Mortgage : Home Loans : Refinance : Home Equity Loans

By Peter Miller

When it comes to lifetime markers getting a first mortgage is a major event. With a mortgage you'’re magically transformed from occupant to owner and from tenant to titleholder.

Applying for a mortgage used to be seen as a battle of sorts, a competition where the only winners were those who sold headache remedies and paper by the truckload. But now finding the right mortgage is faster and easier than ever — but only if you know how to make the system work for you.

If you compare loan applications today with the ordeals of even ten years ago you can see a marked difference.

It used to take days if not weeks to obtain a credit report. Meanwhile a mortgage lender could not act on a loan application because information regarding debts and credit history were simply missing so loan processing times have been greatly compacted.

In 1995 both Fannie Mae and Freddie Mac said local lenders should use the credit scoring system developed by industry-pioneer Fair Isaac to evaluate consumer credit. With credit scoring, a rigorous mathematical profile drawn from a huge number of credit reports is used to measure credit history — and thus predict future credit behavior. Credit scoring benefits borrowers because it measures how credit is handled, not how much income is earned. You can be rich and have low credit scores; conversely you can be poor and have excellent credit. In practice, the higher your score the lower your rate.

Many mortgage loan programs no longer require income and employment verifications, the physical process of confirming wages and jobs.

A growing number of loan programs do not require individual appraisals — instead lenders can use automated valuation systems based on tax records and past sales to show the worth of many properties. Automated appraisals are faster and less expensive when available; however they are not obtainable for all properties.

The underwriting system itself has been automated. A conditional lending decision can often be made with!
in an ho
ur of receiving an application.

Lending has gone online. The old advice used to be that borrowers were well served by checking with three or four lenders for the best loans; now it’’s possible to compare huge numbers of lenders within minutes. The result is that mortgage lending has become more competitive — good news for borrowers.

Despite the growing use of computers and electrons however, the fact remains that borrower participation is still required.

Essentially your job is to make sure lenders have application information which is complete and correct. If there are errors in the application you may suddenly face expensive and steeper mortgage costs.

Your lender will supply you with a preliminary loan application showing income, assets, debts and required monthly payments. Much of the application is produced electronically from information received by credit reporting agencies — but before signing anything go through this application line-by-line to make sure all data is current and correct.

Since you know the lender will be providing an application for your review, you can speed the underwriting process by preparing your financial data in advance.

First, make a list of all assets. You want to show the balances or fair market values for all IRAs, stocks, bonds, mutual funds, checking accounts, real estate, pensions and cars and other major assets. You also want to list account numbers and contact information.

Second, make a list of all debts. You want to include all credit cards, car loans, student debts, mortgages, etc. As with assets, show account numbers and contact information for each liability. In addition, but sure to list required monthly payments for each debt.

What you now have is a handy financial planning tool. It tells what you have, what you owe and how much you'’re worth (assets less debits equal you'’re net worth). Because there are account numbers, contact information and such, this is good information to keep with wills and living wi!
lls. Als
o, if you enter this information onto a spreadsheet, it’’s easy to update and keep current.

Many loan programs no longer ask for income or employment verifications — however for your records you want to have a file where you keep such things as your last two or three pay stubs from the time of application and copies of your tax returns from the past few years. Also keep information regarding other sources of income such as interest, dividends, profit-sharing, etc.

You now have a way to zip through a loan application — and you have a way to make sure that lender decisions are not being made on the basis of information which is out-of-date or factually incorrect.

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Peter G. Miller is a syndicated real estate and personal finance columnist who appears 70 newspapers.

===========================================
For additional Mortgage Refinancing information
and resources visit Mortgage Refinancing.
(http://www.refinance-refinance.net)
===========================================

By Peter Miller

After watching home values soar during the past few years it looks as if real estate reality is finally about to set in. The home-pricing forecast for 2006 is mild and modest with higher prices projected for the year but not the double-digit increases seen in 2005.

Then again, the forecast for 2005 was also mild and modest and it turned out to be wildly understated.

According to the National Association of Realtors existing home prices were expected to increase 5.3 percent in 2005. Now, however, NAR predicts that 2005 existing home prices will increase 12.7. If the most-recent NAR estimate is true, it would be the largest one-year price increase since 1979.

As to 2006, NAR says existing home prices should grow 6.1 percent.

In the context of what we know about existing home prices, a yearly increase of 6.1 percent hardly seems impressive — NAR records dating back to 1968 show that cash prices have increased an average of 6.4 percent annually. Also, it’s important to say that real estate is a localized commodity — what happens in a particular area may be radically different than what happens nationwide. It’s entirely possible that neighborhood prices may rise while national averages fall — and vice versa.

The result of NAR’’s moderate forecast and the visible slow-down in price appreciation nationwide plainly raises two issues: First, is the “bubble” over? Second, what’’s the next step for prudent buyers, owners and borrowers?

Let’s start by saying that there has not been a “bubble,” a term which suggests unwarranted appreciation. Instead, what we have seen is an unusual combination of circumstances which together have made real estate the investment option of the moment.

In the past few years we have had interest rates at historically low levels. For much of 2003 to 2005 you could finance or refinance at 6 percent or less. As interest rates get lower demand increases because more people can compete for homes and bid up prices.

In many metro areas new h!
ome cons
truction is delayed, complicated and made more costly by restrictive zoning regulations and a declining supply of close-in buildable land. The result? Higher prices for those properties that are available.

Between 2000 and December 2005 the population increased from 282.2 million people to 297.9 million — that’’s an additional 15.7 million individuals who need housing. Again, more demand pushes up prices.

In most areas — but not all — real estate has been a good place to invest, especially when one considers the alternatives. For instance, on January 14, 2000 the Dow Jones Industrial Average reached 11,722.98. By December 14th of this year — nearly six years later — the average was more than 800 points lower at 10,883.51. In contrast, typical existing home prices went from $139,000 in 2000 to $218,000 in October 2005 according to NAR.

Home prices have gone up in part for the simple reason that houses have gotten bigger. The National Association of Home Builders reports that in 1987 a typical house had 1,755 sq. ft. By 2004 the typical house had 2,140 sq. ft. More size produces a higher cost per unit.

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What we’re seeing today is that some of the factors which have pushed up prices in the past few years are moderating.

Interest rates are now above 6.3 percent for 30-year financing — a terrific rate for much of the past half century but a full percentage point above the fixed-rate mortgage levels seen in 2003.

Higher interest rates mean two things: First, they limit the ability of borrowers to bid more. Second, they limit the number of bidders at any given price point. A $200,000 fixed-rate loan at 5.3 percent costs $1,110.61 per month for principal and interest over 30-years. At 6.3 percent and the same monthly payment, the borrower can only finance $179,428.

Not only have rates increased in 2005, there is reason to believe they will increase further.

The recent hike in energy prices, as one example, is nothing more than a universal tax on every transact!
ion, pro
duct and service. It effectively raises costs that people, governments and businesses will try to re-capture through higher prices, taxes, wages and interest levels. Higher energy prices also directly increase the cost of homeownership.

What does it all mean? Look for a gradual and growing preference toward smaller, energy-efficient properties which cost less to buy and less to operate. With smaller appreciation, watch for reduced speculation which in turn will further shrink demand. Finally, look for savvy borrowers to limit future costs by refinancing now with fixed-rate mortgages — before rates go still-higher.

—————————————————————–

Peter G. Miller is a syndicated real estate and personal finance columnist who appears 70 newspapers.

Search local mortgage lenders now! Go here for online refinancing and second mortgage loans.

===========================================
For additional Mortgage Refinancing information
and resources visit Mortgage Refinancing.
(http://www.refinance-refinance.net)
===========================================

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By Peter Miller

Millions of credit card borrowers are about to face larger monthly payments, a change that represents both good news and bad for consumers.

Under new guidelines suggested by the federal government, starting in January minimum monthly payments for credit card debt will generally increase. Many mortgage lenders will no longer require payments equal to 2 percent of the debt, an amount that includes interest and fees. Instead most will now require a payment equal to 1 percent of the debt plus fees, interest and charges. Altogether, the new payment will be more than 2 percent of the borrower’’s outstanding debt in many cases.

This is the good news. The higher monthly payments will reduce overall interest costs and force people to borrow less with credit cards.

The bad news? It will reduce the ability of many consumers to obtain a mortgage.

According to the most recent Federal Reserve report, we now have $799.1 billion dollars in outstanding credit card debt. That’’s about $2,681.54 per person: For a household with four people, average credit card debt amounts to almost $10,750.

Such debt would not be a problem if it were offset by equally robust savings. Unfortunately, the Bureau of Economic Analysis says our saving percentage was -.2 percent in both October and November. Instead of putting money away, in those two months alone we spent $37.4 billion more than we earned.

Credit card financing is unsecured debt — a form of financing that’’s especially risky for mortgage lenders. More risk means higher interest, and in the case of credit cards interest rates between 18 and 28 percent are well known.

Let’s imagine a household with $10,000 in credit card debt. Imagine also that the interest rate is a modest 18 percent and that a monthly repayment equal to 2 of the outstanding balance is required. If you borrowed no more this loan would take 7.8 years to repay and interest over time would amount to $8,622. Increase the required monthly payment to 4 percent, the same de!
bt could
be repaid in 2.7 years and interest would amount to $2,628 — a plump savings of almost $6,000. The new repayment standards for credit cards will reduce credit card debt for millions — but the higher minimum payments will also impact mortgage applications.

When mortgage lenders look at mortgage applications they consider many financial issues. Of particular interest is what borrowers spend each month, spending divided into two general categories: Housing expenses and consumer expenses.

Housing expenses are typically seen as mortgage interest and principal plus property taxes and insurance — “PITI” in lender jargon. Consumer expenses include PITI plus such things as required monthly payments for credit card bills, auto payments, student loan pay, etc.

Expenses are described as a percentage of monthly income. If your household has a monthly income of $8,000 and monthly PITI is $2,240 then your “front” ratio is 28 percent. If overall required expenses are $2,880 then the “back” ratio is 36 percent. Overall, lenders would say the ratios are “28/36.”

As it happens, to qualify for given mortgage loan programs you must meet certain front and back ratios. The ratios for loan programs vary, so if you do not qualify for one program you may qualify for others. For instance, there are different ratios for conventional loans (28/36), FHA financing (29/41) and VA loans (effectively 41/41). Adjustable rate mortgages often use 33/38 ratios while other loans have even more liberal standards, some with a back ratio above 50.

Now go back to the new payment standards for credit cards. If your required monthly payment goes from $200 to $280, that’’s good for reducing credit card debt — but your monthly required payment has increased. For instances, monthly expenses may go from $2,880 to $2,960. No a big deal in terms of cash or in the cost of a household with a monthly income of $8,000, but now the “back” ratio is 37 percent.

Whoops. That higher credit card payment means some borrowers!
will no
longer qualify for certain mortgages. They monthly costs are above the guidelines.

What to do?

First, start with the realization that paying non-deductible, high-cost credit card charges is not a magical path to great wealth. To get the best possible mortgage, and to simply save more money, reduce credit card use.

* Look at your credit situation and get rid of credit cards you don'’t use and don’t need. Keep one for emergencies.

* Speak with underwriters. Ask if it is possible to get an “exception” to the guidelines.

* Start saving. People save enormous sums of money with such basic steps as putting aside all singles found in their wallet at the end of the day or all coins in their pockets. Eat-in more often, bring lunch to work, keep safe cars longer and cut back on fashion and frills.

* If you have credit cards, always make full and timely payments and keep balances at zero.

* Instead of credit cards, use debit cards — with a debit card you’re simply using money already in your checking account. Using cash on hand instead of credit means you’re likely to buy less.

* Get over-draft protection (a line of credit) for your checking account or link savings to checking accounts. Both can help prevent over-drafts and excess fees.

So the next time you pull out that credit card think about your real goal — a new sweater or a new fireplace, a fancy dinner or a better kitchen, higher monthly payments or less. In no time it will be easy to keep the plastic out of sight and out of mind.

—————————————————————–

Peter G. Miller is a syndicated real estate and personal finance columnist who appears 70 newspapers.

===========================================
For additional Mortgage Refinancing information
and resources visit Mortgage Refinancing.
(http://www.refinance-refinance.net)
===========================================

By Peter Miller

We take long-term mortgages for granted today, but it wasn’t always that way. Long ago it was likely that if you financed a home you borrowed money with a five-year “term” mortgage — and even then you needed 50 percent down. When the five years was up, you went and got a replacement loan.

But term loans have a built-in problem: They’re not always available, especially if people lose jobs or if home values decline. That was a common situation after the Great Depression, but in 1934 the newly-formed Federal Housing Administration (FHA) began offering long-term mortgage loans insured by the federal government. The result was that millions of people could get long-term mortgages with little down that would allow them to ride-out tough times.

Today the FHA mortgage program remains an important option — more than 555,000 FHA loans were originated in 2005. That’s a big number, but it’s a lot less that the 827,000 FHA loans started in 2004 or the 1.53 million originated in 2003.

Whatever the numbers, if you’re a first-time buyer or someone looking for liberal qualification standards, the FHA program is worth considering. And given coming changes in the lending industry, it’s likely that we’ll see a lot more FHA loans in 2006 and beyond.

Under the FHA program you can buy with as little as 3 percent down. That’s 97-percent financing, a good deal by traditional standards though it’s fair to point out that 100-percent financing is now widely available. However, the 3-percent downpayment can be in the form of a gift or grant — in fact for the past decade the FHA has even allowed couples to establish a “bridal registry” where friends and relatives can contribute to a downpayment fund.

In addition, the FHA program also allows owners to kick-in a “seller contribution” of 1 percent to as much as 6 percent of the sale amount. While you can bet that most sellers will not joyously give up money to help purchasers, in a buyer’s market a seller’s contribution might be the difference between!
“sold”
and stilled listed.

To qualify for a mortgage lenders look at your monthly income and expenses. For a conventional loan the guidelines might allow you to spend 28 percent of your gross monthly income on housing costs such as mortgage interest, principal, property taxes and home insurance (PITI). In addition, loan guidelines might allow you to spend 36 percent on PITI plus other monthly debts such as credit card bills and auto loan payments.

With FHA fixed-rate financing the usual ratios are 31/43 — liberal standards that will allow borrowers to get more financing than with conventional loans. FHA also offers an “energy efficient mortgage” or EEM. If you have an energy-efficient home the FHA believes you’ll have lower utility costs so there’s more money in the till each month for mortgage payments. The FHA guidelines allow for 33/45 ratios with EEM financing.

There are, however, some complications with FHA mortgage financing. Under the FHA program you’re buying with little down. This is possible because FHA insures the loan and you pay an insurance premium. The premium is equal to 1.5 percent of the sale price at closing (an amount which can be financed) and .5 percent per year for the outstanding loan balance. In other words, if you can buy with 20 percent down or with 80-10-10 financing you may want to skip the FHA program and avoid the insurance fees.

FHA also has a complex set of loans limits which means there may not be enough loan money to buy a property.

For instance, this year the conventional loan limit for single-family homes in the continental U.S. is $417,000. By law, the maximum FHA mortgage is 87 percent of the conventional loan limit, or $362,790 in 2006. However, this upper loan figure is only available in high-cost areas — and in many high-costs areas FHA loans are simply insufficient to acquire typical homes.

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HOME LOANS ADVERTISEMENT

If you live in a community with less expensive housing it’s likely that the amount you can borrow under the FHA program will be lower. Larger F!
HA loans
are available for two-, three- and four-unit properties, providing at least one unit is owner-occupied. Your mortgage lender can explain the amount of FHA financing available in your community for the type of property you want to purchase.

For the past few years there has been another factor which has made FHA loans less attractive than some other forms of financing, a factor which may go far to explain the loan’s declining popularity.

Beginning in 1998, the FHA started something called the Homebuyer Protection Plan. The idea was to have appraisers examine homes for physical defects — not a bad thought except that appraisers are qualified as not professional home inspectors.

Many homeowners thought they might save money because an FHA appraisal under the so-called protection plan sure sounded like a home inspection. It wasn’t, but as a result many buyers decided not to get their property checked by a professional inspector.

HUD said that FHA appraisers who did not meet its requirements could be prosecuted under the federal False Claims Act. The appraisers then did what sensible people do: They raised their rates because of the new requirements or refused to appraise homes for FHA borrowers. Lenders, in turn, began advising borrowers to try other programs if only because it was easier to find an appraiser.

The HUD effort was not adopted by conventional lenders or the Department of Veterans Affairs. And one home approved for FHA financing in Detroit was found to have 181 building code violations — perhaps not a world record but so embarrassing that HUD bought back the property from the owners.

On December 19th last year, HUD announced that appraisers would no longer be responsible for reporting “cosmetic defects, minor defects or normal wear and tear” including such things as leaky faucets, soiled carpeting, poor workmanship or trash in the crawl space.

What the new HUD appraisal standards really mean is this: If you want to buy a home with FHA financing, that’s!
great -
- just make sure you get both an appraisal and a professional home inspection. The appraiser can establish the value of the property and the inspector will check the property to determine its current physical condition.

This is as it should be for all homes and all forms of financing. An appraisal is simply not a home inspection and buyers are well-served getting both.

As to FHA loans, without needless and sticky appraisal standards you’ll see more of them in 2006. An inherently good loan is once-again available to borrowers on increasingly-competitive terms.

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Peter G. Miller is a syndicated real estate and personal finance columnist who appears 70 newspapers.

Search local mortgage lenders now! Go here for online refinancing and second mortgage loans.

===========================================
For additional Mortgage Refinancing information
and resources visit Mortgage Refinancing.
(http://www.refinance-refinance.net)
===========================================

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Technorati Tags: mortgage refinance, refinance, home refinance, bad credit refinance, bad credit mortgage refinance, loan refinance, home loan mortgage refinance, mortgage refinance information, refinance mortgage, home equity loan, home equity loans, equity loans, debt consolidation, debt consolidation loans, debt consolidation loan, consolidation loans, credit card debt consolidation, credit card consolidation