Is the 30-Year Fixed Mortgage Actually a Lot of Work?

I typically refer to the 30-year fixed mortgage as a set-it-and-forget-it type of mortgage because it’s fixed for the entire duration of the loan.

The mortgage rate in month one is the same as the rate in month 360. The mortgage payment never changes, though the total housing payment could vary thanks to things like taxes, insurance, and PMI.

Put simply, it’s a very easy mortgage to wrap your head around, and for that reason the most popular and common choice for homeowners here in the United States.

The same isn’t true elsewhere in the world, which is one of the reasons why the 30-year fixed has been questioned a lot lately by economists and mortgage pundits.


The latest opinion comes from Benjamin Keys of The Wharton School of the University of Pennsylvania, who analyzed how monetary policy makes its way into households via the mortgages borrowers hold.

During the most recent crisis, those with adjustable-rate mortgages actually “won” in a sense because their rates adjusted lower when the government stepped in and bought tons of mortgage-backed securities while lowering other borrowing rates.

Meanwhile, those with fixed rates didn’t benefit at all, and in fact were trapped in their mortgages because of equity issues, namely underwater mortgages.

This meant those who ostensibly took on more risk were rewarded when the wheels fell off. And those who were seemingly prudent in their mortgage choice were punished because they were unable to refinance until HARP came along.

Does that mean we should all go with ARMs instead of fixed-rate loans and hope the government takes care of the rest?

Is an ARM the Hands-Off Mortgage Solution?

Keys noted that there is an “automatic transmission of monetary policy through adjustable-rate mortgage contracts.”

In other words, the ARM adjusts with the greater economy and the borrower doesn’t have to go out and refinance or lift a finger.

Their lender will just adjust their payment as the index changes, whether it’s up or down. Of course, lately it’s been a one-sided argument, with ARMs generally falling at the reset, instead of climbing.

This has actually led to debt reduction and new spending, with borrowers who selected ARMs choosing to pay down higher-APR like credit cards while also purchasing new cars.

Effectively, the economy was stimulated via these ARMs because it freed up cash for households to inject back into the economy through other channels.

Mortgage defaults in this group also dropped by some 36% thanks to the reduced monthly payment.

To summarize, borrowers with ARMs didn’t need to do anything to obtain lower payments, despite the fact that most probably assumed they’d have to refinance out of the ARM once it adjusted (higher).

At the same time, their neighbors with fixed-rate mortgages set at 6% were probably shaking their heads, wondering how they wound up paying more.

Additionally, they had to keep a close eye on interest rates to ensure they weren’t paying too much, and then make the decision to refinance or not. That meant a lot of work (and worrying), ironically.

Interestingly, Wharton researchers found that regions of the country that had more ARMs recovered faster during the Great Recession, saw more auto sales, and increased local employment.

Could the Opposite Happen?

The problem is ARMs can move both up and down, and everyone (including Wharton) expects rates to go up the next time around.

The big question is how things will play out when that happens. Will the borrowers who elected to take out ARMs get burnt and require a bailout?

Will home prices go down more in the areas where ARMs were more popular?

If so, might the 30-year fixed prove to be the winner it was expected to be prior to the most recent housing crisis? And as such, should it be left alone?

All to be determined…but there’s a good takeaway here. Monetary policy can dictate whether ARMs adjust higher or lower, so in that sense the Fed has the ability to provide direct stimulus to homeowners, without tax rebates or mass refinancing programs. That’s a pretty powerful thing.

But if homeowners keep opting for the 30-year fixed, it’ll be difficult for the Fed to do a whole lot, and these homeowners might just find that their mortgages are a lot more work than they expected.

source: thetruthaboutmortgage.com

Two Simple Ways to Boost Your Credit Score Before Applying for a Mortgage

About a month ago, I cautioned readers to avoid swiping the credit card before applying for a mortgage.

In short, the more you charge, the higher your outstanding balances. And the higher your balances, the lower your available credit and credit score will be.

That’s pretty straightforward stuff, but it may not apply to everyone because some folks may want a higher credit score despite making very few credit purchases.

However, there’s yet another way to give your credit scores a boost without simply doing nothing.

Increase Your Credit Limits

I’m talking about increasing credit card limits, something that is very easy (and fast) to accomplish thanks to the many credit card management tools now at our fingertips.

If you visit just about any credit card issuer’s website, you should be able to find an area to increase your credit limit online.

Put simply, you enter the desired amount you’d like (e.g. $10,000 if your current limit is $5,000) or you simply ask for an increase and get what you get and don’t get upset.

When it comes to credit card issuer Discover, you simply enter your gross annual income, employer name, and monthly housing/rent payment. Then they present you with your new credit line. It can take as little as a few seconds to get your new line of credit.

With other issuers, such as American Express, you are asked to enter your desired credit limit and then hope they extend it to you. Apparently you can get 3x your starting limit with little trouble.

So if you started with $5,000, you could get it increased to $15,000 simply by visiting the American Express website and filling out an online form.

The underlying goal of such moves is to lower your credit utilization, which is the percentage of credit you’re actively using at any given time.

A lower utilization, similar to a lower debt-to-income ratio, is viewed favorably.

So imagine you have that American Express credit card with a $5,000 limit.

If you currently have a $2,500 balance, even if it’ll be paid off on time and not revolved, you’re essentially using 50% of your available credit. This isn’t a good thing when it comes to credit.

You may actually want to keep your utilization below 25%, in this case, no more than $1,250, again, even if you pay it off in full by the due date.

But what if you naturally charge a lot on your credit cards each month, despite paying all of them off every month? What can you do to keep utilization low?

Well, if your credit limit happened to be $10,000 instead of $5,000, that $2,500 balance would only represent 25% utilization.

In other words, all you have to do is ask for higher credit limits, instead of spending less. Of course, spending less will sweeten the deal and ideally push your credit score even higher.

Tip: It’s easier to get credit limit increases approved if your balances are low because you’re viewed as a lower risk customer.

Pay Off Your Existing Balances

In conjunction with this tip, you can pay down any balances you may have, assuming you don’t pay your credit cards in full each month.

If implemented together, you can get higher limits and reduce balances, which will be a one-two punch in the credit utilization department.

So using our same example, if the person with the $2,500 balance lets it float from month to month and only has a $5,000 credit limit, imagine if they got a higher limit and started paying it down.

They could push their utilization down from 50% to say 15% if they got the limit increased to $10,000 and paid $1,000 off the balance.

These actions should result in a higher credit score, which generally means a better mortgage rate if you apply for a home loan.

Additionally, smaller credit card balances mean you’ll have more of your income available to use toward a mortgage payment. So you may actually be able to qualify for a larger mortgage and/or buy more house.

The only caveat here is that a credit limit increase request could result in a hard inquiry on your credit report, which could ding your credit slightly. It’s temporary, but could offset some of the expected gains of a higher limit.

So either request the higher limits several months in advance of applying for a mortgage, or ask the credit card issuer if it will result in a hard or soft pull before making the request. If it’s the latter, it won’t harm your credit score.

In any case, you’ll want to approach mortgage lenders with the highest credit score possible to ensure you have the best chance of approval and obtain the lowest interest rate.

source: thetruthaboutmortgage.com

Know your monthly amortization through this home loan calculator

MANILA, Philippines – If you’re wondering how much your monthly amortization will be for a home you’re looking to buy, you’ll find a home loan calculator very helpful.

A home loan calculator computes the monthly amortization based on your inputs on different variables like type of home, interest rate, down payment and loan term.

Below is a home loan calculator from mass housing developer Deca Homes. Deca Homes started building communities in 2002 in Davao and expanded to different provinces in Luzon and Visayas in a span of seven years. A mid-rise condominium, 8990 Tower is now in the works in the metro.

Deca Homes offers both in-house financing called CTS Gold Financing at 11 percent interest rate and Pag-ibig Fund home loan at 6.5 percent. Use the calculator below to find out not only your monthly amortization but also the type of home loan that will work best for you.

source: philstar.com

All You Need to Know About Rapid Rescore

Upon first hearing about Rapid Rescore, you might be quick to lump it with all those other credit fix companies vying for your attention. However, Rapid Rescore is not just another company–it is actually a service provided by mortgage lenders and brokers. It is designed to help you improve your credit score within a very short timeframe so that you can secure a home loan at more favorable rates.

What is Rapid Rescore and how does it work?

When you first apply for a home loan, the bank, financial institution or mortgage broker of your choosing will check your credit. If your credit is excellent, then you normally have nothing to worry about.

But if your credit does not meet a certain minimum requirement, which varies by lender, you may receive a home loan at a higher interest rate, or you may be denied one. Sometimes, even a difference of 20 points can mean the difference between securing a home loan and being denied.

There are many things you can do to improve your credit over time, but credit bureaus often don’t make the appropriate adjustments for several months. Positive changes to your credit score may not be immediately apparent to those checking your credit for the purpose of securing a loan. However, utilizing the Rapid Rescore service may help you get an improved credit score within just a few days time.

When you use Rapid Service, you will receive a list of possible actions you can take to improve your credit score quickly, such as disputing certain items that appear to be incorrect, like a balance that still shows even though it was paid. Paying off balances can also make a big improvement in your score.

Once you have completed some of the actions, the Rapid Rescore service will submit proof to the credit reporting agencies, enabling the score adjustment to be reflected quickly.

Are there fees involved?

Although Rapid Rescore is a service provided by your mortgage broker or lender, there may sometimes be a small fee involved in using the service. However, some lenders may not require you to pay the fee, and even if they do, the service can often save you much more money in the long run.

How is Rapid Rescore different from a credit repair service?

Credit repair services more often than not attempt simply to eliminate damaging criteria from your credit report, regardless of whether the information is accurate. This is often done without your involvement, and typically takes longer than just a few days. Rapid Rescore works with you in a more beneficial manner, helping you to raise your credit score by 20 to 150 points.

The Rapid Rescore service might even help with a bankruptcy note by acquiring favorable notes from creditors, which will help mortgage lenders better make their decision.

When seeking a home loan, remember that only legitimate mortgage lenders and brokers can provide you with the Rapid Rescore service. If you are successful in raising your credit score, you may even be able to afford a higher mortgage.

source: totalmortgage.com

Mortgage Pre-approval: Why You Want It & What to Do if You Can’t Get It

When you’re searching for a new home, few steps are as important as getting pre-approved for a mortgage loan.

Not only does it help you as a buyer, but sellers will view you as a better candidate. And if you get involved in a bidding war for your dream home, it helps to be the kind of buyer that sellers consider reliable.

How a mortgage pre-approval works:

First, you send documents proving your income to a mortgage lender. These documents can include your last two paycheck stubs, last two months of bank statements and last two years or income-tax returns. Your lender then studies these documents to verify your monthly income. Your lender will also run your credit to determine your credit score.

Once your lender has this information, it will tell you how much mortgage money it is willing to lend you. It will also give you a pre-approval letter stating this amount.

Why is a mortgage pre-approval important?

1. Streamlines Your Search

By pre-arranging financing, you can save a considerable amount of time. Because a lender will examine your credit report, pay stubs, bank statements, etc., they can tell you exactly what you’re qualified to borrow. That way you know what your price range is so you only look at homes you can afford. Rather than looking at a myriad of properties, you can narrow your search down to a handful and examine those in great detail.

You’re also less likely to be let down or become disillusioned when you fall in love with a property, only to find that it’s out of your price range. This can save you from a lot of frustration and expedite your search.

2. Sellers Take You More Seriously

When a seller has multiple buyers interested in their property, it’s important to stand out from everyone else. In the event that there were three other buyers, and you were the only one with a pre-approval letter, you would have a much better chance of getting the seller’s attention.

That’s because you have direct evidence of your ability to obtain financing. It also shows that you’ve put in the effort to get pre-approved, which proves you have a genuine interest in buying. This should reduce any skepticism or anxiety that a seller may have, and they’re likely to give you more consideration than other candidates.

3. Increased Leverage When Negotiating

Because of the effort you’ve put forth and tangible proof of your financial backing, this can really work to your advantage when making negotiations. According to Ray Mignone, a certified financial planner in Queens, New York, “pre-approval carries more weight when you go to negotiate a deal. It gives you bargaining power.”

Being pre-approved means that it’s basically a done deal, and you don’t have to go through the process of applying for a mortgage in the future. If a seller is faced with your offer and a slightly higher one from another buyer who hasn’t been pre-approved, this can often persuade them to go ahead and accept your offer. If the seller has no other offers, then you may be able to buy their property at a reduced price, and they may be more flexible with their terms.

Taking the time to go through the pre-approval process for a mortgage has some distinct advantages. Once a lender gives you the green light, it can help you find a great property at a fair price while eliminating a lot of hassle.

What if I can’t get pre-approved for a mortgage?
 

Getting denied for pre-approval should not discourage your efforts, although you may need more time to prepare for this large purchase. Therefore, here are five things you can do if you can’t get pre-approved for a mortgage loan.

1. Ask for an explanation

Mortgage lenders are helpful and they’ll provide a reason for the rejection, plus advice on how to proceed. Several factors can disqualify you for a mortgage loan, such as inadequate income, a low credit score and questionable employment. However, if you take a lender’s advice and make the necessary improvements, you might qualify for financing in the future.

2. Build your bank account

When applying for a home loan, the lender will ask for copies of your bank statements. This is to ensure that you have enough cash for your down payment and closing costs. In addition, some lenders want to see a 2 to 3-month cash reserve after paying mortgage-related expenses. If you will not have a cash reserve after paying closing costs and the down payment, the lender may recommend that you postpone buying a house until you’ve saved additional money.

3. Add points to your credit score

A conventional mortgage loan requires a minimum credit score of 650 or higher. Therefore, if you’re turned down for a mortgage due to a low credit score, take steps to build your credit. This can be as simple as paying all your bills on time over the next 6 to 12 months, or paying off a credit card to decrease your credit utilization ratio, which will subsequently raise your FICO score.

4. Increase your income

On the other hand, you might have excellent credit, but not enough income to qualify for a mortgage loan. There are several ways to approach this dilemma. Speak with your lender to see if you can qualify for a lesser amount; or if your spouse works, perhaps you can apply for a joint mortgage, at which time the lender uses your combined income to determine affordability. And if too much debt prevents a pre-approval, paying off credit cards and other loans — student loans, auto loans and personal loans — can increase purchasing power and help you qualify for the desired amount.

5. Wait until the two-year mark

Employment gaps can be the kiss of death when applying for a mortgage loan. For the most part, mortgage lenders require 24 months of consecutive income. Therefore, if you’re just entering the job market, or if you were unemployed in recent months, the lender may reject your application and require that you wait at least two years before re-applying for a mortgage loan.

Bottom line

Applying for a mortgage loan will have its share of obstacles, especially since lenders have tightened their requirements. However, if you carefully prepare for a purchase, you can successfully meet a lender’s qualifications and get the keys to your new home.

source: totalmortgage.com

Refinancing Redux: What Happens the Second Time Around?

Given persistent low-interest rates, some homeowners are asking if it’s worth it to refinance a second time before rates creep back up. Counting all types of refinances, Freddie Mac, the government-sponsored mortgage outfit, says the average loan refinanced in the first quarter of 2015 was about 5.6 years old, and homeowners cashed out a total of $7.6 billion.

Is it really advantageous to go through all that paperwork just to save a little bit each month? Here are five things to consider before any “redo-refinancing.”

1. Assess Your Penalty

Unlike the first time you refinanced, dipping back into the pool can come with special penalties. While you likely won’t have a no prepayment clause, the industry isn’t really set up for back-to-back refinancing. If you refinanced within the past 60 to 90 days, double check for any red flags. For example, an FHA Streamline refinance requires 60 days with the previous loan before you can refinance again.

2. Calculate Your Potential Savings

With any refinancing, it’s important to have a crystal-clear view of what you will save overall, not just in monthly payments. The general rule of thumb used to be that you refinanced when current interest rates fell two points lower than your loan. Today people are refinancing for less, so you really need to read the fine print. Some homeowners also refinance for a higher monthly note so they can pay off their loans faster.

3. Understand All Costs and Fees

You can’t get a decent picture of refinancing — once, twice or beyond — unless you understand every single cost and fee, like mortgage-recording taxes. Refinancing can reduce your principal owed, but it can also maintain the same loan amount. If you plan on moving any time soon, this is also a key consideration. Chances are you won’t recoup the costs unless you plan on sticking around.

4. Gather Documents

No matter how many times you choose to refinance, you still have to have all the paperwork ready to go. Required documents usually include driver’s license, pay stubs and tax returns. Unique situations, such as self-employment, may prompt a need for additional paperwork.

source: totalmortgage.com

The Why and How of Investing in a Second Home

If you already have money invested in stocks, bonds or higher-­yielding savings products, it might be time to consider alternative investments and diversify your portfolio.

There are several options to consider, such as investing in commodities, peer-­to-peer lending or buying a franchise. But if you’re somewhat familiar with real estate — or if you’re willing to learn the ins and outs — purchasing a second home might be the right investment for you.

Here are three benefits of investing in a second home, as well as financing tips.

1. You Can Earn Rental Income

If you’re seeking a long-­term investment strategy, buying real estate and renting out these properties can be profitable. This investment strategy can provide steady monthly income, increasing your cash flow and helping you achieve other goals. Income from rental properties can go toward paying off debt, increasing your emergency fund, or you can put this cash toward growing your retirement account.

In addition, if you buy a second home as a vacation rental in a touristy area, this offers the perfect vacation spot for you and your family when you need to getaway or escape. Since you’ll pay taxes on rental income, plan accordingly and seek advice from a real estate tax professional.

2. You Can Turn an Immediate Profit

Maybe you don’t like the idea of being a landlord. If so, there’s another way to invest in real estate. You can purchase a second home on a short-­term basis and then resell for a profit.


Many novice and experienced investors have made quick profits buying distressed properties like foreclosures. They hold onto the property for a few months, fix up the property and then sell at fair market value.

The only downside to flipping real estate is that you need sufficient income to afford a remodeling project. However, some banks offer short­term real estate loans specifically for real estate investors. Speak with a loan officer to learn and compare options.

3. You Can Take Advantage of Tax Deductions

As mentioned, you have to pay taxes on income earned from your rental property. But you can also take advantage of landlord tax deductions. You’ll undoubtedly spend a lot of money over the years maintaining and repairing the property. There’s also the expense of traveling back and forth to the property.

These expenses can cut into your profit. Deducting expenses associated with owning an investment property reduces your tax liability and you can keep more of your profit.

Financing Options for a Second Home

Unfortunately, purchasing a second home for investment purposes limits your financing options. Some people prefer FHA home loans because they feature a low down payment of only 3.5 percent. However, these loans are only for owner-occupied residences. For an investment property, you can apply for a conventional home loan. Just know that some lenders require a minimum down payment between 10 percent and 20 percent for investment properties.

The lender will also review your credit history and income to ensure you can afford the additional mortgage payment. As a general rule of thumb, this mortgage payment along with all your other monthly debt payments must not exceed 36 percent of your gross monthly income.

Another option for financing a second home involves taking out a home equity loan on your primary residence. This might be an option if your primary residence is paid off, or if you have substantial equity in the house. You can tap your equity and use this money to pay cash for a second home.

Just know that getting a home equity loan will either create a new mortgage on a paid off house, or increase the mortgage balance on an existing home loan. So make sure you can handle the extra expense.

Bottom Line

Buying a second home as an investment can put quick cash in your bank account or provide steady cash flow. But getting started can be expensive, and as a landlord, you’ll be responsible for two properties. However, if you’re up for the challenge, a second home is an excellent investment that can increase your net worth.

source: totalmortgage.com

 

Thinking of Refinancing? 4 Good Reasons to Follow Through

For the past couple of years, mortgage rates have been lower than they’ve been in decades. So if you’re thinking about refinancing your home loan, now’s as good a time as ever.

Refinancing involves getting a new home loan to replace an existing one. If you’re unfamiliar with refinancing or if you don’t understand the benefits, trading one mortgage for another might seem pointless. However, refinancing a mortgage loan is one of the most effective ways to modify your mortgage terms. Here’s a look at four things you can accomplish by refinancing your home.

1. Get a cheaper interest rate

Since mortgage rates can change from year-to-year, the rate you’re paying might be higher than current mortgage rates. You might also have a higher rate if you didn’t have the strongest credit score when originally applying for the loan. If your credit has improved since buying the home, this is your chance to get a cheaper rate. Unless you’re able to get a mortgage modification, refinancing is the only way to take advantage of lower mortgage rates, which can save thousands in interest over the life of your loan.

2. Get a lower mortgage payment

Not only can refinancing lower your mortgage rate, it can lower your mortgage payment. Your monthly payment is based on your loan amount and your interest rate. And if your monthly interest charges decrease due to a lower rate, so does your mortgage payment.

Depending on the difference between your old and new mortgage rate, refinancing can potentially reduce your mortgage payment by hundreds every month. This creates additional cashflow that can be used for other purposes, such as paying off credit cards, saving for retirement or building an emergency fund.

3. Get a fixed-rate mortgage

If you have an adjustable-rate mortgage, refinancing to a fixed-rate home loan is the only way to get a fixed, predictable mortgage payment. Adjustable-rate mortgages have a fixed-rate period, which is typically between three and five years. After this period, the interest rate resets every year, either increasing, decreasing or staying the same. Locking in a fixed-rate offers protection from rising interest rates.

4. Get cash from your equity

If you’re sitting on thousands of dollars of equity, you don’t have to sell your property to get this money. A cash-out refinance puts equity in the palm of your hands. You can use the money for debt consolidation, college expenses, a wedding, home improvements or start a business. You can borrow up to a percentage of your available equity, usually 80 percent. Just know that a cash-out refinance increases your mortgage balance, often resulting in higher monthly payments.

The Bottom Line?

There’s plenty to think about before refinancing your mortgage loan. It’s important to understand exactly why you’re refinancing, and you need to weigh the pros and cons. There’s no way to know for certain when rates will rise again. So take advantage of low mortgage rates and save money while you can.

source: totalmortgage.com

How to Recognize a Bad Mortgage Refinance Loan

As mortgage rates drop, you might anticipate refinancing your mortgage and getting a lower rate and payment. Your current home loan lender may encourage refinancing, and you might receive unsolicited offers from other banks in the area.

With so many financial institutions offering refinancing, and given how it’s a common mortgage practice, it’s easy to assume that any loan is a good one. Fortunately, not all re-financing offers are favorable, and if you’re not careful, you might refinance into a loan with undesirable terms. Here’s a look at three signs of a bad mortgage refinance.

1. Going from a fixed-rate to an adjustable-rate  

If you tell a mortgage lender you want the lowest interest rate and monthly payment possible, the lender might suggest refinancing into an adjustable-rate mortgage.

These mortgages typically offer lower rates than fixed-rate mortgages during the initial years, which can dramatically reduce your home loan payment. This is a godsend if you’re experiencing payment problems. The problem, however, is that these low rates aren’t permanent. Sure, you might have an attractive fixed rate for the next two or three years, but your rate will adjust every year thereafter. And with each rate adjustment, the interest rate can increase or decrease. If the rate increases, so does your home loan payment.

2. Lender encourages borrowing too much

When refinancing a mortgage loan, there’s the option of cashing out your equity. You can use the money for debt consolidation, home improvements or build your rainy day fund.

There’s nothing wrong with a cash-out refinance. If you have plenty of equity, it’s an affordable way to put quick cash in your pocket. The problem is that some people cash out too much of their equity.

A cash-out refinance increases how much you owe, so instead of dropping your mortgage payment, it might increase. And unfortunately, some lenders encourage borrowers to cash out as much of their equity as possible. A loan officer might excite a borrower by explaining the many uses for cash, and unfortunately, some people can’t see past dollar signs. As a rule of thumb, only consider a cash-out refinance if you can comfortably afford a higher monthly payment, or else you’ll risk losing the home.

3. Overly expensive closing costs

Closing costs vary, and you can expect to pay between two percent and five percent of the mortgage balance. If you’re refinancing for the first time, you may assume closing costs are the same no matter where you go. However, different banks charge different fees for common services, such as the loan origination, the appraisal, the title search, etc. And some lenders bet on the fact that you’re not going to do your homework and compare costs.

Even if you have a long-term relationship with your current bank and you’re using this financial institution for your refinance, make sure you get at least two or three quotes from other lenders. Since closing costs are paid out-of-pocket or wrapped into the mortgage loan, comparison shopping is the only way to protect against getting ripped off.

Bottom Line

Refinancing a mortgage loan can be the answer if you need a lower house payment. However, if you take a chance with an adjustable rate mortgage, borrow more than you can afford or get stuck with high fees, refinancing might not be as financially beneficial as you think.

source: totalmortgage.com

Get a better mortgage deal with these six steps

For most would-be homebuyers, making a run at homeownership is going to mean getting approved for a home loan.

It's a process that, at best, can be stressful and confusing. Borrowers can be better prepared by taking steps to study their options and learn what to expect from a lender.

"It's surprising to me that people tend to spend more time in pre-purchase research for a car than they do for a home mortgage," says Chris George, president of home mortgage lender CMG Financial.




Keeping up to date on changes in the mortgage market is necessary, because the government, which essentially backs 90 percent of new home mortgages, keeps tweaking the guidelines for the loans it will guarantee.

In early April, for example, the Federal Housing Administration put into effect several new mortgage rules, including one that raises the cost of mortgage insurance for borrowers who take on FHA-backed loans, among other changes.

Here are six tips for improving the chances that the mortgage math will add up in your favor:

1. BUILD A STRONG CREDIT SCORE

One of the main factors that lenders look at to determine a borrower's creditworthiness is, aptly, their credit score.

Bad borrower behavior like late credit card or other loan payments, having a foreclosure or bankruptcy in one's credit report and carrying high balances will weigh down your credit score.

Most banks sell the home loans that they make to government-owned mortgage companies such as Fannie Mae and Freddie Mac. To do that, those lenders must adhere to certain lending criteria.

Loans backed by the Federal Housing Administration will accept FICO scores below 600, but expect to pay a significantly higher interest rate the lower your score. A stellar score ranges from 760 to 850 and can give you greater negotiating power over the terms of the mortgage and ultimately, the total cost of the loan.

One way to mitigate the impact of a low score: Make a higher down payment, George says.

If your credit is less-than-stellar shape, make sure you give yourself time to rack up good credit history well before you attempt to apply for a home loan. This starts by checking your credit.

Consumers are entitled to a free credit report every 12 months from each of the credit bureaus: Experian, TransUnion and Equifax. You can get copies at www.annualcreditreport.com .

2. KNOW YOUR LOAN OPTIONS

Apart from increasing the chances of qualifying for a loan, making a down payment of at least 20 percent of the sales price or appraised value of the home will spare you from having to pay private mortgage insurance.

If you can't afford that, you might qualify for financing on an FHA-backed loan. Those loans allow borrowers to make a down payment of as little as 3.5 percent of the purchase price. That's great if you're a first-time buyer and haven't saved up for a bigger down payment. But to protect itself from potential loan defaults, the FHA requires lenders to charge extra fees to cover monthly mortgage insurance payments.

Until this week, the FHA had dropped the mortgage insurance requirement for homeowners with 30-year loans who made payments for five years and managed to bring their loan-to-value ratio to 78 percent. Now, borrowers with a loan-to-value ratio between 78 and 90 percent will be able to stop making mortgage insurance payments after 11 years. But those borrowers who still have a loan-to-value ratio greater than 90 percent will be required to pay mortgage insurance for the life of the loan.

"No matter how much of your loan you pay down, you'll always have to pay that insurance premium, and that's pretty significant change," says Rick Sharga, senior vice president at mortgage lender and servicer Carrington Mortgage Holdings.

Another change that went into effect: The FHA is requiring that borrowers put down at least 5 percent on home loans of $625,000 or more. That's up from 3.5 percent, but actually less than the 10 percent down that most lenders require.

3. CONSIDER MAKING A LARGER DOWN PAYMENT

Given the prospect of not being able to get out of paying private mortgage insurance, some experts say borrowers who can afford to put down more than 3.5 percent on a home should consider getting a loan that's not backed by the FHA, sometimes known as a conforming loan.

Such a loan typically only requires that the borrower make a 5 percent down payment. Although that means you still would have to pay private mortgage insurance, at least you're not locked in, notes Jack Guttentag, Wharton School professor of finance emeritus and founder of www.mtgprofessor.com , which offers advice and online calculators for weighing different mortgage scenarios.

That mortgage insurance can be cancelled automatically when the loan-to-value hits 78 percent. "You're generally better off getting a conforming loan," Guttentag says.

4. KEEP AN EYE ON FEES

In addition to a down payment, you'll also have to set money aside for closing costs, which can run into the hundreds or sometimes thousands of dollars.

Lenders charge all manner of fees, some of which are negotiable, while others are not. They are required to itemize all fees required to close the deal, so review them carefully.

Your bank could charge you to cover items such as credit reports, appraisals, documentation and administrative costs. The total expense will vary depending on where you live and your particular situation.

Also, if you end up with mortgage insurance, that could cost $100 or more a month, depending on the type of loan.

5. WAIT FOR A GOOD DEAL

Rising home prices and warnings, usually trumpeted by lenders, that interest rates will soon rise can create a sense of urgency to purchase a home. But if your finances and credit score are not solid enough to enable you to qualify for a loan at an affordable rate, it's best to not rush into buying.

To boost your chances of getting a good deal on a home loan, Guttentag recommends having a credit score of 740 or better, making a down payment of 20 percent.

6. COMPARISON SHOP

It's prudent to get a feel for what different mortgage lenders will offer. After all, getting a home loan is not unlike getting financing for a car. There is some room for negotiation, says George.

He suggests borrowers approach lenders and state what kind of loan term and interest rate they want, and how much of a down payment they're willing to make. Borrowers also should ask what can be done to accomplish this with the least amount of points, or fees that can be charged based on a percent of the loan amount.

As leverage, it's best to have quotes from competing lenders, which can be obtained on several websites. They may be enough to sway the lender to match more favorable terms offered by the competition.

In addition to Guttentag's site, you can find mortgage calculators and pricing quotes at www.bankrate.com and www.zillow.com/mortgage-rates .

source: newsday.com

Getting A Fixed Rate Home Loan

A fixed rate home loan can be very important as more people are looking to buy a new home and the housing crisis eases.  Due to the recent turmoil in the housing market, many borrowers are shying away from exotic loans and are only interested in home loans that have a fixed interest rate.  Obtaining this type of loan can get you the home that you want at an attractive interest rate with affordable payments for the life of the loan.

By learning about the features of these loans, you can get a fixed rate home loan quickly and easily with a minimum of hassle.  Here is what you should know before applying for this type of home loan.



Why Are Fixed Rate Loans Desirable?

Fixed rate loans are preferred by many people because of the various benefits they offer.  Unlike variable rate loans, the interest rate for a fixed rate home loan will not change.  The interest rate for the loan will remain the same for the entire life of the loan, making it easy for homeowners to budget for the payments and eliminating the chance of unpleasant payment increases.

Obtaining The Loan

Many traditional lenders offer fixed rate home loans at attractive rates that can be used to buy the home you desire.  After you fill out the application, the lender will look at a number of factors in your credit history and current financial situation to determine your ability to repay the loan that is requested (remember that owning a home also comes with many other expenses too like regular maintenance, home insurance, and usually higher utility costs).  Once the lender has made the determination that you will not be a huge risk to their company, they will approve the loan and provide you with the funds to purchase the home.

Many people believe that you cannot get a fixed rate home loan if you do not have perfect credit.  This is far from the truth.  Although you will receive a much better interest rate if your credit is pristine, lenders will still consider your application for a fixed rate home loan if you have a few blemishes on your credit report.  If you have gotten your credit score as high as possible before applying for the loan and you are turned down by one lender, you may receive approval from another lender who is looking at the same information.  Do not get discouraged and do not give up on your dream of homeownership.

source: everybodylovesyourmoney.com

Tips That Will Get You The Best Home Loans Available

Obtaining a home loan is a process that many people have little experience with, leading them to make mistakes that can cost them a great deal of money.  Although some guidance can be obtained from the lender as you are going through the process of obtaining the loan, it is best not to rely on the lender’s advice alone.  Here are some tips that will help you get the best home loan for your current financial situation, allowing you to buy the home you desire without paying more than necessary.





 


Read And Understand All Of The Terms Of The Loan

Many people make the mistake of signing up for a home loan that they do not understand, trusting that the lender has their best interests at heart.  They fail to realize that the lender is going to try to do what is best for the business, not necessarily what will save the borrower the most money.  It is important for you to educate yourself on the different loan types and features so that you can make an informed decision about which loan product to choose.  There are many people facing foreclosure today because they took out a home loan with terms they did not understand, not realizing how the loan would affect them financially in the future.

Choose A Traditional Loan Product

Over the past decade, many exotic home loan products have been created to appeal to niche borrowers that may or may not benefit from the terms of these products.  Exotic home loans are designed to satisfy certain financial requirements and may have uncommon loan terms that must be fulfilled for the loan to remain in good standing.  Because these home loans can have several traps for the unwary, many first time homebuyers prefer to obtain traditional home loans.  Traditional loans often have fixed interest rates for the life of the loan and generous repayment terms that allow you to pay a reasonable amount over a significant period of time to pay off your home.

Examine The Interest Rate Carefully

One of the most important details to pay attention to when attempting to obtain a home loan is the interest rate that will be charged for that loan.  A number of different factors may be used to determine the interest rate that you are charged by the lender for your home loan.  A large part of the calculation will be your credit score and your credit history, with a high credit score and good credit history resulting in a lower interest rate.  The lender that your loan is being obtained from will also affect the interest rate of the loan, but the lender offering the lowest interest rate may not be the best lender to obtain the loan from.  You should take all factors into consideration when choosing the best home loan for your needs.

source: everybodylovesyourmoney.com

Mortgage refinances surge to highest level since April 2009

Refi madness is smoking hot.

Reacting to record low mortgage rates, borrowers seeking to lower their monthly payments signed up for lower-cost replacement loans last week in numbers not seen in 3½ years.

A Mortgage Bankers Assn. index of refinance applications jumped 20% last week compared with the week before. Applications to purchase homes were up by 4%, the trade group said in a weekly survey released Wednesday.

Rates were plummeting thanks to a new Federal Reserve program designed to stimulate housing and the economy by purchasing mortgage-backed securities. It was the third round of what’s known as quantitative easing, or QE3 as it’s known to Fed watchers.

Freddie Mac’s widely watched weekly survey pegged the average rate for a 30-year fixed home loan at 3.4% last week. That compared with 3.49% the prior week, 4.01% a year earlier, and a rate of well above 6% for most of 2008. Bankrate.com said Wednesday that the overnight average rate for 30-year loans was 3.39%.

Not since April 2009, as the average 30-year rate crashed the 5% barrier, was demand for refinance loans so high, according to the Mortgage Bankers Assn. The trade group said rates for each of the five types of mortgages that it monitors dropped to record lows.

 “Financial markets continue to adjust to QE3, as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates,” MBA economist Mike Fratantoni said in a news release.

The success of an Obama administration effort to encourage refinances was contributing to the surge, according to the mortgage bankers and a separate report Wednesday from Lender Processing Services, a mortgage technology and data provider in Jacksonville, Fla.

Lenders traditionally wouldn’t refinance homes for borrowers whose home loans added up to more than 80% of the value of their homes.

But the latest version of the Home Affordable Refinance Program, or HARP, has spurred a boom in refis of these high loan-to-value mortgages if they are owned or guaranteed by the government-supported mortgage finance companies Freddie Mac or Fannie Mae.

Borrowers with little or no home equity can qualify for the HARP refinances only if they have made every mortgage payment on time for the past six months and have had no more than one late payment in the past year.

source: latimes.com

Bank coffers swelling with profits from mortgage sales

Independent mortgage bankers and the home-loan arms of major banks are making the highest profit in years on loans they make and then sell, thanks to rock-bottom interest rates.

The record-low rates have been a recent boon to borrowers, who have enjoyed 30-year fixed-rate loans starting with a "3" for the first time.

But the rates could be still lower if lenders cut their profit margins, according to data released Friday by the Mortgage Bankers Assn.

Instead, bankers have been making extra money by keeping the rates higher than necessary, which makes them more profitable when they are sold to Fannie Mae, Freddie Mac or other buyers in the secondary markets, the Mortgage Bankers Assn. figures show.

The lenders made an average profit of $1,654 on each loan they originated in the first quarter of 2012, up 51% from $1,093 per loan a year earlier.

Secondary-market income rose from an average $3,827 per loan in the first quarter of 2011 to $5,011 in the latest quarter, a gain of 31%. The average gain on the sale of a loan was the highest since the trade group began tracking mortgage banker production profits in 2008.

One factor in the bonanza is big banks charging higher than market rates when they refinance their customers using the government's Home Affordable Refinance Program. HARP lowers the risks for banks despite the fact that the borrowers owe more than their homes are worth.

Nomura Securities analyst Brian Foran said in a recent report that the banks are typically making an extra 2% of the HARP loan amount — an additional $7,000 on a $350,000 loan, for example.

The gains in profit have come despite rising costs for personnel, commissions, office space and equipment in the mortgage industry, the trade group said.

source: latimes.com