Georgia Mortgage Matters

Are You Ready to Take on a Home Mortgage?

John Worley — Tue, 03 Jun 2008 11:37:54 GMT

Many a home buyer cannot truthfully answer that question. While there are many “experts” out there who will give potential home buyers all sorts of strategies for preparing to take on the burden of a home mortgage, I personally prefer a very simple and straight forward approach to taking on this issue. This approach has been summed up in 6 simple little words:

“Debt is dumb, cash is king”.

No I did not come up with that phrase by myself. It was actually coined by a very popular financial talk-show host and author named Dave Ramsey.

This approach is simple:

· Get yourself on a budget – you have a specific goal in mind (buying a home). But you won’t get to any goal without a game plan. That’s what a budget is……..your game plan. Sit down at the first of each month and on paper, write down every dollar of income that you expect to bring in that month. Then right next to it, assign a job for every one of those dollars (IE….$600 for rent, $200 for gas/water/electric, $50 for phone, $400 for groceries, $100 for running money, $200 for savings, etc). Once you have your budget in place, YOU DO NOT GET OFF BUDGET FOR ANY REASON. At the first of the next month, start the process over again.

· Put together an emergency fund – you want an emergency fund of 3-6 months TOTAL EXPENSES (housing payment, food, running money, gas/water/electric, etc). You want a large enough fund so that if the worst should happen and you are unable to work for a time, then you will have that 3-6 month cushion to get your affairs in order and find new work or get some help.

· Pay off your consumer debt – Credit cards, car loans, personal loans, student loans, etc. If you already have $30,000 or 40,000 in various consumer debts, then why are you going to take on the additional burden of a home mortgage at the same time? Pay off that consumer debt and then come buy a home with a clean slate.

· Save up a down payment – the more money you can put down, the lower your mortgage payments will be and the more likely that you will be able to afford those payments.

The budget is, of course, the key to this whole approach. So what if you do your monthly budget and you find that there is no extra money to put toward emergency funds or paying off consumer debts? Well there are only 2 ways to solve that problem: increase your income (get a 2^nd job) or decrease your monthly debt (IE….get rid of the cell phone bill, the cable bill, etc). I said that this approach is simple, not easy. It will require sacrifice on your part and it may mean that you don’t buy a home as soon as you would like. And living on a budget and making smart decisions with your money won’t stop when you buy that home. However when it’s all said and done and you walk away from that closing table knowing that you are debt free (other than the mortgage)…..well let’s just say that it is a very good feeling.

For free advice on setting up your budget and getting your finances ready for that new home mortgage, just John a call at (770) 727-9128.

What is a Rehab Loan?

John Worley — Mon, 05 May 2008 10:06:52 GMT

Oftentimes a subject of some debate is the reality of what is a renovation or “rehab” loan. Simply put, a rehab loan is a specialty loan program that allows the borrower to purchase a run-down home and to finance an additional amount of money above and beyond the sales price to use in renovating or “rehabbing” that home. In some cases the loan may also allow the borrower to finance the closing costs, so that he/she comes to the closing table with very little, if any, money out of pocket. This makes the program ideal for many real estate investors who wish to put as little of their own money as possible into their rehab projects. Terms and conditions for these rehab loans will vary widely from one lender to the next, from very short term, high interest loans to more conventional long term, low interest loans. Things that are usually taken into consideration during the underwriting process for these loans include: the borrower’s personal credit and finances, the size of the proposed renovation or “rehab”, the condition of the home being financed, the area where that home is located, and the borrower’s plans for repayment of the “rehab” loan.

What a rehab loan is not is a “hard money” loan (although the terminology is used interchangeably across the industry). “Hard money” loans are very short term, high interest loans used to help struggling homeowners try and avoid foreclosure. These loans are usually underwritten based more on a borrower’s character and situation rather than their personal credit.

It is important that borrowers understand this difference so that they do not walk into a potential loan situation with the wrong idea of what to expect. While some rehab loans may have similar terms to a “hard money” loan, they are not used for the same purpose and therefore will be underwritten differently.

A borrower for a “hard money” loan is someone who is usually facing the foreclosure process on their own home. Their credit is most likely in pretty bad shape and they will usually have next to no savings in the bank.

On the flip side of things, a borrower for a rehab loan is a businessman. Regardless of the terms and conditions offered for the loan program, it is expected that the borrower will have very good or excellent personal credit and that they will have at least a minimum amount liquid cash reserves in the bank with which to run their business.

Knowing and understanding these differences can make your next rehab loan experience a more smooth and efficient transaction.

Economics 101: The Forgotten Subject

John Worley — Sun, 06 Jan 2008 12:05:46 GMT

There has been a lot of talk in recent months about the number of people in this country who are now losing their homes to foreclosure. These home owners usually have some sort of "short term Fixed ARM" (these are adjustable rate mortgages where the starting interest rate is fixed for the first 2, 3, 5, or 7 years) or some sort of "Option ARM." These home owners are finding that their interest rate is now beginning to adjust and that they can no longer afford the monthly payment. They also find that refinancing their mortgage is not an option due to poor personal credit/rising credit standards, lack of equity, etc, and as such they fall behind on their payments and, are in time, foreclosed on.

Now as often happens when something hits the open market that bites consumers in their backsides, there are many calling for increased government control over the mortgage industry. These calls are from people who want the government to protect home owners from unethical mortgage brokers and loan officers who supposedly "forced home owners into mortgage programs that were not beneficial to the home owner." Now while I completely agree that there needs to be a universal licensing standard for mortgage brokers and loan officers (similar to the way real estate appraisers are licensed), I cannot, in good faith, agree with any more government involvement beyond that point. The reason behind this (for me at least) is two fold. First is my personal belief that government cannot be effective in running just about anything and the less involvement government has in our daily lives, the better.

Second and most importantly, is that further government rules and regulations in the mortgage industry will not solve the problem. The problem being that many people are currently in mortgage programs that are not the best for their financial needs and situations.

The sad truth of the matter is that mortgage brokers and loan officers who want to scam or mislead home owners are always going to find a way to do so regardless of whatever new rules and regulations are put into place.

So who is the ultimate person responsible for a home owner's financial needs? Who is the first and best line of defense against those who would scam and mislead home owners into making bad decisions about their mortgage?

The answer to these questions is, of course, the home owner.

The only real way to solve this growing problem of people losing their homes and putting these unethical scam artists out of business for good is to create a better educated and more informed clientele base. In short, we've got to get back to teaching the people of this country basic economics and then once they have that knowledge the people of this country have to take it upon themselves to learn a little financial responsibility.

The fact that this forgotten subject of economics is no longer taught in many of our schools has produced a population where as many as 6 or 7 out of every 10 adults cannot even perform the simple task of balancing their check books. Many adults have no concept of financial responsibility or don't understand how to balance their household budget, the seriousness of terms in repaying a debt, or the principals of supply and demand. Is it any wonder that these people allowed themselves to take on mortgages where they didn't understand the terms or that they could be taken in by scam artists looking to make a quick buck. And for many adults, this lack of knowledge is not something they are doing on purpose. It is simply due to the fact that these basic economic concepts have never been introduced into their lives.

Now this is not to say that the mortgage industry doesn't share a large chuck of the blame. The average loan officer will never once think to take the time to educate a borrower on the terms of a mortgage program or explain (in dollars and cents) what it will mean for that borrower's budget. Likewise, the sheer numbers of sub-prime lenders who were writing loans for borrowers that they knew could not afford those loans are to be given a lot of the blame. When I hear of another sub-prime lender who has closed their doors, I find that I can't feel sorry for them because they have brought on themselves. Another problem the mortgage industry has to deal with is the fact that many states do not require anything to become a loan officer. Nor do many brokers provide any kind of training for these loans officers who are hired off of the street with no experience or knowledge about the mortgage business.

Bottom line is that there are problems to overcome in dealing with increased foreclosure rate in this country, but the answers are easy to see. First put a universal licensing requirement in place for the mortgage industry so that all mortgage brokers and loan officers across the country have to adhere to the same standard. Secondly and most importantly, we have to start teaching economics 101 again. Making sure that the people of this country have the basic knowledge of balancing and living on a budget, supply and demand, the value of a dollar, etc, is the only way for customers to be protected from costly financial scams and mistakes.

                                                                                                                                                                John Worley
                                                                                                                                                   www.rtlgeorgia.com

Selecting Good Sales Comps

John Worley — Sun, 06 Jan 2008 11:59:24 GMT

Being able to select good reliable comps is essential for any real estate investor. It can be the whole back bone of your purchase offer and if you don’t understand what makes a good comp, then you could wind up over paying for a rehab property that is not worth nearly what you thought it was.

So what is a comp? Comp is short for comparable sale. These are sales of similar homes in the same neighborhood as the property that you are looking at buying. They should have as much in common with the subject property as possible in order to give you a solid estimation of the subject property’s market value.

Selecting a good comp is all about comparing apples with apples and oranges with oranges. When looking through local comps, there are several items that you will want to compare. Here is a list of the most common.

Distance From Subject Property – in most major cities, you want to pull comps located within a ½ mile radius of the subject property. If you are in an area with little market activity, then pulling comps from a 1 mile radius is ok. However, unless you’re dealing in rural properties or 3 and 4 unit properties that may not be in abundance in the subject neighborhood, then you don’t want to pull anything outside of a 1 mile radius.

Date of Sale of Comp. – Same story here, in most major cities, you want to pull comp sales that have taken place within the last 6 months. If you are in a slow market area, than going out to 12 months is acceptable, however nothing beyond 12 months.

Construction - if the subject is an all brick house, then pull comps that are all brick houses; if it is a wood or vinyl siding house then pull comps that are wood or vinyl siding.

Condition – if the subject property is a dump, pull comps that are dumps; if the subject is new, pull comps that are new. This is where trying to figure out a "subject to" value or ARV can be tricky. When trying to determine the after repair market value of your rehab property, it is important to take into account the condition of the property after the work is completed. Then try to pull comps in the neighborhood that have also been rehabbed to similar condition. Most importantly, remember one cardinal rule: A rehabbed property will never be in the same market condition as a new home. Always remember that even if you completely overhaul a 50 yr old home, it is still a 50 yr old home. Comparing it with new homes will never give you a realistic market value.

Age – pull comps that are the same age as the subject. Try to keep within about 5 years older or younger to the subject. And again never compare rehabbed homes with new homes.

Gross Living Area/Sq Footage - pull comps with the same approximate sq. footage as the subject property. Try to keep it within 100 sq. ft and no more than 200 sq ft, if at all possible.

Bath Room Count - pull comps with the same bath room count as the subject, or as close as possible. A typical appraisal value adjustment for a full bathroom is only a few thousand dollars. So if your subject is a 2 bath home and all you can find for comps are 1 bath homes, than they can still be reasonably good comps provided that the bath count is the only major difference between comp and subject

Basement – If the subject is on a crawl space or slab, then pull comps on crawl spaces and slabs; likewise if the subject is on a basement, then pull comps on basements. Try to keep the sq. footage of the basements as close as possible (same as above), within 100 sq. feet is ideal, but no more than 200 sq. feet, if at all possible.

Garage or Carport - again pull same for same.

Lot Size – again pull with similar size lots as the subject property

One last item that you want to look for as much as possible is the terms of sale for your comp. Ideally you want to pull comps that were normal market transactions with no "undue pressures" on buyer or seller. Some of the most common examples of "undue pressures" include:

A seller who must sell quickly to avoid foreclosure or bankruptcy
An estate in probate that must be liquidated quickly
A tax sale or bank REO where the seller is willing to take less money just to get the property off of the books.
An investor wholesaler who is willing selling his property at a deep discount to avoid rehab costs or to obtain a quick sale.

These types of sales are typically not good indicators of fair market value. However if enough of them occur in a certain neighborhood, then they can effect the overall fair market value of that neighborhood. Lastly you may not always be able to find this information about your comps but it is important to look for it whenever you can.

So you have a good idea about how to select good comps for your rehab properties, now let’s discuss how the actual appraisal should fit into the deal. Many investors feel that the appraisal is simply a necessary evil associated with obtaining permanent traditional financing for their rehab properties. They often think that they have pulled good comps and that should be enough for establishing market value. These investors are also often the ones that go around saying that there need to be "good aggressive" appraisers out there who will find the market values that they (the investor) need to make the deal work.

This way of thinking is not only wrong, but also borders on being illegal.

An appraiser’s job is to offer an unbiased third party opinion of market value based on all of the data available. They can be a very useful tool in helping investors plan out their rehab projects provided that the investor is willing to do the job right. Regardless of whether or not you are required by your lender to have an appraisal completed when you purchase your rehab property, it is always a very good idea to go ahead and have one done. What you want to have done is referred to as a "subject-to" appraisal. This means that you provide the appraiser with a copy of your rehab budget and plans and ask him to appraise the property "subject-to" this work being completed. He will also need to make note of the fact that you are purchasing the property below market value in his report. Do not, for any reason, tell the appraiser what value to appraise the property at. This is illegal and is considered to be real estate fraud.

Now why is it a good idea to have a "subject-to" appraisal completed when you purchase your rehab property? First of all, it gives you an official document showing the current market value of your property and second it will make the financing process when you refinance or sale your properties go much smoother. When dealing with lenders and underwriters, it is important remember one thing; if something is not’t documented, then as far as the underwriter is concerned, it does not exist. Without the "subject-to" appraisal, the only document that an underwriter would have to establish fair market value when you purchased your rehab property would be the HUD-1 statement. Without any indication of a distressed or below market sale, the underwriter will assume that the sales price on the original HUD-1 was the market value when you purchased the property. So when you are refinancing or selling the property after only a few short months, at a value that is tens of thousands of dollars higher than what you paid for it, then this will rise a red flag with the underwriter. They may decide to lower your market value, again by tens of thousands of dollars, simply because they have no documentation to show why the property was to supposed to have increased so much in value over such a short time frame. However with a "subject-to" appraisal, you can provide the underwriter with documentation to compare to the new appraisal that will be completed for the refinance or resale. Now the underwriter can see that the property didn't necessary increase in value by thousands of dollars in a few short months, but rather that you purchased the property well below market value due to the condition of the property at the time you purchased it. This usually makes much more sense to an underwriter and as long as the two appraisals reasonably concur in regards to the market value, then they will be less likely to have a problem with accepting that value.

Around most major cities, an appraisal for an investment property will run you about $400, so to do the "subject-to" appraisal means adding about that much to your purchase/acquisition costs. For those who say that is too much extra money to spend, you have to ask yourself one question. Would you rather lose $400 now or potentially tens of thousands of dollars later? The level of risk that you are willing to take on is a decision that you will have to make for yourself.

John Worley

www.rtlgeorgia.com

Understanding the Universal Loan Application - Part 3

John Worley — Sun, 06 Jan 2008 12:06:40 GMT

In the previous two posts, we've been discussing the first five sections of the universal loan application. Today we'll cover the last five sections.

Section 6: Assets and Liabilities (Page 3)

Assets (left hand side of the page)

This section should be fairly self explanatory, let’s talk a moment about the kind of assets that are important. There are two types of assets that you can list:

Liquid Assets (cash on hand, checking, savings, money market accounts, stocks/bonds, etc.)

Passive Assets (real estate owned, automobiles owned, antiques, etc.)

While passive assets will help make your net worth appear higher, it is liquid assets that really make an impression on an underwriter. Being able to show a fair amount of ready to spend cash to put toward the down payment and closing costs, and more importantly to get toward monthly payment reserves, will go a long way toward convincing an underwriter that you can afford to obtain and keep the mortgage that you are applying for. Even if you are purchasing a home with no down payment and the seller is paying for most of the closing costs, it is still important to show as much cash on hand as possible for the monthly payment reserves. Show the underwriter that you have a little safety cushion under you (for a few months) should something happen and you are unable to work.

Real Estate Owned

Here you will fill out information on any real estate that you may already own (single family homes, townhouses, condos, land, etc). Fill out the address and the current market value of the property. If you have a loan against the property, then how much is the loan balance and payment? If you collect rent on the property then how much?

Liabilities (right hand side of the pages)

Again, this section is pretty self explanatory. You want to fill out the information on your monthly debts (credit cards, mortgages, car loans, personal loans, students loans, etc….no monthly utilizes or rent). Be sure to provide the name of the creditor, the current balance on the debt, and the amount of your monthly payment.

Section 7: Details of the Transaction (Page 4)

It was once said that this section looks a little like an income tax form. However it’s not nearly as complex as that. Most of the boxes should be fairly easy to understand.

"Purchase price" is for of course, the price on your sales contract, if you are purchasing a home.

"Refinance" would the pay off amount of your current mortgage.

"Estimated Prepaid items" and "Estimated Closing Costs" can be found on your Good Faith Estimate.

"PMI and MIP Funding Fee" apply to FHA loans and, if applicable, can be found on the Truth in Lending Statement.

"Discount" refers to any discount or buy-down points that you may be willing to get a lower interest rate.

"Total Costs", Box I, refers to the total cost associated with the loan (the total of box A through H).

"Subordinate Financing" will show the amount of your 2nd mortgage, if you are obtaining a combo mortgage.

"Closing Costs (CC) paid by seller" – pretty self explanatory.

"Other credits" will include things such as any earnest money that you put down on your sales contract or any costs being paid for by your loan officer or mortgage broker.

"Loan amount (excluding PMI/MIP fee being financed)", Box M – amount of the mortgage that you are applying for.

"PMI/MIP fee being financed", Box N – if any of the PMI/MIP fee from box G is being financed into the loan, then enter that amount here.

"Total Loan Amount", Box O – Add the figures from Box M and Box N and enter the total here.

"Cash to/from Borrower" – Subtract the figure in Box O from the figure in Box I ("Total Costs") and enter the amount here. This is the amount that the borrower will either need to bring to closing or the amount of cash out that the borrower will receive at the closing table.

Section 8: Declarations

Read and answer "Yes or No" to each question. Bear in mind that lying about these questions may be grounds for having your loan request denied or having the lender call your mortgage due later and taking you to court for mortgage fraud.

Section 9: Acknowledgment and Agreement

Read this carefully before you sign and date it. Some of the high points that you are agreeing to include:

• Everything you have stated in the loan application is the truth

• You will occupy the property in the manner that you stated in the "Declarations".

• If the mortgage payments become delinquent, then the lender has the right to report this to the credit bureaus and/or foreclose on the mortgage.

• That the property that you are buying will not be used for anything illegal.

Section 10: Information for Government Monitoring Purposes

Good old Uncle Sam. He always to know who is doing what and where and the mortgage industry is no different. The information requested in this section is pretty basic and completely voluntary. You are not required to fill it out if you do not want to. Simply mark the box labeled "I do not wish to furnish this information."

Well that’s it, the entire universal loan application from start to finish. Hopefully you now have a better understanding of this, sometimes rather frightening, document. Just always remember, if you do not understand a particular section, always go back and ask your loan officer or mortgage broker. After all, making sure that you understand and are comfortable with the mortgage process is one of the things that they are getting paid for.

John Worley
www.rtlgeorgia.com

Understanding the Universal Loan Application - Part 2

John Worley — Sun, 06 Jan 2008 12:07:53 GMT

In my last post we discussed the first two sections of the universal loan application. Today we will discuss Sections 3, 4, and 5.

Section 3 – Borrower Information

This section is pretty self explanatory. This is where you will fill in your:

Name
Social Security Number
Current Home Phone
Date of Birth
Marital Status
Any dependents that you have living with you (IE…children, an elderly parent, etc)
Current Home & Mailing address

Make sure you check off whether you rent or own your current home and for how many years that you have lived there. Also if you have lived in your current home for less than 2 years, then you will need to fill in where you lived prior to that.

Section 4: Employment Information

Like Section 3, this section is also pretty self explanatory. Here you will fill in:

Name and mailing address of your employer (if you are self employed then make sure you check the "Self-Employed" box.
The dates you’ve been employed.
Your gross monthly income (your income before taxes are taken out).
Your position with the company
Your work phone number

If you haven’t been employed in your current job for at least 2 years, then you will need to also fill in the information for your previous job.

Section 5: Monthly Income and Combined Housing Expense

This section can confuse some people and I would urge you to ask your mortgage professional to help you out with it. That being said, let’s look at the Monthly Income section.

Monthly Income

You will need to fill in your gross monthly income here. This is your monthly income before taxes. If you are not sure of what to put here, then the easiest way to figure it out is to take your W2s for the last two and your most recent pay stub. Add together what you made during the two years on your W2s and your year to date (YTD) income on

your pay stub. Now divide the total by how ever many months are covered by these documents.

For example:

Say you made $50,000 in 2005 and $52,000 in 2006 on your W2s and that on your pay stub dated for the end of September, you have made $40,000 YTD.

Add these figures together and you get a total of $142,000. The W2s represent 24 months of work and your pay stub covers the first 9 months of this years, so you have earned this $142,000 over the course of 33 months.
Divide $142,000 by 33 and you come to a monthly income of $4,303. This is your gross monthly income and what you need to put in the Monthly Income section of the loan application.

If you are self employed or take a huge amount of deductions, then figuring out your income may not be so easy, so again I urge you to get the help of your mortgage professional in filling out this section.

Combined Housing Expenses

This is where you figure out how much you will have spend on your housing costs each month (IE…the mortgage payment, your taxes, your insurance, etc.)

If you currently Rent a home, then fill in the amount of your monthly rent payment in the box marked rent under the "Present" column.

If you currently Own a home, then, under the "Present" column, fill in the amount of your monthly mortgage payment and your monthly home owner’s insurance, property tax, and HOA payments, if applicable.

Finally, under the "Proposed" column, you will fill in the proposed new monthly payment for the loan you are applying for.

Look for a discussion on sections 6, 7, and 8 in my next post.

John Worley
www.rtlgeorgia.com

Understanding The Universial Loan Application

John Worley — Sun, 06 Jan 2008 12:10:18 GMT

The Fannie Mae Form 1003, the Universal Loan Application. This form, known more commonly around the mortgage industry as simply a "1003" (ten-o-3), is perhaps one of the intimidating forms a home buyer can face. While much of this form is pretty self explanatory, many people do not fully understand how to fill it out properly. So let’s go through the universal loan application section by section.

First up is the legal agreement listed on the very top of page 1 of the Universal Loan Application

"This application is designed to be completed by the applicant(s) with the Lender’s assistance. Applicants should complete this form as "Borrower" or "Co-Borrower," as applicable. Co-Borrower information must also be provided when the income or assets of a person other than the Borrower (including the Borrower’s spouse) will be used as a basis for loan qualification or the income or assets of the Borrower’s spouse or other person who has community property rights pursuant to state law will not be used as a basis for loan qualification, but his or her liabilities must be considered because the spouse or other person has community property rights pursuant to applicable law and Borrower resides in a community property state, the security property is located in a community property state, or the Borrower is relying on other property located in a community property state as a basis for repayment of the loan.

If this is an application for joint credit, Borrower and Co-Borrower each agree that we intend to apply for joint credit (sign below)"

Long winded isn’t it. Let’s break this thing up so we can understand it.

"This application is designed to be completed by the applicant(s) with the Lender’s assistance"

This is just good advice. If you don’t understand the application then get help from someone who does. In the case of obtaining a mortgage, your loan officer is the logical choice.

"Applicants should complete this form as "Borrower" or "Co-Borrower," as applicable. Co-Borrower information must also be provided when the income or assets of a person other than the Borrower (including the Borrower’s spouse) will be used as a basis for loan qualification"

This is pretty straight forward. If you plan to use the income and assets of a co-borrower to qualify for a loan, then you have to input all of the co-borrower’s information in the loan application, just like you do the borrower’s information.

"the income or assets of the Borrower’s spouse or other person who has community property rights pursuant to state law will not be used as a basis for loan qualification, but his or her liabilities must be considered because the spouse or other person has community property rights pursuant to applicable law and Borrower resides in a community property state, the security property is located in a community property state, or the Borrower is relying on other property located in a community property state as a basis for repayment of the loan."

In a nutshell, this means that if you (as borrower) live in a state with community property laws and your spouse or partner has legal community property rights in your relationship, then you may have to disclose your spouse or partner’s debts and liabilities to the lender in consideration of your loan. If this is required by your state’s laws, then you would have to disclose the extra debts even if you are not using your spouse or partner’s income and assets to qualify for the loan. If you happen to live in a state where this would happen, then you have to include all of your spouse or partner’s information on the loan application, just the same as you would your information.

Now let’s go through the rest of the application, one section at a time, as they appear.

Section 1: Type of Mortgage and Terms of Loan

Mortgage Applied For: VA, FHA, Conventional, USDA/Rural Housing Service, or Other

Most home buyers will be applying for either a Conventional loan (traditional bank) or an FHA loan (through the Dept. of Housing and Urban Development). VA loans are for veterans applying through the Veterans Administration and USDA loans are can be used for large farms and rural properties.

Agency Case Number

Case Number assigned to your loan by HUD (if you using a FHA loan), the Veteran Administration for VA loans, or the USDA for their loans.

Lender Case Number

Case number assigned to your loan by your traditional bank.

Loan Amount

This is for the total loan amount that you are applying for. If you are doing a refinance and want to have your closing costs added to the loan, then the number entered here needs to include those costs. If you are unsure what to put, consult your mortgage professional.

Interest Rate

This is the interest rate that you are requesting for your mortgage. If you are unsure what to put, consult your mortgage professional.

Number of Months

This is for the length of time that you are requesting to have to pay back your mortgage. In most cases, you will request either a 15 year mortgage (180 months) or a 30 year mortgage (360 months).

Amortization Type

This is where you will select the type of mortgage you want to apply for. Fixed rate mortgage keeps the same interest rate every month. An adjustable rate mortgage (ARM) can change interest rate every month. A Graduated Payment Mortgage has a fixed rate however the initial payments start low and over time increase to pre set amounts to a maximum agreed payment. Other is typically used for commercial and private money mortgages.

Section 2: Property Information and the Purpose of the Loan

Subject Property Address

Input the full street address (including zip code) of the property being financed.

Number of Units

Single family homes will be considered 1 unit; duplexes considered 2 units, triplexes are 3 units, etc.

Legal Description of Subject Property

This is the description assigned to the property being financed by the county tax assessor’s office. It can be found on your county property tax records and on the county tax assessor’s records. Most people have no idea what the legal description of their property is, so most mortgage professionals will have you input the following: "See Primary Title Description". This will tell the underwriter to look at the title report that will be pulled for your mortgage file to find the legal description.

Year Built

What year was the subject property was built.

Purpose of Loan

Is this a new purchase or are you refinancing a property that you already own. Are you applying for a temporary short term Construction loan to build a new building or a permanent long term Construction loan? Mark your answer in this section.

Property will be:

Primary Residence – a house that you are going to live in.
Secondary Home – a house that you will live in for only 3 or 4 months out of the year.
Investment Property – a house that you will not live in and will rent out to a tenant.

Complete this line if construction or construction-permanent loan

Year Lot Acquired – What year did you acquire the land that you will build on?
Original Cost – How much did you originally pay for the land that you will build on?
Amount of Existing Liens – If there are currently any loans held against this land, what is the total amount of those loans?
Present Value of Lot – where is the current market of the land as-is.
Costs of improvements – the costs of the materials needed to build on the land.
(a+b) Total - Should be self explanatory.

Complete this line if this is a refinance loan

Year Acquired – when did you originally purchase the property you are refinancing?
Original Cost – how much did you originally pay for it?
Amount of Existing Liens - if there is another loan against the property, then what is the current balance of that loan.

Purpose of Loan – do you want to cash out some equity to do home improvements or pay off some debt? Do you simply want a lower interest rate than what you are currently paying? Input your answer here.
Description of Improvements – Have you made any improvements to the property or do you plan to make any improvements using the cash out from your refinance? Describe these improvements and the estimated costs involved.

Title with be Held in what Name(s)

Whose name(s) will appear of the deed to the subject property?

Manner in which title will be held

Will you hold the title by yourself (solely) or with another person (tenants in common)

Estate will be held in

Simply put, if you own the property being financed then check "Fee Simple". If the universal loan application is being used as a rental application and you will simply rent the property in question, then you would mark "Leasehold".

Source of Down Payment, Settlement Charges, and/or Subordinate Financing

Describe how you will fund your down payment and closing costs. Also if you are obtaining or already have a second mortgage on the subject property, describe that here as well.

Check back for my next post where we will go over sections 3, 4, and 5 of the universal loan application.

John Worley
www.rtlgeorgia.com

What Is a Mortgage?

John Worley — Sun, 06 Jan 2008 12:09:21 GMT

What is a mortgage? It seems like a simple enough question, but oftentimes many people seem to be ignorant as to what they are actually agreeing to when accepting a mortgage. Webster’s Dictionary defines a mortgage as “a conveyance of or lien against property (as for securing a loan) that becomes void upon payment or performance according to stipulated terms.” In simpler terms, a mortgage is an agreement. The bank agrees to lend you an amount of money to purchase a home and you agree to pay that money back, with interest, over a certain period on months (usually 360 months or 30 years). The money that the bank lends you is secured by the home you are purchasing. This means that if you fail to make your monthly mortgage payments as you agreed to do, then the bank can foreclose on your mortgage and take your home away from you.

There are several different types of mortgages designed to offer borrowers a wide range of choices when structuring the terms of their loan. The first and most common type of mortgage is a Fixed Rate Mortgage. This mortgage has an interest rate that is fixed (remains the same) for the entire length of the loan (usually 15 or 30 years). This type of mortgage will allow the most stability for the borrower as their monthly mortgage will always be the same. The majority of home buyers will use a fixed rate mortgage.

A second type of mortgage is known as an Adjustable Rate Mortgage (ARM). This mortgage has an interest rate that adjusts or “recast”, meaning that it may increase or decrease depending upon what is going on in the financial market. These adjustments will occur at set points in time over the life of your mortgage, sometimes as often as every month, but more often every 6 or 12 months. An ARM will give a borrower a better starting interest rate than a fixed rate mortgage however it also offers less stability as the interest rate has the potential to raise higher than that of the fixed rate loan, often by several percent.

A common compromise between the fixed rate mortgage and the ARM is what is known as the Hybrid ARM. This is an adjustable rate mortgage where the starting interest rate is fixed for the first 2, 3, 5, 7, or 10 years and then adjusts either every 6 or 12 months thereafter. These ARMs are often referred to as 2/28, 3/1, or 5/6 ARMs. The numbers in these designations refer to the terms of the adjustments. For example, a 2/28 ARM is fixed for the first two years, adjust one time, and remains at the new adjusted rate for the remaining 28 years of the loan. A 3/1 ARM would have a fixed rate for the first 3 years and then adjust every 12 months (or 1 year) thereafter. Finally, a 5/6 ARM will have a fixed rate for the first 5 years and then adjust every 6 months after that. These types of ARMs can offer a borrower short term stability while also providing them with a lower starting rate than a normal fixed rate mortgage. They are ideal for borrowers who will not remain in a home for more than a few years.

Lastly there are Interest Only Mortgages. These mortgages can be fixed rate or ARMs and will have an extra monthly payment option. You can chose to pay the normal principal and interest mortgage payment or you can chose to pay only the interest on that month’s payment. This payment option can last for up to the first 10 years of your loan, depending upon the lender who you use. There are a few variations on this type of mortgage, including the Option ARM, which has received a lot of press these last few years. All types of Interest Only mortgages are designed for one reason. They are meant to give a money savvy home owner the ability to free up some extra cash from month to month to spend on other investments. These mortgages are not designed to allow a borrower to purchase more home than they can afford, although that is exactly how they have been misused over the last few years.

Each of the types of mortgages listed above has its pros and its cons. Understanding the differences between them is essential to getting the mortgage that is right for you and your situation.

John Worley
www.rtlgeorgia.com

Welcome To Georgia Mortgage Matters

John Worley — Wed, 12 Dec 2007 15:15:19 GMT

Welcome to Georgia Mortgage Matters.

Education is the key to getting the most out of your home mortgage experience. Knowing how the mortgage industry works and what is available for you is the difference between getting the right mortgage for you and getting stuck in a mortgage that you cannot afford.

Here you will find posts and articles that address different aspects of the mortgage industry and the issues that borrowers will face when obtaining a mortgage. I hope you find the information here to be helpful and educational.

I look forward to hearing everyone's thoughts and comments regarding the information I present here. Please feel free to subscribe to the blog and check back often. Please leave your comments and questions and I will answer them as best I can.

And lastly, if you need a mortgage, please visit my main website at http://www.rtlgeorgia.com, where you can get more information about the mortgage products that I have available and fill out an application online 24 hours a day.

I look forward to speaking with everyone.
- John Worley