Tag Archives: escrow

Money Monday: Money terms and what they mean

It’s easy to be confused by all the different finance and money terms out there. Here are a few terms common to real estate:

Escrow

Escrow is a safe, intermediary account for money when it’s moving between a buyer and seller. Placing funds there tells the seller: “I’m serious about this deal and I can pay.” During the time the down-payment is in escrow, a homebuyer can take care of due diligence, including a home inspection. If it turns out something is off about the house — like structural damage — the buyer can pull out.

You can also escrow money (yes, it’s a noun or verb) for fees beyond your mortgage, like property tax and mortgage and homeowners insurance. Federal Housing Administration-insured mortgages, for example, require escrow accounts. (“Money terms you’re too embarrassed to ask about.” 

APR

Even if you already know that APR means “annual percentage rate,” you might not understand what it is. Lenders are required to disclose the APR when lending, which is great for transparency…

The APR is the rate charged annually for borrowing money. But unlike an interest rate, it includes fees and other costs the transaction may include. So the APR is usually higher than the nominal interest rate. Also, unlike annual percentage yield (APY), the APR doesn’t take into account compounding interest. (“Money terms you’re too embarrassed to ask about.” 

Read up on more financial and money terms here, on Money.CNN.com: “Money terms you’re too embarrassed to ask about.”

Four steps to buying a house in 2012

Q: I am on a mission to buy a home. I’ve wanted to own a home my entire life, and thought I would miss the opportunity to buy while the market was down, because I had no real savings when the market crashed. I think I’m ready, though, and prices still seem low. What should I be doing now to make this happen in 2012?

A: The recession has done lots of favors for buyers-to-be, including dropping prices and interest rates to bargain levels. But it has also created a lending and housing market climate in which loans are tough to get, tensions about buying into a down market run high, and transactions are harder and longer to close than they have ever been.

Here are the things to do now, to buy a home this year:

1. Fix credit problems. More deals than ever are dying on the vine, and credit problems are a top reason home-sale transactions fall out of escrow. Detect and correct errors on your credit report now by reviewing the federally mandated free reports you can get at AnnualCreditReport.com.

2. Study up. Do some research, both online and offline, into things like:

Areas: Start your online research into decision points like tax rates, school districts, neighborhood character and even prices in various areas. Check out NabeWise.com for some local insight into neighborhood flavor and personality.

When you start connecting with local agents, ask them to brief you on neighborhood market dynamics. They can give you a deeper view into need-to-knows like how long homes typically stay on the market and whether they generally go for more or less than the asking price, so you can be smart about how you search vis-à-vis what you have to spend.

Agents: This is the perfect time to ask your family and friends for a referral to an agent they know, have used and love. Then, follow up by doing an online search for the agent’s name and seeing what sort of online reviews and activities you find. When you’ve narrowed the field down to a few, call them up and set up a meeting to find out if you’re a good fit.

Distressed properties: In some areas, more than 40 percent of the homes on the market are short sales and foreclosures, and they involve a very different timeline and set of facts than traditional home sales. Read up and talk with the agent candidates you interview about what you should expect from these types of listings, to minimize surprise and manage your expectations way in advance.

3. Save even more. Sounds like you’ve worked hard for a number of years to save enough cash that you think you’re in the clear when it comes to funding your down payment and closing costs. Studies show that after months of saving, people often let up and relax into a spending season. Even at your early stage in the process, it’s easy to start noticing and buying the furnishings and touches you want to install in your new home.

Although you shouldn’t feel deprived or forgo amazing and affordable deals on things you know you’re going to need, rest assured that no matter what amount of cash you have on hand, when you start house hunting, making offers, closing your transaction or moving in, the time will definitely come when you’ll wish you had more.

You might want to ratchet up your offer a bit to best another buyer, or you might just end up with a place that needs a little sprucing up. It might be months before you know exactly what you’ll need extra cash for, but now is not the time to press the gas pedal when it comes to your monthly spending.

4. Purge. Now’s the time to sell, donate or give away as much of your personal possessions as you can. Use the proceeds to pad your cash cushion, or tuck the donation receipts away for your tax records next year.

Start here, and chances are good that your house hunt — and purchase — will be in full swing by spring, if not sooner.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

Top six reasons mortgage applications are rejected

Half of refinance applications are abandoned or rejected, as are 30 percent of purchase mortgage applications, according to the Mortgage Bankers Association. All told, the Federal Financial Institutions Examination Council (FFIEC) says that well over 2 million mortgage applications were rejected last year.

Want to avoid falling into that number? It’s tough — especially in light of the fact that mortgage lenders have become increasingly restrictive in terms of their lending guidelines since the housing market crash.

Here, as a cautionary tale and primer on what to expect, are the top six reasons mortgage lenders reject applications.FFIEC

1. Income issues. Most failed applications falling into this category have income too low for the mortgage amount they are seeking; often, a spouse’s credit issues can create this problem, too, as the income the spouse plans to actually chip in toward the mortgage cannot be considered by a lender.

But increasingly, the recent vagaries of the job market are also causing this issue, as people who have changed their line of work or have changed from salaried employee to freelancer over the last couple of years can also have their home loan applications rejected based on income.

2. Muddled money matters. If the mortgage for which you’re applying plus your monthly payments on credit card, car and student loan debts will comprise more than 45 percent of your total income, you could have problems qualifying for a home loan. You might also run into problems if you rely too heavily on bonuses, overtime, cash wages or rental income — all of these can be difficult or impossible to get a mortgage bank to consider, and if they do, they might not take all of it into account.

3. Credit issues. Today, the mortgage-qualifying FICO score cutoff falls somewhere between 620 and 660, depending on which lender and which loan type you seek. More than one-third of Americans, by some numbers, have credit scores too low to qualify for a home loan. Even if your credit score is high enough to qualify, if you have any late mortgage payments, a short sale, a foreclosure or a bankruptcy in the last two years, loan qualifying could be difficult to impossible.

4. Property didn’t appraise. Since the whole industry had its hand smacked for allowing home values to skyrocket in a very short time, appraisal guidelines have tightened up — some would say, even more than overall mortgage guidelines. So, it is increasingly common to have the property appraise for a price lower than the sale price negotiated between the buyer and seller.

This is especially common in the refinance realm, as well over a quarter of U.S. homes are now upside-down, meaning the mortgage balance owed is greater than the value of the home.

5. Condition problems. With all the distressed properties on the market, and with most non-distressed sellers barely breaking even, more home-sale transactions than ever are falling apart due to condition problems with the property. Many lenders will not extend financing on homes where the appraiser points out problems like cracked or broken windows, missing kitchen appliances, electrical problems, or wood rot.

And in the world of condos and other units that belong to a homeowners association, if more than 25 percent of units are rented (rather than owner-occupied) or more than 15 percent are delinquent on their HOA dues, new applications for refinance or purchase mortgages on units in the development are likely to be rejected.

6. Technical difficulties with application. The days when lenders just took your word for it are long, long gone. Applications with incomplete or unverifiable information are doomed.

If any of these mortgage loan application glitches arise in your homebuying or refinancing process, it’s critical that you connect with your mortgage professional, be it your banker or mortgage broker, to determine what course of action to take.

In some cases, it might be as simple as buying a stove you find at Craigslist and installing it before escrow closes; but with income issues your mortgage pro will need to help you determine whether it makes sense to pay some bills down, get a co-signer, or even wait six months so your income documentation will qualify.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.