Category Archives: Mortgages

Not even the market knows the Fed’s next move

As the Federal Reserve policy committee convenes today, the unanswerable questions are stacked high and reach in several directions. “Will the Fed lift short-term rates tomorrow?” is only the most basic starter query and the answer is quite unclear. The implied probability of a quarter-point bump is around 30% based on interest-rate futures trading, but there’s some fuzziness around that number. And this is nowhere close to a forecast that a hike is deeply unlikely:

Coming up “heads” in two straight coin flips has a 25% probability and hardly seems rare. Smart, well-intentioned market experts who spend an enormous amount of time and effort handicapping Fed moves disagree about what the Fed will do, all conceding that no outcome would be all that surprising. Same goes for the other questions down the chain of possibilities: What should the Fed do? If not now, then when? If the Fed lifts its rate target, can it achieve it using untested new tools fashioned in the post-crisis field laboratory? How much does it all matter?

Informed opinion and educated gut feel is all an investor has in grappling with these questions. And then there’s the next-level uncertainty about what the market truly expects, how it will react and what it ultimately wants.

The longer-term Treasury yields have been remarkably steady ahead of this decision, with the 10-year (^TNX) hovering not far above 2%, perhaps a sign that the typically sober, focused government-debt market doesn’t see much difference either way. Tuesday, though, the two-year note surged in yield. This is the paper most sensitive to Fed moves, and its yield hit a four-and-a-half-year high. Is this the market pricing it a rate hike soon?

The heavy wake of some technical trading action? Who knows? Lots of markets get themselves to a sort of neutral, anything-can-happen position ahead of a known potential catalyst like a Fed call. Junk bonds spreads, similarly, have eased back in recent weeks but still reflect weaker credit conditions than a few months ago. And stocks rallied about one percent Tuesday, but merely moved up toward the top of their new, lower range a few percent above the August lows. The best that can be said for the setup in stocks at this point is that investors have rushed to a place of anxiety and diminished expectations, at least hinting that for now a fair bit of potential bad stuff is priced in. Trader and investor sentiment surveys, fund flows, cash holdings in funds and prices paid for options protection have all been flashing contrarian signals that say, “Be ready to buy.”

Nearly ever gauge of investor positioning is the most negative since at least late 2011. Which means, if it’s still a bull market, the risk-reward will turn favorable before too long, right? If… And did Tuesday’s rally burn up some of the pent-up fuel of negative feelings in advance of the Fed meeting? Of course, the market has been contending with more than just the Fed vigil. It’s a net positive that US stocks have stopped tracking every chutes-and-ladders move in the Shanghai (000001.SS) market. But emerging-market stress is no kid’s game. Stocks here are down, but not yet cheap. And seasonal factors remain a headwind for another few weeks at least, if that still matters. Once the Fed decision is in, the game will turn to “What next?” with a couple of well-thumbed playbooks getting passed around. No one wants to miss yet another fourth-quarter sprint to the upside after a messy late summer and autumn. But how long before we all start talking about what has become a perennial U.S. economic “soft patch” in the first quarter? .

Once again, “I don’t know” is the most candid response.

HT Yahoo Finance

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In Summary

Feds are thinking of raising the interest rates, but there is no inclination on how that will affect the markets.

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DTI What Debt To Income Ratio Is

DEFINITION OF ‘DEBT-TO-INCOME RATIO – DTI’

A personal finance measure that compares an individual’s debt payment to his or her overall income. A debt-to-income ratio (DTI) is one way lenders (specifically mortgage lenders) measure an individual’s ability to manage monthly payments and repay debts. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage. For example, John pays $1,000 each month for his mortgage, $500 for his car loan and $500 for the rest of his debt each month, so his total recurring monthly debt equals $2,000 ($1,000 + $500 + $500). If John’s gross monthly income is $6,000, his DTI would be $2,000 ÷ $6,000 = 0.33, or 33%.

 Use this DTI Calculator to help you

EXPLANATION OF ‘DEBT-TO-INCOME RATIO – DTI’

A low debt-to-income ratio demonstrates a good balance between debt and income. Conversely, a high DTI can signal that an individual has too much debt for the amount of income he or she has. According to studies of mortgage loans, borrowers who have lower DTIs are more likely to successfully manage monthly debt payments, so lenders prefer to see low numbers. In general, 43% is the highest DTI a borrower can have and still get qualified for a mortgage. A debt-to-income ratio smaller than 36%, however, is preferable, with no more than 28% of that debt going towards servicing a mortgage. While the maximum DTI will vary by lender, the lower the number, the better the chances that an individual will be able to get the loan or line of credit he or she wants.

There are two ways to lower DTI: reduce monthly recurring debt and/or increase gross monthly income. Using the above example, if John has the same recurring monthly debt of $2,000 but his gross monthly income increases to $8,000, his DTI would be $2,000 ÷ $8,000 = 0.25, or 25%. Similarly, if John’s income stays the same ($6,000) but he is able to pay off his car loan and reduce his monthly recurring debt payments to $1,500, his DTI would be $1,500 ÷ $6,000 = 0.25, or 25%. If John is able to both reduce his monthly debt payments to $1,500 and increase his gross monthly income to $8,000, his DTI would be $1,500 ÷ $8,000 = 0.1875, or 18.75%.

HT: http://www.investopedia.com/terms/d/dti.asp#ixzz3hIBNqml8

Read these other hot topics!

3BM and App-O-Rama, How To Do It Properly

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View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

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In Summary

DTI is the Debt to Income Ratio.

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dream house design, dream house

Breakdown Of Your Monthly Mortgage Payments

We discussed PITI Payments are. In short it is the total payments due on your mortgage.  To recap:

PITI Payments is the components of a mortgage payment.

PPrincipal is the money used to pay down the balance of the loan

IInterest is the charge you pay to the lender for the privilege of borrowing the money

TTaxes refer to the property taxes you pay as a homeowner

I – Insurance refers to both your property insurance and your private mortgage insurance  and homeowners association fees if applicable.

Just bought your house?

What does my mortgage bill look like?

Your mortgage bill will include all of these numbers. You will be making one payment to your bank and they will make the Taxes and Insurance payments for you.

How does that work?

What happens is your bank opens an escrow account for you. Every time that you make your monthly payments, it goes into escrow. Lets make up some numbers.

Mortgage $400,000 @ 4% will equal monthly to ~ $1,900 ($1,909.66, based off of $576.33 in principle and $1,333.33 in interest)

Taxes $12,000 will equal monthly to $1,000

Insurance $1,200 will equal monthly to $100

When your bill arrives all of these charges will be consolidated into one charge of $3,000. When you pay the bill the bank will keep $1,900 of the money and put the other $1,100 into your escrow account. Then would then pay the property taxes quarterly. so after 3 months of collecting your $1,000 taxes they would then ship off $3,000 to your county to cover the property taxes on your home.

The same is true with the insurance on the house. The bank collects the insurance payments from you, and then pays the insurance company the monthly premiums. This setup is great in my opinion. instead of needing to worry about every payment on the house, the bank takes care of it for you.

So, when you hear your friend saying he has a $3,000 mortgage you know that only $575 is actually going to pay off his house and building equity. Pretty depressing if you think about it!

View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

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In Summary

PITI Payments is all the payments lumped together into one monthly obligation.

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PITI Payments: The Maximum Amount Of Money You Can Borrow

PITI Payments (like pity) plays a major roll in your mortgage. Banks and private lenders look at the total number that your mortgage will cost you to ascertain your credit worthiness. This is calculated by a formula known as PITI Payments Ratio.

What is this PITI Payments?

PITI Payments is the components of a mortgage payment.

PPrincipal is the money used to pay down the balance of the loan

IInterest is the charge you pay to the lender for the privilege of borrowing the money

TTaxes refer to the property taxes you pay as a homeowner

I Insurance refers to both your property insurance and your private mortgage insurance  and homeowners association fees if applicable.

Generally, mortgage lenders prefer PITI to be equal to, or less than 28%, of a borrower’s gross monthly income. PITI is usually calculated on a monthly basis by comparing the borrower’s monthly gross income.

Use this Calculator to calculate your numbers

I went ahead and pulled a sample:

Mortgage Summary
Loan amount $400,000.00
Term 30 years
Interest rate 3.75%
Annual home insurance $950.00
Annual property taxes $10,000.00
Monthly payment (PI) $1,852.46
Monthly payment (PITI)* $2,764.96
Total principal and interest payments $666,887.08
Total interest $266,887.08

Based on the information you entered, A $400,000 mortgage your payment is $2,764.96 for 30 years with a rate of 3.75%. After principal and interest the total payments will be $666,887.08!

The yearly payments will look like this:

Payment Schedule

Year Total
Payments
Principal
Paid
Interest
Paid
Ending
Principal
Balance
$400,000.00
1 $22,229.52 $7,355.08 $14,874.44 $392,644.92
2 $22,229.52 $7,635.69 $14,593.83 $385,009.23
3 $22,229.52 $7,927.01 $14,302.51 $377,082.22
4 $22,229.52 $8,229.44 $14,000.08 $368,852.78
5 $22,229.52 $8,543.39 $13,686.13 $360,309.39
6 $22,229.52 $8,869.33 $13,360.19 $351,440.06
7 $22,229.52 $9,207.69 $13,021.83 $342,232.37
8 $22,229.52 $9,558.98 $12,670.54 $332,673.39
9 $22,229.52 $9,923.69 $12,305.83 $322,749.70
10 $22,229.52 $10,302.28 $11,927.24 $312,447.42
11 $22,229.52 $10,695.33 $11,534.19 $301,752.09
12 $22,229.52 $11,103.37 $11,126.15 $290,648.72
13 $22,229.52 $11,526.97 $10,702.55 $279,121.75
14 $22,229.52 $11,966.74 $10,262.78 $267,155.01
15 $22,229.52 $12,423.28 $9,806.24 $254,731.73
16 $22,229.52 $12,897.24 $9,332.28 $241,834.49
17 $22,229.52 $13,389.29 $8,840.23 $228,445.20
18 $22,229.52 $13,900.12 $8,329.40 $214,545.08
19 $22,229.52 $14,430.43 $7,799.09 $200,114.65
20 $22,229.52 $14,980.97 $7,248.55 $185,133.68
21 $22,229.52 $15,552.53 $6,676.99 $169,581.15
22 $22,229.52 $16,145.86 $6,083.66 $153,435.29
23 $22,229.52 $16,761.86 $5,467.66 $136,673.43
24 $22,229.52 $17,401.34 $4,828.18 $119,272.09
25 $22,229.52 $18,065.22 $4,164.30 $101,206.87
26 $22,229.52 $18,754.44 $3,475.08 $82,452.43
27 $22,229.52 $19,469.91 $2,759.61 $62,982.52
28 $22,229.52 $20,212.73 $2,016.79 $42,769.79
29 $22,229.52 $20,983.87 $1,245.65 $21,785.92
30 $22,231.00 $21,785.92 $445.08 $0.00

 

View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

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In Summary

PITI Payments is the components of a mortgage payment. Principle, Interest, Taxes, Insurance.

 

 

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Buying A House and A Car: Which Comes First?

You are ready to buy a house, and suddenly you also have a need to buy a car. Which one do you buy first the house or the car? On one hand it is nice to have the house, but maybe it can wait 2 months. On the other hand you need the car today, but the house seems like a more logical purchase?

The house comes first

This is not based off feelings or emotions. This is the hard facts. As we will discuss more in depth when we talk about DTI, there are certain things that can have a negative affect on you getting the mortgage. Specifically, any car payments wether it is a lease or if it is a loan for a car purchase will show up on your credit report as a DEBT.

Why is it debt, I didn’t miss a payment?

This is a very common question. The answer is just by being on your credit report changes you DTI (Debt to Income) ratio and lowers your income.

What does that mean?

Suppose you make $5,000 a month and the DTI ratio was 50% (made up numbers, it’s usually much lower) that means your entire PITI payments can’t be more then $2,500 a month (approximately a $370,000 mortgage in today’s rates). However, if you have a $500 car payment your income will drop to $4,500 which would lead to a $2,250 max monthly payment. This can drop the max loan you can take to  (approximately a $360,000 mortgage in today’s rates)!

Yes, it can make that big of a difference. Therefore first buy that house, then you can go out and lease the car of your dreams. Buying that car first can cause you not to be able to be approved for a mortgage!

Although buying a car may seem more logical then buying a house. It is imperative that you buy the house first. A car will add additional debt, that will negatively affect your buying power.

View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

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In Summary

Buy the house before the car!

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Lender Discrimination: What Is That?

portal.hud.gov hudportal documents huddoc id NFHA2012MaternityLendingEN.pdf

“Lender Discrimination was not what I was expecting.”

What is lender discrimination? Were you a victim? What should you do? I once saw an ad inn the mall of a pregnant woman, the caption was “Lender Discrimination was not what I was Expecting“. The caption summed up the advertisement. A lender may NOT deny loans to one or more groups of people primarily on the basis of race, ethnic origin, sex or religion. One of the most notable instances of widespread mortgage discrimination occurred in United States inner city neighborhoods from the 1930’s up until the late 1970’s. There may be evidence that the practice of lender discrimination still continues in the United States today.

How can You protect Yourself from lender discrimination?

Look for the warning signs, some include:

  • You are treated differently in person than on the phone.
  • You are discouraged from applying for credit.
  • You hear the lender make negative comments about race, national origin, sex, or other protected groups.
  • You are refused credit even though you qualify for it.
  • You are offered credit with a higher rate than the one you applied for, even though you qualify for the lower rate.
  • You are denied credit, but not given a reason why or told how to find out why.
  • Your deal sounds too good to be true.
  • You feel pushed or pressured to sign.

If You Suspect Discrimination

Take action if you think you’ve been discriminated against.

  • Complain to the lender. Sometimes you can persuade the lender to reconsider your application.
  • Check with your state Attorney General’s office to see if the creditor violated state laws: Many states have their own equal credit opportunity laws.
  • Consider suing the lender in federal district court. If you win, you can recover your actual damages and be awarded punitive damages if the court finds that the lender’s conduct was willful. You also may recover reasonable lawyers’ fees and court costs. Or you might consider finding other people with the same claim, and get together to file a class action suit.
  • Report any violations to the appropriate government agency. If your mortgage application is denied, the lender must give you the name and address of the agency to contact.

“Lender Discrimination was not what I was expecting.” This was the caption under an advertisement i saw in a mall. It was educating the public about Lender Discrimination.

File a Complaint with the appropriate offices.

For ECOA violations:

Consumer Financial Protection Bureau

855-411-2372

For FHA violations:

U.S. Department of Housing and Urban Development (HUD)

1-800-669-9777; TDD: 1-800-927-9275

For details about the Fair Housing Act, contact Office of Fair Housing and Equal Opportunity.

You have one year to file a complaint with HUD, but you should file as soon as possible.

MORE WAYS YOU CAN PROTECT YOURSELF

  • Do your research. Shop around. Learn about the various features and downsides of the credit product you want. Research the current interest rates. Compare products from several lenders.  Talk to your friends and family members about their credit products.
  • Know your credit history. Creditors will make decisions based on your credit history. Be sure there are no mistakes or missing items in your credit reports. Get a free copy of your credit report from each of the three biggest consumer reporting agencies every 12 months. Get your free copy from AnnualCreditReport.com.
  • Ask questions. Don’t focus only on your monthly payment. Be sure you understand the rates and fees you will pay over the long run. Ask whether the rates and fees quoted to you by your lender are set, or if there are any circumstances in which the quoted rates and fees could change. Keep asking questions until you are fully satisfied. If a creditor does not want to answer your questions, this could be a bad sign.
  • Stay in control. Your lender shouldn’t make you feel rushed, or unnecessarily delay action on your application. Walking away and continuing the discussion later, if you so choose, is a good way to control communications with the lender.
  • Don’t sign until you’re satisfied that the credit product works for you. Remember, the product that works for you today may not work for you down the road. Make sure you’ve considered both before you sign.

HT: Wikipedia, Consumer Finance and Government websites.

View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

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In Summary

We aware of Lender Discrimination,and what to do if you are a victim.

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title_search2

Title Search: What It Is

When buying a home a title search or property title search is done. A title search is the process of retrieving documents evidencing events in the history of a piece of property, to determine relevant interests in and regulations concerning that property.

Why Does A Homebuyer Buy A Title Search?

  • Does the seller have ownership of  the property?

This means does the seller have full ownership that he is able to sell it to you. 

Some properties have restrictions on building, for example a property that is a wetland. All potential issues would be highlighted in a title search.

This is the most important part of the title search. You want to ensure that the property that you are purchaing is clear from debts. You don’t want someone to have a lein on your house!

Who Can Do A Title Search?

Anyone may do a title search. Documents concerning conveyances of land are a matter of public record. These documents are maintained in hard copy paper format or sometimes scanned into image files. The information within the documents is typically not available as data format as the records are descriptions of legal events which contain terms, conditions, and language in excess of data. A compent laywer will know what is written in the title.

What If The Title Company Made A Mistake?

Most buyer of a property will usually purchase title insurance, which protects the buyer from any title problems that may arise after sale, such as liens that were missed during the title search. The title insurance company issues a report and an insurance policy in support of its findings. This will protect you in case of error.

Non-insured Titles

There are a variety of title searches which provide the customer with a report, but no insurance. Generally these are used for informational uses not when buying a home. The cost of a title can vary.

Title Searches are used when purchasing a home. Titles inform the buyer about leins and back taxes. The Title can also come with insurance to protect the sale.

When getting a title, the bank will charge you for their title search as well as your own. The cost of a title is not to much money according to Finweb.com, somewhere in the $100 area.

Some information was referenced to Wikipedia.

View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

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In Summary

The title is vital for homebuying, it will relay if there are leins or bad debt aginst youor property. Title searches can also offer insurance.

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What is an Underwriter?

Underwriting can have many meanings depending on the context it is used in. There is underwriting of a loan or mortgage, there is underwriting by a life insurance policy and there is Forensic underwriting. Today our main point we will discuss is the underwriting used in reference to a mortgage.

An underwriter is someone who reviews all your financial information and determines if you are a risk for the lender to issue you a loan.

Mortgage Underwriting

Mortgage underwriting is the process a lender uses to determine if the risk (specifically the risk that the borrower will not have the funds to pay) of offering a mortgage loan to a particular home buyer. Most of the risks and terms that underwriters consider fall under the three C’s of underwriting: credit, capacity and collateral.

What is the Process?

  •  Verification of such items as employment history
  • Salary and financial statements
  • Borrower’s credit history (which is detailed in a credit report)
  •  Lender’s evaluation of the borrower’s credit needs and ability to pay.

By judging these factors the lender will have an idea if they should approve you for your loan. Each lender has their own set of guidelines based off of the Freddie Mac and Fannie Mae. What the Debt to Income ratio can be and minimum salary’s. Read more of our latest series of Home Buying.

View our home buying series here: Mortgages, Home Loans, Refinance, and Interest

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In Summary

The underwriter is someone who reviews all your financial information and determines if you are a risk for the lender to issue you a loan.

 

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Mortgages, Home Loans, Refinance, and Interest

We will begin a new series today on Home loans. We will cover many topics from what to look for in buying a house through the home buying experience all the way to refinancing years later.

Here are some of the topics we will discuss. Bookmark this page as we will link back to all these topics once they are written.


And many more topics. Stay tuned!

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In Summary

Stay tuned to learn more about buying a home.

 

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