Mortgage Education
This page contains many of the basics for a beginning mortgage education. It is not a definitive resource to everything about mortgages. Basic terminology, information about the process, lenders, forms, taxes, eligibility, qualifications and some rate indexes. How these all fit together is the subject of ongoing posts and discussions as well as the in-depth discussion provided in Winning Mortgage, Winning Home. Winning Mortgage, Winning Home, stitches together the fabric of eligibility, pricing, qualifications, affordability, purchase challenges and ownership considerations.
Overall, obtaining a mortgage can be easy or hard, or can result in denial with no mortgage. Even if you have obtained a mortgage before, you may have overpaid for that mortgage in a higher rate, higher fees, or both. Or you may have picked the wrong loan term/type.
Additionally, you may be experienced, but how do you pass that knowledge on to your kids? Are you comfortable explaining the changes and challenges since the time you obtained a mortgage? A lot has changed not only since the 2008 housing crisis, but also in the last two months! Can you pass on knowledge about title insurance? What about home inspections and due diligence to not buy a mistake? Give a gift to someone just learning by gifting a copy of the book!
Buy Winning Mortgage,Winning Home at AMAZON
Form 1003/Form 65 (Fannie Mae/Freddie Mac Universal Loan Application
This standard form is necessary for almost every loan application. Be familiar with what it is asking. Details on what is required in each part of the application can be found in Winning Mortgage, Winning Home.
Research a Loan Officer License
Is your Mortgage Loan Officer (MLO) Licensed? Does your MLO have complaints or disciplinary actions? Who does your MLO work for?
FDIC Guide to Mortgage Terms and Glossary
Understanding terms used in the mortgage process is important, especially when you are asked for specific information. Knowing who the players are and whether they are looking our for your interests, their interests, or someone else’s interest can affect your mortgage rate and even the purchase or sale price of a house. FDIC provides some guidance on what terms mean. Winning Mortgage, Winning Home provides more in-depth discussions of terms, problems, solutions, and guidance.
Experian Credit Score Basics and Recommendations
Your credit score is important. But you have more than 40 credit scores! Which ones matter for your mortgage? How about a co-applicant or not? Check out these suggestions from one of the three major credit bureaus. Also, find out how you can make changes which many times will improve the score more than noted by the credit bureaus.
Fannie Mae LLPA Pricing Matrix – Add Costs Based on Credit Score and LTV
Freddie Mac LLPA Pricing Matrix (Named Credit Fees in Price)
FNMA and FHLMC add charges to your lender which are then passed on to you, the borrower. These require cash at closing or can be traded for higher interest rates. Find out what to expect and how to manage a lower rate or fee which you are charged, if possible.
National Maximum Loan Limits Increase 7.42% for 2021 – Look up Limit
Where you live determines the maximum loan amount you can borrow from FNMA, FHLMC, FHA, VA, USDA or others. If you want to borrow more, you become a “Jumbo Loan” subject to a range of different measurements depending on your lender.
Fannie Mae Eligibility Matrix-Are You Eligible based on Credit Score/LTV
Are you even eligible for a FNMA/FHLMC conventional mortgage. If not, you may need to get an FHA loan, which can be more costly. Or, you may need to explore a credit union or other lender which may have more flexibility.
Mortgage Guaranty Insurance Corp (MGIC) – Home Ownership Test
MGIC PMI Rate Card – National PMI Rates
MGIC PMI Rate Card – National PMI Rates Through Credit Unions
Are you ready to own a home? If you don’t have much money for a down payment, it can be very costly. PMI is an extra charge to you. See how much.
FNMA Daily Required Net Yield (RNY) Rate – 30 Year Mortgages
FNMA Daily Required Net Yield (RNY) Rate – 15 Year Mortgages
Are rates going up or down today? FNMA is the biggest driver of mortgage rates you see from lenders. See how FNMA priced this month and read Winning Mortgage, Winning Home to see how this affects you.
FHA / HUD Local Home-Buying Mortgage Assistance Information
FHA Reverse Mortgage Lending – Principal Limiting Factor File
Do you need a reverse mortgage for you, for parents, for a customer, or someone else. FHA is the largest participant in Reverse Mortgages and sets much of the standards. Borrowers are required by FHA to take a short education course prior to receiving any FHA Reverse Mortgage (hint, most of lenders you may contact are lending using FHA). That course probably doesn’t prepare you for problems, questions or information on how to receive funds from a Reverse Mortgage. Winning Mortgage, Winning Home provides details on how these mortgages really work and what problems you need to be aware of.
Information About Title Insurance – What is it? What Does It Do?
Seller Disclosure Form (Texas) – What does a Seller Have to Tell You?
Special Taxing Jurisdictions.
Many parts of the US use special taxing jurisdictions for specific items. Where your general property taxes may go to the city, county, state or community college to support those services, there are other taxing entities. These special purpose districts can be known as MUDs (Municipal Utility District), LIDs (Levee Improvement District), Flood Control District, Fire District, Mello-Roos (California), or other names.
These may have a fixed amount charged against you each year or an amount based on the value of the property. Either way, it’s an additional tax that other nearby properties may not be paying. Would you rather purchase a $200,000 home with taxes of $4,000 per year or a $200,000 home with $4,000 of property taxes plus $1,000 for special taxing jurisdictions? Pay $4,000 per year or $5,000 per year? Not a difficult question.
Let’s focus on a MUD or Mello-Roos. This entity might build roads or sewer lines or wastewater treatment plants outside a city’s boundary. In doing so, the entity might issue bonds (debt) to fund building that infrastructure. The MUD or Mello-Roos would then set up a requirement that each home or business within that area served by the infrastructure would pay a portion of the cost over time, which would include interest on the bonds. A trade-off might be that some part of city taxes aren’t being paid since that service is now provided by the MUD or Mello-Roos.
Be careful though. A city rarely takes bankruptcy (it has happened), but a MUD/Mello-Roos/special taxing jurisdiction can also take bankruptcy. If not all the homes are built within the planned development, it might be that the homeowners unlucky enough to have bought a home end up with a whopping tax bill. As an example, an actual MUD declared bankruptcy in the Houston area. It had been formed to build out water and sewer facilities, including a wasterwater treatment plant.
Let’s use round numbers as the example. The actual numbers are similar in scope. Out of more than 1000 homes planned, less than 100 were built at the time development stopped. The developer of the land then declared bankruptcy, meaning the developer would no longer be paying the taxes on the undeveloped lots (1000 lots – 100 homes = 900 unsold lots). The MUD had issued $25 million in bonds. Say the homes were planned to sell at $200,000 each. That’s 1000 homes times $200,000, or $200 million of taxable value when built out. If the bonds were payable over 25 years, that would require about $1 million per year paid on the bonds plus interest. Say that total is $1.5 million per year. This equates to $1,500 per year per home once all 1000 homes are built, or 1500/200,000 = .75% of value per year. But only 100 homes were built and there is no one left to pay on the other 900 lots. The homes sold for $200,000, so the tax base is only $20 million ($200,000 x 100 homes). Now the $1.5 million per year payable on the bonds hits only 100 homes and becomes a tax bill of $15,000 per year for each home. Have you ever seen a home appraised at a negative value? All of these homes received a negative appraised value. From $200,000 paid to buy the home to less than $0 in value overnight!
There have been bankruptcies of MUDs, LIDs, Water/Sewer Districts, Mello-Roos and other special purpose districts. But those have been rare. The majority succeeded, but just required a higher tax burden on the homeowner. Just a word of caution.
Home Inspectors
What does a home inspector do and what is inspected? An inspection generally takes a half day or full day depending on the house. There are many things for an inspector to check for you when buying a home. This document covers some basics. But requirements vary from state to state. Talk with the inspector first. Click on this link to view a summary outlining much of the inspection checklist.
What to Expect in the Mortgage Process
Winning Mortgage, Winning Home provides a much needed guide to the mortgage process; how to get a better rate, questions to ask, how to budget, how to be prepared. Don’t create an application and have your credit pulled without knowing it! For 10 bucks, you may save thousands of dollars in your mortgage!