Helping Washington State homeowners learn more about their mortgage options.
All day long on Tuesday, June 19, 2007, Tully’s will donate 20% of all store revenue to support the JP Patches statue fund and Children’s Hospital.
I am a true Patches Pal…and I’m not alone. JP Patches was in my home and many others in the Pacific Northwest televised via KIRO from 1958 – 1981.
Let’s raise a coffee cup and toast this local treasure. Visit your local Tullys next Tuesday. Cheers!
– Laurie Manny – Gena Reide– Roberta Murphy– John Novak– Kaye Thomas– Linda Davis– Leigh Brown– Lenn Harley– Maureen McCabe– Mitchell Hall – Sara Lipnitz – Kevin Boer – Greg Swann – Larry Cragun – Jay Thomson Just in case you’re considering a move away from Seattle…it’s sunny today so wait until it rains again (tomorrow). Here are some great real estate blogs from across the nation.
I’m noticing more contingent offers lately. This is when someone makes an offer to purchase their next home and the offer is contingent on the successful closing of their current residence. Contingent transactions may occur for several reasons:
In fact, I just had an excellent question from one of my clients that is worthy of sharing with you:
“Since our purchase is contingent on sale of existing property, when does the loan actually close and what are our liabilities in the event our home fails to sell? The only other time I bought a house there wasn’t the issue of selling one so it never came up for me.”
With this scenario, without a bridge loan to tap into the equity of the former home, the loan on the new home will not be able to close until the old home is closed. This is because the proceeds of the old home are needed for the down payment on the new home. This typically takes place the same day, however, I recommend having the closing take place the day after the day after the old home closes, if possible, to allow for transfer of funds. This is referred to as a simultaneous closing.
A bridge loan allows you to close on your new home quicker, without waiting for the old property to sell and close. Knowing your closing date, also enables you to secure your interest rate by being able to lock your loan. A home equity loan on the current residence is also a possibility. However, the advantage with the bridge loan is that there are no monthly payments due (interest is deferred until the home is sold).
Check with your Real Estate Agent to see what your liabilities may be if your home does not sell. There should be an addendum to the purchase and sale agreement addressing what happens if your home does not sell. The purchase and sale agreement may also address when the closing date will be on your new home (for example, “x” days after the closing of your old home) and what happens if someone else makes an offer on the home you’re buying “non-contingent” (without having to sell their home to close on the new home)…also referred to as being “bumped”.
People buy homes contingent all the time. It’s important to have an understanding of the process, what your options are and to have a game plan in the event of a “bump” so you can be ready with your ducks in a row!
UPDATE 2012: We currently do not have bridge loans available as of 4/20/2012.
If you would like me to review your current scenario to help you be preapproved for your home purchase anywhere in Washington state, please contact me.
Whether you’re married or are a couple who own a home together and are now facing a separation, dissolving a partnership is never easy. Even if both parties are amicable and agree to the break up, it is a very emotional time. You may just be thinking about who gets to keep the house…or you just may want out and not even care about the property. Your mortgage and credit history is probably the last thing on your mind…however, you may want to consider protecting the credit that you’ve worked hard for.
Do contact an attorney who specializes in divorce. Even if you just contemplating a divorce and you’re not certain you will file. It’s important to find out the facts and get legal advice from a professional.
Obtain your current credit report. You can get a free copy from www.annualcreditreport.com. Review it to make sure that your debts are in order and that the other party is not using your credit for “retail therapy”. Identify which accounts you may want to close if they have your name on them. The credit company may be all too happy to issue your own card in your own name. Having an ex-partner with your credit, even if you’re getting along now, can wreck havoc on your scores. If your name remains on an account they have, even if they pay the debts on time, if the balances exceed 30% of the limit on a credit card, your credit score will suffer too.
Consider closing any joint accounts immediately that are not in use and removing your name from any accounts that you are a signer on.
Secured accounts, such as loans attached to vehicles and mortgages must be dealt with too. You might consider selling the items that have secured loans in order to remove your name and liability from the debt. Otherwise, you should consider refinancing the loan. Plus, the payments may be factored as your debt when qualifying for new loans, such as a mortgage.
Should your ex-partner decide they want to keep the house, require that they refinance the mortgage so that your name can be removed from the debt. Deeding the property from one person to another does not remove the liability of the mortgage. Even if your partner is a really nice person right now, if they lose their job 5 or 10 years from now, and your name is still on the mortgage, it will dramatically impact your credit if the bills are not being paid.
If your ex-partner does not qualify for a refinance of the property, then how can you expect them to make the payment? It’s too risky.
One of my friends went through a divorce. Her ex really wanted the house. He did not qualify for the mortgage on his income alone and wasn’t thrilled when she insisted that he needed to refinance to take her name off of the mortgage. Although it was a tough decision, they sold the house and split the proceeds. He remarried and bought another house with his new wife and in just a few years, filed bankruptcy and the home was foreclosed. Imagine what would have happened to her credit if she would have accepted the cash offer of her share of equity without refinancing the mortgage out of her name? She would have been responsible and included in the foreclosure. Her credit would have been trashed and it would be extremely difficult for her to buy a home.
Should you divorce, your divorce decree will not override your agreements with creditors. It’s important to be proactive and to always take steps to protect your credit. Although credit scores are reflective and not permanent, bankruptcy and (especially) foreclosure will impact your credit scores and interest rates for years.
Remember, take precautions with your mortgage, credit history and consult with an attorney if you are considering a possible divorce.
Even at our home, we’re getting more and more amazing offers from lenders. Recently one of my clients asked,
"We keep getting info in the mail from some odd place that says that we have a mortgage through Mortgage Masters and that they can reduce our house payment to $900.00 per month. We shred them every time we get them but now I am curious if it is true? It does not have the Mortgage Master logo on it, it just says that they know we have a mortgage balance of $266,000."
It’s amazing how much personal information that you would assume is private, is actually public. Any lender or real estate agent can obtain a fine tuned list from a title insurance company or various other marketing companies for a fee. It’s my opinion that if a Loan Originator has to use "cold marketing" (letters, post cards and phone calls to people they don’t know) to drum up business, it’s because they lack referral and/or repeat business from their past clients. No one wants to work with them or their company again nor refer someone to them…therefore, they must buy leads and mail to strangers (you and me).
Many of these offers are suspect…if it seems too good to be true, it is. Bait and switch tactics of offering low rates like 1% or skipping several months of your mortgage payment are hung out in order to have you call "Slick" at the mortgage company. Often times, the ads will appear as if they are coming from the mortgage company you obtained your financing from (check the very small print at the bottom of the letter). The gimmick marketing may even appear to be from a government agency or as if it’s a "special limited time offer". Chances are, it’s a hoax.
As I mentioned at the beginning of this post, we are personally getting deluged with "amazing offers". I think it’s because we have an adjustable rate mortgage. And, the mortgage marketers know this…many of the pieces we receive state that and have emotional rich phrases such as "stabilize your monthly mortgage payment…it’s urgent to refinance now." Our ARM is fixed for seven years. We have five years left on it. It’s not urgent for us to give up equity for closing cost to have a 30 year fixed mortgage at this time.
Another beauty, which I am going to send in to DFI to see if any actions will take place…came in a gold envelope from the "Department of Public Records" appearing as though it’s a check for $660,000. When you open this piece (of crap…sorry, this bugs me) it claims that the "sponsored lender" is Mortgage Master Service Corporation. I can assure you, this is not true. It also offers us a 1% interest rate and that this loan will fund in 10 days. This piece is from a Consumer Loan Lender. They have different guidelines they abide by than Mortgage Bankers or Mortgage Brokers.
The bottom line is that there are a plethora of mortgage marketers out there who are trying to take advantage of home owners fears of rates adjusting or debts…you name it. Don’t fall for it. If you need help with your mortgage or have any questions, contact a qualified Mortgage Professional.
Hopefully you had a good experience with the person who helped you with your original financing…if not…contact someone you respect and trust for a referral to one. What ever you do, don’t fall for misleading junk you receive in the mail.
UPDATE: If you have misleading advertisements sent to your Washington State home, mail it to:
Enforcement Unit, Division of Consumer Services, DFI, PO Box 41200, Olympia, WA 98504
It pays to have a plan when you’re determining how much down payment you should use when you’re buying a home. Often times, when families have sold a home and they have benefited from our local appreciation, they may have a significant amount of funds available (proceeds). A typical reaction is to invest all of the funds from the house they’ve sold into their new home. What’s wrong with this? Nothing really…except if you want or need the cash back out, there’s now a cost and process to extract it (refinance or equity loan).
And consider this…your home equity does not earn any interest. Zero. Instead, you could invest the funds that have gone towards your home equity into an interest bearing vehicle advised to you from your qualified financial planner.
The more money you use for down payment, the more you’re reducing your tax deduction benefit of the acquisition mortgage as you are reducing your mortgage amount. Your tax deduction on your mortgage is based on when you purchased your home, and obtained your "acquisition mortgage" to finance the purchase. As you pay the mortgage down, this amount is reduced. When you refinance, the balance just prior to the refinance is treated as the "acquisition debt" that is allowed to be deduct the interest from. You are also currently allowed an additional $100,000 in home equity mortgage interest deductions. You may want to consider having a larger mortgage balance when you purchase to establish a larger tax benefit.
Example, when you purchased your home 10 years ago, your mortgage was $180,000. You’ve been making on time payments and the balance is now $150,000. You refinance and have a new mortgage balance of $300,000. The amount of interest you can deduct is based on a mortgage amount of $250,000 ($150,000 plus the $100,000 home equity allowance). There may be other compensating factors and I am not a CPA, tax or financial planner. Always consult with your trusted financial advisers.
Do you have debts (with no tax deduction benefit) that can be eliminated with proceeds? Often times, the monthly money you free from eliminating a debt (such as credit or car payments) that once went to a payment is more than what the increase in the mortgage payment would be from trading the debt to a mortgage.
Example, if you have a car loan with a balance of $11,000 and a payment of $350, increasing your mortgage amount by $11,000 would provide an increase in your payment $67.73 per month (based on a 30 year fixed payment with a rate of 6.25%). This frees up $282.27 a month, plus the interest on the mortgage is tax deductible, the auto loan is not.
Is your retirement or the kid’s college tuition funded? How about the vacation home or investment property you’ve been contemplating? Will you need some extra dough to make improvements to your new home?
My only point is for you to consider a strategy for your down payment before you automatically roll 100% of it over to your next home. Plan up front so you don’t need me for a refinance too soon in the future…wait!! I take it back.
I feel pretty special when Larry Cragun of RealEstateUndressed presents his monthly nominees for his Magnificent 7…especially when my post are included with some pretty good company. He focuses on consumer friendly content, just like I try do.
Larry has selected 8 posts from May that are worthy of reading…somehow, three of articles are written by me. Do check out everyone else’s worthy reads and give Lar a visit.
Today I received an email from one of my clients regarding home equity loans, also known as a HELOC. Here’s part of their question:
"We keep getting info regarding a home equity loan. We want to know what a home equity loan is and if that is something for us?"
Home equity loans can be an excellent financial tool when used properly. They can also be dangerous if not managed correctly. Typically, home equity loans feature interest only payment which are on the balance used on the loan. The rate is based on current prime and has a lifetime cap of 18%. A home equity loan will adjust whenever the prime rate adjust (unless the rate has been fixed). They operate very similar to a credit card.
The rate may vary based on loan to value (equity), credit score, the level of documentation (full doc or low doc) and occupancy (owner vs. rental). The rate is prime plus or minus what ever factor is determined based on the above criteria (margin). For example, it could be prime plus 0, or prime plus 1, prime minus 1, etc. Prime is currently 8.25%. There is a draw period and when that time is up (typically 10 or 15 years) the balance at that time is due in full.
Situations where home equity loans are best used are when you’re not using them. For example, if you have a home equity loan attached to your home and you do not intend on using it. It’s there in case of an emergency, such as loss of employment or medical need. They are also great if you’re anticipating having cash to pay it down (and you’re not planning on investing the cash or using it elsewhere) since your mortgage payment is based on the balance. We used a home equity loan for the purchase of our current home. We are paying it off in chunks and intend to keep it open even once it is paid. Home equity loans creates liquidity and provides flexibility with you equity and cash flow. I prefer the home equity loans where you have the option of fixing your rate (however, if you’re in a market where the rates are going down, you may not want to fix it).
When home owners use home equity loans like a maxed out credit card and tap out significant amounts of their equity and it’s a pattern to pay off debt; a home equity loan can be a recipe for trouble. A home equity loan, with the wrong plan or with borrowers who cannot resist relying on it, can quickly gobble up your equity.
Fixed rate second mortgages are other possible mortgage options to the home equity loan. The advantage to the fixed rate is that…the rate is fixed. And, you know what your payment will be month to month. However, if you are planning on making a lump mortgage payment, unless the lender is willing to re-amortize the mortgage, you’re stuck with your existing mortgage payment.
A refinance of your first mortgage may also be worth considering depending how long you plan on retaining the mortgage and what your blended rate would be with having two mortgages.
When the prime rate was lower, HELOCs were very popular. And, once prime began to climb, many borrowers refinanced out after realizing what their rates were climbing too and how quickly it can happen.
With so many options available, this is why it’s important to work with a professional Mortgage Planner who will consider your options and financial goals.
Rhonda Porter is a Licensed Mortgage Originator MLO121324 living in the greater Seattle area. Rhonda began her career in 1986 in the title and escrow industry and began her mortgage career in 2000. She enjoys helping people understand the mortgage process and started writing The Mortgage Porter in late 2006. Read More…
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