Citigroup will be providing mortgage help to millions of homeowners. They are committed to stopping foreclosures and in helping homeowners stay in their homes. Billions of dollars in fees and principal reduction will be provided to qualified borrowers. They will also provide additional mortgage assistance to the unemployed and those who have had a reduction in their income. Read more on the Citi unemployed homeowner mortgage assistance.
The US Treasury administers the Hardest Hit Fund, which provides aid to the states that were most impacted by the economic crisis. Each of these states have local agencies that help homeowners in various ways, including mortgage payment assistance for the unemployed, principal reduction, and transactional assistance. This helps people either afford the homes they’re in, or move to more affordable housing.
The pre-approval process is fairly simple: Contact a mortgage lender, submit your financial and personal information, and wait for a response. Pre-approvals include everything from how much you can afford, to the interest rate you’ll pay on the loan. The lender prints a pre-approval letter for your records, and funds are available as soon as a seller accepts your bid. Though it’s not always that simple, it can be.
Your credit score can make a big difference in how much home you can afford and how much interest you'll end up paying. For example, if you're obtaining a $200,000 mortgage and have a FICO score of 750, you can expect to pay $138,324 in interest over the term of a 30-year mortgage as of this writing. On the other hand, with a score of 650, you can expect to pay almost $35,000 more. MyFICO.com has an excellent calculator that can tell you the cost of your credit score. Before you start the homebuying process, it can be a good idea to check your credit report and FICO score and to do damage control if necessary.
What I want to do with this video is explain what a mortgage is but I think most of us have a least a general sense of it. But even better than that actually go into the numbers and understand a little bit of what you are actually doing when you’re paying a mortgage, what it’s made up of and how much of it is interest versus how much of it is actually paying down the loan. So, let’s just start with a little example. Let’s say that there is a house that I like, let’s say that that is the house that I would like to purchase. It has a price tag of, let’s say that I need to pay $500,000 to buy that house, this is the seller of the house right here. And they have a mustache, that’s the seller of the house. I would like to buy it. I would like to buy the house. This is me right here. And I’ve been able to save up $125,000. I’ve been able to save up $125,000 but I would really like to live in that house so I go to a bank, I go to a bank, get a new color for the bank, so that is the bank right there. And I say, Mr. Bank, can you lend me the rest of the amount I need for that house, which is essentially $375,000. I’m putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. So, I ask the bank, can I have a loan for the balance? Can I have a $375,000 loan? And the bank says, sure, you seem like, uh, uh, a nice guy with a good job who has a good credit rating. I will give you the loan but while you’re paying off the loan you can’t have the title of that house. We have to have that title of the house and once you pay off the loan we’re going to give you the title of the house. So what’s going to happen here is we’re going to have the loan is going to go to me, so it’s $375,000, $375,000 loan. Then I can go and buy the house, so I’m going to give the total of $500,000, $500,000 to the seller of the house and I’ll actually move into the house myself, assuming I’m using it for my own residence. But the title of the house, the document that says who actually owns the house, so this is the home title, this is the title of the house, home, home title. It will not go to me. It will go to the bank, the home title will go from the seller, maybe even the seller’s bank, maybe they haven’t paid off their mortgage, it will go to the bank that I’m borrowing from. And this transferring of the title to secure a loan, I say secure a loan, I’m saying, look, I need to give something to the lender in case I don’t pay back the loan or if I just disappear. So, this is the security right here. That is technically what a mortgage is. This pledging of the title for, as the, as the security for the loan, that’s what a mortgage is. And actually it comes from old French, mort, means dead, dead, and the gage, means pledge, I’m, I’m a hundred percent sure I’m mispronouncing it, but it comes from dead pledge. Because, I’m pledging it now but that pledge will eventually die once I pay off the loan. Once I pay off the loan this pledge of the title to the bank will die, it’ll come back to me. And that’s why it’s called a dead pledge or a mortgage. And probably because it comes from old French is the reason why we don’t say mort gage. We say, mortgage. But anyway, this is a little bit technical but normally when people refer to a mortgage they’re really referring to the loan itself. They’re really referring to the mortgage, mortgage, the mortgage loan. And what I want to do in the rest of this video is use a little screenshot from a spreadsheet I made to actually show you the math or actually show you what your mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash mortgage calculator, mortgage, or actually, even better, just go to the download, just go to the downloads, downloads, uh, folder on your web browser, you’ll see a bunch of files and it’ll be the file called mortgage calculator, mortgage calculator, calculator dot XLSX. So, it’s a Microsoft 2007 format. But just go to this URL and then you’ll see all of the files there and then you can just download this file if you want to play with it. But what it does here is in this kind of dark brown color, these are the assumptions that you could input and that you can change these cells in your spreadsheet without breaking the whole spreadsheet. So, here I would assume the 5.5 percent interest rate. I’m buying a $500,000 home. It’s a 25 percent down payment, so that’s the $125,000 that I had saved up, that I’d talked about right over there. And then the, uh, loan amount, well, I have the $125,000, I’m going to have to borrow $375,000. It calculates it for us and then I’m going to get a pretty plain vanilla loan. This is going to be a 30-year, so when I say term in years, this is how long the loan is for. So, 30 years, it’s going to be a 30-year fixed rate mortgage, fixed rate, fixed rate, which means the interest rate won’t change. We’ll talk about that in a little bit. This 5.5 percent that I am paying on my, on the money that I borrowed will not change over the course of the 30 years. We will see that the amount I borrowed changes as I pay down some of the loan. Now, this little tax rate that I have here, this is to actually figure out, what is the tax savings of the interest deduction on my loan? And we’ll talk about that in a second, we can ignore it for now. And then these other things that aren’t in brown, you shouldn’t mess with these if you actually do open up this spreadsheet yourself. These are automatically calculated and this right here is a monthly interest rate. So, it’s literally the annual interest rate, 5.5 percent, divided by 12 and most mortgage loans are compounded on an monthly basis. So, at the end of every month they see how much money you owe and then they will charge you this much interest on that for the month. Now, given all of these assumptions, there’s a little bit of behind the scenes math and in a future video I might actually show you how to calculate what the actual mortgage payment is. It’s actually a pretty interesting problem. But for a $500,000 loan, well, a $500,000 house, a $375,000 loan over 30 years at a 5.5 percent interest rate. My mortgage payment is going to be roughly $2,100. Now, right when I bought the house I want to introduce a little bit of vocabulary and we’ve talked about this in some of the other videos. There’s an asset in question right here, it’s called a house. And we’re assuming that it’s worth $500,000. We are assuming that it’s worth $500,000. That is an asset. It’s an asset because it gives you future benefit, the future benefit of being able to live in it. Now, there’s a liability against that asset, that’s the mortgage loan, that’s the $375,000 liability, $375,000 loan or debt. So, if you are, if this was your balance sheet. If this was all of your assets and this is all of your debt and if you were essentially to sell the assets and pay off the debt. If you sell the house you’d get the title, you can get the money and then you pay it back to the bank. Then, well actually, it doesn’t necessarily go into that order but I won’t get too technical. But if you were to unwind this transaction immediately after doing it then you would have, you would have a $500,000 house, you’d pay off your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your original down payment was but this is your equity. And the reason why I’m pointing it out now is I’m, in this video I’m not going to assume anything about the house price, whether it goes up or down, we’re assuming it’s constant. But you could not assume it’s constant and play with the spreadsheet a little bit. But I, what I would, I’m introducing this because as we pay down the debt this number is going to get smaller. So, this number is getting smaller, let’s say at some point this is only $300,000, then my equity is going to get bigger. So, you can kind of view equity as how much value do you have after you pay off the debt for your house? If you were to sell the house, pay off the debt, what do you have left over for yourself? So, this is really kind of your, this is the real wealth in the house, the owner is, this is what you own, wealth in house or the actual what the owner has. Now, what I’ve done here is, well, actually before I get to the chart, let me actually show you how I calculate the chart and I do this over the course of 30 years and it goes by month. So, so you can imagine that there’s actually 360 rows here on the actual spreadsheet and you’ll see that if you go and open it up. But I just want to show you what I did. So, on month zero, which I don’t show here, you borrowed $375,000. Now, over the course of that month they’re going to charge you 0.46 percent interest, remember that was 5.5 percent divided by 12. 0.46 percent interest on $375,000 is $1,718.75. So, I haven’t made any mortgage payments yet. So, I’ve borrowed $375,000, this much interest essentially got billed up on top of that, it got accrued. So, now before I pay any of my payments, instead of owing $375,000 at the end of the first month I owe $376,718. Now, I’m a good guy, I’m not going to default on my mortgage so I make that first mortgage payment that we calculated, that we calculated right over here. So, after I make that payment then I’m essentially, what’s my loan balance after making that payment? Well, this was before making the payment so you subtract the payment from it, this is my loan balance after the payment. Now, this right here, what I, little asterisk here, this is my equity now. So, remember, I started with $125,000 of equity. After paying one loan balance, after, after my first payment I now have $125,410 in equity. So, my equity has gone up by exactly $410. Now, you’re probably saying, hey, gee, I made a $2,000 payment, a roughly a $2,000 payment and my equity only went up by $410,000. Shouldn’t this debt have gone down by $2,000 and my equity have gone up by $2,000? And the answer is no, because you had to pay off all of this interest, all of this interest. So, that very, in the beginning, your payment, your $2,000 payment is mostly interest. Only $410 of it is principal. But as you, and then you, and then, so as your loan balance goes down you’re going to pay less interest here and so each of your payments are going to be more weighted towards principal and less weighted towards interest. And then to figure out the next line, this interest accrued right here, I took my, your old, your loan balance exiting the last month multiply that times 0.46 percent and you get this new interest accrued. This is your new prepayment balance. I pay my mortgage again. This is my new loan balance. And notice, already by month two, $2.00 more went to principal and $2.00 less went to interest. And over the course of 360 months you’re going to see that it’s an actual, sizable difference. And that’s what this chart shows us right here. This is the interest and principal portions of our mortgage payment. So, this entire height right here, this is, let me scroll down a little bit, this is by month. So, this entire height, if you notice, this is the exact, this is exactly our mortgage payment, this $2,129. Now, on that very first month you saw that of my $2,100 only $400 of it, this is the $400, only $400 of it went to actually pay down the principal, the actual loan amount. The rest of it went to pay down interest, the interest for that month. Most of it went for the interest of the month. But as I start paying down the loan, as the loan balance gets smaller and smaller, each of my payments, there’s less interest to pay, let me do a better color than that. There is less interest, let’s say if we go out here, this is month 198, over there, that last month there was less interest so more of my $2,100 actually goes to pay off the loan. Until we get all the way to month 360 and you can show, see this in the actual spreadsheet, at month 360 my final payment is all going to pay off the principal, very little if anything of that is interest. Now, the last thing I want to talk about in this video without making it too long is this idea of a interest tax deduction. So, a lot of times you’ll hear financial planners or realtors tell you, hey, the benefit of buying your house is that it, it’s, it has tax advantages, and it does. Your interest is tax-deductible. Your interest, not your whole payment. Your interest is tax deductible, deductible. And I want to be very clear with what deductible means. So, let’s for instance, talk about the interest fees. So, this whole time over 30 years I am paying $2,100 a month or $2,129.29 a month. Now, at the beginning a lot of that is interest. So, on month one, $1,700 of that was interest. That $1,700 is tax-deductible. Now, as we go further and further each month I get a smaller and smaller tax-deductible portion of my actual mortgage payment. Out here the tax deduction is actually very small. As I’m getting ready to pay off my entire mortgage and get the title of my house. Now, I want to be very clear on this notion of what tax-deductible even means ‘cause I think it is misunderstood very often. This doesn’t mean, let’s say that, let’s say in one year, let’s say in one year I paid, I don’t know, I’m going to make up a number, I didn’t calculate it on the spreadsheet. Let’s say in year one, year one, I pay, I pay $10,000 in interest, $10,000 in interest. Remember, my actual payments will be higher than that because some of my payments went to actually paying down the loan. And, but let’s say $10,000 went to interest. To say this deductible, and let’s say before this, let’s say before this I was making $100,000. Let’s put the loan aside, let’s say I was making $100,000 a year and let’s say I was paying roughly 35 percent on that $100,000. I won’t go into the whole, uh, tax structure and the, and the different brackets and all of that. Let’s say, you know, if I didn’t have this mortgage I would pay 35 percent taxes which would be about $35,000 in taxes for that year. Just, this is just a rough estimate. Now, when you say that $10,000 is tax-deductible, the interest is tax-deductible, that does not mean that I can just take it from the $35,000 that I would have normally owed and only paid $25,000. What it means is, I can deduct this amount from my income. So, when I tell the IRS how much did I make this year, instead of saying, I made $100,000 I say that I made $90,000 because I was able to deduct this, not directly from my taxes, I was able to deduct it from my income. So, now if I only made $90,000 and I, and this is I’m doing a gross oversimplification of how taxes actually get calculated. And I paid 35 percent of that, let’s get the calculator out. Let’s get the calculator. So, 90 times .35 is equal to $31,500. So, this will be equal to $31,500, put a comma here, $31,500. So, off of a $10,000 deduction, $10,000 of deductible interest, I essentially saved $3,500. I did not save $10,000. So, another way to think about it if I paid $10,000 interest, I’m going to, and my tax rate is 35 percent, I’m going to save 35 percent of this in actual taxes. This is what people mean when they say deductible. You’re deducting it from the income that you report to the IRS. If there’s something that you could actually take straight from your taxes, that’s called a tax credit. So, if you were, uh, if there was some special thing that you could actually deduct it straight from your credit, from your taxes, that’s a tax credit, tax credit. But a deduction just takes it from your income. And so, in this spreadsheet I just want to show you that I actually calculated in that month how much of a tax deduction do you get. So, for example, just off of the first month you paid $1,700 in interest of your $2,100 mortgage payment. So, 35 percent of that, and I got the 35 percent as one of your assumptions, 35 percent of $1,700. I will save $600 in taxes on that month. So, roughly over the course of the first year I’m going to save about $7,000 in taxes, so that’s nothing, nothing to sneeze at. Anyway, hopefully you found this helpful and I encourage you to go to that spreadsheet and, uh, play with the assumptions, only the assumptions in this brown color unless you really know what you’re doing with the spreadsheet. And you can see how the, this actually changes based on different interest rates, different loan amounts, different down payments, different terms, different tax rates, that’ll actually change the, the tax savings and you can play around with the different types of fixed mortgages on this spreadsheet.
Grants are often given to assist home buyers with down payments, as well as help to lock in certain mortgage rates when they are first purchasing the property. These are awarded by the government based on need or other status. For instance, there are U.S. Veteran mortgage assistance grants, grants for low-income families, first-time homeowner grants, single mother grants, and grants for people who plan to do significant home improvement. These grants often cap the down payment at a certain low percentage of the total cost of the home.
John and Anne are a retired couple, aged 72 and 68, who want to stay in their home, but need to boost their monthly income to pay living expenses. They would like to remodel their kitchen. They have heard about reverse mortgage loans, but didn’t know the details. They decide to contact a reverse mortgage loan advisor to discuss their current needs and future goals.
In the event an active duty military homeowner is deployed or relocated, pursuant to military orders, Keep Your Home California will waive the “occupancy” requirement and the “Acceleration of Payment” clause, as pertains to occupancy, contained in the Note and the “Prohibition on Transfers of Interest” clause in the Deed of Trust, as pertains to the homeowner’s ability to rent or lease the home during the period of their relocation. The homeowner will be required to provide updated temporary residence/location information and must provide a copy of the orders requiring his/her relocation.
In some cases, you may not be required to provide all of that information. Some loans are referred to as low doc or no doc because they don't require you to prove any of the statements that you make to your underwriter. These loans are normally more expensive, but can be easier to obtain. Additionally, you can obtain a preauthorization before you submit an offer on a home you would like to buy. That can speed up the process, and also shows the seller that you are serious about the purchase.
Keep Your Home California uses the Note date as the start date for the Keep Your Home California lien. The Note date is the date of final Keep Your Home California approval. This will always pre-date the servicer’s application of Keep Your Home California funds to your loan. If you wish to know your Note date, you may contact Keep Your Home California at (888) 953-3722, Monday-Friday from 8 a.m. to 5 p.m.
Most lenders today will want to know every detail of your financial life. If something looks odd, or doesn’t make sense they will want to have some sort of explanation. This means that you will have to write letter explaining everything. For instance they may want to know why a credit card issuers pulled your credit three months ago when you were trying to apply for store credit, or why you changed jobs a few months ago or why you have moved from job to job over the last couple years. It’s best to write them and explain everything in full detail and move on. They do this simply to verify your financial stability and it is usually something that is requested from time to time.
Selling Your House: Your servicers might postpone foreclosure proceedings if you have a pending sales contract or if you put your home on the market. This approach works if proceeds from the sale can pay off the entire loan balance plus the expenses connected to selling the home (for example, real estate agent fees). Such a sale would allow you to avoid late and legal fees and damage to your credit rating, and protect your equity in the property.
Refinancing your mortgage simply means you’ll be replacing your current mortgage with a new home loan. You’ll get a new rate, new terms and conditions, new closing costs, and the possibility to choose a new lender. Refinancing can be a good idea when mortgage rates are low (as we saw at times in the past year) or when and if your home has seen a big jump in its market value.**
If you do not shop multiple lenders, you’re doing yourself a disservice. Even if you are sure this is the lender you want to use, getting quotes from other lenders can help you negotiate a better deal. Not every lender will give you the same mortgage rate, or closing costs. This is why shopping multiple lenders is very important. Getting at least 3 or 4 loan offers is recommended.
Closing costs. Closing costs are expenses over and above the sales price of a home. They may include origination fees, points, appraisal and title fees, title insurance, surveys, recording fees and more. While fees vary widely by the type of mortgage you get and by location, Realtor.com estimates that they typically total 2 to 7 percent of the home’s purchase price. So on a $250,000 home, your closing costs would amount to anywhere from $5,000 to $17,500 (a wide range indeed, Realtor.com acknowledges).
Know how much cash you'll need at closing. When you buy your home, you’ll need cash for a down payment (see how much you should put down) and closing costs (estimate your closing costs). The down payment typically varies from 5% to 20% or more. Putting less than 20% down will typically require you to pay for private mortgage insurance (keep reading for more on that). Closing costs could be about 3-7% of the total loan amount and will include charges such as loan origination fees, title insurance and appraisal fees.
Don't forget miscellaneous expenses. Be sure to budget for moving expenses and additional maintenance costs. Newer homes tend to need less maintenance than older ones, but all homes require upkeep. If you're considering a condo or a home with a homeowners association (HOA), remember to include HOA dues in your budget. Keep in mind that you should have an emergency fund on hand to prepare for any unexpected changes in your income (like reduction in your wages) or unexpected expenses (like medical bills).
FHA Special Forbearance: If you are having difficulty making mortgage payments because you are unemployed and have no other sources of income, you may be eligible for FHA's Special Forbearance. FHA now requires servicers to extend the forbearance period, by offering a reduced or suspended mortgage payment for up to twelve months, for FHA borrowers who qualify for the program.
Typically your lender will want to see a couple of months of mortgage payments in reserves. A lender does not want to give a mortgage loan to someone who is depleting all of their savings to qualify. The more reserves you have the better. Having a large amount of savings can sometimes make it a little easier to qualify for a mortgage. A large amount of reserves is seen as a compensating factor, it could help make up for having flawed credit.
Regions Bank has helped thousands of homeowners avoid foreclosure through a program called the Customer Assistance Program. This can provide a number of solutions to qualified applicants. Sign up for forbearance, repayment plans, and home loan modifications are all offered. There are several Regions Bank foreclosure assistance programs for struggling low income customers.