Tag Archive for 'mortgage'

You can't browse the Internet or pick up a newspaper without someone telling you that if you don't want to be a financial idiot and end up homeless and stealing from bag ladies you need to pay your mortgage off as soon as possible. Because you will pay less interest over the life of the loan, retire your mortgage early, and beautiful supermodels or hunky movie stars will throw themselves at you. And to a certain extent, that's true (not about the models, silly). But you do pay less interest over the life of the loan and you may feel more financially secure with no mortgage.

But what about now? Who is better off in a shaky economy? One newly-unemployed homeowner put every extra cent into prepaying her mortgage. But in an emergency, the only way to get that money back is to borrow against her home equity. And guess what? Her bank isn't exactly bending over backwards to lend her money while she's out of work--in other words, banks are notorious for only being willing to lend to those who don't actually need the cash. The other homeowner put his money into a savings account instead, and when he lost his job he was able to pay his bills until he got a new one. He didn't end up with bad credit or the Foreclosure Police breathing down his neck. And he didn't need his lender's permission to take care of business.

The one legitimate reason for paying down a mortgage early is to get rid of a really expensive sub-prime or bad credit home loan. If you are paying 12% on your home loan, and can reduce that balance enough to qualify for a 6% refinance, it probably makes sense for you to do so.

And for those who can't shake the image of the hunks and supermodels, those who really want to pay their mortgage off early, here's a plan:

1. Build up an emergency fund first--depending on how secure your job and health are, it should be three to nine months of expenses.
2. Pay off high interest debt like credit cards. Those cost you a lot more than your mortgage and are not tax deductible.
3. Open a savings account for your house. Put money in whenever you can, and look for safe accounts with the best interest rates. This way you have access to your money if you need it. And you can earn interest too.
4. Pay off that sucker when you have enough savings to retire your mortgage and are financially secure. Then congratulate yourself!

Some creative types may try to sell you an early payoff service. Don't bite. Many of them simply have you pay your mortgage every two weeks instead of once a month. By making half a mortgage payment every two weeks, you make an extra mortgage payment every year--not exactly rocket science. And it's crazy--companies like that can charge hundreds of dollars to enroll in their programs. Plus up to $40 for each payment!

To add injury to insult, these clowns don't send in the extra payments as you make them. They hang onto your money (and your interest) until the end of the month. And it may not even be safe--what if the company makes your payment late and trashes your credit?! What if it goes belly up? It happens--just say no to creeps getting their hands on your money.

You can pay your mortgage down the same way without the help of a dubious firm--simply transfer half a mortgage payment every two weeks into a checking account (preferably interest-bearing), then pay your mortgage from that account once a month. The balance of that account will grow until you have saved anough to pay off your mortgage. Or you can add a little extra to every payment and request that it be credited towardyour principal balance. Then you will be smartly managing your money and your mortgage.

Some of the most affordable housing can be some of the hardest to get financed. Ever see commercials for those outfits that loan on mobile homes? Only 14%! Wow. Maybe I'll just put it on my Visa card instead. So, can you really get an affordable mortgage on manufactured housing? Sure, if you buy the right kind of manufactured housing.

As they say, the devil is in the details, and if you are buying a mobile home that goes double. Statistically, people who buy manufactured housing have been more likely to default on their mortgages, so lenders often impose some surcharges--but you can keep your mortgage interest rate reasonable if you follow these guidelines when buying a mobile.

1. First, your mobile home can't really be mobile--the home must be affixed to a permanent eight-point foundation. Otherwise, it's not legally a house. It's just a really, really big car.
2. The home must have been built after June 15th, 1976. Because mobile homes built before then have an inconvenient habit of catching on fire. Newer homes are safe enough to be financed and lived in.
3. Qualified manufactured housing has to have at least 400 square feet of floor area. Otherwise, it's not a house--it's a porta-potty.
4. If you pay your taxes to the DMV, you do not have a house (see #1). Your property must be classified and taxed as real estate.
5. The property must have been designed and built to be used as a dwelling. Duh. Tool sheds or dog houses need not apply.
6. The finished grade beneath the home must be at or above the 100-year flood elevation. Otherwise you don't have a house, you have a house-boat.
7. Finally, you must also own the land on which the house is (permanently) sited. You can't park it in a national park, a camp ground, or in front of your girlfriend's parents' house.

If you meet these requirements and don't have truly awful credit, chances are good that you can get a mortgage on a mobile home. Try Fannie or Freddie if you have at least 20% down and good credit (you pay a slightly higher rate or an extra .5 point in fees) or FHA if you have less to put down or credit boogers (there is an upfront mortgage insurance premium plus a monthly charge but there is no addition to your interest rate or loan fees).

You are a smart shopper. Whether it's for a bad credit mortgage, an FHA loan, or a debt consolidation home equity loan, you know what to do--get online or on the phone, touch base with several lenders, and get your disclosures quickly. Once you have decided which lender you like best, it's time to apply for your mortgage. But what about that rate quote? Is it guaranteed? What are your rights when it comes to mortgage interest rate quotes?

Recent mandated changes to the Good Faith Estimate (GFE) disclosure make it easier to discern what your mortgage interest rate is and what the costs of getting that rate are. Now, you can see at a glance if your rate is locked or not--the disclosure should tell you right at the top how long the quoted rate is guaranteed. If you have not locked your rate there should be no date on the form. Interest rates are driven by financial markets and move almost like stock prices--often changing several times a day!

Once you have locked your interest rate, you should get another GFE showing what your interest rate is and how long it is guaranteed. The new GFE should also reflect any changes in the pricing of your mortgage. Recent mortgage reforms force the lender to give an accurate estimate--no baiting and switching--and differences exceeding tolerances defined by law between the last disclosure that you receive and the actual costs become the lender's responsibility. When it comes to locking, though, you still don't have an absolute guarantee. Remember:

* Your loan is not locked until you are explicitly told it is and you get it in writing. Do not assume that your rate is locked just because you called someone and left a message to lock in your rate.

* Once you lock, the clock starts. Locks can range from 7 days to six months or more, with longer locks being more expensive. If you don't close on time, or "blow the lock," you could end up with a higher rate or having to pay a fee to extend your lock. So make sure that you do your part and quickly provide everything the lender needs to close your loan.

* Sometimes you might blow a lock and it's not your fault--the seller took too long to return an addendum, the real estate agent neglected to order tests or inspections, or the lender sat on your file too long. Don't hesitate to ask whoever caused the delay to foot the bill for an extension.

* Not everyone chooses to lock their rates. If your closing is a while out, perhaps if you are buying a house under construction or the seller wants a long escrow, it may be impracticable and expensive to lock your rate. You save the fees on a rate lock (which can range from an eighth of a point to one point or even more) if you elect to float your rate. In addition, if rates drop, you benefit by not being locked in. That said, if a higher rate would jeopardize your loan approval you probably want to play it safe by locking.

When should you lock your rate? In most cases, if the rate is acceptable to you you probably want to lock it in and then get your documentation in on time to close.

According to an article in the LA Times, mortgage problems are becoming credit problems. While refinancing under making Home Affordable programs won't hurt your credit and may even help it a little, the same can;t be said for short sales. Many holders of under water property assume that a short sale won't harm their credit, or at least not much, but it really depends on how the lender chooses to handle the sale. Unless you live in a non-recourse state like California, your lender has the right to pursue a deficiency judgment against you. If it does, you could be liable for the difference between the sale proceeds and the loan balance. And even if you pay this in full, one large American bank still reports the transaction as a "charge off," which is little better than a foreclosure.

According to risk predictor VantageScore Solutions, about 36.6 million of 213 million consumers in the databases of the three national credit bureaus in the first quarter of 2008 had super-prime credit ratings. Those borrowers made up 17.2% of the country's consumers. However, by the end of the second quarter of 2009, roughly 33.3 million of the 213 million consumers tracked by the three national credit bureaus in the first quarter of 2008 had Vantage scores above 900--by the end of the second quarter of 2009, 3.3 million people had dropped out of this top-drawer credit category.

In addition, by the second quarter of this year, another 5.8 million people joined the 34.4 million who were already in the lowest credit category last year--for a total of 39.8 million in the credit basement.

This shift, with fewer people having excellent credit and a lot more having bad credit--has been caused by late payments on home mortgages, serious delinquencies, and short sales and foreclosures, according to VantageScore researchers.

So how do you keep minimize your own damages? Most people go through several months of not making payments while they wait for a modification or short sale. If you can possibly do it, keep making your payments through negotiations. if you don't get a modification, or your bank tries an eleventh hour end run to try and force you to pay a deficiency in a short sale, bankruptcy may be your best option. By making your payments until you file, the fallout from bankruptcy may not be as much as the hit from a short sale, foreclosure, or deficiency judgment if you skip your payments.

Those of you waiting to take the step from renting to home ownership may want to step it up. First, unless Congress extends the deadline, that first-time home buyer credit is going away the end of November. Of course those on the sidelines face challenges--often bad credit, a little short on income, insufficient down payment, or lack of time on the job. But you don't know until you try, right? With a good loan agent, even a decline from a lender can be a useful tool. Here's how to make the most of that information.

Applicants for mortgages get declined for a few reasons. Bad credit, too little reserves, or insufficient income are the biggies. But just knowing that you have been declined for a home loan isn't enough. A good loan officer should be able to tell you EXACTLY what caused the rejection of your loan application, what you can do to get approved, and how long (approximately) it will take.

For example, you may have been declined because of your debt to income ratios. Your ratios reflect your ability to pay your loan--even good credit doesn't help if you can't realistically make the mortgage payment. So you either have to make more money, spend less money, find a co-borrower, or buy a cheaper house. The first two options involve budgeting. if you aren't comfortable with a budgeting process, call one of many reputable counselors and get help with this--as they say, if you fail to plan, plan to fail. Probably the easiest way to influence your ratios is to spend less money. Ask your loan officer what your ratios are and what they would have to be to get approved. Then take a look at your debts. Often, a lender won't count a debt against you if you are within 10 months of paying it off. Look at your budget. Can you throw more money at a debt with a high payment to make it go away? This helps you in two ways. First, it gets you used to paying more each month and spending less, which is useful if your new mortgage payment will be higher than what you're spending on housing now. Second, it makes you more qualified to buy a home.

If bad credit is the main reason for your application getting bounced, only time can cure that. Your credit rating reflects your willingness to pay. How much time depends on the severity of your credit errors. Your loan agent should be able to help you with that too; good ones understand underwriting guidelines very well. A foreclosure, for example, takes a minimum of three years to put behind you credit wise. Use that time to develop better habits, like paying on time and avoid over-using credit. It can be useful to ask your credit card companies to freeze (not close) your accounts to keep you from using them while you work at paying them off.

If you have bad credit but make plenty of money, and you find a deal on a house that's just too good to let go, you are in a better position to buy. Bad credit lenders are still in business (although there are fewer of them) and if it looks like you can afford their high rates they will often finance you. Be careful about prepayment penalties and start working on your credit so that you can refinance to a better loan as soon as possible.

Those with insufficient assets face a similar challenge to those with too little income. Budget for savings and watch your accounts grow. Even having enough for two months' of expenses (this is called reserves) makes a big difference on your loan application. Those who are self-employed or on commission need more--at least 3 to 6 months' of expenses to look good. Lenders have learned that even people who don't have bad credit can't pay when they lose their jobs. You can't get blood from a turnip. So, while your credit rating shows your willingnesss to pay, and your income reflects your ability to pay, your assets or reserves demonstrate that you will be able to pay even if you have a financial setback.

A good loan agent can help you plan for the day your application will be accepted. Keep this person's contact information and return the favor by taking your business there when you are ready to buy.