Existing home sales surge as interest rates point higher

Sales of previously occupied U.S. homes bounced back in September to their strongest pace since January as mortgage rates tick higher, motivating buyers to get off the sidelines.

The National Association of Realtors said Thursday that existing homes sales rose 7% compared with August to a seasonally-adjusted annual rate of 6.29 million units. That was stronger than the 6.11 million units that economists had been expecting, according to FactSet.

Sales were down 2.3% compared with September last year, a time when home purchases surged as buyers who had held off during the early months of the pandemic returned in force.

“The increase in sales in the latest month I would attribute to mortgage rates,” said Lawrence Yun, the NAR’s chief economist. “This autumn season looks to be one of the best autumn home sales seasons in 15 years.”

Yun noted that a dip in mortgage rates in August gave buyers urgency to close deals on homes, which translated into the sharp September increase in completed transactions.

While the average rate for a 30-year mortgage remains near historic lows, it has been inching higher since August, when the weekly rate averaged 2.77%, according to mortgage buyer Freddie Mac.

This week, the average rate rose to 3.09%, the highest level since April, when it peaked at 3.18%. A year ago, the rate averaged 2.8%. When mortgage rates rise, it gives would-be homeowners less buying power.

Economists expect mortgage rates to rise up to 4% next year as the Federal Reserve takes action to control rising inflation. The central bank is widely expected to announce a timetable for reducing its monthly bond purchases at its policy meeting next month. Those bond purchases have helped keep mortgage rates at ultralow levels for much of the last 18 months.

The median home price jumped to $352,800 last month, a 13.3% increase from September last year. The rise in prices continued to weigh on first-time buyers, who accounted for 28% of all sales last month. That’s the lowest level since July 2015, the NAR said.

Homes purchased in cash rose 23% in September from the previous month. Individual investors, who account for many cash sales, accounted for 13% of all home sales last month.

Despite the sharp increase in sales last month, there are signs the housing market frenzy that drove 20% to 25% annual increases in the median home price is easing. Properties on the market are receiving fewer multiple offers and buyers increasingly are refusing to waive their right to a home inspection or appraisal, Yun said.

Still, the inventory of homes on the market remains tight in much of the country, which continues to support higher prices.

At the end of September, the inventory of unsold homes stood at just 1.27 million homes for sale, down 0.8% the previous month and down 13% from a year ago. At the current sales pace, that amounts to a 2.4 months’ supply, down from 2.7 months a year ago, the NAR said.

Homes continue to sell within days of being put up for sale. Homes typically remained on the market 17 days before getting snapped up last month. That’s held steady the past six months. In a market that’s more evenly balanced between buyers and sellers, homes typically remain on the market 45 days. All told, 86% of homes sold last month were on the market for less than 30 days.

The inventory of homes for sale should begin to improve next year, as builders continue to ramp up construction and the end of mortgage forbearance programs force homeowners in financial straits to put their home up for sale, Yun said.

“The days of inventory being down 20% or 25%, those days are over,” Yun said. “The decline is lessening and soon in 2022 we’ll begin to see inventories are higher year-over-year.”

-Associated Press

July sales of new homes surge 13.9%, far more than thought

SILVER SPRING, Md. (AP) — Sales of new homes jumped again in July, rising 13.9% as the housing market continues to gain traction following a spring downturn caused by pandemic-related lockdowns.

The Commerce Department reported Tuesday that July’s gain propelled sales of new homes to a seasonally-adjusted annual rate of 901,000, the most since 2006. That’s a far bigger number than analysts had expected and follows big increases in May and June. The government report has a high margin of error, so the July figures could be revised in the coming months.

The recent sales gains followed a steep dropoff in March and April as much of the country stayed home due to government restrictions intended to slow the spread of coronavirus.

In a report last week, the National Association of Realtors reported that sales of existing homes rose by a record 24.7% in July, thanks to historically low interest rates. It was the second big spike in as many months and has helped stabilize the housing market in an otherwise uncertain economic time.

Low inventory of existing homes is pushing buyers into the new homes market, but inventory there is also shrinking. What was a 6-month supply of new homes a year ago is now down to a 4-month supply, thanks to a red-hot market.

The Commerce Department reported last week that construction of new U.S. homes surged 22.6% in July as homebuilders bounced back from a lull induced by the coronavirus pandemic. New homes were started an annual pace of nearly 1.5 million in July, the highest since February. They’ve now risen three consecutive months after plunging in the spring. Last month’s pace of construction was 23.4% above that of July last year.

Sales are being fueled by ultra-low mortgage rates, which earlier this month dropped below 3% for a 30-year-fixed rate mortgage for the first time in nearly 50 years. The average rate on a 30-year fixed rate mortgage is now 2.99%, the mortgage buyer Freddie Mac said Thursday. A year ago, it was 3.55%.

Economists believe low rates and changes in home preferences brought on by the pandemic will continue to support sales, though perhaps not at recent levels.

“Sales may struggle to maintain their July pace going forward,” said Nancy Vanden Houten of Oxford Economics. ”While strong demand and lower mortgage rates are supportive of further growth in sales, the slow recovery and weak labor market pose downside risks.”

Regionally, construction of new homes fell only in the Northeast, which saw a 23.1% decline. The Midwest saw a whopping 58.8% increase, followed by the South’s 13% jump and an increase of 7.8% in the West.

The median price of a new home sold in July increased to $330,600, up 7.2% from one year ago.

Associated Press

More Americans signed contracts to buy homes in June

SILVER SPRING, Md. (AP) — The number of Americans signing contracts to buy homes rose for the second straight month after a devastating spring freeze brought on by the coronavirus outbreak.

The National Association of Realtors said Wednesday that its index of pending sales rose 16.6%, to 116.1 in June. That’s up from a reading of 99.6 in May.

Contract signings are now 6.3% ahead of where they were last year after being significantly behind last year’s pace due to the pandemic. An index of 100 represents the level of contract activity in 2001.

All four regions saw more contract signings for the second straight month. The Northeast led the way with a 54.4% increase. Sales in the Midwest, South and West all jumped around 12%.

“It is quite surprising and remarkable that, in the midst of a global pandemic, contract activity for home purchases is higher compared to one year ago,” said Lawrence Yun, NAR’s chief economist. “Consumers are taking advantage of record-low mortgage rates resulting from the Federal Reserve’s maximum liquidity monetary policy.”

Freddie Mac reported last week that average interest rates on a 30-year fixed rate mortgage rose to 3.01%. The average had been 2.98% the previous week, the first time in 50 years that it slipped below 3%. The Federal Reserve wraps up a two day meeting Wednesday and is not expected to change its main borrowing rate.

In May, the number of Americans signing contracts to buy homes rebounded a record 44.3% after plunging during the usually busy spring season as buyers and sellers were sidelined by coronavirus-related closures and regulations.

May’s recovery was the highest month-over-month gain in the index since since its inception in January 2001.

Last week, the government reported that sales of new homes jumped 13.8% in June, the second straight increase after two months when sales plunged as the country went into lockdown because of the coronavirus. June’s increase followed a 19.4% jump in May, further evidence the housing market has turned around.

Associated Press

LIST: Philippine banks extending payment due dates to help Filipinos in time of COVID-19

MANILA - Major banks in the Philippines have announced a 30-day extension for credit card, mortgage, and loans for eligible customers to help Filipinos during the Luzon-wide COVID-19 lockdown.

SECURITY BANK

• Payments for credit card, home, personal, auto, business mortgage or business express loans are extended by 30 days for qualified customers
• Eligible customers are those with current payment status and with a payment due date of March 16 to April 14 

BANK OF THE PHILIPPINE ISLANDS

• A 30-day grace period will be given to qualified customers for credit card and other types of loans "to help ease the burden during these trying times," the bank said.
• Eligible customers will be notified

UNIONBANK

• Qualified customers will be given a 30-day payment extension from the original due date with no late fees
• Fees for Instapay transactions are also waived until April 14

EASTWEST BANK

• Payments for credit card, auto, home, personal and mortgage loans will be extended for 30-day for eligible customers
• Qualified clients will be notified

source: news.abs-cbn.com

Moody's reaches USD864M settlement over subprime ratings

WASHINGTON - Ratings agency Moody's has agreed to pay nearly $864 million in a settlement with the US authorities over its inflated ratings of risky mortgage securities that contributed to prompting the 2008 global financial crisis, the Justice Department said Friday.

The agreement was signed between Moody's Investors Services, Moody's Analytics and parent company Moody's Corporation on one hand, and 21 states and the Justice Department on the other.

The authorities accused the credit rating agency of overvaluing the ratings of securities backed by subprime mortgages or at-risk loans at the center of the country's worst financial crisis since the Great Depression.

Standard and Poor's, a competing agency, agreed to pay a $1.37 billion fine in 2015 for deceiving investors about the quality of subprime mortgages.

The agreement follows an investigation lasting several years.

"Today’s settlement contains not only a significant penalty and factual admissions of its conduct, but also a commitment by Moody’s to new and continued compliance measures designed to ensure the integrity of credit ratings going forward," Principal Deputy Associate Attorney General Bill Baer said in a statement.

The Financial Crisis Inquiry Commission concluded in 2011 that "this crisis could not have happened without the rating agencies," which allowed the ongoing trading of bad debt.

Moody's is the second-largest rating agency after Standard and Poor's. Together with the third major agency, Fitch, the three ratings firms dominate the bond-rating market with a more than 96 percent share, compared to 98.8 percent in 2007 before the crisis, Bloomberg News reported.

source: news.abs-cbn.com

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

Reverse Mortgage FAQ

The HECM or home equity corporation mortgage is actually an FHA reverse mortgage. It is used to withdraw on the equity of your home. This type of mortgage is especially popular with senior citizens because they can draw on the equity of their home for life’s unexpected events such as car repairs or medical expenses. If this sounds like something you need you can contact the Council on Aging or go to their website and download the booklet free of charge. After reading the information you can decide if this is right for you.

 What is the definition of a reverse mortgage?
Reverse mortgages are specialized home loans that turn your home equity into real cash. The difference between this type of loan and a tradition mortgage or even second mortgage is that you do not have to pay the loan back until you no longer live at the home or move to another home and the primary residence becomes the secondary residence. You can also use the money for closing costs and fees associated with purchasing another primary residence.

Who qualifies for a reverse FHA or HECM mortgage?
First you must be a homeowner and be at least 62 years of age and either have a very low mortgage balance that can be paid off with the proceeds from the reverse mortgage or have your home paid off and are currently living in the home. You also must be currently receiving information from a HECM counselor free of charge or paying a very low fee.

Can anyone apply even if they did not buy their home with an FHA loan?
Anyone can apply for HECM regardless if they purchased their home through FHA or not.

What types of homes qualify?
Homes that qualify can either be single family homes or homes with 2 to 4 units and at least one of them occupied by the individual that is applying for the loan. Other types of homes that are available are HUD homes and premanufactured homes.

What are the differences between home equity loans and reverse mortgage loans?
With the traditional home equity loans you must be employed and be able to make payments on the principal. Reverse mortgages pay you plus there is no principal to pay every month. You also have to pay property taxes on reverse mortgages as well insurance and other associated costs including insurance premiums.

Can the home be left to heirs?
The main thing to remember is that a HECM loan must be completely repaid before the home can be passed along to heirs. There is no debt of any kind that is passed along to heirs to repay. Should the borrower die it is the responsibility of the spouse to repay the HECM loan so that the house can be released to the appropriate family members. A HECM loan is cash that is borrowed according to the equity of the home which is why it must be paid back in full so that the home is free and clear.

source: 20smoney.com

We are letting down existing borrowers

Given that even a hint of a change to (BBR) over the past seven and a half years has been rare, you can fully understand why the market has taken such a keen interest in MPC pronouncements over the past couple of months. This month’s cut to Bank Base Rate was widely anticipated but still seemed rather momentous given the lack of movement over that period.

The suggestion from many commentators is that the cut will herald something of a ‘new age’ for the remortgage market, which (we are told) has been waiting on a BBR move – in either direction – since January 2009. Whether this becomes reality is another matter, and will of course depend much on how lenders react.

That said, there are a group of borrowers – whose true size we are yet to get a full handle on – who will find themselves stuck in the same position regardless of whether rates fall or rise. These ‘mortgage prisoners’ appear locked in limbo, some for unfathomable reasons, and it was therefore no surprise to see the Association of Mortgage Intermediaries (AMI) recently hitting out at both the regulator and lenders for what they see as inertia when it comes to helping these borrowers move away from their current (often SVR) rates to those which are far more competitive in today’s mortgage market.

AMI puts the ‘mortgage prisoner’ number at somewhere near one million and says that in certain sectors there are great swathes of borrowers unable to do anything but stay put. These include (perhaps unsurprisingly) interest-only borrowers, those who want to borrow into retirement or are currently in retirement, the self-employed and contract workers, foreign currency workers (whose product access has been hit considerably by the changes brought about by the MCD), and expatriates.

While AMI believes these borrowers are the worst affected in this post-MMR environment which brought in far tighter affordability measures, there are of course what we might call, ‘standard mortgage holders’ who have also been turned down for a remortgage despite the fact the transitional arrangements brought in by the MMR were designed to allow lenders to smooth their path. Of course, this is only for those not wishing to add to their borrowing, but even now it seems incredibly odd that a borrower who is currently affording their higher monthly mortgage payment, is still being turned down by a lender for a product which would actually see them with a less costly mortgage.

Now, of course, to give the FCA a fair hearing it has been very vocal in urging lenders to use the transitional powers as set out and to ensure borrowers are not left on rates which clearly disadvantage them, when (technically at least) they should be able to remortgage to a more competitive rate. However, turning theory into practice is a rather different situation, and you can (sort of) understand why lenders are cautious – perhaps far too cautious – when it comes to determining affordability under the MMR rules, rather than those in place beforehand. After all, the regulator’s train of thought is on tightening affordability/underwriting rather than loosening it.

That said, something has to give and there has to be a considered appeal to lenders to treat customers fairly in these circumstances. The FCA appears to be suggesting that because it has only looked at those customers who had mortgages approved, it’s not in a position to comment on those who were turned away. This clearly needs to be changed, because as any intermediary will tell them, the numbers of rejected borrowers are substantial and, while they are living through a period of ultra-low mortgage pricing – which has just got lower – they are not able to benefit from it.

One can understand the situation where the existing borrower wants to borrow more – of course the necessary affordability checks need to be maintained – but a simple product transfer or remortgage to a new lender should not be out of the question for those who simply want to move to a different product/rate. AMI appears to be calling for this situation to fall within the regulator’s review of responsible lending, and it’s hard to disagree. At the moment we as an industry are letting down existing borrowers who could, and should, be allowed to move. It’s time we rectified this.

source: mortgageintroducer.com

7 Ways to Use a Reverse Mortgage as a Financial Planning Tool

In the past, the main purpose of a Reverse Mortgage was to help seniors to fulfill cash needs by allowing them to pull the equity in their homes. But today, many seniors are finding that even if they don’t particularly need to fulfill a cash need, they can take advantage of the benefits of a reverse mortgage as a tool to use strategically in retirement planning. Here are 7 ways a reverse mortgage be used as a financial planning tool.

 
    You can delay Social Security and pension payouts

Some seniors may financially need to use payouts from Social Security and pensions as soon as they are available. However, with the cash from your reverse mortgage, you will be financially sound enough to wait on receiving those payouts, thus increasing how much you receive.

    You can postpone drawing down retirement assets, giving assets time to grow


This idea follows the same formula as your Social Security and Pension payouts. The longer you can delay in receiving your benefits, the longer they have to grow. With a reverse mortgage, you can afford to wait.



    You can increase your cash flow by eliminating monthly mortgage payments

Every month, a monthly mortgage payment takes a chunk out from your income. But with a reverse mortgage, your existing mortgage is paid off. This leaves you with extra money in your pocket that would have normally gone to paying your existing mortgage.

    You have access to a low cost, non-cancellable, GROWING line of credit

With a reverse mortgage, you have an ever-growing line of credit available to you. It grows with time. This means that the line of credit available to you years from now will be much larger than the line of credit available to you now.

    You can protect your portfolio performance in a down market

In a down market, your portfolio and cash flow may not be at its peak performance. With a reverse mortgage, the incoming funds are able to protect you until the market picks back up again.

    You can have annuity-style payments using your home’s equity

With a reverse mortgage, you are able to choose the option of receiving your funds in annuity-style payments. This is perfect for some types of people who would rather plan their income as a steady flow.

    You can replace cash reserves

Some people have less cash in reserve than they would like. A reverse mortgage gives you the chance to catch up and replace your cash reserves, getting you up to speed financially.

These are just a few examples of how you can use a reverse mortgage as a strategic tool. With the right plan in place, you will be well on your way to a solid retirement.

These are just a few examples of how you can use a reverse mortgage as a strategic tool. With the right plan in place, you will be well on your way to a solid retirement.

source: everythingfinanceblog.com

A boost for the remortgage market

So June the 23rd delivered a momentous decision that few were expecting. The shock has not been the result so much as to how people have behaved subsequently: the Prime Minister has resigned, the labour shadow cabinet has thrown their toys out of the pram regarding the leadership of their party, while Nicola Sturgeon opportunistically wants to fragment the kingdom still further with, ironically, a vote for independence that will make the Scots less independent.

Ultimately however, democracy has taken its course and a vote has been taken, now it is time for everyone to pull together, regardless of political persuasion, or which way you voted.  It is time to look to the future of our great country and make it a success. This will only happen by everyone working together to make it so.  The more there is division the more that people who want to see the UK fail will start to gain a foothold.

So to the mortgage market. Mortgage rates were dropping for many weeks before the referendum and we had already seen the launch of the lowest ever fixed rate. Lenders have continued to lower interest rates, with a sub 1% rate being launched by HSBC before the referendum, and it looks like rates will not be going up any time soon.

In this respect it seems like what the politicians are forecasting and what is actually happening on the ground is pulling in separate directions and predictions are often little indication of what will actually happen.

In fact it is almost impossible to judge, partly because even the people meant to be making many of the pivotal decisions still do not know what decisions to make themselves. At the time of writing Mark Carney is unsure whether he will need to lower rates to boost spending or whether he will need to raise them as we may have an inflationary situation because the cost of oil will rise, as will other things dependent on the sterling/dollar exchange rate.

While swap rates have been falling for some time, giving banks access to cheap three and six month money, there is a chance that funds further down the line may be more expensive if UK banks find it harder to access money from the money markets. This would raise the cost of mortgages regardless of what the Bank of England does. However, there is certainly no shortage of money to be lent at the moment which is contributing to the incredibly low rates.

Either way this is arguably good news for the mortgage market right now as we may well see the number of remortgages rise. On the one hand we have the lowest mortgage rates we have ever had, on the other there is a prospect that they may rise in three to six months. Both of which mean if ever there has been a time for mortgage brokers to get in touch with their clients, now is it.

source: mortgageintroducer.com

What You Need To Consider When Buying A Home

Buying a new home can be one of the most stressful things you do in your lifetime. You are forking out a lot of money for this place, so it has to be right on many levels. The whole buying process can be emotional from start to finish. The house search, the viewing, the phone calls and the anticipation of waiting for things to go through. It’s certainly not as easy as heading to the store buying something and that’s the end of it. So with that in mind, I thought it would be a good idea to share with you some of the things to consider when buying a house.
 
Putting the emotions aside can be difficult. But embracing them is just as important because your emotion will help you to make the right decision overall. It’s not an easy thing to do, buying a home. So cut yourself some slack and prepare yourself as much as you can. It can be a rollercoaster ride.

Location, location, location

One of the of first things you have to consider is the location in which you are buying your new home. It may need to tick a lot of boxes. What you have to consider are yourself and your family. So the location must be close enough for your to commute to your job. There Is no point moving far away as a long commute to work will only eat into your day. If you don’t drive into work, then you will need to find out whether the location has good transport links. 

Other factors to consider will be the local schools if you have children to think about. Do they have good reports? Are they close enough to get to? Sometimes it’s the more practical things we forget to think about. Things like whether there are supermarkets or shops close by. Perhaps local restaurants or entertainment. All of these things need to be factored in to decide whether the location is right for you and your family. Pinpointing the locality in which you want to search will make things much easier. It means that you know the place works, so when you begin your viewings, you only have to focus on the property.

Speak to an agent you trust

An estate agent is one of the people you will talk to most when it comes to buying a new home. So it’s essential you have confidence in them, and you feel you can trust them. This is the person you will speak to in regards to what you want out of a place. So you will trust their judgement when the provide you with options. You could get in touch with this office at Entwistle Green nor others like it. 

Having confidence in the people that will be helping you through this process is important. You are spending a great deal of money on this property. It’s an investment as well as a home, so it has to be handled right from start to finish. The process is already difficult enough without having people involved you don’t trust or have no confidence in. 

The type of property you need

Once you have decided on your location and made contact with some agents the next thing to do is decide on the type of property you want and need. The first thing to do is decipher the things you need to have. So this is the number of bedrooms you need as a minimum. Whether you require off road parking. If the house has a garden or yard. These are things that you can’t do without. The fundamentals. The next thing you then do is add the nicer details. An extra bedroom would be great, for example. Or a garage would be a nice bonus. Things like that. It’s important to communicate all of this with the agents looking for your property. They need to know what you must have and what you would like to have. This will make their search much easier. You also need to determine the type of property you want. You may only want a house, but you might consider a bungalow. Or perhaps you are looking for a more modern living arrangement so would consider an apartment. Ask yourself all the hard questions and if it is easier, make a list, so you stick to what you want.


Will you consider a project?

Another big question to ask yourself is whether you would consider a project or not. A project can be one of two things. It could either be something that needs a lot of work. Perhaps a complete renovation that may not allow you even to live in it before some work has taken place. Or it could mean something that requires modernising. That is totally liveable but just needs bringing up to date. Or if any of those are not an option then you need to specify that you want something that is done and ready. 

What you will find is that there will be a range of properties available. Ranging from the derelict to the pristine. You need to decide where your cut off point would be. The less work that needs doing, the more money you will pay upfront for the privilege. But there are other factors to consider. Things like whether you have the time, patience and funds in place to carry out any necessary work. Again it’s about asking how far you will go for the right place and communicating that to your agents. 

Have you got the financials in place?

The big money question is whether or not you have the finances in place to go ahead with a sale. Mostly this tends to be an agreed mortgage in principal, and your deposit saved up and ready. It’s a good idea to know all of this and have it in place before you begin your search. It will determine your budget and what you have to spend. However, it also means that if you do see something that will cost that bit more you can easily go back and ask whether or not you can stretch to it. 


Use your head as well as your heart

It is so easy to get drawn into the emotional side of things when it comes to buying a property. But this is where you have to reign yourself back a little. While the emotion will always determine whether or not you love a place or hate it. Your head will be able to tell you whether or not it’s the right decision or the wrong one. It can be easy to fall in love with a quaint cottage with a rose garden. But if it needs more money than you have spent on it then it won’t be the right place for you. 

Listening to both will be conflicting at times, which is why buying a new home will never be a snap decision you make. There are a lot of factors to consider. Some sensible and some emotional. But they are equally important to the decision making process. You also have to consider the other parties involved. You partner, or kids, for example. Will they like it, do they love it? Will they live there?

Be aware that the home search can take longer than you think

Searching for a new home can take longer than you think. It is very evident that it is rare to buy the first house you see. Unless you are lucky enough that it happens to tick every box. It may, at times, become a little soul destroying seeing place after place and none of them being quite right. But patience is important when it comes to buying a home. What you have to remember is that you are spending a lot of money. This place has to be right, the location, the type of property. It all has to work for you and anyone else involved. 

Try and enjoy the process and learn where you can. You will find that each viewing gets easier, that you know what you are looking out for. You will certainly refine exactly what you want as time goes on. It may take longer than you want it to, but it will be worth it in the end. 

I hope this helps you if you find yourself in the buying process. Keeping a level head throughout it all will be important. But making sure you are clear on what you want from the start will be the best thing you can do.

source: 20smoney.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

7 Mistakes to Avoid as a First-Time Home Buyer

First-time buyers are often a bit overwhelmed at the thought of buying a house.

The intention of this article is to help prepare you for what NOT to do when buying a house for the first time, and you’ll pick up some great information along the way.

Without further ado, let’s dive in…

1. Not educating yourself on the buying process


One of the best tips we can give to anyone who’s buying a house for the first time is to educate yourself on the steps involved when buying a house. Too many first-time home buyers are jumping into the housing market because it ‘feels’ right and this is a mistake. How can you know what feels right when you’ve never done it before?

Instead of buying a house based on feelings, you need to buy a house based on facts. Before committing to buy a home, you need to make sure that you’re ready to buy your first house.

Do you know what first time home buyer programs are available in your area? First-time home buyers have a number of benefits available to them that offer big time savings.

Find a top local Realtor in your area and ask them specifically to chat with other first time home buyers they’ve worked with in the past. Don’t hesitate to gather information on the experiences of others who have worked with them.

2. Not preparing to buy a house

Time to start saving. Once you think you have enough money saved, you are going to pay for the inspectors, the attorney, the appraiser, etc.

Not preparing properly is a common buyer mistake, especially one among first-time buyers who have never purchased a house before.

If you’re buying a house for yourself then you should have no problem putting together a list of your priorities. Those who are buying with a significant other will have to strategically prioritize what matters most to both people who will be living in the house. Those buying with the intentions of starting a family will have different priorities.

Knowing your priorities ahead of time is going to make for a much easier home search. The location should be priority #1 when buying a house – you can change the condition of a house, you can’t change the location (or the school district).

3. Finding the house before the location

A lot of time first time home buyers will wait to find the perfect house that will never hit the market. There are some things buyers MUST be willing to sacrifice in order to find a great home at a great price in an excellent location. If there is one thing a home buyer should never settle on, it’s location.

Buying a big house in a bad location is a common first-time buyer mistake. You should buy a house based on the priorities you have in a location, and narrow down your criteria before you start previewing homes.

One common mistake a first time home buyer will make is failing to buy a house in the location they want because they are ‘tempted’ to buy a mansion in a location that is less desirable. Once you start previewing homes outside of your desired area you’ll confuse yourself. For instance, someone with a budget of $300,000 will be able to buy a much bigger house in Durham, NC than they would if they bought a home in Cary, NC. The difference here is schools, amenities, safety, commute time and more.

4. Overextending on your budget

One of the worst mistakes a first-time buyer can make is overextending on your budget. Your home instantly becomes a burden instead of something you can enjoy. One of the best things you can do as a homebuyer is reverse-engineer your monthly costs before you buy a house.

If you can spend 3-6 months calculating an average cost to live, you can set budgets for how much you’re comfortable spending and saving. Whatever is left over is a comfortable monthly payment on a house (don’t forget about mortgage insurance).

For those purchasing a home with less than a 20% down payment, private mortgage insurance is likely to be included as a requirement in owning your home. Private mortgage insurance will typically go away once you have paid back 20% of the loan.

 5. Not having the right real estate team in place

Your real estate team is like a group of coaches for first-time home buyers. Everyone makes mistakes, it’s human nature. It’s your real estate team’s job to make sure they coach you through the mistakes proactively.

As a first time home buyer, it’s important you assemble the right real estate team. You’ll want to ensure you have the right mortgage lender, real estate agent, home inspector, and attorney.

Having the right real estate team in place will go a long way in your home purchase as they will be able to guide you throughout the process. Make sure you find a team that works well with you and works well together to ensure a smooth home buying experience!

6. Buying based on emotion

The best decisions you can make when buying a home are the ones based on facts. Too often I watch a buyer make an offer on a home they love only to be outbid by another offer. Hearing that the home sold to someone else is not easy. It’s one of the toughest things you can hear as a buyer, especially if it’s your first time.

Becoming depressed as a buyer is a common mistake first-timers make.

When you allow yourself to become depressed your body does two things typically. One, it shuts down completely and it no longer wants to buy a house because there was too much ‘pain’ experienced. Or two, you will buy anything just to feel better about missing out on the last home.

These are commons mistakes made by all sorts of buyers, not just first-time buyers.

If you make an offer and the home sells to someone else then treat it like a GOOD thing. You just picked out one of the most desirable homes on the market, meaning you recognize a good deal! Pat yourself on the back, and go find a better one!

7. Not calculating the true costs

Are you ready for all of the costs that come with buying your first house, and all the costs that come with homeownership? There is going to be a wake-up call for first-time home buyers who are looking at just their principal and interest monthly payments. There are many more costs that come with both purchasing a home and owning a home.

Looking at ‘what you can afford’ when buying a home is a common first-time buyer mistake.

What you can afford, and what you can afford while maintaining your current lifestyle are two entirely different numbers.

Some of the recurring costs you’ll want to be sure you include when buying a house are:

    Property Taxes
    Mortgage Insurance (If you put less than 20% down)
    Home Maintenance
    Homeowner’s Insurance
    Utility Bills

Final thoughts on mistakes made by first-time buyers:


It is imperative to factor loan origination fees, attorney fees, inspection fees, appraisal fees, mortgage insurance, and any other closing costs into your budget when buying a home. It is your job as a buyer to make sure you factor all the costs involved when purchasing a home. Your Total Mortgage loan officer or your realtor will be critical in helping you understand which fees apply to you, how much those fees will be, and what your options are.

I cannot stress to my buyers enough is that location is the most important part of a home. You can change the price, you can change conditions–you cannot change the location.

If you can avoid making these 7 mistakes when purchasing your first house, you are going to be in much better shape than most of the second and third-time home buyers out there!

source: totalmortgage.com

Qualifying for a Mortgage When You’re Self-Employed

When John Kennedy observed that “life is unfair,” at a press conference in 1962 he wasn’t referring to the challenges self-employed workers would face getting a mortgage fifty years later—but he would have been right.

If you are one of the 14.6 million people in the US[1] who make a living working for yourself—about 10 percent of the total workforce—you don’t fit neatly into the profile of borrowers whose income can be easily documented for a mortgage application.

Tax returns don’t tell the whole story

It’s not impossible to get a mortgage if you are your own boss, but you’ve got to jump through some extra hoops to qualify.  That’s because self-employed borrowers typically have to provide two years’ worth of tax returns, which lenders will want to obtain directly from the IRS.

Yet tax returns often don’t accurately reflect their take-home pay.  Self-employed people typically take advantage of a slew of tax deductions related to their businesses, from retirement plans to home offices.  These reduce their taxable income, but they also reduce their adjusted gross income, which is what lenders look at for proof of income.

In some cases, mortgage lenders will allow certain deductions to be added back to the income such as depletion, depreciation or a large, nonrecurring item.

Plan ahead if you can

One solution is to plan ahead and write off fewer expenses for the two years leading up to applying for a mortgage, a strategy that could either cost you significantly at tax time or require you to refile you taxes after your mortgage is approved.

Another suggestion is to separate your personal funds from your business by using a credit card devoted to your business expenses, then convince a lender that the debt isn’t against you because it belongs to the business.  Finding the right lender could still be difficult, and you could still miss some of the most popular deductions, such as home businesses and cars used for business.

Timing is also important.  Self-employed workers typically have highly volatile businesses.  By using income averaging over 24 months, borrowers can avoid declines in income from one year to the next.

Reduce debt to improve your chances

The reason lenders want to see your income is because they need it to determine whether you have enough income to make you monthly debt obligations, a calculation expressed as your debt to income ratio. The median DTI for recurring debt on closed conventional purchase loans today is about 35 percent for recurring debt payments.[2]

By reducing or eliminating your recurrent debt payments, such as your car or student loans, you can reduce your DTI ratio, which will help you qualify for a larger mortgage.

source: totalmortgage.com

Will a Change in FICO Make it Easier to Get a Mortgage?

Somehow it doesn’t seem fair that so much can depend on a single number. Your credit score, whether from TransUnion, Experian or Fair Isaacson Corporation (FICO), can make the difference between owning your own home and renting. It can also cost (or save) you tens of thousands of dollars on interest, since lenders set your rate to reflect the quality of your credit score.

When it comes to mortgages, FICO is the score that matters most. Fannie Mae and Freddie Mac set standards like credit requirements, and since they prefer FICO, lenders comply. It also helps that these two government-chartered companies have programmed credit score requirements into the automated underwriting programs they provide to lenders.

What many borrowers don’t realize, though, is that the algorithms behind their credit scores are not static. They are updated from time to time, and those updates can impact your mortgage.

The Process of Modernizing Credit Reporting

In recent years, as credit reporting companies have improved and updated their models to reflect how consumers use their credit, Fannie and Freddie have been slow to comply, in part because of the difficulty and cost of changing their automated underwriting programs.

Fannie balked at using the newest model, FICO Score 9, which was introduced 2014 and provides fairer treatment for those consumers whose scores have been lowered by medical bill collection accounts in their credit files or who have files with scant information because they make little or no use of the traditional banking system. According to Fair Isaacson, which owns FICO, applicants whose only major negatives are medical collections stand to see their FICO scores improve by a median 25 points.

Pressure is mounting on the two companies to modernize their credit standards, both from Congress and a directive from the federal agency that oversees Fannie and Freddie. Look for these changes in the near future.

How Trended Credit Data Will Save the Day

By mid-year 2016, Fannie Mae will begin incorporating trended credit data into its automated underwriting platform. No longer will lenders be limited to making an approval decision on the basis of a single score.

Trended credit data will enhance the static snapshot of a consumer’s credit balances with 24 months of historical data, such as payment and balance. It will help lenders examine and consider how consumers are managing their credit accounts over time. Today, lenders can see consumers’ existing balances on accounts and whether they have paid their bills on time; however, they cannot tell if consumers are consistently carrying debt loads on revolving accounts such as credit cards, or whether they pay their balances in full every month.

For example, a consumer with a large credit card balance who pays it off in full every month could be a better credit risk than a consumer with a large credit card balance who makes only the minimum payment each month. And for consumers who don’t have a large amount of available credit, but pay their balances every month, trended credit data may help originators determine if they are a good credit risk and better their ability to obtain a mortgage loan.

“For some consumers who don’t have a large amount of available credit, but pay their balances every month, trended data may potentially improve their ability to obtain a mortgage by providing lenders with a more complete picture of their credit behavior over time,” Crabtree said.” said Craig Crabtree, General Manager of Equifax Mortgage Services, which will provide the trended data.[1]

Alternative Credit Scores May Be an Option

Legislation was introduced late last year by two powerful members of the House Banking Committee that would require federal regulators and the GSEs to adopt alternatives to FICO that are more inclusive and updated models that incorporate non-banking forms of credit, such as rent, utilities, and cellphone payments to supplement a standard credit file.

If passed, the legislation would allow lenders to use scores from FICO’s competitor, VantageScore, which claims it can provide scores on as many as 35 million consumers, many of whom didn’t have enough credit history to have a score. Many are young, just starting out in their careers. Disproportionately, they are minorities.

Even if the legislation doesn’t pass, it will put serious pressure on the GSEs to modernize their credit reporting policies in the near future.

source: totalmortgage.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

Getting a Mortgage in 2016? Here’s What You Need to Know

As recently as two years ago, only 17 percent of all applications for a mortgage to buy a home were approved.[1]  Approval rates have improved greatly since then for two reasons.

First, borrowers are doing a much better job of getting their credit, debt, and documentation in order before they apply.  Second, lenders have slowly relaxed some of the standards they use to approve applications.

As you gear up to buy a house in 2016, here are a few things you should know about the mortgage industry.



More Easing of Credit Standards

Mortgage lenders expect to continue easing their standards in 2016, according to a fourth quarter survey of major lenders by Fannie Mae.[2]  The findings show that during the first quarter of the year, 16% of lenders expect to ease credit requirements for loans that conform to Fannie Mae’s and Freddie Mac’s underwriting standards and for government-backed loans like FHA and VA.

Meanwhile, the percentage expecting to tighten standards dropped to 2%.  However, for other loan types, such as conventional loans, fewer lenders said they would ease loans over the first quarter.

FHA and VA loans are already significantly easier to qualify for than conventional loans.  For example, the median FICO scores for purchase loans approved in December were 688 for FHA, 706 for VA and 754 for conventional—a huge difference.[3]  Based on the Fannie Mae survey, look for that difference to increase in the months ahead.

Rising interest rates

While standards slowly improve, interest rates are expected to slowly worsen for home buyers.  Most forecasts have rates ending the year between 4 and 5 percent on a 30-year fixed rate mortgage.

Ironically rates have actually fallen when most experts expected them to rise in the wake of the Federal Reserve’s decision in December to rates for the first time in nine years.  Though they will probably be higher a year from now than they are today, they will still be very low compared to historic rates.

Down Payments 

While easier lending standards and slowly rising rates don’t greatly increase the cost of buying a home, down payment requirements aren’t going to change much either.

The average down payment in the first quarter of last year was 14.8 percent of the purchase price, down from 15.5 percent a year ago to the lowest level since Q1 2012. However, the average down payment in dollars for 3.5 percent FHA purchase loans originated in the first quarter last year was $7,609 while the average down payment for conventional loans backed by Fannie Mae and Freddie Mac was $72,590.[4]

One of the reasons the average down payment declined last year was the popularity of low down payment loans.  Loans with 3 percent or lower down payments accounted for 27 percent of all purchase loans in the first quarter last year, up from 26 percent in the fourth quarter and also 26 percent a year ago to the highest share since Q2 2013. Low down payment loans accounted for 83 percent of FHA purchase loans originated in the first quarter, while 11 percent of conventional loans were low down payment loans.[5]

First-time buyers should check out the thousands of low or no down payment programs sponsored by state and local housing authorities.  Check out Down Payment Resource for more information.

Mortgage insurance in 2016

Fannie Mae and Freddie Mac both launched 3 percent down payment programs a year ago and these have been extended through 2016.  However, like FHA, they both require mortgage insurance, which adds to the monthly cost of homeownership.

To encourage first-time buyers, last year FHA announced a 50 percent reduction in the monthly mortgage insurance premium.  All three of these initiatives are being continued this year.  More good news: in the waning hours of 2015 Congress extended the deductibility of mortgage insurance payments; at least for 2016, you will be able to deduct your mortgage insurance premiums from your federal taxes, just like you mortgage interest.

This tax provision only has a one-year lifespan, but Congress has extended it for the past few years though there no guarantee it will continue in the future.


[1] Ellie Mae Origination Insights Report, January 2014

[2] http://fanniemae.com/portal/research-and-analysis/mortgage-lender-survey.html

[3] Ellie Mae Origination Insights Report, December 2015

[4] http://www.realtytrac.com/news/home-prices-and-sales/q1-2015-u-s-home-purchase-down-payment-report/

[5] Ibid

source: totalmortgage.com

How Much Equity Do You Have?

When people talk about housing being a good investment, they are referring to the profit that accumulates over time as home values rise. It’s called equity, and it’s easily calculated by subtracting the principal that you owe on your mortgage from the value of your home.

Your principal is easy to determine. Every month with your mortgage invoice, your lender sends you an accounting of the principal you still owe. Finding out what your house is worth is the tricky part.

Prices vs Values

Unlike other assets you own, such as securities or commodities, every home is unique. Location, condition, age, bedrooms, and lot size are some of the major factors that affect value. On the other hand, market forces like foreclosures, inventory shortages, or high levels of demand that create multi-bid situations have a huge impact on prices, but a limited impact on values.

Prices, like the numbers you see reported in the news, are from recent sales—only on about 3 to 4 percent of all single family homes in a given market. The other 97 percent of homes are also changing value based on market trends, but each home changes value at a different rate. Also, sales price reports cover large areas and hyperlocal trends resulting from the local factors like the construction of a new highway, the opening of a new shopping center or a rising crime rate are often below their radar.

Despite the old adage, houses are not necessarily worth what someone will pay for them. Lenders require appraisals to determine the value of a home and they limit the amount of the mortgage they will approve based on the appraisals.

Appraisers base their valuations on “comps”—recent sales of comparable properties. Sales contracts between buyers and sellers often are often higher than the appraisal, especially when sales prices in a market are rising, causing buyers to scramble for additional cash or risk losing their chance to buy the home.

At the end of the day, for the majority of buyers who finance their purchases, valuations based on appraisals rather than local sales prices determine what a house is worth

How to Determine Your Home’s Value

Web site AVMs. A number of sites offer services that give you a value when you enter your address. These are based on algorithms called “automated valuation models, or AVMs. Like any other computer model, the results they deliver are only as good as the data they access.

Try several of them. The results will vary by tens of thousands of dollars. AVMs are good for getting a start on valuing your home by giving a sense of the range that the actual value might fall.

More importantly, use the AVMs over time to get a sense of the direction that your home’s value is moving. Houses don’t change direction frequently—perhaps every 18 months or so. Discovering whether it is appreciating or depreciation help you anticipate its value months into the future.

“Big Data” Indexes. Using big data techniques, several real estate analytics firms have actually aggregated valuation data on as many as 100 million homes and developed statistical formulas based on repeat sales and comparable sales to update their valuations. These valuations are based on house-specific data rather than the computer models used by AVMs, so they may be more accurate.

However, even the best index can’t evaluate the condition of your house. Some valuation sites offer you the opportunity to alter your valuation based on condition, but it’s hard to assess how impartial owners are.

Appraisals. If you really want to know what your house is worth, the best way to find out is still to have it appraised by a licensed professional. If you are planning to refinance or to sell, a professional appraisal is worth the $500 or so that It will cost.

A tip: have your house appraised when you need the information, since appraisals begin to lose their accuracy in six months, or even less in volatile markets. Also, even if you have your own appraisal done, your buyer’s lender will probably order their own.

source: totalmortgage.com

5 Ways to Pay off a Mortgage Loan Early

Although it can take up to 30 years to pay off a mortgage, there’s no rule that says you have to spread this debt over three decades.

An “estimated 20 million Americans own their homes outright,” reports Dave Ramsey, author of the best-selling book The Total Money Makeover. And if you’re looking to join this club sooner rather than later, adjusting the way you pay your mortgage can get rid of the loan quicker.

Now, this achievement may appear to be a far-off dream, but there are practical ways to make it happen.

1. Submit Bi-Weekly Mortgage Payments

Paying one-half of your mortgage payment every two weeks can shrink your term by six or seven years. Given how there are 52 weeks in a year, bi-weekly payments result in 26 half payments – the equivalent of 13 full payments or one extra mortgage payment a year.

Although a seemingly insignificant move, this extra mortgage payment decreases the amount of interest you owe over the life of the loan and ultimately shortens the length of your mortgage term.

Unfortunately, a bi-weekly schedule isn’t something you can do on your own. You’ll need to get permission from your lender to switch to a bi-weekly payment schedule, and most banks charge a one-time setup fee.

2. Make Higher Monthly Mortgage Payments 


A bi-weekly mortgage is an effortless way to pay down a mortgage faster, but not all banks offer this option. If your lender doesn’t allow this pay schedule, you can still pay off your mortgage early by sending one extra principal payment a year.

There are different approaches for submitting the extra payment. You can make a double mortgage payment once a year, and specify on the payment coupon that you want the extra amount credited to the principal only.

Another option is increasing each mortgage payment by 1/12, which might be more manageable than a double mortgage payment. Simply divide your regular payment by 12 months and then add this extra amount to each future payment.

For example, if you’re scheduled to pay $1,400 a month, increasing each payment by $117 results in one extra mortgage payment a year.

 3. Refinance Your Mortgage

If you’re only a few years into a 30-year mortgage term, refinancing to a 10 or 15-year mortgage is another strategy for paying off a home sooner. Shorter terms increase how much you pay on a monthly basis, but the increase may not be as high as you think.

Some people mistakenly assume that cutting a mortgage term in half will double their mortgage payments. However, shorter repayment periods typically justify a cheaper interest rate, and this lower rate can translate into surprising savings.

To illustrate: a $200,000 mortgage for 30 years with an interest rate of 4.25% comes to $983 a month, excluding taxes and insurance.

If you take the same mortgage and reduce the term to 15 years, you might qualify for an interest rate of 3.29%. Based on the second scenario, you’re looking at a mortgage payment of $1,409 – a difference of just $426 a month.

4. Reduce Your PMI

If you are homeowner who did not put down at least 20% as your down payment, you will have to pay what is called private mortgage insurance, or what is commonly referred to as PMI. PMI is added to your monthly mortgage payment until you get to 20% equity.

If you have to pay PMI, considering to make more than the monthly payment would be a good idea as the extra amount would go towards the principal, thus bringing the loan amount down and equity up quicker.

By doing this, you will pay off the PMI much faster than if you just made the minimum payment, which will save you money in the long run.

5. Switch to a Shorter Loan

Today, many homeowners have a 30-year fixed mortgage loan. One way to possibly help pay down your loan quicker is by switching to a 15-year mortgage.

If you can afford to make a higher payment, then this would be a great alternative as you would save years of interest compared to a 30-year loan.

One of the benefits of a 15-year fixed mortgage is that the interest rate is a noticeable amount lower than that of a 30-year fixed.

More often than not, if you are a homeowner who plans on paying off their mortgage early, it might be a good idea to consider a 15-year loan over a 30-year loan depending on your current financial situation.

Bottom Line

How you spend your disposable income is entirely up to you. And while you can probably think of a million other uses for the extra income, paying off your mortgage early has one undeniable, priceless benefit – peace of mind from knowing that you own the property free and clear.

source: totalmortgage.com

Raise Your Credit Score with These Tips

When it comes to getting a good deal on a mortgage, your credit score may be even more important to you than you realize.

It’s one of the three most important metrics lenders use to decide whether or not to approve your mortgage application; the higher your score, the more confident they are that you will make your monthly payments on time. Most home buyers don’t know how much their credit scores impact the mortgage rates they will pay.

Let’s play with some numbers.* A $250,000, 30-year fixed mortgage will require monthly payment of principal and interest of $1,527, for a borrower with a 620 score. That’s a total of $299,821 of total interest paid over thirty years.

If you have a better credit score of 700, you are considered a less risky borrower. You can expect to pay $1,313 monthly for a total of $222,689. If you have an extremely favorable credit score of 780, you fall into the top-tier range of borrowers, and lenders will likely offer you a lower mortgage rate along with more loan choices. Your monthly payment will be $1,280 for a total of $210,681.

Here are some tips to help you get your credit under control and turn it into an asset if it is a liability today.

Start now. Credit scores don’t change overnight. If you plan to buy a home a year from now, you need to get to work immediately in order to get your credit in shape by the time you apply.

Do a reality check. Order your credit histories from the three primary credit bureaus: Experian, Equifax and Transunion. Review them for accuracy. You’ll see immediately how detrimental making a payment that is late by only a few days can be to your credit.

If you see errors that you can document, ask for them to he removed. Take note of any really serious marks against you like foreclosure, bankruptcy, tax liens and collections actions. If you have any of these, they will remain on your record for five to seven years and you will have to work extra hard to improve every other aspect of your credit to qualify. Sign up for a service that will notify you of changes in your credit.

Pay your bills on time. If you have missed payments, get current and stay current. Sign up for a “wallet” program through your bank or online service. Pay your bills through your bank so that there is no delay.

With today’s technology, there is no excuse for ever making a late payment to a regular monthly creditor. The longer you pay your bills on time after being late, the more your FICO Scores should increase. Older credit problems count for less, so poor credit performance won’t haunt you forever. The impact of past credit problems on your FICO Scores fades as time passes and as recent good payment patterns show up on your credit report

Reduce your use of credit. Most people use their credit too much. Create a budget and learn to live on a cash basis. Use your credit cards only for purchases you can pay off quickly or for emergencies. Keep balances low on credit cards and other “revolving credit”; high outstanding debt can affect a credit score.

Don’t close unused credit cards as a short-term strategy to raise your scores, but don’t open new credit cards just to increase your available credit. Reducing your balances is important, but taking the next step and closing cards won’t really improve your case; lenders like to see that you have credit available. A closed account remains on your credit report.

Especially, do not close your oldest credit card account. A long history of using and making monthly payments will improve your score. However, this is certainly not the time to open new credit cards. New accounts will lower your average account age, which will have a larger effect on your scores if you don’t have a lot of other credit information. Rapid account buildup can look risky if you are a new credit user.

Keep balances low on credit cards and other “revolving credit”. This is also not the time to make large purchases. Rather reduce your outstanding debt by increasing your monthly payments. If making minimum payments has been your practice, stop now and pay more.

Have credit cards – but manage them responsibly.
In general, having credit cards and installment loans (and paying timely payments) will rebuild your credit scores. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

Don’t relax until you have closed on your new home. Mortgage lenders often pull the credit history of a customer the day before they close. If there is a significant change in their FICO or a new purchase that raises their debt, they are within their rights to raise the interest rate or cancel the mortgage altogether. Don’t relax until they hand you the keys to your new house.



*These are for demonstration purposes only. Your numbers may differ.

source: totalmortgage.com