About Netting Escrows
When you are looking to refinance your mortgage, you would like to see all possible options to lower your cash to close.
If you are paying your property taxes and homeowner’s insurance through an escrow account you should consider the option of netting the escrow when you are refinancing your mortgage.
In this post, we will understand what is netting escrows in detail.
What Are Netting Escrows?
Escrow netting is only available on request for individuals who are looking to refinance their current mortgage.
It allows the borrower to credit the balance in the escrow account towards the outstanding mortgage balance at the time of requesting a payoff.
Escrow is money set aside at the beginning of a mortgage (and as part of the monthly payment) to ensure that property taxes or property insurance are always paid on time.
This escrow account helps you to set money aside for paying property taxes and homeowner’s insurance before they are due so that you don’t have to pay it in a lump sum.
When you are refinancing if you request to net your escrow, the lender will send you the payoff after deducting the escrow balance from your existing mortgage balance.
How Does Netting Escrows Work?
When you refinance, escrow netting will allow you to apply the credit of the balance amount toward repaying your existing mortgage.
In other words, netting escrows help reduce the principal amount for the mortgage that you are going to refinance. Let’s give an example.
John refinances his mortgage with an outstanding balance of $200,000. He has $2,000 in his old escrow account.
He requests for netting his escrow. With the request the lender nets his escrow balance with the current payoff and his new refinance principal amount would be $198,000.
In another example, Jane refinances her mortgage with a balance of $200,000. She decides not to net the escrow.
Her balance in the escrow account is $2,000. In this case, the new refinance principal amount is $200,000 and she would receive a check from the lender for $2,000.
In John’s case, since the new principal amount is lowered by $2,000, this means that the monthly payments that he would be paying would be less than what Jane would be paying considering that both of them get the same interest rate and loan term.
It is important to keep in mind that the netting escrows option is not available for all types of refinances.
FHA does allow the borrowers to net their escrows while refinancing their current FHA loan, however not all the lenders would provide this option.
It is better to check with your lender before you refinance to check if they provide this option.
Anyways, you would have to pay escrow when you refinance; however, escrow netting could help you to lower your monthly payments.
How To Request For Netting Escrows With The Lenders?
Ensure that you speak to the appropriate department and/or management. Be patient with what you ask for. Typically, the lender will ask you to submit a written application.
Submit the request to the payoff department via the website, email, or fax. Then wait for the correct number of days and call back to follow up!
The request letter must include the following: It should mention that you are requesting to net your escrow balance with your payoff. Ensure that the request includes your name, address, and correct loan number.
After mentioning all the above things, sign the request letter with the date.
Not all lenders accept e-signs. Most of the lenders would require a wet signature for this kind of request.
Even if the e-signs are accepted by some lenders, it may take time to process the request.
The Pros And Cons Of Netting Escrows?
The Pros:
When you refinance your current mortgage, you have two options. You can pay the new escrow amount at the closing and receive a check for the escrow balance after the closing, or you can request to net the escrow and apply a credit to the current mortgage balance.
Either way, a new escrow account needs to be set up as part of your monthly mortgage payment once you refinance.
Hence, Escrow netting can lower the principal balance of your new mortgage. Finally, a lower principal helps borrowers save money over the life of the loan.
The Cons:
The downside of netting escrow is that returning the original escrow balance will not result in a refund.
You won’t have access to the escrow funds. Instead, the money is sent to help you with your next mortgage principal.
Conclusion
Netting escrows could be one of the best options to save money on your mortgage refinance in the long run.
However, this option may not be available to every lender. Ensure that you speak to your lender before refinancing to check if this option is available with them.
If you do not request to net your escrow, by default the lender would refund the amount to you after the closing.
Introduction
If you’re a homeowner in Texas with a jumbo loan, you may be considering refinancing your mortgage to take advantage of lower interest rates or to secure better loan terms.
Refinancing a jumbo loan can be a smart financial move, potentially saving you thousands of dollars over the life of your loan.
In this blog post, we will provide you with a comprehensive guide on how to refinance a jumbo loan in Texas, including the benefits, requirements, and step-by-step process.
Understanding Jumbo Loans
Before delving into the refinancing process, it’s important to understand what jumbo loans are.
Jumbo loans are mortgages that exceed the conforming loan limits set by Freddie Mac and Fannie Mae.
In Texas, the current conforming loan limit is $ 726,200 for a single-family home. Any loan amount exceeding this limit is considered a jumbo loan.
Benefits of Refinancing a Jumbo Loan
Refinancing your jumbo loan in Texas can offer several advantages, including:
- Lower Interest Rates: Refinancing allows you to take advantage of lower interest rates, potentially reducing your monthly mortgage payments and saving you money in the long run.
- Improved Loan Terms: You can refinance to secure more favorable loan terms, such as a shorter loan duration or switching from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM), providing stability and predictability.
- Cash-Out Refinance: Utilizing the accumulated equity in your home can be a strategic move through a cash-out refinance. By choosing this option, you gain the ability to borrow against the value you’ve built in your home. This additional capital can then be used for various purposes, including home enhancements, consolidating debt, or exploring investment prospects.
Qualifying for Jumbo Loan Refinancing
To refinance a jumbo loan in Texas, you will need to meet certain criteria, which typically include:
- Credit Score: Lenders often require a higher credit score for jumbo loan refinancing. Aim for a credit score of 700 or above to increase your chances of approval.
- Debt-to-Income Ratio: Lenders assess your debt-to-income ratio (DTI) to determine your ability to repay the loan. Aim for a DTI below 43% to qualify for refinancing.
- Equity: Lenders may require a certain amount of equity in your home, typically 20% or more, to qualify for refinancing.
- Documentation: Prepare the necessary documents, such as income verification, tax returns, bank statements, and any other financial information requested by the lender.
Step-by-Step Process for Jumbo Loan Refinancing
- Evaluate Your Financial Goals: Determine your objectives for refinancing. Are you looking to lower your monthly payments, shorten the loan term, or access cash from your home’s equity? Understanding your goals will help you choose the right refinancing option.
- Research Lenders: Compare multiple lenders in Texas to find the best rates and loan terms. Consider factors such as reputation, customer reviews, fees, and closing costs.
- Gather Required Documents: Collect all the necessary documentation, including income verification, tax returns, bank statements, and identification.
- Submit an Application: Complete the refinancing application and submit it to your chosen lender. Be prepared to pay an application fee, which covers the cost of credit checks and appraisals.
- Appraisal and Underwriting: The lender will order an appraisal to assess the value of your home. Once the appraisal is complete, the underwriting process begins, during which the lender reviews your application and documentation.
- Closing: If your application is approved, you will receive a loan estimate and closing disclosure detailing the terms and conditions of your new loan. Review these documents carefully and ask any questions you may have before proceeding to the closing stage.
- Closing Costs: Prepare for closing costs, which may include lender fees, appraisal fees, title insurance, attorney fees, and prepaid expenses such as property taxes and homeowners insurance. Make sure you have ample financial resources ready to meet these expenses.
- Sign the Documents: At the closing, you will sign the loan documents, including the promissory note and deed of trust. Be sure to read and understand each document before signing.
- Loan Funding: After signing the documents, the lender will fund your new loan, paying off your existing jumbo loan and establishing the new terms of your refinanced loan.
- Repayment and Follow-Up: Make your mortgage payments according to the new loan terms. Keep track of your loan and stay in contact with your lender for any follow-up questions or concerns.
Conclusion
Refinancing a jumbo loan in Texas can be a beneficial financial move, providing you with the opportunity to secure better loan terms and potentially save money over the long term.
By understanding the process and meeting the necessary requirements, you can successfully refinance your jumbo loan.
Remember to evaluate your financial goals, research lenders, gather required documentation, and carefully review all loan terms and closing documents.
By following these steps, you can navigate the refinancing process with confidence and make informed decisions about your mortgage.
About Blue Tape Walkthrough
Just like many potential homeowners, you have decided to construct your home, instead of buying a move-in ready home.
The process of constructing your home could be intimidating, and there could be steps that you need to follow to ensure the construction is completed as per your anticipation.
One of the most important steps in the process is a blue tape walk-through. In this post, we will learn what a blue tape walkthrough is in detail.
What Is A Blue Tape Walkthrough?
Also known as blue tape inspection, a blue tape walkthrough is a part of new home construction.
This type of walkthrough is usually conducted after 3-4 weeks once the new home construction is completed.
At that time, the potential buyer meets with a builder’s representative, such as the agent representing the builder or the site manager, to proceed with the walkthrough of the newly constructed home.
The buyers have the option to bring their real estate agent or a knowledgeable person to help them address any issues in the construction.
Blue tape inspection is just like a regular home inspection in which the buyer will go through any issues in the home, whether big or small, that they want to fix.
These issues may include major blemishes like a crack in walls and minor blemishes like the incorrect color combination.
The buyer, buyer’s agent or representative, and builder’s agent will together address these issues and mark them with the help of blue painter’s tape. Hence it is called a “Blue Tape Walkthrough.”
Blue tape inspection helps the buyer and the builder identify problems big and small.
This way, buyers can request the builder to fix the issues before they decide to move in.
Some may be more important or require more work than others. But, if left untreated, serious damage can pose a real threat to the safety of the residents and the integrity of the house.
How Should You Prepare For A Blue Tape Walkthrough?
Going through the blue tape inspection for your new home construction can be overwhelming – you want to make sure you address everything from big to small issues before you move in. Below are some tips for you to prepare for a walkthrough.
- Take someone with you: It is better to have an extra set of eyes to ensure all the issues are addressed.
- Take your time: If you rush through this walkthrough, you will likely miss important defects. Give yourself at least a couple of hours to complete the inspection.
- Take some important tools to help you: The builder will provide blue tape to mark any issues around the house, but you will need a notebook, pen, and camera to record your notes. Also, take a flashlight to check dark spaces and a phone charger to check electrical points.
- Do not be startled by minor problems: During this walkthrough, you will mostly find minor issues. So the number of minor issues should not alarm you as it is very common to have as many as 30 to 40 minor issues during the walkthrough.
What Is The Blue Tape Walkthrough Checklist?
1 - Exterior:
Walkways and driveways: Check all exterior surfaces for cracks or uneven surfaces.
Irrigation: Check the exterior water connection and the sprinkler system.
Exterior Areas: Check patios, decks, and balconies for any soil defects and safety hazards. Test electrical appliances outside, such as lights or an outdoor kitchen, to make sure they are working.
Landscaping: All plants and grass should be present and provide a beautiful landscape.
Color: Verify that the color on the exterior of the building is the right color and free of bubbles or discoloration.
Roof: Inspect all roof tiles to ensure they are level and sealed. (A home inspector can also do this).
Gutters: Check that the gutters are clean and drain 4-6 feet from the foundation of the house. (A home inspector can also do this).
2 - Flooring:
Tiles: Inspect for missing, damaged, or loose tiles along with damaged grouting and cosmetic issues.
Hardwood: Walk around the different parts of the floor to check for creaks, loose boards, chips, or other imperfections.
Stairs: Improper installation of carpet or flooring on stairs can cause serious safety issues. Also, check that the stair railings are safely installed.
Molding and Trim: Check for loose, cracked, or damaged floor molding and trim.
Carpet: Check that the carpet is properly installed, especially on the edges, and that there are no stains.
3 - Systems and tools:
HVAC: Check the efficiency of air conditioning and heating and check the vents for adequate ventilation.
Plumbing: Test all faucets for hot and cold water flow and water flow. Check for leaks from pipes or pipes under the sink. Make sure all sinks, toilets, and tubs drain properly. Test the garbage disposal in the kitchen and check the laundry and dryer in the bathroom.
Safety systems: Check all safety systems and sensors to ensure they are working properly.
Appliances: Check the performance of every appliance in the home, including the refrigerator, dishwasher, oven, and stove.
Electrical: Test all light fixtures and outlets. Check the circuit breaker box to make sure all the light signals are working properly.
4 - Windows, walls, and ceilings:
Windows: All windows should open and close properly, window locks should work properly, and screens should fit properly.
Ceilings: Monitor the ceilings for the right color combination, and every bulge, crack, or defect that can imply any water damage.
Walls: Check walls and moldings to make sure they are properly painted with no marks or chips.
5 - Doors:
Garage Door: Test the garage door and make sure they work.
Front, Side, and Back Doors: Check all exterior doors to make sure they open and close properly, locks work properly, and there are no cosmetic issues. Also, test the doorbell.
Interior Doors: All interior doors should open and close properly and fit snugly in their frame. Be sure to check that the door handles and locks are working.
6 - Attic or basement:
Leaks or Water Damage: Water stains, water spots, or odors in the attic or basement are signs of a water problem.
Insulation: Check the attic or basement for adequate and properly installed insulation.
Ventilation: The attic or basement should have good air circulation and ventilation.
7 - Kitchen and bathroom:
Cabinets and Drawers: Open and close all cabinets and drawers and check for issues.
Countertops and Surfaces: Inspect all countertops and surfaces to ensure they meet your specifications and are free of cracks, chips, or other blemishes.
Bathroom Fixtures: Check that everything in the bathroom, such as water taps, towel racks, and mirrors are installed properly.
Conclusion
Blue-Tape Walkthroughs would help the buyer to make sure that the home is perfect before they move in.
In this walkthrough, the buyer would mostly find minor cosmetic issues which the builder can change quickly.
However, if there are any major changes make sure you give adequate time to the builder to fix those issues before you decide to occupy the property.
About Mortgage ATR Rules/QM Rules
When you are planning to purchase a new home, one of the most challenging things is to qualify for a mortgage.
You would have to provide various documents to the lender to prove that you are qualified for the mortgage according to the qualified mortgage guidelines.
While the lenders qualify you, they have to follow certain rules.
One of the rules that the lenders have to follow is known as ATR/QM rule. In this post, we will learn what ATR rule / QM rule is in detail.
What Is The CFPB ATR/QM Rules?
In 2010, Congress enacted a major law called the Dodd-Frank Wall Street Reformed Consumer Protection Act, also referred to as the Dodd-Frank Act.
The Act amended the Truth in Lending Act of 1968 (TILA), which was also called Regulation Z.
Once enacted, the Dodd-Frank Act changed the financial system and put new government agencies in place to manage it. This act was enacted to regularize the mortgage lending process to avoid another financial crisis like in 2008.
Many provisions of this Act came into effect over the years. In particular, the ATR/QM rule effectively makes it more difficult for lenders to grant mortgages that are not in the best interest of the applicant.
It requires financial companies, individuals, or organizations to make a “good faith and reasonable determination” about a borrower’s ability to repay the mortgage as per their terms.
This qualification should be completed before the financial institution gives the residential mortgage loan to the borrower.
The QM/ATR rules also set precautions to charge pre-payment penalties and impose record-keeping for up to 3 years once the lender and the borrower sign the mortgage contract.
However, some provisions and plans, such as temporary GSE (Government-Sponsored Enterprise) QMs, which include loans sold by companies such as Freddie Mac or Fannie Mae, have changed over time.
How Do QM/ ATR Rules Protect The Borrowers?
When a financial institution makes a good-faith determination, the information must be verified by reliable sources by the financial institution.
This may include third parties with consistent and reliable reporting systems. Following the standard underwriting requirements for ATR policies will help the lenders to ensure that the borrower has the funds to repay the loan.
The assessment is based on at least eight factors, including expected or reasonable current income or assets, latest employment status and verified income, loan repayments, other loans on the same asset, an expense related to the current asset, other debts, a DTI, and credit. The financial institution may consider other measures if required.
The QM / ATR rules operate on legal confirmation that the issuers behind the qualified mortgage have complied with the requirements of the ability to repay rule. Therefore, it is assumed that the lender’s loan is legal.
Compliance with pricing and margin laws provides the lender with a conclusive presumption.
This acts as a legal defense for lenders if the borrower decides to file a lawsuit. In particular, it gives them some cover if consumers accuse them of not making the right good-faith determination.
While this gives the lender less leverage, it also protects the borrower. Non-QMM loans with high-interest rates do not benefit from this security.
Instead, QMs whose values are above a certain threshold come to the point of convergence.
This gives a borrower a strong argument that the borrower did not comply with the ATR criteria before providing the loan.
What Are The Types Of Loans Exempted from the QM/ ATR rules?
The QM / ATR rules apply to almost all home or residentially secured consumer loans.
However, there are some exceptions. Transactions that do not fall under this definition are not covered by this rule. As a borrower, you might come across these loan types.
A reverse mortgage taken against the home equity is a good example of a loan that falls outside of this rule.
Other exceptions are:
- short-term loans, which provide short-term financing,
- Some types of loan modification (and some types of mortgage refinancing),
- Timeshare
- Home equity lines of credit
- Construction loans with less than 12 months of tenure
- Vacant land consumer credit transactions.
Some odd homeowner loans that are converted into standard home loans are also exempted from this rule.
However, this only applies if you continue to hold the loan and it meets certain conditions after it is refinanced.
In addition, certain loans provided or provided by creditors or loan programs may be excluded under this rule.
Conclusion
The QM / ATR rules take measures to protect borrowers by pushing lenders to meet higher standards compared to what they used to be.
Also, the new update to the rule does this without compromising the ability to acquire appropriate credit for consumers.
It supports innovative and safe lending for borrowers. The law has gone through many twists and turns since Congress signed the Dodd-Frank Act.
Therefore, the future of many borrowers may be subject to future legal changes to this rule.
Introduction
When you buy a property you have exclusive rights to the property to make any amends that you like.
In most cases, these are surface rights given to the homeowner to make any changes on the land and the property.
However, if your property is built on land which is near mining activities, you might come across mineral rights.
In this post, we will understand what is mineral rights on a property and how it works in detail.
What Are Mineral Rights?
Mineral rights refer to the ability to extract minerals from a specific piece of land. This can include mining rights to precious metals or stones, mining materials such as gravel and sand, and even drilling for natural gas and oil.
In most countries, mineral rights are held and claimed by the government. However, in the United States, the owner of the land usually has the mineral rights to access what is underneath the land, but not always.
Sometimes the ownership rights of what is underground can be different from the ownership rights of the above the land or the surface.
Since both mineral and surface rights are different from each other, a home buyer needs to know what the ownership rights are when buying real estate.
The owner of a mineral right can exploit minerals or sell the right to do so even if they don’t have any ownership interest in the property.
How Do Mineral Rights Work?
In legal terms, if the same owner holds both mineral and surface rights, it is known as a “unified estate”, which means that both rights are unified under the same owner.
If there is something of great value beneath the land, the owner may choose to sell the property mineral rights to a third party, while holding on to the surface right to live on or modify the property as per their requirements.
It may be complicated but it’s comprehensible: Mining is expensive, so the holders of mining rights must have enough funds to support the project.
Even if they have the money, the owners may likely be unaware or inexperienced about mining or drilling, and they may not have the necessary tools.
If the landowner sells the mining rights to a third party it is called a “severed estate.
Land laws regarding severed estate vary from state to state, often depending on the type of minerals in the area, so be sure to know your state’s laws.
It is crucial to know whether these rights are with the landowner or a third party if you are selling or buying the property. In some cases, these rights may be owned by companies.
In other places, the rights may belong to whoever owned the land at the time the mineral was discovered. These rights are not always transferred in the sale of the property.
What Type Of Minerals Are Included In The Mineral Rights
When you hear “minerals” you may think about them being solid minerals, but the truth is that mineral rights also cover liquids and gases.
However, this may be based on tax rules and laws. Below is the list of minerals that are generally included in these rights:
- Precious metals (gold, silver, mercury, etc.)
- Coal
- Oil
- Rare earth elements
- Semi or non-precious metals (aluminum, copper, etc.)
- Natural gas
What Is The Difference Between Surface Rights and Mineral Rights?
A surface right is what you own above the ground. These include building structures, spaces, lawns, and backyards. On the other hand, mineral rights cover specific underground mineral resources.
In areas assigned for conducting mining activities, it is common for surface rights to be separated from mining rights.
In some cases you may find yourself in a position where you have the surface rights, but not the mineral rights also referred to as a severed estate.
Conclusion
It is significant to know your property mineral rights. If you have these rights, you can earn in form of royalty and have a consistent income. If someone else has these rights, they can legally pull valuable minerals from under the land that you own.
If you’re buying property in an area known for mining or oil, make sure that you know who owns these rights.
Mineral rights are complex and may or may not be linked to traditional land ownership.
However, they can be very profitable. If you want to know if the property you are planning to buy falls in a mining area, you can hire a geologist or a land surveyor who can let you know if there are valuable minerals beneath your land.
About Hybrid Appraisal
Appraisal is one of the most important aspects of a real estate sales transaction.
Whether you are buying or selling the house, you have to get an appraisal done as a part of the property sales transaction.
Appraisals are also required if you are refinancing your current mortgage. With the help of appraisals, the buyer or the mortgage lender can determine the fair market value of the property.
What Is A Hybrid Appraisal?
A hybrid appraisal also called a bifurcated appraisal, is a report in which someone else (usually a real estate agent or third-party appraiser) will make an independent assessment of the internal and external aspects of the property that is being sold.
Once the assessment is completed by the agent or the third party, they will report their findings to the appraiser.
The appraiser will collect information on the property from public records, the MLS, and other sources to conclude the appraisal report and will provide the value of the property.
Hybrid appraisals are like traditional appraisals. However, the process of appraisal is split into two parts.
In traditional appraisals, the inspection and the appraisal report are provided by the same appraiser.
However, in hybrid, the inspection and the appraisal report are done by different individuals. That is why they are also called bifurcated appraisals.
When a hybrid is used for property appraisal, a third party will visit the property and conduct a physical inspection of the property, identifying its features, condition, location, size, and any other factors related to the value of the property.
This third party will inspect both the interior and exterior of the building and collect the same type of data used for traditional inspections.
The difference with a hybrid is that the individual inspecting the home – who can be a real estate agent, home inspector, another licensed inspector, or even a trainee appraiser – will submit the data that they have collected to the appraiser, who will finalize the value of the property.
The appraiser will complete their portion of the process by combining data collected by third parties and public records, MLS, and other sources to complete the appraisal report.
The appraiser will also consider comparable sales, also known as comps, to help determine the market value of the property they are considering.
This process allows the professional to focus on property valuation, where their skills and experience reside.
What Is Included In A Hybrid Appraisal Report?
The report will also contain information that supports the appraiser’s valuation, such as:
- Description of the exterior
- Trends in the local real estate market
- The condition of the property
- Features
- Area and structure
This report will also include:
- The intended use of the report and its recipients.
- Any special instructions from a lender or agency such as Federal Housing Administration (FHA), Fannie Mae, or Freddie Mac.
The Pros And Cons Of Hybrid Appraisals?
Pros:
Hybrid appraisals are very popular, mainly because they use the expertise of the appraiser.
The hybrid analysis allows the appraisers to focus on what they know how to do by comparing real estate sales data and evaluating properties.
Hybrid appraisals may take less time compared to traditional appraisals. A hybrid inspection usually takes 30-60 minutes.
It may take up to a week for the final report to come back. That’s even faster than the traditional 3-30 day turnaround time.
Cons:
The most important thing about hybrid assessment methods is accuracy. An appraiser may not trust others to accurately record the condition, style, or other characteristics of the property.
Third-party local inspectors may not have the same credentials or licenses as an appraiser. Their expertise can be questionable and lead to inaccurate home prices.
Conclusion
The right to order the appraisals is with the lender, you as a homebuyer or seller would not get the option to choose the type of appraisal required for the transaction.
The type of appraisals ordered by the lender depends on various situations and circumstances of the transaction.
Home valuations, like many aspects of real estate, can change with local real estate markets or national events like a pandemic.
And, depending on the availability of valuation professionals in your area, hybrid appraisals may be more or less common.
About VA Housing Grants
We all know about The Department of Veterans Affairs and their popular VA loan that helps veterans and active service members to buy a home with zero down payments.
However, veterans and service members that incurred service-related disabilities may find it difficult to buy a home or modify their home to live independently.
In such cases, The Department of Veterans Affairs provides grants for disabled veterans. In this post, we will understand all about VA housing grants in detail.
What Are VA Housing Grants?
VA housing grants are the funds provided to help veterans with disabilities adapt and make the best housing modifications for their comfortable living.
The VA department provides several grants each year for the construction or modification of housing to meet the needs of veterans. Unlike loans, these are grants that are not intended to be repaid.
There are different types of veteran housing grants that are provided by the VA department based on the disability type and the requirement of the veterans.
What Are The Types Of VA Housing Grants?
The VA has three types of housing grant programs that help veterans with certain lifelong service-related disabilities modify or build a house to meet their requirements.
The three types are the Specially Adapted Housing (SAH) Grant, Special Housing Adaptation (SHA) Grant, and Temporary Residence Adaptation (TRA) Grant. Let’s take understand the difference between these three types of grants.
1. Specially Adapted Housing (SAH) Grant
The SAH grant is for veterans with service-related disabilities who plan to use the funds to purchase, build, or modify their permanent residence.
To qualify for a SAH grant, a veteran must own (or plan to own) a home and have a qualifying service-related disability, such as:
- Loss or loss of use of lower limbs and permanent effects of disease or injury.
- The loss or loss of use of more than one limb.
- Blindness in both eyes and loss or loss of one leg.
- Some severe burns.
- Loss or damage to a lower limb (foot or leg) that prevents balance or walking without the aid of crutches, braces, wheelchairs, or canes.
Note: There is a limit on how many applicants can get this grant. Only 30 veterans and service members are allowed to receive this grant in a fiscal year. The maximum amount of grant allowed in SAH is $44,299 in 2022.
2. Special Home Adaptation (SHA) Grant
SHA grants also provide funding for veterans with service-related disabilities; however, the total grant amount is lower and the disabilities that qualify are different from the SAH grants.
Similar to the SAH grant, the SHA grant is for veterans who will use the money to purchase, build, or modify their permanent residence.
The most important thing is that this grant can be used for a house that is owned (or to be owned) by a veteran with certain service-related disabilities or a family member.
To qualify for an SHA grant, the list of service-related disabilities is slightly different than the SAH grant:
- Blindness in both eyes (vision of 20/200 or less)
- Loss or loss of use of both hands
- Some severe burns
- Injuries related to breathing or shortness of breath
Note: The maximum amount of grant allowed in SHA is $7,910 in 2022.
3. Temporary Residence Adaptation (TRA) Grant
If a disabled veteran is living temporarily in a family member’s home and needs to make some changes in the home to adapt to his disability, the veteran can receive funds for modification of the home through a Temporary Residence Adaptation (TRA) Grant.
To be eligible for a TRA grant, you must meet two main conditions:
- The disabled veteran applying for the grant must be eligible for either a SAH or SHA grant.
- The disabled veteran applying for the grant must live temporarily in the home of a family member that needs modifications required for the disabled veteran.
How To Apply For VA Housing Grants?
The process to apply for VA housing grants is very simple. This application for the grants for disabled veterans can be completed online through the VA’s eBenefits portal (https://www.ebenefits.va.gov/ebenefits/about/feature?feature=sah-grant) or by mail to the nearest VA Regional Lending Center (https://www.benefits.va.gov/HOMELOANS/contact_rlc_info.asp).
As an alternative, veterans can contact the VA directly by calling 800-827-1000. Once the application is submitted, veterans will be notified of the VA’s decision by mail or through the eBenefits portal (https://www.ebenefits.va.gov/ebenefits/about/feature?feature=sah-grant).
Conclusion
The VA housing grants are one of the best options for veterans with service-related disabilities to modify or change the interior or exterior of their property to live comfortably and independently.
You can use the above information to check if you qualify for one of the three available grant options. If you have any questions about any specific VA housing grants you can contact the VA department directly.
About Appraisal Gap
One of the most important factors in a home purchase is the price of the property.
Two prices hold significance in a home purchase transaction. One, the home price agreed upon by the buyer and the seller, and two, the appraised home value by the certified appraiser.
The lender is required to do an appraisal to ensure that the property is worth the value it is being sold for to protect its share of the interest in the property.
Most of the time these values are close to proceeding with the transaction, however, sometimes these values may have huge differences and may cause issues to proceed with the transaction. In this post, we will understand what is an appraisal gap and how it works in detail.
What Is An Appraisal Gap?
An appraisal gap occurs when the appraised value of a home for sale is less than the purchase price agreed upon between the homebuyer and the seller.
The difference in appraised values and agreed-upon values is common in hot real estate markets. Real estate prices skyrocket when the number of buyers exceeds the number of homes for sale on the market.
It is challenging to keep up the pace of appraised values if the home values rise faster than the sales of comparable houses in the area.
An example of the difference in grade is if you are buying a property for sale for $250,000 and want to put a 10% down payment on $275,000 to stand out from the other bidders.
If the offer is accepted, the assessed value comes to $260,000. Unless the seller agrees to lower the price, you have to get the extra $15,000 from your pocket.
What To Do In Case Of An Appraisal Gap?
Gaps in appraisals can certainly derail the sales process and in some cases send both buyers and sellers might have to begin the process from start.
However, there are several ways buyers can deal with appraisal differences so they can continue with the transaction.
Paying the difference amount
The easiest way to close the difference in appraisal is for the buyer to pay the difference. Of course, this is not always financially feasible. If you have cash on hand, you can pay the difference in cash.
Or, if you’re more comfortable, you can cash out some of your investments or tap into your retirement funds penalty-free to pay the difference.
Taking a separate loan to cover the difference amount may also be one of the options. However, the lender will consider this new loan for calculating your affordability while qualifying you for the mortgage.
Another option would be to check with your mortgage lender if you can qualify for a higher loan amount. This way you don’t have to come up with the difference amount from your pocket. Else, reducing the down payment and opting for PMI could also be one of the options.
Renegotiation
Another option available to buyers facing an appraisal gap is to renegotiate the purchase price of the home with the seller.
This option is only relevant if you have the appraisal contingency in your sales contract.
You can ask the seller to lower the price to match the appraised value. Sellers may be willing to negotiate based on the time and effort that they have invested in selling the property.
You can also reduce the difference to a level you can afford by asking the seller to split the difference amount.
New Appraisal And New Financing
An appraisal can also be challenged if substantial evidence is available to show that the value of the appraisal was inaccurate, including that the appraiser misjudged the market and valued the property incorrectly.
In the event of a successful dispute, you can seek new funding and receive a new offer.
This may result in an appraisal that matches the sale price but is not guaranteed. This process can be time-consuming and sellers may not want to go through it, especially if they think they have more offers from other buyers.
What Is Appraisal Gap Clause?
The appraisal guarantee clause is not to be mistaken for insurance, even if it sounds like it.
Instead, it is a contractual clause that binds the purchase of a home to the buyer even if the appraised value is low.
Pay close attention to this part of the contract and set a limit on how much you’re willing to pay or request it to be removed to close an appraisal difference.
What Is Appraisal Contingency?
An appraisal contingency is one of the best legal ways to cancel the sales agreement if the appraised value does not match the agreed sale price.
You can cancel the contract and keep your earnest money deposit (EMD) just in case the appraised value is less than the agreed-upon sales price.
If the contract is terminated without any appraisal contingency, the seller may keep your EMD, which is usually 1% to 3% of the property sales price.
Conclusion
Appraisal gaps can cause roadblocks when closing a property sale because the real value of the property is assumed to be less than the agreed-upon sale price.
It could be an unpleasant experience for both the seller and the homebuyer.
However, with a little preparation in the sales contract, both parties can protect themselves depending on the type of market in which the sale is happening.
A seller can use an appraisal guarantee clause, and the buyer can use an appraisal contingency.
About Gross Rent Multiplier
If you are a real estate investor looking to buy an investment property, there are many aspects of the property that you might want to consider before investing in the property.
Many real estate investors would like to know the net operating income, vacancy rate, locations, and amenities before they purchase any investment property.
One such important aspect to consider before buying an investment property is the gross rent multiplier. In this post, we will understand what is a gross rent multiplier in detail.
What Is The Gross Rent Multiplier?
The Gross Rental Multiplier (GRM) is a formula used by real estate investors to compare the potential rental income of different comparable properties.
This valuation method is a simplified way to analyze a property’s buying worth compared to its value without performing a full analysis.
Real estate investors of all skill levels use this formula to quickly compare properties in their portfolios and make quick investment decisions.
It should be noted that GRM should not be used as a substitute for a thorough analysis of the investment property.
GRM helps investors to make a purchase decision for investment real estate based on comparable properties in a given market.
What Is The Importance OF GRM in Real Estate Investment?
Real estate investors actively looking for real estate would have more than one property that they are looking at.
They need to find a way to quickly evaluate opportunities so they can spend time in an in-depth analysis of the best property from all the potential options.
The GRM of the property will help the investors to determine on which property they can focus and conduct an in-depth analysis.
However, this doesn’t mean that you should ignore the fact that there could be other properties with better GRMs.
Lenders would evaluate an investment property based on several parameters and ratios to provide financing.
Income generated by the property and profitability is considered a few of the most important parameters by the lenders for qualification.
Knowing what a GRM is for the real estate you are planning to buy may help you to be prepared for the qualification of the loan.
However, other parameters that the lender would require to finance your investment property may include your credit score, assets, income, debts, etc.
What Is The GRM Formula?
Let’s look at the gross rent multiplier formula. This formula will help you to calculate the GRM for an investment property.
GRM = Current Market Value ∕ Annual Gross Rental Income
Example: $275,000 Current market value ∕ $36,000 Annual Gross Rental Income = 7.6 GRM
The GRM formula is used to compare the investment property’s current market value to its annual gross rental income.
As you can see from the above-mentioned example, it would take approximately seven and a half years to recoup the price of the property.
However, it is important to note that other expenses such as facility maintenance, vacant lots, insurance, and property taxes are not included in the GRM calculation.
However, GRM is only a calculation to help you make the right decision between comparable properties without considering these other costs, as these costs vary from property to property.
What Is Considered To Be A Good Rent Multiplier?
In our example, a GRM of 7.6 years was achieved. This number depends on several factors. Importantly, as real estate prices rise and the market cycle lengthens, the GRM will decline gradually.
Early in the real estate cycle, when the market is coming out of a downturn, GRM is usually relatively low as liquidity slowly begins to flow and investors return to buying real estate.
In such situations, high single-digit GRMs can be common. Once the market catches up and the availability of cash is higher both for lenders and investors, the GRM tends to go higher.
Conclusion
The gross rent multiplier is an easy-to-use calculation even if you are new to real estate investment with the possibility of error being minimized compared to other complex calculations.
In just a few seconds you would be able to make your decision on whether or not you should proceed to go further with the investment property purchase.
One thing to keep in mind while calculating GRM is that you need to compare it with properties with similar configurations in the neighborhood.
This will help you get more accurate results and make an informed decision.
About Probate Sale
Whether you are a first-time homebuyer or a seasoned real estate investor, when you are looking to buy a new home, you would expect to buy the property at the lowest price possible.
There are various ways you can buy properties below the market price such as foreclosures or short sales. However, there is one more option that you help you buy property at a lower than market price called a probate sale.
In this post, we will understand what is a probate sale in detail.
What Is A Probate Sale?
First, let’s discuss how real estate probate sales happen. When someone dies without a will, in the legal world it is called a dying intestate.
Any wealth or property left behind by the deceased goes through a legal process called probate. Probate proceedings are governed by a legal system administered by probate courts, which control the process accustomed by each state.
If the deceased owns real estate (also known as real property), it should be sold for the best possible price to increase the value of the property.
How Does A Probate Sale Work?
It is not uncommon for a homeowner to die in debt under their name. You must appoint an executor to properly administer the estate if you have a will.
These obligations may include distributing assets to beneficiaries, paying creditors, or selling the deceased’s home in the case of a probate real estate sale. In the absence of a will, the court will usually decide the sale itself or appoint a manager to decide the sale.
However, a real estate agent could be part of this transaction to show your property and coordinate sales.
Since the probate property is usually sold “as is”. This means that buyers may not be able to negotiate the price of the property if any repairs are required before the purchase.
This type of “take or leave” approach is not suitable for all buyers, but the advantage of buying such real estate is that you are more likely to achieve a sales price below market value.
Remember that making an offer is often the first of many steps in a real estate probate purchase. If the house is being sold by an administrator, the court may approve your offer before proceeding with the sale process.
In a probate real estate sale, the buyers may require to come up with additional cash upfront. According to the NAR, apart from your down payment, you may need at least a 10% additional upfront payment ready to go.
However, that extra money can be added to your down payment at closing. Circumstances may be different when the property is sold by the court instead of an executor of a will.
In this case, it could be set up as an auction where the highest bidder must pay in cash or check upfront.
The Benefits Of Buying Property Through A Probate Sale?
There are several reasons why sophisticated real estate investors and buyers are drawn to buying properties from real estate probate sales.
These types of sales are more complex than conventional sales, so the real estate prices can be low.
Even in a tight housing market, selling real estate through these types of sales can provide investment opportunities not available through traditional real estate channels.
These reasons are just a few of the potential benefits of buying real estate through a probate sale that can help investors save money in the long run.
The Drawbacks Of Buying Property Through A Probate Sale?
Probate sales may come with possible risks. Each state has very specific rules for this type of sale, which can be difficult for inexperienced property buyers.
It is important to work with an experienced estate agent and realtor in this situation as failure to follow the legal rules will result in the cancellation of the sale and the buyer may have to forfeit the deposit.
It is also important to note that there can be delays whenever the courts or the family of the deceased are involved.
Also before going for a real estate probate sale, a thorough home inspection is essential before buying the property because the current deceased who was the previous owner cannot report any problems with the home as part of the sale offer.
Conclusion
It is important to consider the risks and consider your level of knowledge and real estate terminology if you are a potential real estate investor considering purchasing real estate through a probate real estate sale.
In the state where the property is listed, assemble a highly qualified team, including attorneys and real estate agents experienced in buying and selling these types of properties and home inspectors who can identify unknown problems with the property.
It is also important to understand that you need to be aware of the cash and risk of loss to comply with the specifics of state law and pay your down payment.
About CEMA Loan
If you are looking to refinance your current mortgage or acquire a new one to buy a new home in New York, you are required to pay mortgage recording tax as per state laws.
Mortgage recording tax could be one of the major portions is the cost of refinancing or acquiring a mortgage.
For New Your residents, there is a loan option where they can save on the mortgage recording tax. In this post, we will understand what is CEMA loan in detail.
What Is A CEMA Loan?
CEMA, also known as Consolidation Extension and Modification Agreement is a loan option available to New York residents that can excessively reduce the cost of refinancing their mortgage.
In CEMA loans the borrowers have to pay the mortgage recording tax on only the unpaid mortgage balance (The difference between the current mortgage balance and the new loan amount).
New York State collects recording tax to record a new mortgage unless the property is a cooperative unit.
Along with the state tax, New York City, Yonkers, and various counties impose additional local taxes to record a mortgage.
In New York City, this mortgage recording tax is 1.8% if your loan amount is less than $500,000 and 1.925% if the mortgage balance is $500,000 and more.
If you are refinancing your mortgage in New York, you can save a good amount of money with the help of a Consolidation Extension and Modification Agreement loan.
What Are Consolidation Extension and Modification Agreement Loan Requirements?
The most immediate requirement for this type of loan is that you must live in New York State.
CEMA loans are available for refinances, FHA, and jumbo loans only. This type of loan is not available for VA loans.
CEMA loans are often used in place of traditional refinancing, but they are a very rare type of loan for new home buyers.
Most housing types and lifestyles are eligible for the Consolidation Extension and Modification Agreement loan, except for co-ops.
New York State does not levy mortgage taxes on co-ops because individual co-op shares are not considered real property.
Finding a lender that offers CEMA refinancing can be difficult, and you should make sure that the lender you choose does.
Ask if your current lender offers this type of loan before you find a new lender.
What Are The Pros and Cons Of A CEMA Loan?
Since we know what a Consolidation Extension and Modification Agreement loan in New York is, let’s understand if this type of loan is right for you.
As we all are aware that every loan comes with pros and cons, and you might want to look into this type of loan to make the right decision.
Pros:
Buying a new home is not cheap, and buying one in New York State real estate is very expensive, especially if you are looking to get one in NYC.
Hence, this type of loan can help you to save a good amount of money in terms of mortgage recording tax.
Instead of refinancing a mortgage traditionally, choosing a CEMA mortgage to refinance can save you thousands of dollars upfront.
You can also benefit from lower interest rates and lower closing costs with Consolidation Extension and Modification Agreement loans.
Cons:
A CEMA mortgage refinance can save you money in most cases, but getting one could be a time-consuming process.
New York State and your lender are required to follow specific procedures to process mortgages and transfer titles under CEMA regulations, so you only have to pay tax on the new amount in the transaction, not the full principal.
This means that CEMA mortgage refinancing requires a little more patience than regular refinancing as closing loans can take up to 60-90 days. However, they will continue to provide you with information throughout the process.
Conclusion
CEMA mortgage refinancing is one of the best options for residents in New York State looking to refinance their mortgage. You need to have patience if you decide to get this type of loan.
If you need want to close your refinance faster, you might want to consider going with the traditional method of refinancing.
However, keep in mind that going with the traditional method means paying additional mortgage recording tax.
About Loss Mitigation
When you take a mortgage you would always expect that you make your mortgage payment on time and never miss them and so does your lender.
However, due to some unforeseen circumstances, such as loss of job, medical emergency, or accidents, a borrower may experience financial hardship.
As a result, the borrower may be unable to make the mortgage payment which leads to foreclosure.
Foreclosure is an expensive procedure for lenders and a devastating situation for borrowers.
To avoid foreclosure one of the provision available is known as loss mitigation. In this post, we will learn what loss mitigation means and how it works in detail.
What Is Loss Mitigation?
As we have discussed above, there could be many reasons why a borrower can face financial hardship and miss his mortgage payments.
In such situations, it is ideal for both the mortgage lender and the homeowner to help the homeowner stay in their home and get back on their feet so they can eventually be current on their late payments.
With the help of loss mitigation, the homeowner can stay in the home without the foreclosure process.
Loss mitigation is a process designed to protect homeowners and mortgage holders from foreclosure procedures. This can be one of several strategies that homeowners can use to stay on top of their mortgage while staying in their homes.
In a worst-case scenario where the borrower defaults on the mortgage, loss mitigation can reduce the negative impact of foreclosures.
If you are having trouble repaying your mortgage, contact your mortgage servicer. Your service provider is the company to which you pay your mortgage payments.
Their job is to help with payment issues as well as collect payments and maintain an escrow account (if any).
Your provider may or may not be the mortgage lender you borrowed from. Rights to service your mortgage may be sold or bought by others.
What Are Different Types Of Loss Mitigation Options?
Based on the type of financial challenge you are in, your lender might offer you various types of mitigations.
Below mentioned are the options:
1 - Forbearance:
With the help of forbearance, you can reduce or temporarily stop paying your monthly mortgage payments.
Any outstanding amount will be added to your loan balance and will be repaid at the end of the grace period according to an agreed schedule known as the repayment plan.
Administrators may offer an option to extend the initial 6-month forbearance period by an additional 6 months (1 year in total).
After this period ends, the borrower repays the outstanding amount in regular monthly payments, usually over six months (or one year if the period is extended).
If you can repay the outstanding amount and resume normal payments during the forbearance period, you can contact your loan servicer to reinstate your mortgage.
2 - Deferred Payments:
A deferred payment is a way to pay the monthly payments that you were allowed to miss during the forbearance period.
In this type of mitigation option, the borrower needs to pay the missed payment amount at the end of the mortgage term, refinancing the current mortgage, or selling the property.
3 - Modification Of Mortgage:
In this option, the lender will change the complete term of your loan, such as the tenure and/or the interest rate to make the payments more affordable.
Based on your lender and the type of mortgage, you may be eligible to lower the monthly payments by up to 25% or by increasing your tenure of mortgage for up to 40 years.
A Short Sale
In this option, the loan servicer agrees that the home can be sold for less than the mortgage loan. Servicers will incur costs as they progress. When home prices fall, short-selling activity increases.
A foreclosure could still be a better option, but both sides still suffer. Mortgage servicers will lose their part of the profit and borrowers will get a negative impact on their credit and lose the opportunity to make a profit from the sale.
4 - Deed in lieu of foreclosure:
This is an option in which the borrower transfers the title of the property in the name of the loan servicer in exchange for loan forgiveness.
With a deed in lieu of foreclosure, both borrowers and the loan servicer can save a lot of time and money which might be included in a foreclosure process.
In some situations, the borrower can reach an agreement with the servicer to stay in the house for a specific time until they find alternate housing options.
Conclusion
Loss mitigation is a process that the lender goes through with the borrower before the foreclosure process. If none of the mitigations work, then the lender only has foreclosure as a last resort.
It is important to speak to your lender to discuss all the possible options if you are unable to make mortgage payments due to financial hardship.
Your lender or your loan servicers would always prefer any of the loss mitigation options over foreclosure.
About Gift Letter
When you are buying a home, you are likely required to have some reserve amount for the down payment and the rest would be covered by mortgage financing.
Usually, borrowers accumulate these funds and pay the down payment to the seller at the time of closing.
However, what if you don’t have enough funds to cover the down payment? Well, there is an option in which the borrower can receive a gift of funds from family, friends, or spouse. In this post, we will understand what a mortgage gift letter in detail is.
What Is A Gift Letter In A Mortgage?
A mortgage gift letter is a letter that is signed by the donor who provided gift funds to the receiver, certifying that the funds are not provided as a loan and that the donor is not expecting any repayment for the same.
These gifts are used by the buyer to cover the cost of the mortgage and the down payment to purchase a property.
The lender would require this letter to make sure that there is no additional debt taken by the borrower to cover the down payment or closing costs, as it may change the approval parameter for the borrower.
A gift letter signed by the donor proves that the borrower has not taken any additional debt or loan from the donor and does not have to repay that to the donor.
For example, let’s assume you want to buy a home and your parents provided $10,000 as a gift.
You can use this money for your down payment and closing costs. However, to do so you must convince your mortgage lender that it is not a debt that you have to repay.
To prove that, your parents need to provide a signed letter to the lender mentioning that it is a gift and not a debt.
The gift letter proves your relationship with the donor, the exact amount gifted along with the source of funds, and states that you are not responsible to pay it back.
What Is Included In A Gift Letter?
In most cases, the lender will provide a template for the mortgage gift letter. If your lender does not provide you with this letter, you can request the details that are required in the letter. Below is an example of what a mortgage gift letter might include.
[Donor’s Name]
[Donor’s Address]
[Donor’s Phone Number]
[Donor’s Relationship With The Recipient]
[Recipient’s Name]
[Recipient’s New Property Address]
[Gift amount and date it was provided or to be provided]
[Whether or not the recipient is planning to use these funds as earnest money deposit]
[Signature and date of both recipient and donor]
By signing this letter, you confirm that neither the donor nor the recipient has received a gift from any person, company, or entity related to the property or transaction being sold.
This includes sellers, brokers, contractors, mortgage lenders, or any related entity. Both recipient and donor agree that the gift must not be returned.
Who Can Provide Gift Of Funds In Mortgage?
In a conventional loan, the gift of funds can be given by family members. According to Fannie Mae and Freddie Mac, family members may include:
- Grandparent (including great, step, and foster)
- Niece or nephew (including step)
- Child (including step, foster, and adopted)
- Sibling (including step, foster, and adopted)
- Parent (including step and foster)
- Fiancé or fiancée
- In-laws (including parents, grandparents, aunt/uncle, brother- and sister-in-law)
- Aunt or uncle (including great and step)
- Cousin (including step and adopted)
- Spouse
- Domestic partner
- Godparents (Only For Fannie Mae)
- Relatives of domestic partner (Only For Fannie Mae)
- Former relatives (Only For Fannie Mae)
In the case of Fannie Mae, the borrower can also receive the gift of funds from his or her future in-laws.
In FHA loans the gifts could be received from all the above-mentioned individuals in addition to the charitable organization, labor unions, and employers.
USDA and VA loans do not have any restrictions on who can give funds as a gift apart from parties involved in the real estates transaction such as the seller, the developer, or the builder.
Conclusion
Receiving a gift to cover your mortgage closing costs and down payment from your family or friends may sound very exhilarating.
However, without the gift letter lender might not go beyond the underwriting process.
That is why this letter is very important if you are using gifts of funds to pay for the down payment and closing cost for your property purchase.
About Escrow Refund
When you get a mortgage from a lender to buy a home, your lender will require you to open an escrow account to hold your property taxes and homeowner’s insurance amount to be paid when it is due.
In most cases, the property taxes are paid annually at the end of the year when your lender does something called escrow analysis.
This will help them understand if the money accumulated in the escrow account is enough to pay their property taxes and home insurance. But what happens if you have overpaid into your escrow account?
Although the possibility is rare, you would receive an escrow refund check from your lender. In this post, we will understand what is an escrow refund in detail.
What Is An Escrow Account?
Before we understand how the refund of the escrow amount works let us understand what an escrow account is.
When you are buying a home, there are two types of escrow accounts that are created.
The first account is opened by a third-party title company that holds the earnest money deposit that you pay to the seller to show your seriousness in buying the property.
This money will be adjusted towards your closing costs or the down payment that you are supposed to make to purchase the property during the closing.
The second escrow account will be opened by your lender. In this escrow account, the lender will accumulate your property taxes and homeowner’s insurance every month and pay them to the right party when they are due.
As a borrower, you will be making payments on your mortgage to the lender every month which will include your principal amount, interest amount, property taxes, and homeowners insurance.
The interest and principal amount will be going towards the repayment of your mortgage, the property taxes will go to your county appraisal district and the HOI premium will go to your home insurance company.
What Is An Escrow Refund?
Escrow refunds occur when you have excess funds in your escrow account and receive a check for your balance from your lender.
It is important to note that escrow refunds are not available unless the balance is at least $50.
If the surplus in the escrow account is less than $50 per year the escrow account analysis, the lender servicing your loan may repay the excess amount.
However, instead of a refund, the lender may also choose to apply the access amount toward next year’s escrows.
If there is a surplus in the escrow account after the loan is repaid, a refund would be initiated for the remaining amount.
When Are You Eligible To Receive An Escrow Refund Check?
Escrow returns can occur in a variety of situations. The details will depend on your specific circumstances, but here are some common situations where escrow returns are possible:
Mortgage Payment in Full: If you have an outstanding balance in your escrow account after your mortgage is paid off, you may be eligible for an escrow refund for the remaining balance.
The lender must repay the remaining balance in the escrow account within 20 days of the full repayment of the mortgage loan.
Low tax bills: Your tax bills may vary from year to year. If your property tax assessment is reduced, you may be eligible for this refund.
Overpayment on EMD: If the buyer has paid more than the required amount as an earnest money deposit, he or she is eligible to receive the refund from that escrow account once the account is closed at closing.
Change In Home Insurance Premium: In many cases, the buyer changes their insurance company to get lower premiums that could help them save money on their monthly expenses.
In such case, the lender needs to be intimated and the access amount that you have paid to the lender for your insurance would be refunded.
Mortgage Refinance: If you are refinancing your mortgage with a new lender, your old escrow account will be closed and you will receive a refund.
The new lender that you are refinancing with will open a new escrow account and will require two months’ reserves to avoid any shortfall.
Conclusion
It is exciting to know if you are receiving a refund as a homeowner. Escrow refunds are initiated only when you have access to funds in your escrow account in a financial year.
Every lender may have a different refund policy. If you are not sure about yours, get in touch with your lender to know their terms of refund and make sure that you keep an eye on your escrow balance which could be found on your monthly mortgage statements.
About Zero Coupon Mortgage
When you apply for a commercial mortgage there are many options that you can choose from.
Depending on the borrower’s requirement they can select conventional financing to hard money financing.
One such option available for borrowers is called a zero coupon mortgage. In this post, we will understand what is a zero coupon mortgage in detail.
What Is A Zero Coupon?
A Zero coupon mortgage is a long-term business loan that carries over all principal and interest payments until maturity.
In this type of mortgage, the interest is rolled back into the principal amount due to the loan being designed as an accrual note.
The principal of the debt increases over time as the interest charged is added to the original loan amount.
At maturity, the borrower must repay the entire mortgage balance or refinance it at an interest rate according to the current market.
This process can be beneficial for both parties. The borrower gets the mortgage to buy a commercial property at a very less cost, and the lender receives a lump sum amount at the end of maturity.
At maturity of the zero coupon loan, the borrower can pay off the loan anticipating that the value of the property is appreciated enough to pay off the loan.
How Does A Zero Coupon Mortgage Work?
These types of mortgages are similar to zero-coupon bonds. The coupon, the annual interest paid on the loan, is zero until the end date when everything must be repaid at once, with all the money borrowed.
Usually, this type of mortgage is for new business projects where the funds to pay the loan are not available until the project is completed.
With the help of this type of mortgage, the mortgage holder receives enough time to ensure that the cash flow is adequate to start the payments for the financed amount.
An example of this would be theatres. In this case, enough cash flow is not generated until the structure is complete and can start organizing events.
Since the lender does not collect the total interest plus repayment of principal until the loan matures, the credit risk is much higher than with a conventional commercial mortgage.
Therefore, lenders generally only offer this type of mortgage to business borrowers with the best credit history.
The interest rate charged on this type of mortgage is generally higher so that the lender can cover the lack of immediate return.
Example Of A Zero Coupon Mortgage
Let’s assume that a company borrows $500,000 from a lender as a zero-coupon loan with a maturity date of 15 years.
The company does not have to pay any payments to the lender for the next 15 years.
Unlike a conventional loan, the borrowing party does not need to start making the installments including the principal and interest once the loan is closed.
Once the loan matures the borrowing party needs to pay the entire amount of $500,000 plus the interest accrued for 15 years or refinance the mortgage according to the current market interest rate and pay off the original lender.
If the borrower is unable to refinance the mortgage or pay off the amount, the lender will foreclose the property.
Conclusion
A zero-coupon loan could be one of the best options for new businesses that are yet to start their operation and generate adequate cash flows.
However, the borrower needs to consider a few things before getting this type of financing.
The interest rate on this type of loan could be higher compared to a conventional commercial mortgage.
Also, the borrower needs to be prepared to either have enough capital to pay off the mortgage with the accumulated interest on maturity or refinance the mortgage and go into the entire financing process once again.