Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan

Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan

by David Reed
     
 

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With mortgage stories dominating the front-page news, people—whether they’re buying a new house or refinancing—increasingly have questions about the complicated issues at stake. Arranged in an easily accessible question-and-answer format, Mortgages 101 provides readers with essential lending formulas, as well

Overview

With mortgage stories dominating the front-page news, people—whether they’re buying a new house or refinancing—increasingly have questions about the complicated issues at stake. Arranged in an easily accessible question-and-answer format, Mortgages 101 provides readers with essential lending formulas, as well as important information on lending requirements and application procedures. The book shows readers how to save money by:

• understanding key terms like ARMs and hybrids—and reading what’s in the fine print • improving their credit scores to increase their borrowing power • using technology to get the lowest interest rates • maximizing their return on investment, and cutting the cost of mortgage insurance

This revised edition includes up-to-date material on new loan and government programs, as well as changes to the law regarding tax deductions, down payment assistance, reverse mortgages, bankruptcy, negative amortization and more—in short, all the answers readers need, in one must-have reference.

Editorial Reviews

Robert J. Bruss
On my scale of one to 10, this outstanding home-mortgage book rates an off-the-chart 12.
Inman News
Publishers Weekly
Reed, an experienced loan officer and columnist for Realty Times, offers an easy-to-digest look at the world of mortgages. With definitions of the various types of loans, explanations of credit scores and a discussion of how the Internet has changed the real estate business, the book is a handy reference for anyone involved in real estate transactions-though best for beginners who want a map to navigate their way through the complexities of mortgages. The book explains basic issues such as the difference between renting and buying, which individuals at a bank actually approve loans and how to figure out debt ratio. More complex topics, like construction loans and getting online approvals, are also included. Reed writes in a straightforward, conversational tone and offers appropriate cautions such as not to reveal confidential information online. While much of this information is available elsewhere, Reed serves up useful advice that is rarely discussed. For example, there is a "rescission" period for refinanced mortgages that gives people a three-day grace period to get out of the mortgage agreement with no penalties; he also discusses various types of appraisals. While there are books that cover this information in more depth, the q&a format makes this a worthwhile addition to the real estate shelves. Copyright 2004 Reed Business Information.
Library Journal
It's hard to believe that someone could come up with 250 questions to ask about mortgages, so give seasoned loan officer Reed some credit. He starts with the basics, like renting vs. buying, and continues through the closing process. His concise answers are often followed by "tell me more" sections. Reed spends a lot of time going through the specifics on various types of forms, which would seem helpful for those in the midst of the process. He also offers insights into what's going on behind the scenes. For instance, he explains how loan officers might drag their feet on locking in your rate as they look for market gains for themselves. For those wanting to "shop" online, an entire chapter is devoted to the Internet and mortgages. Refinancing and home equity loans get coverage, too. The monthly payment schedules and glossary make trusty reference tools. Though a number of books cover mortgages for consumers, this helpful how-to is distinguished by its "Socratic" style; many web-savvy readers will benefit from the familiar FAQ format. A welcome addition to public library business collections.-Carol J. Elsen, Univ. of Wisconsin Libs., Whitewater Copyright 2004 Reed Business Information.
From the Publisher
Robert Bruss, nationally syndicated columnist: "On my scale of one to 10, this outstanding home-mortgage book rates an off-the-chart 12."

Product Details

ISBN-13:
9780814401668
Publisher:
AMACOM Books
Publication date:
05/02/2008
Edition description:
Second Edition
Pages:
320
Sales rank:
1,210,316
Product dimensions:
6.00(w) x 8.90(h) x 0.90(d)

Read an Excerpt

Chapter 1

Introduction to Mortgages

There's a lot more to buying a home than just picking one out and moving in. If you don't have a wad of cash stuffed in your sofa cushions, chances are you'll need a mortgage. Mortgage lending has been around for a long, long time, and some things haven't changed while other parts of the mortgage process are brand new. Knowing what you're getting into can help you to make the right decisions.

1.1 What's the difference between buying and renting?

One way you own the roof over your head, and the other way, you don't. If you've always rented or otherwise never owned a home, one of the things you'll discover is that when things go wrong with your house there's no landlord to yell at. There's no superintendent to come fix your leaky faucet. If your hot water heater is busted, you're the one who has to make the trip to your appliance store to shell out another thousand bucks or so just so you can take a hot shower in the morning.

When you rent, you can pretty much walk away as long as your lease agreement has been fulfilled. Want a change of scenery? Pack up and move across town. Want a swimming pool and fitness center without the hassles of owning either? Rent. Want new carpet or drapes every year? Rent. Want your utility bills paid? Rent. Free cable? Ditto. You get the point. Renting has its perks. Much less responsibility and no hassles of ownership.

1.2 How do I know if it's better to buy a home or continue renting?

Perhaps one of the easiest ways to determine if it's better to buy or rent is to sit down and calculate the financial advantages of owning versus renting. This is commonly done online with a "rent versus buy" calculator found on the Web.

Tell Me More

These calculators compare your current or probable rent situation with a projected home ownership number. They're easy to find. I ran a Google search for the term "mortgage and calculator" and retrieved 6,100,000 websites that had those two terms.

But the kicker is that these calculators rarely will they tell you, "No, it's not a good idea to buy." That's because of the tax benefits of home ownership. The interest and property taxes associated with a mortgage are generally tax deductible. You can deduct them from your gross income when you file your taxes. With rent, you can't.

Yeah, I know. When you're a renter you don't pay property taxes or mortgage payments. Instead you give money to someone else for the privilege of living there. But you can't write off your rent. It's just that. Rent.

When might a "rent versus buy" calculator suggest it's better to rent? When you intend to own your next home for only a year or so. Buying a home incurs other expenses, such as money for the down payment, property taxes, and hazard insurance (which is much higher than a renter's policy). Many apartment complexes pay your electric bills along with water and other utilities. When you own, you pay all these expenses. Owing a home with all its tax benefits doesn't outweigh the acquisition costs to buy the home if you're only going to own it for a short period. Short term, rent. Longer term, buy. Are your rent payments the same or less than what a mortgage payment would be? Depending upon where you live, they may be the same. Especially if interest rates are relatively low.

Let's say you're renting a nice 3,000-square-foot, three-bedroom home close to schools in a friendly neighborhood. You might be paying $1,800 each month in rent. A similar three-bedroom home might cost $150,000. If you put 5 percent down to buy the home, your monthly house payment, including taxes and insurance, would be close to $1,200 using a 30-year fixed rate at 7.00 percent.

If rent payments in the area you want to buy are near what a mortgage payment would be, it makes sense to buy. If you can save $600 per month and you also get to write off the mortgage interest and property taxes, then it's truly a no-brainer.

Another reason buying is generally better than renting is simply a matter of appreciation and equity. When you rent and property values increase, your landlord will probably raise your rent again. And, of course, each time you make a rent payment you're not increasing your equity in anything; you're just helping your landlord increase his stake in your house or apartment. I'll give you an example.

Your rent is currently $1,000 per month, and you're thinking about buying a $150,000 home. If you put 20 percent down and borrow $120,000 at 7.00 percent on a 30-year fixed rate, your principal and interest payment are about $800 a month. Let's also assume that property values are increasing in your area by about 5 percent per year. What's the situation after two years?

If you rented, you paid someone else $24,000. But if you owned and itemized your federal income taxes, you likely deducted over $16,600 in mortgage interest on your income taxes. You also paid your loan down by over $2,500 while at the same time increasing your equity position in the house by nearly $18,000.

Now you see why those calculators always tell you to buy a home.

Through all of these calculations, remember the real reason for buying: You buy a home because you want to. Because you like the place. It's your home. A home is one of the largest single financial commitments someone can make. And while I agree with that statement, let's not go overboard here. Buy a house because you want to, not because some calculator told you so.

1.3 How should I search for a house?

That's easy. Start doing some research on your own on the Internet, even before contacting a real estate agent. If the Internet was invented for any particular industry it has to have been for real estate. Before the World Wide Web was born, one could typically locate houses only in the newspaper on the weekend. If you saw a house that you liked, you'd contact the agent selling the home. Then came the endless cycle of driving around in a real estate agent's car looking at houses until—finally, finally—you found a home you wanted to buy.

Tell Me More

The Internet has helped agents become more productive by letting consumers do a little shopping first before they get serious enough to use an agent. An agent who advertises a house is called the "listing" agent, because he puts the house for sale on the multiple listing service, or MLS.

The agent will show you the home and ask if you are using another agent. If you aren't, the agent will ask if you would like to see other homes for sale. You of course say "yes," and the agent then becomes a "buyers" agent as well, helping you find a home to buy and not just listing a house for sale. You give your agent your requirements for your dream home, such as four bedrooms on a cul-de-sac with a swimming pool. Your agent would then scour the MLS to search for such homes. After the search, you'd both get in the agent's car and go see the homes.

But viewing homes on the Web gives both you and your agent a head start. You only look at homes you're interested in, and the agent's not dragging you all over town to look at homes you'd never buy. Your agent spends more time selling or listing homes and less time driving all over the place.

You can start with www.realtor.com. At this official site of the National Association of REALTORS, you can search for homes anywhere in the country or across town using home listings from your local newspaper to your local or even national real estate brokerage. It's really cool. You simply log onto the site, choose where you want to live, and select your preferences, like four bedrooms in this zip code in this price range with a pool or without, and so on. Next thing you know, there are your potential dream homes right on your computer screen. Some sites even have "virtual" tours showing different views of the house. This way you can see what homes are selling for and what's generally available.

What People are saying about this

From the Publisher
"When you read anything by David Reed, you get the feeling you are talking with a lifelong friend. His folksy, familiar style makes learning about loans fun and you won't forget his advice. If you do, you'll regret it." — Blanche Evans, Publisher/Editor of Realty Times and Agent News

"David Reed has the ability to explain some of the most complex issues in everyday language. This veteran gives it to you straight and gives you the upper hand when looking for a home mortgage. The chapter on finding the best rate is worth the price of admission alone." — Barry Habib, CEO, Mortgage Market Guide

"Easy to understand, this book puts all the information in one place. The best book on home mortgages I've ever read." — Michael Finney, Award winning San Francisco consumer reporter for ABC TV & Radio. Columnist, San Francisco Examiner

Publishers Weekly: "An easy-to-digest look at the world of mortgages. Reed writes in a straightforward, conversational tone and offers appropriate cautions.serves up useful advice that is rarely discussed. The q&a format makes this a worthwhile addition to the real estate shelves."

Mortgage Originator: "With consumer-friendly language and an easygoing tone, Reed answers over 250 common, yet critical borrower questions. Originators can use this book chapter by chapter, or as a whole, to help educate consumers on the entire mortgage process.Give this book to any potential customerófirst-time buyers, move-ups, and experienced homeowners alike and they will come back to you more informed and confident in their mortgage proceedings.you and your customers will benefit greatly from this informative book."

RealtyTimes.com: "Written in Q&A, the advice in Mortgages 101 is unvarnished and to the point. Reed takes a dry subject and makes literally years of hard-gained knowledge digestible and usable in a thumbable loan manual."

Meet the Author

David Reed (Austin, TX) is a seasoned mortgage banker and a columnist for Realty Times and Mortgage Originator magazine. He is the author of Mortgage Confidential (978-0-8144-7369-6), Your Guide to VA Loans (978-0-8144-7435-8), Who Says You Can’t Buy a Home! (978-0-8144-7340-5), and Your Successful Career as a Mortgage Broker (978-0-8144-7370-2).

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