If the appraisal comes in for less than the agreed sale price, the parties to the sale or purchase might have to take further action depending on the specific terms of the real estate contract.
There are many possibilities depending on the terms of the sale contract: the sale could be cancelled; the parties could renegotiate the price; the lender could require a higher down payment; or the lender could refuse to lend at all. It all depends on how the deal is structured.
Sometimes appraisals can be successfully challenged, but it is difficult to do.
Most, but not all, mortgage loans are “amortizing” and consist of payments that include both principal & interest.
When people refer to “mortgage payments”, they generally mean the total P & I amount.
Sometimes the “mortgage payment” also includes an escrow item (e.g., real estate taxes), as well.
By doing this, you can lower your total interest paid and shorten the time it takes to pay off your mortgage.
However, not all companies offer this option and be very cautious about any extra fees that may be tacked on for this type of payment plan. Fees could eliminate any benefits you gain.
The FHA insures mortgages on single family and multi-family homes.
The FHA is a government agency that is part of the U.S. Department of Housing and Development (HUD).
Mortgage lenders generally require borrowers to pay PMI if they put less than 20% down on their home purchase.
The premium is paid monthly & protects the lender, not the Borrower.
The monthly premium is taken into consideration when lenders qualify you for your mortgage on your home.
In some circumstances, once your home equity builds to more than 20% of market value, you may be able to have the lender lift this monthly payment requirement.
If you have a 30 year fixed rate mortgage, your monthly payment of Principal and Interest (P & I) will remain the same over the 30 years.
This is the most common type of home mortgage loan.
Unlike fixed rate mortgages, Adjustable Rate Mortgages (ARMs) have an initial interest rate that lasts only for a specific period of time. After that, the rate adjusts on a predetermined schedule usually every 1, 3 or 5 years.
So, for example, a 5/1 ARM, has an initial interest rate that is set for 5 years and then the rate adjusts annually each year after that. Similarly, a 5/3 ARM has an initial rate term of 5 years and then the rate adjusts every 3 years after that.
It’s important to note that this does not tell you anything about how much the rate can change or how high it can go. That’s a very important question to ask if you are considering an ARM, as there is great variety among ARMs.
Points are sometimes paid up front as a way to reduce your mortgage interest rate. They are also known as Discount Points, because they “discount” your mortgage rate.
A Point is 1% of the mortgage loan amount.
So on a $100,000 mortgage loan, one Point would be $1,000. By paying points to the Lender at closing, the Lender will reduce your interest rate on your loan.
Reducing the interest rate saves money over the term of the loan and also may help you to qualify for your loan because the monthly payment is lowered due to the lower interest rate.
In order to know whether or not it is financially advantageous to pay points, you would need to analyze the total savings you realize due to the rate decrease and also estimate how long you expect to live in the property to determine if it is a smart move.
Paying Points increases your cash out of pocket at closing when buying a home, so that is also a consideration.
It is a mortgage related ratio that shows the relationship between a borrower’s monthly housing debt payments and monthly income.
As an example, if your gross monthly income is $3,000 and your monthly debt payments total $1,000 you have a 33% DTI (debt to income ratio):
$1,000 / $3,000 = 33%
Debt payments include mortgage principal and interest, student loans, credit cards, etc. The income used is before tax income or gross income.
Mortgage lenders usually prefer a DTI of 36% or less.
Yes. Generally, for federal income tax purposes, taxpayers can deduct the interest paid on primary & secondary residence mortgage loans, but only on loan amounts up to $1 million ($500,000 if married, filing separately).
It’s important to note that the deduction is for the interest on a mortgage loan of up to $1 million, not $1 million in actual loan interest.
Interest on loan amounts in excess of $1 million is usually not deductible & the rules vary depending on when you took out your mortgage, the type of loan (primary or home equity) & use of the loan proceeds.
So check with your tax adviser or get IRS Publication 936 to better navigate these regulations.
The Borrower pays the interest amount only each month (or payment period) and the entire principal amount is due at the end of the term.
A more typical type of mortgage is an amortizing one, often referred to as a Fixed Rate or Variable Rate mortgage.
In an amortizing mortgage, your payment includes both Principal and Interest (P & I), so that your loan amount decreases with each payment.
These escrow accounts are analyzed annually to see if the monthly payment amount is too high or too low to cover these expenses for the next 12 months.
Based on the balance in the account and the estimated cost of insurance and property taxes in the upcoming year, the lender will change the monthly payment as required.
FHA loans have low down payment options for borrowers.
Loans are available for single family homes & multi-family residential up to 4 units.
This protects the lender because it insures that the real estate taxes and homeowners insurance are paid up to date. In effect, the lender forces the Borrower to save the money for these payments each month.
The lender creates an escrow account for the borrower & each month the borrower pays a portion of the escrow items along with their loan payment.
Typically, the monthly mortgage payment includes three items:
The bank or lender puts the escrow amount into the Borrower’s escrow account. When the insurance or real estate tax bills come due, the lender has the funds to pay bill.
Usually, the lender pays these bills directly from the escrow account on behalf of the Borrower.
Typically lenders require 3 months of escrow payments in advance at closing.
Generally, interest paid on home equity loan amounts up to $100,000 is deductible for federal income tax purposes.
However, the tax deduction for HELOC loan interest is limited by the loan amount, the purpose of the loan & the date when the loan was taken out.
Also, state tax deductions for interest on HELOCs can vary so definitely check with your tax advisor or review IRS Publication 936 to understand all the rules.
Professional appraisers use recent sales data, market trends, current property condition and other types of data to appraise a home or commercial property. Appraisers are licensed professionals.
Mortgage lenders require an appraisal by a professional appraiser of their choice prior to making a commitment to lend money on a property.
Mortgage brokers often have more “alternative” mortgage options for borrowers with less than perfect credit or other mortgage qualifying challenges.
But both mortgage brokers and mortgage bankers have a variety of mortgage options, so shop around to find the best deal based on the terms, including interest rates, required documentation, down payment, fees, and credit scores.
The U.S. Congress established Freddie Mac in the 1970’s in order to help provide available funds for the residential mortgage market.
It is part of the “secondary” mortgage market, which is an investment market engaged in buying & selling mortgage loans & mortgage backed securities.
To deduct your mortgage interest, you must itemize.
Be sure to do the calculation to make sure you are not paying more in taxes than you need to if you are eligible to deduct mortgage interest.
You might save on your taxes by itemizing or you might be better off taking the standard deduction. The only way to know which is more advantageous is to do the math.
But there are some restrictions that can limit the deduction (e.g., the length of time for construction can’t exceed 24 months).
Mortgage interest is deductible after the loan becomes permanent financing & the loan qualifies for the mortgage deduction. Again, there are limitations (e.g., the total loan amount can’t exceed $1 million).
Consult with a tax professional to determine the deductibility of the interest in your specific situation.
Both handle mortgage transactions. A mortgage broker generally works with a variety of different lenders and matches borrowers with lenders. Mortgage broker fees are usually paid by the lender and are disclosed on the closing statement.
A mortgage banker generally works for the lender directly and therefore places mortgage loans with only that lender.
In most states, Mortgage Brokers must be licensed and pass an exam. Mortgage Bankers are usually employees of a mortgage banking company.
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