home loans

Mortgages: Should You Keep Paying On Yours?

Should you keep paying your mortgage on a home that’s dwindling in value? No way, say an increasing number of underwater homeowners who are voluntarily choosing to “walk away” from their home loans, a practice known as “strategic default.”

Jon Maddux, CEO of YouWalkAway.com, reports 10% more clients this year to his company, which advises people how best to handle the walk away process.

Charles Gallagher, a real estate attorney in St. Petersburg, Fla., has also seen an uptick.

And a recent survey by home finance company Fannie Mae found that while only about 27% of homeowners would even consider walking away, that’s up from 15% last year.

In an early 2010 report, Morgan Stanley researchers said nearly 200,000 defaults in the prior year were voluntary, or roughly 12% of the total. The bank expects to issue updated estimates in coming weeks.

“People are more educated about the process,” said Maddux of YouWalkAway. “They’re making more calculated, less emotional, decisions and are less fearful and less concerned about the stigma.”

University of Arizona law professor Brent White thinks the past few years of banking scandals have reinforced the view that it’s not unethical to walk away.

“There’s a sense that the banks don’t follow the ‘rules,’ but somehow the little guy is supposed to — more and more people are saying ‘enough is enough’ and walking away,” said White, who is also the author of “Underwater Home: What Should You Do If You Owe More on Your Home than It’s Worth?”

Some homeowners, however, can’t get past the stigma.

What about you? How do you feel about people who are able to pay, but walking away? The comment link below is where you click to comment on this. We’d love to hear from you.

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Home and Commercial Inspections in the Columbia SC area is our specialty! Every year we help hundreds of clients save tens of thousands of dollars, by responsibly finding and exposing conditions that threaten property, value and safety. To learn how we may be able to serve you, please click and read, or call 803-261-5810.

Mortgage Denied? Here Are Some Possible Reasons

Getting a mortgage just keeps getting tougher, and many homebuyers are getting rejected for loans they could easily afford.

The issue: Tighter standards from Fannie Mae and Freddie Mac, the government entities that back mortgages made by banks.

A quarter of all mortgage loan applicants get denied for loans, according to the Federal Reserve. Many other potential homebuyers never even try to get loans.

Here are some of the reasons banks must turn down borrowers for mortgages:

Too few of the condos in your association have been sold

For Fannie/Freddie lenders to approve a mortgage to finance purchase of a condo, a large majority of the units — 70% — have to be already sold or under contract to individuals. Before 2009, the threshold was 51%.

If more than 30% are still owned by the company that built the complex or sponsored its conversion from rental units, the mortgage will be denied, no matter how qualified the buyer is.

Your debt is too high

Fannie and Freddie have also increased their emphasis on income relative to debt.

If someone’s total debt payments exceed 45% of income, the mortgage will be denied. In 2009, the limit was 55%.

Using that as a hard and fast rule can penalize very qualified buyers, ones who should be able to meet their debt obligations.

Take, for example, a couple who wants to buy a second home as a rental. Two mortgage payments could easily push them past the 45% threshold, even though they’ll have rental income and home equity.

The 45% rule can also hurt small business owners who have had a couple of bad years. Their incomes may be down relative to their debt, but they may have plenty of cash to keep from defaulting on a mortgage.

Missed payments on credit card debt

Fannie and Freddie also have gotten stricter in how they factor in missed payments on credit cards, auto loans and other debts in which the balances do not have to be paid off every month.

They used to be okay with a missed payment or two. Now, one missed payment will hit your debt-to-income ratio, because banks will add 5% of your outstanding loan balance to the debt part of the calculation.

That would be an extra $1,000 on a $20,000 student loan balance, for example.

The wait after foreclosure is extended to seven years from five

Some borrowers lost homes to foreclosure but then diligently rebuilt their financial health. Despite high credit scores, ample assets and income and steady employment, lenders are not allowed to finance their Fannie/Freddie mortgages if their foreclosures happened any time within the past seven years.

Before spring last year, the wait time was five years.

Of course, there may be other factors that cause a lender to deny you for a mortgage, but these are the basic deal-killers.

Talk to a lender and get pre-approved before even starting the home search process, and you may save yourself and your real estate agent a lot of wasted time if you’re not going to qualify any way.

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Home and Commercial Inspections in the Columbia SC area is our specialty! Every year we help hundreds of clients save tens of thousands of dollars, by responsibly finding and exposing conditions that threaten property, value and safety. To learn how we may be able to serve you, please click and read, or call 803-261-5810.

Closing on Your Mortgage

If you’re in the process of buying a home for the first time, you’re probably wondering about what you can do to help make the mortgage closing process smoother. To do this, it’s important to understand your role as well as your mortgage lender’s role is in the home-buying process.

Your Mortgage Company’s Role

Your mortgage lender’s role is to make the home buying process as easy as possible. Your banker or loan officer has to ensure you understand all the terms and conditions of your loan before you close on your mortgage.

Your Role

Buying a home is a very complex and exciting and sometimes stressful process. Communication is very important and the easier it is for your mortgage lender to reach you, the smoother the loan process will be. Be sure to let your banker or loan officer know your availability to avoid miscommunications.

Also, make sure you let your mortgage lender know everything that could affect your eligibility for a loan (e.g. other properties owned, actual hours worked, sources of income, etc.) so they can serve you better.

Mortgage lenders grow through referrals, and they want to make sure you’re happy and satisfied with your experience so you tell your friends and family about it. If you have any suggestions, let them know! Any reputable company will be open to hearing about your thoughts.

Mortgage Closing Expectations

Typically it takes about 35 to 50 days from the time of signing an application to closing. If you’re interested in purchasing a short sale or a bank owned property, the closing date may be affected and it may take longer to close your loan.

Third Party Vendors

Keep in mind that mortgage lenders work with third party vendors who also impact the loan process, such as appraisers, title companies, real estate agents, etc. This means that sometimes the process may get delayed as further information is needed from them to close your loan.

Closing Costs

One great feature of VA loans and FHA loans is that the seller may actually cover closing costs. For other types of loans, the closing costs can be rolled into the mortgage. If none of these situations apply to you, you may need to have funds available to bring to closing to cover closing costs, taxes and insurance. These costs mentioned are in addition to your down payment, of course.

Some things that may be included in your closing costs are:

  • Appraisal
  • Flood Certification
  • Tax Service
  • Title Services
  • Lender’s Title Insurance
  • Owner’s Title Insurance
  • Transfer Taxes
  • Real Estate Agent Fees
  • Filing Fees
  • Prepaids or Escrow Reserves
  • Pest Control Inspection

We hope this article helped you learn more about the roles and expectations of the lender and client during the mortgage closing process. Whenever you have a question do not hesitate to contact your mortgage lender. If you are just getting started in the process of shopping for a new home, contact us!

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Home and Commercial Inspections in the Columbia SC area is our specialty! Every year we help hundreds of clients save tens of thousands of dollars, by responsibly finding and exposing conditions that threaten property, value and safety. To learn how we may be able to serve you, please click and read, or call 803-261-5810.

Proposed 20 Percent Down Rule Draws Opposition

A proposed rule intended to prevent the kind of reckless lending and borrowing that heaped so many toxic mortgages into the marketplace in recent years has alarmed some groups, who argue the unintended consequences could worsen the nation’s housing troubles.

The plan would require homeowners to make down payments of at least 20 percent of the cost of a home.

Barry Zigas, director of Housing Policy for the Consumer Federation of America in Washington, D.C. said recently, “It’s a good thing to have more equity in your house, but it’s not a good thing for the federal government to set a 20 percent down payment as the gold standard of mortgage underwriting.”

As proposed, the 20 percent down payment requirement, which grew out of the Dodd-Frank regulatory overhaul enacted in July, would not apply to all residential mortgages.

It is intended to apply to mortgages banks plan to package as mortgage-backed securities to sell to investors. If lenders do not require a borrower to make the 20 percent minimum down payment, the financial institutions would be required to hold at least 5 percent of the value of the loan on their books, a move to make sure they, too, would lose if a loan goes bad.

Groups that oppose the proposal say banks will either decide not to lend money to people who don’t have 20 percent or will charge higher interest and fees to offset the bank’s cost of holding the 5 percent reserve.

It is unclear how soon the rule would impact the housing market, if it is approved. Most home loans in this country are insured by federal agencies, such as Federal Housing Administration with its 3.5 percent down payment. Those mortgages would continue to be exempt from the 20 percent requirements.

The new rule establishing guidelines for the Qualified Residential Mortgage rule would be a complete pendulum swing from the days of easy credit, which gave birth to mortgage innovations that fueled the housing boom.

The 5 percent risk retention rule would make sure that if lenders did not require borrowers to put 20 percent down, the lender would still have a stake in the loan being repaid.

Some analysts are convinced that if the rule is approved, home prices could decline and more people with homes underwater — the houses are worth less than the owners owe — will walk away, creating a bigger overhang of unsold properties.

What do you think? Will a minimum 20 percent down rule cripple the already fragile housing market? We’d love to hear from you. Sound off by clicking the comment link below. Your email address will never appear on our website or shared with any third parties.

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Home and Commercial Inspections in the Columbia SC area is our specialty! Every year we help hundreds of clients save tens of thousands of dollars, by responsibly finding and exposing conditions that threaten property, value and safety. To learn how we may be able to serve you, please click and read, or call 803-261-5810.

Reverse Mortgage Loans – What You Should Know

A reverse mortgage loan is one in which a finance company buys the equity in a home. While the homeowner is alive, the company will make monthly payments to the owner. The homeowner may alternatively opt to receive a lump sum payment. After the homeowner passes, moves, or sells the house, the loan becomes due. The home does not have to be paid off to get a reverse mortgage loan, but it usually requires a good deal of equity.

These loans provide a way for senior citizens to take equity out of their home without selling the home. This has the benefit of allowing them to live a better life without the stress of financial obligations; at least regarding the mortgage. It gives them more money on which to live, and maybe enjoy some things they might not otherwise be able to afford. When the loan comes due, such as at the death of the homeowner, the house is sold and the loan is paid. In that case, the heirs receive any additional monies. If the loan is larger than the sale amount, the lender absorbs the loss.

There are pros and cons regarding reverse mortgage loans. They are expensive to initiate, costing nearly twice as much as traditional loans. Additionally, the loans create compounding interest. The borrower makes no monthly payments, so the interest is essentially added to the principal. The next month, interest is due on the higher amount of principal. These loans can be quite confusing, and a deceptive finance company can make the confusion even worse. Caution is advised, as is an attorney and counseling before making a commitment to a reverse mortgage.

Overall, if properly handled, reverse mortgage loans can be great for the elderly; they can be life changing. They are certainly not for everyone, though. Each person has a unique situation which must be taken into consideration before initiating one of these loans.

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Home and Commercial Inspections in the Columbia SC area is our specialty! Every year we help hundreds of clients save tens of thousands of dollars, by responsibly finding and exposing conditions that threaten property, value and safety. To learn how we may be able to serve you, please click and read, or call 803-261-5810.

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