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There are so many types of mortgage that you can apply for. But, you may find yourself asking, “What do I qualify for?” “Are there any hidden charges?” “Is this really the best choice for me?”
On top of that, so many companies advertise that THEY have the best, low down-payment option available. If you’re confused because there are too many options, let’s talk. We’re here to help!
Lower interest rates amortize faster than higher interest rate loans, so you not only end up paying less over time, you pay it off more rapidly.
Forbearance is a temporary postponement of mortgage payments. The lender can grant this option to a borrower instead of forcing the property into foreclosure. The CARES Act provides protections for homeowners with mortgages that are federally or Government Sponsored Enterprise backed or funded such as FHA, VA, USDA, Fannie Mae and Freddie Mac.
A mortgage holder should contact the lender to explain the temporary difficulty they are having making payments and ask for relief under forbearance or other options. Once the lender grants approval, it is important for the borrower to get the terms of the forbearance agreement in writing to be clear about when the payments will resume and how the missed payments will be recovered.
Generally speaking, homeowners in a forbearance plan will not incur late fees and it should not adversely affect their credit. Unfortunately, borrowers must be vigilant to see that the lender is protecting them from delinquent credit marks according to their agreement.
Forbearance is easy to receive but not so easy to recover from. Free credit reports can be obtained on a weekly basis until April 21, 2021 at www.AnnualCreditReport.com. Reports are available from Experian, Equifax and TransUnion. This will allow borrowers to monitor whether the lender has inadvertently reported items inaccurately.
Prior to the end of the forbearance period, borrowers should contact their loan servicer, the company that accepts their payments. Review the terms of the forbearance plan and expectations for repayment. Verify the unpaid balance and that there are not any payments marked as late or delinquent during the forbearance period.
One more item to discuss with the loan servicer is the payment of the property taxes and insurance. Since multiple mortgage payments may have been missed and most payments include 1/12 of the annual amounts for these items, there may not be enough to pay for them when they become due.
Since it is estimated that there are over four million borrowers in forbearance currently, it may be difficult to talk to the servicer but starting the process early and being persistent will be helpful.
At the end of forbearance, the borrower needs to resume regular payments and establish a plan with the lender to repay the missed payments. The terms are negotiated between the borrower and the lender.
One way is through a loan modification which can restructure the loan. In some cases, it would add the missed payments to the loan balance and recalculate the payments for the remainder of the term.
A borrower could pay the forbearance money in cash but the practicality of that is not realistic. If the person couldn’t make the payments during forbearance, they probably don’t have the liquidity to pay them afterward. This option is entirely at the buyer’s election.
Forbearance is a temporary way to postpone the mortgage payments with the understanding that you will be able to resume repaying the loan. If the circumstances that caused the issue initially become permanent, then, other remedies must be considered. If there is equity in the property, selling the home may be the way to materialize it for the homeowner.
Please contact us at (510) 244-0085 if you need to know what your home is worth and how long it would take to sell it. We’re happy to provide this information as a service without obligation so you can be aware of your options.
Hopefully, you’ll never have to deal with losing a home to another buyer and these tips might make the difference.
A lower rate will not only result in a lower payment, it will amortize the loan quicker. A $250,000 mortgage at 4.5% for 30 years will have a $1,266.71 principal and interest payment. At 4%, the same loan will have $1,193.54 payment saving $73.18 a month and the unpaid balance would be $1,776 lower at the end of five years.
Mortgage lenders tend to price their mortgages based on the credit score of the borrower. The higher the credit score, the lower the mortgage rate. There is an inverse relationship that the lower the credit score, the higher risk and therefore, a higher rate is needed to balance the risk.
In order to get a valid rate that will be available to you with your credit score, you need to be pre-approved. The process of making a loan application before you find a home, allows the lender to verify your credit, income, and ability to repay the loan. Lenders usually only charge the cost of the credit report for this type of service. Be aware that pre-approval is not the same thing as pre-qualification which is simply a loan officer’s opinion.
When you shop for a mortgage with multiple lenders, the credit bureaus count them as a single credit inquiry if they are done within a two-week period. On the other hand, restrain yourself from applying for other credit such as cars, furniture or credit cards until after you have closed on the purchase of your home because those inquiries can negatively affect your credit score.
The Consumer Financial Protection Bureau recommends that you let lenders know that you are shopping the mortgage for the best rate and fees.
Instead of going to the Internet and Googling mortgage lenders, start with recommendations for a lender from your real estate professional. They see the good, the bad and the ugly and can save you a lot of time. Another reliable source would be from a friend who has recently purchased a home.
There are lenders who bait unsuspecting borrowers with lower rates and fees into making an application and after critical time has lapsed, try to switch them to a different program. By that point, many buyers feel they don’t have any choice but to accept what is offered.
Another confusing factor is the way that loans are priced to the public. They are usually quoted at a rate with a certain amount of points. A point is one percent of the amount borrowed. An example would be a quote for a loan at 4.5% with 1 point or at 4% with 2.5 points.
The points combined with the rate affect the yield the lender will earn, and you will pay. A simple way to make this an apple to apple comparison is to have the lender quote the loan as a “par-value” loan with no points involved. Then, the lowest rate will produce the lowest cost to you.
Another way to compare loans will be to uses a financial app called Will Points Make a Difference. You can plug in the rate and points to calculate the lowest yield over a projected holding period or the full term.
The lenders do not want to make it easy for you to compare. Mortgage money is a commodity and shopping will be worth the effort.
