March 27, 2009


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Florida Mortgage Fraud

March 27, 2009

0037-0706-2509-2932_tnAccording to Florida has the second highest rate of mortgage fraud in 2009 in the United States when compared with the rate of fraud expected. We actually were the mortgage fraud leader in 2006 and 2007. Leading the pack is Rhode Island, but from my observations Florida mortgage scam artists are fighting hard to climb back to the top and regain the title and associated glory.

What is fueling this illegal mortgage activity in Florida?

Mortgage money is getting harder and harder to come by in this depressed economic market. And whenever the going gets rough a certain segment of the population sees a golden opportunity to feed off of the misfortunes of others. If you think something is illegal, unethical or just plain wrong you’re probably right.

Think twice before you consider doing business with anyone that talks about “creative financing” or “stated income loans” or buying your short sale and selling it back to you later. Many such situations are an attempt at mortgage fraud and will land you directly in jail. This goes for home buyers, home sellers, Realtors and mortgage brokers. If it seems too good to be true it probably is.

What is Mortgage Fraud?

Mortgage Fraud is a crime punishable by law where potential buyers of homes or land attempt to deceive lenders by providing incorrect financial information or by blatantly omitting details which would cause banks to not lend them money.

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Evidence that the “experts” can be even more clueless than you and I

March 26, 2009

For those of you not up on your history the Great Depression was a worldwide economic downturn that started in the United States in 1929. It lasted for 10+ years and is used even today as the perfect example of how bad economic conditions can get.  The effects of the Great Depression were devastating and should never be forgotten.

Great Depression

Note the dates on the below quotes and then decide how much weight you think we should place on what today’s financial experts are saying about the current state of our economy…

“We will not have any more crashes in our time.”
– John Maynard Keynes in 1927

“I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.”
– E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

“There will be no interruption of our permanent prosperity.”
– Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

“No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment…and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding.”
– Calvin Coolidge December 4, 1928

“There may be a recession in stock prices, but not anything in the nature of a crash.”
– Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929

“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
– Irving Fisher, Ph.D. in economics, Oct. 17, 1929

“This crash is not going to have much effect on business.”
– Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

“There will be no repetition of the break of yesterday… I have no fear of another comparable decline.”
– Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929

“We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.”
– Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929

“This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
– R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929

“Buying of sound, seasoned issues now will not be regretted”
– E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929

“Some pretty intelligent people are now buying stocks… Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.”
– R. W. McNeal, financial analyst in October 1929

“The decline is in paper values, not in tangible goods and services…America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin.”
– Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929

“Hysteria has now disappeared from Wall Street.”
– The Times of London, November 2, 1929

“The Wall Street crash doesn’t mean that there will be any general or serious business depression… For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game… Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before.”
– Business Week, November 2, 1929

“…despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation…”
– Harvard Economic Society (HES), November 2, 1929

“… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.”
– HES, November 10, 1929

“The end of the decline of the Stock Market will probably not be long, only a few more days at most.”
– Irving Fisher, Professor of Economics at Yale University, November 14, 1929

“In most of the cities and towns of this country, this Wall Street panic will have no effect.”
– Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

“Financial storm definitely passed.”
– Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

“I see nothing in the present situation that is either menacing or warrants pessimism… I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.”
– Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929

“I am convinced that through these measures we have reestablished confidence.”
– Herbert Hoover, December 1929

“[1930 will be] a splendid employment year.”
– U.S. Dept. of Labor, New Year’s Forecast, December 1929

“For the immediate future, at least, the outlook (stocks) is bright.”
– Irving Fisher, Ph.D. in Economics, in early 1930

“…there are indications that the severest phase of the recession is over…”
– Harvard Economic Society (HES) Jan 18, 1930

“There is nothing in the situation to be disturbed about.”
– Secretary of the Treasury Andrew Mellon, Feb 1930

“The spring of 1930 marks the end of a period of grave concern…American business is steadily coming back to a normal level of prosperity.”
– Julius Barnes, head of Hoover’s National Business Survey Conference, Mar 16, 1930

“… the outlook continues favorable…”
– HES Mar 29, 1930

“… the outlook is favorable…”
– HES Apr 19, 1930

“While the crash only took place six months ago, I am convinced we have now passed through the worst — and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us.”
– Herbert Hoover, President of the United States, May 1, 1930

“…by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent…”
– HES May 17, 1930

“Gentleman, you have come sixty days too late. The depression is over.”
– Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

“… irregular and conflicting movements of business should soon give way to a sustained recovery…”
– HES June 28, 1930

“… the present depression has about spent its force…”
– HES, Aug 30, 1930

“We are now near the end of the declining phase of the depression.”
– HES Nov 15, 1930

“Stabilization at [present] levels is clearly possible.”
– HES Oct 31, 1931

“All safe deposit boxes in banks or financial institutions have been sealed… and may only be opened in the presence of an agent of the I.R.S.”
– President F.D. Roosevelt, 1933

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Financial experts say recession ends by year’s end

March 25, 2009

According to a Yahoo Finance article published a few days ago…

A group of financial wizards looked into their crystal ball Tuesday and saw some good news. The recession will ease by the end of this year and companies will begin adding workers, signaling the end of the worst economic downturn since the Great Depression.

Do these “financial experts” live on the same planet as you and I?

The good news is there’s an end in sight. The economy will pull out of the recession at the end of this year, marking a duration of 24 months, about twice as long as the average post-World War II recession, Faucher said.

In my not-so-humble opinion Faucher’s prediction is bovine scatological, but you decide for yourself. The way I see it we’re going to be even deeper in doo doo by year’s end. And the so-called “Economic Stimulus Plan” that Obama is cramming down our throats is going to cause long-lasting problems from which we may never recover.

Oh, I’m a doomsayer you say? You’re darn tootin’ I am. (I’ve always wanted to say that) I’m a realist and spending more money when you’re deep in debt is a recipe for financial disaster. We should be tightening our belt, reducing taxes and allowing the market some freedom to catch it’s breath and start to recover, but instead we’re compounding the problem by doing the exact opposite. Quite frankly…I’m scared.

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What a gorgeous photo

March 19, 2009


I’m sharing this gorgeous photo just because it makes me feel at ease and calm. And in this rough real estate market we all need some peace and serenity. The pink hue to this photo makes the sky and water take on an almost magical aura. It makes me want to go sailing, but until that little dream becomes a reality I’ll just enjoy this photo. I hope you do too.

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Obama says NO to banks practicing real estate

March 16, 2009

001On March 11 of 2009, President Barack Obama signed into law the FY2009 Omnibus Appropriations Act permanently prohibiting banks from entering the real estate brokerage and management businesses. This is a tremendous victory for The National Association of Realtors (NAR), who fought hard since 2001 to keep banks out of the real estate business.

What harm would come of banks being involved in real estate brokerage and management?

Had banks been allowed to practice real estate, an area in which they lack expertise, consumers would have been financially harmed. Any time competition is limited, such as through the merger or fusion of the banking and real estate industries, consumers are given less options and subsequently less power and control over their own finances. NAR deserves credit for keeping pressure on the government and educating the relevant decision makers.

Congress could change the law, but the odds are slim this will ever happen. Good work, NAR.

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101 Tips for a Smoother Home-Buying Process

March 14, 2009

by Brandon Cornett

I created this list for two reasons. First, I want to give you a good understanding of the home buying process from start to finish. Secondly, I want to help you identify those areas where your knowledge-level is lacking, so you can conduct further research on your own.

Preliminary Considerations

1. Learn the home buying process in advance. You’ll make much better decisions with a better understanding of the process.

2. Learn the lingo while you’re at it (especially all the mortgage terms). You’ll have a smoother home buying experience if you “speak the language.”

3. Obtain your credit report. To get copies from all three credit bureaus at once, visit

4. Review your credit report. Make sure there are no errors. Check everything from the administrative information to the credit history.

5. Fix errors quickly. If you find an error on your credit report, go to the company’s website where the report came from (TransUnion, Equifax or Experian) to contest it. Don’t delay.

6. Run the numbers. Use an online mortgage calculator to get an idea how various mortgage amounts translate into monthly payments.

7. Check your debt-to-income ratio. Mortgage lenders prefer your overall debt to be no more than 20% of your net monthly income. If your debt is more, pay it down as quickly as possible.

8. Start saving your cash. Mortgage lenders like to see that you have some cash reserves on hand, and you’ll need them for any unexpected fees or costs that might arise.

9. Get pre-qualified. Pre-qualification is an informal review of your finances by a mortgage lender to see what amount you might qualify for.

10. Avoid new lines of credit. Don’t sign up for new credit cards or make any large credit purchases while you’re “under review” by a mortgage lender.

11. Add to your Internet favorites or bookmarks. Few websites contain as much helpful home buying information for first-time buyers.

Finding a Real Estate Agent

12. Ask friends or family. People who know you well are in the best position to recommend an agent who is right for you.

13. Talk to multiple agents. Don’t think you have to sign on with the first agent you meet.

14. Ask how they search. Make sure your agents is going to use every means possible to find the right home for you. That means using the MLS in addition to their preferred listings.

15. Ask how they network. An experienced agent will often be part of a vast network of real estate professionals. This can sometimes help you find a home before it’s even listed.

16. Ask about mortgage connections. It will save you time and headache if your agent can point you toward a good mortgage company.

17. Read paperwork carefully. At some point, your chosen agent will ask you to sign an agency agreement. It’s usually a boilerplate document, but be sure to read it carefully all the same.

18. Consider the “vibe” factor. You might be working with this person anywhere from 2 to 12 months, so it certainly helps if you like them on a personal level.

19. Exchange cell phone numbers. You should have your agents cell number in your wallet, and vice versa. You don’t want to miss an opportunity simply because you couldn’t be reached.

House Hunting

20. Create a “need vs. want” list. Make a spreadsheet or checklist of the things you need in a home, versus the things you want. Print a copy for each house you visit and check items off.

21. Practice self-reliance. Don’t over-rely on your agent when it comes to finding a home. Get out there and do some hunting yourself. It’s a necessity, but it’s also exciting!

22. Use multiple channels. The more channels you use to search for a home, the better. Read the newspaper, cruise the neighborhoods, and surf the web.

23. Use the Internet to your full advantage. Bookmark the real estate listing sites you find most helpful. Visit them once a day and write down new homes that meet your criteria.

24. Create a Google Alert. Visit Google’s home page, click on “More” and find the Google Alerts. Enter real estate phrases for your area, and you’ll get daily updates with news and info.

25. Feel free to snoop (sort of). When house hunting, it’s okay to peek into dark corners, basements, storage sheds and the like. Respect the owner’s privacy, but see the whole house.

26. Ask plenty of questions. Don’t be shy about asking the sellers questions, if they’re home.

27. Validate the asking price. It’s called an “asking price” for a reason. Compare it to recent sales in the area. Your agent should be expert at this.

28. Consider shopping, dining and the like. Is the home near the places you frequent, or will it be a long drive?

29. Consider the commute. If you’re a daily commuter, distance is a big consideration.

30. Visit during rush hour. Is the home hard to access or exit during rush hour? Is there a lot of traffic noise?

31. Check out the zoning. Are you surrounded by residential areas, or is there a soon-to-be-used commercial zone right across the street?

32. Research the neighborhood, not just the house. Neighborhoods impact property value as well as your own happiness.

33. Research taxes. Sometimes, two neighborhoods right across the street from one another will have different tax situations. Don’t make assumptions.

34. Research future development. Will that nice meadow down the street be a highway extension or shopping mall in two years?

35. Bring a “disinterested witness.” A level-headed friend or family member will help you judge the pros and cons of each home.

36. Avoid “The One” syndrome. Don’t pull up to a home and say, “This is the one!” It might be, but you need to be cool-headed and open-minded during your first visit.

37. Bring a digital camera. It’s a great way to record the details of each home for later review.

38. Bring a notepad. Jot down some notes about each home, and label each page by address.

39. Ask about ghosts, poltergeists or other forms of haunting. Just kidding.

40. Think five years ahead. Will the home still suit your needs if your family grows?

41. Play home inspector, casually. The full inspection will come later, but you should at least give the “big ticket” items (roof, heating system, etc.) a glance when visiting.

42. Keep an eye out for mold, standing water and other symptoms of disrepair.

43. Research schools. This is important whether or not you have school-aged children. Schools affect property values.

Making an Offer

44. Base your offer on evidence, not emotion. Remember, the lender will appraise the home later on. If it appraises for less than you’ve agreed to pay, you’ll have problems.

45. Use your agent’s experience. It might be your first offer, but your agent has probably seen dozens.

46. Discuss contingencies. Will your offer be contingent upon something, like the sale of your current home?

47. Prepare for all possible responses. What will you do if the seller makes a counteroffer or rejects your offer outright? Conduct “rehearsals” for each scenario.

48. Move quickly (but cautiously) in seller’s market. Delays can cause a home to slip through your fingers.

49. Plan the closing date. This will normally be agreed upon during the offer process.

Choosing a Mortgage

50. Study the different types of mortgages, especially the pros and cons of each.

51. Consider your staying time. How long you plan to stay in a home will often determine which type of home loan is best for you.

52. Learn about new mortgage packages. A variety of “creative financing” loans have emerged in recent years. Learn about them.

53. Shop for the best interest rate. Mortgage lenders will offer different rates based on how comfortable they are lending to you. So shop around.

54. Read up on RESPA. The Real Estate Settlement Procedures Act protects you from unethical lenders. Familiarize yourself with it.

55. Consider paying points. A point is one percent of the loan amount. Paying points can lower your interest rate. Look into whether or not it’s a good idea for your situation.

56. Don’t go it alone. Ask your agent for advice. Talk to friends and family who’ve been through the home buying / mortgage process before.

57. Factor in PMI. If your down payment is less than 20% of the loan amount, you’ll probably have to pay private mortgage insurance (PMI).

58. Visit the mortgage section of You can learn about everything mentioned above, in much greater detail.

59. Watch out for unethical lenders. Talk to your agent or real estate attorney is something seems strange or too good to be true.

The Mortgage Application

60. Be honest. Don’t let anyone talk you into falsifying information on your mortgage application. You’ll be the only one held accountable.

61. Ask questions. And ask them again, until you’re comfortable that you understand each part of the application.

62. Read the fine print. Often, the most important parts of an application are in the fine print. Don’t let these details go unnoticed.

63. Don’t sign blank areas. If a section of the mortgage application is blank, either ‘X’ it out or leave it unsigned.

64. Keep a copy for yourself. This applies to all documents during the home buying process. Start a folder with copies of everything.

65. Get a truth-in-lending statement. After you apply for the loan, the lender is required to give you an estimate of the total costs associated with the loan.

66. Plan for more than truth-in-lending statement. Unfortunately, it’s common for the actual costs of a loan to be more than the lender’s estimate. So plan for more.

The Home Inspection

67. Get a home inspection! At around $500, it’s a small price to pay for peace of mind.

68. Hire a certified inspector. Anyone can claim to be an inspector. So make sure yours is certified by a professional organization.

69. Tag along if possible. You’ll learn a lot about the inner workings of the home.

70. Categorize discrepancies, based on whether or not you want the seller to fix them.

71. Be realistic with repair requests. In a seller’s market, you may not get all the repairs you want. So be realistic with what you’re asking.

72. Get a termite inspection. Make the offer contingent upon a termite-free inspection.

The Home Appraisal

73. Understand the appraisal process. It’s for the lender’s protection, but it will also tell you if you’re overpaying for the home.

74. Have a plan for under-appraisal. You can pay the difference, the seller can lower the price, or you can walk.

Pre-Closing / Pre-Settlement

75. Read up on closing procedures. Start with a refresher on RESPA.

76. Talk to friends and family who’ve been through a closing process. Learn from them.

77. Stay in touch with your lender, your agent, and the escrow company. Make sure they have all the paperwork they need to avoid delays.

78. Keep saving your money. Real estate closings often come with unexpected costs.

79. Be on the lookout for your HUD-1 statement. You should get one several days before closing. It will list the total amount due at closing.

80. Transfer utilities. Now might be a good time to start putting the utilities into your name.

81. Get hazard insurance. Most lenders require it, but it’s mainly for your own protection.

82. Conduct your final walk-through. Make sure all requested repairs have been made.

83. Get a certified check for the amount due on the HUD-1 statement.

84. Confirm the time and location of the closing.

The Closing / Settlement Process

85. Bring your ID. The escrow company will probably want to verify it.

86. Don’t forget the check!

87. Bring some blank checks, just in case unexpected costs or fees arise.

88. Don’t feel rushed. Escrow companies do it for a living, but it’s probably you’re first time.

89. Read thoroughly. People make mistakes, so read each document carefully (especially the bottom-line amounts).

90. Ask questions. You’re not being a pest for asking a lot of questions. You’re simply looking out for your finances.

91. Don’t make assumptions. For example, just because you agreed to buy mortgage points for a lower interest rate, don’t assume it has been processed that way. Check the paperwork.

After Closing

92. Follow-up on your utility transfer.

93. Complete a change of address form for the postal service.

94. Notify friends and family of your new address. Postcards and emails work well.

95. Get a safe deposit box for your important documents, like your homeowner’s insurance policy.

96. Set up auto-pay for your mortgage payments. It will be one less hassle to worry about each month, and it will also help you avoid missing payments.

97. Go meet the neighbors. If your neighbors don’t come and introduce themselves, go say hello. Remember, these are the people who will keep an eye on your home when you’re away.

98. Ease into your mortgage payment. Before filling the house with new furniture or electronics, give yourself a few months to adjust to the new mortgage payment.

99. Do the happy dance (whatever your version might be). Just remember to stretch first.

100. Break out the champagne, or your preferred non-alcoholic beverage.

101. Exhale.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting

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Adjustable Rate Mortgages – A Guide to ARM Loans

March 13, 2009

by Brandon Cornett

Many home buyers choose the adjustable rate mortgage (ARM) in order to save money during the first few years of homeownership. But later, these same homeowners run into trouble when the adjustable rate mortgage adjusts (hence the name) to higher interest rates.

In many cases, such adjustments can greatly increase the size of the overall mortgage payment, which catches a lot of homeowners off guard. In this guide, we will examine the adjustable rate mortgage in more detail. After reading this guide, you will better understand the ARM loan and will be able to make wise decisions about such loans.

What Is an ARM?
As the name implies, an adjustable-rate mortgage differs from a fixed rate mortgage in the way it adjusts to a new interest rate at some future point in time. Fixed rate mortgage loans carry the same interest rate through the entire life of the loan. So the interest rate you would pay in Year 1 would be the same rate as years 5, 10, 15 … all the way through the end of the loan’s term. On the other hand, with an adjustable rate mortgage, the interest rate will change periodically. This can cause payments to go up or down, depending on the prevailing rate at the time of adjustment (and other factors).

In other words, an adjustable rate mortgage is a loan with an interest rate that changes at some point in the future. Most of the time, ARM loans start off with a lower monthly payment than a fixed rate mortgage. But keep the following points in mind:

– Unlike a fixed rate mortgage, the payments on an adjustable rate mortgage can change. This can increase the size of your mortgage, sometimes significantly.

– You cannot predict what the interest rates will do three or five years from now, when your ARM loan adjusts.

– It’s possible that you could eventually owe more money than you borrowed.
If you want to pay off your ARM early to avoid payment increases, many lenders will charge a penalty fee for it.

Shopping for an Adjustable Rate Mortgage
When shopping for a mortgage, it’s important to compare the rates and terms offered by different lenders. It’s like anything else in life — only by shopping around can you find the best deal. These days, comparing one adjustable rate mortgage to another can be confusing. That’s because you have to understand the concepts of index, margin, caps, payment options, etc. It is beyond the scope of this article to show comparison examples, data charts, etc. But you can get plenty of those from the Federal Reserve’s tutorial on ARM loans, available through the link below:

Primary Advantage of an ARM Loan
The biggest advantage of an adjustable rate mortgage is the lower initial interest rate. Most lenders charge lower initial rates for an ARM loan than they charge for fixed rate mortgages. And since the interest rate is a key ingredient of the mortgage payment, this would in turn lower the mortgage amount you have to pay each month. For many first-time home buyers, this can be a big selling point for the adjustable rate mortgage. But there is also a key disadvantage to these loans.

Primary Disadvantage of an ARM Loan
As we have discussed, the characteristic that makes an adjustable rate mortgage unique is that the interest rate adjusts periodically. When and how often the loan adjusts is something you will know in advance, because the lender is required by law to tell you those things. But the amount it adjusts will remain an unknown variable, because nobody can predict what interest rates will do in the future. This is the primary disadvantage of an adjustable rate mortgage, the uncertainty of interest rate changes / increases.

Key Ingredients of the Adjustable Rate Mortgage
To get an even better understanding of how the ARM loan works, you should understand the key ingredients of such a loan.

* Initial Rate – We have already discussed how an adjustable rate mortgage loan starts off with a relatively low interest rate in the beginning. This is known as the initial rate, and it will stay in place for a limited period of time — usually 1 to 5 years. But here’s the thing to remember. On most adjustable rate mortgages, the initial interest rate (and by extension the initial payment amount) can vary greatly from the rates and payments you would face later in the loan’s term.

* Adjustment Period – This is just what it sounds like, the period during which your adjustable rate mortgage adjusts to a new interest rate (and payment amount). Usually, the interest rate on an ARM loan will change every month, quarter, year, 3 years, or 5 years, with the latter options being the most common. A loan with an adjustment period of 1 year is called a 1-year ARM, which means the interest rate and payment can change once per year (after the initial period).

* Loan Descriptions – The law requires that mortgage lenders must give you written information on each type of ARM loan you are interested in. The information they provide must explain the term / conditions for each adjustable rate mortgage, as well as details about the index and margin (which determine the interest rate), how your rate will be determined, how often the rate will change, caps (or limits) on rate changes, plus an example of how high your monthly mortgage payment might go based on adjustments.

* Interest Rate Caps – Interest-rate caps are an important concept in the world of adjustable rate mortgage loans. A cap is just what it sounds like … a limit on the amount your interest rate can increase. Interest rate caps come in two versions: 1. Periodic adjustment caps limit how much the interest rate can go up or down from one adjustment to the next (after the first adjustment). 2. Lifetime caps limit the interest-rate increase over the life of the loan. Lifetime caps are required by law, so you’ll find them on nearly all adjustable rate mortgage loans.

* Payment Caps – Many ARM loans also cap (or limit) the amount your monthly payment can increase at the time of each adjustment. So if your adjustable rate mortgage loan had a payment cap of 8%, your monthly payment would not increase more than 8% over your previous payment amount. Be Careful Choosing an ARM Loan

Avoiding Payment Shock
In your financial planning, the biggest thing you want to avoid is payment shock. Payment shock is what happens when your mortgage payment rises steeply during a rate adjustment. For example, let’s say you took out an adjustable rate mortgage for a $200,000 loan. During the first year of an ARM, you’ll usually enjoy a very low interest rate. That’s the primary benefit. So let’s say you start out with a 4% interest rate that later goes up to a 7% interest rate (after the second year). During the first two years, the mortgage payments would be somewhere in the neighborhood of $950 per month. But after the adjustment at year two, those payments would go up to more than $1,300. That’s a big difference.

Percentage points may not seem like much by themselves. But when you plug them into a mortgage calculator, you can see how significant they really are. So if you are considering an adjustable rate mortgage, just be wise about it and think long-term. If you plan to stay in the home and hold the loan for many years, make sure you have a plan for when the rate adjusts. Or make sure you can handle a significantly larger mortgage payment.

Here’s what we want you to take away from this lesson. Adjustable rate mortgages offer benefits up front (during the initial period) in the form of lower interest rates. But they are full of uncertainty later on, and this can lead to unpleasant financial surprises. If you understand this concept, and you plan to sell the home a few years down the road, an ARM loan might be a good option for you.

But if you’re not comfortable with the uncertainty of rate and payment adjustments, or if you plan to stay in the home (and hold the mortgage) for many years, an ARM loan might be a bad idea.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting

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Short sale doc stamp problems causing angst at closing time

March 10, 2009

TALLAHASSEE, Fla. – Sept. 3, 2008 – Should documentary stamp taxes levied against a short sale be based on the sale amount or on the sale amount plus money forgiven by the original lender? It’s a simple question without a simple answer, and it impacts closings in Florida.

The problem is fairly new, and arose with the large number of short sales. Florida law does not clearly state whether the doc stamp taxes owed on a deed should be based on the sale price paid by the purchaser, or on the sale price plus any existing debt forgiven by the bank. Consequently, local governments make their own decisions and charge different amounts.

The Florida Association of Realtors (FAR) contacted the Florida Department of Revenue (DOR), the Attorney General’s office and the governor’s office when the problem became clear. As the dispute intensifies, it could shut down some closings and impact an already soft real estate market.

“Meetings with officials have continued,” says FAR Public Policy Representative Trey Price. “Last week, FAR had a two-hour meeting with eight DOR personnel, including both the head of the agency and the general counsel.”

Some local government officials and others within the real estate community mistakenly think the issue has already been decided, based on a widely circulated one-page letter on DOR letterhead that claims doc stamps are due on the higher amount.

But a top DOR official says, “No official position has yet been issued by the department.”

FAR officially requested a Technical Assistance Advisory (TAA) with DOR, which would provide Realtors a specific document to explain the short sale doc stamp procedure. Bob McKee, deputy executive director of the agency, adds, “We anticipate that official position to be taken very soon in the form of the TAA requested.”

While FAR hopes that an outcome favorable to all parties will occur (an advisory using the lower amount), Price warns that an unfavorable outcome is possible. “FAR is prepared for that outcome as well, including exploring possible ‘amnesty’ avenues the Florida Legislature could enact to protect earlier short sale transactions.”

FAR received notification yesterday that the TAA should be available soon. “Advisories can sometimes take months or even a year before a conclusion is made, so the DOR expediency illustrates their understanding of the importance of this issue,” says Price.

FAR will continue to follow the short sale problem and keep members informed of any updates.

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Common First-Time Home Buyer Mistakes

March 9, 2009

1. They don’t ask enough questions of their lender and end up missing out on the best deal.
2. They don’t act quickly enough on the deal and someone else buys the house.
3. They don’t find the right agent that is willing to help them through the homebuying process.
4. They don’t do enough to make their offer look appealing to a seller.
5. They don’t think about resale before they buy. The average first-time home buyer only stays in a home for four years.

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