Common Rate Modification Questions

Posted on January 22, 2009
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If you are like most nationwide property owners, you may be pursuing a loan modification. Whether you need a mortgage loan modification because your ARM adjusted, the hours at your work have cut back, or you have received a pay cut, you need to know the answers to some common questions to make sure you will even qualify for a modification. Even more important, you need the answers to these questions long before you make the initial contact with your lender, or even a loan modification company. Though there are many more questions than are addressed here, this will help answer some of the most common questions regarding loan modification success, or failure.

I’ve recently lost my job – Do I need a job for a successful loan modification?

Yes, you will need a job for loan modification success. The reason for this is because your lender will look to see if you can afford a new mortgage under any terms. If you became unemployed and attempt a home loan modification, your lender will turn you down because you simply won’t be able to afford the new mortgage under any terms. The best advice for this situation is to quickly apply for and get a new job as soon as possible.

I want to modify my investment property or 2nd home – Is this possible?

Yes, it is possible to perform a loan modification on a 2nd home or an Investment property. The question that that you need to ask yourself (and the question that the lender will be answering with research) is “where does the financial hardship originate”? If your financial hardship is caused by an excess of mortgage obligation that is not covered by renters, or from another property, then the odds of modification success are slim.

Do I need to be late on my mortgage?

This is an interesting question. Currently, some lenders are allowing for a modification before any late payments are made, whereas a majority of lenders are not. Though Fannie Mae and Freddie Mac are both implementing policies to hedge default by allowing for modifications pre-late payment, these policies are yet to become the ‘norm’. That said, if you are current on your mortgage payment, but want to pursue a modification, you will need to make a strong case that you are facing imminent default. A hard hitting hardship letter supported by underlying financials will help make the case for a loan modification before you find yourself falling behind on your mortgage.

I am self employed – How do I document my income?

This is a wonderful question. Your lender will want to see a Profit and Loss statement from your most recent Quarter of business activity. Make sure that your Profit and Loss statement matches the financials indicated in your personal and business bank statements. You can calculate your monthly income by taking the average of the income over this period of time. Your lender will want to see this most recent P&L because it will help provide a currentfinancial picture of your household income.

Refinancing Home Mortgage Deals – How To Find The Best Available

Posted on January 18, 2009
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Whether you need cash to renovate your house, money for college, or simply want to liquidate some of the equity you’ve built up in your home, refinancing can be a great option. If you’re interested in mortgage refinancing, keep reading to learn how and where to find some great deals.

Have a Full Appraisal Done

Before you apply for a second mortgage or refinancing, make sure you know exactly how much your house is worth. Get a full appraisal done that includes an assessment of not only the property, but also the area and amenities.

Once you know how much your house is worth, you can confidently present that information to the bank or lending institution.

Take Care of the First Mortgage

If you’re refinancing a full mortgage and intend to pay off your first mortgage with the second one, make sure you’ve read and understand your mortgage contract. Some lenders insert pre-payment penalty clauses that prevent homeowners from pre-paying their mortgage early or within the first 1 to 5 years without incurring a penalty.

To avoid getting stuck with a hefty penalty fee, make sure you understand these terms before you start the refinancing process.

Apply For a Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is one of the easiest ways to obtain secondary financing on the equity built up in your home. Because a HELOC requires less documentation than a mortgage, the application process is much simpler.

The other advantage of the Home Equity Line of Credit as a refinancing option is that you only pay interest on what you actually use. Essentially, a line of credit offers you a credit limit with a low interest rate and you only pay interest on the amount that you actually use.

Get the Value After Renovations

If you’re refinancing for renovations and need more cash now, apply for a loan based on the value of the home after the renovations are completed.

Typically, a loan based on a renovation or improvement project will require you to submit documentation that includes full plans, architectural drawings, contractors’ estimates, project budget and an appraiser’s assessment of the home’s anticipated value after the improvements are complete.

There are ways to save on refinancing, but the best is your own track record. Because you’ve already either paid off or built up significant equity in a home, lenders recognize that you’re a low-risk borrower and a highly desirable customer. Make sure they treat you that way.

When Is The Opportune Time For A Home Loan

Posted on January 16, 2009
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Often when we ask when the right time is to take out a mortgage, we’re thinking about interest rates rising and falling or the Federal Reserve and the state of the economy.

But despite what the banks tell us, your readiness to take on a full home mortgage is significantly more important than a point on the economic landscape. A fraction of a percentage between April and July won’t save you nearly as much money as entering your mortgage agreement prepared.

Keep reading to learn how to ready yourself financially for a mortgage and save thousands of dollars in the long term.

1. The bigger your down payment, the better.

If you’ve saved up a large 20 percent down payment, then the time may be right for a mortgage.

A significant down payment means a lower interest rate, freedom to negotiate with financial institutions and the money you’ll save on expensive private mortgage insurance (PMI). PMI can cost about $100 per month on a basic $200,000 mortgage, costing you thousands in just a few years.

2. Clean credit equals a better interest rate.

You may want to own a house now. However, waiting a year or two to work on rebuilding and improving your credit can significantly reduce your interest rate, open options to better lenders and save you a lot of money over the course of a 30-year mortgage.

3. Do you understand your true total cost?

Home ownership is a lot more than writing monthly mortgage checks. There are bills to pay, roofs to fix, furnaces to run and property taxes to consider. Before you jump into home ownership blindly, make sure you fully understand all the costs associated with your potential new home.

4. Are you expecting any major life changes?

If you’ve been talking about moving or there have been murmurs of layoffs at work, then right now may not be the best time to start investigating a new mortgage.

When planning a return to school or expecting a new baby, you also need to factor these life events into your decision. The best time to buy a home is when you’re stable, secure and ready to take on a long-term financial commitment.

5. Have you compared the cost of ownership versus the cost of renting?

If renting in your area is cheap, then it may make more financial sense to continue renting and invest the money you would otherwise put into home equity or a down payment.

Depending on the cost of rent and the return on your long-term investments, you could actually save more money than if you bought a home. Before you buy, do the comparison.

Can The Hope For Home Ownership Relief Act Really Help Homeowners Avoid Foreclosure?

Posted on January 15, 2009
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My take on this bill is that it will be a another government run fiasco. Any program being run by the crooks in our federal government, combined with lenders that have pocketed billions of dollars in government handouts, the screw the homeowners attitude of lenders, the high upfront costs to the homeowners (who are already behind on payments) and the fact that only a small percentage of homeowners will be covered means certain failure.

The Hope for Homeowners Act of 2008 is intended to provide mortgage relief for distressed homeowners that have home mortgages they can no longer afford. The Act authorizes the Federal Housing Administration (FHA) to insure up to $300 billion of 30-year fixed rate loans for homeowners so they can refinance out of their existing loans into an FHA.

Here is an overview of what’s in the Act:

Hope for Homeowners follows FHA’s long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. Only homes that homeowners are living in are eligible for FHA-insured mortgages. So if you have a second home or an investment property, they are not covered. Borrowers must also meet the following eligibility criteria:

* Their mortgage must have originated on or before January 1, 2008;
* Their mortgage debt-to-income must be at least 31 percent;
* They cannot afford their current loan;
* They did not intentionally miss mortgage payments; and
* They do not own second homes.

Highlights of FHA-insured loans under the new program include:

* 30-year, fixed rate mortgage;
* Maximum 90 percent loan-to-value ratio;
* No prepayment penalties;
* $550,440 maximum mortgage amount;
* Extinguishment of any subordinate liens; and
* New home appraisals from FHA-approved appraisers.

HUD, Treasury, FDIC and the Federal Reserve will form the Congressionally-mandated Board of Directors and work together to establish additional program standards.

Voluntary Lender Participation

This is where the success of the bill gets dicey because the lenders have generally taken the recent government bailout money and used it to pay the bonuses for their corporate officers. FHA wants lenders to offer homeowners an alternative to foreclosing on borrowers. Lenders have been encouraged to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property.

In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure. However, I have seen that most lenders are not cooperating with distressed homeowners. Only God knows what the lenders have done with the their government handouts, they certainly have not used them to help home owners.

Funding

FHA is insuring up to $300 billion in new loans. Borrowers will pay an upfront premium of 3 percent of the original mortgage amount and an annual premium of 1.5 percent of the outstanding mortgage amount. This means that most homeowners will not be able to take advantage of the program – after all, if you are behind on your mortgage payments to begin with – who has 3% to put down.

Any additional costs incurred by FHA will be reimbursed by Fannie Mae and Freddie Mac (remember these are the two companies that recently received multi billion government bailouts and then rewarded their CEOs with new high, paying positions in government?).

Program Timeline

The program will last from October 1, 2008 through September 30, 2011

So what do you think ? Will this really help any homeowners or will it just make bank CEOs wealthier?

Understanding How Private Mortgage Insurance Works In A Conventional House Mortgage

Posted on December 19, 2008
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Most first-time home buyers opt for conventional mortgage financing. More than half of all borrowers are able to make a down payment of at least 20 percent, but for those of us who can’t – there’s private mortgage insurance (PMI).

For any conventional mortgage with a down payment of less than 20 percent, you’re going to have to pay for PMI.

The cost of private mortgage insurance ranges from approximately .4 percent to about 1.5 percent of the loan balance, but this will depend on the term length of the mortgage and the size of down payment you do make.

Because private mortgage insurance protects the lender from a default by you, the borrower, the higher your down payment, the lower that risk.

Here’s a breakdown of average private mortgage insurance rates based on the size of the down payment and the term of the fixed, conventional mortgage:

5% Down Payment
30-Year Fixed Mortgage: .78%
15-Year Fixed Mortgage: .72%
1-Year ARM (Adjustable Rate Mortgage): .92%

10% Down Payment
30-Year Fixed Mortgage: .52%
15-Year Fixed Mortgage: .46%
1-Year ARM (Adjustable Rate Mortgage): .65%

5% Down Payment
30-Year Fixed Mortgage: .32%
15-Year Fixed Mortgage: .26%
1-Year ARM (Adjustable Rate Mortgage): .37%

You can see that the private mortgage insurance payment goes down when you increase your down payment. The payment is also reduced when the length of the mortgage shortens from 30 years to 15 years.

The normal option, used by the majority of home buyers, is to simply pay your PMI on a monthly basis with it bundled into your monthly mortgage payments. At closing, usually two months worth of interest is kept in escrow by the bank.

A less common way is to pay for PMI as a single-premium cost. On loans with a down payment of at least 10 percent, buyers can pay the entire private mortgage insurance premium up front or finance it back into the loan, resulting in a tax deduction for you.

A final option is called “lender paid mortgage insurance.” The lender pays the premiums and in turn, increases your interest rate. So, while your interest rate would be higher, you wouldn’t have monthly PMI payments and your larger interest payments would be tax deductible.

Whichever of the above options you select has its benefits and disadvantages. You should weigh them all carefully to make a comfortable decision before going to settlement on a home.

Investing In Mobile And Modular Homes

Posted on November 13, 2008
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Investing in mobile homes can be a highly profitable business. It is also a business with somewhat high risks, making the average real estate investor nervous. This is a good thing for the investor that will take the time to educate themselves about the risks involved in this type of investing. When risks are managed fortunes are often made.

In order to make money in modular homes investing, you have to be prepared to make sometimes ridiculous offers on these homes. If your first offer isn’t low enough to embarrass you, it is probably too high. This is an important thing to remember and will make you thousands of dollars.

Never buy a home that the owner doesn’t have the title to. Mobile homes are generally like cars, and have titles instead of deeds. Always ask about the title and if the owner doesn’t have one for the home, move on to the next prospect.

Always make sure the home can stay in the park it is currently located in. Moving these type homes is generally too costly and time consuming in most cases. The best way to find out if the home can stay in the park is to ask the park manager.

The mobile home park manager can be a powerful ally to the mobile and modular homes investor. If you really want to know the story behind a home, ask the park manager. Make friends with the manager by taking her out to lunch or dinner, and discussing your investing plans in the park. Without the manager’s approval, doing business in the park will be nearly impossible.

Do not buy homes that have bad roofs. Mobile home roofs are often very difficult and costly to have repaired. The return on investment on a mobile home with a bad roof will be diminished greatly. Walk away from a deal like this unless the price is right.

Free homes are not always the best choice. Often a park manager will offer to give an investor a few homes in the park for free. It is in the best interest for the park to have nice homes to collect lot rent on. Be cautious because these “free” homes usually need extensive repairs that are often too costly and time consuming. Remember high repair costs diminish the return on your investment.

Try to partner up with a person that will do the mobile home repairs for you in exchange for a percentage of the profits. Usually the investor will buy the home and the materials to repair it, and the handy person will do the work and sell the home. People really like to buy homes that have been recently remodeled and repaired.

Investing in mobile homes can be very profitable when done properly. You can buy homes starting from a few hundred dollars and resell for thousands more. Many investors finance their homes for the new buyers. By doing this at even a modest interest rate you can receive income from the sale of the mobile home for many years.

Reasons That The FCRA And Your Credit Score Are The Keys To A Low Mortgage Rate

Posted on November 9, 2008
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Every time you apply for credit, whether it’s opening a new phone line or applying for a home mortgage, creditors look at your credit report before offering a loan. They check your credit score, your history of making payments and your current debt load.

They do this not only to assess whether they want to lend money to you, but also to gauge how much interest or loan insurance they should charge.

When you apply for a home mortgage, you’ll go through an extensive application process. You’ll be required to submit your proof of income, past bank statements, and employment history. Your financial institution will review these and your credit thoroughly. But what exactly does that mean?

In this article, we’ll teach you about your credit rating, credit reports, the Fair Credit Reporting Act (FCRA) and how you can use all these to secure your next home.

Credit Rating or Score

Your credit rating is actually a numerical score called a FICO score. By placing a value percentage on your repayment history, debt-to-available-credit ratio and type of debt, the credit assessment agencies determine a score that’s used to rate you as a lendee. Many lending institutions use this score to draw a conclusion on your loan suitability and interest rate.

Credit Information

Your credit numbers are a lot like a report card. It includes a list of your debts from the last 7 years along with a record of the debt amount, how well you’ve made payments, whether you had any delinquencies (non-payments) and your debt-to-available-credit ratio. The information on your report is what is used to come up with your credit score.

FCRA

The Fair Credit Reporting Act (FCRA) is a federal law that gives you, the consumer, power over your consumer credit information, and it’s extremely important if you’re having trouble obtaining a home mortgage because of poor credit.

Essentially, the FCRA says that you have the right to see your credit report at any time and grants you one free copy per year. It also allows you to contest any misinformation found on your the report.

So, if you’ve been turned down for a home mortgage because of poor credit or you’re thinking about applying for a mortgage but are worried about your credit, it’s very important to request a copy of your personal report. From there, review it carefully and always contest any mistakes. Remember, a healthy credit score leads to a healthy financial future.

How To Make The Cut For A Home Loan With Ugly Credit

Posted on November 9, 2008
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Home ownership preparation involves a number of details that require a potential buyer’s attention. Sometimes a poor credit history, for example, or a less-than-ideal income means you can’t qualify for a standard mortgage, being perceived as risks to foreclosure.

This more cautious scrutiny is often invoked for first-time home buyers who are stretched thin in a market still saturated with overblown house prices.

If you’re still in the process of establishing or repairing your credit and growing your career, keep reading for some mortgage options that are available to you.

Seller Financing

Seller financing or “land contract” selling is probably the oldest method of buying a home with a small down payment. Basically, in addition to getting a mortgage from your lending institution, you also get a smaller second mortgage from the seller.

For example, let’s say you get a 70 percent loan from the bank, and the seller lends you an additional 25 percent. You can now get the property for as little as 5 percent down, plus the closing costs. You also don’t have to qualify for the second mortgage because it’s coming from the seller.

In today’s market with extremely motivated sellers, this is an option you’re going to see a lot. However, many sellers are still wary because of the potential risk involved or because they need the cash and equity to purchase another home.

Most sellers who are willing to “carry back some paper” are looking for a relatively responsible buyer capable of putting 10 percent of the loan amount down.

Low Documentation Loans or Express Loans

The low-doc loans are popular with people who want to minimize the amount of paperwork and details they hand over to a lender. Basically, in exchange for limiting the amount of personal information and credit history you give to a lender, you provide a large down payment.

Typically, these down payments start at 25 percent or more. The lender then waives most of their paperwork involving income verification, reserve checking and credit standing.

Family Financing

Over 50 percent of first-time home buyers get more than a quarter of their down payment from family gifts or loans. Essentially, a family member may agree to lend you a portion of the purchase price.

To keep healthy family relationships, it’s prudent to keep everything as business-like as possible, hiring a lawyer to draft up the loan papers. You can offer the property as security.

Family members may offer low-interest or no-interest loans, but you may want to consult your tax accountant before you go down the no-interest path. Basically, if the IRS sees a mortgage that’s below the standard interest rate, they may impute the interest and tax the lender anyway.

Home Mortgage Refinance Loans Information

Posted on November 6, 2008
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There are several reasons why people would want to refinance the mortgage on their homes. The most popular reason would have to be – to save money, if possible, every month.

In order to pay less than before while living in your home, you could lock the lower mortgage rate and stretch out payments, if, however, you qualify for a lower rate. And once you plan to refinance your home, you will may be faced with a variety of options as to what sort of new loan you can have.

One tactic people use is to shop the loan around to some banks to see what the lowest rate and best deal is for them. Refinancing your mortgage can certainly free up a lot of capital but you have to be careful though. Some unscrupulous lenders may advertise a lower rate, but once you work out the math, the lender may have already added so many points and fees to your refinancing that you are actually paying more than some of the other advertised rates.

When you do a home mortgage refinance, you may reduce your monthly payments substantially especially while we are having a low interest rate just like today. You may have bought your home during the time when the mortgage rates were really high and you are already locked into higher payments. Since mortgage rates nowadays have been hovering around 6% and lower, you may want to do the refinancing now and cut your monthly payment. As we know, mortgage rates rarely stay the same for a long time.

Many people who are in credit card debt or who have recently filed for bankruptcy may want to home mortgage refinance in order to free up some of their home equity and pay off their other debts. This can be a good strategy if the other debts are high interest rate debts.

Though there are some lenders who work hard just to provide you with an excellent mortgage refinance solution, still there are many lenders who will try to make a ton of money from you on your house refinance mortgage loan.

Do consider checking your credit reports to ensure that there are no errors. If somehow you find any, then fix them before you go securing your home refinance mortgage loan solution. You obviously don’t want any surprises on your credit report that will impact your ability to get the best rate on home refinance.

People who refinance their homes often come out better than before, but as usual, it pays to shop around a bit. Find the best deal your can get for your home mortgage refinance and you may be able to have a lot of spare money every month.

How To Get Student Debt Consolidation Loans Now

Help to Avoid Foreclosure

Posted on November 2, 2008
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A foreclosure is an action initiated by a financial organization when a debtor does not meet the legal terms of a mortgage. The mortgage is a legal agreement between two entities, one of which is a lender and one is a borrower. This agreement commits the two entities to the terms of the mortgage. When those terms are not met legal remedies such as foreclosure are possible.

Now the worst thing that can happen to the borrower is to default the mortgage and lose their home to their creditors. If your home is the security for a loan that you defaulted then you could be in big trouble. The agreements that you signed give the creditor the right to foreclose on your property if this happens. You could then be without your home.

You Can Avoid Foreclosure

Obviously the first and best way to avoid foreclosure is to make your payments as scheduled without fail. This indicates that you need to first live within your means as well as save up some reserve money. If you have a limited monthly income then you should work on a monthly spending budget. Once your paycheck arrives divide it up as outlined in your budget. If you are a person that pays in cash, then one idea is to put cash into designated envelopes to be sure the cash is used for its intended purpose. Make sure to use your food money envelope for food and your mortgage money envelope for the mortgage. This simple idea will keep your all cash budget in order. This type of planning can keep you out of financial jams caused by overspending.

Perhaps you have an income source where you get paid each day. In this case you need to figure out what your monthly obligations are and then divide by the number of days that you get paid. This is the amount that you will need to save each day from your daily income in order to meet your monthly obligations. It is important to follow through with this plan as a little bit of overspending early in the month may be harder to recover from than one thinks thereby leading to financial disaster. It would be better to save too much each day and perhaps reward yourself with any surplus at the end of the month after all the bills are paid and you put some money aside.

In the event of a financial emergency try not to use the money you have set aside to pay the monthly mortgage. It would be better to cut back on your entertainment and food bill than to risk your home to foreclosure. Perhaps you can find a temporary source of income by working extra in order to get through the financial emergency. The key to avoiding foreclosure is to always pay your mortgage on time. This often requires will power to spend within your means.

Read more about avoiding foreclosure and how to negotiate a mortgage wisely.

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