The Mortgage Answer Book, 2E: Practical Answers to More Than 150 of Your Mortgage and Loan Questions

290 Pages·2008·3.56 MB·English

by  John Talamo

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John J. Talamo received his law degree from
the Detroit College of Law at Michigan State Real Estate/ Legal Reference fi rst place
University. In addition to advising clients on all $16.95 U.S./ $18.99 CAN/ £9.99 UK
ISBN-13: 978-1-57248-680-5
matters relating to buying, selling, owning, and
ISBN-10: 1-57248-680-5
renting property, Mr. Talamo has written or (cid:2) Find out about special
coauthored several books on topics relating to
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real estate and business. Collectively, his books EA
have sold over two million copies and are used Talamo qualify for
nationally by government agencies, title companies, Sphinx® Publishing
escrow companies, and real estate agents. He An Imprint of Sourcebooks, Inc.®
Naperville, Illinois
resides outside of Las Vegas, Nevada. www.SphinxLegal.com
JOHN J. TTAALLAAMMOO,, AATTTTOORRNNEEYY AATT LLAAWW
THE
MORTGAGE
ANSWERBOOK
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150
Practical Answers to More Than
of Your Mortgage and Loan Questions
Second Edition
John J. Talamo
Attorney at Law
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An imprint of SourcebookS, inc.®
nAperville, illinoiS
www.SphinxLegal.com
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Copyright © 2008 by John J. Talamo
Cover and internal design © 2008 by Sourcebooks, Inc.®
Cover photo © iStockphoto.com, mihaicalin
All rights reserved. No part of this book may be reproduced in any form or by any electronic
or mechanical means including information storage and retrieval systems—except in the case
of brief quotations embodied in critical articles or reviews—without permission in writing from
its publisher, Sourcebooks, Inc.® Purchasers of the book are granted license to use the forms
contained herein for their own personal use. No claim of copyright is made to any government
form reproduced herein. All brand names and product names used in this book are trademarks,
registered trademarks, or trade names of their respective holders. Sourcebooks and the colophon
are registered trademarks of Sourcebooks, Inc.®
Second Edition: 2008
Published by: Sphinx® Publishing, An Imprint of Sourcebooks, Inc.®
Naperville Office
P.O. Box 4410
Naperville, Illinois 60567-4410
[phone]
Fax: [phone]
www.sourcebooks.com
www.SphinxLegal.com
This publication is designed to provide accurate and authoritative information in regard to the
subject matter covered. It is sold with the understanding that the publisher is not engaged in
rendering legal, accounting, or other professional service. If legal advice or other expert assistance
is required, the services of a competent professional person should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations
This product is not a substitute for legal advice.

Disclaimer required by Texas statutes.
Library of Congress Cataloging-in-Publication Data
Talamo, John.
The mortgage answer book / by John J. Talamo. -- 2nd ed.
p. cm.
Includes index.
1. Mortgage loans--United States. I. Title.
HG2040.5.U5T35 2008
332.7’20973--dc22
2008022528
Printed and bound in the United States of America.
CHG — 10 9 8 7 6 5 4 3 2 1
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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Chapter 1: Introduction to Mortgages . . . . . . . . . . . . . . . . . . . . . 1
Chapter 2: The Mortgage Industry . . . . . . . . . . . . . . . . . . . . . . . . 9
Chapter 3: Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Chapter 4: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Chapter 5: Prequalifying for a Loan . . . . . . . . . . . . . . . . . . . . . . 45
Chapter 6: Terms of the Mortgage . . . . . . . . . . . . . . . . . . . . . . . 49
Chapter 7: Payment Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Chapter 8: Fixed Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Chapter 9: Adjustable Rate Mortgages . . . . . . . . . . . . . . . . . . . . 73
Chapter 10: Hybrid Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Chapter 11: Jumbo Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Chapter 12: Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Chapter 13: Government Loans . . . . . . . . . . . . . . . . . . . . . . . . 101
Chapter 14: Hard Money Mortgages . . . . . . . . . . . . . . . . . . . . 113
Chapter 15: Junior Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Chapter 16: Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . 129
Chapter 17: Refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Chapter 18: Mortgages on Manufactured Homes . . . . . . . . . . . 143
Chapter 19: The Effect of Inflation on Mortgages . . . . . . . . . . 147
Chapter 20: Facing Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . 151
Chapter 21: Purchase Money Mortgages . . . . . . . . . . . . . . . . . 161
Chapter 22: Reverse Mortgages . . . . . . . . . . . . . . . . . . . . . . . . 169
Chapter 23: Subprime Mortgages . . . . . . . . . . . . . . . . . . . . . . . 187
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iv The Mortgage Answer Book
Chapter 24: First-Time Buyers . . . . . . . . . . . . . . . . . . . . . . . . . 191
Chapter 25: The Right Loan for You . . . . . . . . . . . . . . . . . . . . 207
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
Appendix A: Amortization Tables . . . . . . . . . . . . . . . . . . . . . . 239
Appendix B: Home Ownership and Equity Protection Act . . . 257
Appendix C: The Real Estate Settlement Procedures Act . . . . 267
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
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Introduction
The purpose of this book is to help secure the loan that is right for
you . Your circumstances—credit history, down payment, and other
factors—will determine both which type of loan is best for you and
the cost of the loan . You will also learn ways to do the research that
will help you make your decision .
This book covers the major loan options available to borrowers,
and describes who will benefit most from each . When you find the
type of loan that fits your circumstances, you can be confident that
you are going to get the best loan for you .
Finding the best lender for each type of loan is also discussed .
You will learn the things you should do on your own, as well as
the questions you should ask potential lenders or mortgage brokers
before agreeing to accept a loan . You do not want to be in the posi-
tion where you find the best type of loan for you, and then find
yourself working with a lender who overcharges you . Different
types of mortgage loans emphasize different areas of the loan . For
example, one may be designed to make the monthly payment as low
as possible . Another may feature the lowest possible interest rate .
Still another may be attractive because of the low down payment .
There are many variations .
However, all loans have certain things in common . The borrower
must make a monthly payment, pay interest on the money
borrowed, and pay back the loan at some future date . Because of
these common elements, there may be some repetition in describing
and examining each type of loan . Unless specified, all information
refers to loans made by so-called institutional lenders, such as banks,
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vi The Mortgage Answer Book
savings and loans institutions, and credit unions . Loans made by
individuals, such as sellers of property, are covered separately .
Risk and Profit
Before getting into the specific types of mortgages, it is important
to understand the basics of mortgage lending . The two intertwined
factors that control the lending industry are risk and profit .
Risk determines the cost to the borrower . The higher the risk to
the lender, the higher the cost to the borrower . If the borrower is
willing to take on more risk, the lender will reduce the cost of the
loan . Cost can be in the form of the interest rate, fees, or both .
There are the obvious risks . A borrower with poor credit, margin-
ally acceptable income, high debt, or little or no down payment
creates a higher risk that the loan will not be repaid . A borrower
with any of these problems should expect to pay more to borrow
money . Another type of risk is in the stability of the mortgage
interest rate . If the borrower insists that the interest rate on the
mortgage never increase, called a fixed interest rate mortgage (FIRM),
the borrower will pay more for the loan . This type of loan puts the
risk on the lender, because if the interest rate increases several years
after the loan is made, the lender could potentially lose money . If
the borrower is willing to accept the risk that the interest rate may
increase, called an adjustable rate mortgage (ARM), the borrower
will pay less for the original interest rate of the loan . As you read
on, you will see how much risk you as a borrower should shift from
the lender to yourself .
Lenders believe loans that put them at greater risk should return a
higher profit than safer loans . This seems reasonable . The borrow-
er’s job is to find a lender willing to take the smallest amount of
profit for the particular loan that the buyer wants . Again, not an
easy task .
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Introduction vii
Profit for the lender comes from interest, points, and other fees .
If a mortgage broker is involved, his or her fee can be paid by either
the borrower or the lender . If paid by the lender, the borrower will
then pay a higher interest rate to enable the lender to recoup the
money . Some loan programs are simply more profitable than others .
This means that a lender may try to sell you a loan that is a good
deal for the lender, but not for you . Since lenders know much more
about loan programs than borrowers, borrowers tend to start off
with a major disadvantage . Part of what you will learn in this book
is how to lower the odds against you and find the mortgage loan that
you want, not just the one the lender wants you to have .
Gaining a general understanding of the mortgage industry, as
well as specific knowledge of the loans currently being offered by
most lenders, should give you the ability to avoid the hype and
concentrate on the truly important features of the loan you are being
offered . Once you can do this, you can get a mortgage loan that will
be best suited to your situation .
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II
Chapter 1 nnttrroodduuccttIIoonn ttoo
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n What is a mortgage?
n H ow are mortgages structured?
n H ow are FHA and VA mortgages structured?
n W hat is a deed of trust?
n W hat is a promissory note?
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