Real Estate Terminology

What’s a Short Sale and Why This Option?

A “Short Sale” is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff.

By way of example, a Short Sale may be appropriate for a home seller in Crown Point, Chesterton, Munster, Saint John, Schererville or Valparaiso whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000.  Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.

Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan.  Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.

For this reason, Short Sales are sometimes considered “the economical alternative” to default in Northwest Indiana.

The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers in Highland, Portage and Valparaiso should not go at it alone — speaking with a real estate agent about the proper protocol is usually the best place to start.  And sellers should be aware of how a Short Sale on their credit can impact future borrowing.

Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.

Contact Benchmark Mortgage in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Real Estate Terminology

What Is APR?

APR is an acronym for Annual Percentage Rate.  It’s a government-mandated calculation meant to simplify the comparison of mortgage options.

A loan’s APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

Because APR is expressed as a percentage, many people confuse it for the loan’s interest rate.  It’s not.  APR represents the total cost of borrowing over the life of a loan.  “Interest rate” is the basis for monthly mortgage repayments.

The main advantage of APR is that it allows an “apples-to-apples” comparison between loan products. 

As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees.  In this sense, APR can help a borrower determine which loan is least costly long-term.

However, APR is not without its shortcomings.

First, different banks includes different fees into their APR calculations.  By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, “life of the loan” is assumed to be full-term.  When a 30-year mortgage pays off in 7 years or fewer – as most of them do – APR comparisons are rendered moot.

In other words, APR is just one metric to compare mortgages – it’s not the only metric.  The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Real Estate Terminology

Simple Real Estate Definitions: Escrow Account

An escrow account is a designated savings account into which funds get deposited for a specific purpose.

With respect to real estate and home loans, escrow accounts are used to pay real estate tax bills and homeowners insurance payments.

Escrow accounts are managed and disbursed by lenders.

When a homeowner “escrows” his mortgage, along with his scheduled monthly mortgage payment, he must also send an additional payment to the lender equal to 1/12 of the home’s annual real estate tax bill plus 1/12 of the annual homeowners insurance bill.

By sending a pro rata portion of the tax and insurance bill each month, the homeowner’s escrow account will always, in theory, have enough funds to make payments in full as tax bills and insurance premiums come due.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Real Estate Terminology

Simple Real Estate Definitions: Quitclaim Deed

By its most common definition, a quitclaim deed is a document by which one person passes legal and financial ownership of a home to another person.

It’s also a way for an owner of a home to remove himself from the title to the property.

Often misspelled as “quick claim deed” or “quit claim deed”, quitclaim deeds have a multitude of applications, including:

• Assigning a home to a trust or entity
• Adding a partner to title after marriage
• Removing a partner from title after divorce

In order to quitclaim a property, the grantor must have the legal right to assign the property to a grantee, or else the quitclaim deed is worthless.  For example, you can’t quitclaim your interest in City Hall to your neighbor because you don’t actually own City Hall. 

This is where quitclaim deeds vary from warranty deeds (or grant deeds) — the types of transfers that occur when real estate is sold.  In instances of the former, the title to a home is guaranteed to be clear.

Before using a quitclaim deed on your own home, consult an estate planning attorney.  Transferring real property can ruin a will, or trigger taxes — it’s important to consult a professional for help.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.