How a 2-1 mortgage buydown works

During difficult economic times, a new homebuyer may think that a 2-1 buydown is the answer to their dream of home ownership. However, before getting too excited about this program, is important to understand what it can and cannot do. These loans have specific requirements and may not be as appealing as one might think.

The Federal Housing Administration (FHA) offers a 2-1 buydown for new home purchase loans. However, it is not without issues and potential pitfalls. In effect, a buydown allows a borrower to lower their interest rate on their home purchase loan by 2% during the first year and 1% during the second year. Therefore, those who are approved for a loan with an interest rate of 6% may "buydown" the rate to 4% during the first year and to 5% during the second year.  However, during the third year, the interest rate would go back up to 6%. This buydown does not come free; in fact, the lender will charge a fee which is equivalent to the interest that would be paid during those two years.

Why would a borrower pay upfront for something they could easily pay over 24 months? 
If the seller of a home would pay the fee, the buyer would realize substantial savings. This would be part of a seller concession, and may allow the borrower to be approved for a higher loan amount. In some cases, the lender may waive the fee, or may offer a credit from the lender to the borrower. In fact,

What to do when you are sued for a deficiency judgment

West's Encyclopedia of American Law, edition 2 defines a deficiency judgment as "An assessment of personal liability against a mortgagor, a person who pledges title to property to secure a debt, for the unpaid balance of the mortgage debt when the proceeds of a foreclosure sale are insufficient to satisfy the debt."  

Today, with more people losing their homes to foreclosure and real estate markets being battered, more people are facing the potential of deficiency judgments than ever.  More homeowner's are faced with the challenging question "what to do when you are sued for a deficiency judgment". Here are some steps that can help.

Contact a legal expert

The first thing that should be done is for the homeowner to contact an attorney who specializes in real estate law. Deficiency judgments can damage credit standing even further than a foreclosure already has. In some states, lenders are not allowed to sue a homeowner for a deficiency.  Other states have very specific requirements that define whether or not a homeowner may be sued.

Circumstances affecting deficiency judgments

Many states have clauses in the law that prohibit a lender from filing for a deficiency judgment if a home was sold at less than market value even if the lender suffered a loss.  One example of this is Texas - if the home is sold at auction for less than market value, the lender must credit the difference between

How to determine if you qualify for refinancing your home

Since interest rates are currently low, you might be considering refinancing your home. If you currently have an adjustable rate mortgage, you might be considering refinancing your home to a fixed rate mortgage before your adjustable rate goes up again. Before you go to the bank to apply for refinancing, you should first answer some simple questions that will help determine if you quality for refinancing your home.

• Payment History - The first question you need to ask yourself is if your mortgage payments have been current.  Most lenders will not consider refinancing your home if you have been more than thirty days late in the last twelve months.  This means that all twelve of your last payments have been received by your lender 30 days or less after the payment date.

• Home Value - The current value of your property is a crucial point in determining if you qualify for refinancing your home.  If you have a FNMA (Fannie Mae) or FMAC (Freddie Mac) guaranteed loan you may be eligible for refinancing under special programs.

• Monthly Income - You must be able to prove a steady source of income. Many lenders will require that you have been on your job for a period of twelve to twenty-four months. This may be waived if you were laid off and later re-employed in the same field.  Most lenders will require that you provide them with your last four pay stubs (some will require only two while others may require more).

• Monthly Expenses - Numerous expenses will play a role in your ability to qualify to refinance your home.  You will need to list car payments, insurance payments (home, auto, life and medical).  In addition, credit card payments, and any other revolving credit lines will impact your ability to qualify for refinancing your home.

How to borrow money against your home

Hidden assets: Home equity

There are various reasons why people want to borrow money against their home. Sudden medical bills, vacations, replacing a vehicle or paying off high interest rate credit cards are a few reasons.

Before making a decision to tap into home equity, borrowers need to understand the risks associated with home equity loans as well as the benefits. They also need to know how to borrow money against their home. Borrowing money against home equity can take on several forms including a cash-out refinance, home equity line of credit or a straight home equity loan. Each has benefits and drawbacks.

Homeowner's will have to investigate which method works best for their individual needs depending on their own personal financial condition. However, the steps to successfully borrowing against your home are nearly the same regardless of which type of loan you are using to obtain cash.

Steps to getting a second mortgage

Determine viability

Using the equity in a home may cause long-term financial challenges. Before you decide to borrow money against your home, make sure that you have the financial stability to repay the loan. Whether you are using an equity line of credit, refinancing or taking a second mortgage, the consequences of being unable to make payments are very serious including the potential to lose your home to foreclosure.

Contact your current lender

In many cases, most homeowner's will do better if they contact their current lender to inquire about a second mortgage or to take out an equity line of credit. Existing lenders already know your payment history and probably have a good idea of the current value of the home and how much equity is in the home. Your lender will often work with you to determine which type of cash-out is better for your individual financial situation. One of the primary concerns a lender will have is whether you qualify based on your home's value. Nearly all lenders will want to keep loan-to-value ratios below 90 percent whenever possible.

Lenders typical requirements

When applying for a home mortgage or a second mortgage, lenders not only look at debt to income ratios, they also look at loan to value ratios. This is the ratio that is calculated based on the value of the property and the amount that the borrower is requesting.

Loan to value ratios help lenders minimize their risks and ensure that the loan is secure as well. Lenders who loan to borrowers who have less than 20 percent equity in their home may also require that a borrower purchase PMI (personal mortgage insurance) and in some cases they also require that certain payments be escrowed. These payments may include taxes and homeowner's insurance.