Mighty Mortgages

When your peers or co-workers talk about mortgages, do you feel as if they’re speaking a different language? When they casually say words like “encumbrance” do you imagine carrying a physical burden? If they bemoan a high “ceiling,” do you wonder if they’re complaining about cleaning the upper part of their rooms? Well, fear these conversations no more, because the task of knowing a basic explanation of mortgage terms should not be that hard.

First of all, what is a “mortgage”? The dictionary defines it as a “temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt.” Simply put, a mortgage is property that is placed by the borrower when he wants to assure the lender that that he will be paid back. It is used to ensure security. It is somewhat similar to a “Deed of Trust” used in many western states.

For example, let us assume I am the “mortgage lender” or the “mortgagee”, and you are the “borrower” or the “mortgagor”. If you want to borrow a sum of money (“a mortgage loan”) from me, you can offer your car as mortgage. Now, if you do not pay me back by the time we agreed upon, I can claim your car as property. This process is called “foreclosure”. If you do pay me back by giving a “mortgage payment”, you get your property back.

There are several other words you should be familiar with related to “mortgage payment”. The primary one is “amortization”, which is the method of repayment of the amount borrowed, usually through regular monthly payments of “principal” and “interest”, which compose the “mortgage payment”. The “principal” is the original amount that you borrowed, while the “interest” is the cost of borrowing the principal amount. The other two terms are the familiar words “taxes” and “insurance.” All together, these terms are called the “PITI payment”: principal, interest, taxes and insurance.  You can use a home mortgage payment calculator to determine exactly what your payment will be.

In terms of payment, there are two types of mortgages: “fixed” and “adjustable”. A “fixed mortgage” uses a fixed interest rate and a fixed length of time to pay back (“term”). This is fixed at the start of the mortgage, and cannot be changed. The “adjustable mortgage”, also called the “adjustable rate mortgage”, has an interest rate that will change up or down according to current interest rate levels. Now, the perplexing usage of the word “ceiling” comes in. A “ceiling” is the maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

There might also be some issues regarding the transferring of a mortgage or a property. One of the key problems is the issue of an “encumbrance” which is a claim against a property by another party. This may negatively affect the ability to transfer ownership of the said property. A concrete example would be a full-grown, independent man mortgaging his parents’ house, without his parents’ consent, in order to borrow money. Since the son does not legally own the house, there is an “encumbrance”.

You have been armed with the basic lingo used in mortgage talk. If asked, “How high is the ceiling?” you now can respond with a sensible (but less amusing!) answer.

There is an existing risk in the market nowadays regarding subprime mortgages. Delinquencies and foreclosures have defined the economic and social standards and regulatory procedures of subprime mortgage industry. Why did such conditions increase rapidly in the business?

Subprime mortgages are loans provided to borrowers regarded as high-risk creditors, which means these borrowers do not have a credible credit history to back up the loan or may have had characteristics that relate with a high-risk of default, and limited-income borrowers. The credit and financial profile of the consumers classify this kind of mortgage. Many subprime borrowers are deteriorating because of non-payments or late payments and other problems that may result to bankruptcies.

Like any mortgage offer, subprime mortgages have special loan features like, interest-only payments, pay-option loans, and hybrid mortgages. Interest-only payments permit borrowers to pay the interest alone for certain duration, that maybe five to ten years. The pay-option loan often has rates that are adjustable and leave the borrower in choosing their payment scheme. This could be in interest-only payment, minimum payment, or full payment, which are possibly lower than the required payment in order to trim down the loan balance. Meanwhile, hybrid mortgages are loans with fixed rates, which change into adjustable rates in no given time.

Why are subprime mortgages riskier then? The risk is higher because this mortgage type allows loan to borrowers who are incapable of qualifying under the traditional and rigid loan regulations due to a limited or badly marked credit background. Subpime borrowers end up receiving higher payments for their borrowings. Therefore, this loan type has higher risks to defaults over prime mortgage loans.

The problem with defaults means consequences of property foreclosures, credit access reduction, and acquired home equity loss. Did you know that borrower’s neighbors might as well endure the consequences? This may also cause to reduce the worth of properties around the borrower’s property, because the geographical factor defines the foreclosures.

Nevertheless, subprime mortgages and other credit methods have truly extended financial assistance to many property owners at the same time. That is why the Federal Reserve continues to make effort in regulating and controlling the existence of fraud and abusive lending institutions, in order to provide security in the practices of lending firms. Together with other government sectors, they also promise to balance continually the well-being of both lenders and borrowers as well, to enhance all the types mortgages offered in the market at present and make it available for anybody who is in dire need.

It is not fair for everyone to discount the fact that lending still assists many households today, despite the risks that it imposes to them. Although there may be cases of bad apples in these lending institutions, there are also several cases of irresponsible borrowers around.

The whole idea of borrowing should definitely not be an embarrassing condition for most of us. It sometimes happens that some of us get through difficult times holding up to our business or daily living. What should be embarrassing is to borrow money for expenditures not necessarily called for now and leave the payments hanging later on.

Unlike the regular residential loans or even commercial loans, new construction mortgage loans are different. These are loans requested from a lender to assist the financial needs to build your dream house. The definition is truly very attractive to many dreamers of a wonderful home, but the basis of your construction loan approval is similarly strict.

The construction loan lender would require you the borrower a detailed list of preparation, explanation, and accounting information for the cost estimation of your home construction project. The lender will have to see your capacity as a homebuilder and planner until the result of your work materializes. Once you have passed the initial screening, only then that they will ask you to submit the documents of your financial capacity to earn and repay the loan. A good credit reputation will also help the approval of your loan.

There are various types of new construction mortgages loans. These are the construction to permanent loan, remodeler loan, bridge loan, and lot or land loan. The construction to permanent loan is ideal for majority of people wanting to build a house, because it only requires the borrower to submit documentations and pay the closing expenses once. It is a combination of a permanent financing and construction loan. This type can definitely help you to save more money and more time during the process. The remodeler loan type is a mortgage type made only to support home improvement or remodeling project by owners. The bridge loan type permits the borrower to make use of the equity on your current home and serve as down payment for a new home. On the other hand, the lot or land loan supplies you funding for your purchase of land instead of constructing a house.

However, picking a new construction mortgage lender is as difficult as choosing a friend, because if you choose the wrong lender and mess up in your payments, some of them can really be very harsh and grabby at once. Should you decide to get a construction loan, you have to consider some valuable guidelines.

Picking the right lender needs thorough decision and research. Gather several companies first and see what they offer. Find out if they are trusted and licensed lending institutions by asking around. Some friends or relatives may shed light on the background of these lending firms. Once you have few preferences at hand, ask for their terms and conditions. Review it carefully. If you have any information that seems to be unclear, ask for an explanation on this.

Although you have dreamt of having your own home built, borrowing is still risky if you are not responsible enough to take care of your finances. Every decision, when it comes to borrowing, has to have sound preparation and evaluation of your capacity to repay the new commercial mortgage loan. Besides, you do not want your new-built home in front of you but with other properties taken away at the same time.

There are fraudsters everywhere. They take advantage of unsuspecting people. They have made an art or a living from trickery, fraud and deception. They are commonplace everywhere, particularly when a huge amount of money or resources are involved.

Securing a mortgage is one good example of a business transaction that involves a great deal of money. Thus mortgage fraud has become pretty common. Mortgage fraud in general means performing a variety of misrepresentation such as giving false information in order to secure the mortgage loan.

In fact, according to the Federal Bureau of Investigation (FBI), mortgage fraud has become one of the fastest growing white-collar crimes in the United States. FBI has thus increased the number of its agents who are tasked to look after mortgage fraud-related cases. It is a federal crime to misrepresent yourself or provide false information in connection with your mortgage loan application. You may be criminally prosecuted.

Just as there are various types of mortgages and mortgage protection insurance, there are also many types of mortgage fraud. These include occupancy fraud, employment or income fraud, identity theft, failure to disclose liabilities, appraisal fraud, mortgage fraud ring, cash-back schemes, and ‘shotgunning’.

The borrower or mortgage applicant is usually the main perpetrator in a mortgage fraud. But it can also involve a number of persons, just in a scheme dubbed as mortgage fraud ring, when a group of individuals are in it together. The aim is usually to defraud a lender or the lending institution a huge amount of money. The accomplices to mortgage fraud may include the borrower, the loan or mortgage officer, the real estate agent or appraiser or even the escrow lawyer or attorney.

There are various fraudulent schemes or so-called modus operandi. For instance, a mortgage salesman or broker may ask a loan officer or agent of a bank to create a fictitious credit account for a mortgage borrower. Then can even sought the help of a real estate appraiser in order to inflate or increase the real value of the property that will be mortgaged. There is also a scheme called foreclosure rescue, where a fraudster would promise to pay off the mortgage borrower’s delinquent payments. It is not as good as it sound though. In the end the homeowner would lose ownership of his or her home, and become merely a renter. In effect, the homeowner has signed off his equity in his or her home.

Homeowners or mortgage borrowers, particularly those who have defaulted on their mortgage payments or at the brink of defaulting, should also be vigilant and avoid being victimized by mortgage fraudsters. The first thing that you should do is to make sure you are dealing with a reputable organization or its authorized representative. Do not deal with the so-called fly-by-night firms.

Even the banks, insurance providers and, other financial institutions are also becoming more vigilant in detecting fraudulent claims or applications of their customers. They are have become stricter and more thorough in reviewing as well as validating the documents submitted by borrowers together with their mortgage loan applications.

The world of mortgages is an extensive industry that supplies the need for a stable flow of funding for many investors, proprietors, executives, and homeowners as well. Yet, some beginners in the mortgage industry are lost why there are mortgage closing costs attached to their loans. Are they even necessary in the process?

Mortgage closing costs are costs for the required services that the lender needs to pursue in order to be able to process and close your loans. As the law requires prior to any loan application, these lenders are obliged to inform you the estimated mortgage closing costs in writing. They call it Good Faith Estimate.

Some borrowers misunderstood that mortgage closing costs are payments that the lender wholly acquires from you. In actuality, costs mainly go to various services performed by third parties. These are compulsory to verify and complete all the details of your loan transactions.

Below is a run-down of these costs for your reference:

Cost of Appraisal. This primary factor needs a special attention prior to other loan transactions. It determines the fair market value of your property and secures the lender that the value of your mortgage loan is not above the fair value of your property. This requires the expertise of an appraiser.

Credit Background. This may mean both your past credit history and present capability to pay for the credit being obtained in the lending institution. Your past credit history will be investigated and evaluated whilst your present financial status will additionally back up your lending. So there is a cost for the lender to hire a credit report investigator or an agency.

Closing Fees. This is paid to the title company or attorney that conducted the closing.

Fees for Title Company Title Search or Exam Fees. Since a detailed and relevant search about your home’s property records is necessary for the loan application, expenses go to the title company handling the research. The research ensures that there are no problems affixed to your property.

Survey Fee. Your property’s ownership lines and boundaries for verification guarantee that there is no present violation on the lot.

Flood Determination/Life of Loan Coverage. Flood is a major factor in ruining your property’s assessment. If it stands in a flooding area, they will require flood insurance from you.

Courier Fees. Documents transportation to finish the loan application as fast as possible require additional costs, too.

Title Insurance for the Lender’s Policy. This appears to be an assurance cost for the lender to validate that you are the legal owner of the property and that the mortgage is a legitimate lien.

Title Insurance for the Owner’s Policy. In turn, this becomes your assurance cost as a borrower to validate that the property is legally yours, in cases where the ownership gets questioned.

Insurance for Homeowners. If future damages come such as fire, this insurance covers these damages.

Attorney’s Fee for the Buyer. This cost if for the attorney who makes all the reviews and preparations of the closing documents on your behalf.

Attorney’s Fee for the Lender. Same thing applies to the lender; a lawyer manages the reviews and preparations of closing documents on the lender’s behalf.

Nevertheless, it is still better to check all the attached mortgage closing costs to your lender. Cases point out to scheming tactics of some lenders wherein they adjust the rate to a much lower cost and brag about this to clients, when in fact they try to keep up with these costs through other lender fees.

Mortgage brokers are dime a dozen. They are scattered everywhere. They come in different shapes and sizes, of course with different price tags too in terms of the amount of professional fees they charge or commissions they get.   Some of the different types include independent, wholes and reverse mortgage brokers.  In general though, mortgage borrowers need to hire the services of a mortgage broker to help him or her every step of the way to securing a mortgage loan.

Your choice of a mortgage broker can spell the difference whether the procedure in securing the mortgage loan for your dream house or property will be smooth and fuss-free or complicated and even fraud-ridden or anomalous.

First things first, make extra sure that you are dealing with a reputable organization. Choose a mortgage broker who is competent, credible, professional and, authorized or accredited by a legit company. Where do you find a mortgage broker like this? Your first consideration should be the advice or recommendation of friends or relatives who have recently secured a mortgage loan or purchased a real estate property.

You can also do your own homework or research. Ask around. Better yet, surf the web. There are a number of websites that provide listings of mortgage brokers as well as comparisons of the best or more reputable ones. You can make a short list, email them for inquiries or talk to them over the phone—which a better option.

Do not hesitate to ask all the questions you have in mind or discuss concerns, however small or irrelevant they may seem to you. Do not get sidetracked by the sales pitch of mortgage brokers. Stick to your questions and make sure they are answered and have been explained clearly to you.

There are also many offers or packages advertised everywhere, especially in the Internet. Do not get enticed right away. Some of these special deals are really too good to be true and most of the time they are. Trust your instincts and good judgment. Make sure these special offers are in black and white, in case you want to avail of them. Keep them in a record or file for future reference. It is better safe than sorry, as they say. So if in the future, disputes may arise, you have a proof or evidence.

Beware of mortgage brokers who cannot even provide a business or calling card, more so those who do not have an office. Even if you are dealing with an online mortgage brokering service, you should make an effort to visit the company’s office and see how they operate there.

It is also best to discuss professional charges and commission during the course of choosing for a mortgage broker. Most of these charges or fees would be shouldered by you. So you have every right to ask questions about them.

The most important thing in your search for the best mortgage broker is to find somebody with whom you would be comfortable dealing with. After all, you will have to deal with him or her for a great deal of time. Good luck.

An FHA mortgage is a very popular option for first-time home buyers primarily because of its competitive interest rates, which can be as low as three per cent. The requirements are also simple.

But first of all, what does FHA stand for? It is the acronym for Federal Housing Administration. The FHA mortgage program was established by the Department of Housing and Urban Development in the 1930s to help Americans improve their housing conditions or for as many citizens to have their own houses.

When FHA was started in 1934, a hefty down payment of as high as half of the prices of the house was required and repayment period is very short at between one year and five years only. Nowadays though, FHA mortgages require less than five per cent down payment, starting at three per cent only.

The FHA is not really the one that lends the money to borrowers. The FHA simply acts as a guarantor or insurer of the borrower. It insures that the lender will be paid the mortgage loan if and when the buyer defaults. Borrowers however are also required to pay private mortgage insurance or PMI on the mortgage, which also ensures that the total amount of the mortgage will be paid to the lender if and when the borrower defaults.

FHA mortgages have no mortgage value restrictions, borrowers can apply for any amount of FHA mortgage as long as they qualified or eligible for it. There are various types of FHA mortgages. These include fixed rate mortgages, adjustable rate mortgages, teacher next door, officer next door, FHA renovation mortgages and, special FHA program (FHA bridal registry program).

The fixed rate mortgage is the most popular type of FHA mortgage. As its name implies, its interest rate is fixed and does not change. It requires interest rates as low as three per cent of the total amount borrowed and it insures the lender for the total amount of the mortgage if and when the buyer defaults. Fixed rate mortgages can have repayment periods of 10, 15, 20 or 30 years. It is not only the interest rates that are fixed, even the borrower’s monthly payment is fixed throughout the life of the mortgage.

Adjustable rate mortgages or ARM have interest rates that fluctuate or go up and down depending on the prevailing federal interest rates index. ARM’s interest rates are usually lower than the interest rates of fixed rate mortgages. If interest rates are high, ARM is advantageous because its interest rates are lower than fixed rates.

FHA renovation mortgages are for existing homeowners who want to borrow money to renovate or repair their homes. Borrowers can receive as much as 110 per cent of the costs they need to renovate or repair their home, the minimum amount is $5,000.

The other FHA mortgage types are specialized or customized ones—for teachers (teacher next door mortgages), soldiers or law enforcement officers (officer next door) and, for newlyweds (FHA bridal registry program), which their loved ones or friends can give to them as gifts.

Mortgages can seem like a difficult concept to tackle. With the constantly growing range of mortgages types being offered by banks and building societies, the complexities of mortgages tend to baffle the ordinary individual. But in reality, underneath all the new names and titles, mortgages revolve around two things: how you pay back the capital you borrow and how you pay the interest on it. In general, there are three different mortgage types:

Repayment Mortgages. Considered safe and easily understandable, this mortgage type is common. Every month, you pay off part of the interest, as well as part of the principal. This occurs until the end of the term of the mortgage, when the mortgage is finally cleared. The danger is that if you do not consistently pay, the lender can repossess your property.

Interest-only Mortgages. Growing in popularity, especially among first-time buyers and investors, this mortgage type lets you pay off the interest only. By the end of the mortgage term, you have to pay the full amount of the capital, whatever it may be. The problem with this type of mortgage is that if the time leading to the end of the term is ill-planned, payment of the lump sum of the capital may be difficult.

Endowment Mortgages. Less popular than it was in the past, endowment mortgages are investments risks. These work when you use an endowment policy which provides life insurance and saves funds that will repay the loan when the term ends. These mortgages usually last from twenty to twenty-five years. The main risk lies in the possible shortfall on your loan at the latter part of the repayment period. This may happen if the investment performs poorly.

There are also eight specific different mortgage types that one has to consider:

First, is the fixed rate mortgage. It is a type of mortgage that is fixed for the entire term of the loan, and thus has no provision for the changing interest rate.

Next, is the variable rate mortgage. With this particular mortgage, you pay the lender’s standard variable rate of interest, also called the SVR. An attribute of this type is its great link to market conditions.

A quality of the current account mortgage is a very large overdraft. This is due to way this type combines your current account with your mortgage.

A discount rate mortgage is characterized by the fact that the interest rate that one pays is set below the standard variable rate of interest for a specific period. This is similar to the variable rate mortgage because it, too, succumbs to market conditions.

A cashback mortgage is different because one you have finished your purchase of a property, you will receive back a lump sum of money. These also come with certain restrictions, which are related to the repayment of the cashback.

The offset mortgage considers the funds that are placed within current or savings accounts when interest is being calculated. However, with offset mortgages, separate accounts are possible.

A flexible mortgage, also called personal choice mortgage, is adaptable to the borrower’s financial circumstances. There are many different possible features that can be offered with this mortgage, including lump sum payments, monthly overpayments, etc.

A capped rate mortgage is a combination of both the fixed rate and discount rate mortgage.

When you have a good credit history your loan application process is generally completed smoothly. Unfortunately not everyone is in this boat and for those with bad credit getting a mortgage can be a great deal more tumultuous. However there is an ever increasing rise in the amount of people in this situation and consequently the mortgage industry has responded with a wide variety of options and products. Bad credit mortgages are now available for those with a poor credit history.

Traditionally lenders have avoided dealing with clients who have bad credit. That situation has changed significantly with the rise of a whole industry of mortgage loans for bad credit. The interest rates and terms can be almost the same with only marginal differences. These mortgages can even have their amortizations (the amount of time the whole loan is spread over) set at forty years and new options are being introduced all the time.

Bad credit history can happen to anyone for a wide variety of reasons, some preventable and some not. Health care costs, job loss and divorce are just a few of the reasons that someone may find themselves in the position of having a low credit score. A previous bankruptcy, collections, court judgments and others can all count against you and prevent you from qualify for a regular mortgage.

With any of the above black marks on your credit record you can still find a high risk lender who will give you a loan, but you need to be especially careful as there have been numerous reports of unscrupulous individuals who are quick to take advantage of you in this situation.

Bad credit mortgage lenders are also called sub prime lenders. Banks and other mortgage companies like them are called prime or first tier lenders. The sub prime lenders are, just as the name suggests, lenders who provide money for those with poor credit who do not qualify for the stricter approval criteria put in place by the prime lenders.

As the demand for sub prime lending has sharply increased, many mainstream lenders are purchasing sub prime mortgage companies to augment their services and take advantage of the tremendous opportunity for growth that this market offers.

The poor credit mortgage market is not restricted to the United States either. It is estimated that one in four people in the UK would not be approved for a standard mortgage because of a bad credit history.

At one time there was a sense of shame associated with needing a specialty product such as this. That is certainly not the case nowadays and you should not let yourself feel like that. Many people form all walks of life need a bad credit mortgage for a variety of reasons.

Just because you can get a mortgage with bad credit does not mean that you should get in over your head or pursue something that is more than you can afford. You want to make sure that they monthly payments are reasonable and within your budget.

Getting a bad credit mortgage is the first step in repairing your credit rating. Once you have shown that your credit behaviors have changed and you can be responsible with the payments it is more likely that when it comes up for renewal that you will then be eligible for a regular mortgage.

Specific mortgage loans are designed for people with poor credit. The idea is to fix your credit within a year or two. In this regard you should try to get a short term mortgage with a 2 or 3 year fixed rate. Do not confuse this with the amortization, which is the total amount of time the payments are spread over. The term is the period for which you are locked into the rate and the payments. When it comes up for renewal you are eligible to pay it out without any penalties and you can renegotiate the terms and interest rate.

All bad credit mortgage loans are not created equally. The interest rate you are charged is on a sliding scale depending on your credit risk. So if your credit is only marginally poor, then you may only be looking at a slightly higher rate.

If you are still turned down even after exploring all of your options then you may want to consider consulting with a credit repair company. These programs can sometimes help you to improve your credit score in a rater short amount of time.

As you have probably noticed in the headlines, sub prime mortgages have been in the news a lot. This has made some lenders a little more cautious, but it does not mean that there is no one still offering them, you just have to do a little more looking around.

In years past it was much simpler to apply for and be approved for a stated income home loan. You did not need to have an exceptionally high credit score, or even necessarily a down payment and you could be approved for a mortgage without providing documentation supporting your earnings.

Default on Stated Income Loans

Well the landscape has changed and mortgage companies that allow stated income for financing are no longer being as fast a free with handing these out. You need to establish yourself as being much more credit worthy in today’s environment. In the post sub prime mortgage meltdown, default on stated income loans is on the rise.

Introduced as an opportunity for those with income from difficult to verify sources, stated income home loans were a boon for the self employed and commissioned sales people. People in these circumstances often have difficult time providing proof of their earnings. For example, they are not given pay slips, or even W2’s. Sometimes the mortgage rate or associated fees are a little higher, but these costs are offset by the opportunity to purchase home where you otherwise may not by able to under traditional qualifying criteria. And if you FICO score is very high, you can even finance one hundred percent of the purchase price. Naturally, if your credit score is way above average, high interest rates can be mitigated.

Stated Income Mortgage Rules

Hopefully with the tighter controls on qualifying for stated income home loans, they can work toward shaking their stigma as liar loans. You see it was not uncommon for potential home buyers to opt for this program even when they were capable of meeting the requirements of full doc loans. They would misrepresent their borrowing capacity so that they could be approved for a mortgage that was in fact beyond their means. What these applicant don’t realize is that lending institutions have put these policies in place to not only protect themselves from foreclosing, but to protect their clients from being put in a situation that will ultimately be difficult for them to live up to. Stated income home loan rules are put into place for your own protection and it really is not in your best interest to try to circumvent them.