By committing to a mortgage loan, the borrower is entering into a financial agreement with a lender to pay back the mortgage money, with interest, over a set period of time.

The borrower’s monthly mortgage payment may change over time depending on the type of loan program, however, we’re going to address the typical 30 year fixed Principal and Interest loan program for the sake of breaking down the individual payment components for this particular article about an amortization schedule.

On each payment that is made, a certain amount of interest is taken out to pay the lender back for the opportunity to borrow the money, and the remaining balance is applied to the principal balance.

It’s common to hear industry professionals and homeowners talk about a mortgage payment being front-loaded with interest, especially if they’re referencing an amortization chart to show the numbers. Since there is more interest being paid at the beginning of a mortgage payment term, the amount of money applied to interest decreases over time, while the money applied to the principal increases.

We can better understand mortgage payments by looking at a loan amortization chart, which shows the specific payments associated with a loan.  The details will include the interest and principal component of each periodic payment.

For example, let’s look at a scenario where you borrowed a $100,000 loan at 7.5% interest rate, fixed for 30 year term. To ensure full repayment of principal by the end of the 30 years, your payment would need to be $699.21 per month. In the first month, you owe $100,000, which means the interest would be calculated on the full loan amount.

To calculate this, we start with $100,000 and multiply it by 7.5% interest rate. This will give you $7,500 of annual interest. However, we only need a monthly amount. So we divide by 12 months to find that the interest equals $625. Now remember, you are paying $699.21. If you only owe interest of $625, then the remainder of the payment, $74.21, will go towards the principal. Thus, your new outstanding balance is now $99,925.79.

In month #2, you make the same payment of $699.21. However, this time, you now owe $99,925.79. Therefore, you will only pay interest on $99,925.79. When running through the calculator in the same process detailed above, you will find that your interest component is $624.54. (It is decreasing!) The remaining $74.68 will be applied towards principal. (This amount is increasing!)

Each month, the same simple mathematic calculation will be made. Because the payments are remaining the same, each month the interest will continue to be reduced and the remainder going towards principal will continue to increase.

An amortization chart runs chronologically through your series of payments until you get to the final payment. The chart can also be a useful tool to determine interest paid to date, principal paid to date, or remaining principal. Another frequent use of amortization charts is to determine how extra payments toward principal can affect and accelerate the month of final payment of the loan, as well as reduce your total interest payments. I hope this has helped you to understand the nuts & bolts of your mortgage a little better!

Related Articles:

Understanding Your Amortization Schedule For Your Miami Home originally appeared on Miamism on December 21, 2010.

Knowing what questions to ask your Miami lender during or before the loan application process is essential for making your mortgage approval process as smooth as possible.

Many Miami borrowers fail to ask the right questions during the mortgage pre-qualification process and end up getting frustrated or hurt because their expectations were not met.

Here are the top eight questions and explanations to make sure you are fully prepared when applying for your next Miami mortgage loan application:

1. What documents will I need to have on hand in order to receive a full mortgage approval?

An experienced  mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.

Residence history, marital status, credit obligations, down payment seasoning, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval.

There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren’t prepared for.

2. How long will the whole process take?

Between processing, underwriting, title search, appraisal and other verification processes, there are obviously many factors to consider in the overall time line, when buying your Miami home, which is why communication is essential.

As long as all of the documents and questions are addressed ahead of time, your loan officer will be able to give you a fair estimate of the total amount of time it will take to close on your mortgage.

The main reason this question is important to ask up-front is because it will help you determine whether or not the loan officer is more interested in telling you what you want to hear vs setting realistic expectations.

You should also inquire about anything specific that may hold up your file from closing on time.

3. Are my taxes and insurance included in the payment?

The answer to this question affects how much your total monthly payment will be and the total amount you’ll have to bring to closing for your new Miami home.

If you include your taxes and insurance in your payment, you will have a higher monthly payment to the lender but then you also won’t have to worry about coming up with large sums of cash to pay the taxes when they are due.

4. Will my payment increase at any point after closing?

Most borrowers today choose fixed interest rate loans, which basically means the loan payment will never increase over the life of the loan.

However, if your taxes and insurance are included in your payment, you should anticipate that your total payment will change over time due to changes in your homeowner’s insurance premiums and property taxes.

5. How do I lock in my interest rate?

It’s good to know what the terms are and what the process is of locking in your interest rate.

Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf.

Most loan officers pay close attention to market conditions for their clients, but this should be clearly understood and agreed upon at the beginning of the relationship, especially since rates tend to move several times a day.

6. How long will my rate be locked?

Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you’re purchasing a foreclosure or short sale.

The way the lock term affects your pricing is as follows: The shorter the lock period, the lower the interest rate, and the longer the lock period the higher the interest rate.

7. How does my credit score affect my interest rate?

This is an important question to get specific answers on, especially if there have been any recent changes to your credit scenario.

There are a few key factors that can influence a slight fluctuation in your credit score, so be sure to talk with your Miami loan officer about anything you can think of that may have been tied to your credit.

8. How much will I need for closing?

*The 2010 Good Faith Estimate will essentially only reflect what the maximum fees are, but will not tell you how much you need to bring to closing.

Ask your Loan Officer to estimate how much money you should budget for so that you are prepared at the time of closing.

Your earnest money deposit, appraisal fees and seller contributions may factor into this final number as well, so it helps to have a clear picture to avoid any last-minute panic attacks.

Now that you have the background to these eight important questions, you should feel more confident about finding a mortgage company that can serve your personal needs and unique scenario.

Remember, the more you understand about the entire loan process, the better your experience will be!

Most frustration that is experienced during the home buying and approval process is largely due to unclear expectations.

Just remember, you can never ask too many questions!

Related Articles:

Top 8 Things To Ask Your Miami Lender During The Process originally appeared on Miamism on December 7, 2010.

While most real estate web sites offer an index of terms containing hundreds of Miami real estate and lending related terms, we wanted to highlight the top Miami mortgage terms that most Home Buyers will hear several times throughout the mortgage loan approval and home buying process.

Fannie Mae (FNMA) and Freddie Mac (FHLMC)

Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages.

When FNMA and FHLMC limits don’t cover the full loan amount, the loan is referred to as a “jumbo mortgage”. The average interest rates on jumbo mortgages are typically higher than that of conforming mortgages.
Loan-to-Value (LTV):

The loan-to-value (LTV) ratio expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87% (LTV).

Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much stricter. Lenders can require borrowers of high LTV loans to buy mortgage insurance to protect the lender from the buyer default, which increases the costs of the mortgage.

The valuation of a property is typically determined by an appraiser, but there is no greater measure of the actual real value of one property than an arms-length transaction between a willing buyer and a willing seller. Typically, banks will utilize the lesser of the appraised value and purchase price if the purchase is “recent.” What constitutes recent varies by institution but is generally between 1–2 years.

Loan Rate Lock:

Where the loan officer locks a specific rate with a lender for a set amount of time.

Liquid Assets:

Money in a bank or investment account that can be obtained quickly.

Loan Origination Fee:

A fee paid by a borrower to a lender for obtaining a mortgage loan.

Loan Servicer:

A mortgage servicer is the company that borrowers pay their mortgage loan payments to. Mortgage servicers either purchase or retain mortgage servicing rights that allow them to collect payments from borrowers in return for a servicing fee. The duty of a mortgage servicer varies, but typically includes the acceptance and recording of mortgage payments; calculating variable interest rates on adjustable rate loans; payment of taxes and insurance from borrower escrow accounts; negotiations of workouts and modifications of mortgage upon default; and conducting or supervising the foreclosure process when necessary.

Many borrowers confuse mortgage servicers with their lender. A mortgage servicer may be a borrower’s lender, but often the beneficial rights to the payment of principal and interest on mortgages are sold to investors such as Fannie Mae, Freddie Mac, Ginnie Mae, FHA, and private investors in mortgage securitization transactions.

3 BONUS Terms

Mortgage Insurance:

Mortgage insurance (also known as mortgage guaranty) is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer.

Mortgage Backed Security:

A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property.

First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages.

Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools.

Private Mortgage Insurance (PMI):

Private mortgage insurance (PMI) is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a borrower is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property.

Be sure to catch the previous installments for Top Miami Mortgage Terms to Know.  If you do have questions between now and then, however, call now and we will answer them for you in a casual conversation about buying a Miami home for sale.

Related Articles:

26 Top Miami Mortgage Terms to Know Part IV of IV PLUS 3 BONUS Terms originally appeared on Miamism on November 23, 2010.

While most real estate web sites offer an index of terms containing hundreds of Miami real estate and lending related terms, we wanted to highlight the top Miami mortgage terms that most Home Buyers will hear several times throughout the mortgage loan approval and home buying process.

Good Faith Estimate (GFE):

A good faith estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with your loan and must be provided within three business days of applying for a loan.

These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.

A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.

Gross Income:

Total taxable income which is generally verified by a lender through tax returns and W2′s.

Home Equity Line of Credit (HELOC):

A line of credit secured by real estate.

HUD-1 Statement:

A comprehensive and itemized list of closing costs prepared by a closing agent that details all of the financial figures in a mortgage refinance or purchase transaction.

Joint Liability:

When more than one person applies for and secures a mortgage.

Jumbo Mortgage:

A mortgage with a loan amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender.

Be sure to watch for the next installment for Top Miami Mortgage Terms to Know.  If you do have questions between now and then, however, call now and we will answer them for you in a casual conversation about buying a Miami home for sale.

Related Articles:

26 Top Miami Mortgage Terms to Know Part III of IV originally appeared on Miamism on November 9, 2010.

While most real estate web sites offer an index of terms containing hundreds of Miami real estate and lending related terms, we wanted to highlight the top Miami mortgage terms that most Home Buyers will hear several times throughout the mortgage loan approval and home buying process.

Default:

Failure to fulfill an obligation to pay a mortgage.

Delinquency:

Late payments on a monthly liability. Creditors generally report payments to credit bureaus once the delinquency goes past 30 days.

Disclosure:

A big stack of documents that the lender, buyer and sellers sign during a real estate purchase or mortgage transaction. These disclosures may also notify all parties involved of their rights and obligations.

Discount Point:

The amount paid to decrease an interest rate.
Fico Score:

The three credit reporting agencies in the United States, Equifax, Experian, and TransUnion, collect data about consumers used to compile credit reports. The credit agencies use FICO software to generate FICO scores, which are sold to lenders.

Each individual actually has three credit scores at any given time for any given scoring model because the three credit agencies have their own databases, gather reports from different creditors, and receive information from creditors at different times.

Fixed Rate Mortgage:

A mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”.

Be sure to watch for the next installment for Top Miami Mortgage Terms to Know.  If you do have questions between now and then, however, call now and we will answer them for you in a casual conversation about buying a Miami home for sale.

Related Articles:

26 Top Miami Mortgage Terms to Know Part II of IV originally appeared on Miamism on October 26, 2010.

While most real estate web sites offer an index of terms containing hundreds of Miami real estate and lending related terms, we wanted to highlight the top Miami mortgage terms that most Home Buyers will hear several times throughout the mortgage loan approval and home buying process.

Understanding the “Shop Talk” between the various industry professionals that you’ve assembled on your home purchase team will hopefully give you greater confidence when discussing important topics that may impact your transaction.

Mortgage Related Terms:

Amortization Schedule:

A schedule of payments showing the amount applied to the principal and interest through the payoff.

Annual Percentage Rate (APR):

The effective rate of interest that includes loan related fees. The APR helps determine the total cost of borrowing a loan and is used to compare loans that are advertised with different note rates.

Adjustable Rate Mortgage (ARM):

As opposed to a fixed-rate mortgage where the payment is set for the full term of the loan agreement, an ARM is tied to a specific financial index and may adjust after a set amount of time.

Buydown:

Where a borrower pays an up-front fee to lower the mortgage rate and monthly payment. Rate Buydowns can be used to help a borrower qualify for a loan, or as a means of negotiation where the seller would contribute to a lower rate in order to entice a buyer to purchase their property.

Combined Loan-to-Value (CLTV):

The total amount of mortgage obligations on a particular property compared to the fair market value.

Debt-to-Income Ratio (DTI):

A borrower’s minimum monthly liability payments divided by their gross monthly income.

—–

Be sure to watch for the next installment for Top Miami Mortgage Terms to Know.  If you do have questions between now and then, however, call now and we will answer them for you in a casual conversation about buying a Miami home for sale.

Related Articles:

26 Top Miami Mortgage Terms to Know Part I of IV originally appeared on Miamism on October 12, 2010.

I think we can all agree at this point that sound-financial advice, particularly when it comes to Miami mortgage financing, is not around every corner.  If we haven’t learned that from recent history, then we are in worse shape than any economist could predict.  Even though many “lenders” are still offering quick ten-minute pre-qualifications over the phone or web, a true Miami Home Loan approval that holds any weight is one that has been completed by a professional who has had an opportunity to review all of the necessary documents… maybe even seen by an underwriter.

With an ongoing current of new financing guidelines, volatile mortgage rates and tightening regulation from D.C., very few Miami real estate agents will show Miami homes for sale to a home buyer without at least a pre-qualification letter.

A Pre-Approval Letter will help you in three ways:

• It lets you know how much mortgage you can qualify for
• It gives you an idea regarding what your total housing payment would be
• Submitting a strong “Pre-Approval” letter with a Miami home purchase offer will give the home owner a sense of peace about your ability to bring the contract to a successful conclusion

NOTE: It’s a good idea to get your documents gathered ahead of time so that the pre-approval process is as thorough and complete as possible the first time around.  You have no idea how much time and hassle this small tip can save you.

In order to get a pre-approval, you’ll start by submitting a  loan application and a few documents for the loan officer and / or underwriter to review.

Common Miami Loan Pre-Approval Documents:

Income / Assets for Wage Earner:

• Last 2 year W2s and Tax Returns
• 2 most recent Pay Stubs
• 2 most recent Bank Statements, 401(K), Liquid Assets, Investment Accounts

Income / Assets for Self-Employed:

• Last 2 year Tax Returns – Business and Personal
• Last Quarter P&L Statement

Letter of Explanation For:

• Employment Gap or New Line of Work
• Late Payments / Judgments / Bankruptcy on Credit Report

Other:

• Bankruptcy Discharge
• Child Support Documentation
• Lease Agreements (If own other Rental Properties)
• Mortgage Payment Coupons (If own other Real Estate)

…..

Most borrowers also want an opportunity to learn more about the loan officer before digging up all of these personal documents. Spend 15 minutes on the phone asking the loan officer to explain how Miami mortgage rates work, quizzing them on some basic industry vocab or just to see if they know what to prepare your Miami Real Estate Agent for ahead of time. The Q&A session can be more than just a lender qualifying you, as long as you’re prepared to ask the right questions.

Either way, you’ll definitely want to have the above list of approval documents ready once you’ve decided on the right loan officer that you trust will meet your expectations.

Related Articles:

Mortgage Pre-approval: Docs You May Need originally appeared on Miamism on September 28, 2010.

How much mortgage money can I qualify to borrow?

This is typically the number one question I get asked by new clients.

Of critical importance when considering mortgage financing: There is sometimes a difference between what a client ***can*** borrow and what they ***should*** borrow.

In other words, what makes for a comfortable long-term Miami mortgage payment for you?

The Quick Answer:

If we’re simply considering the financial math, lenders will calculate your Debt-to-Income Ratio and generally allow for 28-31% of your gross income to be used for the new house payment with up to 43% of your gross income to be used for all consumer related debts combined – some lenders will allow for more, so it may be worth while doing a specific prequal for you and your family, but lets build from the basics for the sake of the blog post.

Sample Mortgage Scenario:

Let’s use a gross monthly income of $6000 and a qualifying factor of 30% Debt-to-Income Ratio:

$6000 multiplied by .3 (30%) = $1800 max monthly mortgage payment

This means that your mortgage payment (Principal, Interest, Taxes, Hazard Insurance) cannot exceed $900 a month.

“Ballparking” a Qualifying Loan Amount:

Simple step:  We use a safe average of $6 per month in payment for every $1000 in purchase price so…

Step 1)  $1800 a month divided by $6 = $300.00

Step 2) $300.00 multiplied by 1000 = $300,000 loan amount.

Remember, these are average ratios and guidelines set by most lenders for common mortgage programs.

Keep in mind, while most consumer debts are listed on a credit report, there are some additional monthly liabilities that may contribute to the overall qualifying percentages as well.

Regardless of how your personal income and credit scenarios factor in, it is important to consider your overall budget when trying to determine how much of a mortgage you should qualify for.

Other items to consider in your monthly budget:

1. Confirm all debts are taken into account
2. Any private notes or family loans
3. Short-term expenses – medical, auto repairs, travel, emergencies
4. Plan on additional expenses for the home such as water, electric, maintenance, etc…
5. Keep a cushion for savings and financial planning

Related Articles:

How much of a Miami Home Loan can I afford? originally appeared on Miamism on September 14, 2010.

CREDIT DISPUTES

How many of us have ever gotten a credit report online?  Have you ever seen something on your credit report that you didn’t like and, just because you wanted to see what happens, you hit the ‘Dispute’ button?  Well, the world is changing and that small button can have a BIG impact on an applicant for a mortgage.  Disputed accounts on a credit report can signify a few things.  One may be a reduction of a negative credit item’s weight on a FICO score or it could mean that a borrower is trying to mask a real problem by portraying it as a mistake. Either way, Fannie Mae and HUD don’t like credit disputes.

In the past few months, it has been communicated that any credit report with a dispute listed must have the dispute removed and the borrower re-scored to make sure that their FICO score is an accurate reflection of their situation.

Here are some of the challenges:

a.  A borrower willing to remove the dispute(s)

b.  A creditor that is willing to remove the dispute and report it to the credit agencies and

c.  That creditor must be provide proof of the dispute being removed

According to a top loan originator with Innovative Mortgage Concepts, Jason Klaskin, this process can take 30 days or more per account.  “Imagine if you have a borrower approved for a loan today, they put in an offer and then everything is put on hold for 30+ days because credit was pulled just prior to closing and a newly disputed account pops up on their credit report.”

What can you do?

Again, working with a lender that knows about these changes and their potential impact – and proactively manages their applications and approvals- can save you headaches with your transactions.  It is also important for you to hold off on any disputes until after the loan process is complete.  If you can get approved with your current credit situation then there is no need to dispute anything while the loan is in process.

Related Articles:

Credit Report Disputes: So you “stuck it to the man”, huh? originally appeared on Miamism on August 10, 2010.

For quite some time, the only way to borrow more than 80% on a Miami Real estate purchase was to go FHA.  Now, FHA has restrictions that have made some home buyers frustrated and unable to enter the market.  Well

- good news.

There are a  few lenders [shocker - of which we are one] that now have 95% conventional financing available to Miami home loan seekers.  These loans are not ‘right’ for everyone, however, because it is credit score based.  However, if you have demonstrated fiscal responsibility and have a score above 720 – this loan very well could be the magic bullet you are looking for.

Related Articles:

High Loan to Value Loans Creep Back into Miami in the Middle of the Night originally appeared on Miamism on July 13, 2010.