Have you been thinking about investing in real estate? With lenders offering ever more attractive mortgage rates and lending terms, investments in apartments (5+ unit) have never been more desirable.
In the Silicon Valley, the investment market is experiencing an upswing thanks to growing consumer confidence, favorable demographics and job growth. As your real estate lending partner, we are dedicated to helping you keep more of your hard-earned assets in your investments. We designed our investment loan property programs with your unique lending needs in mind:
* Loans for purchases, rate and term refinances, and cash out options available
* Loans with and without a pre-payment option
* Competitive 5/1, 3/1 and One-Year Adjustable Rate Mortgages
* Quick funding and expert handling of 1031 Exchanges
Take advantage of Tech CU’s low rates for new purchases or to refinance your existing loan. We also offer 1-4 unit investment property loans.
For more information about our real estate investment loans and to apply, email us at recenter@techcu.com or call (408) 437-3747 and (408) 487-7586 to speak with an experienced real estate investment loan expert.
Tech CU is an Affiliate Member of Bay East Realty Association, Santa Clara Association of Realtors and San Mateo Association of Realtors, and Associate Member of the Rental Housing Owners Association of Southern Alameda County and the Tri-County Apartment Association.
http://www.techcu.com/learning/home_buying/apartment_loans.htm
Friday, August 17, 2007
Tax-Deferred 1031 Exchanges
The sale of an investment property can create a large tax liability. A properly structured tax deferred exchange under Internal Revenue Code §1031, however, allows the investor to defer the recognition of the capital gains or other taxes associated with the sale of most investment assets, as long as the new property is purchased to replace the existing investment property. In other words, to be eligible for the favorable tax treatment afforded by an exchange, the property to be sold must have been held for investment purposes and be exchanged for like-kind replacement property, that is, income or investment property.
Importance of quick funding
Exchanges must be completed within strict time limits. The Exchanger has 45 days from the date the relinquished property closes to identify potential replacement properties. The purchase of the replacement property must be completed within 180 days after the close of the relinquished property. After the 45 days has passed, the Exchanger may not change their Property Identification list and must purchase one of the listed replacement properties or the exchange fails. As follows, quick turn-around time on the real estate investment transaction is key to a successful tax deferred exchange. At Technology Credit Union our goal is to help you maximize your assets. Because we understand your business objectives, we offer quick turn around, so you can use the entire amount of the equity from the exchange without the burden of capital gains tax.
http://www.techcu.com/learning/home_buying/1031_exchanges.htm
Importance of quick funding
Exchanges must be completed within strict time limits. The Exchanger has 45 days from the date the relinquished property closes to identify potential replacement properties. The purchase of the replacement property must be completed within 180 days after the close of the relinquished property. After the 45 days has passed, the Exchanger may not change their Property Identification list and must purchase one of the listed replacement properties or the exchange fails. As follows, quick turn-around time on the real estate investment transaction is key to a successful tax deferred exchange. At Technology Credit Union our goal is to help you maximize your assets. Because we understand your business objectives, we offer quick turn around, so you can use the entire amount of the equity from the exchange without the burden of capital gains tax.
http://www.techcu.com/learning/home_buying/1031_exchanges.htm
What Is Your Home Worth?
Unbiased Financial Information Provided by Financial Finesse
Do you know how much your home is worth? There are plenty of reasons why you might want to find out -- to set an asking price if you're going to sell, to calculate how much equity you have, to prepare a good estate plan, or just to satisfy your curiosity. An appraisal - formal or informal - will tell you what you want to know.
The Professional Appraisal
Real estate appraisers take two main approaches to figuring out what your home is worth:
Comparable Value: The appraiser compares your property with similar properties that have been sold in your neighborhood, ideally within the last year. That's an especially accurate barometer if you live in a neighborhood or subdivision where the homes and lots resemble each other.
Replacement Cost: Your appraiser will consider the cost to buy a similar lot and the average price of building materials needed to rebuild a home that would match yours, adding to that the cost to replace special features in your home, such as French doors, a Jacuzzi tub, or plush carpeting. After calculating these costs the appraiser will make a deduction based on the age of the home.
Appraisers typically charge between $250 and $500 for a full appraisal. To find a licensed appraiser in your area, use the "Find an Appraisal Expert" search form on the American Society of Appraisers Web site.
The Do-It-Yourself Appraisal
If you're not required by a lender to submit a formal, professional appraisal, but simply want a ballpark figure of your home's value for some other reason, you have the option of doing the "appraisal" yourself.
Sites such as www.zillow.com offer free home valuations. Use it as a starting point to get a broad estimate of what your home and surrounding homes are worth.
You can also consult a real estate agent that you know for their professional opinion of what your property is worth. If you decide to do this, be upfront and honest about whether you are seriously considering selling the property or are just asking a favor. Even if you're not seriously considering selling, you may find an agent willing to visit your home and estimate its value as part of his or her "public relations" or business development efforts.
If you want to get the highest appraisal possible, you should have
A Home Inspection Can Reveal How to Get a Higher Appraisal your home in excellent condition. To find out what improvements need to be made, you might want to invest the $250 to $500 that a home inspection costs. An inspector will point out all the defects that might reduce the value of your home, giving you the opportunity to fix those things that will enhance your property the most.
According to Milt Tanzer, Realtor and author of How to Buy or Sell Your Home Without a Broker, some of the red flags a home inspector might spot include:
* Chipped steps or damaged fences
* Leaks or loose shingles on your roof
* Chipped paint on the outside of your home
* Evidence of water on your basement floor
* Partially clogged drains in your house's plumbing system
* Inefficient or frayed electrical wiring
It's easy to find a licensed home inspector in your area using the "Find an Inspector" search form provided on the American Society of Home Inspectors Web site.
BestAgent.net , a national network of real estate professionals, offers recommendations for increasing the value of your home. The site places high priority on fixing up the outside of your house. "Create a good first impression," they counsel. "This can probably do more for sales appeal than any other factor."
And that, of course, could translate directly into a higher home appraisal.
http://www.techcu.com/learning/home_buying/home_appraised.htm
Do you know how much your home is worth? There are plenty of reasons why you might want to find out -- to set an asking price if you're going to sell, to calculate how much equity you have, to prepare a good estate plan, or just to satisfy your curiosity. An appraisal - formal or informal - will tell you what you want to know.
The Professional Appraisal
Real estate appraisers take two main approaches to figuring out what your home is worth:
Comparable Value: The appraiser compares your property with similar properties that have been sold in your neighborhood, ideally within the last year. That's an especially accurate barometer if you live in a neighborhood or subdivision where the homes and lots resemble each other.
Replacement Cost: Your appraiser will consider the cost to buy a similar lot and the average price of building materials needed to rebuild a home that would match yours, adding to that the cost to replace special features in your home, such as French doors, a Jacuzzi tub, or plush carpeting. After calculating these costs the appraiser will make a deduction based on the age of the home.
Appraisers typically charge between $250 and $500 for a full appraisal. To find a licensed appraiser in your area, use the "Find an Appraisal Expert" search form on the American Society of Appraisers Web site.
The Do-It-Yourself Appraisal
If you're not required by a lender to submit a formal, professional appraisal, but simply want a ballpark figure of your home's value for some other reason, you have the option of doing the "appraisal" yourself.
Sites such as www.zillow.com offer free home valuations. Use it as a starting point to get a broad estimate of what your home and surrounding homes are worth.
You can also consult a real estate agent that you know for their professional opinion of what your property is worth. If you decide to do this, be upfront and honest about whether you are seriously considering selling the property or are just asking a favor. Even if you're not seriously considering selling, you may find an agent willing to visit your home and estimate its value as part of his or her "public relations" or business development efforts.
If you want to get the highest appraisal possible, you should have
A Home Inspection Can Reveal How to Get a Higher Appraisal your home in excellent condition. To find out what improvements need to be made, you might want to invest the $250 to $500 that a home inspection costs. An inspector will point out all the defects that might reduce the value of your home, giving you the opportunity to fix those things that will enhance your property the most.
According to Milt Tanzer, Realtor and author of How to Buy or Sell Your Home Without a Broker, some of the red flags a home inspector might spot include:
* Chipped steps or damaged fences
* Leaks or loose shingles on your roof
* Chipped paint on the outside of your home
* Evidence of water on your basement floor
* Partially clogged drains in your house's plumbing system
* Inefficient or frayed electrical wiring
It's easy to find a licensed home inspector in your area using the "Find an Inspector" search form provided on the American Society of Home Inspectors Web site.
BestAgent.net , a national network of real estate professionals, offers recommendations for increasing the value of your home. The site places high priority on fixing up the outside of your house. "Create a good first impression," they counsel. "This can probably do more for sales appeal than any other factor."
And that, of course, could translate directly into a higher home appraisal.
http://www.techcu.com/learning/home_buying/home_appraised.htm
Mortgage Financing Options in Your Best Interest
Boost buying power without the higher paymentsFinance a 40-year mortgage and give yourself the flexibility of spending just a little bit more on the home you really want—with payments that are still affordable. A 40-year mortgage works similarly to a traditional 30 or 15-year fully amortized loan, but here is the difference—a 40-year mortgage payment is based upon a variable interest rate (3-year adjustable or 1-year adjustable) that is amortized over a 40-year period. This financing option not only gives you lower monthly payments than a traditional 30 or 15-year loan, but those lower monthly payments can also help you qualify for a larger loan amount.
Monthly savings comparison
(based on a $500,000 loan amount)
30-year-fixed rate at 6% APR $ 2997.75
40-year adjustable at 5% APR $ 2684.11
You could potentially save $313.64!
Pay off your mortgage and build equity much faster!
With a new Bi-weekly mortgage offered at Tech CU, every payment that you make gives you significant interest savings and builds your home equity much faster!
Here’s how it works:
With a Bi-weekly mortgage, payments are deducted bi-weekly and applied to your loan every 14 days—instead of a single monthly payment. What this means to you is that your mortgage will be paid off much sooner, resulting in significant interest savings over the life of the loan just for making bi-weekly payments!
Payments that Fit your Best Interest
Purchasing or refinancing your home is a big step for many homeowners. What’s most important is finding a monthly payment plan that fits your budget without over-extending yourself. Our solution—finance your home with interest-only payments!
Interest-only payments not only give you the benefit of helping you qualify for a larger loan amount with smaller payments, but they also help to reduce your monthly payment obligations. Because you are paying only interest, you can save yourself a little extra cash every month to put toward other expenses or allocate more towards the principle balance on your mortgage loan. Whichever you choose, you will have peace of mind knowing that you can lower your monthly expenses through interest-only payments.
To learn more about Tech CU’s mortgage products and services, visit our Mortgage Center or contact a Mortgage Consultant today!
http://www.techcu.com/learning/home_buying/interest.htm
Does It Pay To Refinance?
It can be tempting to jump at the next phone call or mailer you get offering to save you big dollars by refinancing your mortgage. Many times it is a good idea, but make sure to look before you leap.
The most important concept here is how to figure out when it makes sense to refinance. There are five key factors in this decision:
* What is the difference between your current interest rate and the new rate?
* What is the difference between your current monthly payment and your new monthly payment?
* How long do you plan to remain in your home?
* What are the closing costs you must pay for the refinance?
* How much time is left on your current loan?
You can use our online calculator (see Additional Resources section) to see how long you must stay in your home before you "break even" between the refinance costs and your new lower payment. After all, it doesn't make sense to drop your payment by $70 a month if it costs you $2,500 to do so and you will only be in your home for one more year. To do it yourself, simply divide the total refinance costs by the proposed difference in your monthly payment. This will give you the number of months you would need to stay in your home to break even. See the example below.
Lee has a 30 year fixed rate mortgage for $100,000 at 8%. By refinancing to a 6.5% rate, the payment will drop by $100 a month. The total cost to refinance is $2,000. Lee must keep the house for at least 20 months (2,000 divided by 100) to break even on the refinance. Thereafter, the $100 a month savings is money in Lee's pocket.
One good rule of thumb is to refinance anytime you can lower your rate by 2% or more, or to lock in a fixed rate if you are currently on an adjustable rate. But think twice about refinancing if you plan to be in your home less than two years - the costs to refinance may be more than the total amount you would save each month for such a short time. And it can be worthwhile to refinance for less than a 2% interest drop, but run the numbers to be sure.
If you are considering refinancing, pay attention to the total length of the loan. Using our example, if Lee has been paying on his current mortgage for five years, and then refinances for 30 years, Lee has financed his home for 35 years. If you are lowering your rate, it's best to see if you can match the remaining length of your current loan with the one you are considering (in the above example: a 25 year loan would be better than a 30 year loan).
If the numbers indicate that it makes sense to refinance, how do you choose what lender to use? Don't just go with the telemarketer that catches you the day you decide to refinance. Consider these ideas:
* Shop around for the best rate available to you. For tips on where to begin, see Looking for the Best Mortgage.
* Ask your current lender if they can offer you a "streamlined" refinance (which often has lower costs) - but check to see if their rates are competitive.
* Call the credit union or bank that you use for your checking or savings accounts - they may offer better rates for current customers.
* Consider online services that will try and find the best rate for you among various lenders.
* Have a mortgage broker shop around for you. A broker works with a number of different lenders and can sometimes get you the best rates.
* Make sure you compare refinancing fees and expenses as well as interest rates.
Once your refinance is final, confirm that the old mortgage is paid off. Then, sit back and enjoy your new, lower monthly payment!
http://www.techcu.com/learning/home_buying/refi.htm
The most important concept here is how to figure out when it makes sense to refinance. There are five key factors in this decision:
* What is the difference between your current interest rate and the new rate?
* What is the difference between your current monthly payment and your new monthly payment?
* How long do you plan to remain in your home?
* What are the closing costs you must pay for the refinance?
* How much time is left on your current loan?
You can use our online calculator (see Additional Resources section) to see how long you must stay in your home before you "break even" between the refinance costs and your new lower payment. After all, it doesn't make sense to drop your payment by $70 a month if it costs you $2,500 to do so and you will only be in your home for one more year. To do it yourself, simply divide the total refinance costs by the proposed difference in your monthly payment. This will give you the number of months you would need to stay in your home to break even. See the example below.
Lee has a 30 year fixed rate mortgage for $100,000 at 8%. By refinancing to a 6.5% rate, the payment will drop by $100 a month. The total cost to refinance is $2,000. Lee must keep the house for at least 20 months (2,000 divided by 100) to break even on the refinance. Thereafter, the $100 a month savings is money in Lee's pocket.
One good rule of thumb is to refinance anytime you can lower your rate by 2% or more, or to lock in a fixed rate if you are currently on an adjustable rate. But think twice about refinancing if you plan to be in your home less than two years - the costs to refinance may be more than the total amount you would save each month for such a short time. And it can be worthwhile to refinance for less than a 2% interest drop, but run the numbers to be sure.
If you are considering refinancing, pay attention to the total length of the loan. Using our example, if Lee has been paying on his current mortgage for five years, and then refinances for 30 years, Lee has financed his home for 35 years. If you are lowering your rate, it's best to see if you can match the remaining length of your current loan with the one you are considering (in the above example: a 25 year loan would be better than a 30 year loan).
If the numbers indicate that it makes sense to refinance, how do you choose what lender to use? Don't just go with the telemarketer that catches you the day you decide to refinance. Consider these ideas:
* Shop around for the best rate available to you. For tips on where to begin, see Looking for the Best Mortgage.
* Ask your current lender if they can offer you a "streamlined" refinance (which often has lower costs) - but check to see if their rates are competitive.
* Call the credit union or bank that you use for your checking or savings accounts - they may offer better rates for current customers.
* Consider online services that will try and find the best rate for you among various lenders.
* Have a mortgage broker shop around for you. A broker works with a number of different lenders and can sometimes get you the best rates.
* Make sure you compare refinancing fees and expenses as well as interest rates.
Once your refinance is final, confirm that the old mortgage is paid off. Then, sit back and enjoy your new, lower monthly payment!
http://www.techcu.com/learning/home_buying/refi.htm
Understanding the Fine Print of a Purchase Offer Takes the Fear Out of Buying
Unbiased Financial Information Provided by Financial Finesse
You've found a home you love and it's actually in your price range. Your real estate agent pulls out an offer form -- eight pages of legalese -- and you start thinking that renting wasn't so bad after all.
Don't let the fine print in the purchase offer, or sales contract, keep you out of your dream home. But do make sure you understand exactly what you're agreeing to and use the contract to protect yourself.
Earnest Money Deposit Proves Buyers Are Serious
Be prepared to hand your real estate agent a check, generally between half a percent to 2 percent of the purchase price, as soon as you sign the offer. This is known as earnest money. If the seller accepts the offer, the check is deposited with an escrow company to later be applied to your down payment.
If a buyer pulls out of the deal without cause allowed in the contract, the seller may keep some or all of the deposit as "liquidated damages." Some states limit the amount of liquidated damages if a deal is broken. In California, for example, the maximum is 3 percent of the offer price. The penalty for pulling out of the deal should be spelled out in the contract.
Contingencies Give Buyers a Way Out
Nearly every real estate offer will include contingencies -- things that must happen for the sale to become final. There will be a time period specified in which each contingency must be met. If any one contingency is not met on time, the buyer may be able to get out of the contract.
Common contingencies relate to appraisal, mortgage approval (often at a specified interest rate), buyer's approval/acceptance of the results of a professional home inspection and completion of needed repairs. You can even make your offer contingent upon selling your old home to get the money to buy the new one.
Government Offers Contract Advice
The U.S. Department of Housing and Urban Development (HUD) publishes a booklet called Buying Your Home: Settlement Costs and Information that includes an outline of many of the legal issues and consumer rights to be aware of in a real estate transaction.
HUD says any purchase offer should cover the following points in specific, clear language:
* The sales price
* Details on transfer of title, and procedures to ensure that the title is free and clear
* Financing arrangements, including deposits, the down payment, and mortgage arrangements
* Pest inspection
* Home inspection
* Disclosure of lead paint or other environmental hazards
* How closing costs will be paid (who pays what)
* Title company or escrow agent to be used
Most offers include a specific date when the offer expires, deadlines for each contingency to be met, and an ultimate closing date.
Do You Need a Lawyer?
In some parts of the country, the escrow or title company handles the closing process and attorneys are not typically involved. Of course, you always have the option of enlisting the help of a lawyer or other expert. If you decide to use an attorney, you can make the sale contingent on an attorney's review of the agreement if your offer is accepted. That way you don't waste time and money having a lawyer review offers that end up being rejected.
The purchase agreement doesn't have to be intimidating. If you've come this far in the home buying process, you've got enough on the ball to write a contract that protects you while still looking attractive to the seller.
http://www.techcu.com/learning/home_buying/fine_print.htm
You've found a home you love and it's actually in your price range. Your real estate agent pulls out an offer form -- eight pages of legalese -- and you start thinking that renting wasn't so bad after all.
Don't let the fine print in the purchase offer, or sales contract, keep you out of your dream home. But do make sure you understand exactly what you're agreeing to and use the contract to protect yourself.
Earnest Money Deposit Proves Buyers Are Serious
Be prepared to hand your real estate agent a check, generally between half a percent to 2 percent of the purchase price, as soon as you sign the offer. This is known as earnest money. If the seller accepts the offer, the check is deposited with an escrow company to later be applied to your down payment.
If a buyer pulls out of the deal without cause allowed in the contract, the seller may keep some or all of the deposit as "liquidated damages." Some states limit the amount of liquidated damages if a deal is broken. In California, for example, the maximum is 3 percent of the offer price. The penalty for pulling out of the deal should be spelled out in the contract.
Contingencies Give Buyers a Way Out
Nearly every real estate offer will include contingencies -- things that must happen for the sale to become final. There will be a time period specified in which each contingency must be met. If any one contingency is not met on time, the buyer may be able to get out of the contract.
Common contingencies relate to appraisal, mortgage approval (often at a specified interest rate), buyer's approval/acceptance of the results of a professional home inspection and completion of needed repairs. You can even make your offer contingent upon selling your old home to get the money to buy the new one.
Government Offers Contract Advice
The U.S. Department of Housing and Urban Development (HUD) publishes a booklet called Buying Your Home: Settlement Costs and Information that includes an outline of many of the legal issues and consumer rights to be aware of in a real estate transaction.
HUD says any purchase offer should cover the following points in specific, clear language:
* The sales price
* Details on transfer of title, and procedures to ensure that the title is free and clear
* Financing arrangements, including deposits, the down payment, and mortgage arrangements
* Pest inspection
* Home inspection
* Disclosure of lead paint or other environmental hazards
* How closing costs will be paid (who pays what)
* Title company or escrow agent to be used
Most offers include a specific date when the offer expires, deadlines for each contingency to be met, and an ultimate closing date.
Do You Need a Lawyer?
In some parts of the country, the escrow or title company handles the closing process and attorneys are not typically involved. Of course, you always have the option of enlisting the help of a lawyer or other expert. If you decide to use an attorney, you can make the sale contingent on an attorney's review of the agreement if your offer is accepted. That way you don't waste time and money having a lawyer review offers that end up being rejected.
The purchase agreement doesn't have to be intimidating. If you've come this far in the home buying process, you've got enough on the ball to write a contract that protects you while still looking attractive to the seller.
http://www.techcu.com/learning/home_buying/fine_print.htm
Escrow Basics for First-Time Homebuyers
Unbiased Financial Information Provided by Financial Finesse
Escrow is like an engagement period. Both you and the seller have accepted the idea of marriage. If you can iron out the details, you'll both say, "I do." An engagement ring doesn't always guarantee a marriage, however. And an agreement on an offer doesn't guarantee a sale. Problems with the title, financing or inspections could lead to a break-up.
Analogies aside, escrow is the arrangement under which all documents and funds for your purchase go to a neutral third party, usually an escrow or title company, which coordinates and completes the paperwork, making sure that all conditions of the sale are met before the transaction is final. Expect escrow to take 30 to 45 days, though it is possible to do the whole thing in as little as a week.
What Happens During Escrow?
* A title search is done. A title search reveals the current legal owner of the home and any liens or claims against the property (e.g., tax assessments, outstanding home loans, and third party restrictions that could limit your use of the property). If there are no problems with the title and you agree to any restrictions there might be, the title is transferred to your name and recorded with the county. Title insurance policies are often purchased to protect you and the lender in case of problems down the road.
* Contingencies are removed. When you make your offer, you'll include contingencies that must be satisfied before the sale can be finalized. Examples of typical contingencies include successfully obtaining a mortgage at a particular interest rate, accepting the results of a property inspection, and, maybe, selling your current home. If any one of the contingencies is not met, the deal may be cancelled.
* The loan is funded. If you haven't applied for financing yet, you'll do it during escrow. Once the loan is approved, your escrow officer will work with the lender to make sure your mortgage papers are completed and all lender conditions are met.
At the start of escrow, call or meet your escrow officer and ask if there's any information you can provide. Be a polite pest throughout the process to make sure the necessary steps are happening and the process is not being delayed because someone isn't doing what they should be.
What Kind of Closing Costs Can You Expect?
Closing costs generally range from two to five percent of the home price. Who pays what usually depends on where you live, though there may be room for negotiation.
Closing costs include:
* Loan fees, which generally range up to three percent of the loan amount. The lender is required to give you a good faith estimate of closing costs within three days after you apply for a loan, then usually an update after the loan is approved and another just before you close. Typical charges may include property appraisal, credit reports, loan document preparation and points (loan-origination fees). Each point equals one percent of the loan amount.
* Escrow fees include title search, document preparation, overnight delivery, and notary charges. There will also be fees for transferring title and recording the deed of trust.
* Your lender may require you to pay up to a year's worth of homeowner's insurance before closing. You'll also make a one-time payment for title insurance policies for you and your lender. You might also be required to prepay some private mortgage insurance - a monthly payment apart from your mortgage payments - if you put less than 20 percent down (the insurance protects the lender if you default).
* And, of course, there are property taxes, which you'll reimburse the sellers for if they prepaid them.
Time to Move In
Just before the final papers are signed, your escrow officer will give you a closing statement outlining all the charges and accounting for all the money that exchanged hands in the sale. Read this carefully to catch any mistakes. You'll also have to pay any outstanding balance at this time. On the closing day, the escrow officer pays the seller and tells you the deed has been recorded.
Now you can put the bubbly on ice and try to find the champagne flutes in all those moving boxes.
http://www.techcu.com/learning/home_buying/escrow.htm
Escrow is like an engagement period. Both you and the seller have accepted the idea of marriage. If you can iron out the details, you'll both say, "I do." An engagement ring doesn't always guarantee a marriage, however. And an agreement on an offer doesn't guarantee a sale. Problems with the title, financing or inspections could lead to a break-up.
Analogies aside, escrow is the arrangement under which all documents and funds for your purchase go to a neutral third party, usually an escrow or title company, which coordinates and completes the paperwork, making sure that all conditions of the sale are met before the transaction is final. Expect escrow to take 30 to 45 days, though it is possible to do the whole thing in as little as a week.
What Happens During Escrow?
* A title search is done. A title search reveals the current legal owner of the home and any liens or claims against the property (e.g., tax assessments, outstanding home loans, and third party restrictions that could limit your use of the property). If there are no problems with the title and you agree to any restrictions there might be, the title is transferred to your name and recorded with the county. Title insurance policies are often purchased to protect you and the lender in case of problems down the road.
* Contingencies are removed. When you make your offer, you'll include contingencies that must be satisfied before the sale can be finalized. Examples of typical contingencies include successfully obtaining a mortgage at a particular interest rate, accepting the results of a property inspection, and, maybe, selling your current home. If any one of the contingencies is not met, the deal may be cancelled.
* The loan is funded. If you haven't applied for financing yet, you'll do it during escrow. Once the loan is approved, your escrow officer will work with the lender to make sure your mortgage papers are completed and all lender conditions are met.
At the start of escrow, call or meet your escrow officer and ask if there's any information you can provide. Be a polite pest throughout the process to make sure the necessary steps are happening and the process is not being delayed because someone isn't doing what they should be.
What Kind of Closing Costs Can You Expect?
Closing costs generally range from two to five percent of the home price. Who pays what usually depends on where you live, though there may be room for negotiation.
Closing costs include:
* Loan fees, which generally range up to three percent of the loan amount. The lender is required to give you a good faith estimate of closing costs within three days after you apply for a loan, then usually an update after the loan is approved and another just before you close. Typical charges may include property appraisal, credit reports, loan document preparation and points (loan-origination fees). Each point equals one percent of the loan amount.
* Escrow fees include title search, document preparation, overnight delivery, and notary charges. There will also be fees for transferring title and recording the deed of trust.
* Your lender may require you to pay up to a year's worth of homeowner's insurance before closing. You'll also make a one-time payment for title insurance policies for you and your lender. You might also be required to prepay some private mortgage insurance - a monthly payment apart from your mortgage payments - if you put less than 20 percent down (the insurance protects the lender if you default).
* And, of course, there are property taxes, which you'll reimburse the sellers for if they prepaid them.
Time to Move In
Just before the final papers are signed, your escrow officer will give you a closing statement outlining all the charges and accounting for all the money that exchanged hands in the sale. Read this carefully to catch any mistakes. You'll also have to pay any outstanding balance at this time. On the closing day, the escrow officer pays the seller and tells you the deed has been recorded.
Now you can put the bubbly on ice and try to find the champagne flutes in all those moving boxes.
http://www.techcu.com/learning/home_buying/escrow.htm
The sub-prime backlash—Why Prime lenders offer the safest mortgage solutions
The sub-prime mortgage market is seeing some tough times. Several heads of sub-prime mortgage companies have been summoned to appear before Congress. Freddie Mac is stepping in to help borrowers who are in bad loan situations. Fannie Mae is calling upon mortgage lenders to reduce rates and monthly payments for the thousands of borrowers nationwide with mortgages they can’t afford. While only 20% of all sub-prime loans are estimated to actually default to the point of foreclosure, everyone is pointing fingers at the sub-prime lending industry for today’s sluggish real estate market.
Why were so many people sucked into sub-prime loans? For people with less-than-perfect credit, sub-prime loans were a godsend. The original concept behind sub-prime loans was a good one—if you have troubled credit, you can get a sub-prime loan now, improve your credit, and refinance into a prime loan (at a lower rate) when your rate adjusts. The reason that sub-prime lenders were able to extend loans to borrowers with lower credit scores (typically FICO scores between 540 and 680) was that they were more willing to assume higher risk of default. To mitigate the risk factor and protect themselves, sub-prime lenders charged higher rates, depending on the borrower’s credit profile.
As the sub-prime market started to really pick up speed between 2003 and 2005, more competition for the same pool of borrowers caused sub-prime lenders to increase their risk-tolerance thresholds and make imprudent lending decisions. Loans offering more than 100% loan-to-value ratios, debt-to-income ratios above 50%, and loans that required no income or asset verification grew in popularity, attracting more borrowers who otherwise would not have qualified for a loan. Sub-prime mortgage brokers and real estate professionals with sales quotas added to the frenzy, matching borrowers up with loans that helped on the short term but ultimately eroded their financial health.
The difference between a sub-prime lender and a prime lender isn’t just in the rates they charge or the types of mortgage options they offer. It has to do with risk. While sub-prime lenders measure risk in terms of their own bottom line, prime lenders measure risk with the borrower in mind. Prime lenders look at the whole picture—while they want to help get borrowers into a loan they can afford on the short-term (offering one-year to five-year adjustable-rate mortgages that keep the rate low initially), they also look for ways to make sure that the borrower can stay in the loan or can easily refinance when their loans adjust (offering no-prepayment-penalty options, expedited refinancing options for existing borrowers, etc.).
And if a borrower doesn’t qualify for a prime loan, responsible prime lenders will help that borrower to understand why they didn’t qualify and what they can do to improve their chances for a loan (improve their credit score, reduce their debt-to-income ratio by paying off debt, increase or reduce their number of tradelines, seek out a more affordable home to buy, etc.).
During the height of the sub-prime boom, many credit unions and smaller lenders were pressured to start underwriting sub-prime loans—and many jumped on the bandwagon. Without the risk management infrastructure that most large sub-prime companies could afford, smaller financial institutions are now finding themselves in hot water with low demand for new loans and high default rates on loans in their portfolios.
Even though there was significant demand from the market, Technology Credit Union did not originate sub-prime loans. By holding true to our prime strategy, Technology Credit Union was not only able to avoid the sub-prime backlash, but was also able to increase our portfolio to over $1 billion in loans in 2006. While Tech CU does not originate sub-prime loans, Tech CU does offer opportunities for borrowers who may have faced financial hardship in the past. As a credit union, Tech CU looks out for what’s best for the member—including educating members about how to improve their financial situation and offering loans to them once they’ve got their credit on track.
For more information about Tech CU’s lending programs, please contact a Tech CU mortgage consultant.
http://www.techcu.com/learning/home_buying/SubPrime.htm
Why were so many people sucked into sub-prime loans? For people with less-than-perfect credit, sub-prime loans were a godsend. The original concept behind sub-prime loans was a good one—if you have troubled credit, you can get a sub-prime loan now, improve your credit, and refinance into a prime loan (at a lower rate) when your rate adjusts. The reason that sub-prime lenders were able to extend loans to borrowers with lower credit scores (typically FICO scores between 540 and 680) was that they were more willing to assume higher risk of default. To mitigate the risk factor and protect themselves, sub-prime lenders charged higher rates, depending on the borrower’s credit profile.
As the sub-prime market started to really pick up speed between 2003 and 2005, more competition for the same pool of borrowers caused sub-prime lenders to increase their risk-tolerance thresholds and make imprudent lending decisions. Loans offering more than 100% loan-to-value ratios, debt-to-income ratios above 50%, and loans that required no income or asset verification grew in popularity, attracting more borrowers who otherwise would not have qualified for a loan. Sub-prime mortgage brokers and real estate professionals with sales quotas added to the frenzy, matching borrowers up with loans that helped on the short term but ultimately eroded their financial health.
The difference between a sub-prime lender and a prime lender isn’t just in the rates they charge or the types of mortgage options they offer. It has to do with risk. While sub-prime lenders measure risk in terms of their own bottom line, prime lenders measure risk with the borrower in mind. Prime lenders look at the whole picture—while they want to help get borrowers into a loan they can afford on the short-term (offering one-year to five-year adjustable-rate mortgages that keep the rate low initially), they also look for ways to make sure that the borrower can stay in the loan or can easily refinance when their loans adjust (offering no-prepayment-penalty options, expedited refinancing options for existing borrowers, etc.).
And if a borrower doesn’t qualify for a prime loan, responsible prime lenders will help that borrower to understand why they didn’t qualify and what they can do to improve their chances for a loan (improve their credit score, reduce their debt-to-income ratio by paying off debt, increase or reduce their number of tradelines, seek out a more affordable home to buy, etc.).
During the height of the sub-prime boom, many credit unions and smaller lenders were pressured to start underwriting sub-prime loans—and many jumped on the bandwagon. Without the risk management infrastructure that most large sub-prime companies could afford, smaller financial institutions are now finding themselves in hot water with low demand for new loans and high default rates on loans in their portfolios.
Even though there was significant demand from the market, Technology Credit Union did not originate sub-prime loans. By holding true to our prime strategy, Technology Credit Union was not only able to avoid the sub-prime backlash, but was also able to increase our portfolio to over $1 billion in loans in 2006. While Tech CU does not originate sub-prime loans, Tech CU does offer opportunities for borrowers who may have faced financial hardship in the past. As a credit union, Tech CU looks out for what’s best for the member—including educating members about how to improve their financial situation and offering loans to them once they’ve got their credit on track.
For more information about Tech CU’s lending programs, please contact a Tech CU mortgage consultant.
http://www.techcu.com/learning/home_buying/SubPrime.htm
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