The Do’s and Don’ts of Getting a Mortgage

Most borrowers want their mortgage closing to be simple and stress-free. That is why it is important to avoid the behaviors that can have an adverse effect on the mortgage application process, and to do the things that keep your financial picture frozen in a stable position until the loan closes.

Follow the basic steps below and you should have a worry-free experience when going through the mortgage process:

Do: 

• Continue making your mortgage or rent payments: Late payments on existing mortgages, car loans, or student loans are reported to the Credit Reporting Agency (CRA). A thirty day late payment can cost a potential homeowner several points on their credit score.

• Stay current on all your existing accounts: You can still use credit cards during the home buying process, but it is important to keep them in good standing.  Any deviations from normal spending patterns can seem suspicious.

• Keep working at your current employer: It is important to keep your income and employment information consistent during the mortgage application process.

• Keep your same insurance agency: Keeping your insurance agency the same is an essential step to making a smooth mortgage application process.

• Continue living at your current residence: Keep your contact information the same.  Changes in residence can show instability, which can negatively affect the mortgage closing process.

• Call your loan officer if you have any questions: If you have questions during the loan process, feel free to call me directly at 410.491.0200 or email at sepstein@baybankmd.com.

Don’t:

• Quit your job: Don’t make changes with your employment or income.

• Change bank accounts: Don’t make changes to your financial accounts.

• Open a new cell phone account: Don’t make changes to your contact information. Also, some cell phones plans rely on credit scores.

• Make unusually large deposits into your checking or savings accounts: Deposit amounts that are out of the ordinary will raise questions from the underwriter unless the deposit is a documented gift. Similarly, don’t make large transfers from one account to another.

• Make changes to the purchase contract: Don’t make changes to the purchase contract without first consulting your lender.

• Make large purchases (car, jewelry, boat, etc.): This can also include starting large home improvement projects, furniture, joining a fitness club, or financing any elective medical procedures.

• Apply for a new credit of any kind: It is important to not establish any new lines of credit during the loan application process, whether it is a credit card or a new loan.

• Finance furniture purchases: Furnishing a new house can be exciting.  However, some furniture retailers offer credit extensions for purchases. This can also affect your credit score.

• Pay off charge offs or collections without speaking to your mortgage lender: Paying off old collections can cause a drop in credit score.  Your mortgage loan officer will tell you to make a payment if it is necessary to secure the loan.

• Pay off loans or credit cards: Don’t pay off any loans, credit cards, or outstanding debt without first speaking to your mortgage lender.

• Close credit card accounts: Closing any credit card accounts can affect the debt to available credit limit ratio. Wait until after the mortgage has closed to cancel any credit card accounts.

• Max out or over charge credit card accounts: Once potential homeowners are engaged in the mortgage process, it is important to keep credit cards below 30% of the available limit.

• Consolidate debt: Consolidating debt can change the debt-credit ratio to where it becomes over 30% of the available limit.

For more information, please contact Stuart Epstein at 410.491.0200 or email at sepstein@baybankmd.com.

Mortgage Insurance is Once Again Tax Deductible

There’s a saying that Americans love to quote, “The only thing I have to do is die and pay taxes.”

Well, with tax season coming up, it’s time to focus on the more positive part of that short list.

One area that everyone likes to review is the deductibles, and it’s worth knowing as much as you can before you file your income taxes.

If you haven’t heard about the American Taxpayer Relief Act of 2012, you may want to pay attention.

The act declared that borrower-paid premiums on mortgage insurance are tax deductible through the end of 2013.

Like any deductible, there are a variety of facts you should know before claiming this deduction.
The loans that qualify for this deduction are referred to as “acquisition indebtedness.” In layman’s terms that’s money borrowed to buy, build or substantially improve your residence. The same residence must secure the loan.

Purchase loans and refinance loans are included under this heading and can be as high as the original acquisition indebtedness.

This deductible is the same among all loan types and the money used must be for a qualified residence. The IRS code defines residence and it usually includes the primary, and secondary nonrental home.

Finally, in order to qualify for this deduction, households must have an adjusted gross income of $100,000 or less to deduct 100% of their mortgage insurance premiums. For each additional $1,000 of adjusted gross income above $100,000, the deduction decreases by 10%.

In the case of married individuals filing separate returns, each must have adjusted gross incomes of $50,000 or less to deduct 50% off of their separate returns. For each additional $500 of adjusted gross income over $50,000, the deduction decreases by 5%.

Whenever you take a deduction on your personal income tax, it’s wise to be very careful and thoroughly review the guidelines. In the case that you take a deduction by accident, you might be penalized or audited.

Hiring a licensed tax preparer, or consulting with an experienced and knowledgeable tax attorney can help you avoid penalties and audits, and file a tax return that’s correct and processed quickly.

Spring Housing Market Update for Baltimore Metropolitan Area

Written by Stuart Epstein

It’s hard to believe that we are into May already!  I will say that I am happy to report that the first four months of 2012 have been one of the busiest that we have seen in a long time in the Baltimore area home buying market.  We are up by 9% over 2011 for purchase mortgages, and an average purchase price of $200,000, compared to $187,000 for the same period last year.  Many people are starting to realize that home prices may have hit their low point and interest rates could not be more attractive than right now.  For example, the average rate on an FHA 30-year fixed rate loan right now is 3.5% and a Conventional 30-year fixed at 3.875%.  Our refinances have more than doubled for the first four months of 2012 over 2011!  This is mainly due to rates being at an all time low.  Many are reducing the term from 30 years down to 15.

The majority of the new applications are 1st time homebuyers, who happen to be in the best position right now, given they have no house to sell as a contingency for buying.  They also have the benefit of receiving 1st time homebuyer grants and incentives, such as the CDA loan with DSELP (Maryland Mortgage Program) and the FHLB grant. 

We are also seeing more “step-up” buyers, those who are selling their current home and upgrading to a larger or superior home.  Since inventories of sought after homes on the market seem to be shrinking, some sellers are finding it easier to get contracts on their houses in a couple months.   Some areas are actually experiencing bidding wars again.

The mortgage qualifying and documentation standards have continued to get more and more restrictive, which can make for a stressful process when applying and taking out a loan these days. The good news is that qualified borrowers can still get a loan, and at historically low rates.  It just may be a bit more painful getting to settlement. 

I may sound like a broken record, but the key is having a good, reputable, local lender working for you to make the transaction as smooth as possible. 

If you own a home and have not refinanced in the last year, make sure you check with your lender to see if it makes sense for you to refinance.  There are several programs available to help: the FHA Streamline Refinance, the VA IRRRL Refinance and the Fannie Mae DU Refi Plus programs all have flexible guidelines to help those who may not have the equity normally required to get a lower rate.  If you are not sure if it makes sense for you to refinance, or if you are not sure if you can, don’t hesitate to call (410.491.0200) or email us to do a free analysis.

Enjoy the beautiful spring weather!

More Exciting News for 1st Time Buyers in Maryland!

More Exciting News for 1^st Time Buyers in Maryland!

CDA  (The Maryland Mortgage Program) is offering the 30 year fixed rate loan at 3.5% and no points!! 

Can you believe it?  Well, there’s more.  You can also purchase and renovate a home with a 203k Loan and CDA and get a 30 year fixed rate at 3% and no points. 

I know it seems too good to be true.  CDA has lowered their rates to help to revitalize the market and incentivize 1^st time homebuyers.

In addition to the awesome rates, you can qualify for the DSELP - $5000 toward closing costs and down payment, and several other grants that come along with the CDA loan.

These rates won’t last forever.  If you want to know if you are eligible for this incredible program, please contact us right away! Contact me directly at sepstein@carrolltonbank.com or (410) 491-0200. 

Why Should I Refinance from a 30-yr Fixed to a 15-yr Fixed Rate Loan?

Mortgage Rates in Maryland - Why should you Refinance from a 30-year fixed to a 15 year fixed rate loan now?  

I will tell you why.  Suppose you took out a $250,000 mortgage on your home two years ago.  You have made your payments on time (like a good boy or girl) and after two long years, guess what your principal balance is…….$243,000 – ouch!  You have barely made a dent.

Now suppose you could get in your time machine, go back 2 years and do a 15-year mortgage instead.  After two years your balance on the mortgage would be $224,000.  That’s a difference of almost $20,000!!
 
Even you do not have a time machine…well… sorry... there is still hope.  What about refinancing that evil 30 year mortgage now while the rates are great and get into a 15 year mortgage…and watch your debt melt away!!

Here is the math:  Using the scenario above, if you are two years into your 30 year loan at a rate of 5.5%, and you refinance your loan into a 15 year mortgage at 3.75%, you will save over a hundred grand.  Would you like to save a hundred grand?  I think so!

If you keep the existing 30 year loan, after 15 years of regular payments, you will be left with a balance of $177,000 you still owe.  If you refinance to a 15 year loan, you will be left with a balance of $0 after 15 years (obviously).  The difference in the payment for the 15 year mortgage is about $400/month (times 180 payments = $72,000).  $177,000 minus $72,000 equals $105,000 in your pocket!!

My suggestion – bite the bullet if you can and consider refinancing to a 15 year loan while rates are at historic lows….but only if you are interested in savings lots of money!

Feel free to contact us at any time if you are interested in refinancing your loan. You can also visit my website for more information at www.stuartepstein.com/.

What is the Loan Process?

Save time and avoid delays by having this information available when you meet with your lender.

• Copy of Purchase Sales contract or Offer to Purchase and all addenda (signed by buyer and seller)
• Past 2 years' tax returns and W-2s
• Past 2 years' employment history
• Last 3 consecutive paycheck stubs (5 if paid weekly)
• Name, address and phone for past 2 years' residence(s) and landlord(s). Renters should bring evidence of 12 months' rent payments.
• Last 3 months' statements for savings, checking, CD, money market accounts, etc.
• Recent statement on retirement accounts (IRA, 401K, 403-B, Annuity, etc.)
• Monthly payments and balances on all open accounts
• Divorce decree (if applicable)
• Bankruptcy schedules/Discharge papers (if applicable)
• If you are NOT a US citizen, provide a copy of your green card (front & back). If you are NOT a permanent resident provide a copy of your H-1 or L-1 visa.

Find out how much you are qualified to borrow.

When buying a home, you may be pre-qualified or pre-approved. You can be pre-qualified over the phone or on the Internet in a few minutes. Pre-qualification is not as useful as pre-approval. Pre-approval requires a more rigorous process, including verification of your credit, income, assets and liabilities. It is highly recommended that you be pre-approved before you start looking for a home.

Being pre-approved will:

1. Inform you of your maximum affordable home value, and save you from previewing properties outside your price range.
2. Put you in a stronger negotiating position with the seller, because the seller will know your loan is pre-approved
3. Help you close quickly, since your loan is pre-approved.

What loan program is best for your situation?

1. Think about how long you plan to keep the loan. If you plan to sell your home in a few years, you may want to consider an adjustable-rate or balloon loan. If you plan to keep your home for a longer time, you may want to consider a fixed-rate loan.
2. Understand the relationship between rates and points. Points are considered prepaid interest and may be tax deductible. Each point is equal to 1 percent of the loan. For example 1 point on a $150,000 loan is $1,500. The more points you pay, the lower your rate.
3. Compare different loan programs. With so many programs to choose from, it's hard to figure out which program is best for you. Consult an experienced loan originator who can help you find a loan program that best fits your short- and long-term plans.

All the research and preparation you've done to this point makes this step an easy one.

You can apply online or in person. Complete and sign the residential loan application, Form 1003 and the attached loan info sheet, credit authorization and fair lending notice. Your loan originator may also request additional documents, such as a loan information sheet, credit authorization and fair lending notice.

Once your loan application has been received, the loan approval process starts immediately. This involves verifying your:

• Credit history
• Employment history
• Assets including your bank accounts, stocks, mutual fund and retirement accounts
• Property value

Based on your specific situation, additional documents or verifications may be required.

To improve your chances of getting a loan approval:

• Fill out the loan application completely.
• Respond promptly to any requests for additional documents. This is especially critical if your rate is locked or if you plan to close by a certain date.
• Anything that causes your debts to increase might have an adverse affect on your current application.
• Do not move money into your bank accounts unless it can be traced. If you are receiving money from friends, family or other relatives, please contact us.
• Do not go out of town around the closing date. If you do plan to be out of town when your loan is expected to close, you may sign a power of attorney, to authorize another individual to sign on your behalf.
• Notify your loan officer before applying for any other credit, including credit cards, personal loans or even with another mortgage company. Some loan programs have strict guidelines regarding your credit score. Credit inquiries may lower your credit score and may have an adverse affect on your loan approval.

After your loan is approved, you will be required to sign the final loan documents. This will normally take place in the presence of a notary public. Be prepared to:

• Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally NOT accepted.
• Review the final loan documents. Make sure that the interest rate and loan terms are what you were promised. Also, verify the accuracy of the name and address on the loan documents.
• Sign the loan documents. The notary will require that you have your picture ID with you. Some lenders also require seeing your Social Security card.

Your loan will normally close shortly after you have signed the loan documents. On refinance and home equity loan transactions, federal law requires that you have three days to review the documents before your loan transaction can close. Purchase transactions do not have a three-day rescission period.

(Originally found on my website.)