Massachusetts Real Estate News » Mortgages

What is Real Estate Title Insurance

Bill Gassett — Tue, 29 Nov 2011 13:03:48 +0000

Real Estate Title Insurance Explained

When purchasing a home one of the things that buyer’s will be asked is whether or not they want Real Estate title insurance. Often times I find that home buyer’s lament over this decision because of the expense involved. Real Estate title insurance is certainly not cheap!

While title insurance is a one time expense, it can be disturbing for a buyer tight on cash to have to come up with such a large unexpected expenditure. Real Estate title insurance can easily run into thousands of dollars in a home purchase. Unlike other insurance policies there is no monthly premiums with title insurance. It is a one time expense covering the owner until the property is sold.

One of the questions I get asked a lot by my clients is “should I purchase title insurance’?

Let me first explain what title insurance is and what it covers. Real Estate title insurance is a type of insurance that covers financial loss from defects in title to real property and from the invalidity of mortgage liens.

A title policy is put in place to protect an owner’s or lender’s financial interest in a property against loss due to title defects, liens or other matters. The insurance will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the monetary loss incurred, up to the dollar amount of insurance provided for in the policy.

In my experience all major lenders require title insurance to protect their interest in the mortgage secured by real estate. This is called a lenders insurance policy. An owner’s insurance policy is not required but in my opinion is a highly valuable insurance that is risky not to have.

There is an opportunity for a buyer to get a substantial discount when they purchases both a lenders and owner’s policy at the same time. This is called a simultaneous issuance. For an enhanced policy, it runs about $4.00 per thousand based on purchase price + $175.00 in Massachusetts. This is a one time premium paid at closing which lasts the lifetime of the property ownership.

The Real Estate Title Search

Prior to a buyer taking title to a property or completing the “closing”, the lender through which the borrower is getting the mortgage will have a title search done on the Real Estate.

The purpose of the title search is to find any defects in the title. There could be any number of defects including liens, unpaid Real Estate taxes, judgments, unpaid condo fees, or others.

If title defects are found the buyer’s or lender’s lawyer will inform the buyer of such defects and then work towards getting them removed so that a clean and marketable title is given to the buyer.

Title insurance becomes of great value when something is discovered in the future that was not found when the initial title search was done.

A Title search starts with the most recent deed searching the grantees name (the person who holds title) back in time until the deed from which the grantee acquired the property is found.

That grantors name is then searched back in time in the grantees book to find when the grantor acquired the title as grantee. The typical title examination goes back fifty years but title insurance would cover beyond the fifty year search.

Anyone who has not purchased title insurance could surely tell you what a nightmare it can become without it!

Common Reason For Title Insurance Claims

Example of some of the more common reasons for claims against a Real Estate title insurance policy are as follows:

False impersonation of the true owner of the property
Forgery of the deed, releases, or wills
Real Estate fraud
Missing or undisclosed heirs to the property
Any Instruments executed under invalid or expired power of attorney
Mistakes in recording legal documents
Deeds by someone of unsound mind
Deeds by a minor
Misinterpretations of wills
Deeds with misrepresentation of marital status
Liens for unpaid estate, income, inheritance, or gift taxes

For an astute buyer who really thinks about the expense of title insurance the follow up question I get is why do I need it if the lender is going to have a policy anyways?

The easiest way to answer this question would be to ask is what would you do if one of the above title defects were discovered and the attorney who did the title search was no longer in business? While you could certainly sue the attorney for negligence if he was still around practicing; what if he was not? You would have a very large issue on your hands! To be clear an attorney would only be responsible for negligence not the issues outlined above. This is why it is important to have title insurance!

One other important note about Real Estate title insurance:

A federal law called the Real Estate Settlement Procedures Act (RESPA) allows the individual homeowner to choose a title insurance company when buying or refinancing residential property. Most of the time, homeowners do not make title insurance decisions for themselves.

They are typically handled by their lender’s or attorney’s choice; however, the homeowner does retain the right. RESPA makes it unlawful for any lender, attorney, or Real Estate agent to mandate that a certain title insurance company be used. Doing so is a violation of federal law and any person or business doing so can be heavily fined or lose their license.

Section 9 of RESPA denies a seller from mandating a home buyer to use a specific title insurance company, as a condition of the sale. Buyers may sue a seller who violates this provision for an amount equal to three times the cost of all charges related to the title insurance.

Some of the most prevalent title insurance companies are Fidelity National Financial, First American, Land America, Stewart and Old Republic.

In my mind having an owners insurance title policy is a no brainer and is certainly something you should consider unless you absolutely can not afford it! A title policy can be purchased in the future should you not have the funds available at closing time.

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About the author: The above Real Estate information on Real Estate title insurance was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Hopkinton, Milford, Southboro, Westboro, Ashland, Holliston, Medway, Franklin, Framingham, Grafton, Hopedale, Mendon, Upton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, Millbury, Worcester, Sutton and Douglas.

Credit Scoring Impacts Short Sale vs Foreclosure

Bill Gassett — Tue, 11 Oct 2011 11:29:42 +0000

It is probably safe to assume that most consumers like to work with folks they know can be trusted. In Real Estate, like some other businesses there are those that can always be counted on for delivering great advice and others that only care about their own pocket book.

I always tell people some of the best Real Estate agents are those that don’t NEED to make a sale! It makes perfect sense because an agent that NEEDS business is far more likely to tell a buyer or seller something they want to hear rather than the truth.

Short sales unfortunately are a specialized Real Estate transaction where information is often times bandied about with no basis of fact. Many Realtors blindly go around telling people in financial distress that a short sale is better for their financial future because their credit score will not be impacted like going through a foreclosure.

Folks this could not be further from the truth! While there are certainly advantages of pursuing a short sale vs foreclosure, credit scoring is NOT one of them. There will be plenty of Realtors that will read this and argue with me telling me I am wrong.

As a Realtor who is tech savvy and social media connected you will see many of my articles in places such as Linkedin, Twitter and other Real Estate forums.

They will see some of my short sale articles and flat out tell me that I have incorrect information. When I mention the credit scoring impact of a short sale compared to a foreclosure is just about the same they scowl in disbelief. They will tell me I don’t know what I am talking about because they just learned differently at some short sale course their local Real Estate board was putting on. At this point I will be laughing because the people that teach these courses are usually Realtors that couldn’t make it in the business. They teach this nonsense because it is propaganda that helps get Realtors more business.

By now you are probably thinking how do I know the credit scoring impact is similar in these two financially stressful events. You have every right to be wondering! I know because I go right to the source. My FICO is the governing body for credit scoring including what happens in both a short sale and foreclosure.

Short sale vs foreclosure credit scoring impacts

Since I am often getting challenged on the credit scoring impacts by other Realtors and get asked all the time by my clients, I am going to share a very interesting study that was conducted by Fair Issac corporation.

The FICO study took various types of mortgage delinquencies on three credit bureau profiles of consumers that had scores of 680, 720 and 780, respectively. The study focused on consumers whose credit characteristics (e.g., utilization, delinquency history, age of file) were typical of the three score points considered. All of the consumers had an active currently-paid-as-agreed mortgage on file.

Results of this credit scoring study are shown below. The first chart shows the impact on the credit score for each stage of delinquency and the second shows how long it takes the score to fully “recover” after the fact including a short sale or foreclosure.

What you can easily see by this study is that there is a negligible difference in credit scoring when comparing a foreclosure or short sale. While it seems unfair, those that had a higher credit score to start will see a greater scoring drop. In addition, the higher starting score, the longer it takes for the score to fully recover.

While there is a minimal difference in scoring impact between moderate and severe delinquencies, there may be a significant difference in time required for the score to recover completely.

These statistics are right from the guys that make credit scoring. They are not opinions. This is actual data that was put together and sourced by FICO themselves.

Benefits of a short sale vs foreclosure

So what are the benefits of going through a short sale rather than letting a lender foreclose on your property? The biggest advantage is that you will be able to buy another home in the future a lot quicker than you would with a foreclosure. Generally speaking the turnaround time for getting another loan after completing a short sale is two to three years. In a foreclosure it is typically five to seven years. There are a number of circumstances that can affect the time frame including whether the loan is FHA, Fannie Mae or Freddie Mac. For a complete financing guide see buying a home after short sale or foreclosure.

One of the other big factors you need to consider is your employment status. There are a number of large companies that will not hire a new employee that has a foreclosure on their resume. While this may not seem fair with all the financial turmoil that has taken place over the last five years, employers look at a foreclosure as a black mark on your record. In other words when you short sale a property you are owing up to a financial commitment. In a foreclosure you are walking away and taking no responsibility for your debt.

The last reason why more and more will choose a short sale over a foreclosure is just the sheer embarrassment of going through a foreclosure proceeding. In some states an auction is held right on the front lawn of the property. Who wants to lose their home and then have salt rubbed in the wound by watching a bunch of buyers compete over it. This is an unsettling experience for most.

The goal of almost anyone that goes through a short sale or foreclosure will be to improve their financial stability moving forward. Of course improving the impact a short sale or foreclosure had on their credit scores will typically be one of the first areas that people look at once they are back on their feet. There are certain things you can do to help fix your finances after a short sale or foreclosure that are covered in this helpful article.

Unfortunately, sometimes people just don’t realize they have options and just lose their home to foreclosure. Many have never taken the time to do any research and just assume there are no alternatives. A short sale can be a great alternative for some home owners – best of luck if you are one of them!

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holden, Holliston, Hopedale, Hopkinton, Medway, Mendon, Millbury, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Sutton, or Worcester get in touch! I would love to interview for the chance to represent your short sale transaction.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are difficult transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking a Real Estate agent that does not have experience closing short sale transactions.

If you are outside of the Metrowest/Worcester Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on Credit scoring impacts of short sale vs foreclosure was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

A Guide To Mortgage Equity Loan Options

Bill Gassett — Mon, 19 Sep 2011 11:31:04 +0000

When looking to take money out of an existing home or other Real Estate borrowers often have a decision to make on what is the best method to do so.

There are basically three financing options that are available to home owners. These include a cash out re-finance, home equity loan or a home equity line of credit (HELOC). Determining which of these type of loan options will work best basically comes down to what purpose the money is going to be used for.

Unfortunately being in the Real Estate field, I often come across folks who have over extended themselves and find that they have created undue hardships. Going back ten years ago this was not so much of a problem as Real Estate markets around the country were booming and a home was an investment windfall. Every few months the value of homes would continue to rise and did so for over a decade. Of course all good things must come to an end eventually and now we are left with property values decreasing in most areas.

When the economy and Real Estate values are soaring it is hard not to look at a home as a giant piggy bank from which you can tap at a moments notice. When times are tough however, you may regret taking your equity for granted by pulling it out of the home.

Below is a guide to help you determine whether borrowing against the equity in your home via a home equity line of credit (HELOC), home equity loan or a cash out refinance makes the most sense.

Home Equity Line of Credit (HELOC)

Home equity lines of credit work much like credit cards do. As a borrower you are given a credit limit up to which you are allowed borrow. Also similar to credit cards is the fact that the loan is open ended and carries an adjustable interest rate. Home equity lines of credit are tied to the prime rate as a basis to lend money.

Typically borrows can expect to pay the prime rate plus 2% as an example. Like credit cards HELOC’S can be closed by lenders at any point in time. Like any other loan it is prudent to shop around for the best rate and terms. Make sure you only borrow what you can afford as this loan is directly tied to your home and if you can not afford to make payments you could potentially lose your home to foreclosure.

The biggest advantage to a home equity line of credit is you can borrower whatever you need, up to whatever amount the lender has set, whenever you need it. The big draw back however is the lender can shut off the line of credit if the value of your home falls, your credit takes a hit or if the lender just decides they don’t want to offer you credit anymore.

Home Equity Loan

A home equity loan is a form of a second mortgage against your home. The terms of which can vary greatly from a first mortgage. With a home equity loan you borrow a set sum of money at one time and it is paid back over a certain amount of years and interest rate that can vary greatly.

Often times a home equity loan has a fixed interest rate but also could be variable as well. Like either of the other financing options if you don’t pay it back the lender would have the option to foreclose!

Most of the time a home equity loan option is used for a specific purpose where the cost is known ahead of time. For example paying for the kids college education or buying a new car. What you need to decide is whether you would get more favorable loan terms by going this route or by getting an unsecured loan somewhere else such as at credit union or local lender. Sometimes this decision boils down to how conservative you want to be. You may get a better interest rate by getting a home equity loan but is it worth the risk of having it secured against your home?

Some borrowers would say no. If you happen to lose your job and have an equity loan against the family home for $150,000 this may not put you in a comfortable position. You should also check to see if there are any penalties for paying off the loan balance early. A number of lenders will charge a pre-payment penalty fee if you sell the home.

Cash Out Re-finance

A cash out re-finance is when you pay off your existing loan and get a new loan for the old mortgage balance plus whatever additional amount you need to borrow plus any closing costs. If the cash out refinance interest rate is lower than the existing mortgage rate, this option is probably going to be the best route to take. Most of the time you are going to be able to get a better interest rate with a 1st mortgage than going to the 2nd mortgage option. It is likely cheaper to borrow this way than having the combination of two mortgages. This is especially true when fixed rate mortgages are very low.

Nowadays when getting any type of mortgage it really makes sense to look over your ability to pay it back. The last thing you want to do is find yourself in an uncomfortable financial situation. Carefully studying the above home equity mortgage scenarios to determine which fits your situation best is a good business decision!

Increasing a Credit Score With Home Finance Tips

Bill Gassett — Mon, 07 Mar 2011 12:19:15 +0000

Credit scores can have a dramatic effect on a borrowers ability to get the best rates for many types of financing including a home mortgage and a car loan.

If your credit score does not meet minimum standards you may not even have the ability to get a home mortgage period!

There are a number of factors that the credit bureaus use to calculate your credit score. One of the most important factors they use is your past payment history which generally accounts for 35% of your credit score. In the mortgage article how to improve a credit score, all the various ways you can achieve and maintain a great credit score are discussed. If you pay attention to these credit scoring factors you will be well on your way to achieving an exceptional credit score.

When it comes to your home there are ways to improve a credit score with specific home finance tips.

Pay Your Mortgage On Time

It goes without saying that paying your bills on time is a must if you want to have excellent credit. Above all else you want to make absolutely certain you pay your home mortgage when it is due. As mentioned above, past credit history is a critical factor on how you be viewed by a lender when applying for financing.

There is nothing that will hit your credit harder than a missed mortgage payment. Credit scoring agencies will look at a missed mortgage payment in a far more negative light than a missed car or credit card payment. If at all possible you should always consider making your mortgage payment before other bill that are due.

Check Your Credit Report For Errors

While working in the Real Estate industry for many years as a Massachusetts Realtor I have had the opportunity to see 1st hand that it is easy for credit bureaus to make mistakes on a persons credit report. Do you realize that a credit report error can cost a borrower some serious money? With a mistake on your report your credit score will be negatively impacted. This makes it vital that you periodically check your credit report for errors but certainly before you try to refinance a mortgage.

If you find an error in your credit report you should make certain that you get it corrected right away! Here are the necessary steps you need to take in order to fix credit report errors. You will want to make certain the errors are corrected before applying for financing.

Postpone Financing Until Your Credit Is In Order

Depending on whether you have discovered a credit report error or had a legitimate blemish on your record in the past could be a reason for postponing a refinance. Removing a credit report error can take a little bit of time but could be worth it in the long run if you factor the difference in rate you will pay without the correction. Unless mortgage rates are climbing dramatically and locking a mortgage rate makes more fiscal sense, you will want to get your financial house in order 1st.

Sometimes there can be unpaid bills that took place a long time ago that come back to haunt you especially if they were turned over to a collection agency. Something as small as a $50 unpaid phone bill could come back to bite you in the form of a higher interest rate on your loan. Just a 1/4 point difference in rate could translate into thousands of dollars over the life of the loan. The good news is that as time goes by the blemish becomes less important in scoring factors.

Paying Off 2nd Mortgages and Equity Lines of Credit

On the surface it may seem like paying off a 2nd mortgage or home equity line of credit (HELOC) is a good idea but it may not be, at least in terms of a credit score going forward. Your credit utilization or what you owe your creditors makes up 30% of the scoring factor that credit companies use to determine your score.

The closing of existing revolving accounts will typically adversely affect the ratio and therefore have a negative impact on your FICO score. You may want to consider lowering the balance but not paying off the loan in one shot.

Pay Your Property Taxes and Utility Bills On Time

If you find that you are strapped for cash there are certain bills that should always be paid 1st such as a mortgage, car loan and credit card bills. It makes sense to pay these bills 1st because they will have the greatest impact on your credit score. This however, does not make paying your property tax and utility bills on time unimportant.

The good news is that it will usually take a serious delinquency before missed payments are reported and negatively impact your credit score. Most of the time late payments on your property tax bill won’t effect you at all, as these are not reported to the credit bureaus unless a lien is placed on your property.

Always keep in mind how you manage your home finances affects your ability to refinance and get the best mortgage rates!

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About the author: The above Real Estate information on Improving a credit score with home finance tips was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

Fannie Mae Mortgage Interest Rates & Costs Rising

Bill Gassett — Sun, 30 Jan 2011 16:48:21 +0000

Guest blogger Michael Dunsky from Guaranteed Rate is back again to take a look at the recent announcement by Fannie Mae that a borrowers costs and/or interest rate will be rising in the near future.

Michael comes to the Massachusetts Real Estate blog on occasion because of his extensive knowledge on what is going on in the world of finance and mortgages.

More Bad News For Borrowers With Fannie Mae Backed Loans

Fannie Mae’s recent announcement indicates that on April 1, 2011 they are implementing a higher interest rate to borrowers even if they have a perfect credit score. This change is being implemented for any loan term over 15 years. Freddie Mac will also make fee structure changes as of March 1st.

They call this a Loan Level Price Adjustment (LLPA) and this means that borrowers are going to be charged more in the form of cost or higher interest rate based on a combination of how much down payment or the amount of equity in their home if they are refinancing, as well as their credit score.

Basically, the LLPA is Risk vs. Reward for the banks. This is nothing new as Fannie Mae and banks have been doing this for years and continue to reevaluate every so often. The higher the risk of the loan, the higher the cost will be. This is not all that unreasonable. They should charge more for riskier loans! It makes sense that the less qualified a borrower is, the higher the cost of their loan should be.

What doesn’t make sense is that these new changes NOW impact borrowers even with perfect credit!

Here are some of the highlights or low lights as some refer to them:

Someone buying a home with credit OVER 740 with 25% or lower down payment will now pay approx .125% more in rate.
A borrower with a credit score over 740 refinancing to 80% of the value of their home and taking out additional cash can expect to pay an additional .25% higher in rate.
Anyone buying or refinancing a condominium (excluding detached condos) with less than 25% down payment (or equity) can expect an increase in rate of almost .5%!

Since the announcement from Fannie Mae most investors have already, or are about to implement the new pricing. Borrowers without larger down payments will see slightly higher rates. For those with lower credit scores, they can expect much higher rates.

This move by Fannie Mae is just a means of trying to become more profitable after the mortgage meltdown. The government a.k.a us taxpayers have spent billions trying to keep Fannie Mae and Freddie Mac afloat. With 2011 expected to be another big year in foreclosures, the losses are expected to continue to mount. Passing the mortgage costs on to borrowers should partially stem the tide.

Now, here’s the good news. There are other financing options that may not be as costly as the new LLPA brings. One solution for a borrower with less than 20% down is to take a closer look at FHA financing. FHA may in fact, be less costly given the LLPA changes. See a comparison of some of the differences between a conventional loan vs an FHA loan.

Don’t forget that if you are purchasing a property that needs some improvements the 203k rehabilitation loan is a terrific option! The 203k rehab loan is a simple program that opens the doors for the average home buyer to receive money to fix up a home the way they would like it. Maybe you are looking at a short sale or foreclosure home or any property for that matter that needs a little bit of TLC.

Another solution to a borrower with greater than 20% down would be to look at a second mortgage to reduce the loan to value and thus, higher interest rate.

The LLPA changes are certainly not favored by anyone but loan officers hands are not completely bound. There are financing options that may be available to help offset the cost increases forthcoming.

Home buyers shopping for mortgages should be aware of these fee increases and take them as a reminder of how important it is to maintain the best credit score possible. For some borrowers looking for a loan it might make sense to put off obtaining a mortgage until they have improved their credit score. See how to improve a credit score to make that a reality.

Take the time to find a licensed, reputable, experienced loan officer. He or she will certainly have the knowledge and ability to structure the best financing option for their clients given the ever-changing mortgage climate that we are in. Besides a lower interest rate a good mortgage broker can show you some of the better reasons to refinance a mortgage.

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About the author: The above Real Estate information on Fannie Mae Mortgage Interest Rates and cost rising was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

203K Rehabilitation Loan

Bill Gassett — Mon, 13 Dec 2010 14:48:20 +0000

Guest blogger Michael Dunsky from Guaranteed Rate Mortgage is back to take to help review a popular mortgage program known as the 203k rehabilitation loan.

The landscape of the housing market all over the country has changed drastically over the last few years. Foreclosures and short sales have become the norm not the exception. Many of these distressed properties that have been entering the market are not in the best of shape.

Some of them need a major overhaul! They have however, created opportunities for buyers who are looking to invest the time and effort to fix them up either to turn around and resell them or to live in as a permanent residence.

As such, the 203K rehabilitation loan is a terrific mortgage vehicle for those buyers who would like to invest in repairs and improvements in a property. The Federal Housing Administration (FHA) which is a part of the Department of Housing and Urban Development (HUD) is the party in charge of administering various single family mortgage insurance programs.

The 203K is the primary program for the repair and rehabilitation for single family properties.

The 203K rehabilitation loan program is run through FHA approved lenders which submit applications from buyers to have the property appraised and have the buyers credit approved just like in a conventional loan process. The difference is that these lenders fund the mortgage loans and the Department of Housing and Urban Development insures them. HUD does not make direct loans to borrowers.

If you have not had the pleasure of your buyer’s financing with a 203(k) renovation loan then just wait, because soon enough you will. With all of the distressed sales and foreclosure properties abundant, it’s likely that soon you’ll run into that home that needs either a little TLC or some major renovations. Either way, the 203(k) loan is a great financing tool to help a buyer restore a home.

The 203(k) program was originally designed by FHA to help with neighborhood revitalization and is a fantastic loan opportunity to buy a home and put in a new kitchen, bathrooms, update electrical or plumbing… almost any major and minor improvement you want. There is really nothing else available that allows for the flexibility that this program offers. It’s a simple program opens the doors for the average home buyer to receive money to improve a home.

I love this loan for a few reasons: First, the down payment requirements are minimal (only 3.5% of the acquisition cost which is the purchase price plus the renovation costs). What bank do you know of that will give a construction loan to someone putting less than 10% to 20% down? None! And the second reason I love this program is credit. You know that credit score tightening has been big show stopper for many looking to buy a home, let alone buy and finance renovations.

A low FICO score can prevent a home purchase, especially a home purchase with less than 20% down as most mortgage insurance companies have minimum FICO score (some even have their minimum at 680!). Most lenders will usually allow a score of no less than 640 for the 203(k) but some may still allow a score as low as 620.

Please be aware that if a lender you know is allowing a 620 credit score now then be prepared to see this increase to follow current industry standards of 640.

I also like the fact that with 203(k) you have two options – the Streamlined K as some call it, and the Full K. The real difference between the two are that Simple K allows only up to $35,000 for renovations and have a caveat that improvements cannot be structural in nature. The Full K allows for any permanent improvement and no limit as to the amount as long as the loan does not exceed the maximum loan amount for that county determined by FHA.

There are a few other differences in paperwork between the two types of 203(k) loans but the premise is the same… 203(k) helps move inventory! If you’re sitting on listings or have buyers looking for a fixer upper then the 203(k) is definitely the way to go!

If you are looking for a Massachusetts 203k mortgage or any other loan product for that matter and want to work with someone that is very knowledgeable, has great service skills and competitive rates, I would give Mike a call!

Michael Dunsky can be reached at Guaranteed Rate, Inc which is located at 38 Pond Street, Suite 208 Franklin, MA 02038

Phone 508.528.1800

Michael.dunsky@guaranteedrate.com

Other Real Estate articles worth a look:

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About the author: The above Real Estate information on 203k rehabilitation loans was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

Great Reasons to Refinance a Mortgage

Bill Gassett — Tue, 26 Oct 2010 11:55:19 +0000

Reducing your interest rate

When interest rates are at record lows it creates an environment that is ripe for refinancing a home mortgage. There is no question that a mortgage on a home is usually one of the largest financial obligations that you will have in your life.

It stands to reason that if you can cut your interest rate you will save a bundle of money of the life of the loan. Besides reducing an interest rate there are a number of other reasons to consider refinancing a mortgage.

Changing your mortgage term

When a home owner refinances most of the time it is because they able to get an attractive interest rate. One of the considerations when rates are really favorable is the ability to also cut the mortgage time substantially for the loan and not have your payments change all that drastically. You could have the term of your mortgage go from 30 years down to 15 or 20 years and in the process not only will you be cutting time off the loan but also decreasing your interest costs. When cutting the term of your mortgage you will also be building equity in the property much faster because more of your payment will be going toward the principal instead of interest.

If you look at a 30 year mortgage it is incredible to see how much money you are actually paying the lender in the early stages of the loan. It is enough to make your head spin. Going to a shorter term mortgage saves an incredible amount of interest!

There is also the possibility you may have started with a 15 year loan and now realize that it is difficult to make the payments every month as well as keep up with the rest of your bills. If this is the case going from a 15 year mortgage to a 30 year mortgage may make financial sense. See getting the best mortgage home loan program for considerations on which loan product may suit your needs best.

Taking out cash

There are times in life where something unexpected may occur and you may really need some money badly. You may not want to cash out of other investments such as stocks or CD’s due to penalties or tax ramifications. Refinancing a mortgage can sometimes be the a great alternative especially if money is cheap.

A cash out refinance could also make sense if you want to make an improvement on your home but don’t want to take out a home equity loan creating a 2nd mortgage on the property. Maybe you want to purchase a new vehicle and would rather not finance it from another lending source. These are all reasons that make sense for a cash out refinance. Just make sure you don’t blow this money and put yourself into a financial hole.

Changing from an adjustable rate to a fixed rate mortgage

Sometimes when a borrower purchases a home they can’t qualify without going with an adjustable rate mortgage which typically offer lower rates than a longer term mortgage. If you can grab at the chance for additional security of locking in a great long term interest rate why not!

Often times when buying a home the borrower may opt to go with an adjustable rate mortgage if they feel they will not be staying in the same home that long. If circumstances change and you feel you will be staying put going to a fixed rate with long term emotional and financial security may be of great benefit.

Going through a divorce

Divorce of course is something that most people don’t plan for but can become an unfortunate circumstance of ones life. There is always the possibility that one of the spouses will keep the home and the other could be bought out of the property. If this happens to be the case a refinancing is a solution to get the property into one mortgage holders name. The other spouse gets the cash from the refinance.

There is quite a bit to think about when going through a divorce. See divorce and selling Real Estate for a summary of some of the things to consider.

Consolidation of two mortgages

If you read the newspaper or watch the news and are hearing that interest rates have become very attractive one of the things you may want to consider if you have a home equity loan or other 2nd mortgage to refinance into one loan. Not only is it more convenient to get one statement from one lender every month but you will more than likely get a better rate with one lender.

As a Realtor who has been practicing Real Estate for almost twenty five years and being associated with the mortgage industry, I can tell you with certainty that it makes sense to shop around and speak with a few lenders. You need to be careful not to just shop the interest rate but the whole package including the points you will be charged and the closings costs. While one lenders rate may look great on the surface it could be because there are higher fees or points attached. Above all else do your home work!

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About the author: The above Real Estate information on refinancing a mortgage was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

USDA Loans For No Down Payment Financing

Bill Gassett — Wed, 07 Jul 2010 11:20:22 +0000

A USDA guaranteed loan is a government insured 100% purchase loan. This type of loan is only offered in what is considered a rural area. They are serviced by direct lenders that meet Federal guidelines.

USDA loans (US Department of Agriculture) aka Section 502 loans are an excellent mortgage vehicle for those home buyers who do not have money to put down but have decent credit ratings. Typically a credit score over 600 will allow a buyer to secure USDA financing. A score between 580-600 will come under much heavier scrutiny but will not rule out the borrower.

Most people think that 100% financing is a thing of the past due to the mortgage market melt down. While it is hard to get 100% financing, it is not impossible because of the USDA loan.

The USDA loan is typically used to help low to moderate income households purchase homes in rural areas. These loan products are backed by the Federal government. A common obstacle for many folks to owning a home is the lack of down payment funds. The use of a USDA loan makes the reality of home ownership far more reachable to a large percentage of borrowers.

Qualifying for a USDA Loan

In order to qualify for a USDA mortgage loan you can only have an income up to 115% of the median income for the area that the home you are interested in buying is located.

The guidelines also include repayment viability based on P.I.T.I (Principle, Interest, Taxes, and Insurance) divided by gross monthly income being less than 29%. Total debt divided by gross monthly income must also be equal to or less than 41%.

Families applying for the loan must not currently have housing that is adequate. The test of adequacy is based on family size. For example ff a family of five is living in a two bedroom apartment then that is not adequate and they would be eligible for the loan. The home must also be reasonable in size based on the size of the family. You would not be buying an enormous home with a USDA loan!

One of the other great benefits of the USDA loan is that there is no mortgage insurance required. Without the need for private mortgage insurance the borrower can save a substantial amount of money!

In my experience, unless you are in a heavily populated city the definition of rural is pretty loose. Many areas that you may not consider to be rural in your mind may qualify for a USDA loan. Areas that have a population under 20,000 will probably pass the test in most circumstances.

To see if a USDA loan would work for your financing needs it would be smart to check with a qualified mortgage professional. Not all lenders work with these type of loan products as they are more paperwork intense.

For additional information on USDA loans I would suggest visiting the USDA loan website which provides a vast amount of information on this loan product..

If you are located in Massachusetts and want to know if you qualify based on the income limits for a specific area you can visit Massachusetts USDA offices which will provide you with the local income limits based on the county that the property is located in.

If you are located in another state here is the link to the USDA State & local offices.

USDA loan alternatives

If you find that you do not meet the income requirements for a USDA loan another popular choice for a lower down payment loan would be an FHA loan. There are no income restrictions with an FHA loan you will only need to have a 3.5% down payment. For a comparison of conventional mortgage plans to an FHA loan see conventional financing vs FHA loans.

While there have been tremendous changes for the better in the mortgage industry, the media loves to portray the mortgage market as one where borrowers have almost no chance of getting a loan. Doom and gloom unfortunately always seems to sell better than the actual reality of things.

There is no question that mortgage lenders have really tightened their belt and are not lending to anyone that is breathing and walks into their office. There is however, plenty of funding available to those that have a job with a steady income and a decent credit rating. So don’t assume you can not get a loan!

We are currently in one of the most attractive times in our history as far as borrowing money goes. It is rare to see an interest rate environment where rates are so attractive, combined with a significant drop in housing prices we have seen from 2005 to 2010!

Fixing Credit Report Errors

Bill Gassett — Mon, 07 Jun 2010 11:29:01 +0000

There is no question that getting a home loan today is far more difficult than in years past. Gone are the days where anybody that had a pulse could speak with a bank or mortgage company and feel confident they would walk away with a mortgage.

When you are looking to make a home purchase today one of the most important factors that lenders will look at is your credit report. Over the last five years, lenders have been burned badly as the foreclosures and short sales continue to mount across the country.

Checking a credit report for accuracy

With the conservative nature of most lenders it makes it of paramount importance that your credit report is accurate! What most people don’t realize is that almost three out of every four credit reports has enough errors that could cost someone getting a loan or effecting the interest rate they receive! In many cases the consumer does not find out about the mistakes until it is too late.

Checking your credit report for errors is something every home buyer should do before they purchase a home. By law you are able to get one free credit report a year from the three credit bureaus Equifax, Experian and TransUnion. Everyone should take advantage of this and be checking their credit report diligently.

The lender will use your credit score to determine how great a risk you are and what the likelihood that you will be paying back the loan. The lender will also use your credit score as a basis for giving you a rate on your loan. Those who have the best credit get the best rates. It’s as simple as that.

Credit repair companies

When we are faced with uncertain times in Real Estate and the economy in general there always seems to be people out there who will try to prey on others misfortune. One of the things that becomes commonplace are the companies that advertise how they will fix bad credit. The ads are easy to spot and go something like this… “credit problems?” “We eliminate bad debt”.

The real truth is that bad credit does not go away by paying a company to remove it. If debt removal were only that easy! What these credit repair companies do is get inaccurate information removed from credit reports. But even they can not get rid of information that is correct no matter how damaging it may be to your financial picture.

Contact the creditor and the credit reporting agencies

So once you have your credit report in hand and find errors that need to be corrected how do you go about fixing them? Most credit repair experts will tell you to contact both the creditor and the credit reporting agency. The Fair Credit Reporting Act requires credit bureaus to make corrections however, it does not require creditors to make corrections.

Credit experts will also tell you that it’s more efficient to order the creditor to fix the incorrect information it is sending to the credit bureaus, and at the same time tell the credit bureau to update the credit report with the right information. Any correspondence you have with the credit bureaus about fixing your credit report should be done in writing by certified mail. The Fair Credit Reporting Act also requires the credit bureaus act within 30 days of receiving your request.

You should send a separate letter to each agency where a mistake is found. Make sure that you explain the situation in detail and include a copy of the credit report with the faulty information highlighted. When writing the letter make certain to list the creditors name and account number for which the incorrect data appears. It also makes sense to follow the letters up with a phone call. You want to make sure you keep meticulous notes to who you are speaking with and how the conversation goes.

Get a universal data form (UDF)

When you speak with the creditor you are going to want to get a copy of the UDF, or universal data form. This is a document that your creditor sends to the credit bureaus to update your report. The document tells the credit bureau what sort of change is being made such as a payment history change, a balance update, deletion because of an error, an update of current status, or some other reason.

If the creditor will not send a UDF, ask for a letter confirming that the creditor notified the credit bureau of the inaccuracy and asked for a correction.

All these steps become important should you not be able to get your credit report cleaned up and need to file a lawsuit.

Some of the more common credit report errors include the following:

Collections: The credit report should not show any collection or charge offs longer than seven years old.

Late payments: There should also be no late payments that are over seven years old on the report as well.

Payment records: All paid in full loans should or loans settled for less than the amount due should show a zero balance. Sometimes these do not get updated on the reports.

Original dates: Length of your credit history accounts for 15% of your credit score. The date you opened your account should be accurate. You should report the date being inaccurate if a credit card company is merged or acquired or if a credit card is lost or stolen.

Available credit: Credit reports and credit card statements should match on the available credit you have. It is always good to keep your available credit under 50%. Debt accounts for 30% of your credit score.

Mysterious accounts: All of the accounts on your report should be accurate. If your identity is stolen you are bound to find accounts on your report that should not exist. You should call the creditor right away to check the social security number and name with the one shown for the incorrect amount.

Types of accounts: Sometimes accounts are not categorized properly. For example a home equity line of credit should be listed as a 2nd mortgage not just a line of credit.

Closing a credit card: Most people do not realize that closing a card can decrease a credit score. This occurs because it shrinks your available credit which also reduces the credit utilization ratio. The credit utilization ratio is a factor in your credit score.

Reason codes: You should take a look also at the reason codes which detail why your score is what it is. These codes explain what factors played into the credit score and what can be done to make them better.

There is no question that keeping on top of your credit score become important for all types of loans and even possibly getting rental housing. Keeping up to speed with your credit report and fixing any errors is well worth the effort.

Getting The Best Mortgage Home Loan

Bill Gassett — Fri, 21 May 2010 21:43:25 +0000

Getting the best mortgage home loan for your particular needs is all about doing the proper research so you can hand pick the program that works for your situation in life. There are numerous loan programs available to savvy home buyers.

The most common loan programs are the conventional fixed rate mortgage and the adjustable rate mortgage. The fixed rate mortgage program can be further broken down by the length of time. The most common length of a fixed rate loan is either 30, 20 or 15 years.

The shorter the loan time frame, the lower the rate will be. The best loan program option generally boils down to how long you expect to remain in the home.

The case for a 30 year fixed rate mortgage

A 30 year fixed rate mortgage is the most common loan program and one that gives the borrower the security of paying one set rate for a long period of time. As a borrower you do not have to worry about your rate going up as it is fixed for the life of the loan. You can be confident knowing your payments will be manageable, and you will be knocking down the principal of the loan and building equity slowly but steadily.

The main disadvantage however, to a 30 year fixed rate mortgage is that you will pay a substantial amount of interest during the time you have the loan. There are ways to avoid the large payout in mortgage interest (see below).

The case for a 15 year fixed rate mortgage

The 15 year fixed rate mortgage has become a very popular loan product. It is easy to see why when you see how much extra you pay in interest over the life of a 30 year loan. It can actually be staggering to see just how much money the bank is making in interest! The reason many borrowers opt for the 15 year loan is two fold. When you apply for a 15 year fixed rate loan you will notice that the rate offered is always lower than a 30 year fixed rate loan. Looking at the gap between the two rates can be a serious consideration for a borrower especially as the gap grows larger. With a 15 year loan you will grow your equity in the property far more quickly and save a bundle in interest payments.

What you need to be certain of is that you will have no problem making the payments as they will be much larger given the fact the loan will be amortized over a smaller period of time. For example on a home mortgage loan of $300,000 over 30 years you will pay $1642 per month for principle and interest. The same payment on $300,000 for a 15 year fixed loan is $2301 which amounts to a difference of $659 per month. Not exactly chump change!

If you are uncertain that you can handle the jump in the amount of the payment the best thing to do is go with a 30 year fixed rate loan. You can always add extra principal to your payment each month which will in effect accomplish the same thing as having a shorter mortgage term. By adding the extra principal you will be paying down the note faster which will cause there to be less interest paid over the length of the mortgage.

There is always some discussion amongst financial experts on whether it makes sense to pay down your mortgage. The argument boils down to the fact that mortgage interest is deductible on your taxes. If you are already maxing out your tax-advantaged retirement accounts it may make sense to do so.

The case for a hybrid adjustable rate mortgage (ARM)

If you are going to be buying a home and there is near certainty that you will be moving in a short period of time then one of the hybrid adjustable rate programs may suit your needs perfectly. There are a number of adjustable rate options including a 3, 5, 7 and 10 year loan periods. With the hybrid loan, the rate is fixed for a set amount of time and does not go up until you reach the end of that period.

These hybrid loans generally have lower rates but usually not enough that you would want to use them unless you know you will be moving. The risk to you may be sizable because once the rate term expires there is a good chance that the rate could jump. If your income can not support the jump in the rate that would not be a good thing, especially if your debt load has also increased during the fixed rate period. Having some cash reserves would be an excellent consideration when going with this type of loan program.

The case for an FHA loan ( Federal Housing Association)

The FHA loan has become an exceptionally popular loan program especially amongst 1st time home buyers. The main advantage of an FHA loan is the fact you only have to come up with a down payment of 3.5%. You are also not required to pay private mortgage insurance which is typically required under a conventional loan program when you are putting under 20% down.

The FHA loan is also more flexible when it comes to a borrowers credit. For a full break down of the advantages of an FHA loan see FHA vs conventional rate mortgages. The caveat with an FHA mortgage is that you will pay an up front fee of 2.25% of the loan amount as well as .5% for the 1st five years of the loan or when your home equity hits 22%.

The rest of the mortgage terms to look out for

The other considerations when trying to determine what the best loan program for your needs should be is the amount of points and fees you will be paying. There is a direct correlation between the amount of points and closing costs you will pay for your determined interest rate. The more points you pay the lower the rate will be.

A mortgage point is equal to 1% of the loan amount. So if you are mortgaging $300,000 a point would equal $3000. The fees and closing costs also become important. If one lender is going to charge you more closing costs and fees for the same rate as another lender it might not make fiscal sense to use them. This is where comparing the cost of various loan programs becomes very important.

Mortgage rates and programs are constantly changing today. It is always in your best interests to shop around for the interest rate and program that suits your life situation!

Related Real Estate articles:

Home buying tax deductions to remember

Increasing your FICO credit score for best mortgage rates

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About the author: The above Real Estate information on getting the best mortgage home loan was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!