Is the Dallas Real Estate Market in Trouble?

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Dallas, Texas

 

A recent headline in the Dallas News proclaimed: “Homebuyer interest is cooling off, Realtors’ top economist says.”

That does make it sound like trouble, but in some ways “cooling off” is good news, not bad news. For a few years we’ve had double-digit price gains, and as we saw when home prices rose by about 50% from 2000 to 2005, that can lead to trouble.

Now home prices are increasing at a more traditional rate of about 5%.

We’re simply in a period of adjustment. The number of homes sold per month has slowed, but here in Dallas – Fort Worth we’re still selling more houses than in years past.

What’s causing this slow-down? Economists suggest that increasing interest rates may be a factor. While 30-year fixed rate mortgages are still hovering around 4.7, many buyers had come to expect less and still hold out hope that rates will drop. Unfortunately for them, it appears that the bottom has come and gone – the expectation is that mortgage interest rates will rise to 5.5 by late 2019.

Should this be a worry? It’s a concern, but as we’ve seen over the decades, homebuyers’ expectations will adjust. As difficult as it is to envision today, during the 1980’s, people paid 10, 12 and even 16% interest for home mortgage loans. The fact is, there will always be those who prefer owning to renting. And of course, as interest rates rise, rental rates will also rise.

Another factor might be buyer fatigue. Many homebuyers have placed multiple offers on homes and have been outbid. Others have been unable to qualify for the homes they want and are unwilling to “settle” for a home at a lower price.

Lawrence Yun, economist for the National Association of Realtors was quoted as saying that sales have slowed slightly across the country. He also mentioned that home buyers “…are frustrated abut a lack of inventory,” but noted that the number of homes for sale in North Texas is growing, and that Texas has one of the most solid home markets in the country.

Why is Texas doing so well? We can thank the economy and the strong job market.

Texas is leading the country in terms of job growth. Dallas-Forth Worth has created more new jobs in the past 5 years than any other major metropolitan area in the U.S.

That, of course, is good news for the housing market in Texas. As long as there are jobs to be had, the population will grow, and every one of those workers needs a roof over his or her head. The other bit of good news is that in spite of rising prices, ours is still one of the most affordable markets in the country.

We may see a temporary lull in the housing market, but no, the Texas real estate market is not in trouble.

If you’re ready to find your new home in Texas, get in touch with Homewood Mortgage, the Mike Clover Group. We’re known for fast, friendly service, trouble-free closings, and the lowest rates and fees available anywhere in Texas.

We’d be pleased to get you pre-approved so you can begin that Texas home search with confidence.

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Mortgage Fraud is a Serious Offense – Could YOU be Guilty?

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"Mortgage application form with a calculator, pen and globe"

Mortgage Fraud is a growing concern for law enforcement, as it climbed 12.4% year over year in the second quarter of 2018. CoreLogic reported that about one of every 109 mortgage applications now contains some kind of false or misleading information.

Considering that the punishment can result in up to 30 years in federal prison and up to $1 million in fines, this is a staggering revelation.

Mortgage fraud may be for profit or for housing, but either way it is illegal.

The most severe penalties go to executives who securitized mortgage-backed investments, real estate practitioners, and loan officers who encouraged or helped perpetuate fraud. However, home buyers who engage in fraud either willingly or without their knowledge, also put themselves in danger of prosecution.

How can a home buyer engage in mortgage fraud?

This is a valid question, since lenders scrutinize a borrower’s credit, employment, bank accounts, etc. before granting a loan.

The 6 most common types of mortgage fraud perpetrated by consumers are:

  • Income fraud
  • Failure to disclose debt
  • Occupancy fraud
  • Transaction fraud
  • Property fraud
  • Identity fraud

As you might assume, some types of fraud rely on cooperation from other individuals. In some cases, more than one type of fraud is perpetuated.

For instance, to commit Income Fraud, someone else must verify income that doesn’t exist. Some borrowers do create bogus self-employment information, but this requires an investment of time and money as well as deceit. Lenders typically want to see 2 years of income tax returns to verify self-employment income.

Occupancy fraud is easier, as the borrower simply needs to state that this will be a primary or secondary residence. If borrowing for investment property, he might need cooperation from someone who is willing to sign a fraudulent lease agreement. Occupancy fraud could also involve the use of a “Straw man” buyer.

Undisclosed debt could be in the form of a personal note between friends, relatives, or the borrower and seller or real estate agent. It could also be an unreported real estate transaction between private parties. Private lenders don’t often pay the fees to report to the credit bureaus.

Transaction fraud could include anything from an undisclosed agreement between the parties, a non-arms-length transaction, use of a straw buyer, or falsified down payments. A personal loan for the down payment, for instance, might be disguised as the legitimate sale of personal property.

Property fraud involves misrepresenting information about the property or its value. While this might be made more difficult since appraisers are chosen at random by the lender, it would not prevent an apartment owner from falsifying rental income in order to make the property more attractive to a lender.

Identity fraud occurs when an applicant uses a false identity or alters his or her identity or credit history.

Considering the inventiveness shown by those perpetuating scams, these are but a few of the ways that borrowers and professionals involved in the real estate industry can commit fraud. To see a partial list of cases that resulted in Federal charges/penalties, visit https://www.fbi.gov/investigate/white-collar-crime/mortgage-fraud/financial-institutionmortgage-fraud-news.

Avoiding mortgage fraud may seem simple – all you have to do is tell the truth on your loan application. However, some borrowers have been led into fraud by real estate agents or loan officers who assured them that it was fine to lie a little. For instance, they might be encouraged to state that they gave the agent cash earnest money to be applied to the loan, when in fact it was a promissory note.

Some borrowers have been involved without their knowledge. How? By failing to carefully read the documents they signed and failing to make sure that every blank was filled out – and filled out accurately.

When you want to purchase or refinance a home, call on the Mike Clover Group at Homewood Mortgage. We’ll get you pre-approved using honest numbers, so you need never fear being caught in mortgage fraud.

We’re known in Texas for our sterling reputation, friendly service, low fees, and fast closings, so get in touch today.

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If You Need a Co-signer: Things to Consider

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You may have the ability to make monthly mortgage payments, but lack the ability to prove it to a lender. If so, you might consider getting a co-signer to enable you to get a mortgage loan.

When you purchase a home to live in, you become an “occupying borrower.” In some cases a co-signer may be someone (such as a parent or child) who will live with you, but won’t be listed on the deed as an owner of the home. However, in most cases, a co-signer is a relative or friend who co-signs for the loan, but does not reside in the home.

Regardless of residency, both parties become co-credit applicants, and both take on the financial responsibility for making payments on the mortgage loan.

Co-signers and the debt-to-income ratios.

As you may know, your mortgage approval is determined in part by your debt-to-income ratio, or DTI. This is a comparison between the money you have coming in and the money you must spend each month to pay your debts, including car loans, student loans, credit card payments, child support payments, and your mortgage payment.

When you have a co-signer, the ratio will be applied to both of you, and the results will be blended. It will be no benefit to you to choose a co-signer with high debts relative to his or her income.

Co-signers and credit ratings.

Even if your co-signer has a large income and little debt, if his or her credit scores are low, it won’t be much help. Remember that when two or more people purchase a home, the bank typically looks most closely at the borrower with the lowest credit score.

The risk to the co-signer

This should be obvious…when you co-sign a loan, you take responsibility for the payments on that loan.

If something happens to the occupying borrower and he or she cannot or does not make the mortgage payments, the burden will fall on the co-signer. If you have a co-signer and fall behind on your loan, your credit score and your co-signer’s credit score will suffer equally.

The risks to you as the occupying borrower

Unfortunately, there are those who would co-sign your loan only to profit by your purchase. Think of the home seller or the builder/flipper/developer. Even more unfortunately, these are sometimes people who not only expect you to fail in making payments, but hope that you do, because they can pay off the loan, assume ownership, and sell the house yet again.

The best idea might be to wait just a bit…

Tighten your belt, pinch those pennies, pay every obligation on time, and get yourself in a position where you not only have a good down payment, but a credit score that will afford you the best interest rates available. Then choose a house with payments that fit comfortably within your monthly budget.

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Planning to Buy a Home: Do You Know Your Debt-to-Income Ratio?

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When you’re planning to buy a home, one of the factors that will determine whether or not you’ll be approved for a Texas home mortgage loan is your debt-to-income ratio (DTI).

What is a DTI, and how is it determined?

This is the number that reveals what percentage of your monthly income goes directly to pay debts, before you begin paying for other necessities such as food, clothing, fuel for your vehicle, etc.

To calculate that number, you simply divide your monthly debt by your monthly income. Not surprisingly, a monthly mortgage payment will probably be the largest item in the debt column.

As an example: If your monthly income is $6,000 and your monthly debt is $2,000, you have a 33% debt to income ratio. ($2,000 divided by $6,000.)

On the debt side, list all of your monthly debts, including credit card payments, installment payments such as the monthly payment on your car, student loans, alimony, and child support payments. When calculating credit card payments, use the monthly minimum, even though you may be paying more in an effort to eliminate debt.

Since you don’t yet have a mortgage payment, your lender will first calculate your DTI without the mortgage payment. Then he or she will do a second calculation using the projected payment on your new mortgage loan, including taxes, homeowners insurance, and mortgage insurance.

Your credit report will show most of the debt you owe, but you may also be asked to show credit card statements or installment contracts. Do NOT acquire any new debt once your lender has calculated your DTI. Your credit report will be checked again just prior to closing, and new debt will either cause your interest rate to rise or cause the loan to be denied.

On the income side, list your wages or salary and any verifiable income from part-time jobs, self-employment ventures, alimony, and income producing assets such as real estate or stocks.

To verify income, your lender will need to see recent pay stubs and W-2 forms for the past two years from all of your employers. To verify self-employment income and income from assets, you’ll need to show tax returns and bank or brokerage statements. You may also need rental agreements.

Debt-to-income ratios are calculated on your pre-tax income, not the actual dollars that go into your pocket.

The lower your DTI, the better your lender will like it.

Why? Because the Consumer Financial Protection Bureau says that consumers with high debt to income ratios are the most likely to fall behind on mortgage payments or lose their homes to foreclosure. A prolonged illness or accident that prevents work can spell financial disaster.

Low debt-to-income ratios say you can probably keep making your mortgage payments even if your income takes an unexpected drop.

Of course the risk is tied to the income. Consider that at 50% debt-to-income, a person earning $15,000 per month has considerably more disposable income after debt service ($7,500) than a person earning $5,000 ($2,500).

What is an acceptable debt-to-income ratio? Some lenders quote 36%. Others say 43% is the cut-off point.

Here at Homewood Mortgage, the Mike Clover Group, we don’t have a cap on DTI.  Whatever the software will accept, via Freddie Mac and Fannie Mae, we will do. We typically see Texas home loans getting approved up to a 50% debt to income.

Before you begin shopping for a home, contact us at the Mike Clover Group. We’ll help you get pre-qualified so you can make a solid offer on that Texas home.

We’re known all over Texas for our friendly service, low fees, and fast closings, so get in touch today.

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4 Steps to a successful Texas home mortgage loan

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In spite of what the ads promise, getting a home mortgage loan is not as simple as clicking a mouse or making a quick phone call. And no, it can’t be done in one day.

Step #1: Become pre-approved for your mortgage loan before you go shopping.

When you want to purchase a home in Texas (or anywhere else) the first step is to become pre-approved for your mortgage loan. Note that I didn’t say “pre-qualified.” They are two different things, and only the pre-approval has meaning.

A pre-approval is an actual commitment from a mortgage lender to fund your home purchase up to a set limit. It is also your shopping guideline and will save you from the heartbreak of falling in love with a house you cannot buy.

This commitment will remain in place as long as your financial status doesn’t change between the time of the approval and the closing on your home purchase.

In order to become pre-approved, you’ll have to provide your lender with:

  • Two years of federal tax returns
  • Two years of W-2 forms from your employer
  • Pay stubs from the past 30 days, showing your year to date income
  • 60 days or a quarterly statement of all your asset accounts. This would include checking and savings accounts, investment accounts, stocks, and bonds.
  • Information on all real estate you currently own.
  • Residential history for the past two years: proof of mortgage payments made or rental receipts and landlord contact information.
  • Proof of down payment funds.
  • Information regarding your financial obligations.

The lender will also access your credit history and learn your credit scores.

Step #2: Find a home, get an offer accepted, and pass the home appraisal.

Before a lender will agree to finance your home purchase, they’ll want to be assured that the house is actually worth what you’ve agreed to pay. The house will serve as collateral for your loan, so they want to know that they can re-sell it for enough to cover the loan should you default on payments.

Your lender will order the appraisal, which will hopefully come in at or above the selling price. If it comes in high, that’s wonderful! You’ll be gaining instant equity.

If it comes in low, you have 5 choices:

  • You can negotiate with the seller to lower the price down to meet the appraisal.
  • You can make up the difference in cash out of your own pocket.
  • You can appeal the appraisal. Perhaps your agent or the listing agent can provide the appraiser with newer or better comparable market data, which would justify the price you’ve agreed to. If you file an appeal, the appraiser will be obligated to take another look. Do be warned – appraisers don’t appreciate having their judgement questioned.
  • You can order a second appraisal. If the initial appraiser isn’t willing to adjust the outcome, but you and the agents involved think the price is right, you can get a second opinion. It may be that your first appraiser was prejudiced about the neighborhood, just didn’t like the house, or was non-local and really didn’t know the comparables. The problem with getting a second appraisal: You’ll have to pay for it a second time.
  • You can walk away. Maybe you’ve come to agree with the appraiser and the sellers aren’t willing to lower the price. If so, it’s time to start over.

Step #3: Get through underwriting – Do nothing to alter your credit score or your financial position as you wait for your purchase to close.

I can’t tell you how many prospective home buyers have destroyed their chance at home ownership by doing something foolish at this time.

They seem to think that an approval is a one-time thing. It is not.

In fact, your credit score will be checked again just prior to closing. If you’ve done anything to change it, one of two things will happen:

  • Your interest rate will change
  • Your loan will be denied

With this in mind:

Don’t open any new credit accounts or even let a retailer check your credit scores. Don’t make any large purchases that have to be financed. Remember that your scores are based in part on how  much credit you’re using.

Don’t close old credit accounts. Again, your scores reflect how much of your available credit you’re using. 30% of less is good. If you have unused credit cards, they increase the credit available. If you close them, your debt to credit utilization will increase – making you appear to be a greater risk.

Do make every payment on time. Even one late payment can reduce your credit score dramatically. Don’t let it happen!

The underwriter will also review the appraisal to make sure it does match the loan you’re requesting, and he or she may contact your employer to verify that you are still working at the job and at the income you’ve listed on your loan application. Some will also re-verify the bank balances you had when you were pre-approved.

In other words – your pre-approval will only stand if you have not done anything foolish prior to closing.

Step #4: Carefully review the closing disclosure form

By law, your lender must provide you with a closing disclosure at least three business days prior to closing. This is a follow-up to the good faith estimate you received upon application.

The closing disclosure outlines the financial details of your home purchase, so you need to make sure that everything is correct and “as promised.” A REALTOR® Association survey revealed that approximately 50% of agents have found errors on closing disclosures, so take this responsibility seriously.

With your good-faith estimate in hand, sit down with your agent and compare it to the closing disclosure. Check and triple-check that the following are accurate:

  • Your name(s). Are they spelled correctly? Are they consistent throughout all documents – as in, did you use a middle name in one place and a middle initial in another?
  • The loan type. Is it fixed rate or adjustable? If adjustable, is the adjustment period correct?
  • The loan term. Is it 15 years, 30 years, or something else?
  • The interest rate. Is this the rate you were quoted?
  • Cash required to close – are the down payment and your share of closing costs accurate?
  • The loan amount. Do the numbers add up?
  • Estimated monthly payment.
  • Estimated taxes, insurance, mortgage insurance, etc.

If you find an inaccuracy in any of these, contact your lender immediately. Remember that once the errors are corrected, the clock will re-set and you’ll have to wait 3 more days to close. If you were only 3 days out from closing, your agent will need to contact the seller’s agent to get a closing date extension.

Are you ready for that pre-approval?

If so, and if you’re planning to buy anywhere in the great state of Texas, we at Homewood Mortgage, the Mike Clover Group, would love to help you.

We’re known in Texas for our friendly service, low fees, and fast closings, so get in touch today.

Call today: 800-223-7409

 

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Which is smarter – to buy or build a house?

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Should you buy an existing home, buy a newly constructed home, or have a custom home built?

The relative purchase price of each is one consideration – but only one. And the purchase price is only one piece of the price puzzle.

After doing a bit of research on homeadvisor.com, Realtor.com, Zillow, and others, we find that nationwide, the average price of a newly constructed home in June 2018 was $316,500, while an existing home was only $279,300.

That doesn’t tell you if the houses were similar in size, so upon looking a little further, we learned that the median price per square foot for an existing house in the U.S. was $123, while the median cost of a newly constructed home was $150.

Naturally, the numbers vary from one location to another. You could purchase an existing home in Detroit for as little as $24 per square foot, while the median in San Francisco was $810. New construction will also vary a great deal, since the price of a building lot will vary based on location, size, etc. Labor costs and permit fees also vary widely from region to region.Top of Form

So far, it appears that buying an existing home is less expensive, but what about maintenance and repairs?

Will your newly purchased existing home need improvements right away?

  • Will you be happy to move in without repainting the walls, installing new flooring, or revamping the kitchen or bathroom?
  • Will the roof need attention within a few years?
  • How about the heating and air conditioning systems?
  • How old is the water heater?

If you purchase a newly constructed home or have a home custom built, you’ll have a contractor’s warranty to fall back on if any of the newly installed systems are faulty. Some builders offer a 10-year warranty on their new construction.

Yes, you can buy a home warranty for your “used” house, but the operative word is “buy” and you’ll still have to pay a deductible.

What about alterations?

Few houses are a perfect fit. Will you need to make changes to the existing home you buy? Maybe you’ll want to remove a wall to open up a space. Maybe you’ll want to add a bathroom or a deck.

Most new houses today are built with Internet use in mind. If you purchase a home built 30 or 40 years ago, will it have the electrical outlets you want and need? Will it have the cable connections? Or –  will you be hiring an electrician?

All the changes you make will add to the cost of your home.

Think about the ongoing costs of ownership.

Depending upon the age of the pre-owned home you buy, you may end up paying more in heating and cooling costs. New homes are built for greater energy efficiency, from the insulation, to the type of windows, to the heating and air conditioning units. If your older home came with appliances, they too are apt to be less energy efficient than the appliances you’ll buy for a new home.

One survey reported that homes built after 2000 consume 21% less energy than older homes.

Landscaping

One advantage of purchasing an older home is that the landscaping is probably mature. It may have an established lawn and attractive shrubbery, along with trees for protection from the sun and wind.  The U.S. Forest service estimates that strategically placed mature trees can save up to 56% on air conditioning costs.

Of course, if you buy your own building lot and have a home built, you can instruct the builders to leave a few well-placed trees, but you’ll still have to deal with installing a lawn and other plantings.

The Stress Factor

Most of us think we’d like to design and build our own home, but it isn’t for everyone. Simply getting two or more family members to agree on a floor plan can be stressful. After that come a myriad of other decisions: the flooring, the counter-tops, the fixtures, the appliances, and even the paint colors can be up for debate – and argument.

One more benefit of purchasing an existing home: You can have it right away.

Whether you choose a builder’s plan or contract to have a custom home built, you’ll be waiting a few months before your new home will be move-in ready. It may be worth the wait, but it is definitely a factor to consider.

If you decide to have a home built… Choose carefully.

First, choose a building contractor who comes highly recommended – even if he or she charges a bit more than some of the others. Go see a few of the homes and talk to owners who have occupied them for at least several months.

Choose a building location that promises to remain desirable in the future. Discuss this with your agent.

Choose features and amenities that will stand the test of time. If something seems “faddish” leave it alone. This also goes for colors. Remember the pink and green wall tiles in bathrooms? How about the harvest gold bathroom and kitchen fixtures? They scream “Old house!” and replacing them is an expensive endeavor. (There is a reason why bathtubs are installed in homes during the framing stage – before the exterior walls are closed in or interior walls are sheetrocked.)

Stick to neutral colors for anything that would be difficult or expensive to change when styles change. You can use the “Color of the year” on a wall that can easily be repainted.

The bottom line: While the purchase price of an existing home may be lower, a new home is likely to be less expensive in the long run.

Whether you’re buying an existing home or having one built, Homewood Mortgage, the Mike Clover Group, is here to help with the financing. We offer fast, friendly service, together with the lowest rates and fees you’ll find anywhere in Texas, and we pride ourselves on the lack of red tape connected with our construction loans.

Call today: 800-223-7409

 

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Real Estate and the Supreme Court

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House and Scales of Justice on wood table. Concept mortgage, foreclosure, refinance

While news commentators go on and on about how confirmation of Donald Trump’s pick for the Supreme Court might affect issues like abortion and immigration, there’s been little or no discussion about how it could affect real estate.

In fact, we don’t often think about the Supreme Court and real estate, but it has a huge impact over the years.

Judge Brett Kavanaugh is a conservative and is said to be a strict Constitutionalist. As such, he might be expected to favor less governmental interference in property matters. His record as a circuit court judge seems to support that assumption.

What property-related issues are likely to come before the Supreme Court in the immediate future?

Back in 2005, in Kelo v. City of New London, the court ruled in a 5-4 vote that local governments could use eminent domain to take private land when private redevelopment would benefit the community economically.

While the Supreme Court does not usually reverse its rulings, a case centered on a new aspect of eminent domain could bring about such a reversal.

One such case that is expected to be heard this fall is Knick v. Township of Scott, Pennsylvania. The case revolves around Mary Rose Knick, who challenged a local ordinance requiring her to open her property to the public during daylight hours because grave markers have been found there.

The issue in this case is whether property owners can take their cases directly to Federal courts or must first exhaust all of their legal options in State courts.

Kavanaugh’s vote might reduce regulatory powers.

It’s no secret that he’s not a fan of what he believes is government overreach. One agency he believes has overreached its authority is the Environmental Protection Agency.

If brought before the Court, he could be expected to permanently suspend the Waters of the United States rule of 2015, which placed thousands of acres of wetlands and bodies of water under government jurisdiction.

This rule has, in many areas, prevented the construction of new housing developments and impaired property owners’ rights to make certain improvements on their own land.

Could it become a contest between environmentalists and developers?

Possibly. Developers would be glad to see clearer regulations, fewer required permits, and fewer fees. The result would likely be new communities on land where building is now disallowed.

Environmentalists will likely protest that action – citing the Endangered Species Act and wanting to keep wetlands safe for wildlife.

This year, that issue will come before the Supreme Court in Weyerhaeuser Company v. United States Fish and Wildlife Service. The case revolves around the dusky gopher frog, and private land in Louisiana that some believe is critical habitat for that frog.

While Kavanaugh is not anti-environment, his presence on the Supreme Court could mean a weakening of environmental protections.

Consumer protections could be affected.

Judge Kavanaugh has let it be known that he believes the structure of the Consumer Financial Protection Bureau is unconstitutional. This is the agency that was created by Congress and signed into law by Barack Obama in the midst of the financial crisis.

Kavanaugh believes this bureau wields too much power, especially in light of a director who can only be fired for neglect of duty or inappropriate conduct. Some worry that a lessening of that power could make it more difficult for consumers to bring suit against lenders.

Just as important as the decisions made: Which cases will be chosen to come before the Supreme Court?

You or I can’t just get frustrated and demand that our case be heard by the Supreme Court. It doesn’t work that way.

Cases are presented and the judges decide which they will hear. It takes four of the nine judges to say yes. In other words, the interests and concerns of each judge will ultimately determine the issues that come before the court.

What interests Judge Brett Kavanaugh?

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Is there a lien on your property?

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lien word abstract in vintage letterpress wood type printing blocks

Your first impulse might be to say “Only my home mortgage,” but you could be mistaken. Your home could have a lien that you are not aware of.

Liens fall into four primary categories:

Mechanical liens: These could result from work you had done. Perhaps the contractor didn’t perform as promised and you refused to pay part or all of the bill. He or she could place a lien on your property with or without your knowledge. If you‘ve purchased new construction, the lien could stem from a subcontractor or materials supplier the builder failed to pay.

Tax liens: This could be from unpaid Federal, State, or local taxes, including property tax.

Judgment liens: These are liens authorized by the courts. They could stem from a lawsuit in which you refused to pay another party, unpaid child support payments, medical bills, or unpaid credit card debt. You may not have even been present at the hearing at which the lien was authorized – failure to appear often results in an automatic “loss.” Numerous people in past years have found themselves dealing with this unpleasantness over unpaid gym memberships – when they had unsuccessfully attempted to cancel.

Errors: You may find a lien on your property for a debt that was paid long ago. In one case we found that a mortgage that had been refinanced years earlier had never been cleared from the books. The original lender had been bought out by another bank and the records were in storage. It took several weeks to jump through all the hoops and get that lien released.

In other instances, the error could be simply that: an error.

Before you offer your home for sale, check to be sure there will be no surprise liens on the title when its time to go to closing.

It’s also a good idea to check the status of a home you’re considering for purchase.

Checking is easy…

In many states you can access records on line. Search by address with the county recorder, the county clerk, or the county assessor’s office. In other states you’ll have to visit those offices in person. Call ahead to learn where you should go to do your research.

You can also hire a title company to do the research for you. You’ll probably pay for a preliminary report, then be credited for it when your home is sold and you purchase the actual title insurance.

What if you find a lien?

If the lien has already been paid, you’ll need to contact the appropriate parties and get a lien release. If you have a lien release in your own files, simply take it to the recorder’s office so that it can be filed of record. Then, if closing is imminent, take proof of that to the title company.

If the lien against your property is legitimate, you’ll need to take steps to pay the related bill or to negotiate with the entity you owe.

Should the IRS have a lien, you may be able to negotiate a partial payment and a schedule of future payments in exchange for lifting the lien to let your sale proceed.

If your proceeds from the sale are enough to cover all outstanding liens, you can simply instruct the closer to pay them from your funds at closing.

Liens won’t go away without help…

The bottom line is that no attorney or title company will allow a sale to finalize unless the seller is able to provide a clear title – so the liens will have to be addressed.

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Can Your Mortgage Loan be Assumed by a New Buyer, or Does it Have a Due on Sale Clause?

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The general assumption today is that all loans have a due on sale clause. This is the clause that simply says “If you sell the house, you have to repay the loan in full.” It only makes sense, because the house was the collateral for the loan.

Contrary to popular belief, not every loan is “Due on Sale.”

Conventional loans always have a due on sale clause, but can be assumed under special circumstances, such as death and divorce. In addition, VA, USDA, and VA loans are assumable, but permission to do so isn’t automatic. The new buyer must meet certain qualifications, depending upon the type of loan.

Here’s the breakdown:

VA Loans are assumable in deference to the fact that service members seldom stay in one place for long. However, only buyers who meet income and credit standards may assume such loans.

VA loans that closed before March 1988 were freely assumable, but since it’s now been 30 years, you aren’t likely to find one.

FHA loans may also be assumed by buyers who meet lender qualifications. Only FHA loans that closed by December 1989 are assumable without lender approval.

USDA loans can be transferred with lender approval, and only to buyers whose income does not exceed requirements.

Why would anyone want to assume a loan?

One reason would be to save on closing costs. The new buyer merely pays a nominal fee to assume the existing loan. In addition, no down payment is required by the lender.

The buyer does, however, have to pay the seller for his or her equity. This can be in cash, or via a second mortgage. The catch: second mortgages come at higher interest rates, so any savings could be lost.

Today, because interest rates are low, most would not want to assume a loan. However, in years when interest rates were high, it might have been beneficial. If a seller had a loan at 10% and you’d have to pay 16% for a new loan, you’d be very happy to assume the old loan. The problem, as already noted, might be the amount of down payment you’d need to bridge the difference between the selling price and the assumable loan.

The next pitfall is that unless they get a written release from the lender, the original borrowers will still be responsible for repayment of the loan. Should the new buyer default, the foreclosure will still show up on the old buyer’s credit report.

Exceptions to the rules:

In accordance with the Garn-St. Germain Act of 1982, all lenders are required to allow transfers in specific situations. These situations include:

  • Transfer to a living trust, as long as you occupy the property
  • Transfer from one ex-spouse to another, as long as they continue to live in the house.
  • Transfer from a borrower to a spouse or child
  • Transfer to a relative upon the death of the borrower.

Transfers to a spouse or other relative are relatively simple and are done by making additions or subtractions to the deed. There are no new loan documents and the new owner simply takes over payment of the mortgage.

Living Trusts

Note that one exempt transfer is from the borrower into a living trust. This transfer is a bit more complicated, because first the living trust must be established. This is typically done by a lawyer and involves assets in addition to the residence.

Such trusts are created to avoid the time, trouble, and expense of probate when the owner of the house and other assets dies.

After transfer, the trust officially owns the home. It pays the mortgage as long as it is occupied by the former owner. After his or her death, the title and mortgage are transferred to the beneficiaries.

With today’s still-low interest rates, a new loan is probably the best idea…

If you’re ready to make that home purchase, call us at Homewood Mortgage, the Mike Clover Group. We offer fast, friendly service, low interest rates, and minimal closing fees.

Call today: 800-223-7409

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Down Payment Myths to Ignore

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If you’ve begun saving up for the down payment on a home, and if you’ve mentioned your goal to friends and family, you’ve probably been getting plenty of advice.

Some of it, of course, is good advice. For instance, Mom or Dad might tell you that small savings do add up – so skip the morning stop for coffee and brew yours at home. Also, skip the visits to the local café or deli and take your own lunch to work.

Other advice you’ll get is not so good. In fact, some of it is pure myth. For instance:

You must have 20% down.

Once upon a time that was mostly true. Today it is not. Today’s truth is that if you want to avoid paying mortgage insurance on a FHA or Conventional loan, you must have 20% down.

FHA (Federal Housing Administration) loans require only 3.5% down, while a VA (Veterans Administration) or USDA (United States Department of Agriculture) loan can be approved for 0% down. Conventional loans can also be approved with less than 20% down, but you will pay for Private Mortgage Insurance (PMI).

What is PMI? It’s insurance you buy to cover the lender’s loss in the event that you default. It does not insure your interests in any fashion. The cost, which is added to your monthly payment, is generally ½ to 1% of the loan amount.            On a $200,000 loan with a 1% PMI fee, a borrower would pay an additional $2,000 per year, or $166.67 per month.

It’s smart to pay as little down as possible, even with PMI.

The theory is that even if you have the money to pay 20% down, you should pay as little as possible and keep your cash in the bank for emergencies. There’s some value to that idea, but do calculate the cost before making a decision. That extra $2,000 per year in the example above could be going back into a savings account.

You should also consider the type of loan you’ll be getting.

If yours is a conventional loan, the PMI will “fall off” when your principal balance drops to 78% of the purchase price. If it’s an FHA loan, the mortgage insurance will remain until the house is paid off or you refinance into a Conventional loan with at least 20% equity.

You should never pay more than 20% down.

Some will say “Why pay more than you have to?”

For two very good reasons:

  • First, the less you owe, the smaller your payment will be and the less you’ll pay in interest over the years.
  • Second, making a higher down payment can lower your interest rate, which also means you’ll have a smaller payment and pay less interest in the long run. The interest rate should drop with 25% down, and drop even more if you can pay 35%.

It’s easy to get assistance with your down payment.

Sorry – that’s not true. Assistance can be had in some cases, but it’s not “easy” to locate those assistance programs, nor to qualify for help.

There are no national assistance programs, and there are very few state-run programs. Most are locally run, sometimes by a county or even by a city. The Department of Housing and Urban Development lists a few options, but you’ll have to dig to find them.

It never hurts to ask, however, and a top real estate agent will know about any programs specific to his or her area.

In most cases, you’ll have to be under a certain income to qualify for assistance – usually the median income in your County. Special circumstances, such as single parenthood or employment in specific occupations, may apply. Some programs add additional requirements, such as the number of hours per week you work, or your credit scores.

“No problem – just borrow the money for the down payment.”

This one NEVER works. For one thing, that loan would simply add to your debt to income.

You CAN get help – but it must be in the form of a gift. Depending upon the loan program, your benefactor can provide some or all of your down payment and possibly all of your closing costs.

The rub is that the benefactor must sign a gift letter swearing that the money is a gift, not a loan. Of course you and they can lie – but you do so at your great risk. Lying on a mortgage application is a felony.

The bottom line: If you plan on buying a home in the future, begin building your down payment funds right away.

Mom and Dad are right – small savings do add up, so if you‘re willing to make the effort, you can have that money saved faster than you might think possible.

Most of us do spend money on things that are “unnecessary,” like eating out, going to concerts, and buying that extra pair of shoes that caught your eye.

It’s a matter of deciding what matters most to you. If you’re focused on home ownership as your long term goal, eliminate the unnecessary and watch your bank account grow.

Would you like to know what kind of loan you could get right now, with the money you currently have at your disposal? We at Homewood Mortgage, the Mike Clover Group, would be pleased to chat with you and show you the possibilities.

When you’re ready, we’ll also be happy to get you pre-approved for a loan, so you can shop with confidence.

Call today: 469.621.8484

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