Monthly Archive for October, 2009

If you have bad credit, just hope you don't live in California, Florida, Arizona, Michigan, or Nevada. Major lenders are piling on the poor people who own homes in these states, requiring higher credit scores and charging more to lend in these designated "distressed" areas. On Monday, one of the largest American banks is joining in the beatdown of distressed states.

What makes an area distressed in the first place? A housing market with falling values, that's what. And by making it harder to finance in these states, aren't lenders making things even worse? How can distressed real estate markets make a comeback if buyers have a hard time getting loans there? Wasn't this what TARP funds were for--lending?

Once again, lenders are at cross purposes with the public interest--and as long as there is no stick to go with the nice carrots the taxpayers keep feeding them, nothing will change. What can you do? If you have a bad credit history, or even just an okay credit history, you are really going to have to shop around for your next mortgage. Make sure that the lender you choose works in your state and doesn't impose extra fees because of where your property is. Shopping online is probably your easiest route to multiple offers and quick comparisons. Good luck!

There it is--in your mailbox, in the envelope with the exclamation points and smileys all over it. A CHECK! Made out to YOU! Sign a few documents, and you can replace all of your credit card payments with just one. What's not to like?

Maybe a lot. Remember, the big print giveth and the fine print taketh away. Unloading several monthly payments and making only one isn't a good enough reason to take on this kind of loan, especially if it's secured by a lien against your home. And that goes double if it makes your credit score worse instead of better.

1. Closing out accounts could downgrade the "utilization" portion of your credit score. For example, if you have 5 accounts with a total limit of $10,000, and you owe $6,000, you are utilizing 60% of your available credit–not the greatest ratio, but not really bad either. If you close those accounts out and replace them with a $6,000 consumer loan or home equity loan, guess what? You now have 100% credit utilization. Ouch. So instead, can you leave the old accounts open? Maybe--if your lender doesn't require that you close them, and if....big if...you have the discipline to refrain from spanking them to buy more things and blings, that's an option??just keep it reasonable--the bureaus can also clonk you for having too many open accounts.

2. Consolidation could cost more. A lower monthly payment isn't really savings--I know, that happy envelope says it is, but unless you are getting a lower interest rate too, a lower monthly payment is kind of an illusion. Your payment is only lower because your balance is being stretched out over about a million years. In fact, stretching out the debt over too much time can cost you more in the long run even if you get a lower rate. And if you don't...check out this way-too-typical scenario and hope it isn't you:

Ms. Smith has a $10,000 car loan at 7% that's three years old and she still owes $4,000. Her payment is $198.01 and she will have the loan paid off in two more years. Now, some pretty, rah-rah mailer with a check in it shows up, she bites and calls the 800 number, and the sales agent tells her (in a deep sexy voice!) that she can use that check to pay off the car loan and her payment will only be ONE THIRD as much!!!!! Well, yeah, if she uses that check her payment drops to $57 all right, but only because the $4000 has been stretched out into a ten year loan! The car will probably be on a scrap heap somewhere by the time that loan is paid off. And her interest rate actually increases to 12%! So read that nasty little fine print already.

3. The consolidation loan may have "teaser" clauses. No one likes to be teased. But just because your balance transfers start with a low fixed rate doesn't mean they will stay that way. Especially if your new consolidation loan is another credit card or unsecured account, the terms can probably change whenever the lender chooses to change them. Read the entire agreement and make sure you aren't jumping out of the frying pan and right into the fire.

Consolidation loans can be life-savers if you make smart choices. There is a reason people like them--the right one can indeed lower your interest rate, yield a manageable payment, and help you get some financial breathing room. The consolidation loans with the best rates are those secured by your home. Unlike many other products, mortgages are highly regulated. Rates can't be changed just because, and if you get a fixed rate loan your rate and payment don't ever change, which makes budgeting easier. Mortgages may also get you some some tax advantages--check with your tax pro to be sure. And because they are secured by property, debt consolidation mortgages are counted less risky by lenders and rates should be quite a bit lower than rates on the unsecured debt you'd replace.

On October 1st, new rules for sub-prime mortgages and bad credit home loans finally took effect--only about fifteen years overdue, but better late than never, right? Now, lenders making loans designated "high-priced," which covers most mortgages to people with bad credit, must:

1. Determine your ability to repay the loan and must verify your income.
2. Not saddle you with a prepayment penalty if the monthly payment can change during the first four years of the loan.
3. Impound your home insurance and taxes in your monthly mortgage payment and keep these items paid.

The downside? You have to prove that you earn sufficient income to repay your mortgage. The upside? Added oversight should give investors more confidence when buying subprime mortgages, increasing the availability of these loans for those who need them.

Who is the perfect candidate for a subprime loan today? Someone with plenty of income that can be verified, a sizable down payment, and lousy credit that can't be quickly cleaned up can benefit from today's subprime loans. With the real estate bargains available, it may be worth buying even if you have to take on a bad credit mortgage for a couple of years. Once your bad credit has been cleaned up, refinance to an FHA or conventional loan and get the benefit of a low rate in addition to a cheap price on your home.

Most analysts agree that the U.S. Senate will approve extending the $8,000 first-time home buyer tax credit, perhaps as soon as later today. The first time buyer credit as it now stands is set to expire November 30, and many feel that if it lapses, the real estate market will experience a major buzz kill and economic recovery will stall.

Senate leaders appear to agree, and a vote could happen very swiftly on a measure drafted by Senate Majority Leader Harry Reid (D-Nevada) and Senate Finance Committee Chairman Max Baucus (D-Montana). This would extend the tax incentive until the end of 2010, but slowly phase it out during 2010. The full $8,000 could be claimed for property closed by March 31 of 1010, then the credit amount would then drop to $6,000 in the second quarter of the year, $4,000 in the third quarter, and $2,000 in the fourth.

Sen. Johnny Isakson (R-Georgia) and Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) also have a proposed home buyer tax credit amendment. Their version would make the tax incentive available to all who purchase a home (not just first-timers). It would extend the tax credit until June 30, 2010, and raise the income limits to $150,000 for an individual or $300,000 for a couple.

HUD Secretary Shaun Donovan told senators last week that there was "clear evidence" the tax credit benefitted the housing market, but he said the real issue is whether an extension is worth the lost tax revenue. The proposal would "be very expensive, especially at a time of significant budget deficits," Donovan said.

So stay tuned. If the only thing holding you back is the fact that you aren't a home buying "virgin," your day may be coming. Get a jump on everyone else now and start your loan approval process.

While the housing crisis has created unprecedented opportunity for buyers, even those with bad credit, there are many who won't be able to take advantage of the opportunity to buy condominiums even at their drastically slashed prices. Complexes with lots of foreclosures (and perhaps loads of screaming deals) won't be eligible for VA, FHA, or other government housing loans.

If you are shopping for an affordable condo and plan to use an FHA or VA lender (people with bad credit will have a hard time finding financing that isn't backed by the government), make sure before you make your offer that your condo is approved by FHA. You can't get a government-backed loan on a condo without the complex being approved--either already on a list or on a case-by-case basis (often called a "spot" approval. If you are trying to get a first-time purchase through before the November 30th deadline, writing an offer on an approved unit is even more critical--FHA has been deluged with requests for spot approvals and they are not happening quickly. You can find approved projects HERE.

What makes FHA approve or reject a condo? If you've found a condo and want to see if you can finance it with a government loan, check the list first. If you don't find your project, call your mortgage loan officer and make sure that he or she gets an FHA condo questionnaire sent out immediately--you can see the importance of choosing a very responsive loan professional because someone who doesn't take action promptly can cost you a lot of money. You should be able to get a quick idea of whether the property is approveable or not, before wasting your time or money time and money trying to find out.

Here's what a condo should have to be approved for government financing:

1. The whole condominium project must be complete, including all common areas and facilities.
2. Control of the common areas must have been turned over to the homeowners association (HOA) for at least one year.
3. The HOA mustprove that the project has the appropriate hazard, liability, and flood insurance.
4. Individual ownership must be owned fee simple, with undivided ownership of common areas by unit owners.
5. There must be no legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is unacceptable. Such restrictions include rights of first refusal and restrictive covenants.
6. At least 90% of the units in the project must have been sold--the builder can't be sitting on a bunch of unsellable units.
7. At least 51% of the units in the project must be owner occupied--not foreclosures owned by banks or rental units owned by investors.
8. No single entity may own more than 10% of the units in a project unless ownership of less than four units would disqualify an otherwise eligible project. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time.
9. Condominium projects consisting of 30 units or less can have up to 20% of the units encumbered by FHA insured mortgages.

Ineligible projects include condominium hotels or "condotels", timeshares or segmented ownership projects, houseboat projects, Multi-dwelling unit condominiums, and all projects not deemed to be used primarily as residential.

This system will be changing soon, with many more projects being approveable but no spot approvals will be issued after November 2nd, although rumors suggest that the deadline could be extended to December 7. And there will be some problems before everyone gets the bugs out of this new system.

According to the US General Accountability Office (GAO), the $8,000 first time home buyer tax credit has spawned a lot of tax fraud, and the IRS has identified about 100,000 possibly fraudulent returns. It appears that billions of dollars have gone to taxpayers who weren't eligible to take the credit--and the IRS wants its ...

This may have happened to you--you shopped for your mortgage and found a good deal. You intelligently got an estimate of costs for your mortgage, but when you closed on your loan, the actual costs of your mortgage were MUCH higher. Of course you were angry, and you might have had to scramble to come ...