When deciding whether to issue a mortgage loan to a customer, a bank or lender will look at the housing expense ratio, which is the annual cost of the mortgage payments, including all insurance and expenses related to owning the property, divided by the gross income of the individual. Gross income is used because tax deductions can be taken for mortgage payments. If a proposed mortgage leaves the borrower with a housing expense ratio (HER) over 28%, they will usually not be approved for this mortgage loan. The HER is found by dividing all annual costs associated with the new home with the gross annual income of the (proposed) borrower. Continue reading...
A home mortgage is a long-term loan for the purchase of a home, secured by the value of the home itself. Banks as well as mortgage companies make mortgage loans to consumers and charge an interest rate for the duration of the loan that may be fixed or variable. Mortgage loans generally last for between 15 to 30 years, and they are constructed so that paying off a home can fit into a person’s budget while a bank or lending institution collects interest on each payment. Continue reading...
The Federal Home Loan Bank Act was signed into law by President Hoover in 1932. The goal of the legislation was to make liquidity more accessible to banks for the purpose of making home loans, so that more Americans could acquire permanent residences. The bill established the FHL Bank system, which now consists of 11 FHL banks. The Federal Home Loan Bank Act of 1932 established the FHL Bank system, which is a co-operative banking network for banks and other lending institutions who make home loans. The FHL banks are owned by their member institutions, who purchase stock in the bank and are then permitted to take loans out from it, using that money to provide loans to customers. Continue reading...
When a mortgage loan is made to a consumer, the bank or loan institution is the mortgagee, while the consumer is the mortgagor. Mortgages are long term loans secured by the real property of the individual borrowing the money, and they are generally used for homes, called home mortgages. The lending institution, which might be a bank or a mortgage company, is the mortgagee, lending money to the homebuyer, who is the mortgagor. Continue reading...
The mortgagor is the borrower in a mortgagor/mortgagee relationship, where the mortgagee is the lending institution that makes the mortgage loan. Mortgages are used to purchase real property, usually single family homes. The purchase of a home with a mortgage and the payments on the mortgage are one of the largest financial decisions or obligations that a mortgagor will ever make. If a mortgagor is delinquent on payments, he or she might be categorized as a home debtor, and the loan would be subject to foreclosure. If there is a foreclosure, the bank or lender will reposes the house, evict the former owner, and sell the house as quickly as possible, sometimes through an auction. Continue reading...
The cryptocurrency community has opened up creative options for making money in the form of lending platforms. A few forms of lending exist for cryptocurrencies at the time of this writing. One way to do it is to make your funds available in a lending market facilitated by an exchange, such as Poloniex, where you can name your interest rate and allow other traders to use your funds for trading on margin. Continue reading...
The main type of reverse mortgage that people get today is the Home Equity Conversion Mortgage, backed by the US Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA). These reverse mortgages are available to people age 62 or older who are interested in leveraging their home equity to gain liquidity, either in the form of a lump sum, monthly payments, or other arrangement. A Home Equity Conversion Mortgage (HECM) is a reverse mortgage available to homeowners age 62 or older, insured by the Federal Housing Administration (FHA). Continue reading...
The prime rate is the lowest interest rate that banks will charge on loans at a given time, based on the Federal Funds Rate. Individual banks set their own prime rate, which they may also call their "Reference Rate" or "Base Lending Rate." It is the least they will charge for a loan at a given time, based on the creditworthiness of the customer, and the only clients whose risk of default is low enough to approach the prime rate are very large commercial clients. Continue reading...
Liar loans are a term that refers to loans or mortgages that were granted with little or no request for qualification documentation, such as proof of income. On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application. Then there are still other loan programs known as no income/no asset (NINA) loans, where the applicant essentially does not have to provide any proof of eligibility. These types of loans opened the door for fraudulent lending practices, which ultimately bankrupted several mortgage companies during the 2008 financial crisis. Continue reading...
A reverse mortgage is basically an annuity paid for with home equity. In a reverse mortgage, instead of paying to for your home, you’re getting paid for your home. It is considered a loan, but it does not have to be repaid, except by the proceeds from selling the home. Older Americans who need the income and aren’t concerned about their heirs getting their house might apply for a reverse mortgage. It is also known as a Home Equity Conversion Mortgage (HECM). Continue reading...
In the event that a borrower is having issues making mortgage payments on time, they may try to seek a mortgage forbearance agreement to delay the foreclosure process. The mortgage forbearance agreement would specify the plan for resuming mortgage payments on time, and is designed to be a temporary solution to an unforeseen issue with the borrower (unemployment, health issues). Continue reading...
In contrast to the term “home owner,” home debtor is reserved for those who will seemingly never be able to pay off the mortgage(s) on their home, or who have already defaulted. Most Americans live in homes that they pay on, but are still primarily owned by the bank that loaned them money. Banks have insurance to protect them against mortgage defaults. Home mortgage loans are the primary way that Americans by homes today. Continue reading...
No-fee mortgages are synonymous with no-cost mortgages, which might apply to first mortgages or refinancing arrangements where the closing costs are paid by the lender, broker, or bank, but a higher interest rate is charged on the loan as a means of recouping those waived fees. Closing costs and fees are calculated based on the total amount being loaned, and might be about 3% for a first mortgage and 1.5% for a refinanced mortgage. When the fees and closing costs associated with a mortgage loan are waived for the borrower, they are usually baked in to a higher interest rate on the loan. Continue reading...
The Federal Housing Administration (FHA) is to lenders what FDIC insurance is to savers; it protects lending institutions from mortgage defaults. By protecting lenders, the FHA was begun with the intention to stimulate the housing market. The FHA was established in 1934 in an effort to stimulate the construction and purchase of new homes by offering insurance protection to the institutions (banks and mortgage companies) who make mortgage loans. Continue reading...
Mortgages take a while to process, but a broker or bank can lock in a rate for themselves or their clients. Locking-in rates costs money somewhere along the line, and the longer the rate is locked in, the more it costs. 60 days is generally the longest time frame you will see a rate locked in, due to the cost associated with that risk. Mortgage rates can be locked in for a period of time long enough to underwrite the loan. This might be for a period as short as 20 days or as long as 60 days. Continue reading...
A home inspection is performed by a certified home inspector to determine the condition of a property and to find out if there any safety of compliance issues that the home or property may have. Home inspectors are typically hired by real estate professionals and homebuyers when a home is on the market. It is not required except for FHA loan termite inspection requirements, but it is always advisable for a potential home buyer. A home inspection is not to be confused with a home appraisal. Continue reading...
Mortgage Equity Withdrawals (MEWs) may effectively be a withdrawal when viewed in a balance sheet, but they are actually loans that use the equity in a home as the collateral. These are also known as home equity loans. A full liquidation of equity through such a loan is a reverse mortgage. When a homeowner has paid off their home, they have a lot of equity and collateral to work with if they would like to get some liquidity (money) out of a hard asset. Continue reading...
Freddie Mac is a government-sponsored company which purchases mortgages from banks and securitizes them for sales to investment banks or individuals. Freddie Mac is not a government organization, but was established by a congressional mandate in the 1970’s. It’s proper name is the Federal Home Loan Mortgage Corporation (FHLMC). The company’s purpose is to make mortgage debts into marketable securities by purchasing the mortgage risk and cash flow from banks and dividing into tranches which are sold to or through investment banking institutions. The securitized mortgages are known as Collateralized Mortgage Obligations, or CMO’s. Continue reading...
IRS Link to Form — Found Here The home office expense deduction allows people who work from home to take a tax deduction reflecting the loss of square footage in their home for the purpose of doing business there. The space must be used exclusively for doing business on a regular basis and it must be the principal place of business, not just a place to work outside of the actual office. Many people fail to file for the home office expense deduction because they believe it will be more trouble than its worth or that it may even trigger an IRS audit of their reporting. Continue reading...
A mortgage whose rate is variably adjusted according to the interest rate environment is known as an ARM. With an adjustable rate mortgage (ARM) , the interest rate is lower at the beginning than the fixed-rate alternative, but the customer bears the risk of interest rates going up in the future. The bank or institution creating such a product will usually peg the rate to a specific index or benchmark rate, and will also probably give the customer a cap at which rate hikes would stop. Continue reading...