Me Myself N My Mortgage Theories

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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The Federal Reserve has recently come up with an initiative to revive the weakening economy by investing $800 billion into the troubled mortgage and credit markets. As per the initiative, the Fed will be buying $100 billion in debt and $500 in mortgage-backed securities guaranteed by Freddie Mac and Fannie Mae.

The problem is, investors are no longer willing to buy mortgage backed securities that Freddie Mac and Fannie Mae have purchased because they’re uncertain over what the market would turn out to be. Hence the initiative is being taken by the Fed to save an ailing economy.

Apart from the Fed buying Fannie Mae and Freddie Mac loans, they would also get together with the Treasury in order to create a $200 billion program. This program would help them purchase securities backed by auto loans, student loans, loans for small business and various other forms of credit. The effect of the plans announced by the Fed and the Treasury is quite evident as these have helped bring down interest rates on mortgages.

Rates on 30 year mortgages have dropped down by half a percentage point to 5.75% and it is expected that rates may go even lower. This is expected to help buyers seek conventional loans or refinance their adjustable rate loans into fixed rate mortgages.

Let’s hope that people can get out of the mortgage mess and refinance into better deals thereby helping to reduce the housing crisis that has gripped the entire nation.

Technorati Tags: fed and freddie mac, revive economy

Hi all,

I’ve been away for quite some time now. But let’s hope I’ll be able to continue from now on.

Well, lots of changes are taking place in the industry, the latest being the decision of the Federal Reserve to revise the Good Faith Estimate (GFE). The GFE is an estimate of the closing costs one needs to pay while taking out a mortgage. Currently the GFEs offered by different lenders are not standardized and it’s very difficult to interpret them.

What the Fed plans to do is, revise the GFEs by the beginning of 2010, make it more standardized and also reduce the number of pages. In all, it’ll be a 3 page document that any borrower can understand easily. Apart from the GFE, the HUD will also standardize the HUD-I Statement.

What’s the new GFE and HUD-I Statement like?

The first page of the GFE contains a summary of the loan offer. This includes the loan term, amount, initial rate of interest, whether the rate is fixed or adjustable, and whether negative amortization is applicable. Also, it mentions whether one should pay taxes and insurance in an escrow and if there is a prepayment penalty or balloon payment.

The second page of the GFE speaks about the lender’s total origination fees, third party fees and taxes. There’s a box there which asks if the borrower intends to pay points to get a lower interest rate or whether the borrower will take a higher rate in return of reduced closing costs.

The third page provides 2 tables using which borrowers can compare and find out what’s the different in paying discount points, getting a lower rate and paying less in closing costs. The other table helps borrowers compare loan offers and choose the best.

The purpose behind revising the GFE and HUD-I Statement is to compare the numbers in the GFE with that of the HUD-I Statement. Let’s hope the new docs will help borrowers understand whether they can afford the loan.

Technorati Tags: gfe, good faith estimate, HUD-I Statement

The new housing rescue bill - Hope for Homeowners Act of 2008 is being signed into law by President Bush. It aims to provide mortgage relief to thousands in financial problems and modernize the FHA so that it can back loans for risky borrowers.

Here are the key points stated in the Housing Bill:

Tax credit for first time buyers:
If you’re a first time buyer (that is, you haven’t owned a home for the past 3 years), the law will provide you with tax credit up to $7500 but not more than 10% of your home purchase price. However, only those who have bought their homes after April 8, 2008 and prior to July1, 2009 are eligible for the tax credit.

With this credit, your tax bill for the year of purchase will get reduced by $7500 maximum. So, if you buy a house in 2008, you’ll get the credit this year itself, that is for which you’ll have to file your tax returns by April 15, 2009. But if you buy the home by June, 2009, the tax credit will be available to you for the 2009 tax year.

However, you need to repay the credit within the next 15 years and you’ll have to start paying 2 years after your home purchase. If the house is sold prior to the repayment period, then you’ll have to pay the remaining tax to the IRS.

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Are you looking for a refinance to help you pay down your mortgage? Before you refinance, read the story below…

Vicki Miller purchased a home in PA with a traditional mortgage from the local savings and loan association. 7 years later, her debt has more than doubled and the lender has threatened foreclosure as she is already behind on the loan. Miller received offers to refinance or take out a second mortgage but she didn’t understand what the lender actually meant.

Miller was earning $26,000 a year and move into her mother’s house in 2001. The house needed repairs and so Miller piled up debts worth 15000 in credit cards and other loans by 2004. She sought financial help and received phone calls from Ameriquest Mortgage Co. of Orange, a big subprime lender which had collapsed since then. The sakes agent then suggested that Miller could repay her debt by refinancing her mortgage and cashing out on home equity.

Meanwhile Miller’s sister was going through a severe health crisis as a result of which Miller couldn’t think of anything else other than her treatment. So, hastily she said yes to the refinancing as proposed by Ameriquest, without even reading the fine print. Miller did get extra cash from the refinance but her monthly payments nearly doubled to $559.

A few months later, another man approached Miller with a second mortgage offer and she accepted it with the intention to spend some more cash on energy efficient windows. Meanwhile her mortgage has been sold off to Countrywide Financial corp. and every payment notice suggested she think about refinance to lower her payments.

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Hi all,

Here’s a rundown of the top 4 mortgage stories this week:

States sue Countrywide: The states of California, Illinois and Washington have decided to sue Countrywide Financial Corporation over its unfair lending practices. The State of California alleges that the company has forced homeowners into taking risky loans. Know more …

MA charges 5 with Mortgage Fraud: Investigators in the state of Massachusetts (MA) reported that they have broken up a mortgage fraud ring involving bank employees. These employees have created fictitious and inflated bank accounts due to which borrowers, who would otherwise not have qualified for mortgage, have been able to get such loans. Know more …

Mortgage rates shoot up: Rates on 30-year fixed rate mortgages rose to the highest level in more than 9 months, thereby inching to an average of 6.45% from 6.42% last week. However, 15 year loans went up to an average of 6.04% from 6.02%. On the other hand, 1 year ARMs rates climbed to an average of 5.27% from 5.19%.

Fixed rates held comparatively stable this week compared to ARMs which rose up slightly due to the market uncertainty on how Fed would respond to inflationary pressures. Know more …

Mortgage applications drop: Loan applications seem to have dropped down for 2 consecutive weeks thereby getting loser to the lowest level in 6 and 1/2 years. One of the primary reasons behind this is the fall in demand for buying homes. For the past 2 years, the housing market is on a slump and is currently not able to rebound because of tighter lending standards and unwieldy supply of homes. Know more …

Technorati Tags: mortgage stories, states sue countrywide, mortgage fraud

The FBI seems to have arrested around 400 real estate brokers on charges of fraudulent mortgage deals. Even Wall Street Managers have not been spared. 2 such managers at Bear Stearns in New York have been arrested in relation to their roles in the subprime mortgage market collapse.

Take a sneak peak into the recent developments in curbing mortgage fraud.

• Named as Operation Malicious Mortgage, the investigation involved lending fraud, money laundering, and foreclosure rescue scams.
• The White House threatened to veto a housing relief plan which could create a new fund to underwrite up to $300 billion of failing mortgages.
• As per the relief plan being debated in the Senate, around 40,000 homeowners could be saved from foreclosure. But the White House objected to the provision as per which the state and local government’s money would be used to buy and fix foreclosed properties.

To know more on the fraud crackdown, refer to LATimes news on Mortgage Fraud crackdown

Technorati Tags: mortgage fraud crackdown, curb mortgage fraud

Backed by the Fed and banking industry, the House of Representatives have again passed a Mortgage Bill on the 8th May, 2008. The Bill is likely to help homeowners who’re unable to cope up with mortgage payments and at the same time it will enable lenders/banks recover their investments by passing on failing loans to the federal government.

What’s the purpose of the Bill?

The purpose of the bill is to reduce the number of foreclosures and help banks/lenders avoid losses on their sub-prime loans thereby stabilizing the housing market. However, the President has announced that if such a Bill is passed by the Senate members, then he would veto it.

What is it all about?

The Bill has been passed such that it would make banks and mortgage lenders accept a reduction in the principal amount of troubled loans. And in return, the federal government will provide a guaranty on the refinanced loans which borrowers take out in order to avoid foreclosure. The aim is to help people who’re upside down on their mortgages - a situation where they owe a lot more than what’s their home is valued in the current market.

Besides, the Bill has a provision which is expected to prevent any lawsuit on mortgage servicers.

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Anyone willing to take out a mortgage today has to come across two situations:

• The after effects of the credit crunch due to sub-prime crisis
• Falling home prices

Due to the credit crunch, those who have been irregularly handled past debts are not likely to get any credit at all. So, if you’re the one having past records of collections, credit card mess, late payments etc, wait till you can repair your credit!

It’s better to improve your credit and qualify for a favorable loan rather than accept a bad credit mortgage at higher rates of interest and options like interest-only and minimum payments which are often offered to lure consumers so that they simply go for mortgage even though they aren’t the right person to deal with it.

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As we all know, the industry has been passing through credit crunch since the past few months and it has left it’s impact on consumer credit. There are people who still don’t know how to get rid of their credit problems, how to manage their mortgages and what to do so that the lender doesn’t foreclose. Often they aren’t even interested to preserve their home and simply wait to be evicted.

There are a lot of misconceptions as well. Most people in foreclosure tend to apply for a loan modification, short sale or deed-in-lieu. And most of them are confused as to whether they should pay tax on deficiency, or why they should receive a 1099c form.

Most of the people I’ve interacted with in the MF Forums are worried over the fact that they’ve received 1099c forms in spite of the Mortgage Forgiveness Act being effective. The fact remains not all mortgages qualify for forgiveness and the Act is yet to be enforced in all states; California is one such state which does not conform to this Act.

One more question which often comes up is, whether to file a bankruptcy when a foreclosure is being declared and almost 90% of the people believe bankruptcy will ruin their credit. Yes it will but there’s a silver lining too.

The fact remains that if you’re filing Chapter 13 bankruptcy, it gives you the chance to restructure your debt and start afresh. Moreover, it stops foreclosure and offers you a repayment plan which if followed will help you pay off the dues in mortgage within a short term of 3-5 years; as the plan ends, you can simply continue paying the balance as you’ve been doing so far.

Interested to know more? Please take a look at How Chapter 13 can be a far better option than foreclosure…

Technorati Tags: bankruptcy or foreclosure, chapter 13 or foreclosure