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Dale W Doughty, Jr.'s Blog

By Dale W Doughty, Jr. | Mortgage Broker
or Lender in Maine
  • The Preapproval vs. Prequalification

    Posted Under: Home Buying in Maine, Financing in Maine, Home Ownership in Maine  |  February 9, 2014 5:55 PM  |  274 views  |  No comments
    As we enter another season of home buying and selling it is time to review the process for those folks that may be looking to buy their very first home.  Now is a great time to invest in a home. Prices have stabilized and are rising again in most markets, rates remain at historic lows and it is quite possible that inventories will improve as we get closer to spring.

    One of the first steps to entering the real estate market is to secure financing.  This can be a daunting task as the number of lending products is vast, the guidelines and features of each program are quite confusing and the qualifying process has become infinitely more difficult to navigate with the new Regulation Z requirements that took effect January 10, 2014.  The key is to get involved with a lender early to make sure you find the right loan product and are well-informed about your ability to qualify, the amount of money you will need to have to cover closing costs and down payment and whether or not any of your existing debt needs to be paid off or restructured.

    Although each lender is different there are generally two types of qualifications offered by them.  The prequalification process typically just looks at your income and current debts to calculate the amount of monthly housing expense you can afford and (based on current interest rates, estimated property taxes in the community you are looking in and estimated insurance premiums) what that monthly expense equates to for a loan amount.  It may or may not include a credit check and typically does not require you to produce any financial documents.  Many real estate agents will allow a prequalification letter to be used in order to go under contract on a property but some will not.

    A preapproval is more involved.  It typically requires you to produce two years worth of W-2's and/or tax returns, recent paystubs, bank asset statements and other pertinent financial documentation.  A preapproval is a conditional commitment from the lender for a specified loan amount.  The preapproval not only assesses how much home you can afford, but it assesses your credit history, amount of down payment/closing costs you are able to pay, the amount of savings you have on hand in the event of a financial setback and several other factors.  During the preapproval process your mortgage officer will recommend a specific loan product based on your specific situation and the type of home you are interested in buying.

    A prequalification letter can usually be provided on the spot whereas a preapproval may take up to 2-3 days depending on your situation and the time of year.  Usually it is beneficial to seek preapproval well ahead of time, especially if you plan on buying in the busy spring months, and then have it updated later on, if need be.  Usually getting an updated preapproval letter only involves providing up-to-date bank statements and paystubs that show no major reduction in income or assets.

    The conditional commitment or preapproval will have conditions that gives the lender an exit strategy if they don't like the final deal.  Typical conditions include a property appraisal, copy of the purchase and sale agreement, a title commitment from a title attorney, etc.  There may also be specific conditions related to your specific situation including providing documentation for large bank deposits, recent credit inquiries or any anomalies found during the underwriting process. These conditions may vary from one lender to the next so make sure your mortgage officer thoroughly explains them to you and answers any questions you may have.

    If you are well-established financially a prequalification letter may be all you need.  Although keep in mind that the qualification process is much more involved then it has been in the past.  If you are a first-time buyer or aren't sure about your ability to qualify you are better served to make the extra effort up front.  This way you know exactly where you stand and can feel confident that once you find a house you really love your financing will go through and you will be able to close within the timeframe outlined in the purchase and sale agreement.  The underwriting process will be much faster on a preapproved loan versus a new loan application, which will get you into the house faster.

    If you would like to get started on a prequalification/preapproval or you have any questions feel free to call me at (207) 894-5822 or toll-free at (877) 440-2739.  I can also be reached at dale.doughty@peoples.com
  • The Private Road Maintenance Agreement Conundrum

    Posted Under: Home Buying in Maine, Financing in Maine  |  September 28, 2012 2:02 PM  |  4,051 views  |  1 comment
    I often get a lot of questions regarding Private Road Maintenance Agreements. A Private Road Maintenance Agreement is sometimes in place among residents who live on a private road. It typically addresses how maintenance on the road will be addressed financially among the residents on the road. It includes items such as snow plowing, grading, washouts and other common maintenance needs of the typical Northeast road. Most often these roads are not paved and do not meet the minimum requirements of the local municipality to become a publicly maintained road. In order for the agreement to be binding it must be recorded at the local registry.

    In recent years the mortgage industry has taken more of an interest in such arrangements. Often requiring them to be in place in order to close. Many investors feel that any contributions made by the homeowner to such an "association" should be considered part of the housing expense (much like a homeowners association due) and included in the debt ratios. Other investors are also interested in how the egress and ingress to the property will be maintained in the event of default on the mortgage.

    The common misnomer is that this is an industry-wide guideline that must be adhered to. The fact is, it is not. It is simply what us bankers call an overlay. A guideline that is put in place by a particular investor that is over and above the normal guideline. Although it is true that more and more investors are requiring a private road maintenance agreement, it is also true that there are still several that do not.

    The trick is to address it up-front with the underwriting team so that the loan can be underwritten to a specific investor's guidelines that does not require such an agreement. Some brokers or lenders may not have this ability, others do. As with anything, I suggest that if you own or are purchasing a home that is on a private road, that you discuss the need for an agreement with your lender up-front to prevent a whole lot of wasted time and expense down the road.

    If properly addressed, the lack of a Private Road Maintenance Agreement should have no bearing on the outcome of your closing. In the very rare case where the need can not be overcome, nothing is lost when the issue is explored in the beginning.

    To discuss this topic further you can reach me at my direct line of (207) 894-5822 or toll-free at (877) 440-2739. I am licensed throughout New England and New York.

    ****UPDATE 2-8-2014****  It is amazing to me how many phone calls and emails I get on this topic.  I strongly encourage anyone who is having difficulties with their lender to talk to other lenders in that serve their area.  I am typically able to overcome this issue in my region but I often get calls from as far away as California and Texas.  Unfortunately I am not licensed in these areas and have no working knowledge of what the rules in your region might be.  I can only encourage you to shop around.  If you are in New England or New York I would be happy to try to help you personally.
  • Why Home Ownership Makes Sense

    Posted Under: Home Buying in Maine, Foreclosure in Maine, Rent vs Buy in Maine  |  February 7, 2012 5:57 AM  |  1,477 views  |  No comments
    According to ApartmentRatings.com the average rent on a 2-bedroom apartment rose 19% in 2011 to $1157/month in the Portland MSA.  Although this figure may not be entirely accurate it correlates with a national trend of rising rental costs due to simple economics.  The trend of less people purchasing a home due to economic uncertainty coupled with the fact that the hardest hit in this economy have lost their homes and now rent has increased the renter pool.  Meanwhile, the number of available units has not really changed.

    Based on current market conditions, annual taxes of $2500 per year and insurance of $600 per year a home buyer in this market could purchase a home priced in the $150,000 range and have a monthly housing expense that is at or below the average rent in the area.  Granted there are maintenance costs to be considered, depending on the age and condition of the home but these can be kept under control by learning to do alot of the work yourself.  As someone who has owned a home for the past 15 years I can tell you that I now know more about plumbing, electrical and drywall then I ever thought I would.

    Assuming that you plan on staying in the area for a length of time and retaining the home, you probably have a pretty good chance of realizing some gains in value too.  As dismal as the housing market may seem, the population of the US is growing fast and there will always be a need for housing.  As the economy stabilizes and begins to recover, so will home values in the area.  Not to mention, with countless distressed sales still available in the area, you have an excellent chance of buying a home for well below its current market value and having equity the moment you close.

    Still not convinced you want to give up apartment life?  Consider owning one yourself.  FHA insured loans, which only require a minimum of 3.5% down (which can be a gift from a family member) allow the purchase of apartment buildings with up to 4 units.  The only caveat is that you have to live in one of the units.  What better way to enjoy the urban life then to live in an apartment that is paid for by your neighbors?  After a few years if you decide you want to head for the suburbs, you can rent out the apartment you were living in and collect rent on all 4-units or sell the property and use any equity towards the purchase of your new home.

    Home ownership is at the most affordable level in years.  So, if you plan on calling Maine home for the foreseeable future you may want to sit down with a mortgage banker and get a preliminary analysis of how much home you can afford and qualify for.  With this information you can look at current listings and decide if there is anything in your price range that interests you.  Most lenders do not charge anything for this service and you may be pleasantly surprised by the results.
  • How do Bond Rates Effect Home Affordability?

    Posted Under: Home Buying in Maine, Financing in Maine, Credit Score in Maine  |  September 22, 2011 5:22 PM  |  1,974 views  |  No comments
    There has been a lot of talk lately about a "flight to safety", "bond rallies", "quantitative easing" and now the buzz word of the day "twisting."  What does it all mean? 

    Simply put, mortgage rates are directly effected by bond yield, mainly on the 10 year note.  Bonds are nothing more than promises to pay.  Large corporations and government entities all issue bonds (take loans) in order to pay for infrastructure needs.  When we talk about the 10-year note we are referring to T-Bills, or a loan taken out by the US Government.  Historically, these have been considered one of the safest places to keep money, "backed by the full faith and credit of the United States of America."

    So, again keeping things simple, when Wall Street investors see turmoil in stocks and other investments they tend to seek safer places where they can park their money.  Hence, in most cases, when the stock market is coming down, many institutional investors will move their money into T-Bills to ride out the storm.  This raises the price of bonds and drives down their yield which drives down the borrowing costs on a mortgage.

    Now, the important part, "What does that mean to me?"  In most cases it can mean quite a bit.  As of this morning, the average mortgage rate on a 30 year fixed mortgage was around 4%.  Assuming you were shopping for a $200,000 mortgage, that would equate to a payment of $955/month. 

    In comparison, last March (6 months ago) the average rate was around 4.81% making the same $200,000 mortgage payment $1050/month or $95 more per month.

    Lets look at it another way.  Lets say that last Spring you visited a mortgage professional and he or she determined that based on your income the maximum amount of mortgage payment you could afford is $1050/month or a mortgage amount of $200,000.  You received a pre-approval letter for that amount and have been shopping for the perfect house but unable to find anything that fits the pre-approval letter you were given.

    Now, when a lender determines how much mortgage you can afford they care more about payment and less about loan amount.  So, your pre-approval letter giving you the green light on a mortgage payment of $1050/month can now qualify you for a $220,000 mortgage, based on the current rates of 4%.  This may open up alot more options for you depending on what market you are shopping in.

    So, where's the bottom?  Should I wait a little longer to refinance or go under contract on that new home?  Probably not.  Once again, mortgage rates are closely tied to the 10-year bond.  Today's mortgage rates are based on a 10 year bond yield of around 1.7%,  That is an historic low.  When you factor in inflation, 10 year bonds have an effective yield around 0%.  As an investor, that doesn't make much sense and will likely force many traders to take on a little more risk to park their money somewhere else.  Let's keep in mind, Wall Street traders earn millions of dollars every year but their incomes are incentive based and tied to the performance of the money that they invest.  When a risk taker on Wall Street is calculating his year-end bonus and finding that 10 year bond yields mean his Lamborghini is about to become a KIA, you might find the trader on Wall Street scrambling to start making some money again.

    Over the near term this could mean a sell-off in bonds which would trigger rising mortgage rates.

    Money Markets are far more complicated than this but this should give you an idea as to how the markets effect mortgage rates and how mortgage rates can effect your payment and how much home you can actually afford.

    For a consultation that is specific to your needs with no cost or obligation call me at (207) 894-5822 or visit my website.


  • Saving Your Retirement Home

    Posted Under: Home Selling in New Hampshire, Financing in New Hampshire, Foreclosure in New Hampshire  |  March 9, 2011 10:25 AM  |  1,856 views  |  No comments

    This Recession has proven to be especially difficult for homeowners.  Those that are nearing retirement or retired may have gotten it the worse.  Limited increases to SSI, increased food and medical costs, failing pension funds and decimated retirement portfolios have made the Golden Years, far less golden.  Many retirees have been forced to liquidate their homes through short sales or have even faced foreclosure.  The daunting experience of financial hardship as a senior can be even more traumatic when it is coupled with the loss of a home.  This trauma is compounded with a home that has been in the family for years and offers irreplaceable memories and comfort. 

    Another option to a sale or foreclosure of the property may be a HECM (Home Equity Conversion Mortgage).  A HECM is an FHA insured loan that basically works like a Home Equity Line, with flexible payment options.  It allows you to convert equity in your home to liquid capital in order to pay off the existing mortgage, make renovations on the home or provide a supplemental income.  You can make monthly only interest payments to keep the loan balance from rising or you can choose to make no payments at all.  If down the road your financial picture improves you can refinance back into a traditional mortgage and start paying down the principal or you can make principal payments to the HECM at any time.  Even if you never make a payment again you can stay in the home as long as you continue to live there.  The amount of money you can borrow with a HECM depends on a formula that takes into account your age and current mortality tables.  In other words, the older you are the higher the percentage of your home’s value you can borrow.  When you die, the HECM works similar to a traditional mortgage in that your heirs would need to pay off your mortgage (buy the home) if they wanted to retain it.  The difference is, if the home’s value isn’t worth what the mortgage balance is on it or the heirs do not want to be bothered with the home they need not worry about.  The home is liquidated by the lender and the FHA insurance kicks in and pays any deficiency balance, leaving the heirs with no liability. 

    Who can qualify for a HECM?  Really, the biggest factor is age and equity.  The minimum age to qualify for a HECM is 62.  The younger you are the more equity you will need to qualify.  However, there are no credit or income requirements.  So, if you’re behind on your mortgage or really struggling financially you will likely still qualify. 

    So, what are the steps to learn more about whether or not a HECM is right for you?  One, meet with a mortgage lender who has experience with reverse mortgages and see if a reverse mortgage is a viable option and whether or not it makes sense.  You should plan on having any family members or other advisers that will be involved in the decision attend this consultation with you.  Step two, is to attend a HUD approved class to learn all the pros and cons of HECM’s and to make sure you understand the process.  This step is required by HUD, who administers all FHA programs.  Classes are usually offered by Consumer Credit Counseling Services and other non-profit agencies.  Once you complete this step your mortgage lender can order an appraisal of your home to see how much you can borrow and will go over all of the disclosures to show you what your closing costs and mortgage rate will likely be.  Once approved you attend a closing, just like a traditional mortgage.  If you had enough equity to cover the existing mortgage with some left over, or had no mortgage at all, you have the option of taking your money all at once, letting it sit on a line of credit or annuitize it to create a monthly income. 

    Unfortunately, thieves tend to prey on seniors, especially if they are desperate financially.  One thing you should always keep in mind, and remind your loved ones of is that it is illegal for anyone to collect a fee prior to having an initial consultation and attending a HUD approved class from an uninterested third party.  Anyone who does otherwise is probably not looking out for your best interests. 

    HECM’s can be a great estate planning tool but they are not for everybody.  If you or someone you know is 62 or older and you think a HECM may benefit them, feel free to call me for a free consultation.  I have been involved in the financial services industry for 22 years working as a financial planner, estate planner and mortgage banker giving me the experience necessary to help you make the right decision.  I can be reached toll-free at 1-877-440-2739.

     

  • Saving Your Retirement Home

    Posted Under: Home Selling in Maine, Financing in Maine, Foreclosure in Maine  |  March 9, 2011 10:04 AM  |  1,921 views  |  No comments

    This Recession has proven to be especially difficult for homeowners.  Those that are nearing retirement or retired may have gotten it the worse.  Limited increases to SSI, increased food and medical costs, failing pension funds and decimated retirement portfolios have made the Golden Years, far less golden.  Many retirees have been forced to liquidate their homes through short sales or have even faced foreclosure.  The daunting experience of financial hardship as a senior can be even more traumatic when it is coupled with the loss of a home.  This trauma is compounded with a home that has been in the family for years and offers irreplaceable memories and comfort. 

    Another option to a sale or foreclosure of the property may be a HECM (Home Equity Conversion Mortgage).  A HECM is an FHA insured loan that basically works like a Home Equity Line, with flexible payment options.  It allows you to convert equity in your home to liquid capital in order to pay off the existing mortgage, make renovations on the home or provide a supplemental income.  You can make monthly only interest payments to keep the loan balance from rising or you can choose to make no payments at all.  If down the road your financial picture improves you can refinance back into a traditional mortgage and start paying down the principal or you can make principal payments to the HECM at any time.  Even if you never make a payment again you can stay in the home as long as you continue to live there.  The amount of money you can borrow with a HECM depends on a formula that takes into account your age and current mortality tables.  In other words, the older you are the higher the percentage of your home’s value you can borrow.  When you die, the HECM works similar to a traditional mortgage in that your heirs would need to pay off your mortgage (buy the home) if they wanted to retain it.  The difference is, if the home’s value isn’t worth what the mortgage balance is on it or the heirs do not want to be bothered with the home they need not worry about.  The home is liquidated by the lender and the FHA insurance kicks in and pays any deficiency balance, leaving the heirs with no liability. 

    Who can qualify for a HECM?  Really, the biggest factor is age and equity.  The minimum age to qualify for a HECM is 62.  The younger you are the more equity you will need to qualify.  However, there are no credit or income requirements.  So, if you’re behind on your mortgage or really struggling financially you will likely still qualify. 

    So, what are the steps to learn more about whether or not a HECM is right for you?  One, meet with a mortgage lender who has experience with reverse mortgages and see if a reverse mortgage is a viable option and whether or not it makes sense.  You should plan on having any family members or other advisers that will be involved in the decision attend this consultation with you.  Step two, is to attend a HUD approved class to learn all the pros and cons of HECM’s and to make sure you understand the process.  This step is required by HUD, who administers all FHA programs.  Classes are usually offered by Consumer Credit Counseling Services and other non-profit agencies.  Once you complete this step your mortgage lender can order an appraisal of your home to see how much you can borrow and will go over all of the disclosures to show you what your closing costs and mortgage rate will likely be.  Once approved you attend a closing, just like a traditional mortgage.  If you had enough equity to cover the existing mortgage with some left over, or had no mortgage at all, you have the option of taking your money all at once, letting it sit on a line of credit or annuitize it to create a monthly income. 

    Unfortunately, thieves tend to prey on seniors, especially if they are desperate financially.  One thing you should always keep in mind, and remind your loved ones of is that it is illegal for anyone to collect a fee prior to having an initial consultation and attending a HUD approved class from an uninterested third party.  Anyone who does otherwise is probably not looking out for your best interests. 

    HECM’s can be a great estate planning tool but they are not for everybody.  If you or someone you know is 62 or older and you think a HECM may benefit them, feel free to call me for a free consultation.  I have been involved in the financial services industry for 22 years working as a financial planner, estate planner and mortgage banker giving me the experience necessary to help you make the right decision.  I can be reached toll-free at 1-877-440-2739.

     

  • Understanding Construction Loans

    Posted Under: Financing in New Hampshire  |  February 7, 2011 10:36 AM  |  1,716 views  |  No comments

    Many people at some point in their lives opt to build a home to their own specifications.  Building your next home not only allows you to customize it to your tastes but gives you the most up-to-date energy efficiency, building practices and codes and ensures that you will not be “inheriting someone else’s problem.”

     

    The problem is; how to pay for it.  Many builders are losing or have lost the credit lines they once enjoyed, making it difficult for them to fund the construction.  This leaves the homeowner with the task of getting financing on a property that doesn’t yet exist.

     

    Enter in, the construction loan.  A construction loan is a short-term credit line (typically less than 6-12 months) that allows you to pay the builder as the home is built.  Each time the builder needs funds to move on to the next stage of the project the lender will draw on the credit line.  In turn, you make interest payments each month based on the loan balance at that time.

     

    Basically, there are two types of construction loans:

    Construction-Permanent:  This is a “one close” loan that allows a borrower to take out a construction loan, typically up to 90% of the contract price and the cost of the land, if you don’t already own it.  Once your home is complete, a final inspection is done by the appraiser and your loan automatically converts to a permanent mortgage.  This is typically a good option if you plan on putting money down and want a conventional mortgage.

    Construction:  This is a loan that only funds the cost of the construction and the purchase of the land.  Once again, depending on your eligibility you can often finance up to 90% of the contract price.  Once the home is built the loan must be paid-off through a refinance in to a permanent mortgage (Often known as an “end loan”).  This type of program will require two closings and two sets of closing costs, however, it allows you to use an FHA loan to finance up to 97.75% of the contract price or a VA loan to finance 100%.  This allows a borrower with limited or no savings the ability to use a government insured loan to have their home built.

     

    If you are considering building a home and require financing, your first step is to contact a qualified Mortgage Banker who is familiar with construction loans.  This will allow you to see how much mortgage you qualify for and will help you determine how much house you can build.  Often a reputable Mortgage Banker will also have relationships with local builders who may or may not have additional financing options and that are reputable and dependable.

     

    To learn about your particular financing options give me a call at (207) 850-1007, toll-free at (877) 440-2739 or email me at daled@reliantsanford.com.

    You can also visit us online at ReliantSanford.com.

     

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