Real Estate Information Archive

When buying a home in Albuquerque, the term "escrow" will come up frequently. Escrow is a legal arrangement where a third party holds money or property until certain conditions are met. In real estate transactions, escrows provide protection for both buyers and sellers.

An escrow account is established as part of your mortgage terms to hold funds for homeowner's insurance and taxes. Additionally, escrow accounts can be used to safeguard a good faith deposit, ensuring that the funds are allocated correctly based on the sale conditions. In this blog, we will focus on the escrow account used throughout the duration of your loan.

Escrow Accounts When You Borrow Money

When you borrow money to buy a home, whether from a bank or direct mortgage lender, you will be given an escrow account. This account serves as a place for the lender to deposit a portion of your monthly mortgage payment that will cover insurance premiums and taxes. The purpose of the escrow account is to ensure that you do not fall behind on your obligations to your insurance provider or the government by collecting a part of those costs every month.

How It Works

When obtaining a mortgage loan, lenders typically mandate the establishment of an escrow account. This account serves to mitigate risk and ensure timely payment of annual homeowner's insurance premiums and property taxes. Although these expenses are paid on an annual basis, the lender requires a monthly fraction to be paid, with the remaining balance accumulating in the escrow account.

Having unpaid insurance or taxes can result in liens during foreclosure, making it more difficult for lenders to recoup the initial loan. As a result, lenders have a vested interest in ensuring that borrowers stay current on these non-mortgage homeownership expenses.

As the borrower, there are downsides to this arrangement. Your lender typically mandates a minimum balance in the escrow account to safeguard against potential cost hikes. Most lenders require you to maintain at least two months' worth of expenses in the mortgage escrow account.

When it comes to managing your insurance premiums and taxes, there's a convenient option available. Instead of making separate payments, you can choose to pay a portion of these expenses each month. This amount, along with your principal and interest payments, is collected and held in an escrow account. At the end of the year, the money in the escrow account is used to pay your premiums and taxes.

Escrow payments can be adjusted based on the surplus or shortage in the account for the year's payment. The mortgage holder is required to send an annual statement regarding the escrow account, which may also be referred to as a mortgage impound account.

Mortgage insurance premiums are required for borrowers who make less than a 20% down payment. These premiums are held in the escrow account along with other payments.

The escrow agent must provide a settlement statement before closing. This statement will detail all final closing costs, as well as fees associated with the home loan, including prepaid and escrow funds.

Escrow accounts do not cover HOA fees or supplemental tax bills. HOA fees and supplemental tax bills are separate expenses that homeowners are responsible for. Supplemental tax bills can be issued due to new construction or a change in ownership, and the amount cannot be predicted by the lender.

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Learn More!

Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates.

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Living in a house in Albuquerque without paying the mortgage is a topic that sparks curiosity and misconceptions. However, the reality is complex. A mortgage is a long-term loan used to purchase a home, with specific terms and conditions outlined in a legal contract.

There are several factors that can determine how long you can stay in your house without making mortgage payments. These factors include the type of mortgage you have, the foreclosure laws in your area, your financial situation, and any negotiations you have with your lender. Additionally, it's worth considering the potential impact of foreclosure mediation in helping to find alternative solutions to mortgage problems.

The Consequences of Missing Mortgage Payments

Missing a mortgage payment can have significant consequences on your credit score and financial well-being. It is important to understand that even a single missed payment can have a lasting impact.

1. Late Payment Fees

Lenders often impose a late payment fee when borrowers fail to meet the due date for their mortgage payment. These fees can quickly accumulate, further contributing to overall debt.

2. Credit Score Impact

Late mortgage payments can have a significant negative impact on your credit score, making it harder for you to secure loans, credit cards, or favorable interest rates in the future.

3. Default Status

When you fail to make a certain number of mortgage payments, your mortgage is considered in default. At this point, the lender has the right to accelerate the loan, which means that the full balance becomes due immediately.

4. Foreclosure Proceedings

If you continue to miss payments, your lender may initiate foreclosure proceedings. However, there is a potential solution called foreclosure mediation, which allows homeowners to collaborate with their lenders and reach a mutually agreeable resolution to avoid foreclosure.

So, how long can you live in your house without paying the mortgage before these consequences come into play?

The Grace Period

The standard grace period for mortgage payments is typically 15 days after the due date. During this time, you can make your payment without incurring any penalties. However, it is important to review your mortgage agreement, as grace periods may vary.

Missed Payments and Penalties

Once the grace period is missed and consecutive payments are not made, penalties begin to accumulate. The exact number of missed payments that result in these penalties can vary, but typically lenders take action after three to four consecutive missed payments.

a. Three to Four Missed Payments

Missing three to four consecutive mortgage payments can result in your lender reporting the late payments to credit bureaus, which will negatively impact your credit rating.

b. Late Fees

Missing a payment not only affects your credit score, but also results in additional costs in the form of late fees. These fees can vary, ranging from a few percentage points to as much as five percent of your regular mortgage payment.

c. Default Status

Once you've missed multiple consecutive payments, your mortgage can enter default status. At this critical stage, the loan is accelerated and the outstanding balance becomes immediately due.

Facing Foreclosure

If you continue to miss payments, foreclosure becomes a looming threat. A foreclosure is a legal proceeding that gives the lender the right to confiscate and sell your property to recoup the money owed. The exact timeline for foreclosure can vary widely depending on state laws, court schedules, and lender policies.

The foreclosure process typically takes several months to over a year to be completed. Throughout this time, it is possible for you to continue living in your house. However, it is important to note that the impending loss of your home is a significant consequence.

The missed payments and default status have already greatly affected your credit score, making it challenging to secure another mortgage or find alternative housing.

Avoiding Foreclosure

If you find yourself unable to make your mortgage payments and want to avoid foreclosure, it is crucial to take immediate action. Here are some steps to consider:

• Contact your lender: It is important to maintain open communication with your lender if you experience financial challenges. They may offer options such as loan modification or repayment plans to assist you.
  
  
• Seek Assistance: There are various resources available to assist individuals facing financial difficulties and potential foreclosure. Government programs, such as loan modification and refinancing options, can provide solutions to help homeowners stay in their homes.
  
  
• Sell Your Home: If you are unable to continue living in your home, it may be wise to sell it before foreclosure becomes unavoidable. By doing so, you can use the proceeds to pay off your mortgage and possibly retain some of your equity.
  
  
• Legal Assistance: To delay or stop the foreclosure process, consult a foreclosure defense lawyer for alternative options.

The length of time you can live in your house without paying the mortgage before facing serious consequences varies based on factors such as your lender, mortgage agreement, and location. Generally, there is a grace period of approximately 15 days after the due date to pay without penalties. However, if you miss three to four consecutive payments, late fees, credit score damage, and the risk of foreclosure become significant concerns.

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Learn More!

Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates.

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Are you thinking about buying a home in Albuquerque, but not sure if certain forms of income will help you qualify for a loan? Lenders want you make sure you can repay your loan comfortably. They can determine this by comparing your monthly income with monthly debt. If you work for an employer or for yourself, this can be done by reviewing recent paycheck stubs, W2 forms and/or tax returns. But if you're looking for additional income support to buy a home in Albuquerque, you may not be aware that there are other income sources that lenders can use.

Support Income

If you are receiving spousal or child support, this income can be used to help qualify. There needs to be a record of timely payments, which can be shown by providing copies of bank statements showing the monthly deposits being made and when. Spousal support payments need to continue barring the ex-spouse receiving the income has not married. Child support payments typically continue until the child turns 18.

Investment Income

If you have any investments, the dividends and interest can also be used. This is providing that the income is shown to be consistent over the previous two years. Also, your name must appear on the statement. Any other names on the statement will cause the lender to divide up the income among all who appear on the investment account. Income is averaged over the previous 24 months in order to arrive at a qualifying amount. 

Disability Income

If you are receiving disability payments due to an injury on the job, this can be used as well. This can be verified by reviewing a copy of the disability policy benefit statement. This income may also be used as long as the lender makes the determination the income will likely continue well into the future, for a minimum of three years. It can sometimes be the case that the disability is shorter term in nature, or the lender needs more information about the nature of the disability filing. 

Social Security Income

In order for the lender to use social security income, all that is needed is a copy of the social security awards letter. A request for this letter is made directly to the Social Security Administration either by the borrower or the lender.

Bonus Income

Like other forms of income, bonus income can be counted as long as there is a regular history of having received it. Bonus income should be both consistent and at regular intervals. Bonus income is averaged and should be paid monthly or sometimes quarterly. An annual bonus most often won’t be used. It’s thought that a holiday bonus in December may not be readily available in another time of the year. Verification of the terms of the bonus can be obtained directly from the employer.

Part Time/Seasonal Income

With a two year history of receiving part time income as well as seasonal work, such as during the holidays or during the summer, this income can also be counted when adding up qualifying income. The part time income should also be relatively consistent. Seasonal income may be counted, depending upon the lender’s internal guidelines, again with evidence of receiving it for the most recent two years and paid out in a consistent manner.

Contact us today to help you buy or sell your next home in Albuquerque. Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates.

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Have you heard of the term "house poor"? If you are house poor, it simply means that you're spending most of your income on things related to your home. This is more than just the mortgage. It includes things like maintenance, utilities, insurance, and taxes. When you’re house poor, you can’t afford many other things, and certainly not big extras like vacations.

When you buy a home in Albuquerque, you need to know what you realistically can afford to keep from being house poor. One of the biggest mistakes home buyers make is being too ambitious and taking on a home that's too expensive, as well as not anticipating other expenses.

Here are some ways to buy a home in Albuquerque that you can reasonably afford and lower your risk of being house poor.

Crunch the Numbers

Before you ever start the actual process of shopping for homes, look at the numbers.

You’ll need to take into account how much your household earns every month. Then, outline all of the housing costs, which include:

• The down payment
• Property taxes
• Homeowner’s insurance
• Utilities and maintenance

Tally up all of the expenses that you currently have to pay every month. Then, look at your discretionary spending and include that as well. Including that discretionary spending is important and sometimes overlooked. It’s those extras that you want to be able to continue to pay for, even when you buy a home.

Follow the 28/36% Rule

Many financial professionals advise that you spend no more than 28% of your gross monthly income on your housing expenses. You should also plan to spend no more than 36% on your total debt, including not just your home loan but your credit cards, car loan, and student loans.

Affordability Considerations

Some of the things that you should think about beyond your income and expenses include:

• How much savings do you have set aside? You want to have a reserve of cash in case something happens, and if your down payment or mortgage costs are going to dip into your savings, that can be a problem.
• How much of a down payment can you afford? The traditional wisdom is that you put 20% down, but there are loans with options to put as little as 3% down. Remember that the lower the down payment, this higher your monthly payments will be.
• Is there a different type of mortgage outside of a traditional bank loan that you might qualify for? For example, FHA loans are backed by the Federal Housing Administration and you may qualify with a lower credit score and down payment compared to a traditional loan.

Take Steps to Get a Competitive Interest Rates

Interest rates are at an all-time low. Even so, try to get the most competitive rates you can. Having a strong credit score will help. Before you buy a home, look at your credit report, and clean it up if necessary. Try to minimize how much debt you have compared to your income.

Err on the Side of Caution

When you start looking at homes, you should always err on the side of caution. Keep your house hunt focused on the lower end of what you can technically afford. If you’re a first-time home buyer in Albuquerque, it can be tempting to want to go all-in with the belief that you’re buying your forever home. Your life can change over the years, and your first home is probably not your forever home.

Focus on finding a starter home for sale in Albuquerque that works for your current needs. You can’t just think about your current income either. Think about what might happen if you lost your job or your partner lost their income. How would that change the equation?

Finally, one option that can help you better stay within your budget is buying a fixer-upper. You can find a great deal, and then you have the option to gradually create the home of your dreams as your budget allows, rather than having to go all-in right away.

Contact us today to help you buy or sell your next home in Albuquerque. Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates.

HOT HOME LISTING OF THE WEEK!

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Get your Morning Inspiration with the Sandi Pressley Team