Homeowners Gamble With Financing Options | SummitDaily.com
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Homeowners Gamble With Financing Options

Question: We are buying a home in Silverthorne and are going through process of obtaining financing. We are working with a lender who does not seem to be following through on what was first promised to us. We don’t have anything in writing but all of a sudden the terms have changed. Do you have any comments? Answer: It is critical for borrowers to obtain a written document detailing a mortgage’s terms and conditions. (An oral promise from the loan officer holds no legal sway.) Any consumer who can’t get a written agreement from their lender should begin looking for another home finance source.When applying for a mortgage, borrowers are often asked to choose between a floating rate or a lock-in. With the former, homebuyers gamble that the interest rate at the time of application will either hold steady or drop even lower by the time they go to closing. The latter option guarantees that the buyers’ rate will not climb any higher. However, it also prevents them from taking advantage of market rate dips. The lock-in rate agreement, also called a rate-lock or rate commitment, typically applies for a set period of 30 to 60 days from the time of application and is considered a binding pact with the lender. Question: We are moving to Summit County from the mid-west and find that so many subdivisions here have homeowners associations. We are not familiar with these groups. What do we need to know?Answer: About one out of every six homeowners today lives in a community with a homeowners association, and half of all new housing developments now have associations, according to Donna Reichle, vice president of communications for the Community Association Institute. Following decentralizing trends among local governments, along with zoning-law changes, these groups have assumed responsibility for the neighborhood’s activities. While it can be difficult to recruit volunteers to lead these associations, homeowners associations can provide valuable services for the community–including trash removal, maintenance, and code enforcement. Gallup Poll research indicates that about 75 percent of homeowners are satisfied with their community associations, and 85 percent of residents of communities with associations say their property values are increasing because of their location. Most residents cite safety, appearance, friendliness, and maintenance as the main benefits of living in a community governed by a homeowners association. However, there are some drawbacks to living in this type of community–such as the difficulty in finding leadership and the fact that an association has the authority to enforce all rules and even foreclose on a resident who is late in paying assessment fees. In some cases, the community will outsource the responsibilities of an association to a professional management company. These firms can provide financial support, maintenance, and management experience. Question: Joyce, we refinanced our home and have a question about whether or not the points we paid to get the loan are tax deductible. Can you give us some insight? Answer: Recent homebuyers can deduct their mortgage points, or upfront interest, on their next tax return. In most cases, homeowners opt to deduct their points in the same year that they are incurred, in order to receive the maximum tax profit. Homeowners refinancing an existing mortgage, meanwhile, must amortize the points over the entire term of the mortgage. Now, recent rule changes by the Internal Revenue Service allow homebuyers to spread their points over the life of the loan. This approach works best when a homeowner’s total itemized deductions–with points–are less than the standard deduction for the year. “The IRS has indicated its belief that the taxpayer has the choice as to whether to deduct the points in the year of purchase or to amortize over the life of the mortgage,” confirms Ernst & Young’s Martin Nissenbaum. “This definitely applies to current-year tax returns.” Be sure to consult with your tax advisor to determine how this applies to your situation. Question: We’re looking at property here to buy a home – at what point should we contact a lender? Answer: During the process of buying a home, most lenders agree that consumers should find the best possible mortgage before–not after–deciding on the house they want to purchase. “The worst time to go shopping for a mortgage is after you’ve signed the contract to buy the home,” reveals HSH Associates Inc. Vice President Keith Gumbinger, explaining that the standard contract allows the homebuyer 10 days to obtain a loan. During this time, he says, applicants can easily become overwhelmed with all the information they must digest, especially if they are first-time homebuyers. As such, consumers should educate themselves in mortgage borrowing before even commencing their home search. By doing so, they can determine their price range; and they can also become prequalified for a loan, which gives them leverage over rival bidders. One of the most important things that mortgage borrowers must determine is the type of mortgage they want–which will be based on their own personal situation, such as how long they plan to live in the home. Most buyers will look for a long-term, fixed-rate mortgage; but since homeowners only live in their homes for five to seven years, an adjustable-rate mortgage may be a better option. With mortgage rates rising in recent weeks, adjustable-rate loans, which have lower rates, have become more popular. Borrowers also have other options, such as combining adjustable- and fixed-rate loans, or borrowing with FHA or VA mortgage insurance. Question: Your articles on mortgage lending often make reference to Freddie Mac, Fannie Mae and Ginnie Mae. I am clueless, who are these people? Answer: That is a great question. Freddie Mac and Fannie Mae are not people but are publicly traded corporations chartered by Congress to increase the supply of funds that mortgage lenders – such as commercial banks, mortgage bankers, savings institutions and credit unions – can make available to home buyers and multi family investors. Through their efforts, consumers experience lower mortgage rate interests, readily available home mortgage credit, a wider selection of mortgage products and reduced origination costs. These two companies provide a continuous and low-cost source of credit to finance America’s housing. Ginnie Mae is a government agency within the US Department of Housing and Urban Development created by congress to ensure adequate funds exclusively for government loans insured by the Federal Housing Administration and guaranteed by the Department of Veterans Affairs and Veterans Administration.


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