history, or your credit report isn’t as good as it could be, this may enable you to get a mortgage.

The industry term for this is “thin credit.”

Some loan types, namely FHA and USDA, will accept alternative credit sources in order to establish proof of financial responsibility.

Alternative credit is unreported to the bureaus, but will still be verified and can be instrumental in a home loan approval.

Those with thin credit don’t usually have bad credit, but have just not had an opportunity to build enough traditional credit, such as bank/store credit cards, auto loans, etc.

Alternative Sources For Building Credit:

• Rental History – Canceled checks and letter from property management company
• Medical Bills – 12 months of statements from medical billing company showing paid as agreed
• Utilities – power, gas, water, cable, cell phone
• Auto Insurance
• Health / Life Insurance – as long as it’s not auto-deducted from pay check

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Related Credit / Identity Articles:

• Understanding Credit
• Top Credit Do’s and Don’ts To Bear In Mind When Getting A Mortgage Approval
• Is There A Rule-Of-Thumb Regarding The Number Of Credit Lines To Have Open?
• Ten Things You Can Do To Protect Your Identity

When applying for a mortgage, a borrower’s “Occupancy Type” is a major factor in the amount of down payment required, loan program available and mortgage interest rate.

Whether you are purchasing, doing a rate/term refinance or taking equity out of your property through a cash out refinance, occupancy type is always considered by the underwriter.

Three Types Of Occupancy:

Owner Occupied / Primary Residence –

According to the HUD Handbook 4155.1: 4.B.2.b, a principal residence is a property that will be occupied by the borrower for the majority of the calendar year.

At least one borrower must occupy the property and sign the security instrument and the mortgage note for the property to be considered owner-occupied.

Second Home –

To qualify as a second home, the property typically must be at least 50 miles from the primary residence, and it cannot appear that the real estate is being purchased for rental investment purposes.

Investment Property –

A property that is not occupied by the owner and is typically utilized for rental income purposes.

Down Payment Requirements:

Owner Occupied / Primary Residence –

Purchase for VA and USDA can go up to 100% financing, while FHA requires 3.5% of the purchase price as a down payment.  Conventional financing may require anywhere from 5% – 25% depending on the credit score, county, property type and loan amount.

Second Home –

Average 10% down for a purchase, and 25% equity for a refinance.

Investment Property –

Down payment requirements will range from 20-25% depending on the number of units.  When doing a cash-out refinance on an investment property with 2-4 units, the required loan to value will need to be 70% or lower to qualify.

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*It should be noted that on any high balance loan amount the above mentioned Loan-to-Value (LTV) requirements will change. Credit score requirements also apply.

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• How Much Can I Afford?
• Top 8 Questions To Ask Your Lender During Application Process
• What’s The Difference Between An Investment Property, Second Home and Primary Residence?
• Seven Items Real Estate Agents Need To Know About Your Mortgage Approval

Debt-to-Income (DTI) is one of the many mortgage related terms home loan shoppers will hear all-to-often.

DTI is a component of the mortgage approval process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities. Debt-to-Income Ratios are designed to give guidance on acceptable levels of debt allowed by particular lenders for loan programs.

There are actually two different Debt-to-Income Ratios that underwriters will review in order to determine if a borrower’s monthly income is sufficient to cover the responsibility of a mortgage according to the particular lender and/or their mortgage program guidelines.

Most loan programs allow for a Total DTI of 43% and a Housing DTI of 31%.

Two Types of DTI Ratios:

a) Front End or Housing Ratio:

• Should be 28-31% of your gross income.
• Divide the estimated monthly mortgage payment by the gross monthly income.

b)  Back End or Total Debt Ratio:

• Should be less than 43% of your gross monthly income.
• Divide the estimated house payment plus all consumer debt by the gross monthly income.

Remember, the DTI Ratios are based on gross income before taxes.  Lenders also prefer to use W2’s or tax returns to verify income and employment.

However, the adjusted gross income is used to calculate DTI for self-employed borrowers on most loan programs.  Since there is room for interpretation on these guidelines, it’s important to review your personal income and/or employment scenario in detail with your trusted mortgage professional to make sure everything fits within the guidelines.

Editorial Note: DTI percentages and figures are up-to-date as of 2018.

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• How Much Can I Afford?
• Top 8 Questions To Ask Your Lender During Application Process
• What’s The Difference Between An Investment Property, Second Home and Primary Residence?
• Seven Items Real Estate Agents Need To Know About Your Mortgage Approval

Understanding the definition of Loan-to-Value (LTV), and how it impacts a mortgage approval, will help you determine what type of loan amount and program you may qualify for.

Since the LTV Ratio is a major component of getting approved for a new mortgage, it’s a good idea to learn the simple math of calculating the amount of equity you may need, or down payment to budget for in order to qualify for a particular loan program.

The LTV Ratio is calculated as follows:

Mortgage Amount divided by Appraised Value of Property = Loan-to-Value Ratio

*On a purchase transaction for a residential property, the LTV is calculated using the lesser of either the purchase price or appraised value.

For Example:

Sally qualifies for a 96.5% Loan-to-Value FHA program, which means she’ll have to bring in 3.5% as a down payment.

If the purchase price is $100,000, then a 96.5% LTV would = $96,500 loan amount. And, the 3.5% down payment would be $3,500.

$96,500 (Mortgage Amount) / $100,000 (Purchase Price) = .965 or 96.5%

In addition to determining what mortgage programs are available, LTV also is a key factor in the amount of mortgage insurance required to protect the lender from default.

On a conventional loan, mortgage insurance is usually required if you have an LTV over 80%.  (one loan is more than 80% of the home’s appraised value)

On that point, if you are currently paying mortgage insurance and think that your LTV is less than 80%, then it may be time to refinance, or call your lender to restructure the payment.

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Frequently Asked LTV Questions:

Q:  Why do the lenders care about Loan to Value?

Lenders care about the LTV because it helps determine the exposure and risk they have in lending on a certain property. Statistics show that borrowers with a lower LTV are less likely to default on their mortgage.  Also, with a lower LTV the lender will lose less money in case of a foreclosure.

Q:  Can I drop my mortgage insurance on an FHA loan?

The mortgage insurance on an FHA loan is structured differently than a conventional loan. On a 30 year fixed FHA loan, the monthly mortgage insurance can be removed after five years, as well as when the borrower’s loan is 78% LTV.

Q:  What does CLTV stand for?

CLTV stands for Combined Loan To Value. The CLTV calculation is as follows:
(1st Mortgage Amount + 2nd mortgage amount) / Appraised Value of Property = CLTV

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• How Much Can I Afford?
• Top 8 Questions To Ask Your Lender During Application Process
• What’s The Difference Between An Investment Property, Second Home and Primary Residence?
• Seven Items Real Estate Agents Need To Know About Your Mortgage Approval

Even though many lenders are still quoting quick 10 minute pre-qualifications over the phone or online, a true mortgage approval that holds any weight is one that has been issued by an underwriter who has had an opportunity to review all of the necessary documents.

With a constant stream of new lending guidelines, volatile mortgage rates and tightening regulation from Washington, very few real estate agents will show new homes to a First-Time Home Buyer without at least a pre-qualification letter.

However, real estate agents representing sellers generally require full underwritten loan approvals which contain only a few contingencies that are due within a few days of accepting an offer.

A Pre-Approval Letter will help you in three ways:

• It lets you know how much mortgage you can qualify for
• It gives you an estimate of what your total housing payment would be
• Submitting a strong “Pre-Approval” letter with a purchase offer will give the seller more confidence about your ability to complete your end of the agreement

It’s obviously a good idea to get your paperwork prepared ahead of time so that the pre-approval process is as thorough as possible.

In order to get a pre-approval letter, you’ll start by filling out a loan application and submitting a few documents for the loan officer and / or underwriter to review.

Common Loan Pre-Approval Documents:

Income / Assets for Wage Earner:

• Last 2 year W2s and Tax Returns
• 2 most recent Pay Stubs
• 2 most recent Bank Statements, 401(K), Liquid Assets, Investment Accounts

Income / Assets for Self-Employed:

• Last 2 year Tax Returns – Business and Personal
• Last Quarter P&L Statement

Letter of Explanation For:

• Employment Gap or New Line of Work
• Late Payments / Judgments / Bankruptcy on Credit Report

Other:

• Bankruptcy Discharge
• Child Support Documentation
• Lease Agreements (If own other Rental Properties)
• Mortgage Payment Coupons (If own other Real Estate)

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Most borrowers also want an opportunity to learn more about the loan officer before digging up all of these personal documents.

Spend 15 minutes on the phone asking the loan officer to explain how mortgage rates work, quizzing them on some basic industry vocab or just to see if they know what to prepare your agent for ahead of time.

The Q&A session can be more than just a lender qualifying you, as long as you’re prepared to ask the right questions.

Either way, you’ll definitely want to have the above list of approval documents ready once you’ve decided on the right loan officer that you trust will meet your expectations.

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• How Much Can I Afford?
• Top 8 Questions To Ask Your Lender During Application Process
• What’s The Difference Between An Investment Property, Second Home and Primary Residence?
• Seven Items Real Estate Agents Need To Know About Your Mortgage Approval

Knowing what questions to ask your lender during or before the loan application process is essential for making your mortgage approval process as smooth as possible.

Many borrowers fail to ask the right questions during the mortgage pre-qualification process and end up getting frustrated or hurt because their expectations were not met.

Here are the top eight questions and explanations to make sure you are fully prepared when taking your next mortgage loan application:

1. What documents will I need to have on hand in order to receive a full mortgage approval?

An experienced mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.

Residence history, marital status, credit obligations, down payment seasoning, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval.

There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren’t prepared for.

2. How long will the whole process take?

Between processing, underwriting, title search, appraisal and other verification processes, there are obviously many factors to consider in the overall time line, which is why communication is essential.

As long as all of the documents and questions are addressed ahead of time, your loan officer should be able to give you a fair estimate of the total amount of time it will take to close on your mortgage.

The main reason this question is important to ask up-front is because it will help you determine whether or not the loan officer is more interested in telling you what you want to hear vs setting realistic expectations.

You should also inquire about anything specific that the loan officer thinks may hold up your file from closing on time.

3. Are my taxes and insurance included in the payment?

This answer to this question affects how much your total monthly payment will be and the total amount you’ll have to bring to closing.

If you include your taxes and insurance in your payment, you will have a higher monthly payment to the bank but then you also won’t have to worry about coming up with large sums of cash to pay the taxes when they are due.

4. Will my payment increase at any point after closing?

Most borrowers today choose fixed interest rate loans, which basically means the loan payment will never increase over the life of the loan.

However, if your taxes and insurance are included in your payment, you should anticipate that your total payment will change over time due to increases in your homeowner’s insurance premiums and property taxes.

5. How do I lock in my interest rate?

It’s good to know what the terms are and what the process is of locking in your interest rate.

Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf.

Most loan officers pay close attention to market conditions for their clients, but this should be clearly understood and agreed upon at the beginning of the relationship, especially since rates tend to move several times a day.

6. How long will my rate be locked?

Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you’re purchasing a foreclosure or short sale.

The way the lock term affects your pricing is as follows: The shorter the lock period, the lower the interest rate, and the longer the lock period the higher the interest rate.

7. How does credit score affect my interest rate?

This is an important question to get specific answers on, especially if there have been any recent changes to your credit scenario.

There are a few key factors that can influence a slight fluctuation in your credit score, so be sure to fill your loan officer in on anything you can think of that may have been tied to your credit.

8. How much will I need for closing?

*The new 2010 Good Faith Estimate will essentially only reflect what the maximum fees are, but will not tell you how much you need to bring to closing.

Ask your Loan Officer to estimate how much money you should budget for so that you are prepared at the time of closing.

Your earnest money deposit, appraisal fees and seller contributions may factor into this final number as well, so it helps to have a clear picture to avoid any last-minute panic attacks.

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Now that you have the background to these eight important questions, you should feel more confident about finding a mortgage company that can serve your personal needs and unique scenario.

Remember, the more you understand about the entire loan process, the better your experience will be.

Most frustration that is experienced during the home buying and approval process is largely due to unclear expectations.

You can never ask too many questions…

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• How Much Can I Afford?
• Top 8 Questions To Ask Your Lender During Application Process
• What’s The Difference Between An Investment Property, Second Home and Primary Residence?
• Seven Items Real Estate Agents Need To Know About Your Mortgage Approval

While most mortgage web sites offer a glossary containing hundreds of real estate and lending related terms, we wanted to highlight the top terms that most borrowers will hear several times throughout the approval and home buying process.

Understanding the “Shop Talk” between the various industry professionals that you’ve assembled on your team will hopefully give you greater confidence when discussing important topics that may impact your transaction.

Amortization Schedule:

A schedule of payments showing the amount applied to the principal and interest through the payoff.

Annual Percentage Rate (APR):

The effective rate of interest that includes loan related fees.  The APR helps determine the total cost of borrowing a loan and is used to compare loans that are advertised with different note rates.

Adjustable Rate Mortgage (ARM):

As opposed to a fixed-rate mortgage where the payment is set for the full term of the loan agreement, an ARM is tied to a specific financial index and may adjust after a set amount of time.

Buydown:

Where a borrower pays an up-front fee to lower the mortgage rate and monthly payment.  Rate Buydowns can be used to help a borrower qualify for a loan, or as a means of negotiation where the seller would contribute to a lower rate in order to entice a buyer to purchase their property.

Combined Loan-to-Value (CLTV):

The total amount of mortgage obligations on a particular property compared to the fair market value.

Debt-to-Income Ratio (DTI):

A borrower’s minimum monthly liability payments divided by their gross monthly income.

Default:

Failure to fulfill an obligation to pay a mortgage.

Delinquency:

Late payments on a monthly liability.  Creditors generally report payments to credit bureaus once the delinquency goes past 30 days.

Disclosure:

A big stack of documents that the lender, buyer and sellers sign during a real estate purchase or mortgage transaction.  These disclosures may also notify all parties involved of their rights and obligations.

Discount Point:

The amount paid to decrease an interest rate.

Fico Score:

The three credit reporting agencies in the United States, Equifax, Experian, and TransUnion, collect data about consumers used to compile credit reports. The credit agencies use FICO software to generate FICO scores, which are sold to lenders.

Each individual actually has three credit scores at any given time for any given scoring model because the three credit agencies have their own databases, gather reports from different creditors, and receive information from creditors at different times.

Fixed Rate Mortgage:

A mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”.

Good Faith Estimate (GFE):

A good faith estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with your loan and must be provided within three business days of applying for a loan.

These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.

A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.

Gross Income:

Total taxable income which is generally verified by a lender through tax returns and W2’s.

Home Equity Line of Credit (HELOC):

A line of credit secured by real estate.

HUD-1 Statement:

A comprehensive and itemized list of closing costs prepared by a closing agent that details all of the financial figures in a mortgage refinance or purchase transaction.

Joint Liability:

When more than one person applies for and secures a mortgage.

Jumbo Mortgage:

A mortgage with a loan amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender.

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages.

When FNMA and FHLMC limits don’t cover the full loan amount, the loan is referred to as a “jumbo mortgage”. The average interest rates on jumbo mortgages are typically higher than that of conforming mortgages.

Loan-to-Value (LTV):

The loan-to-value (LTV) ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87% (LTV).

Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much stricter. Lenders can require borrowers of high LTV loans to buy mortgage insurance to protect the lender from the buyer default, which increases the costs of the mortgage.

The valuation of a property is typically determined by an appraiser, but there is no greater measure of the actual real value of one property than an arms-length transaction between a willing buyer and a willing seller. Typically, banks will utilize the lesser of the appraised value and purchase price if the purchase is “recent.” What constitutes recent varies by institution but is generally between 1–2 years.

Loan Rate Lock:

Where the loan officer locks a specific rate with a lender for a set amount of time.

Liquid Assets:

Money in a bank or investment account that can be obtained quickly.

Loan Origination Fee:

A fee paid by a borrower to a lender for obtaining a mortgage loan.

Loan Servicer:

A mortgage servicer is the company that borrowers pay their mortgage loan payments to. Mortgage servicers either purchase or retain mortgage servicing rights that allow them to collect payments from borrowers in return for a servicing fee. The duty of a mortgage servicer varies, but typically includes the acceptance and recording of mortgage payments; calculating variable interest rates on adjustable rate loans; payment of taxes and insurance from borrower escrow accounts; negotiations of workouts and modifications of mortgage upon default; and conducting or supervising the foreclosure process when necessary.

Many borrowers confuse mortgage servicers with their lender. A mortgage servicer may be a borrower’s lender, but often the beneficial rights to the payment of principal and interest on mortgages are sold to investors such as Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and private investors in mortgage securitization transactions.

Mortgage Insurance:

Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer.

Mortgage Backed Security:

A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property.

First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages.

Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools.

Private Mortgage Insurance (PMI):

Private mortgage insurance (PMI) is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a borrower is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property.

Real Estate Related Terms

Acceptance:

Generally used when a seller accepts the terms presented in a purchase contract offer.

Contingency:

A “Subject To” provision in a purchase contract or mortgage approval that requires more work or documents to be submitted prior to a final decision to be completed.

Due-Diligence:

The period of time described in a purchase contract for the buyer and seller to perform certain duties such as appraisal, loan approval and inspections.

Deed of Trust:

In real estate, a trust deed or deed of trust, is a document wherein specific financial interest in the title to real property is transferred to a trustee, which holds it as security for a loan (debt) between two other parties.

One is referred to as the trustor the other referred to as the beneficiary. In its simplest terms the trustor would be the receiver of money and the beneficiary would be the lender of money. The trust deed document most likely would be recorded (constructive notice) with the County Recorder where the property is located as evidence of and security for the debt.

When the loan is fully paid, the monetary claim on the title is transferred to the borrower by reconveyance to release the debt obligation. If the borrower defaults on the loan, the trustee has the right to foreclose on and transfer title to the lender or sell the property to pay the lender from the proceeds.

Earnest Money:

The deposit money deposited in escrow by a buyer in good faith to secure a purchase transaction.

Escrow:

A third party that holds money or property in trust until a transaction has been complete.  There are several uses for the word “Escrow” in the real estate or mortgage process.  Closing Escrow describes when a purchase transaction is complete.  An Escrow or Impound account involves having your annual property and hazard insurance payments handled by a third party and taken out of monthly installments in a mortgage payment.

Equity:

The difference between a loan balance and a property’s fair market value.

Many borrowers believe that when they purchases a property by obtaining mortgage financing, they also own their home. Technically speaking, full ownership on a property only happens once the mortgage loan amount has been paid in full.

To break this down in more detail, there are a few components of a mortgage:

A Promissory Note is a document signed by the borrower acknowledging their commitment to pay the mortgage back with interest in a specific period of time.

In addition to the terms of repayment, the Note also contains provisions concerning the rights of both parties involved in the agreement.

In some states, a Deed of Trust is used instead of a Mortgage Note.

The main difference is that on a Deed of Trust there is a Trustee, which the legal title is vested to in order to secure the repayment of the loan.

There are three parties involved with a Deed of Trust:

1. Trustor – This is the borrower.
2. Trustee – This is the entity that holds “bare or legal” title, and is usually the title company which holds the Power of Sale in the event of default and re-conveys the property once the Deed of Trust is paid in full.
3. Beneficiary – This is the lender that is getting repaid

Deeds of Trust are easier for lenders to foreclose on than a mortgage because there is no need for a judicial proceeding. Mortgages on the other hand, have to go through judicial proceedings, which can be expensive and time consuming.

Time frame for foreclosures of a deed of trust is about 3 months after the notice of default compared to a year for mortgages. Basically, until you have your promissory note paid in full, you are not the only one with an ownership interest in your property.

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Related Articles – Mortgage Payments:

• Mortgage Payment Basics
• Who Owns My Home If I Have A Mortgage?
• Why Do I Need Mortgage Insurance?
• Understanding An Amortization Schedule
• Shopping For A Hazard Insurance Policy
• Understanding the FHA Mortgage Insurance Premium (MIP)
• Do I Have To Continue Making My Mortgage Payment If My Lender Goes Bankrupt?

A Buyers Guide To the Short Sale Process

With Las Vegas Home prices and interest rates at an all time low, it is a great time for buyers to start shopping around.  However, it is a different market than it was five years ago and terms like “foreclosure” and “short sales” are on the tip of every real estate agent’s tongue.  Short sales can be a great way to save money on a property in Las Vegas, but it could come with some bumps in the road.  As a buyer it is important to know what you are getting yourself into.

A short sale is a negotiated settlement in which a lender agrees to accept less than the amount owed to payoff a home loan as an alternative to foreclosure.  The result is that the bank and the seller don’t have to go through the foreclosure process and the buyer gets the property at a discount.

Sounds simple enough, right?  Well, unfortunately for the buyer, the short sale process does not mean what its name implies.  It is usally not a short process.  Once an offer is submitted it can take anywhere from 30 days to six months to get an acceptance from the bank to do the short sale.  Some banks, like Bank of America, have historically been a very difficult instution in appoving short sales. Some of our team’s agents however, have reported Bank of America speeding up their approvals with the implementation of their Equator system. Equator is an online portal agents and the bank use to upload and process short sale documents.  This is where having the right agent is critical. Their experience can go a long way in helping a buyer analyze which short sales may have a better chance of closing in a more reasonable time frame and which ones a buyer may want to avoid.

Now that you are aware that you may be in for a long haul, here are a few things to expect when going through the process.  First, your offer will be submitted to the bank, while financial statements will be sent to the bank on the seller’s behalf to establish the need for the seller to do a short sale.  Second, the bank will do an appraisal on the property.  Third, a negotiator will be assigned when all paper work on the seller and buyer’s side has been submitted.  The negotiator will go through all the paper work and make sure everything works out.  At this point the bank should have an idea of what they expect to get from the property.  They can either accept the offer, counter the offer or reject it. If approved, the bank will issue letter which allows the property to be transferred. At this point the escrow can continue in earnest.

Each bank may have a slightly different way of doing things.  As well, each bank may work on different time tables.  Some work more swiftly than others, while some take their time.  What is important is knowing that it is often not a quick process, but if you are willing to wait, you could pick up a gem. A buyer will also have the benefit of locking up a transaction rather than being forced to continually look to foreclosures, many of which are now multiple offers due to the lower foreclosure inventory currently available.

Additionally, if you are a Las Vegas homeowner and have any questions about selling your home as a short sale, feel free to give us a call for a free consultation at 702.376.0088.