Skip to content

Blog focuses on money and investments, not just in USA, but all around the world

  • Home
  • 2020
  • November

Month: November 2020

First mortgage

Posted on 11/20/202012/01/2020 By Kitty Wompuss No Comments on First mortgage
mortgage

First mortgage is the term applied to the primary mortgage on a property that is securing more than one loan. Every homeowner that has taken out a home equity loan (or second mortgage) or that holds a home equity line of credit (HELOC) has a primary and a secondary debt associated with his/her home. The first mortgage is the primary loan that was initially secured in order to purchase the home.

The issue of first mortgage status comes into play usually only when the borrower defaults on the loan. The lender on the first mortgage has priority over the lender for the HELOC or the second mortgage. If the home goes to auction and is sold off by the bank, the first mortgage holder gets paid first. If a home in default is sold, the first mortgage holder may extract all of the principal he is owed plus any unpaid interest and any foreclosure costs that have been incurred. The holder of the second note can collect only from what remains available from the net of the home sale.

Homeowners with two mortgages on the house have occasionally gotten an unpleasant surprise when attempting to refinance the first mortgage. Home equity loans or HELOCs are often written such that the homeowner must seek approval from the second mortgage holder in order to refinance the first mortgage. In this situation, the second mortgage is not subordinate to the first since the holder of the second note can control refinancing on the first.

This has become a truth-in-lending issue, as many people who have taken cash out of their homes with home equity loans aren’t aware that they are signing away the control over refinancing the primary mortgage. Some home equity lenders will charge a fee for refinancing on the primary mortgage.

In the case of a pending loan default, a home equity lender may purchase the first mortgage and work with the homeowner in order to avoid default. This option makes sense if the home is not likely to sell for much more than is owed on the first mortgage. The home equity lender is protecting his own risk by attempting to keep the entire loan package afloat.

First mortgage status generally allows the lender to provide flexibility to the borrower if he/she is having financial difficulties and can’t make the mortgage payments. Banks have a profound distaste for foreclosures, simply because they cost money to execute. For that reason, a bank that holds a first mortgage is likely to try and find a realigned loan agreement that will work.

The number one reason that homeowners have cited for taking out second mortgages is to consolidated debt. Incurring more debt in order to retire debt is pointless unless spending patterns change. For that reason, if a homeowner has no plans to move it often makes sense to refinance the first mortgage on a home that has gained equity rather than taking out a second loan. The interest rates will be lower because the subordinate position of the second lender is eliminated from the equation.…

FHA or Federal Housing Administration loans

Posted on 11/14/202012/01/2020 By Kitty Wompuss No Comments on FHA or Federal Housing Administration loans
FHA

The FHA opened for business in 1934 as the result of a law passed by Congress and signed by the President. The goal was to provide loan insurance for Americans who were having trouble getting through the qualification process for mortgages in the midst of the depression. The FHA has become an institution and is still an excellent resource for people with less than stellar credit who wish to buy a modestly priced home.

FHA provides insurance for loans issued by lenders who partner with them. Their guidelines for qualification were unique at one time; with the development in recent years of new mortgage products in the commercial sector they have seen some competition develop.

In today’s market, an FHA loan is often a good choice for a subprime borrower. The FHA will insure a loan for an applicant that has been through bankruptcy, as recently as two years prior to the loan application. They require a down payment of three percent. A down payment that small was once a remarkable opportunity; however today there are mortgages available that finance 100% of the home along with the closing costs.

FHA loan guidelines don’t apply the same weight to credit scores as a commercial lender would on its own. Poor credit ratings will not have an adverse affect on the loan interest rate, as long as they meet a certain minimum. FHA loans generally are within .125% of standard loan interest rates, so FICO scores don’t dictate the cost of the loan. In analyzing a loan applicant’s debt load, the FHA will allow up to 41% of home income to be applied to debt service – a figure that is more generous than the standard applied by most lending institutions for prime borrowers.

The down side to an FHA insured loan is that there are ceilings to the size of the mortgage the FHA will support. Those figures range from $200,000 in areas where homes aren’t so costly to $362,000 in the areas with highly inflated housing markets. In many markets, neither figure is adequate for homes that average families are looking for and can afford. Option ARMs and interest only ARMs are also not in the FHA portfolio; if you apply for an FHA mortgage expect to be paying on a loan with little or no adjustment.

FHA loans are bargains for people in the middle of the credit score range who do not have a lot of resources. Often there are state or local housing programs that will assist in providing the required 3% down payment. The cost of mortgage insurance that is caused by the low down payment is incorporated into the loan but is far lower than commercial loan insurance. Some FHA loans will incorporate construction costs into the mortgage, if the applicant is buying a fixer-upper and needs cash to bring the home up to standard. The FHA has been bypassed by some of the “lenient” mortgage packages now on the market, but their loans remain by far the best bargain for people who can work with sums under their loan ceilings.…

Recent Posts

  • Second mortgage loan
  • First mortgage
  • FHA or Federal Housing Administration loans
  • Barclays: Students must think about insurance
  • Prudential ‘best mortgage provider’

Pages

  • kitty Wompuss

Categories

  • FHA
  • loan
  • mortgage
  • Uncategorized

Archives

  • December 2020
  • November 2020
  • October 2020
  • September 2020

Copyright © 2023 Blog focuses on money and investments, not just in USA, but all around the world.

Theme: Oceanly by ScriptsTown