Me Myself N My Mortgage Theories

Hi all,

Here’s a brief outline of the top 3 mortgage news this week.

1. FHA has come up with new condo rules

The FHA has set 4 rules for condo mortgages. These rules will come into effect from 2nd November, 2009. As per the new rules, insuring a mortgage on a condo unit is not allowed unless all the units satisfy the criteria for getting approval on FHA mortgage. Also, 30% of the units in the condo project should be financed by FHA mortgages. Otherwise, FHA won’t insure a condo unit within the project. Know more…

2. California bans upfront fees on loan modification

The State of California has banned upfront fees charged by loan modification services. The purpose is to protect borrowers from being a victim of loan modification scams. As per law, any real estate licencee or attorney should refrain from charging an upfront fee from a borrower with the promise that the former will modify his home loan or offer services related to forbearance. However, the ban on the upfront fees is restricted to residential mortgages taken against 4 or less than 4 dwelling units. Get more details…

3. New program for homebuyers and renters

The Obama Administration has come up with a new program with which it’ll help local and state housing authorities provide support to homebuyers and renters. The purpose of the new program is to create homeownership opportunities through mortgage financing at low interest rates and provide assistance to those who’re looking to rent a home. It’ll also help housing agencies recover from the financial crisis due to credit crunch and housing market slowdown.

Under this program, the Government expects state housing finance agencies to provide home financing through a bond purchase program. There’s also a temporary credit and liquidity program to be introduced by the housing agencies. Find more details…

The CalHFA (California Housing Finance Agency) is all set to restart its down payment assistance programs and launch a new mortgage program for first time buyers. One helpful feature of the programs is that, they can be used independently of CalHFA first loans.

What are the down payment assistance programs on offer?

There are 2 down payment assistance programs being offered by the CalHFA. These are given below:

1. California Homebuyer’s Down Payment Assistance: The CHDAP or California Homebuyer’s Down Payment Assistance Program is a deferred loan worth 3% of the home value. First time homebuyers need not repay the loan until their homes are sold, refinanced or paid in full. This assistance program can be used with FHA loan and the new mortgage product launched by CalHFA.

2. School Facility Fee Down payment Assistance: This program provides qualified home buyers with a partial or full rebate of school facility fees. The average rebate is around $5,100. But the amount varies according to school district and square footage of the home. It works like a conditional grant, not a loan. So, the buyer need not repay it if he occupies property for 5 years. However, if he doesn’t stay on the property for minimum 5 years, then he has to pay off the grant on a pro rata basis.

What is the new mortgage program on offer?

Cal30 is the new loan program being offered by CalHFA. It is a 30 year fixed rate mortgage which requires stable monthly payments at low rates of interest (approx. 5% and slightly above). It is similar to a fixed rate mortgage insured by the FHA. So, if you’d like to go for it, you’ll need to have a credit score of 640 and make a down payment worth 5% of the home value.

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The economy seems to be in recession ever since the credit crunch and rising foreclosures and their impact on the housing market. Mortgage rates have gone up thereby bringing down home sales price. So, the year 2009 isn’t the worse time to buy a home. But homebuyers need to be a bit careful when they get into the market and they may have to take a few risks during this recession period. Given below are 4 tips that’ll help you buy a home successfully during a recession.

1. Make sure you’re financially secured: The biggest fear during a recession is whether you’d lose your job, that too, after closing a financial transaction. So, if you’re buying a home, just make sure you have solid job security.

Apart from job security, you need good credit, enough funds to make a down payment and you should be able to provide documents for income verification. In fact, you need to fit into the current lending standards which have actually tightened since the credit crunch. So, if you don’t have good income and credit and you’re uncertain about your job security, it’s better to wait till you’re financially secured.

2. Check your affordability: The year 2009 isn’t the right time for you to stretch your money and invest it into several options simultaneously. Therefore, when you go for a mortgage, make sure you check your affordability. Try keeping your monthly housing payment within 35% of your gross monthly household income. Moreover, going for a fixed rate loan would be better as your payments would be quite stable.

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The Obama Administration has come up with yet another plan to help distressed homeowners – this time it’s all about modifying second mortgages on your homes.

How does second loan modification work?

Under the second mortgage modification program, troubled homeowners can get their second mortgages modified by loan servicers, whom the government will pay $500 upfront and $250 a year for 3 years. The administration expects a good number of big banks to be a part of this Federal program.

Once the banks and lenders sign necessary contracts, they’ll be legally obligated to offer loan modification on second loans when they have already modified first mortgages. The banks and lenders modifying second liens will be receiving additional incentives to wipe out second liens voluntarily.

Under the program, loan servicers will be modifying second mortgages wherever the first mortgage loan on the same property has already been modified. The servicers will mostly extend the term of the loans and reduce the interest rate so as to help you pay off both the modified loans comfortably.

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If you’d like to reorganize your debts and pay them off by filing bankruptcy, then Chapter 13 is what you may have thought of. This is what helps you to restructure your debts and pay them back over the next 3-5 years. However, prior to filing Chapter 13, consider the 3 things as given below:

1. Adjustment of your loan payment: Even though you can restructure loan payments by filing Chapter 13 bankruptcy, things may not be that easier for you. This is because the loan payment may increase while you’re in Chapter 13 bankruptcy.

The lender is not obligated to negotiate with you and modify your loan terms. Moreover, you may be able to adjust payments on one mortgage but not on the other on your primary residence.

2. Getting rid of second mortgage: Chapter 13 filing may not be enough to help you restructure your second mortgage payments. Say for example, you have a first mortgage balance worth $350,000 and a second loan balance worth $80,000. Now, if your home value is $400,000, then you’ll hardly be able to pay off your first mortgage dues.

As per laws in California, in the midst of housing crisis, one can eliminate liens due to mortgages only if such liens are not secured by the equity in a property. So, if we consider the example given above, the second mortgage would be actually an unsecured lien as you won’t be able to pay it off under Chapter 13 repayment plan. So, the second mortgage lien can be eliminated from the title once you complete the 3-5 year repayment plan.

3. Your affordability to keep the home: Prior to filing Chapter 13, you need to understand and find out if at all you can afford to keep your home. Only then filing Chapter 13 and starting over your payments make sense.

Are you jobless and don’t know how to keep up with your mortgage payments? Well, ask your lender if he’s offering mortgage unemployment insurance. This is a kind of insurance policy especially being offered by home builders and real estate agents in recent times. The purpose of such a policy is to help one meet his monthly payments when he’s unable to find a job at the earliest.

What does the insurance policy cover?

The policy usually covers monthly mortgage payments between $1800 and $2500 for a maximum time period of 6 months. The policy covers property taxes and homeowners insurance as well. The coverage however depends on the market in your area of residence.

There are buyers who’re even getting back their mortgage payments as refund provided their appraised value falls short of their home sale price after they’ve stayed in their homes for 3 years or so. And last but not the least, certain companies are allowing home buyers to walk away from their properties in case of job loss or if they’re just behind on their loans.

Buyers who simply walk away don’t need to worry about their mortgage payments at all! But then doesn’t it affect their credit? Well, it surely does but the impact isn’t as bad as a foreclosure on their homes.
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The Obama Administration is planning to reduce tax deductions on mortgage interest for the rich and high income taxpayers. By doing so, he’ll be using the reduction in benefits or increase in income taxes in order to compensate for his ambitious programs, which are aimed to revive the staggering economy.

As per Obama’s plan, the tax deductions available to the rich will be capped at 28%. That is, they can deduct only 28% of the total interest they pay every year on their mortgages. So, people in the higher marginal tax brackets of 33% and 35% will get a comparatively smaller benefit from their deductions on mortgage interest, state taxes and charitable contributions etc.

What’s the purpose of Obama’s plan?

With the tax benefit reduction, Obama aims to raise $318 billion over a period of 10 years. It is in accordance with the President’s campaign to increase taxes for families earning more than $250,000.

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Hi all,

There’s a lot of talk going on about Barack Obama’s Bailout Plan which is likely to be presented before the Congress in the coming weeks.

The primary purpose of the Bailout plan is to create and maintain flow of money between banks, financial institutions and consumers in order to revive the economy.

The Bailout Plan is aimed at breaking new grounds in helping troubled borrowers even before they miss a payment. There’ll be a standard approach to determine whether a borrower is in mortgage problem. This will be followed by a revaluation of the borrower’s property in order to set new mortgage terms while at the same time making sure that banks do not suffer a loss as they have been going through ever since the mortgage meltdown.

The Bailout Plan will bring about a standard program which can help modify mortgage loans for all kinds of borrowers. The Treasury Secretary, Timothy Geithner has recently given some guidelines on how the Obama Administration will spend the second half of the $700 Billion of Bailout Package previously approved by the Congress.

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Government-backed investors, Freddie Mac and Fannie Mae have both raised mortgage fees thereby raising concerns among borrowers who’ll now have to spend more in getting a mortgage.

The National Association of Realtors and National Association of Home Builders have protested against a series of such increases for the past 15 months. The Associations say that the Investors are adding on to the mortgage costs thereby deterring home buying or refinancing at a time when the housing market needs a boost.

Freddie Mac’s higher fees affect mortgages offered against condominiums, interest only loans, refinance loans and others with combinations of low credit scores and down payment. In spite of Freddie Mac and Fannie Mae not being directly involved with borrowers, they can have a big impact on the rates and fees the latter pay.

When a considerable number of loans are being originated, Freddie Mac and Fannie Mae decrease the price they pay in order to compensate for higher risk characteristics. These extra charges are passed on to borrowers in the form of high mortgage costs or rates.

In the aftermath of housing crisis, raising mortgage loan fees could deter borrowers from applying for loans. As it is, months of foreclosure have been a matter of concern for homeowners. It needs to be seen as to how borrowers react to the investors’ decision to raise mortgage fees.

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With mortgages rates getting lower you may be tempted to apply for a loan and buy a home of your own. But make sure you have saved enough for the down payment. Your credit history is another important factor to help you qualify.

As we all know, the market has been in turmoil with changes coming in every now and then. To help you survive in the midst of market crisis and buy a home without much hassle, I’ve given below a list of 5 tips to make things easier for you.

1. Save enough for the down payment: When you’re buying a home, you should try and make a down payment worth 20% of the home purchase price. For that, you’ll have to save good amount of cash.

Make sure you keep aside some cash each month. If possible, take up a part time job to increase your savings. The more you save, the higher your down payment and the less you need to borrow.

2.Negotiate with the seller: When you sign a contract with the seller, make sure he’s willing to pay a part of the closing costs. This is known as seller concession which usually ranges from 3-6% of the total closing costs.

3. Check how much you can afford: Find out how much mortgage you can afford to manage. Use the how much house can I afford calculator and check your affordability. Do this before you talk to lenders. That’s because it’s you who can determine how much you can pay for.

You need to prepare a realistic budget to find out if actually you can afford the house payment along with other expenses. Shop with a number of lenders and compare the loan offers before you choose the one that suits your financial situation.

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