Question

Jean and Jude own a townhome that was purchased for $165,000 on 6/30/2007. Current property values in the area have not substantially recovered to their pre-2008 values. They believe that their current mortgage balance exceeds the townhome's current market value by $30,000.

Their family has grown from 2 to 4 (twins, boy and girl) and as a result they need more living space. The children will be starting school within the next 6 months. They are not pleased with the quality of the current school system. They need more living space and want their children to attend school in a better school district. Jean and Jude have decided to look for a different home. They would like a detached single-family home with at least 3 bedrooms, 2 full baths, a 2-car garage and a ¼ acre back yard.

After interviewing several Realtors, Jean and Jude have selected you to find them a new home and discuss the options of either selling or renting their current home.

Jean and Jude have asked for you to provide the following. How would you respond?

1. Explain the three methods used to appraise the value of our townhouse and recommend the most appropriate method to use.
2. Explain and describe the information included on the TRID form and how it benefits the home buyer?
3. If we decide to rent out our home, we would like to exclude tenants that have a pet of any kind or for any purpose. What, if any, government regulations will impact this decision?
4. List the steps in the loan process used to qualify us for a mortgage and explain how our current mortgage balance may impact the qualification decision?
5. Explain the advantages and disadvantages of selling or renting our townhouse. Assume that we would have to take an early distribution from our individual 401Ks to make the down payment on a new home.
6. If we stopped making the monthly mortgage and escrow payments, what action(s) would the bank take?
7. Regarding our townhouse, which course of action would you recommend: selling the townhouse, renting the townhouse, or stopping the mortgage and escrow payments?

Answer 1

Answer :

1.   Sales Comparison Appraisal Method,

Income Appraisal Method

Cost appraisal method.

Sales Comparison Appraisal Method is the correct way to value their townhouse. This method helps ensure that fair value is determined for the Home and that a bank can move forward with offering a loan for the purchase that's backed by value data.

2.   TRID stands for the TILA-RESPA Integrated Disclosure rule. It became law as part of the Reform and consumer protection Act. There are two forms that are mandated.

Loan Estimate- it merges the RESPA Estimate with the TILA provisions

Closing Disclosure- integrates the HUD and TIL settlement statements.

For Loan Estimate, its work is to give a summary of loan terms, closing costs, and loans that are estimated. On the other hand, closing disclosure offers a summary of loan terms, closing costs, and actual loans.

TILA is an acronym that stands for the Truth In Lending Act. Passed into federal law in 1968, the TILA protects consumers from unscrupulous creditors. The TILA forces lenders to disclose their terms — interest rate, total costs, and length of the loan — before you sign the loan agreement. It also introduced the three-day waiting period, during which you can cancel the agreement without penalty. RESPA represents the Real Estate Settlement Procedure Act. Enacted as a federal law in 1974, the RESPA provides similar protections as the TILA, but specifically for real estate transactions.

3. As per the government rules, the landlord cant refuses a pet unless they have proper justification for the same. That being said, it is the tenant's responsibility to take care of the house and not do any damage to it.

4.Steps in the loan process :

1.   Pre-Qualification

2.   Mortgage Programs

3.   The Application

4.   The Loan Estimate

5.   The Intent to Proceed

6.   Processing

7.   Required Documents

8.   Credit Reports

9.   Appraisal Basics

10. Underwriting

11. Closing Disclosure

12. Closing

13. Summation

Current mortgage balance can affect your credit score adversely, which in turn can affect your interest rate.

5.

Cons of renting Home

-Might Preclude You From Buying Somewhere Else

-Becoming a Landlord is Time-Consuming

-Vacancies / Evictions / Repairs Can Destroy You

Pros of Selling Home

-Frees Up Capital

-Capital Gains Free

Cons of selling home

-Could Have a Failed Sale Process

-Selling Requires Updates to Your Home

-You Could Take a Loss

Pros of Renting Home

-Cash Flow and Income

-Play on Equity appreciation (increased property rates led to higher rents)

-Use of Low-Cost Leverage

-Easier to Rent a Home Than to Sell It

-The optionality of returning to your Home

6. Lenders get the right to use borrower's escrow accounts to help them track insurance, mortgage, and taxes. If you miss your mortgage payments, your escrow account may be depleted, which forces you to fill it with a large sum.

7. Renting a home is the best option since it ensures a constant cash flow, which can fund its current Home. Also, the rent ensures the benefits of equity appreciation so the owner can get benefits.