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Mortgage 101

November 26th, 2009

Buying a home is a complicated process with a lot of terms you don?t normally deal with being thrown at you all at once. Learning the basics of a mortgage can help you navigate the experience with greater ease.

Principal ? The principal is the amount of money you are borrowing from your mortgage lender.

Interest ? Typically a percentage of the principal is calculated as the interest you will be charged for taking out the loan. This amount is spread out across the life of the loan.

Taxes ? Your property taxes are based on a percentage of the value of your property. Typically this is part of your monthly payment and at the end of the year your mortgage broker will either send you a check for this amount so you can pay the taxes or they?ll pay them for you.

PMI ? PMI stands for Private Mortgage Insurance. If your down payment on the home is less than 20% of the home?s total value then you will have to pay a PMI fee monthly in your mortgage.

Foreclosure ? If you cannot or do not make your mortgage payments the mortgage lender can repossess your home and sell it to help defray their costs and recoup what they can on the loan.

photo credit:?woodleywonderworks

Short Selling for the Home Seller

November 25th, 2009

With the housing market down as drastically as it is and with prices as sky high as they were in the recent past, in addition to the less-than-scrupulous mortgages that were becoming the norm a lot of people are finding themselves in a situation where they owe more on their mortgage than the home is currently worth. This is called being upside down on your mortgage or your property.

The best thing for an upside down property seller to do is to hold onto their home if they can until the prices turn around, but if this isn?t possible there are a couple options. The dreaded foreclosure or a short sell. A short sell is a way to avoid a foreclosure and it can save the bank some money, in fact the bank won?t approve a short sell unless it is a financially good deal for them.

So a short sell may be a good way for a seller to go, they can get out from under their home and sell the property at a price that is reasonable for the current market. But you don?t get to walk away unscathed. A short sell will affect your credit rating, it won?t be as bad as a foreclosure would be but it?s still going to be a negative notation. A short sell is considered a settlement and will remain on your credit report for seven years. This can affect your ability to get another mortgage for a few years, depending upon the rest of the credit report.

Buying a Short Sell Home

November 23rd, 2009

Buying a home that is being sold on a short sell situation can be a good deal. In these situations the owner owes more on the mortgage than they?re willing to accept as the purchase price. The problem for buyers is that the bank ultimately has discretion on whether they will accept the short sell or not.

This means that you can go through every step in the process from paperwork to an accepted offer, from inspection to down payments and the bank can still refuse the deal. You?ll get your down payment back but not any money you?ve put toward inspections or other services. You?ll also have wasted a significant amount of time which can be crucial for some people. Not to mention the emotional rollercoaster a short sell can be.

The bank basically wants to make as much money as they can, in a short sell situation they?re accepting a loss and their major determination is whether they?ll lose more on the short sell or a foreclosure. As a last ditch, after a potential buyer has done everything from their end the bank will try to work out a deal with the seller to keep them in their home and not write off the short sell amount. This is where the potential buyer can totally lose out so one thing to look for is a short sell where the seller has already moved, they?re less likely to deal with the bank to keep their property.

What is a Short Sell?

November 19th, 2009

In the real estate world the term short sell is starting to be tossed around a little bit and it has some people confused so let?s examine what a short sell is.

In real estate a short sell is when the proceeds from the sale of a piece of property (whether there is a home on it or not) are less than what the balance of the loan are.

This is happening more and more in this economy because with the housing crisis many people are finding themselves upside down on their home loans, which means they owe more than the home is worth. So in these situations if the homeowner has to sell and is lucky enough to find a buyer the price will probably be lower than the amount owned on the home loan.

In a short sell situation the lender can decide whether to accept or deny the offer. Usually a short sell is a way to prevent a foreclosure, it?s a last ditch effort for many. So this is often what the bank considers when decided to accept the short sell offer or not, will the foreclosure cause them a greater loss than the short sell.

If you?re in the market for a new home both a short sell and a foreclosure may be incredible deals, pricewise, for you.

photo credit:?Johan Larsson

What is an Acceleration Clause

November 18th, 2009

An acceleration clause in a mortgage gives the lender the right to demand payment of the entire loan balance or perhaps require some other form of collateral which would defray any losses they may experience or fear they may experience.

Acceleration clauses are designed to protect lenders from landing in a situation where they lose great sums by supplying someone with a mortgage. It is not a clause designed to screw over the property buyer and the lender will not enforce the acceleration clause unless certain situations arise. Some of those situations include a loan default, the title is transferred to another person, the taxes aren?t paid, or the breaking of loan covenants. Each situation is a little different and the lender has the discretion whether to enforce an acceleration clause or not.

If there is an acceleration clause in your mortgage agreement this isn?t a reason to balk at the agreement. Unless you plan on defaulting or committing some other faux pas against the mortgage covenants then you probably will never run into a situation where the acceleration clause is called into effect. Remember the acceleration clause is a form of insurance for the lender, it is not designed to harm the buyer.

Real Estate Jobs

November 16th, 2009

The economy is still rather tight and people are not only looking for new jobs but some people have decided to move in another direction and find a new career. Real estate has perhaps been hit the hardest by the economic downturn but there are careers in real estate that are booming.

Realtors

Becoming a realtor now is probably not the ideal job track for many people at this point in time but for the right person it can still be a very lucrative and rewarding career.

Landlord

If you?re financially stable this is a great time to buy some real estate as the market is great for buyers it?s also a good time to become a landlord as more people are opting to rent rather than own so the market should be booming.

Property Manager

With more people entering the landlord game as a profession rather than casually there are more properties owned by single entities, this means that maintaining the properties themselves is difficult and more property managers are needed.

Home Stagers

Homes are still sitting on the market longer than most sellers would want and every little advantage they can get toward a sale is worth it. Home staging is a proven way to improve the appeal of a home on the market and professional home stagers are in demand.

If a Tenant Leaves Stuff Behind

November 12th, 2009

During your tenure as a landlord you may run across a tenant who leaves some of their belongings behind after they vacate a unit. Each state has slightly different laws about how to deal with discarded property so you should check with your local and state ordinances to get the proper procedure for your area but there are some general rules that apply everywhere.

Tenancy Must be Terminated

Obviously you cannot take something from a tenant while they?re living in your unit, that?s obvious theft, but what if they?re gone? Even if the tenant is gone you can?t take their property until the lease has officially been terminated, this may require written notice, verbal notice, an eviction proceeding or a certain period of time.

Wait for Abandonment

Also, if a tenant vacates their place and leaves something behind you have to wait a predefined period of time to officially declare it abandoned.

Notification of Property

One would think that the tenants know they left stuff behind but the landlord is still required to send written notice to the now ex-tenant that they have left property behind. This notice also informs them of their legal rights and the predefined waiting periods for your region. You also can inform them (or bill them) for any storage fees while you hold their property.

Storage

Yes, it is the landlord?s responsibility to store property safely throughout the entire waiting period. But as mentioned above, you can recoup any losses for this or you can charge a reasonable storage fee of your own.

Disposal

Finally when you?ve completed all steps of notification and proper storage and the property is still abandoned after the waiting period it is your responsibility to dispose of it. You can sell or donate the property or you can throw it away.

It?s essential that you research your local and state laws for abandoned tenant property because if you handle the situation you can actually be held accountable and sued by the tenant for the value of their property.

photo credit:?Indigo Goat

First Time Home Buyers Tax Credit

November 11th, 2009

The American Recovery and Reinvestment Act of 2009 was one of many stimulus programs to crop up this year. This act provides up to $8,000 for qualified first time home buyers who buy their home between January 1 of 2009 and December 1, 2009. This tax credit is actually ending soon as prospective buyers must have their financing in order by the end of October and time is getting short.

A first time homebuyer is defined for this program as anyone who has not owned a principal residence for three or more years prior to the purchase. For married people this applies to both spouses so if one of you has owned a primary residence then you both do not qualify.

The amount of the credit is not set at $8,000 but varies according to the home?s purchase price. The tax credit is set at 10% of the home?s purchase price and maxes out at $8,000. There is also a limit on claiming the credit. The general guideline is $75,000 per person or $150,000 per married couple. This doesn?t necessarily mean that people over the income level can?t get a tax credit, they can but have to follow a formula to determine how much they?ll receive.

If you are still thinking about cashing in on the American Recovery and Reinvestment Act of 2009 then you had better rush out to your mortgage lender immediately to make sure you?re in time to qualify.

What to do if Tenant is Late with Rent

November 10th, 2009

Being a landlord can be very rewarding but there is one problem that seems to crop up for every landlord at least once in their career, tenants who are late with rent repeatedly. It?s important that you don?t let this activity persist but handle it with diplomacy from the outset and treat every tenant in the same manner when they?re late with rent.

Late Notice?

The first step is letting them know immediately that the rent is late and how much the late fees are in a late notice.

Phone Call?

Follow up the late notice with a phone if you haven?t received some sort of response within a couple of days after the late fee notice.

Eviction Notice or Legal Notice?

Some people are loathe to jump into the eviction process and prefer to send a legal notice from their attorney and many tenants are threatened enough by that step that they respond. Other tenants need the threat of eviction and some landlords prefer moving right into eviction mode.

Eviction Process?

A landlord can simply not let tenants slide on the rent or they?ll never get paid which means they in turn will never be able to pay their bills. So eviction is the eventual outcome if your tenant is still delinquent with the rent then you have to move through the eviction process.

Credit Bureau

Don?t forget to report your delinquent tenants to the credit bureau, this will prevent others (at least those who are diligent in their background checks) from falling into this tenant?s trap.

photo credit:?longlostcousin

Rehab Your Home with Federal Assistance

November 9th, 2009

The Federal Housing Authority has come up with a program called the 203(k) which provides assistance to those looking to rehabilitate certain homes. By working with lending companies and using the FHA?s 203(k) people may be able to buy homes they normally couldn?t afford or refinance and improve their existing home in ways that weren?t accessible before.

Section 203(k) is designed for single family properties and its larger goal is to improve a neighborhood or a community while expanding home ownership opportunities. The Department of Housing and Urban Development is committed to improving the situation in certain lower income communities and the Community Reinvestment Act or CRA is another such program than can help increase home ownership and improve the housing in these regions. Look into rolling both of these programs together to get the biggest benefit possible.?

The 203(k) is especially useful for people who want to buy property that needs some repairs or modernization. In the past such a project required a significant amount of savings or complicated renovation loans that carried high interest rates and short amortization. With the 203(k) you can roll all of these loans into one mortgage loan with more digestible rates and terms.

Several qualifications must be met for a home to qualify for the FHA?s 203(k) program so be sure to check their website and to talk to your lender to make sure you qualify and then take advantage of this government program to get the most out of your investment.