Archive for April, 2010
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Glossary of common terms used during the mortgage process.
APR – This stands for Annual Percentage Rate. It enables you to compare the full cost of the mortgage. Rather than just being an interest rate, it includes up front and ongoing costs of taking out a mortgage. The formula for calculating APR is set by Government Regulations and therefore enables direct comparison of the cost of mortgages.
Capital and Interest Mortgage – This is when part of your monthly payment contributes to paying off the outstanding mortgage in addition to paying the interest on the mortgage. The payments are structured so that at the end of the term, your mortgage will have been completely paid off. For this reason this type of mortgage is also called a Repayment Mortgage.
Capped Rate – This is a mortgage where the lender agrees that the interest charged will never exceed a specific percentage. This deal lasts for a set period of years. After the set period, the rate usually reverts to the lenders standard variable rate. During the capped period, the interest charges can move up and down with the lenders interest rate – but cannot exceed the capped rate.
Cashback – An amount, either fixed or a percentage of a mortgage, which you can opt to receive when you complete your mortgage. The lender may well claw back this money through a higher interest rate.
CAT marksstandards – CAT stands for Fair Charges, Easy Access and decent Terms. They were created by the Government in an attempt to provide consumers with simple, clear financial products with straightforward, easy to understand terms. A CAT mortgage will have no arrangement fees, no redemption fees and will have interest calculated daily. It will also have a minimum loan of just 5000, offer you repayment flexibility and the mortgage should be portable should you move home. Finally, you will not have to buy the lender’s insurance products and there will be no penalties should you find yourself in arrears but can subsequently catch up.
Completion – This is end of the house buying process, when the funds are transferred and the keys are handed over. Happy moving!
Contract – A contract is a binding agreement between the buyer and seller. In the context of house buying, after the contract is signed by both the buyer and the seller it is then ‘exchanged’ between the respective solicitors for a set completion date. At that point, the contract is legally binding on both parties.
Conveyancing – This is the legal process in which property is bought and sold. You can do it yourself or hire a solicitor or specialised conveyancer to perform the tasks for you. The buying of a freehold is much less complicated than the buying of a leasehold.
Discounted Rate – This is where the lender makes a guaranteed reduction off the standard variable rate for an agreed period of time. After the discounted period ends, the mortgage usually moves to the lenders’ standard variable rate. Watch out for redemption penalties that overhang the initial discount period.
Early Redemption Charges – Redemption is when the borrower pays off the capital and the interest on the mortgage and thus owns the property outright. Early redemption fees are the charges incurred for paying off the mortgage early, either to buy the house outright, move or re-mortgage. Always ask about early redemption charges before you agree a mortgage.
Endowment – Endowments are life assurance policies with an investment element designed to pay off the outstanding capital on an interest-only mortgage. There are a few types of endowments, such as ‘with profits’, ‘unitised with profits’ and ‘unit-linked’. In the 1980s, these were sold by salesman who seemly suggested that these policies were “guaranteed” to pay off the mortgage at the end of the term. However, the investment returns on these policies have fallen to below what was previously considered to be the norm. Consequently, many policies are not worth what was originally forecast and may not fully repay the money borrowed at the end of the mortgages’ term.
Equity – In housing terminology, equity is the difference between the value of the property and the money owed on the property. So if the property is valued at 200,000 and you owe 150,000 on the mortgage, you have equity of 50,000. If you sold at that moment, you would receive 50,000. Should the value of the home be less than the mortgage outstanding then you have negative equity.
Freehold – Owning the freehold means that you own the total rights to the property and the land on which it is built.
HLC – This is the Higher Lending Charge (it was previously known as a Mortgage Indemnity Guarantee). It is levied by around three quarters of all lenders on clients who cannot afford to put down a deposit of 10% of the price of the property. In practice it is a type of insurance aimed at protecting the lender should you default on your mortgage when the value of your home is less than the capital you borrowed. The insurance only provides cover for the lender, not you, and typically costs 1,500.
Homebuyers Report – A property survey aimed at providing more information than a mortgage valuation but less information than a full structural survey. It will help the borrower to decide whether to purchase and help the lender to decide how much to lend.
Interest Only Mortgage – This is a mortgage where your monthly repayments only pay the interest on the mortgage. Therefore, at the end of the mortgage you still have to repay the full sum you borrowed. You are advised to have a separate investment vehicle into which you make payments aimed at building up a fund capable of paying off the mortgage capital at the end of the term. Typical investments include ISA’s, a pension or an endowment policy.
IFAs – Stands for Independent Financial Advisor. These advisors are regulated by the Financial Services Authority. To be classified as “independent” they have to be able to offer you the full range of products from all financial product providers. They are not entitled to describe themselves as “independent” if they can only offer products from a restricted panel of financial companies. A Financial Advisor can be one man band or work for very large companies. Before they make any recommendation, an IFA must carry out a detailed fact find so they fully understand your financial circumstances. They can then make their recommendations to suit your personal circumstances.
ISA – An ISA is an Individual Savings Account, which is a tax-free method of owning shares, building up a cash savings account or a life assurance policy. You can use an ISA to build up a capital sum to repay an interest only mortgage.
Leasehold – If your property is leasehold, ownership of the property reverts to the Freeholder at a set date. Many houses were originally sold on 999 year leases which means that 999 years after the initial date of the Leasehold, ownership of the property reverts to the Freeholder. Building in multiple occupation such as apartments, are always sold on a leasehold and usually have a much shorter leasehold period – 100 and 125 years is quite common. Often, with a block of apartments, the apartment owners individually own the leaseholds whilst a management company, in which they hold shares, owns the freehold. These days, however, leaseholders who live in the property have the legal right to buy their freehold under terms laid down by UK law.
Life Insurance – This can also be called Term Insurance or, when specifically linked to proprty purchase, as Mortgage Protection Insurance. It is designed to pay a tax free lump sum in the event of your death to enable your mortgage to be repaid in full. There are a number of variants such as Level Term Life Insurance and Decreasing Term Life Insurance. At the outset you take out insurance for the full sum you have borrowed from your mortgage lender and for the same number of years as you have agreed on your mortgage. These insurance policies do not have any investment or surrender value. The premiums are based on a number of factors – the main ones being the amount of cover you need, your age, health and how many years you want to be insured for.
Lock-In Period – This is the minimum period you have agreed to stay with the lender. Depending on the deal, it could be as low as six months up to the whole of the term. Should you wish to repay the mortgage or remortgage during the lock-in period, you will invariably have to pay redemption penalties. Always make sure you know how long you are locked in for with your mortgage.
LTV – Literally means Loan to Value. This is a measurement of the mortgage amount against the value of the property or the price that you are actually paying. A 157,500 mortgage on a property for which you paid 175,000 would be a LTV of 90%. Lenders tend to charge a Mortgage Indemnity Premium on mortgages with a loan to value of anything about 75%. Some don’t so ask about this.
MIG – This has now changed its name to HLC. See above.
Mortgage – A mortgage is a long-term loan taken out in order to buy a property with repayment secured on that property. So if you don’t keep to the repayment terms, the lender can repossess the property, sell it and retain the money they are owed. Any balance is then paid to you. If the property is sold for less than you owe your lender, you still remain liable to repay the shortfall.
Mortgage Advisor – On October 31st 2004 the selling of mortgages in the UK came under the remit of the City watchdog, The Financial Services Authority (FSA). As from that date any person providing mortgage advice had to be registered with the FSA and abide by its rules of conduct, methods of operating and training programmes etc. The objective has been to improve life for the consumer by offering better protection, clear information and access to redress for poor advice.
Negative Equity – Negative equity is when the value of your home is less than the amount that you owe on your mortgage plus any other loans secured against it. It can happen very easily if you take out a 100% mortgage or if property prices fall. (Also see Higher Lending Charge)
Portable – This is a measure of how easy it is to move a mortgage from one property to another should a property move be required. This is vital if you are moving during your lock-in-period and wish to avoid redemption penalties.
Repayment Mortgage – This is the same as a Capital and Interest mortgage – see above.
Searches – During the conveyancing process, the buyer has to be sure that the seller has title to the property and identify any matters may affect the prospective owners ownership of the property. For example, whether the property is affected by any proposed road building, whether there are preservation orders affecting the property, is it a listed building and has it been built in accordance with planning conditions and building regulations. Searches will also show whether there are mines under or close by the property. This information is obtained by the person undertaking the conveyancing from HM Land Registry and the relevant Local Authority. These investigations are collectively known as “Searches”.
Self-Certification – Should you have difficulty in providing documentation that “proves” your income to a prospective mortgage lender, you may need a self-certification mortgage. In essence you personally certify what your full income is. If you receive high bonuses, or work seasonally or on commission, or are self-employed this may be your best option. You declare your income plus some evidence that your declaration is reasonable. Ideally lenders want to see as much guaranteed income as possible. To compensate the lender for the increased risk they are taking on a self-certified mortgage, they will charge you a higher rate interest, typically 1% over their standard variable rate.
Stamp Duty Land Tax (commonly known simply as Stamp Duty) – You pay Stamp Duty Land Tax on property like houses, flats, other buildings and land. If the purchase price is 120,000 or less, you don’t pay any Stamp Duty Land Tax. If the price is more than 120,000, you pay between one and four per cent of the whole purchase price, on a sliding scale.
Upto 120,000 – No duty payable
120,001 to 250,000 – 1% duty payable*
250,001 to 500,000 – 3% duty payable
500,001 and over – 4% duty payable*If you’re buying a property an area designated by the government as ‘disadvantaged’, you don’t pay any Stamp Duty Land Tax if the purchase price is 150,000 or less.
Did you know? Stamp Duty was originally introduced by William of Orange when he was King of England.
Structural Survey – The most thorough report you can get on the condition of the property you are considering to buy. The surveyor will look in detail at the inside and outside of the property and will tell you if the property is structurally sound. All major and minor defects in the building will also be listed and should tell you what maintenance work may be needed either now or in the future. You should make sure the scope of the survey is agreed in writing before you commission it. Should the survey identify problems, use them to negotiate a reduction in the price before you exchange contracts.
Variable Rate – This is when the interest rate you pay on your mortgage can go up or down depending on changes to the lender’s standard variable rate. If you have a variable rate mortgage your monthly mortgage payments will change whenever the lender changes the interest rate.
Valuation – This is where a valuer appointed by your proposed lender, visits the property in order to estimate its current value. This value is then used by the lender as a basis for its security and to calculate its Loan to Value Ratio. The borrower never sees the valuation. With some mortgage deals the lender absorbs the cost of the valuation but in many cases the borrower has to pay upfront.
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Getting the Best Mortgage Rates in Florida with a Poor
Getting the Best Mortgage Rates in Florida with a Poor Credit History
Florida is a lovely place to have a house in; unfortunately the real estate prices are rather forbidding for most. And for someone with a bad credit past, it gets tougher. However, if Florida real estate has is in your dreams, you can still get a mortgage loan, even with a bad credit if you know how to look for it.
Before we get into shopping for the best mortgage rates, let us understand how the credit score of a borrower determines the scope of his search. Most lenders will willingly lend to a person with A credit score but someone with a C or a D grade wont get so lucky.
Fortunately, recent entries into the Florida lending industry have led the industry into being more liberal when approving loans. For instance, if there are more than 4 late mortgage payments in a period of 12 months, it calls for a B score, however if these delays have a plausible explanation the lender may excuse the default and consider a score of A.
There are companies who specialize in giving loans to high-risk borrowers and they are known as Sub-Prime lenders. Even though loans from the Sub-Prime source continue to dominate the high-risk borrowers segment, the government-sponsored agency, Fannie Mae too is beginning to acknowledge the potential in this category. With the availability of more options, a borrower with bad credit can afford to get choosy and not jump at the first approval he gets for the fear of not getting another chance.
The Internet is a good place to look for multiple mortgage options and even for specifically Florida Mortgage Loans, without the borrower having to reveal his credit status. One may even go to a mortgage broker in order to locate the best quotes, but they can be expensive. Ask for reference from friends and colleagues for a good mortgage lender, since a recommendation is always assuring.
Once you narrow down your choice, here is a checklist that you must go through.
1.First analyze your financial status, if you find you have come out of your past credit blues and can commit more you can consider an Adjustable Rate Mortgage (ARM). An ARM allows for a lower rate of interest in the initial years with an option to refinance at a lower, fixed rate after the first couple of years. However, if you find yourself financially burdened, a fixed rate payment would be more appropriate. Search, negotiate and settle for a rate of interest and for terms and conditions that suit your financial status.
2.Find out how much penalties are imposed for pre-payment. Heavy penalties will take away the advantage of any timely payments that you may be able to make and that may get you a refinance on better terms in the next few months.
3.Most Sub-Prime lenders exploit the vulnerability of high-risk borrowers and slap on high closing costs at the end of the loan. There are more lenders out there willing to do business than one would have you believe and a little negotiation can always add to some cost shaving.
4.Avoid paying any upfront or processing fees; the only fee acceptable should the one you pay for your credit application.
5.Ensure that everything goes on paper in writing, from the rate of interest, to the closing costs to the pre-payment penalties and that nothing comes as a surprise after you have signed the contract.
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Getting the best mortgage loan with a bad credit
For most people, applying for a mortgage loan to buy a house is one of the biggest and the toughest lifetime financial exercise. It gets even more difficult for those who have had a bad credit history. Even though people with bad credit are at a disadvantage, lenders do recognize their financial problems and needs and offer them mortgage deals that might not be the best but which at least provide them with an opportunity to own a home.
In order to get the best possible mortgage options, a borrower has to impress upon a lender that in spite of a bad past, he is financially responsible. To convince the lender of your credibility, the foremost thing to do before applying for a mortgage loan is to start clearing the red flags that mark your credit report. Begin by reducing your credit card debts as much as possible. Similarly pay off other debts like car loans or auto debts, particularly if they have more than 9 monthly installments left, since auto debts with less than 9 payments are generally excluded from debt calculations.
The next best thing to do is start saving big for a good size down payment on your home. Since you fall in the bad risk category for a lender, the bigger the down payment, the more it assures the lender of being able to recover his cash in the event of a future default. Do remember to include closing costs when saving for your down payment as they can add as much as 3% to the purchase price. Overall, saving more than 20% of the total purchase price should improve your credibility.
The borrower should target and reduce his monthly liabilities to less than 50% of his total income in order to give confidence to the lender about his ability to repay his mortgage loan without any defaults. It is never to late to get into better financial habits, like reducing the use of credit cards and postponing large purchases. At this point of time, it is wise to hold on to your present job and not make any unnecessary jumps. A steady employment of over two years adds to your image as a consistent and stable person.
Lenders will go through your bank statements to figure out your expenses and incomes. Any unusual entry may raise question marks. If a friend or family member gifts you money to help you purchase your house, make sure the lender know it is a gift and not another loan. Reveal all your liquid and cash reserves that you own since lenders judge your paying capacity from them and generally prefer that they have at least two months reserve of the monthly mortgage payments.
Last but not the least, even factors like prompt payment of house rents, phone bills, insurance premiums and other financial bills add to your credit worthiness. Finally, even after you have spruced up your credit image, make sure to approach more than one lender and compare their lending terms and conditions in order to get the best mortgage loan.
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Getting A Mortgage From Beginning to End
Purchasing a home is incredibly exciting and stressful. Knowing as much as possible before you purchase is the key to reducing stress.
Getting A Mortgage From Beginning to End
The mortgage process can often be a confusing one. Most homebuyers are interested in their dream home, not their lender. Throw in endless forms and document requests, and the mortgage process can quickly become miserable. Here is an overview of how it works, which will hopefully cut down on your stress.
Searching for the best loan is the first step. The best loan for you is entirely dependent upon your situation. A low interest rate may be a key for one person, while a low down payment might be critical for another. Other factors include your credit score, length of the loan and so on. I highly recommend you dont apply with the bank where you have a checking account. If they know it is your first loan, you are going to get a poor deal. Shop around or use a mortgage broker to do so.
Getting pre-approved is not a required step, but you should do it. This single step will cut the stress factor of buying a home by at least half. Instead of sweating your loan application during escrow, you can relax because you are already approved. This free time gives you the opportunity to nag the seller for breaks on the home purchase.
The next step is to file a mortgage application. Many people make the mistake of providing the minimum amount of information possible. Dont. If you have credit problems or some other negative, the lender will find them. Provide as much information as possible on your application.
Part and parcel with your application is supporting documentation. This is where a mortgage broker can really help. A lender is not going to take you application at face value. Unlike applying for a credit card, the lender wants to see supporting documentation. You will commonly be asked to submit tax returns, pay stubs, bank account statements, investment account statements and so on. The lender will inevitably lose some of these and ask for them again. Welcome to the mortgage loan process!
Appraisals, inspections and title searches will next be ordered on the property. The lender wants to make sure the seller has the right to sell it, the home is in good shape and it is worth enough to justify the loan. There isnt much you can do during this step, so relax.
At this point the loan is processed to get everything in shape for the underwriter review. The underwriter is the buck stops here person for the lender. The underwriter will approve or deny the loan. They may also ask for additional information or offer adjusted terms. If this occurs, you can make counter offers.
Assuming the loan is approved, commitment time is the next step. Yep, you will sign the loan documents. This sounds simple, but many people cant help but get nervous about committing to the repayment of hundreds of thousands of pounds. Just do it!
Assuming everything is going well with the purchase, the next step is closing. The lender will wire money to the title company, escrow will close and you are the proud owner of a new home and hundreds of thousands in debt!
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