Tag: Mortgage 101

What’s the Best Home Loan Option for Me?

Posted on by Emily Gregory

As a homebuyer, your mortgage is specific to your situation and lifestyle. There are many different factors to consider when thinking about which home loan option is best for you. While one buyer may be comfortable paying a 20% down payment, another buyer may need down payment assistance. How long you plan on living in your home can also play a role in which type of home loan to choose. We will give a brief overview below of some options, but it is best to reach out to one of our loan officers for the full breakdown.

One loan option to consider is a fixed-rate mortgage. A fixed-rate mortgage has an interest rate that stays the same for the entire life of your loan. This offers a predictable monthly payment for a term of 10-30 years. This type of loan is best suited for a buyer who intends to stay in their home for a long period of time. Highlights of a fixed-rate mortgage are

  • Interest rate security
  • Monthly payment stability

Another option to consider is an adjustable-rate mortgage (ARM). An ARM is a mortgage in which the interest rate is adjusted periodically based on an index. An ARM is a good option for buyers who are planning to move into a different house within the next few years. Depending on the type of ARM, the interest rate and monthly payment will fluctuate every adjustment period. An adjustment period is a period between each rate change, such as 5/1 – meaning the first-rate reset takes place after five years and continues to reset each year for the life of the loan. Highlights of an adjustable-rate mortgage are:

  • Low starting interest rate
  • Lower monthly payments during the initial term

Buyers who need assistance with up-front fees may consider Down Payment Assistance (DPA) Loans. State Housing Finance Agencies offer state-specific programs to residents who need help purchasing a home. These programs can be in the form of a loan or grant and assist with closing costs, down payment, and even student debt relief. Highlights of DPA loans are:

  • A lower amount of money is required up-front
  • State-specific programs to assist most buyers

First Home Mortgage offers a variety of loans that can meet your needs. While reading about different loan types online is a great way to get started, to know exactly what option is best for you, it is wise to talk to a mortgage professional. Get in touch with a First Home Loan Officer near you to fully outline your situation and goals and tailor a plan.

5 Home Loan Milestones

Posted on by Emily Gregory

Buying a home may seem a bit complicated, and sometimes it can be. It is important to understand what to expect when preparing to buy a home, and what to expect during the home buying process. Below we’ve provided a short outline of the five main milestones of the home buying process.

Pre-Qualification

You’re ready to buy a home, congratulations! The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. You can do this in-person or on the phone with a loan officer, or in most cases complete an online form. Your lender will be able to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.

Application

Once you have found a home, you will make an offer to buy it from the seller. A real estate professional will conduct negotiations and a contract will be submitted to purchase, accompanied by the pre-qualification letter. Once your offer is accepted, you will receive your initial disclosure package and you will begin the application process. You will most likely need to provide your loan officer and processor with updated income and asset documentation, such as pay stubs and bank statements. To ensure your loan stays on track, you’ll want to have your docs completed quickly and thoroughly.

Processing

In this step of the process, your appraisal and title work will be ordered. Once all necessary documentation is present, the processor will review everything for completion and accuracy. He/she will verify information on the title work, appraisal, credit report and any additional docs needed. Once the processor has completely reviewed the full application package, he/she will pass it on to the underwriter. Your loan officer will keep you informed, answer any questions and navigate you through the loan processing stage.

Underwriting

Once your loan gets to this milestone, the underwriter will review the entire loan package to determine if your loan meets the guidelines for approval. Your underwriter will review your disclosures, credit, asset documentation, employment, appraisal and additional documents along with the loan program’s guidelines and regulations. Once conditions have been met and any contingencies on the loan have been cleared, the underwriter will give the clear to close/final approval and the loan is sent to closing. Once the loan gets through underwriting, you’ve rounded the last turn and are in the home stretch!

Closing

You are now in the final home loan milestone, closing! A date, time and location should have already been confirmed for closing. At least 3 days prior to closing, you will receive your closing disclosure (CD). This document shows your closing costs, terms of the loan and how much money you need to bring to settlement. Once at settlement, documents will be signed, funds will be distributed and ownership of the property will transfer from the current owners to you. The house is finally yours!

It may seem like a long process, but we strive to make it as seamless as possible. If you are ready to start your home buying process, contact one of our loan officers today!

Why Is a Home No Longer Pending?

Posted on by Emily Gregory

A pending sale means the seller has accepted an offer but the deal hasn’t closed yet. A property is placed in pending status when the contract is executed; when the contract is executed, in other words, the property is no longer defined as an active listing. A home will remain pending until all legal work has been processed and the loan closes. If your dream house is currently listed as pending, don’t lose all hope. Some sellers will still allow offers to be made on the house, just in case the deal falls through. Here are a few reasons a deal may fall through.

Finances

Homebuyers are often not aware of how an innocent transaction, such as making a large credit card purchase or moving cash from one back account to another, can jeopardize the mortgage process. Applying for any new kind of credit or accruing any new debt can affect your eligibility to continue with the loan. If any type of financial transaction is made that disqualifies you from continuing with the loan, the pending sale will fall through and the home will likely go back on the market. Always discuss your financial situation with your loan officer during the loan process.

Title Issues on the Property

Once a contract has been written up and the buyers start the loan process, title work on the property will be reviewed. Sometimes there are delinquent liens/bills on the property from the current owner, among other issues, that can affect closing. If the liens are not taken care of by the seller and cleared from the title, a lender will not allow the sale to go through. Errors of public records on title work can also stop a sale from continuing. Clerical or filing errors of the deed or survey of the property can cause financial strain to resolve, so they are not taken care of and the sale falls through.

‘Subject To’ Conditions

A smart buyer will have a property inspection done on the house before closing. An inspector will take a look at the foundation of the house, roof, attic, appliances, and list of other items to make sure everything is in working condition. If issues are found in the house that need to be fixed, the borrower may list “subject to” or “contingent upon” conditions on the contract. If these items are not fulfilled by the seller, the borrower is allowed to exit the contract, thus removing the pending status.

While it is not common for a deal to fall through once a contract is written up, it could happen. It’s a good idea to still follow the sale of the home and keep it in the back of your mind. Contact one of our loan officers if you have any questions, they will be happy to help!

What is Homebuyer Education, and Why Do You Need It?

Posted on by Emily Gregory

Homebuyer education, also called housing or pre-purchase counseling, helps homebuyers prepare for the process of purchasing a home and the challenges of being a new homeowner. Some loan programs, like the Maryland Mortgage Program (MMP), require homebuyer education courses.

Recently, the Maryland Mortgage Program has made updates to their homebuyer education requirements to simplify and standardize the process. Effective for MMP reservations dated on or after October 1, 2018, the following will be implemented:

  • Homebuyer education may be taken online or in person, individually or with a group, as long as the class has been approved by HUD, Fannie Mae or Freddie Mac.
  • For Baltimore City and Baltimore County, the above flexibility will apply, but the homebuyer education must be completed prior to signing the sales contract.

The homebuying process is complex and if you are a first-time homebuyer (someone who has never owned a home, or has not owned a primary residence in the last 3 years) it can be a little confusing. This is why homebuyer education courses are so important. They help new homebuyers understand the process and what to anticipate as a homeowner. Below are some of the topics you can expect to learn about during your pre-purchase counseling.

  • Process of purchasing a home- You will be given an overview of the entire homebuying process, from application to closing, exploring each step more in-depth.
  • Budgeting- Buying a home will be one of the biggest purchases you will make, so knowing how to afford your mortgage and budget for extra expenses will be covered.
  • Shopping for a mortgage- Different types of home loans will be reviewed and what you will need for pre-approval. Your credit score, and ways to raise and improve it, will also be covered as a topic since this can help determine which type of mortgage and rate you qualify for.
  • How to maintain a home- Upkeep and regular maintenance of your home lowers the risk of major problems down the road; it is essential to know how to maintain your home and the budget you should keep for maintenance.

Even if you aren’t a first-time homebuyer, taking a homebuyer education course can be beneficial, since the mortgage industry is always changing and new programs are emerging. Additional one-on-one homebuyer counseling is available, and it is sometimes required, depending on the state/county you are purchasing in or loan program you are using. It’s better to have more information than not enough, especially when it comes to buying a home. Please reach out to any one of our loan officers if you have questions.

Wire Fraud on the Rise

Posted on by Emily Gregory

E-mail hacking and wire fraud schemes are on the rise in the mortgage industry. In the past few years, homebuyers have been schemed into losing thousands of their hard-earned dollars, and unfortunately, a lot of that money has not been recovered.

So what exactly is wire fraud? It’s a crime in which a person (hacker) creates a scheme to defraud or steal money based on fabricated information. It is common for hackers to gain access to e-mail addresses, whether they are from a settlement agent, title company, realtor or mortgage lender, and impersonate them. The hacker will send an authentic looking e-mail to the borrower with a new set of wire instructions. These wire instructions route the money to a fraudulent bank account rather than the settlement agent’s account. Once the money is out of the borrower’s account, it is very difficult to trace where it was sent, making it tough to recover.

While this is a widespread problem, there are ways borrowers can prevent being schemed into wire fraud.

  • Carefully verify all e-mail addresses on every e-mail received and sent. Hackers will slightly adjust the appearance of an e-mail address to make it seem like an original copy. Even if the signature line and logos are exactly the same, pay attention to the actual e-mail address.
  • Always call the settlement agent to confirm the wire instructions before sending any money. Use a previously known or verified phone number.
  • Instead of wiring money, ask if a certified check or cashier’s check can be brought to closing.
  • If you receive an e-mail changing the wire instructions, call the settlement agent immediately! Wire instructions seldom change. Again, use a previously known or verified number. DO NOT use the phone number in the e-mail with the revised wire instructions, this could be a number directed to the hacker.
  • After wire instructions and have confirmed and money wired, call the settlement agent to confirm the money was received.
  • Instead of having wire instructions sent through e-mail, pick them up from the settlement agent’s office.

If you suspect you have been targeted for wire fraud or something seems out of the ordinary, don’t hesitate to reach out to your loan officer or settlement agent. Raising concern and asking a few extra questions is a lot better than losing thousands of dollars, and most likely losing the house you worked so hard to get.

When to Consider a Renovation Loan

Posted on by Emily Gregory

Sometimes you find a great house, but it needs a little bit of TLC. That is where a renovation loan comes in to the picture. A renovation loan, or 203(k), makes the process easier by allowing you to combine your renovation costs into your mortgage, helping you fund your home improvements. That means one loan and one closing, and a lot less stress on you!

There are a few different types of renovation loans offered that help fund minor repairs to major rehabilitation. Take a look at the overview below and decide which one will help you complete your dream home.

Standard 203(k) Mortgage Program: Use this program if you are looking to do large scale renovations, remodeling and repairs, and when a 203(k) consultant is required.

  • No maximum repair cost amount, minimum $5,000 in eligible improvements required.
  • Renovating/Remodeling: converting a 1-family structure to a 2-4 family structure, alterations such as repair or replacement of structural damage, constructing a garage, creating accessibility for persons with disabilities.
  • Repairs: fixing HVAC systems, decks, patios, porches, well and/or septic systems.
  • Energy conservation improvements: adding insulation, replacing windows and doors, install energy efficient lighting.
  • Landscaping.
  • May not be used for luxury items that do not become a permanent part of the property: swimming pools and hot tubs, bath houses, outdoor fireplaces, gazebos.
  • Minimum down payment of 3.5% for purchases, 2.25% for rate/term refinances.
  • Owner-occupied property only.

Limited 203k Mortgage Program: This program may only be used for minor remodeling and non-structural repairs. A 203(k) consultant is not required, but may be used for the project.

  • Maximum repair cost $35,000.
  • Improve house function and modernization: installing a new refrigerator, cooktop, oven, dishwasher, and/or washer/dryer, installing smoke detectors.
  • Connecting to public water and sewage systems.
  • Installing or repairing fences, walkways, and driveways, repairing old or damaged siding, gutters and downspouts.
  • May not be used for luxury items that do not become a permanent part of the property: swimming pools and hot tubs, bath houses, outdoor fireplaces, gazebos.
  • Repairs and improvements are completed in 6 months or less.
  • Minimum down payment of 3.5% for purchases, 2.25% for rate/term refinances.
  • Owner-occupied property only.

Fannie Mae HomeStyle® Renovation Mortgage: There are no required improvements or restrictions on the types of renovations allowed.

  • No minimum dollar amount required for improvements, however, a HUD-approved consultant must be used when repairs and renovations exceed $15,000.
  • May be used to complete final work on a newly built home when the home is at least 90% complete, remaining improvements must be related to completing non-structural items such as installation of buyer-selected items (flooring, cabinets, kitchen appliances, fixtures, and trim, etc.).
  • May not be used for complete tear-down and reconstruction.
  • May be used to construct outdoor buildings and structures such as swimming pools, garages, recreation rooms and accessory units.
  • Repairs and improvements are completed in 6 months or less.
  • Minimum down payment is dependent upon transaction type (3-25% required).

 

Already own your home but need to make some updates and repairs? We also offer renovation loans for refinances.

 

Contact a First Home Loan Officer in your area to discuss which option best fits your needs.

 

 

HomeStyle® is a registered trademark of Fannie Mae.

What is Mortgage Insurance and Can I Cancel it?

Posted on by Emily Gregory

What is mortgage insurance?

Mortgage insurance protects the lender in the event the borrower defaults on the loan. Defaults include failure to make payments because of death, medical bills and job loss. Mortgage insurance can be provided by a private mortgage insurance company (PMI) or by a government agency such as FHA or VA.

How can I benefit from mortgage insurance on government-backed loans?

The FHA provides borrowers with the opportunity to purchase their home with a smaller down payment and/or lower credit score (compared to conventional loans) in return for the borrower paying mortgage insurance.

How do I pay for private mortgage insurance? Can this be added into my mortgage payment?

Yes! There are different types of mortgage insurance that allow you to pay in different ways.

  • Monthly
    • No upfront premium
    • Versatile and maximum flexibility
    • May be canceled
    • Paid with monthly mortgage payment
  • Single
    • Premium paid upfront
    • Refundable and nonrefundable options
    • Paid by borrower, seller, builder or 3rd party
    • May be financed into loan amount
    • Portion may be refundable when cancelled
  • Split
    • Upfront premium combined with lower monthly renewal
    • Upfront premium may be paid by borrower, 3rd party or financed
    • May be cancelled
  • Lender-Paid
    • Paid by lender or 3rd party
    • Cost paid via higher interest rate and/or fees

I see that a few of these private mortgage insurance options offer the opportunity to cancel.  How and when can I cancel? 

You may ask your servicer to cancel the private mortgage insurance (PMI) once you have paid down the mortgage balance to 80% of the home’s original appraised value.  When the balance drops to 78%, the mortgage servicer is required to eliminate the PMI.

Also, insurance on the loan may be cancelled if a new appraisal is ordered through the servicer and demonstrates one of the following Loan-To-Value requirements:

  • A Loan-To-Original-Value ratio of 80% or less
  • A Loan-To-Current-Value ratio of 75% or less for loans ages between 2 and 5 years
  • A Loan-To-Current-Value ratio of 80% or less for loans aged greater than 5 years

If the age of the loan is less than 2 years, principal reduction payment must be made to bring unpaid principal balance down to 80% of the original property value.  In addition, a new appraisal must be ordered to verify the property has maintained its original value.

Additional requirements to cancel mortgage insurance:

  • The borrower submits a written cancellation request
  • The borrower has a good payment history
  • The borrower is current with payments
  • The borrower satisfies any requirement of the mortgage holder, such as:
    • Evidence that the value of the property has not declined below the original value
    • Certification that the borrower’s equity in the property is not subject to a subordinate lien

Want more information on mortgage insurance and how to cancel? Contact a First Home Mortgage loan officer today! Click Here

CAUTION- The Dangers of Rate Shopping

Posted on by Emily Gregory

Buying a home will probably be the largest purchase you ever make.  With that in mind, you want the lowest interest rate, right?  WRONG!  The lowest advertised interest rate may not be your best option.  Some lenders and mortgage brokers advertise low rates, but don’t inform you of all the additional points and fees that come with the mortgage.  Here are a few tips to take into consideration to avoid misconceptions of an advertised low interest rate.

  1. Look at Points and Fees– Always ask about points, lender fees, broker fees and settlement costs. Points are pre-paid interest that affect the quoted interest rate.  You can ask to have your points quoted as a dollar amount instead of just a percentage.  For example, on a $200,000 loan, one point would equal $2,000.

 

  1. Shop Smart– Interest rates fluctuate daily. Talk to your Loan Officer about when the best time to lock is.  First Home Mortgage values honesty and service, so any questions you may have for your Loan Officer will be answered diligently, fairly and in regards to your best interest. If you contact different lenders, make sure you provide each lender with the same information.  Such information will include: the quality of your credit, location, type and use of your property, the size of down payment and/or the amount of home equity you have.

 

  1. Finding the Best Lender– Customer service may be the most important consideration when shopping for home financing. During the loan process, you should feel comfortable disclosing your financial information and asking questions. A trustworthy lender will be responsive and will assess your situation carefully to best suit your home buying needs. Make sure to choose a lender who can offer personalized options and takes the time to understand your goals.  Just remember, if you don’t close, interest rates don’t matter.

 

If you have any questions or would like to get started on this home-buying journey, contact First Home Mortgage Corporation today!  We provide the mortgage you need to make “home” happen by delivering customer service that not only fulfills goals, but exceeds expectations.

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2016 Tax Deductions for Homeowners

Posted on by Emily Gregory

Purchased or refinanced a home in 2016? Find out the tax benefits available to you as a homeowner.

For most people, the annual task of completing income taxes is about as exciting as a visit to the dentist’s office. BUT…homeownership typically means increased tax deductions, which are generally considered to be a good thing.

Use the information below as a reference to help you determine which items from last year’s closing may be written off on your 2016 income taxes.

Write Off Items for 2016 Taxes

The list below pertains to primary or vacation residences (for investment properties, please see IRS Publication 527). All the items listed below can be found on the Closing Disclosure signed at settlement. This may help you save money in 2017!

Points Paid on a Home Purchase in 2016 – Closing Disclosure Page 2, Section A

If any origination charges include points paid in exchange for a lower interest rate, they may be fully deductible. **Other fees in this section – application, underwriting, processing, etc.- may not be deductible.

Points Paid on a Mortgage Refinance in 2016 – Closing Disclosure Page 2, Section A

Points paid to your mortgage company in exchange for a lower interest rate may be deductible, BUT there is a distinction between could be deductible this year, and what is deductible over the life of the loan:

  • Points paid on the portion of the mortgage proceeds that were used for home improvements may be deducted this year.
  • Points paid on a rate term refinance or any portion of the mortgage not used for home improvements must be spread out over the life of the loan. **As outlined above, other fees itemized in this section may not be tax deductible.

Property Taxes (actual and pro-rated) – Closing Disclosure Page 2, Section F

Property taxes itemized in this section may be tax deductible in the year they are paid. However, property tax escrows in section G may NOT be tax deductible until they are actually paid by your mortgage company to the appropriate municipality, (city or county).

Pre-paid Interest – Closing Disclosure Page 2, Section F

Pre-paid interest is typically collected at closing to square the borrower(s) away through the end of the month. Because this is a pro –rated part of the payment to begin the amortization cycle in arrears, the interest noted in this section may also be deductible.

Upfront Mortgage Insurance & VA Funding Fee – Closing Disclosure Page 2, Section B

If your adjusted gross income is $109,000 or less, you may be able to deduct upfront mortgage insurance on FHA and conventional loans as well as the VA Funding Fee.

This list does not include all of the property taxes paid throughout the year or all of the mortgage interest that will be included in the 1098 form(s) that will be sent by your mortgage servicer(s).

**PLEASE NOTE: THIS OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISER FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 936.

9 Ways to Avoid Mortgage Sabotage

Posted on by Emily Gregory

Homebuyers are often not aware of how an innocent transaction such as making a credit card purchase or moving cash from one bank to another can jeopardize the mortgage pre-qualification process. Please be aware of the common areas that need special attention:

  1. Review your credit report:
    The best way to get a jump start on your mortgage process is to know what your creditors are saying about you and the accuracy of the information! Review the report with your Loan Officer and report any inaccurate or omitted information.
  2. Credit cards/new debt:
    Do not apply for any new credit of any kind! That creditor will show up on your credit report, and the lender will have to verify there is no new outstanding debt. If you are planning to add a debt or pay debts off for closing, wait until you have spoken with your Loan Officer. A paid debt may not show on your credit report, and the lender will have to re-verify each creditor’s current balance, which takes time. It may be possible to pay off those debts at closing, with no effect to your approval process.
  3. Don’t move cashing/savings around:
    Lenders have to verify all funds for closing, including the source of those funds. Moving assets around can create a paper trail nightmare. The best advice is to leave everything where it is, even if the purpose of the move is to pool your funds for buying the house. After your accounts have been verified and the lender give you an “ok”, you can consolidate your accounts if needed.
  4. Large deposits:
    All sources of funds for the transaction must be verified. The lender will be looking at any large deposits into your asset accounts (checking, savings, money market, etc.). You should be prepared to document the source-such as a copy of the paycheck, bonus check, money from the sale of an asset, etc.
  5. Do not pack financial papers:
    Keep all pages of your tax returns, along with any W-2’s, 1099’s, or K-1’s and any other financial papers from the past two years in a handy place. If you sold a home in the past two years, have your (HUD-1) Settlement Sheet handy. You may have to provide more items, which your Loan Officer will outline.
  6. Become a paper hound:
    Save all pages of all bank statements and pay stubs from now until closing. The lender will need these, so please make sure you keep them handy!
  7. Changing jobs: 
    While a different career opportunity can be an exciting venture, it’s best to wait until the mortgage process is complete if possible. A new position could derail the financial information you originally provided and jeopardize loan approval. If you need to change jobs, make sure you let your Loan Officer know so adjustments can be made.
  8. Gifts:
    Gifts from relatives are very common in the purchase of a home. However, there are specific ways a gift must be handled to avoid a paper trail nightmare. If you are receiving a gift, hold off on accepting the funds until you have spoken with your Loan Officer. There is a Gift Letter form you may use which provides instructions.
  9. Selling something?
    If you are selling an asset such as a car, an antique, or baseball card collection to come up with the cash for closing, make sure you document the asset. For example, if you purchase a car, obtain the check from the buyer, car title and a bill of sale. You may need to get a certified appraisal for the item.

When in doubt, always consult your Loan Officer. He or she will help guide you through the process and answer any questions you might have along the way.

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