What is Seller Financing?

Also known as a purchase money mortgage, seller financing is when the seller agrees to "lend" money to the buyer to purchase and close on the seller's home. "Often, sellers do this when money is tight, interest rates are high or when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price," explains Lawrence Finn, CEO Owner/Broker of Coach Real Estate Associates.

Seller financing differs from a traditional loan because, unlike the lender, the seller does not actually give the buyer cash to complete the purchase. Instead, it involves issuing a credit against the purchase price of the home. The buyer executes a promissory note or trust deed in the seller's favor.

The seller may take back a second note or finance the entire purchase if he or she owns the home free and clear.

With seller financing, the buyer makes a sizeable down payment and agrees to pay the seller directly every month.

"These loans are often more flexible," Finn comments. "The interest rate on a purchase money note is negotiable, as are the other terms in a seller-financed transaction."

Understandably, most sellers are not open to making a loan for a lower return than could be invested at a more profitable rate of return elsewhere. This means that often, interest rates they charge may be higher than those on conventional loans, and the length of the loan shorter, anywhere from five to 15 years.

Because sellers, unlike conventional lenders, do not charge loan fees or points, seller-financed costs are generally less than those associated with conventional home loans. Interest rates are generally influenced by current Treasury bill and certificate of deposit rates.

"Seller financing is a viable option when the seller does not immediately need the entire cash equity they have accumulated in the home," explains Finn. This type of financing offers less rigid qualification requirements, and eliminates nearly all loan fees.

But it can be beneficial to the seller, too. In return for providing financial assistance to the buyer, the seller receives tax benefits, attracts a larger pool of potential buyers, generally completes the sale sooner, and gets good interest earnings.

"Fear of default often makes many sellers reluctant to take back a second note or finance the entire purchase," says Finn. A thorough credit check should help to dispel many of these fears, although the mortgage also allows the seller to foreclose on the property in case of default.

"The process can be very complicated. It is a good idea to consult an attorney when putting together this kind of transaction," recommends Finn.

Mortgage Rates Move Lower

Mortgage rates were mostly lower for a second straight week, with the benchmark 30-year fixed mortgage inching down to 3.79 percent, according to Bankrate.com's weekly national survey. The average 30-year fixed mortgage has an average of 0.4 discount and origination points.

The average 15-year fixed mortgage rate bucked the trend and nosed higher to 3.04 percent, while the larger jumbo 30-year mortgage reset a record low of 4.33 percent. Adjustable mortgage rates also reset record lows, with the 5-year and 7-year ARMs falling to 2.76 percent and 2.9 percent, respectively.

Federal Reserve Chairman Ben Bernanke's speech left the door wide open for possible additional stimulus. Bond yields and mortgage rates moved lower in response. The looming employment report will be critical in determining whether the Fed acts at their meeting this month or defers until later in the year. While markets are expecting the Fed to act next week, it would take a weak jobs report to truly seal the deal.

The last time mortgage rates were above 6 percent was Nov. 2008. At the time, the average 30-year fixed rate was 6.33 percent, meaning a $200,000 loan would have carried a monthly payment of $1,241.86. With the average rate now 3.79 percent, the monthly payment for the same size loan would be $930.78, a difference of $311 per month for anyone refinancing now.

Reprinted with permission from RISMedia.com

What is a Loan-to-Value Ratio?

When shopping for a mortgage, one term you are likely to hear is a "loan-to-value ratio," also known as an LTV.

What is a loan-to-value ratio?

The LTV is the loan amount expressed as a percent of either the purchase price or the appraised value of the property. It is an important factor considered by lenders before approving a mortgage, and one of the key risk factors that lenders assess when qualifying borrowers.

For instance, if a borrower borrows $130,000 to purchase a house worth $150,000 at a relative valuation, the LTV ratio is $130,000/$150,000 or 87%.

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 more strict. 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.

LTV ratios below 80 percent carry with them lower rates for lower-risk borrowers, and allow lenders to consider higher-risk borrowers. What makes a buyer high risk? It's a negative credit history, as well as high debt-to-income ratios and insufficient income documentation. Higher LTV ratios (above 80 percent) are typically reserved for borrowers with higher credit scores and a clean mortgage history.

Buying private mortgage insurance, which insures the lender against default, can reduce the LTV to 90 or 95 percent, making it possible to have a down payment of 10 or 5 percent.

What is a Reverse Mortgage?

A reverse mortgage can be a smart financial decision for older homeowners looking to convert their home equity into money.

Often a better decision than a home equity loan, the money gathered from a reverse mortgage can be used to cover home repairs, everyday living expenses, and medical bills.

But what exactly is a reverse mortgage? "A reverse mortgage is just as it sounds," says Lawrence Finn, CEO Owner/Broker of Coach Real Estate Associates. "Instead of making monthly payments to a lender, the lender makes payments to the homeowner."

According to the National Reverse Mortgage Lenders Association, the money given by the lender is tax-free and does not affect Social Security or Medicare benefits, although it may affect the homeowners' eligibility for certain kinds of government assistance, including Medicaid.

With a reverse mortgage, the homeowner continues to own their home until they pass away or wish to sell. This means that repaying a reverse mortgage is not necessary until the property is sold or the owner moves.

Should the owner die before the property is sold, the estate repays the loan, plus any interest that has accrued. "There is an allotted time for the estate to repay the loan, usually around six months," says Finn.

Eligibility "To be eligible, the homeowner must be at least 62 and own their own home, explains Finn." No income or medical requirements are necessary to qualify, and they may be eligible even if they still owe money on a first or second mortgage. "Actually, many seniors get reverse mortgages to pay off the original loan," comments Finn.

Reverse mortgage vs. a home equity loan Often homeowners get confused between a home equity loan and a reverse mortgage.

A home equity loan, also known as a second mortgage or a home equity line of credit, has strict requirements. These requirements include income and creditworthiness. A reverse mortgage has no income or credit score requirements. And, with a home equity loan, the homeowner continues to make monthly payments, which is not the case with a reverse mortgage. However, it's important to note that while with a reverse mortgage the homeowner receives monthly payments, they are still responsible for real estate taxes, insurance, and home maintenance.

How-To Spot a Foreclosure Rescue Scam Artist

With foreclosure rates high, homeowners all over the country are struggling to secure their finances and save their home. Unfortunately, this means that foreclosure rescue and mortgage modification scams are on the rise as well.

"The fact that these scammers are zeroing in on scared and often panicked homeowners is sad," says Lawrence Finn, CEO Owner/Broker of Coach Real Estate Associates. "However, it's a reality we have to face by arming homeowners with the tools they need to protect themselves."

So how do these scammers move in? Many companies say they can get a change to a loan that will reduce the homeowner's monthly mortgage payment. Others say they're affiliated with the government, or the lender,and many even offer a money-back guarantee. "These con artists often claim they can 'save' your home, often pretending that they have direct contact with your mortgage servicer," explains Finn. They ask for a fee, or require you to make mortgage payments directly to them, and then they disappear with your money.

And how do they find distressed homeowners? "Some watch for public foreclosure notices in newspapers and online, or check public files at local government offices, and then send personalized letters or make phone calls directly to the homeowner," explains Finn. "Some place ads online or on TV and let the homeowners come to them."

Below, Finn outlines a few different commonly used tactics that scammers use to lure in distressed homeowners.

The Rent-to-Buy Companies or scammers who use the rent-to-buy scheme tell the owner to surrender the title to their house as part of a deal that allows them to stay there as a renter with the promise that they can repurchase the property later.

The Counselor The company or scammer tells the homeowner that for a fee, they'll negotiate a deal with your lender to reduce your mortgage payments or to save your home. Often, they claim to be attorneys or represent a law firm.

Bait-and-Switch "In this type of scam, con artists give homeowners documents to sign to get an additional loan, which they claim will make their loan current," explains Finn. Usually somewhere hidden in the document is information surrendering the title of the home to the scammers in exchange for a rescue loan.

The Auditor Here, an "auditor" offers to have an attorney or real estate expert review your mortgage document to determine if your lender complied with the law. They ask for an upfront fee and then disappear. "These scam artists often call themselves forensic loan auditors, mortgage loan auditors or foreclosure prevention auditors," says Finn.

So how can you tell if you are dealing with a foreclosure rescue scam artists? Keep an eye out for the following warning signs:

Beware of anyone who: o Asks you to pay an upfront fee in exchange for counseling or loan modification o Pressures you to sign papers immediately o Asks for payment by wire transfer or cashier's check o Claims they will buy your home from you so you can repurchase it over time o Tells you not to contact your bank, lender or lawyer o Asks you to make mortgage payments to them, instead of your lender

Do not sign over the deed to your property to any organization or individual unless you are working directly with your mortgage company

Never make a mortgage payment to anyone other than your mortgage company.

"If you have gotten a foreclosure notice, or are having trouble making mortgage payments, contact your lender and see if you can negotiate a new repayment plan," advises Finn. "Your home is your most valuable asset, so being hyper-aware of scammers is important."

New Loan Program for Doctors

We are proud to announce our official lending partner, Residential Mortgage Division, an affiliate of Wells Fargo Home Mortgage, has recently created a mortgage product just for medical doctors.

Medical doctors who have recently completed their residency often face unique financial obstacles when purchasing a home.

This new home mortgage product helps to remove these obstacles, broaden the range of properties the borrower can consider and reduce the amount of the down payment by taking into consideration the doctors future income earning.

To learn more about this mortgage program and the qualifications needed, please click here.

 

What is your mortgage IQ?

When it comes to your knowledge of home financing, do you feel there may be something you are missing? According to a recent survey published by Zillow.com, 44 percent of homebuyers admitted they are not confident in their knowledge of mortgages or the mortgage process.

 

The Zillow® Mortgage Marketplace survey, also stated "more than half (55 percent) of prospective home buyers in the study do not understand that mortgage rates vary throughout the day."

 

To read the report's complete findings, please click here.

 

At Coach Realtors, our team of more than 600 real estate sales professionals is backed by our home finance partner Residential Mortgage Division, an affiliate of Wells Fargo Home Mortgage.

 

Our mortgage partner provides our buyers, sellers and sales agents with the expert information needed whether financing a first home, next home, newly built house, or refinancing a current mortgage, lowering monthly payments, or turning equity into cash.

 

Residential Mortgage Division is dedicated to providing you with top customer service and assistance in finding the tailored solution that meets your home buying or refinancing needs. Their innovative financing programs can help you buy your very own piece of the American Dream, and establish long-term financial security for you and your family.

 

FICO to walkaways: You're on our screen

Fair Isaac, developer of the ubiquitous FICO score, has a new warning for homeowners plotting a strategic default or walkaway: We can now spot you in advance. FICO has developed a black-box risk-identification tool that enables lenders and mortgage servicers to tag you months in advance -- and then pursue their own strategic measures to intervene.

 

READ COMPLETE ARTICLE HERE

For Buyers:The Financial Opportunity of a Lifetime?

Today's blog post is an informative (and borrowed) article regarding the opportunity facing today's buyers.

 

The following article is from KCMBlog.com:

 

We often point out that a buyer should be more concerned about the COST of a home rather than the PRICE. Price obviously is a component of cost. However, unless you buy all-cash, you must also be concerned about the financing of the purchase. The price and the financing together determine the cost of a home. Today, we want to look at only the financing piece.

 

An opportunity exists today because of recent government involvement; an opportunity that may never again be available in our lifetimes. There has been much discussion about what role the federal government should have in supporting homeownership. We will leave our opinions on the debate for another time. However, we want to alert you to two advantages available to a purchaser today that may disappear in the future:

 

Historically low interest rates.

 

The ability to lock in these rates for thirty years.

 

Interest Rates:

Because of the financial crisis, the government stepped in and instituted a series of programs which pushed mortgage interest rates to historic lows. If we look at 30 year mortgage interest rates before and after government intervention we see the impact these programs had (see chart below). Click here to read the full article

 

Four Steps to Take Before Buying a Home

Did you know that one in seven Americans has at least 10 credit cards? It's true. However, the average is four, according to a report from Experian.

If you are considering buying a home, there are four crucial elements you must have in place before taking the first steps toward homeownership. Whether you are a first-time home buyer or moving up to a new home, plan for your move by preparing for the following:

1. Create a budget. Home buyers need to have enough money to cover monthly mortgage payments comfortably. "Properly budgeting your monthly finances is a must before taking any of the first steps towards finding and moving into a new home," Lawrence Finn, Jr., CEO Owner/Broker of Coach Realtor. Though seemingly an obvious preparation, many foreclosures occur because buyers don't carefully examine their income and expenses ahead of time and fail to plan for monthly mortgage payments. "Talk to mortgage professional within our firm's mortgage partner Residential Mortgage Division or a Coach Realtors sales associate to see if you can afford a monthly mortgage. The more financial planning you do in advance, the less likely you'll be in for any surprises," says Mr. Finn.

2. Plan for taxes and insurance. On the topic of affordability, be sure your income will cover any property taxes and homeowner's insurance payments. Buyers need to make sure their monthly income covers these extra expenses. While planning your finances, include these two items in your budget. Make sure to have other spending money and extra cash available as well. You never know when something will break down or need replacing.

3. Factor in maintenance. Buyers must also have the ability to properly maintain the home. "Maintaining the home is important. If the home isn't in good condition, you will lose value on what is most likely your largest investment and set the stage for a potential loss when it comes time to sell," says Finn. Don't ignore problems that need attention.

4. Review your credit standing. Lastly, a home buyer must have good credit – especially in today's lending environment. If you have late payments, a bankruptcy or unpaid debts, it will be difficulty to lock in a mortgage. If you do land a mortgage deal, the interest rate will be higher if your credit score isn't up to par. A good line of credit will ensure the best rates possible. Pay off those debts before trying for a mortgage.

With the right funds, maintenance resources and a good line of credit, you will be well on your way to jump starting the home buying process.

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