Mortgage Management For Dummies

Eric Tyson, MBA, is a financial counselor and the bestselling author of Investing For Dummies, Personal Finance For Dummies, and Home Buying Kit For Dummies.Robert S. Griswold, MSBA, is a successful real estate investor, hands-on property manager, and the author of Property Management Kit For Dummies.

• Introduction 1How This Book is Different 1Foolish Assumptions 2Icons Used in This Book 3Beyond the Book 3Where to Go from Here 3Part 1: Getting Started with Mortgages 5Chapter 1: Determining Your Borrowing Power 7Only You Can Determine the Mortgage Debt You Can Afford 8Acknowledge your need to save 8Collect your spending data 9Determine Your Potential Homeownership Expenses 10Making your mortgage payments 10Paying property taxes 12Tracking your tax write-offs 13Investing in insurance 14Budgeting for closing costs 14Managing maintenance costs 17Financing home improvements and such 17Consider the Impact of a New House on Your Financial Future 17Acting upon your spending analysis 21Establishing financial goals 22Making down-payment decisions 23Chapter 2: Qualifying for a Mortgage 25Getting Preapproved for a Loan 25The worst-case scenario 26Loan prequalification usually isn’t good enough 26Loan preapproval is the way to go 27Evaluating Your Creditworthiness: The Underwriting Process 28Traditional underwriting guidelines 29New underwriting technology 32Eyeing Predicament-Solving Strategies 34Insufficient cash for a down payment 34Excessive indebtedness 38Insufficient income 39Credit blemishes 40Low appraisals 41Problem properties 45Chapter 3: Scoping Out Your Credit Score 47Defining Credit Scores 48Assessing Your Credit History 48What goes into your credit report 49Check your credit report 50Understanding How Scores Work 51FICO scores can differ between bureaus 51What a FICO score considers 52What FICO scores ignore 60Interpreting scores 61Getting your score 61Managing your score 62Part 2: Locating a Loan 63Chapter 4: Fathoming the Fundamentals 65Grasping Loan Basics: Principal, Interest, Term, and Amortization 66Deciphering Mortgage Lingo 67So what’s a mortgage? 67How to scrutinize security instruments 68Eyeing Classic Mortgage Jargon Duets 70Fixed or adjustable loans 70Government or conventional loans 71Primary or secondary mortgage market 72Conforming or jumbo loans 74Long-term or short-term mortgages 75Introducing the Punitive Ps 76Prepayment penalties 76Private mortgage insurance (PMI) 78Chapter 5: Selecting the Best Home Purchase Loan 81Three Questions to Help You Pick the Right Mortgage 82How long do you plan to keep your mortgage? 82How much financial risk can you accept? 83How much money do you need? 84Fixed-Rate Mortgages: No Surprises 85Adjustable-Rate Mortgages (ARMs) 87How an ARM’s interest rate is determined 88How often does the interest rate adjust? 92What are the limits on rate adjustments? 92Does the loan have negative amortization? 93Fine-Tuning Your Thought Process 96Finding funds 96Making the 30-year versus 15-year mortgage decision 97Getting a Loan When Rates Are High 98Chapter 6: Surveying Special Situation Loans 99Understanding Home Equity Loans 100Using home equity loans 100Operating instructions 101Considering tax consequences 103Eyeing 100 Percent Home Equity Loans 104Taking a Closer Look at Co-Op Loans 107Identifying the legal structure of co-op loans 107Dealing with deal-killing directors 108Tracking down a loan 109Grasping Balloon Loans 11080-10-10 financing 110Bridge loans 114Construction loans 115Renovation/remodel loans 116Part 3: Landing a Lender 117Chapter 7: Finding Your Best Lender 119Going with a Mortgage Broker or Direct Lender? 120Considerations when using brokers 120Developing a list of brokers and lenders 122Interviewing and working with mortgage brokers 124Figuring out how to interview lenders 125Seller Financing: The Trials and Tribulations 127Considering/soliciting seller financing 127Overcoming borrower problems 128Negotiating loan terms 128Deciding whether to provide seller financing 129Chapter 8: Searching for Mortgage Information Online 131Obeying Our Safe Surfing Tips 132Shop to find out about rates and programs 132Quality control is often insufficient 133Beware simplistic affordability calculators 133Don’t reveal confidential information unless 133Be sure to shop offline 134Beware of paid advertising masquerading as directories 135Perusing Our Recommended Mortgage Websites 136Useful government sites 136Mortgage information and shopping sites 138Chapter 9: Choosing Your Preferred Mortgage 141Taking a Look at Loan Fees 142The point and interest rate tradeoff 142Annual percentage rates 144Other lender fees 145Avoiding Dangerous Loan Features 147Prepayment penalties 147Negative amortization 148Comparing Lenders’ Programs 149Fixed-rate mortgages interview worksheet 149Adjustable-rate mortgages interview worksheet 153Applying with One or More Lenders 158Chapter 10: Managing Mortgage Paperwork 159Pounding the Paperwork 159Filling Out the Uniform Residential Loan Application 1621 Borrower information 1622 Financial information — assets and liabilities 1663 Financial information — real estate 1674 Loan and property information 1685 Declarations 1706 Acknowledgments and agreements 1707 Demographic information 172Introducing Other Typical Documents 173Your right to receive a copy of the appraisal 173Equal Credit Opportunity Act 175Part 4: Profiting from Smart Mortgage Strategies 177Chapter 11: Refinancing Your Mortgage 179Refinancing Rationales 180Cost-Cutting Refinances 181Applying the 2 percent rule 182Crunching the numbers 183Restructuring Refinances 186Restructuring when you need to 186Getting a fixed-rate to avoid ARM phobia 188Resetting ARM caps 188Choosing the fast-forward mortgage 190Cash-Out Refinances 190Expediting Your Refi 192Beating Borrower’s Remorse 194Phase I borrower’s remorse 194Phase II borrower’s remorse 195Chapter 12: Paying Down Your Mortgage Quicker 197One Size Doesn’t Fit All 198Interest savings: The benefit of paying off your mortgage quicker 198Quantifying the missed opportunity to invest those extra payments 198Taxes matter but less than you think 199Deciding Whether to Repay Your Mortgage Faster 200Does your mortgage have a prepayment penalty? 201How liquid are your assets? 201Have you funded retirement savings accounts? 201How aggressive an investor are you? 202What are your refinancing options? 203Considering psychological and nonfinancial issues 203Developing Your Payoff Plan 204Chapter 13: Reverse Mortgages for Retirement Income 205Grasping the Reverse Mortgage Basics 205Considering common objections 207Who can get a reverse mortgage? 208How much money can you get and when? 209When do you pay the money back? 210What do you owe? 211How is the loan repaid? 212What’s the out-of-pocket cost of getting a reverse mortgage? 212What are the other reverse mortgage costs? 213What’s the total annual rate? 214How do reverse mortgages affect your government-sponsored benefits? 215Shopping for a Reverse Mortgage 215Making major choices 216Counseling 217Deciding Whether You Want a Reverse Mortgage 217Part 5: The Part of Tens 219Chapter 14: Ten-Plus “Must-Knows” About Foreclosure 221Deal with Reality 222Review Your Spending and Debts 223Beware of Foreclosure Scams 223Consider Tapping Other Assets 223Make Use of Objective Counseling 224Negotiate with Your Lender 224Understand Short Sales 225Seek Legal and Tax Advice 225Understand Bankruptcy 226Consider the Future Impact to Your Credit Report 226Understand the Realities of Investing in Foreclosed Property 228Chapter 15: Ten Mortgage No-Nos 229Don’t Let Lenders Tell You What You Can Afford 229Never Confuse Loan Prequalification with Preapproval 230Avoid Loans with Prepayment Penalties 231Don’t Reflexively Grab a Fixed-Rate Mortgage 231Steer Clear of Toxic 100 Percent Home Equity Loans 232Watch Out for Mortgage Brokers with Hidden Agendas 233Shun Negative Amortization Mortgages 234Don’t Let the 2 Percent Rule Bully You When Refinancing 234Don’t Assume That All Reverse Mortgages Are the Same or Bad 235Avoid Mortgage Life Insurance 235Part 6: Appendixes 237Appendix A: Loan Amortization Table 239Appendix B: Remaining Balance Tables 245Appendix C: Glossary 271Index 281