Home Equity Loans : Borrowers Beware!

Do you own your home? If so, it’s likely to be your greatest single asset. Unfortunately, if you agree to a loan that’s based on the equity you have in your home, you may be putting your most valuable asset at risk.

Homeowners — particularly elderly, minority, and those with low incomes or poor credit — should be careful when borrowing money based on their home equity loans.  Why? Certain abusive or exploitative lenders target these borrowers, who unwittingly may be putting their home on the line.

Abusive lending practices range from equity stripping and loan flipping to hiding loan terms and packing a loan with extra charges. The Federal Trade Commission (FTC) urges you to be aware of these loan practices to avoid losing your home.

BAC Home Loans

BAC Home Loans Servicing, LP and/or its investors may pursue a deficiency judgment for the difference in the payment received and the total balance due, unless agreed otherwise or prohibited by law, if the short sale closes on the loan referenced above. In addition, if this loan is covered by mortgage insurance, the mortgage insurance company may reserve the right to pursue the seller for the deficiency based on the terms of the mortgage insurance policy.

Furthermore, there may be tax consequences associated with entering into a short sale. The seller is encouraged to seek guidance from an independent tax advisor, and/or an attorney, before proceeding with the short sale. If this short sale is contingent upon BAC Home Loans Servicing, LP and/or its investors receiving a promissory note, we will reserve the right to collect the full amount on the new promissory note which may lead to us pursuing a deficiency on that balance should the need arise. If the short sale does not close, then we will pursue all remedies under our note and mortgage. This offer is contingent upon BAC Home Loans Servicing, LP receiving a properly executed and notarized Promissory Note, if applicable, to this short sale transaction.

Ease in Securing Loans

Despite the easing of conventional underwriting standards, market observers consider it easier to obtain an FHA loan than a conventional loan. Conventional lenders tend to disapprove loans if the monthly payment, including principal, interest, taxes and insurance, exceeds 25 to 28 percent of the borrower’s monthly income, depending on the type of loan. The FHA allows up to 29 percent. The FHA also allows a borrower to have a higher total debt burden than most conventional lenders would allow. Total debt payment, including existing debts running for ten months or more, can be as much as 41 percent of income, compared with 36 percent for most conventional loans. Lenders emphasize that these payment-to-income ratios are guidelines, not hard and fast rules. For both FHA and conventional loans, “compensating factors” such as an excellent credit record may be used to justify exceeding the guidelines.

Download the FHA Loan Guide

FHA Mortgage Center.comYour Guide to FHA Loans

FHA Mortgage Center.com is your premier FHA Loan center.

Unlike your local bank or other lenders, we specialize in FHA loans. We work with them every day, all day, and will do everything we can to get you into your dream home.

Purchasing a home is a big deal, and you will likely have questions. Our FHA Specialists will take you through the entire process step by step. From getting prequalified to closing on your loan, we will make sure to answer each question and explain every detail so you understand the ins and outs and never feel lost.

Please feel free to contact us at any time to get your FHA Loan process started. Our Specialists are here to help!

What is an FHA Mortgage Loan?

An FHA loan is backed by the Federal Housing

Administration, which means if a borrower defaults on the

loan, the FHA guarantees it will pay the lender. As a result,

lenders will issue larger loan amounts and give you lower rates.

DU Users Guide for FHA Loans

DU® for Government Loans is the component of Desktop Underwriter® (DU) that is used by DU licensees in conjunction with their underwriting of FHA loans and VA loan casefiles, the repayment of which are insured by FHA (Federal Housing Administration) or guaranteed by VA (U.S. Department of Veterans Affairs).

The use of DU for Government Loans (including the submission of loan casefiles to the pmiAURASM risk model for VA loans), is governed by the Fannie Mae Software Subscription Agreement and the DU (Expanded Use Version) Schedule. FHA lenders that have not executed these documents should contact their Fannie Mae customer account team.

Note: From here on in this guide, DU for Government Loans is referred to as DU.

This guide provides detailed information on data entry requirements and system functionality for submitting FHA loan applications to DU. The instructions in this guide are provided to facilitate lenders’ accurate submission of data to DU and are not intended to interpret, explain, or supersede FHA’s guidelines or requirements.

Mortgage Loans Understand the Terms of Your Loan Before You Sign

This brochure can help you become familiar with basic mortgage loans, determine what terms are best for your situation, and identify issues you should be aware of before taking out a mortgage loan.

Mortgage loans are secured by a borrower’s home. This means that if you are unable to make the monthly payment for the mortgage, the lender can foreclose and take your home. The amount of your loan will be determined by your home’s value minus any liens or unpaid mortgage(s).

Standard home equity loans or second mortgages are closed-end loans, meaning the loan proceeds are usually made available in a lump sum. These loans can have a fixed term, a fixed interest rate, and fixed monthly payments, or they can carry an adjustable interest rate that fluctuates with an index, such as the prime rate. Some adjustable-rate mortgages (ARMs) are “hybrid ARMs” which have a fixed rate for an initial period, then a fluctuating rate for the remainder of the loan.

Reverse Mortgage Loans Borrowing Against Your Home

Since the publication of this booklet in 2008, there have been a number of important changes in the reverse mortgage world. The following is a summary of these issues, as they affect the content of this book as of October 2010. Page numbers are provided to help you find the areas of the book that are affected by these changes. Property eligibility: Though legislation to allow HECM loans on cooperatives was passed, the enabling regulations have not been finalized, so as of this time (October 2010), cooperatives are still not eligible. (page 8)

Home value limits: The nationwide home value limit of $417,000 on HECM loans was raised to $625,500 and will continue at that level until at least December 2011. This increase made HECMs more attractive for borrowers with higher value homes, and is one reason for the disappearance of proprietary loans. (pages 9, 26, 32)