Sunday, November 30, 2008

What Is Right of Rescission, and When Should You Use It?

Did you know you can sometimes change your mind on a real estate transaction even if the note and deed of trust have been signed? It’s called your Right of Rescission, and it exists to give you time to consider your actions.

I had a gentleman call me today that had begun a transaction with another lender, and was getting cold feet. He said he had heard he could rescind or back of the transaction, but couldn’t find anyone who knew what he was talking about. Hmmm. That’s not a great thing to hear.

The Truth In Lending Act affords this “out clause” known as a Right of Rescission (ROR) to borrowers, giving them the right to cancel their loan within three business days of signing the final closing docs and allowing them to a full refund of any monies paid at that closing.

It turns out my guy was confused. He had only signed initial disclosure documents (that’s a whole other article), and had locked his loan. He could walk away from the deal. But as it turns out, this lender had extracted a $500 commitment fee which he probably wouldn’t see again. Note to self, avoid commitment fees.

However, if he had gotten as far as closing, he could have changed his mind. This fact is because his transaction would have met the guidelines for allowing for the rescission of the real estate transaction. He was refinancing the loan on his primary residence. If it was his beach house, then no, that wouldn’t work. It has to be the house you live in. It doesn’t matter what type of house it is, but where you call home. It doesn’t matter if he was refinancing to pull out a little cash to pay off bills or simply lowering his interest rate. He would have had a cooling off period (three business days mentioned above) before the funds to complete the transaction actually disbursed. For instance, if he signed on Monday, he would have Tuesday, Wednesday, midnight of Thursday to say, “HOLD UP!” Business days include Saturdays, but not Sundays or legal public holidays. Thanksgiving counts, but not the Friday afterward.

You can’t rescind every time you are refinancing your primary residence. For instance, if you are refinancing to pay off a construction loan because you just finished building your house, that wouldn’t count. If a state agency is your creditor, there is no ROR.

How do you go about exercising this right? Well, typically, your title company and lender give you very clear guidelines in writing telling you what you should do. During the rescission period, nothing really happens on your loan. If you want out, you have to send the request in writing to the lender, or else the title agency sometimes accepts it in on their behalf. But make sure you keep a paper trail and can show it was sent before midnight of the third day. A phone call or a visit to the lender isn’t legally sound, although most lenders wouldn’t hold you to the transaction if you called them; they’d just get you the paperwork to do it correctly.

Don’t misunderstand me. I’m not advocating people go hog wild and start exercising ROR for the fun of it. It’s very serious decision. A lot of people and companies worked hard to get you to the point of closing. It’s not a frivolous matter. And it happens extremely rarely because most folks are honest and do their jobs right. However, if you feel you were mislead in anyway, now you know you’re not backed into a corner. You have time to right any wrongs, reconsider or simply walk away.

Cash Crunch? Maybe It’s Time to Cash Out?

It’s that time of year when people start scrambling for cash or assess their financial standings. Thinking about pulling equity out of your property? Know what your options are before making a move…

It’s probably safe to say that today’s current economic situation is not ideal for the majority of Americans. As rates continue to creep down, many people start to consider refinancing. And if you’re going to refinance, it’s always a good time to discuss cashing out some equity in the property.

Why is it a good topic for discussion? For one, if you are refinancing on the secondary market, you’re going to pay closing costs. It’s best to consider all options before you leap. Not that cashing out equity necessarily makes sense for you. If you just want to take the kids to Disney or throw a silver wedding anniversary party for your parents, you might take a second to think of a better way to finance these items. Do you really want to pay for them over the next 30 years? However, if you’re paying a mound of money in credit card debt and your existing interest rate is way higher than current market rate, than it’s something to consider. Or maybe it’s time to send a kid off to college.

A cash out refinance works this way. Say you bought your house three years ago, financed $100,000 of the $125,000 purchase price at a rate of 7%. In the meantime your house is worth $150,000 now, and you have amassed some icky credit card debt. You’d like to pull out $10,000 in equity from the house to pay off the credit card, and the current rate available to you is 5.75%. This scenario would make sense to consider a cash out.

The down side to a cash out refinance is that, as mentioned before, you have to pay closing costs. You do usually pay a lower rate in title insurance by commanding a re-issue rate. And this charge can be a big ticket item, but other than that the other costs are pretty much standard as they would be for a purchase. The money you would need to set up escrow probably will come back to you from your old escrow account when your old mortgage is paid off. So, that’s more palatable.

Also, keep in mind that if you pull too much equity out of your house, you might have to face monthly mortgage insurance. Right now, the minimum loan to value for a cash out on aprimary residence on a Conventional loan is 85%. For FHA, it’s 95%. But you can expect that to change soon. The reason for the changes? Many people in a tight financial bind sucked the equity out of their homes, then defaulted on the mortgages. As you can imagine, this move hasn’t helped our economy much. Not much at all. So, lenders have safeguards now and higher loan to values, to prohibit this from happening as often.

Make sure you really consider all options when refinancing. Don’t fall into a trap of cashing out for a quick return with a long term pay back. Make sure cashing out has a real purpose and benefit for doing so. Your mortgage lender should be able to crunch the numbers and present your options. Take your time and don’t move too, quickly. But if it makes sense, then lock that low rate!

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at Home Loans Plain Talk.

Tuesday, November 11, 2008

VA Loans – Thank You for Your Service

The VA home loan guaranty program allows lenders to offer long term affordable housing with zero to low down payments for veterans. It’s one of the benefits you receive as an acknowledgement of gratitude for your service……..

In 1930, Congress and the President established the “GI Bill” which allowed the Veteran Administration (VA) to coordinate benefits for its service people. One of these programs, known as the Home Loan Guaranty Program, was created to help returning veterans and their families assimilate back into civilian life after sacrificing so much personally for their country.

Who qualifies for VA loans? If you served in the military, naval or air service and are active duty or released from duty for reasons other than a dishonorable discharge, you may qualify. You had to serve for 90 days active duty or 181 days consecutively in peacetime. If you served less than the minimum requirement because of discharge or service connected disability, you may also qualify. In addition, if you are the surviving un-remarried wife or husband of an eligible service member who died for his/her country, you may too be eligible. This program was designed to reward you and your loved ones for your service.

“The VA program, in general, is an exceptional program. Many veterans don’t know it can even benefit them if he/she is overseas. We’ve been helping active duty service people by putting their families in homes, and giving them peace of mind that their loved ones and their immediate needs are being taken care of while they’re away”, reflects Jamie Utton, Director of Product Development at Mortgage Investors Group.

These loans are available only for a primary home you intend to occupy. You can’t go and buy a beach house for weekend use with it. However, you can also use your eligibility to refinance your primary residence and pay off debt (except for Texans, for some reason, they don’t allow it in that state). Or, if you had a VA loan prior, and the interest rates have dropped dramatically, you can do a “streamline” refinance – no worries about paying for a new appraisal or the hassle of verifying your income. You’re all set to go.

So what makes the VA loan stand out above other types of financing? It allows for 100% financing for loans up to $417,000 with no reserves (checking and savings money to burn) required. The loan amounts allowed go up to $1.5 million, but you’d have to put some type of down payment into the transaction if you want to borrow that much money, plus show you have enough money to pay your mortgage for two months sitting in the bank if you need it. And if you’re buying a home, the program allows for the seller to pay up to 4% of the closing costs, based upon the purchase price. Basically, you can get into a home for very little or no money at a more than affordable market rate.

And the best part? No extra money is added to your payment for mortgage insurance if you put a less than 20% down payment on the home. That’s a pretty unique feature that makes this loan more affordable than others. Most of the time, the veteran will be required to pay a VA Funding Fee, but it is financed into the loan amount. So, the funding fee is not an out of pocket expense for closing. A veteran can be exempt from paying the funding fee for different reasons, including service connected disability, or if he/she is a surviving spouse of a veteran who died in service or from a service related disability. And regarding credit scores, the VA loan program has more flexibility than some other programs offer.

If you think you may qualify for this loan, let me first of all say, “Thank you.” I really appreciate the sacrifices you’ve made for this country. And if you’re looking to purchase or refinance your home, call a lender today who specializes in VA loans, and take advantage of this great benefit.


Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at Home Loans Plain Talk.

Sunday, November 9, 2008

Hey, THDA! “Great Save!”

THDA has a new product that could be an answer for homeowners facing an adjusable rate mortgage they soon can’t afford...

Effective October 1, 2008, THDA announced a new product to further help the beleaguered homeowner found facing an adjustment on a rate for a mortgage that they’ll no longer be able to afford. It’s called the “Great Save” program, and it is an excellent choice for the right, qualifiying individual.

Basically, THDA will allow a qualifying person to refinance his/her adjustable rate mortgage (ARM) at the current interest rate that is offered for THDA’s Great Rate program. For instance, as I write this blurb, the rate is 5.8%. Typically, the Great Rate is below current market rate. So, this program can “save” you in more ways than one.

This program isn’t for every average Joe who has an ARM loan with an adjustment looming. There must be a financial hardship established by showing one of the following criteria is met at the time of “application for” and “closing of” the Great Save loan. For one, if the payment to income ratio based on the current payment for the qualified adjustable rate mortgage loan or the anticipated adjusted payment will be greater than 31%, this would count as an established financial hardship. Or, the payment to income ratio based on the lifetime capped interest rate (fully indexed) of the qualified arm loan will be greater than 35%. Also, if the lifetime capped interest rate for the qualified ARM loan exceeds the Great Save interest rate offered by THDA by more than 2%, then the criteria is met. As well, if the original ARM loan includes a prepayment penalty of $1000 or greater, you’ve met a criteria. And finally, the last is if there is an involuntary reduction of household income of at least 5% monthly or increased expenditures due to death, permanent disability, serious illness or injury of the borrower or co borrower since the origination of the original loan.

Did you get all that?

All the other THDA restrictions apply, such as income and appraised value limitations. After all, THDA services the low to moderate income borrower. Plus, if you have access to assets (without penalty) that comprise 10% or more of the ARM’s balance, you won’t qualify -for obvious reasons. And you can’t use this program to refinance your beach house. Once again, for obvious reasons.

For this program, you will have to have obtained your ARM loan between 12/31/01 and 01/01/08. So, if you weren’t paying attention to all the news stories and got an ARM loan in March of this year, THDA can’t help you. But, I can’t think of many people who did that. However, I’m sure there are some out there who did.

To receive this help, THDA is going to ask you to attend a homebuyer education course called “Keeping the American Dream.” Its emphasis is on financial management, and it’s taught through a certified THDA trainer. You have to attend this seminar/class before you close on your loan.

Thus, if you have a conventional, VA or FHA adjustable rate mortgage that you soon will not be able to afford, contact a local THDA lender. It just might be the greatest save you’ve made since you were the goalie on your high school soccer team!

Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at or call direct: (865) 567-0113 Toll Free: 1-800-489-8910. For more information visit her website at Home Loans Plain Talk.