We’ve all seen those big canvas circus tents over homes with “for sale” signs in their front yards. Wood Destroying Pests and Organisms Inspection Reports are commonly obtained when a home is being sold. Repairs are almost always recommended to correct water or rot damage, and if the report is required by contract or requested by the appraiser, the recommended repairs will most likely have to be completed and certified prior to close of escrow. This gives buyers and sellers heartburn, since buyers often don’t want the repairs done by the termite company and sellers often don’t want to commit to the expense since the sale may not go through. Negotiations can be tricky, and a good loan agent can help.
Prior to 1996, buyers with less than a 20% down-payment on a home purchase and homeowners refinancing with less than 20% equity would be stuck with paying mortgage insurance premiums. This payment is variously referred to as MI, PMI, and MIP. This is the additional amount added to your principal and interest payment to insure the lender against a default and loss on your loan. As an alternative to monthly payments for this type of insurance, a process has been developed whereby lenders pre-pay the life-of-loan premium in exchange for a slightly higher interest rate on the loan.
When obtaining a home loan, the borrower and the property are subjected to scrutiny relative to meeting guidelines established by the lender. When the property securing the loan is located in a FEMA designated Flood Zone, most lenders require that flood insurance coverage be obtained through the National Flood Insurance Program. Flood insurance is only available to people with homes located in a flood zone. The cost of flood insurance varies based on whether or not an “Elevation Certificate” (EC) has been obtained certifying that the base of the floor of the home is at least 6” or more above the 100 year flood stage level. A licensed surveyor completes the EC form and files it with the appropriate governmental authority. Obtaining an EC can reduce the cost of flood insurance by up to 80%. If your property is on the edge of a flood zone and you believe that it is incorrectly classified by FEMA, follow an application process to obtain a Letter of Map Amendment (LOMA) removing your property from the flood zone. Once this is obtained, you will not be required by lenders to obtain flood insurance.
When refinancing your home loan, the new lender must obtain an update to your homeowner’s insurance policy showing their name as the loss-payee. As part of the loan approval process, insurance agents are asked to provide evidence of an updated policy and applicable renewal if needed showing such items as loss limits, deductibles, annual premiums, and amount owed, if any. Lenders require that the amount of coverage shown on the policy equal or exceed the replacement cost shown on the appraisal associated with the loan. The insurance policy expiration date must also extend 30 days or more past the first payment date on the new loan. Condominium owners must provide proof of blanket coverage for the buildings from their association as well as proof of an individual insurance policy covering the contents with a minimum coverage amount of 20% of the appraised value.
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All home loans require documentation to help demonstrate the creditworthiness of the borrowers. At the beginning of the loan process, your home loan professional will ask you for all of your income, asset, property and any other type of relevent paperwork needed for your loan submission. Once your file is reviewed and approved by an underwriter, you may be asked to supply additional paperwork to help clarify any questions that came up during the initial approval process, and possibly again be asked for paperwork prior to closing your loan. These steps are a tyical part of the process for a lender to ensure salability of your home loan.
Any time a home loan is paid off in full, the paid-off lender is supposed to prepare and record a “reconveyance deed” with the County Recorder acknowledging the full payment, releasing the obligation. In years past escrow and title companies had people dedicated to following up on paid-off loans to ensure this vital step had occurred. Few escrow and title companies still perform this function, potentially creating problems for the original borrower. Although they are paid-off, loans without the required “reconveyance deed” recorded can cause significant delays to both sale and refinance transactions. Whenever a real estate loan is paid in full, follow up to make sure that a written confirmation is received within 30 days of the full payment.
Unbelievably, 44% of the net worth in the United States is tied up in real estate. If people think differently about their property, they can improve their financial circumstances, increase their income, and invest in their community through a charitable donation of real estate. The benefits to you can be substantial with a charitable gift of real property, creating an income stream if a charitable trust or charitable gift annuity is created, simplifying your estate. If you’re interested in learning more, contact a licensed financial advisor who can help you explore the many options for gifting real estate, reducing taxes, and helping your community.
Many homeowners have a line of credit secured by their home as a 2nd mortgage. When deciding whether to refinance your 1st mortgage, you must decide what to do with the line of credit. Your options include (1) paying the balance off and closing it (2), keeping the credit line in place with the balance unchanged, or (3) keeping the credit line in place with a partial or full pay off of the balance. Options 2 and 3 involve a process called “subordination,” and are accomplished by application with and approval by the current lender. It can take a few weeks, can require that a fee of up to $300 be paid, and can result in the credit line amount being reduced.
Most homeowners with home loans that exceed the value of their property are having a tough time dealing with declining interest rates and home values, since they are stuck with their original loans. Most of these loans have higher than current market interest rates and many of the homeowners have experienced declining income, causing severe financial hardship. Most attempts at refinancing or obtaining a loan modification to a lower rate have not worked. There is a new government program aimed at helping these people lower their payments and stay in their homes. Log on to the internet website www.makinghomeaffordable.gov or call 1-888-995-HOPE to see if you qualify for assistance.
Prior to securing an interest rate-lock for your home loan there are a few simple steps. You will need to supply income documentation and authorize accessing your credit history. If you are buying a home, you will need to provide evidence of your assets to be used for the down payment and closing costs. Your home loan professional will collect and analyze your data, and if it is determined that that your loan will be approved, you will be eligible to lock-in, protecting your interest rate from increasing, with a specific cost and expiration date.
