mortgage (114)

RealEstate-IRA.jpg?width=178You attended a seminar on passive income generation with mortgage notes, learning how to enjoy high returns while sitting on your couch, and you are ready for your first purchase. But, hold on. Is this how you make your investment decisions? There is no doubt about the efficacy of mortgage notes, but you must understand them before buying your first note.

In this post, we’ll look at the basics of a mortgage note and the tax benefits of adding mortgage notes in 401k Solo retirement plans.

What is a mortgage note and how does it work?

In simple words, mortgage note is a legal agreement, involving a lender and the borrower under which, the borrower agrees to repay the loan amount along with interest in a definite period. Every mortgage note must include the names of both the buyer and the lender, descriptions of the property, the term period of the loan, the interest rate, installment amount, any legal protections favoring the borrower in case of a default, and details of previous financing, if any. If this is your first purchase, try to include detailed descriptions of the legal terms of the loan and cover any loopholes in the process. Once a deal is struck, the borrower deposits monthly repayments along with the interest to your account. You can hire a service company to manage the note and send regular payments for a monthly fee of under $100.

What are the different types of mortgage notes?

  • Fixed and adjustable mortgage rates: The most common types of mortgage notes are those with fixed and adjustable mortgage rates. As it sounds, a fixed mortgage rate comes with a fixed interest for the complete loan term, and the principal amount decreases after every single payment. On the contrary, adjustable mortgage notes have a varying rate of interest, which tends to be lower initially, and then changes in accordance with the economy.
  • FHA and VA loans: These are loans guaranteed by the government and are available through federally approved banking institutions. The credit requirements and down payment terms are strict in comparison with private lenders, although there is a guaranteed repayment, making them an attractive investment option.

Why invest in mortgage note through 401k Solo plans?

Self directed Solo 401k retirement plans are retirement solutions for small business owners and self-employed individuals, offering privileged features such as self-directed investing, checkbook control, and participant loans. According to the current IRS guidelines, a Solo 401k plan holder can invest in a wide variety of investment assets including mortgage notes, tax liens, real estate, and other untraditional investments.

What gives Solo 401k an edge is the tax-deferred growth. You can purchase mortgage notes under the name of the plan, and redirect your repayments into the account, where they enjoy tax-deferred growth until distribution. In case of Roth Solo 401k, the taxes are paid upfront and there are no taxes upon distribution, offering completely tax-free growth.

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Another milestone reached by the mortgage industry reform: the end of the  disclosure forms confusion! Provided to those applying for a mortgage, these forms were originally created based on two separate federal statutes: Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). The duplicate information as well as erratic language of these two separate documents, lead to an immense amount of confusion. Apart from those two documents, there were also two sets of disclosures: one provided when applying for a mortgage, and the other provided at the closing or just prior to closing on the loan. The consumers weren’t the only ones confused -even the lenders had a difficult time completing the forms. Basically, if the lenders weren’t even able to understand the verbiage, how could they possibly explain the documents to the consumers? 

[Update: The Consumer Financial Protection Bureau announced a proposal to delay the effective date of the TILA-RESPA Integrated Disclosure rule until Oct. 1.Click here to read more.]

The resolve (hopefully) . . two new, straight-forward disclosure forms. This change will apply to all consumer mortgage applications received on or after August 1, 2015. The change is currently being referred to as “TRID,” for TILA-RESPA Integrated Disclosure.

The changes . . In a Nutshell

♦ With TILA, lenders use a uniform system for disclosures, including the same credit terminology.

♦ The Real Estate Settlement Procedures Act (RESPA) applies to any federally related mortgage loan, generally including any loan secured by a first or subordinate lien on family residential property (1-4 units).

♦ CFPB was responsible for integrating the existing disclosure requirements with the new amended requirements by combining the RESPA and TILA disclosures.

♦ The integrated mortgage disclosures use language that is designed to help consumers better understand the mortgage loan closing transaction.

♦ The new “Loan Estimate” form integrates and replaces the existing RESPA Good Faith Estimate (GFE) and the initial Truth in Lending forms.

♦ The new “Closing Disclosure” form integrates and replaces the existing RESPA HUD-1 and the final Truth in Lending forms.

♦ The integrated disclosure rule does not apply to HELs, reverse mortgages, mobile homes and dwellings not attached to real property, or for those making 5 or less mortgage loans per year.

♦ The definition of an “application” has been changed; now, an application consists of six pieces of information which are submitted.

♦  Consumers can’t be charged for fees until after they’ve been given the Loan Estimate form and consumers have agreed to proceed with the transaction.

♦ The Loan Estimate is provided to the consumer within 3 business days after submitting a mortgage loan application.

♦ There are only six legitimate reasons for revisions to a Loan Estimate form.

♦ The Closing Disclosure form integrates and replaces the existing RESPA HUD-1 and the final Truth in Lending disclosure forms.

♦ A Closing Disclosure is provided to the consumer so that they have a 3 business day waiting period before closing on the mortgage loan.

♦ There is now a three business day requirement once the consumer has received the Closing Disclosure, representing a waiting period for the consumer to review the disclosure.

♦ The lender now has all the liability for preparation and delivery of the Closing Disclosure form, even if they allow the escrow company to do it.

♦ The new Integrated Disclosures must be provided by a lender or mortgage broker that receives an applicationfrom a consumer for a closed-end credit transaction secured by real property on or after August 1, 2015.

♦ For a Loan Estimate, a “business day” is a day on which the lender’s offices are open to the public for carrying out business functions.

♦ For a Closing Disclosure, a “business day” includes all calendar days except Sundays and legal holidays.

♦ The Loan Estimate must be delivered or placed in the mail no later than the 3rd business day from receipt of the mortgage loan application.

♦ The Closing Disclosure must be placed in the mail no later than the 7thbusiness day before consummation of the loan.

♦ The “Your Home Loan Toolkit: A Step-by-Step Guide” replaces the HUD Settlement Cost Booklet.

Key Points derived from The CE Shop “RESPA/TILA Changes: Are you Ready?” course. Right now the course is completely free when you use the promotional code (respafree) at check out. No credit card info is required.



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Who is a REO agent?

The real estate market is a very volatile place to conduct your business – and for many of us, it’s an absolute necessity. After all, you need somewhere to live, right? This seems to be the problem for a lot of people, though. Because they feel they “need” a real estate agent, they are less likely to actually take into consideration what is being said, at least fully. One of the “new” breeds of estate agent that has arrived in recent years is an REO Agent.
Various PR issues and a lack of understanding about the world of REOs leaves a lot of people with the opinion that they are only out for themselves – especially REO agents. However, when you can actually see what they are trying to do on the market for you – beyond the sales talk – then it’s far easier to take an REO agent at face value.
So what does an REO Agent actually assist you with?
They are, undoubtedly, one of the most important cogs in a deal which involves an Bank Owned property. They regularly get the best deals, and if an investor is looking to pick up a property for up to a fifth off the asking price they need to be prepared to do a little dealing and this will, at one stage, most likely involve an REO Agent.
While it’s easy to paint an REO Agent as somebody who benefits from the suffering of others, the work that they put in is simply incredible. For example, your traditional real estate agent will be helping sellers keep a home in good shape and offering advice to help sell it as fast as possible, and in return can get anything from 4-6% commission for giving advice, being there to assist and putting you in contact with the right people.
An REO Agent on the other hand will walk into a dilapidated and vacated home with squatting pets and dangerous appliances and get the sleeves rolled up, cover all of the repair and maintenance costs themselves for up to 90 days after the sale, and then turn the house around to make a sale in the end. They may only walk away with about 1.5% commission, by the way.
For all the talk of REO Agent and real estate agents doing dirty deals, teaming up or even just downright ignoring offers along the way for their gain and benefit, the majority of REO Agents get into this line of work because the “traditional” form of real estate agency has not worked out for them or they have been forced out of the market for a variety of reasons.
As long as you get the right Home Inspection team in and the right staff to help out with the process, working with an REO Agent can be much easier and if you are willing to tough out the bad days together you can really make a significant change around the household and get the price that you are really looking for. They can be hard working and they come with a bad name, but with a bit of faith and an understanding that they are not the same as your normal real estate agents, you can go a long way together.
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Zoning according to Investopedia refers to the municipal laws or local government laws which dictate the use of real properties in some areas. Zoning laws therefore tend to limit the commercial uses of the land area in order to prevent manufacturing business and other kinds of businesses which could begin in residential neighborhoods. But it is vital to note that these laws may be modified to allow for construction of some properties which allow for economic advancement.
Zoning therefore plans out the use of a land through a system of allocation of certain areas and includes restrictions within the different areas. Some of these restrictions may include the buildings height, the density of the area as well as the types of businesses that will be seen in these areas.
A good instance is that of the zoning laws which restricts parks, businesses and homes. The zoning area will therefore include the commercial, industrial, agricultural and school zones. Generally, zoning tends to be confusing to people as it is used to designate areas irrespective of the size of the state. The correct use of zoning allows for the development of cities and countries and impacts the lives of future property buyers, sellers as well as investors. This is due to the fact that zoning will always tell on the value of a property irrespective of it being residential or commercial. The major types of zoning today are basically:
Commercial Zoning – Commercial property basically refers to properties which are not residential and they range widely from small offices to mega shopping malls and night clubs. As a result of this, they are zoned commercially.
Residential Zoning – is basically the opposite zoning to commercial as it is done for individual family and can be manifested in zoning of single family homes, condos, duplexes and various other forms of apartments.
Industrial zoning – This zoning is basically for the operations of the manufacturing sector and for warehouses.
Agricultural zoning – This is usually mentioned in the same breath as the rural zoning as they basically deal with zoning regulations for ranches as well as farms.
Another Zoning type includes Historic zoning, which is used for historic monuments and buildings such as museums. Zoning is however not a totally definite situation in terms of rigidity as the option of using a variance gives the option of an exception. The process is long to acquire a variance, depending on the local government, but can redirect the future of a property in the long term.
Something else to note about types of zoning is that they also have sub-categories and we can take the example of the residential zoning which has the sub-categories of sleeping units which are designed for transient occupants’ e.g. motels and those that are for residents who dwell more permanently such as apartment houses.

If you are buying real estate, be sure to determine the type of zoning and restrictions placed on the property.

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Are you not sure how much of a down payment to put down on a home? You would need to consider that the figure will need to be at least 20 percent, if you want to avoid paying any Property Mortgage Insurance (PMI). This insurance covers all home buyers that have not deposited at least 20% as a down-payment on the value of their new home in the event you default on your monthly mortgage payments.
The lenders and banks will introduce this insurance as a way of protecting its own assets should the home buyer fall into financial difficulties and not be able to meet payments due. The lender can dip into the insurance funds and use that money to cover any short fall. In the United States it is possible to get private mortgage insurance or one from the government. The government scheme is handled by the Federal Housing Administration (FHA) and a number of companies are available for home buyers to use for underwriting private mortgage insurance.
How Much Premium Will I Have To Pay?
This depends on the amount of deposit or down-payment you have managed to raise on your new home. The PMI can vary from as little as 0.3 percent of the total value of the property per year, to as much as 1.15 percent. So, if you pay the smaller amount (0.3%) on a home valued at $200,000 you would look to be paying around $600 premium per year. The upper limit of 1.15% would see homeowners forking out $2,300 per year in PMI fees.
But this does not have to be a payment you would have to make throughout the lifetime of your mortgage; when you reach the stage where the loan-to-value ratio hits 80 percent, tell your bank or lender that it is time to stop PMI premiums as you won't need them at this point.
In fact, its law now that lenders should be telling you when you are likely to reach that 80 percent ratio and federal law insists the premiums must stop when the figure reaches 78 percent. The premiums will automatically be cancelled at this stage and you should not have to chase your lender for this to happen.
However, there are some Federal Hosing Administration loans that insist mortgage insurance premiums be paid for the life of the mortgage.

If you would like more information on Property Mortgage Insurance, be sure to ask your Lender directly.
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Looking for a Rent-to-Own, Lease-Option or Land Contract in Wisconsin? We may have the perfect option for you! It's called the Alternative Mortgage Program. Please read the details below and visit the link for further information.

Alternative Mortgage Program

As you can see, this is much different than any other Wisconsin Rent to Own (RTO) or Land Contract program out there that we have seen. This could be the perfect conduit for you to get the home you want now, and be able to then purchase the house down the road when you can qualify for a traditional mortgage. If you are interested in hearing more about the program from the lender, please visit the link below and submit your contact information via the short form.

Rent to Own

Feel free to also visit our Rock Realty Wisconsin home listings websites below to help with your home search! You can search through all available MLS listings in your area.

Janesville Area Homes for Sale

Madison Area Homes for Sale

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I'm sure you may have wondered what the average home buyer in the U.S. looks like today, or not so much what they look like but how old they are, where are they coming from, what sort of job or income are they earning and which region of the United States are they coming from.
It is all interesting information - to some - and in particular those in the business of selling real estate, prospectors, sellers and investors alike. So who are they and what is the market for real estate buying actually like in the flesh?
In the previous four years to 2013 in America the average age of the first-time buyer has been about 38 and an annual income just above $80,000. These are averages of course but in those four years the large majority of first time buyers have managed to put down a 25 percent down on the home they have bought.
So generally speaking, your average American has got a nice job and earns around $80,000 and has managed to save a large deposit to allow a lender to approve a mortgage for their new home, condo or apartment. It is possible to buy a nice condo in Florida for $100,000, so if you can afford the typical 25 percent deposit, your mortgage would be for $75,000. This is the average American today, or at least in the last four year period from 2009 to 2013 but you can rest assured that these typical average examples would not have been the case in the four year period between 2005 and 2009 nor the four-year stretch before that.
The housing market in America took a hefty downturn in 2007 and the car has only just stopped rolling down the interstate bank and coming to a rest but as America recovers. What about foreign investment in real estate properties? Just as Canada has enjoyed recently in affluent cities like West Vancouver, real estate buyers are flocking in to American cities from as far away as China and Vietnam. The Chinese have plenty of dollars since its economy began a boom from the early 21stcentury.

There are also many second home buyers looking to grab property and you will find the average age of these people is 47 and they will earn on average about $90,000. The majority of home buyers are from the south (41 percent) and the affluent north-east sees the lowest percentage (13%) of first time buyers.
You may be close to these averages, but you may not be in a more affordable home buying area. Whether you are buying your first or second home, be sure to contact a real estate professional for assistance.
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Buying a new home is quite an undertaking. The stress of buying a mortgage and planning on how you will pay back your lender can be a daunting process. It seems that a mortgage term can take a lifetime. Some mortgage periods last 20 years, most will go on for 25 years but there are 30-year terms available if you want to stretch out your payments over a longer period.


Before you can even start to do any calculations – and we will at a later stage – you will need to get some figures written down first. The significant figure, of course, is the price of the home you are buying. Next, you will need to write down a figure representing any down payment (or deposit); this is assuming there is a deposit, in this example we will work without a deposit sum.


So, how exactly is a real estate mortgage payment amortized? We have the price of your home – let us say you are buying a small condo in South Carolina valued at $100,000. You will have made the offer to the seller (via the real estate agent of course) and then you will need to establish a lender that is prepared to loan you the sum of $100,000 (remember you are not putting down any deposit).


 The lender will offer you an interest rate by which you must pay on top of your $100,000. If you decide to reduce the amount of monthly payments you would normally go for a 30-year term, rather than a shorter period. At 30 years with a fixed rate of 4.5% throughout the life of the mortgage you would have to pay $506.69 a month.


Now, there are 360 months covering the life of your mortgage, so that's 360 x $506.69, which means over the life of your mortgage loan you will pay a total of $182,408. The first thought you will have is that you are paying some $82,400 more than the actual selling price of your South Carolina condo.


Well, it's the way a mortgage payment is amortized, so if you want to drag out the loan over 30 years then any fixed rate is actually a good bargain, despite the US interest rates at an all-time low in the present climate. These low interest rate figures may well go up at some point in the future but it would be unlikely that we will see the historic highs before the housing market collapse pre-2007.

If you are a Real Estate Agent and need our Virtual Assistants, CONTACT US

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FHA Back to Work Program

Exciting News! FHA Is Allowing People that Suffered through Recent Economic Hardships to Apply for a Home Loan with the FHA Back to Work Program.

photo credit: Daquella manera via photopin cc
photo credit: Daquella manera via photopin cc

In the not so distant past people had to wait 3 years or more after suffering through a financial hardship. Bankruptcy, foreclosures and other major financial disasters would sideline people for a number of years before they could buy a house again. However, all that has changed with the FHA Back to Work Program.

Previous Guidelines

For years the FHA program has helped people finance the purchase of a home with a modest 3.25% down payment. In general, the FHA rules for credit and employment history were more forgiving than conventional loan guidelines. However, there were strict rules about waiting a significant length of time after filing bankruptcy, losing a home to foreclosure, getting a loan modification or a deed-in-lieu.

New Guidelines

The Back to Work program waives waiting periods based on certain hardship situations. People that have suffered through the following types of problems are no longer forced to wait multiple years to apply for an FHA loan

* Bankruptcy (either Chapter 7 or Chapter 13)

* Short sale of previous home

* Foreclosure

* Modification of previous mortgage

* Sale of a home due to pre-foreclosure status

* Deed-in-lieu

Due to the recession of the past few years the government has given FHA the ability to relax their rules in order to help people qualify for home loans. Now people will only have to wait 12 months.

Meeting the New Qualifications

For borrowers that have faced a hardship like the ones described above they will need to meet a few qualifications.

First the borrower will need to prove that their current financial condition is recovered from the impact of the financial hardship.

Second, the borrower will need to provide proof that their income declined by a minimum of 20% for 6 months or longer. This can usually be shown by presenting federal tax returns and the supporting W-2 forms.

Finally the borrower will have to agree to complete a counseling session aimed at educating home buyers.

In addition to these items the borrower must re-establish their credit. This does not mean that the scores must be 700+. However, once the hardship has ended the borrower will need to have good payment history on all credit accounts in order to prove that they are able and willing to make their monthly obligations.

Types of Borrowers

The Back to Work program can be used for people buying their first home as well as people buying their second, third, fourth, etc. home. It can also be used with the FHA 203(k) program for people that wish to renovate or modernize a home. Even people that are currently in a Chapter 13 plan could be approved for the FHA back to work program. The court will have to grant permission for the loan and the borrower will have to meet the other requirements.

The recent recession has hit a lot of people and left a lasting impact on them. The Back to Work program is aimed to help these people put the past behind them and return to the stability of owning a home.

Additional Mortgage Information: Mortgage Home Loans Financing

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Low home loan rates

What Kind of Mortgage Fits Your Needs?

No matter the state of the economy, each year the number of new mortgages underwritten reaches millions of homeowners.  Some are buying for the first time while others are downsizing or upsizing.  When rates drop, like they did over the past 2 years, many people seize the opportunity to refinance their home loan.  However, how do people decide on which mortgage to use for their specific need?  An online survey conducted by points to some of the factors that influence consumer decisions.

Most Important Factor

It should come as no shock that the most important factor is the interest rate.  Regardless of the type of loan, the size of the loan or the customers home state, everybody is trying to get the best rate for their home loan.  In the survey mentioned above over 45% stated that the rate was the top factor for choosing a loan.

Other items, such as the length of the term and the fees also ranked high in the survey, but none was as vital as the rate.

Deciding How Much to Use for Down Payment

The ability to make a down payment equal to 10%-20% of the home’s price will give the borrower a range of products to choose from.  A large down payment and a solid credit score will usually allow a borrower to qualify for a conventional loan which has the best interest rates.

For borrowers that have a smaller down payment, their options will be limited to FHA, USDA or VA for qualifying veterans.

Choosing the Right Term

With rates at an all-time low many borrowers are actually paying more attention to the term of the mortgage loan as part of the decision process.  While the traditional fixed rate of a 30 year loan remains quite dominant more and more people are looking at different adjustable rate products.  Those borrowers that have refinanced in the past 2 years have often chosen to go down to a 15 or 10 year term in order to drastically cut down on their total interest pay back while also paying off the home sooner.

Brokers Still the Top Choice

When looking for the right mortgage loan a number of people still prefer to use the services of a mortgage broker over a local bank or credit union.  In the survey mentioned earlier over 30% of respondents claimed that they sought the services of a broker rather than another type of lender.  Since brokers typically have access to multiple lenders they can offer any type of mortgage loan and get the best rate too.

Obviously, none of these factors discussed the two biggest items facing a borrower; are they happy with the home and can they afford the mortgage payment?  Beyond those two items, the guidelines mentioned above should help any new borrower pick a loan that is right for their situation.

Additional Mortgage Info:
Home Mortgage Loans

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Purchasing Investment Property using an IRA (Part 2 of 4)
Using an IRA account to purchase real estate can be a great way to add to an existing retirement plan or simply diversify current holdings. Following the guidelines of the law for these types of investments can bring strong yields to the IRA owner.
Different Ways to Use IRA with Real Estate
photo credit: j l t via photopin cc
photo credit: j l t via photopin cc
There are actually several ways to use an IRA as an investment in real estate.
* Act as a bank – The money in the IRA account can be loaned out to individuals who offer up real estate as the primary collateral. In essence, the IRA account becomes a mortgage lender.
* Own property – Most people choose to use their IRA funds to outright purchase an investment property. The seller of a home enters into a contract with the IRA and the IRA becomes the owner of the property.
* Partner with others that own property – It is possible for an IRA to become a partner with investors such as other IRA’s, entities or individuals.
Property Value Requirements
Most IRA companies will require that the property has a report of market value in order to be accepted as an investment. Furthermore, some companies may require that a new value report be presented each year. This is to ensure that the correct property taxes are being paid. The report can come in the form of an appraisal or a market analysis completed by a real estate agent.
Basic Guidelines for IRA Real Estate Investment
* All transactions must be arm’s length – This means that the owner of the IRA cannot buy any property from the IRA. Conversely, the IRA cannot purchase one of your existing properties.
* The owner of the IRA cannot use the real estate – This means that you cannot live in the home nor can you use it as a second home or vacation property.
* The IRA account only invests for the account – The owner of the IRA cannot receive any type of immediate benefit from the investments.
* No sweat equity allowed – Any repairs or improvements made to a property must be completed by a third party.
How to Manage the Property
Once an IRA has bought real estate, the expenses for the property will need to be managed via the IRA account. The expenses can be controlled by a property manager or by the IRA owner. Once again, there are some rules to keep in mind.
* You are in control of decisions for the property – You have the say in which plumber to hire, who is allowed to rent the home and other similar decisions. However, you cannot do any physical work on the property.
* No personal funds used for the property – Your personal funds cannot be used to pay property taxes, secure insurance or anything else related to the property. For this reason it is always wise to open up an IRA account with a nice cash buffer to handle expenses.
This is Part 2 of a 4 Part Series.
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Assuming an Existing FHA Loan

Most mortgages have a requirement that the loan must be paid in full when the property is sold. However, FHA offers a different option to the seller and buyer. It is possible for the buyer to take over the existing FHA mortgage from the current property owner. This is a very enticing offer for someone that has a mortgage with a great interest rate. Here are the guidelines for an assumable FHA mortgage.

Mortgage-Sign-300x300.jpg?width=300 photo credit: 401(K) 2012 via photopin cc[/caption]

Review Existing Loan

The first thing you should do as a potential buyer is review the existing loan documents. Any loan that originated prior to December 1 in 1986 is allowed to go through a “simple assumption” procedure. This means the buyer does not have to qualify for the FHA mortgage. For loans that were originated on after the December date, the buyer will have to qualify for the loan just like any new borrower.

Negotiate a Price with the Seller

Most sellers would like to receive a large part of the equity they paid in to the mortgage over the years since they originated the loan. The price you can negotiate is really dependent on your ability to deal and the seller’s motivation for getting rid of the home. One thing that must be clear; the buyout amount given from buyer to seller cannot be financed in to the existing FHA mortgage. This is money that needs to be paid either in cash or with a loan separate from the mortgage.

It may be possible to convince the seller to finance the buyout amount. This would mean that you have two loans to repay in order to purchase the home.

Talk to a Mortgage Lender

Since you will likely have to qualify for an FHA mortgage loan, it is advisable to talk to a lender experienced with FHA loans. The lender can review your credit file, determine your monthly income per FHA guidelines and find out if you qualify for the loan.

Determine Current Loan Status

You need to find out if the current property owner is up to date on their mortgage payments. If there are any late payments, those payments are transferred to the new buyer. This can be rectified by either paying the amount necessary to get current or requesting a modification of the loan.

Inquire About Down Payment

Since FHA asks for a down payment equal to 3.5% of the price, this rule will apply to someone assuming the loan. In this case, the 3.5% is based on the existing loan balance.

If you are approved for the loan, you may proceed with the closing process. You should ask the lender to contact a local title agency to research the title to ensure there are no liens on the property other than the FHA mortgage. Additional liens will have to be paid in order to transfer the deed in to your name as owner.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.
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VA Mortgage Program Has Good News for Veterans and Their Families

Veterans-Administration-VA-Mortgage-300x241.jpg?width=300Photo credit: Tony Fischer Photography via photopin cc

Many years ago the United States decided it was a good idea to offer housing benefits for our veterans that were not attainable to other classes of people. The men and women who sacrificed time away from their families and risked their lives in defense of our country deserved the chance to buy a home with attractive features. As time has marched on and the needs of veterans have changed, the VA Mortgage program has made some changes to appeal to even more qualified borrowers.

Spouses of Deceased Veterans

Before the new law, spouses of deceased veterans could only apply for a VA mortgage if the veteran passed away during active duty defending our country or if the veteran passed away due to a disability sustained during duty. However, if the spouse can show that the veteran suffered from a disability sustained during duty for a minimum of 10 years prior to their death, the spouse can now apply for the VA mortgage.

Funding Fee for Certain VA Loans Waived

People in the military are no stranger to paper work. With every VA loan that is approved there is a fee associated with the loan. This funding fee provides money for the new crop of loans, avoiding the use of taxpayer's money.

If a veteran learns that they are eligible for disability pay due to their physical exam prior to discharge then they are allowed to waive the funding fee from the VA mortgage. Previously, a veteran had to receive actual disability pay on a regular basis before the fee could be removed.

Beyond Fixed Rate Loans

Fixed rate mortgages are great for people who are reasonably confident that they will stay in a certain home for many years. Having the mortgage payment set in stone offers stability for the homeowner. However, there are some people, such as veterans and active duty personnel, which may be on the move in a few years. For these people, getting an Adjustable Rate Mortgage (ARM) can make sense. They save money by getting a slightly lower interest rate that is fixed for 3 or 5 years. The new law makes it possible for eligible borrowers to apply for an ARM through the VA mortgage plan.

More Flexibility for Military Families and Individual Parents

For as long as the VA mortgage program has been around, one of the main requirements to the loan has been the veteran's occupancy. A VA loan states that the veteran must live in the home as their primary residence after the loan is completed. The veteran is given some time to move in to the new home, but the requirement is there. For military families in which both spouses are active duty, this can be impossible. Even harder for families that have only one parent who is serving in the military.

The Camp Lejeune act makes it possible for the children of the veteran to meet the requirement of occupancy. This means that dependents can live in the home purchased by their parent or parents through the VA mortgage while the parents sacrifice their time away from loved ones serving our country.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.
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Many of you may not be aware that in this new year, the mortgage lending industry will begin to abide by some new rules / regulations / laws that will surely reduce the amount of mortgage loans given out.

The one rule that seems to sum up all of the new legislations is, lenders will be required to verify and inspect borrower's financial records. Granted, this doesn't sound like a bad rule at all, in fact, it's one I could get behind myself because it seems like it's nothing but common sense however, it's not what the industry has been practicing, even after the housing bubble burst. You see, many people who have the credit score, get the loan, with little to no actual "inspection" of their financial records or in other words with no real "inspection" of the consumers ability to pay back the loan.

As a Realtor, I see this lack of true underwriting every day when I meet the buyer's appraiser at the property for the appraisal. He walks in, walks around, takes some pictures, looks under some cabinets, spends about 30 minutes to an hour there, goes back to his truck, says "thanks" out the window...waves and drives off. A couple days later, I see a copy of the appraisal from the lender and to my surprise, it's exactly the same amount of the purchase price. HOW IS THIS POSSIBLE? This makes me mad each and every time I see it. Why.....well, it means the appraisal is a sham, a farce, a magic show. I have been doing property evaluations for banks for years now. NO, I am not an appraiser, I do Broker Purchase Opinions, similar to an appraisal but, not the same. None the less, I know that it's impossible...absolutely, undeniably, impossible for a property evaluator to appraise or provide an opinion of value that is exactly the amount of the purchase price. Why is this, you might be wondering...why would it be so impossible for that to happen? Because if I am providing an unbiased opinion, I wouldn't know what the purchase price was. In short, if the buyer has the credit...the fico score, many banks....all of them....could care less how much the buyer spends or how much the property is really worth because, the buyer is getting the property based on a number, not his true ability to pay back the loan. This happens because these banks are making so much money on the total number of loans they do, taking a hit on a few who can't pay back...well, not such a big deal, that was until 2007 - 2008, that is.

The housing bubble burst taught us all a that we should have learned from the banking crash of the 80's but, we ignored. Banks aren't doing a good job making sure the consumer can pay back the loan, they are doing a excellent job at making themselves money.

Make no mistake, I am not an advocate for more regulations, more laws, more government intrusion in our lives, I am explaining this so that consumers wake up. As friendly as your mortgage lender is, as much as he tells you he likes your shoes and ask your husband if he saw the game this weekend, he gets paid more if you borrow more. You are personally accountable for your decisions so, if you are a taxi cab driver, making $24,000.00 a year.....NO, YOU CAN'T AFFORD A INTERST ONLY LOAN OF $250.00 A MONTH AND IN 12 MONTHS YOU GET A BALOON PAYMENT OF $15,000.00. Have you ever had $15,000.00 in your checking account waiting to be spent? Seriously?

This new rule goes a bit further and says, lenders can't obligate consumers with more than 43% of the person's annual income in the loan. Yes....that means now we have a cap. If you are out there looking for a mortgage loan, you will not be able to get one that is more than 43% of your annual income. In my opinion, this goes a bit too far. Who is the government to tell consumers what they can or can't do? Sure....the government tells us everyday what we can and can't do but, should they be in the business of telling us what we can and can't borrow? I don't think so.

Ok...sure, we have some in our society who are uneducated, un-intelligent, just stupid and yes, they should be protected.......or should they? In many ways, protecting the idiots amongst us who go to a lender, tell the lender they want to buy that $250,000.00 and they think they can afford it on a part time job at McDonalds........then, if the bank is willing to do it.....part of me says, step back, let it happen and watch the situation teach. That's right, some of us just aren't going to learn without going through the fire ourselves. My point is, can you legislate good behavior...I don't think so.

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Differences Between FHA and Conventional Mortgages

Across the land the vast majority of home buyers use either a FHA or a conventional mortgage to purchase a property. While these loans are similar in a few ways, there are some pronounced differences. Each one has benefits that cater to a particular group of buyers. Understanding how they are different and which one is best suited to different circumstances will help buyers feel more informed about their financial situation.

FHA Loan

Differences between FHA and Conventional

FHA stands for Federal Housing Authority. This agency does not make the loan itself. Instead, they insure FHA loans that are offered by approved mortgage lenders. The lender is protected in the event the borrower does not repay the loan.

FHA is committed to providing basic, conservative loans. A large number of their deals are fixed rate loans even though FHA does allow for adjustable rate mortgages.

Conventional loan

A loan that is not insured by FHA is most likely a conventional mortgage. Mortgage brokers, banks, and credit unions offer a wide variety of conventional loans. Conventional loans have more unique offerings such as interest only type of deal or a combination of a first and second mortgage used for a purchase.

Down Payments

One of the major differences among the two types of loans is the requirement for a down payment. FHA will allow buyers to pay 3.5% of the home's price as a down payment. The money used for the down payment may come from cash on hand, savings, retirement accounts or even a gift from a relative.

For conventional loans, the normal down payment is 20% of the home's value. However, there are quite a few loans that will allow a 10% or 5% down payment. The money used for the down payment must come from the borrowers own funds such as savings, investments or retirement accounts.

Private Mortgage Insurance

Both the FHA loan and conventional loan requires private mortgage insurance (PMI) if the buyer makes a down payment that is less than 20% of the purchase price. This insurance is designed to protect the lender if the loan is not repaid in full.

With a conventional loan, the PMI will be in place until the loan balance is paid down to 80% of the home's value. Typically, the PMI amounts for a conventional loan are higher than a FHA loan.

For an FHA loan, there is a fee charged at the time of the loan closing as well as a monthly amount paid with the loan payments. The monthly amount is enforced until the loan amount reaches 78% of the home's value.

Credit Score Requirements

Conventional loans have usually been reserved for customers with the highest credit scores. Due to the problems faced by the mortgage industry over the past several years, this fact is even more true today. Conventional loans rely heavily on standard credit reports offered by the major credit bureaus. Most conventional mortgages are approved by a computer system and reviewed by underwriters.

On the other hand, FHA loans will allow a slightly lower credit score. In addition, FHA will allow underwriters to go beyond the computer system and make approvals based on a borrower's complete file. Items like residence history, rental history and stable job history can persuade some FHA lenders to approve a loan for people who have scores that are slightly less than perfect.

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Understanding Specific Requirements of Appraisal for FHA Loans in Wisconsin

The all-time low mortgage rates combined with affordable home prices have generated a huge growth in business for FHA mortgages. People considering their first home need to understand the specific appraisal requirements for FHA loans in Wisconsin.

FHA MortgagesBasics of FHA Appraisal

In a nutshell, an FHA appraisal is a conventional appraisal with additional requirements. The goal is to identify any potential repairs that would need to be completed within the next 24 months and have those items addressed before the loan is closed.

It is important to note that an appraiser does not review a home to the depth of a home inspector. A home inspection is still a good idea for a home, especially if it is 5+ years old.

FHA Appraisal Caveats

Only appraisers listed on the FHA approved roster are allowed to inspect homes and complete the evaluation. Before an appraiser is assigned to review a home a FHA case number will be assigned to the loan. The appraisal is valid for the next 90 days. The lender or borrower may change during that time period without the need for a new appraisal.

Any home that has undergone a conventional appraisal within the last 90 days will still need a FHA case number. In addition, the home must be re-inspected to verify FHA specific items. Here is a list of the items:

  • Confirm no existence of drainage or water damage
  • Ensure water pressure is adequate for the home without any leaks
  • Any exterior and interior lead-based paint must be inspected to identify peeling, chipping or cracking
  • Identify exterior access for each bedroom
  • Insure the minimum 18” egress and ingress from the lot line to the building
  • Test the heater to ensure proper working condition as well as air conditioner
  • Ensure electrical outlets are in every room and in working order
  • Test the fan/hood over the oven for proper working condition
  • Ensure screens are present on roof vents and no more than three layers of roof material
  • Determine that the electric box has at least 60 amp
  • Properly note existing wiring that is exposed as well as cover plates missing from electrical boxes
  • Do a brief inspection of crawl space and attic

Any issue found on the interior portion of the home needs to be either repaired or replaced. On the exterior part of the home any issue needs to be repaired or removed.

Specific Areas of Importance

Of the items mentioned above three seem to get the most attention; water problems or drainage issues, lead-based paint and the ingress/egress points. Concerning the ingress/egress points, common problems occur with homes that have a garage touching the lot line. This prevents the homeowner from accessing the exterior wall of the garage in order to paint. If this is the case the neighbor may be asked for an easement in order to grant the homeowner access.

Consultant Required for 203(k) mortgage

Buyers that are approved for a FHA 203(k) mortgage need to understand that the appraiser will be working with a consultant. The consultant must be approved by FHA. This individual will inspect the home and determine the necessary repairs and improvements and formulate an estimated cost. The appraiser will inspect the home and ensure that the consultant has properly identified all necessary repairs in order to conform to the FHA guidelines.

This communication is provided to you for informational purposes only and should not be relied upon by you. Rock Realty is not a mortgage lender and so you should contact a lender directly to learn more about its mortgage products and your eligibility for such products.
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Tips for Home Sellers to Minimize Their Risk in Lease-to-Own Transactions

The economic downturn in the housing market over the past 5 years has driven up the number of sellers willing to consider leasing out their homes with an option to sell.  This can be a wise move in the right situation but sellers need to make sure they take steps to minimize their risk in these transactions.

Rent to OwnDemand an Option Fee Up Front

For the duration of the lease the seller of the home cannot market the home to would-be buyers.  This time period could be as short as one year or as long as three years depending on the renter’s financial condition.  Sellers should demand an option fee up front.  This fee can be applied to the purchase if the renter indeed manages to arrange financing at the end of the lease.  However, if the renter decides to pursue another home, they forfeit the fee.  This fee is usually in the range of 3% to 5% of the agreed purchase price in order to ensure the buyer is committed to the purchase.

Protect Against Appreciation

Once again, going back to the fact that the seller is not able to market the home while it is under a lease contract, it is possible the home could appreciate greatly in value.  It is wise for most sellers to add at least 5% to the current market price of the home when writing out the lease-to-own contract to help the seller reduce their possible loss.  At the same time, the buyer is getting a price on the home, in writing, for a future date.  This is a big plus for the buyer since they now know the price cannot rise.

Work Out a Contract for Maintenance and Repairs

In order to give the buyers the sense of actually owning the home, sellers can ask buyers to sign a contract that spells out responsibilities for maintenance and repairs.  Obviously, most renters will not be inclined to pay for major repairs such as a roof replacement or installing a new heating and air conditioning system.  But the seller may want to enforce a policy that lawn maintenance, modest repairs for plumbing and electrical needs, and other such items are the responsibility of the buyer.  This can help the buyer budget for future repairs and also help them decide if they are financially ready to purchase a home.

Carrying Additional Insurance

While the buyer/renter is in the home as a tenant sellers will require proof of renters insurance.  However, it is a good idea to carry an additional policy on their home beyond their current needs.  Catastrophic events such as tornadoes, fires and floods happen when we least expect them.  Nothing makes a tragedy worse than realizing there was not sufficient insurance coverage to handle the damage.

Many hopeful borrowers are in need of something beyond a traditional mortgage.  The lease-to-own model is a good way for sellers and buyers to reach their intended goals.  However, sellers need to be especially careful in these deals to make sure their interests are protected beyond merely the sale of the home.

Original Post - Rent-to-Own Minimizing Risks

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Mortgage Forgiveness is Currently Set to expire at end of 2012

One primary feature attracting many underwater homeowners to a short sale is the fact that the taxes are lowered thanks to a Mortgage Forgiveness Debt Relief Act of 2007 provision. However, that credit is set to go away at the end of the year 2012. This means that homeowners who have put off selling need to get busy.

Mortgage Forgiveness Debt Relief Act of 2007

Basics of the Rule

When foreclosures were the primary topic of almost every news broadcast, Congress stepped in and offered this one time transaction. Homeowners could sell their home, for less than the existing mortgage, if the lender agreed to the deal. The outstanding balance would normally be taxable as earned income to the homeowner. However, the Mortgage Forgiveness Act wiped out the taxes on any unpaid balance up to a whopping two million dollars. This act applies to short sales that occurred between 2007 and 2012.

New Area of Expertise for Real Estate Agents

Many real estate agents have chosen to specialize in certain areas. Some people prefer to work with commercial property, while others may focus their energy on single family homes. The past few years has seen a rise in the number of agents that zero in on the short sales, and for good reason. Many banks are not open to the idea of a short sale coming straight from the homeowner. But with an experienced real estate agent, the situation changes. Banks realize that these agents are quite familiar with the local area and can accurately predict a home’s true value. Using an experienced agent can help homeowners negotiate a fair sales price and remove themselves from the burden of a mortgage that is no longer feasible.

Possible Change before End of the Year

It is possible that Congress could move to extend the Mortgage Forgiveness expiration. After all, the home purchase credit initiated a couple of years ago was extended twice to encourage more people to buy homes. However, it is too early to tell if this particular act will be extended so it is better for most people to err on the side of caution and begin negotiating a sales price with their real estate agent and their lender.

Getting Everything in Order for a Short Sale

If you are considering a short sale of your home then you will need to get a bit of information together. First, you must contact your lender and ask them for a 30 day payoff on your mortgage. If you have more than one mortgage, or Home Equity Line of Credit (HELOC), then you will need a payoff amount for each loan. Once you have these figures you can call your real estate agent and ask for their professional opinion about the value of your home. The agent will be able to access sales of homes similar to yours in the surrounding area and provide you with an accurate value. Then, you will have a strong argument to present to the lender. The lender may ask that you have an actual home sale contract in hand before accepting your offer. But at least you will be on the track to selling the home once you have spoken to a real estate agent.

Original Email - Mortgage Forgiveness Act expiring soon

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Homebuyers Can Use a FHA Loan to Purchase Property from an Investor

FHA MortgagesFHA has been the most popular mortgage used by Wisconsin residents looking to purchase their first home. The relaxed credit standards lower down payment requirement and higher debt ratios has allowed many people to purchase a home through this type of loan. However, investors who were in the business of buying a home to simply turn around and sell it for a profit, called flipping, always steered clear of FHA borrowers. FHA had a rule stating a home could not be sold a second time within 90 days of its last purchase. But that has all changed.

Original Intent

The primary reason for this “anti-flipping” rule was discourage fraud on mortgages. However, as time marched on it became apparent that deserving FHA buyers were being denied a home. Many homes have been bought after foreclosure by investors and repaired to make them ready for resell. The FHA ruling prevented the investors from selling and the market has struggled.

Some Rules to Keep in Mind

Although the FHA administration has decided to lift this rule, there are still other guidelines that must be followed when dealing with one of these investment homes.

  • The seller of the home and buyer cannot have any type of pre-existing relationship. This could be as simple as a relative selling to a family member or as complex as a business owner selling to a partner or employee.
  • In the event that the new sales price is 20% or more than the price paid at acquisition by the investor the loan may be inspected more closely to ensure the value of the property was not artificially raised.

Keep in mind that the original rule was put in place to prevent fraud. In addition, the original rule only came in to effect when a home was bought by an investor and then resold within 90 days. If the investor waits beyond the 90 day window to sell the home most of these issues will not be present.

Protection against Future Fraud

Most lenders are well aware of the abuse that has taken place in the mortgage industry over the past few years and have stepped up their lending standards to catch fraud and illegal practices. Because of the heightened scrutiny, many high ranking managers among the top lenders do not feel that this change in FHA rules will lead to a sudden burst of bad loans. The tighter appraisal restrictions, along with the general awareness of potential problems, should allow banks and mortgage companies to move forward with new FHA loans without falling victim to a scam artist.

Original Post - Using an FHA Loan to purchase from an Investor

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Low home loan ratesIncreased Mortgage Activity

Although the winter months have traditionally been a slow time in the real estate market, business has seen significant improvement across Wisconsin. While it may be premature to proclaim that the recession is ending, these signs do point to an improvement in the overall economy.

Starting Off 2012 with a Bang

Across the state the number of home purchases increased by 11 percent in January 2012 in comparison to the number of homes sold in January 2011. This is a continuation of the trend that began in October of 2011. Although the average home price is still down from the levels of 2006, the improved activity is a good sign.

Refinancing is Hot now

Along with improvements in home sales, refinancing has been quite popular lately. The record low interest rates have caused quite a few people to investigate refinancing their home. Recent reports show that as much as 80% of mortgage applications have been for refinancing.

Primary Key to Fuel Home Sales and Price Improvements

The majority of economists agree that it is too soon to determine if the surge in home sales will last. However, they all agree on one point. A steady, stable growth in the number of people able to return to full time work will drastically help the housing market.

Still a Buyer’s Market

The good news for buyers is the available inventory makes it possible for a buyer to review multiple homes and find the one that is best for their needs. The recent statistics show that the current inventory of homes for sale is quite large, but the numbers are moving down. Along with the incredibly low interest rate this marks a great time for new homebuyers to get in their first home as well as for current homeowners to consider selling for either a bigger property or a home in a better area.

Short Sales and Foreclosures add Properties to the Mix

While home prices have declined in recent years due to the struggling economy, some of the best deals can be found in the case of foreclosures and short sales. It is common for a short sale to be in a much better condition than a foreclosure. Most of these owners were living in the home right up until the time they sold the property and moved on. This means that a home that was part of a short sale has a good chance of being in move-in condition. For the do-it-yourself type of people, a foreclosure could be a way to get a home at a tremendous discount and have the option of adding paint, carpet, and fixtures to customize the home to their liking.

Original Post - Increased Mortgage Activity in Wisconsin

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