The Top 10 Tips to Help Homebuyers Thrive in Today’s Current Home Market

Tips for Buying a Home Right NowThe economy has been slowly recovering for a while now, and home prices are starting to show it. An improving national economy means more people are getting new jobs, which means that the need for homes is also increasing. Some people want to buy a home because they don’t want to throw money away by renting anymore, some are changing jobs and need to move to a different part of the country, while others have found a better job and feel the need to upgrade their home.

No matter which category you are from, the increasing home prices and the raising interest rates are probably making you want to act quickly, before prices and interest rates go even higher. Prices and interest rates are much lower than they were before the housing market crash, but analysts say that they will keep increasing, so buying a home right now might not be such a bad idea (Read: 4 Things Home Buyers Should Look Out For With Mortgages Rates on the Rise).

However, needing a home and actually being able to buy one, or buy it at a good price, are very different. Getting approved for a mortgage loan is not that easy, especially if you are also recovering financially. Your credit score, income and debt will have a large influence on whether you will be approved for a mortgage or not. Even if you get approved, but you don’t have an ideal credit score or debt-to-income ratio, you will probably have to pay a much bigger price for the home. Also, getting a mortgage involves a large financial investment, which means that you will probably have to use some or all of your savings.

Tips for Buying a Home in Today’s Home Market

Getting a good deal and making sure that you don’t end up with a mortgage that you can’t afford can be done by doing a little research, consulting a mortgage professional, and having common sense. Here are the top 10 tips for those who are planning to buy a home in today’s home market. For even more reasons and tips see this.

  1. Figure out what you can afford. Put together a financial plan, which will help you determine how much you can afford. Home prices are still fairly low, but that doesn’t mean that you can go ahead and buy any home just because it’s cheaper than it was in the past. Having a mortgage that you can barely afford will cause problems in many aspects of your family’s life, and can result in losing the house. If you think you can’t manage setting up a financial plan, you can find a consultant who will work with you to determine how much you can afford to spend on a home (Read: Most Affordable Housing Markets in the US 2013).
  2. Start saving for the down payment. On a traditional mortgage, the required down payment is 10 to 20 percent. Even 10 percent can mean a large amount of money if the property that you plan on buying is expensive. Also, in order to avoid paying for Private Mortgage Insurance, you should aim to make a 20 percent down payment. By putting more money down, you also have the chance of receiving a better interest rate, which will help you save even more. If you can’t afford to make a 20 percent down payment, saving for it before you start looking for a home is a great idea (Read: Making a Larger Down Payment: Is it Worth it?).
  3. Try to improve your credit score. You need a good credit score to qualify for a mortgage, so anything less than what is considered a good credit score will result in rejection. But even if your credit score is in a “good” range, having a higher credit score will allow you to qualify for more advantageous rates, so you should do everything you can to increase it. Start by taking out a copy of your credit report, which you can get for free once per year, and look for any mistakes. These mistakes should be reported to the credit agency and corrected.
  4. Avoid making new debt. New debt can decrease your credit score, making it harder for you to qualify for a good interest rate. Also, lenders don’t like giving out large loans to someone who seems that is living on credit. You might think that opening a new credit card account will help your credit score, but it is actually the opposite. However, you should keep and use your old credit card accounts.
  5. Pay off some of your debt. Lenders will take your debt-to-income ratio into consideration when deciding on whether to give you the mortgage loan or not. Paying off some of your debt will help your ration, increasing your chances of being approved. Of course, to pay off some of the debt, you will probably have to use some of your savings, making it difficult for you to raise the 20 percent needed as a down payment.
  6. Get professional help. Hiring someone to work out a budget for you will help you figure out how much you can afford and save you a world of trouble in the future. After figuring out a price range for your new home, you should consult a real estate agent to help you find a home. Not only will a real estate do things quicker, but he or she also has access to more home listings, which will increase your options.
  7. Get pre-qualified and pre-approved for a mortgage loan. Getting pre-qualified for a mortgage loan is relatively easy. All you need to do is provide the lender with some info about your financial situation. Unfortunately, being pre-qualified for a mortgage means very little when the time to buy a home comes. Being pre-approved, on the other hand, is very important because things will move much quicker once you find a home that you want to purchase.
  8. Hire a home inspector. You might think that you have found your dream home, but unless you hire a professional to carefully inspect the property, you might have to pay for a new roof or plumbing system in only a few years. This is especially important if you are buying a distressed property. Hiring a home inspector will add to the cost of buying a home, but it’s probably the best few hundred dollars that you will ever spend. To read more about the reliability of a home inspector click here.
  9. Hire a real estate attorney. Ensuring that you understand all the terms and conditions in the contract, and what is included in the purchase price means a lot when making a home purchase. This is one of the largest purchases you will ever make, so even if your lender has an attorney present at closing, hiring your own will make sure that your interests are represented during the whole process.
  10. Start planning early and don’t be in a hurry to make a purchase. Because buying a home involves such a large initial investment, you shouldn’t rush into buying a home, even if prices are rising. Only make a home purchase after you have set a budget, the home has been thoroughly inspected, and you are sure that you can qualify for a good interest rate. Making a quick home purchase might work for seasoned investors, but a simple home buyer should take more time before making the decision to buy a home (Read: Renting vs. Owning: Which is Best for You?).

Buying a home in today’s home market requires you to act more quickly, but older home buying rules still apply, especially because you can still find many distressed properties in certain areas of the country at better prices. Making a home purchase can be a great experience if you take the time to set your budget up, do the research and make sure that you qualify.

Invest Smarter by Understanding the Top 6 Most Common Mortgage Myths

Common Mortgage MythsInvesting in real estate properties involves a significant amount of knowledge and decisions that must meet your financial goals for the near and distant future. Being able to tell the difference between what is real and what is a myth will not only help you invest smarter, but also better understand the industry and give you the chance of making a larger profit. Being misinformed about something that you plan on investing in is worse than gambling with your money. When it comes to mortgages, even a small mistake can cost you tens of thousands of dollars, so having the proper knowledge is more important than ever (Read: Mortgage Counseling Services You Need).

The mortgage industry is not the only one that is plagued by myths. Myths have a way of propagating themselves very quickly and not going away that quickly. The only way of finding out the truth, is through a little research or by seeking the help of a professional mortgage counselor. Misleading advertising tactics are part responsible for the spreading of these myths. Many borrowers truly believe lender advertisements which promise the best interest rates to absolutely everyone, or charge the same fees and closing costs.

Understanding the most common mortgage myths can help you prepare better, have a quicker and painless experience, and eventually reap the rewards of your investment. Taking out a mortgage loan can be a difficult process if you don’t have a good understanding of how things work, from the moment that you apply for a mortgage, to the moment that you pay the closing costs and start making your monthly mortgage payments. Throw a few myths in the mix, and you can become discouraged and change your mind, or become overly confident and make mistakes that will cost you, on the spot or in the near future.

The Top 6 Most Common Mortgage Myths

This is a top list of common mortgage myths, myths that can be quickly debunked by researching the basics of taking out a mortgage. Unfortunately, many borrowers and beginner investors are in a situation where they need to act quickly, or are simply careless, and end up spending more than they planned, lose opportunities, or have financial trouble later on (Read: Watch Out! Protect Yourself From Homeowner Scams). Here are the top 6 most common mortgage myths and what you need to know about them.

Myth #1 – Pre-qualification and pre-approval are the same thing

Based on your declared income and debt, pre-qualification allows you to find out how much money you can borrow. Pre-qualification makes it easier to find a home because you are aware of what your price range is. However, being pre-qualified doesn’t necessarily mean that you will be approved for the mortgage loan. Pre-qualification is based on what you declare you make and owe, so your lender will need documentation that backs up your claims. Being pre-approved when the time comes to make an offer on a home carries a lot more weight than being pre-qualified, because it means that your lender has already seen the necessary documents regarding your income, debt and credit, and they are willing to give you the loan without much more verification. A pre-approval document will make you look more serious in the eyes of a seller, and might give you the upper hand over someone who is only pre-qualified. To learn more about this click here.

Myth #2 – You need to make a 20 percent down payment

Putting down 20 percent may have been the only way to buy a home in the past, and the most common way in the present, but there are other options out there. The 20 percent will ensure that you won’t be required to pay for Private Mortgage Insurance, but that doesn’t mean you cannot put down less than that. Some borrowers may even qualify for a mortgage loan insured by the Federal Housing Administration (FHA), which will allow them to make a lower down payment, as little as 3.5 percent. Also, loans offered to current and past military personnel offered by the Department of Veterans Affairs (VA) do not require a down payment. There are other options out there, but most have stricter qualification requirements, so just keep in mind that you can make a lower than 20 percent down payment on a traditional mortgage, as long as you agree to pay a Private Mortgage Insurance for a period of time.

Myth #3 – A higher income means a larger mortgage loan

The truth is that your income has an influence over how much money you will be able to take out on a mortgage loan, but it is closely related to how much debt you have. Lenders will take a close look at your debt to income ratio, so having a large income means nothing if you also have large debt, making your debt-to-income ratio unfavorable. Lenders usually prefer that a borrower spend no more than 28 percent of his or her gross income on housing expenses, and no more than 36 percent on his or her total debt. Borrowers who are self-employed will have a harder time getting a big mortgage even if their income is large, because lenders consider their income less stable than the income of a person with an employer.

Myth #4 – Adjustable-rate mortgages are less advantageous than fixed-rate ones

It is true that you risk paying more on an adjustable-rate mortgage because the interest might increase after a while, but the interest might also decrease, making an adjustable-rate cheaper than a fixed-rate mortgage. Also, you might plan on not living in a home for a long while, which makes adjustable-rate mortgages better than fixed-rate ones. Adjustable-rate mortgages have a fixed-rate period in the beginning. The fixed-rate on an adjustable-rate mortgage will most likely be lower than the interest on a 30-year fixed-rate mortgage, for example, making it ideal for those who move a lot (Read: Even With Fixed-Rate Mortgages So Low, Don’t Overlook Adjustable Rates!).

Myth #5 – Everyone receives the advertised interest rate

Most of the time, the interest rate advertised by the lender on TV, online and in newspapers is reserved for those borrowers who have a perfect credit score, a great debt-to-income ratio and put down a large down payment. The interest rate is influenced by all these factors, plus the term of your mortgage, the points purchased and locking in your rate. You could probably read all that in the fine print of the advertisement, but most people don’t and are surprised when they find out that they don’t meet the requirement for receiving the advertised interest rate.

Myth #6 – The lowest quote that you receive is always the best

Usually, when something sounds too good to be true, it probably is. Some lenders will quote you a great interest rate and great terms for your mortgage loan, making it look like the best one that you have found. Then, after you have already started to spend time and money, everything becomes more expensive. Sometimes lenders do this illegally, but most find ways to do it legally, usually by not giving you a quote in writing, or by hiding behind the fine print. A well-known lender will probably like to avoid the bad press that this will generate, but you should always ask for things in writing before choosing a lender. Click here to read more about this.

Mortgage myths can be found in every aspect of taking out a loan, and some might make you think that you are not ready to buy a home, while others will actually cause you to spend more than you originally planned. The only way to invest your money smarter is to document yourself in order to make sure that you are in full control of everything that is involved in buying a home.

Top 5 Mortgage Scams to Watch Out For This Year

2013 Mortgage ScamsMortgage scams have become a large source of income for certain individuals over time. Especially during and after times of economic recession, home owners face a significant risk of being scammed by unscrupulous individuals who would go to great lengths to scam honest people out of their hard earned money. During times of economic recovery, many home owners also find themselves facing foreclosure, which makes them an even more vulnerable target for mortgage scams.

The housing market is continuing its slow recovery this year as well, so you should keep your eyes peeled for any offers that seem too good to be true, or sketchy people who are willing to give you a hand with your mortgage or a home improvement project for cheaper than usual. Mortgage scams are not only common in times of economic recession, though. They have been around for quite a while, but scammers are evolving, coming up with new ways of trying to get their hands on your money or homes (Read: Watch Out! Protect Yourself From Homeowner Scams).

How to Recognize a Scam and Avoid It

Many people make the mistake of thinking it could never happen to them, either because they think they know how to spot a scam or because they believe that mortgage scams are very uncommon. The truth is that scams often happen to people who least expect it and under the eyes of the law. Click here to read more.

Having a “too good to be true” mentality can save you a bunch of trouble when it comes to mortgages, but great and legitimate deals can be found, even in this economic climate. The only thing you can do to avoid mortgage scams is to take all the necessary precautions. Only do business with companies and organizations that have the proper accreditations, come highly recommended by people that you trust, or have been in business for a long time and have good customer feedback. Checking with your local Better Business Bureau is a good way of finding out more about a company, even though this is not the only thing that you should do when checking out a company.

So, in order to avoid mortgage scams, you should use a combination of research and common sense. Avoid doing business with companies that have complaints and negative feedback from previous customers, don’t sign any documents and contracts that you don’t fully understand, only accept recommendations from close friends and family, never sign the deed to your home to someone who says he or she can save your home from foreclosure, and never make mortgage payments to someone other than your lender.

The Top 5 Mortgage Scams

As we’ve discussed before, mortgage scams tend to evolve once people start wising up, but they are usually just improved versions of scams that have been around for years. Knowing which scams are current will help you avoid them, and save you from losing quite a lot of money, or even your home. Here are the top 5 mortgage scams that you should watch out for this year.

#1 – Bait and Switch Scam

The bait and switch scam has been around for ages and is not only used in the real estate industry (Read: Beware of the Bait and Switch Mortgage Strategy). The way it works is a lender baits the home buyer or the home owner who wishes to refinance with low interest rates and great terms on a mortgage loan. Once the customer has taken the bait, the lender informs him or her that the interest rate and terms are no longer available, but they can offer the next best thing. This is called the switch. Unfortunately, lenders have ways of protecting themselves from customers who threaten to sue. Often times, the low interest rates and attractive terms come with some strict conditions or a time frame, which are only disclosed in the fine print. The fine print is easily readable in a magazine or flyer, but easy to miss in a commercial on TV. Alternatively, the lender can just say that the commercials or advertisements are old and show deals that are not available anymore.

#2 – Foreclosure Scam

People who face foreclosure and eviction are targeted often by scammers who take advantage of their delicate situation and fragile state of mind. Homeowners who face foreclosure are approached by the scammer, who offers them the chance to take out a new loan that will cover their mortgage expenses and consolidate their loans. In order to qualify for the new loan, the owner who is in financial difficulty has to transfer ownership of the home to the scammer and pay a few costly fees. The scammer usually disappears with the money, leaving the home owner to continue making mortgage payments on a home that he or she doesn’t own anymore. Read more about current foreclosure scams here.

#3 – Rental Scam

The scammers take out a classified ad in a newspaper or online, with pictures of properties that they have no connection with. When a person who is looking for a place to rent calls them, the scammer will impersonate a landlord and give them an excuse as to why he or she cannot show the property. Then the scammer asks the person who is looking to rent to meet him in order to sign the contract, pay the deposit and receive the keys to the rental. If the scammers receive the payment, they simply disappear, while the renters only find out they have been scammed once they show up at the property and find out that the person who took their money is not a landlord.

#4 – Reverse Mortgage Scam

Because many aren’t capable to protect themselves as well as younger people, seniors have always been considered easy targets by scammers. Scammers also go after seniors because most of them have larger savings than say, a young home buyer. Because reverse mortgages allow seniors over the age of 62 to borrow against the equity in their home, it is easy for scammers to defraud them, leaving them without their hard earned savings, or even their homes (Read: Fact or Fiction? Reverse Mortgage Myths Exposed!).

#5 – Title Fraud

Not as common as other scams, but one of the most damaging types of mortgage scams, because the person who is being scammed loses much more than just some money. The worst kind of title fraud begins with the scammer stealing a home owner’s identity, then transferring the property to his or her name, and eventually taking out a new mortgage and disappearing. The owner is left with a large debt, no home, and possibly a ruined credit score. In order to recover some of the losses, the owner will have to spend a lot of time battling lenders in court. To read how to avoid title fraud scams go here.

Knowing what to watch out for makes a huge difference when trying to avoid being scammed. Mortgage scams can be devastating to someone’s financial situation, and recovering can be very difficult. Researching the company that you consider doing business with and being patient is very important, especially in this economic climate. If you still have suspicions and want more peace of mind, hiring a real estate attorney can give you even more protection against mortgage scams. Avoiding mortgage scams is much more important than risking everything in order to get a good deal (Read: Top 10 Signs of Mortgage Scamming).

5 Important Reasons Why You Should Pay Off Your Mortgage Sooner Than Later

Pay Off Mortgage EarlyPaying off a mortgage loan takes a very long time, especially if it’s a 30 year or longer loan, so you might want to pay it off earlier than that. While paying off a mortgage sooner than its term has its disadvantages, like being left without savings or not being able to invest the money instead, it can also be very beneficial for most borrowers. The peace of mind and savings in interest that paying off your loan sooner bring can far outweigh the negatives (Read: Should You Pay for You Home In Cash Upfront?).

A mortgage payment is most people’s highest monthly bill, so getting rid of it will free up a significant amount of money each month. That money can make your life a lot easier. You can afford to pay off other debt, take out another loan, or use it to live better. Unfortunately, in order to pay off a mortgage earlier, you will have to come up with a large sum of money if you want to pay everything all at once, or more money each month if you decide to pay it off by making extra mortgage payments. Unless you have significant savings, inherit a large sum of money, or receive a pay increase from work, you are facing some difficult financial times until the debt is paid.

Ways to Pay Off Your Mortgage Early

There are several ways in which you can take care of a mortgage loan earlier than its term. Some methods are quicker than others, or require a larger sacrifice, but all of them will help you get rid of your mortgage quicker than the loan’s original term. Here are the most popular ways of paying off your mortgage early.

  • Pay more each month or make extra payments. You can add an extra amount to each monthly payment each month in order to pay off the loan early. Alternatively, you can choose to make a mortgage payment every two weeks instead of each month, which will result in 26 mortgage payments made each year, instead of only 12.
  • Pay a large part or your entire mortgage at once. You can use money from your savings, investments, bonuses or an inheritance to pay off a portion of your mortgage or even all of it.
  • Refinance into a shorter term. Refinancing your mortgage loan into a loan with a shorter term will make your monthly payments larger, but, if you can afford it, it will help you save significantly in interest (Read: Things to Remember Before Refinancing a Mortgage).

Reasons Why Paying off a Mortgage Sooner is Beneficial

Depending on several factors, paying off your mortgage sooner than later can be to your advantage (read more here). Generally, the benefits outweigh the downsides, but taking this step is not something that many home owners can afford to do. Unless your interest rate is really low, you should do your best to try and pay off your mortgage loan early. Here are some of the reasons why this is a good choice.

  1. Peace of mind. Like most people, you probably have a lot on your mind. Taking care of your largest monthly bill will surely relieve a significant amount of stress, and make your life and your family’s life much easier. Truly owning a home is a great feeling, and you shouldn’t wait until you are old to experience it (Read: Are You a Twenty-Something Wanting to Buy a Home? Here’s What to Know). Not having to pay a mortgage anymore also means that you have other possibilities of investing and you are more in charge of your financial life.
  2. Savings in interest. With a 30-year mortgage loan you pay almost as much on interest as you do on the principal. Paying the principal early means that you will save tens of thousands in interest. Making just an extra mortgage payment per year can save you thousands of dollars.
  3. Improve your credit score. As long as you have a large debt, you are considered a large risk, and your credit score will reflect that. Once you get rid of your mortgage, your credit score improves, and you will be able to qualify for more credit. You can get new loans, for buying a car or even a new home, because your cash flow will be larger (Read: Top 10 Components for Maintaining a Good Credit Score).
  4. Avoid the risk of losing the home. Investing money while you still have a mortgage is riskier because, if something goes wrong with your investments, you risk losing your home as well. Also, losing a job or having large medical bills will increase the risk of losing your home. If your mortgage is paid off, the home is yours and you don’t risk losing it to foreclosure anymore.
  5. Most times it makes sense financially. Some people will argue that you lose the tax break, or you could earn more if you invest the money. That may be true is some cases, but the tax deduction argument is often exaggerated, and you are probably saving more in interest than you would make on an investment. To read more click here.

Even though there are reasons why paying off a mortgage early is not recommended, most of the times the benefits of doing it are far greater than the alternative. Sure, having cash on hand for emergencies and making other investments makes sense, but so does avoiding paying tens of thousands in interest. But probably the biggest advantage of paying off your debt sooner is the peace of mind that it gives you. Living with the knowledge that you can lose your home if you come across financial problems is very stressful, so paying off your mortgage early not only saves you money, but also allows you to enjoy life better.

4 Things Home Buyers Should Look Out for With Mortgage Rates on the Rise

Mortgage Rates RisingBuying a home is something that most people hope to achieve in their lifetime. Owning the home that you and your family live in gives you a sense of security that you don’t normally get if you are renting or living with your parents. When you own a home, you can customize it based on your preferences, improve it, and more. Unfortunately, there are many factors to consider when buying a home, especially if it’s your first time. (Read: Current Interest Rates for Home Loans – Is it Time for You to Apply?)

Unless you have a perfect credit score and a very good income, qualifying for a mortgage will prove to be fairly difficult. There is always the chance that you will qualify for less than you need, or even be rejected because of your low credit score or for being unable to prove to your lender that you are not a high default risk. Once you get passed the approval process, you will find out that the initial cost of a mortgage is very high, and will probably require you to spend all your savings at once. Between the down payment and the closing costs, you are looking at tens of thousands that you will have to spend before you can even move into your new home.

The Mortgage Interest Rate

Besides the price of the home, there are other aspects of the mortgage which will determine how much money you will be spending. One of the most important aspects of a mortgage loan is the interest rate. Mortgage rates fluctuate frequently, and make a huge difference in how much money you will be spending on your mortgage loan.

Qualifying for the best interest rate requires you to have a perfect credit score, a large income, and make a large down payment. The interest rate will also be affected by how long the loan repayment period will be. With a longer term, your monthly mortgage payments are lower, but the interest rate will be higher. If you choose a shorter term and can afford to make much larger monthly mortgage payments, then your interest rate will be lower. By being a perfect borrower and choosing a short term, you can influence your mortgage interest rate (Read: Mortgage Rates Forecast Vs. Home Mortgage Rates Today).

But there are other factors, which are out of your control, which have a larger effect on interest rates. The biggest influence on mortgage rates is the national economy. A rapidly growing economy will cause inflation, which will cause the Federal Reserve to attempt raising interest rates in order to slow down the economy. When the economy is struggling, the Federal Reserve will usually reduce interest rates in order to stimulate the housing market. Also, when there is a large number of new mortgage loans being originated, investors tend to avoid purchasing these loans, so interest rates are increased.

What Buyers Should Keep in Mind When Interest Rates are Rising

Rising interest rates usually make home buyers think twice before buying a home, or even give up on buying a home. Higher interest rates make buying a home more expensive, so many home buyers might get discouraged. However, in this economic climate, there are some things that you should keep in mind when buying a home, even when interest rates are rising.

#1 – Demand for Houses Will Be Higher

Mortgage interest rates are rising because the economy is strengthening, so buying a home right now is not such a bad idea. Rising interest rates mean trouble when they are rising on their own, but, if they are doing it together with the strengthening of the economy, it means that the demand for homes will still be high. So buying a home before interest rates increase even more is actually a good idea. Follow this link to read more.

#2 – A Lower Inventory

Buying a home before interest rates increase more may be difficult because inventories are low. This may be a problem for many buyers who are looking to buy a home right now, before an even larger increase in mortgage rates. The economy is recovering, so there is a large demand for homes, but inventories are pretty low, so the chances of finding a home that will suit your needs are slim. Statistics show that most home buyers worry about not finding a home that they like more than they worry about the rising mortgage interest rates. To read more about the effect of this on the housing market click here.

#3 – Looser Qualification Requirements

Qualification requirements are still fairly strict. Rising mortgage rates are a small problem if you are unable to take out a mortgage loan in the first place. Lenders are trying to protect themselves more than ever from giving out loans to borrowers who are a high default risk. Fortunately, because interest rates are increasing, refinancing will slow down, so lenders will, most likely, loosen their requirements for home purchase lending in order to attract more home buyers. Recently, when interest rates were near record lows, lenders were making most of their money from the large increase in refinances, but, with increasing mortgage rates, the number of refinances will start to decrease significantly.

#4 – Renting is Still More Expensive

Don’t think that, because interest rates are rising, renting will be cheaper. Buying a home will be more and more expensive than before when interest rates are increasing, but renting will still remain the more expensive option, unless mortgage interest rates rise to over 10 percent (Read: Take Advantage of Today’s Historically Low Rates).

Rising mortgage rates will make home ownership unattainable for some people, but time can be a bigger enemy. Waiting for interest rates to decrease can be a big mistake, because it may never happen and you will be losing money by renting instead of buying. On the bright side, rising mortgage rates will strengthen the economy and allow more people to qualify for a mortgage.

Filling Out Mortgage Loan Applications Just Got Easier!

Filling Out Mortgage ApplicationsBuying a home may seem like a difficult and scary process, and many home buyers are afraid of doing everything themselves. It is true that you should ask for help if you don’t understand how the process of taking out a mortgage loan works from start to finish, but you should also know that it is something that you can learn on your own (Read: Here’s a Cheetsheet to Understanding House-Pricing Indexes).

Buying a home with a mortgage used to be a hassle in the past, but the housing industry has changed significantly. Most lenders do everything in their power to make your mortgage loan application process easier and quicker. With the help of your computer and the Internet, you can even do it from home, without having to run around town signing a bunch of papers (Read: More People Turning to Online Mortgage Loans – Should You Too?).

Gathering the Necessary Documents

It is recommended that you obtain some, if not all, of the documents needed when applying for a mortgage before you even apply, just to make things go quicker. This may seem like a scary task for some home buyers, but, with a simple phone call, you can find out which documents you will need before you visit the lender for the first time. Sometimes you can even find out which documents you will need by simply visiting your lender’s website.

Lenders can also gather these documents on your behalf, sometimes for a small fee, and sometimes for free. Asking your lender before you start piling up papers about your finances is better than doing it on your own and finding out that your lender already has access to some of the documents that you had to wait in line for.

Here are some of the documents that you will most likely have to have on hand when you apply for a mortgage loan:

  • Residence History. This is a list of the places where you have lived in the past couple of years. You will only have to type up a list, and provide a letter from your landlord if you have been renting, which should verify that you have paid your rent on time.
  • Income. You will also need documents that verify your income for the past two years. Tax returns, W-2 forms, and pay stubs should be all you need to prove your income, unless you are self-employed, in which case you will need to provide additional documentation (Read: Self-Employed? Here’s How You Can Qualify for a Mortgage!).
  • Additional Income. If you have income from child support or alimony, find out if your lender needs it and for which period.
  • Gifts. If you receive part or all of the money that you are using as a down payment from someone as a gift, your lender will want to see a signed letter from the person who made the gift.
  • Assets. Documents that list your assets. You will need statements form your bank accounts, both checking and savings, IRA and mutual funds.
  • Debt. In addition you will need a list of all your current debt. Since your lender can verify your credit report, this list will only help you make sure that everything in your credit report is correct.

There are several other documents that your lender will want to see when you apply for a mortgage loan, so checking with them a few days before will help, and give you enough time to find these documents.

Applying for a mortgage is not as difficult as it seems. Yes, you will need to provide several documents which you may not know where to get, but, with a simple Internet search or a few phone calls, you can quickly get the help that you need and get on the right track to applying for a mortgage loan and becoming a home owner (Read: Buying Your First Home: The Process from Start to Finish).

Discover These Money-Saving Niche Mortgage Loans

Save Money With Niche Mortgage LoansWhen buying a home, most home buyers take out a conventional mortgage loan. Mortgage loans are designed for the large majority of people who wish to become home owners, but don’t own enough money to make a home purchase with cash. A large amount of money is still needed initially for the down payment and various fees and closing costs (Read: Assessing Your Current Financial Situation: Are You Ready for a Home?).

Besides conventional mortgage loans, buyers with specific needs are still able to find niche mortgage loans, which have advantages and disadvantages over other mortgage loans. Depending on what you are looking for, a niche mortgage loan might be a better fit for your needs than a conventional mortgage loan. Niche mortgages can accommodate home buyers who are looking for a mortgage that will help them make their home more energy efficient, or buy a home that is within walking distance of their workplace, allowing the borrower to take out a larger loan. Borrowers with low credit scores, who are not able to qualify for a conventional mortgage can also take advantage of a type of niche mortgage loan, which was designed especially for them.

The Energy Efficient Mortgage

Homes that are energy efficient allow their owners to spend less on utility bills each month, allowing them to take out larger mortgage loans. Energy Efficient Mortgages help owners make their homes more energy efficient, but are not second mortgage0s (Read: Need a Second Mortgage? A Home Equity Line of Credit Could Be the Answer!). When buying a home, you have the possibility of adding an Energy Efficient Mortgage, which will pay for the energy efficient upgrades to your regular mortgage. The two mortgages will be rolled into one, but you won’t have to meet any qualification guidelines or make a down payment for an Energy Efficient Mortgage.

If you plan on refinancing your mortgage and want to upgrade your home to be more energy efficient, you can get the Energy Efficient Mortgage to be rolled into the new mortgage loan. Also, if the home that you are buying already has energy efficient upgrades, lenders will allow you to take out a larger mortgage loan because your monthly utility bills will be lower.

An Energy Efficient Mortgage can be used to purchase home upgrades such as a new heating and air conditioning unit, better insulation, solar panels and many more. There are three types of Energy Efficient Mortgages:

  • Conventional Energy Efficient Mortgage. Offered by most lenders, whose loans are backed by Fannie Mae and Freddie Mac, the conventional Energy Efficient Mortgage allows you to borrow up to 15 percent of your home value for energy efficient improvements.
  • FHA Energy Efficient Mortgage. With this type of Energy Efficient Mortgage you will only be able to borrow up to 5 percent of your home’s value, but the mortgage will be insured by the Federal housing Administration (FHA).
  • VA Energy Efficient Mortgage. Backed by the U.S. Department of Veterans Affairs, the VA Energy Efficient Mortgage allows present and ex-military members to borrow up to $6,000 for energy efficient upgrades for their homes.

The Location Efficient Mortgage

When buying a home that is within walking distance of stores, shopping centers, public transit, or your workplace, lenders consider that you will spend less money on your commute, and allow you to take out larger mortgage loans (Read: Securing the Best Mortgage Rates). The Location Efficient Mortgage was designed in order to stimulate the development of more efficient communities and reduce people’s dependence on cars.

Borrowers that wish to buy a home in an urban community are allowed to borrow a larger amount, therefore buying a bigger or better home. By doing this, Location Efficient Mortgages reduce fuel consumption, preserve open space by decreasing the need for roads, and lower air pollution, which is a problem in most large cities.

The Subprime Mortgage

The subprime mortgage is a type of niche mortgage that is designed to help people with low credit scores, usually below 600 and who would otherwise be unable to qualify for a mortgage loan, become home owners. Subprime mortgages put lenders at risk, so the interest rates on these mortgages will be much higher than on conventional mortgages offered to people with good credit scores.

Most subprime mortgages are adjustable-rate, which means that the borrower will initially pay a lower interest rate for a predetermined period of time, but a larger interest rate after that period is over (Read: Fixed Rate vs. Adjustable Rate Mortgages). Many lenders, in order to increase their profits, started giving subprime mortgages very easily back in 2004, which led to a high rate of foreclosures and large financial problems for lenders.

Conclusion

Niche mortgages can save you money or help you become a home owner if you don’t qualify for conventional mortgages. However, these mortgages also come with disadvantages which may cause you to lose money or end up losing your home, so carefully assess your financial situation and options before taking out any type of mortgage (Read: The Reality of Being a Home Owner: It Costs How Much?!).

Are You Applying for a Mortgage? These Things Might Ruin Your Chances of Approval!

Are You Applying for a Mortgage-These Things Might Ruin Your Chances of Approval- 150x150The initial cost of purchasing a house or an apartment can be very high. A 10 to 20 percent down payment plus several closing costs means that you will have to pay thousands of dollars before you can even move into your new home. But having this kind of money available won’t guarantee that your mortgage application will be approved. Lenders want to protect themselves from default, so they will take the necessary precautions.

This means that they will take a close look at your financial situation, which includes your credit score, income and savings. They will also look into things like recent debt, your marital status and your job situation. Getting approved for a mortgage can be pretty difficult if your lender encounters red flags when checking out your finances and parts of your personal life. This article will take a look at what lenders may consider reasons for not approving your mortgage loan and what you can do to get out of that situation.

Financial Situation

First of all, lenders look at your credit score. People usually think that credit scores only affect the interest rate that they will receive or the down payment that they will have to make. Low credit scores can also ruin your chances of getting approved for a mortgage. Lenders use credit scores to determine how big of a default risk you are, so a low credit score will probably result in being denied for a mortgage loan. Best case scenario, they are willing to give you a mortgage loan, but at much higher interest rates, and with the requirement that you make a down payment that is larger than 20 percent.

Another aspect of your financial life that lenders look at is your income. Lender requirements usually state that your housing expenses not exceed 28 percent of your gross monthly income. The good news is, besides your salary, you can count other sources of money as income. Bonuses and commissions, social security or veteran’s benefits, child support, or workman’s compensation are all considered income and can help you get a loan if your monthly salary is too low.

Debt

Lenders will want to know how much debt you have, and how it relates to your income. Generally, lenders require that your housing debt plus other debt not exceed 43 percent of your income. New debt is especially damaging to your chances of being approved for a mortgage, because the lender will consider that you won’t be able to pay off the debt without encountering problems along the way. Making a major purchase by taking out a loan or co-signing for a family member before applying for a mortgage loan should be avoided in order to increase your chances of approval.

Divorce

Applying for a mortgage loan while you are divorcing your spouse can make things difficult, or even result in the rejection of the mortgage application. Lenders want to avoid being caught in the middle of a battle over marital property, or giving out a loan to a family where one of the members will stop paying for it. Not mentioning to your lender that you are currently dealing with divorce is a bad idea, as they will most likely find out on their own and reject your application.

Job Situation

Borrowers who have kept a steady job for at least two years before applying for a mortgage are seen as having a smaller risk of default by lenders. The risk exists, but recently changing jobs doesn’t mean that your application will be rejected. Finding a new job in the same field as your old one, but for a higher salary won’t cause you any problems when applying for a mortgage loan. If you plan on switching jobs, try to wait until your mortgage loan application is approved. Also, if you are between jobs, you will probably have to find a job and keep it for at least two years before a lender will consider granting you a mortgage loan.

Lawsuits

Being sued or even suing someone can interfere with being approved for a mortgage loan. If you lose, you will either have to pay a settlement or have to pay some large attorney fees, making you appear unable to pay your mortgage in the eyes of a lender. Just like when divorcing, you should be truthful when the lender asks you if you are involved in any lawsuits.

There are plenty of things that can ruin your chances of being approved for a mortgage loan, but, with the proper research and knowledge, you will be able to analyze all these problems and resolve them. Even if it takes a couple of years, you should start taking care of anything that might interfere with your loan application approval.

 

 

 

Watch Out! Protect Yourself from Homeowner Scams

Watch Out-Protect Yourself from Homeowner Scams- 150x150Whether you are a home seller, a home buyer, or a home owner, there is always a chance that someone will try to take advantage and scam you. Homeowner scams have been around for a while, but depending on the state of the housing market, new and improved scams are developed. Sometimes, even those who have taken all the necessary precautions to protect themselves can be preyed upon by scammers.

Most scams are designed to prey upon those who try to refinance existing mortgages, but there are plenty of scams designed for home buyers and sellers, as well. There are several laws, such as the Fair Housing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Truth-in-Lending Act and many others that have been created to help home buyers, sellers and owners, but some lenders find ways to circumvent them. Organizations like the Federal Trade Commission are responsible with implementing these laws, but consumers should also be aware of the dangers that are out there and find out how to better protect themselves. Here is a list of the most common homeowner scams that you should protect yourself from.

1. Bait and switch. This scam is used in many industries, especially in retail stores, but it has also found its way into the lending industry. Lenders who use the bait and switch usually advertise a low interest rate through several means, such as newspaper advertisements or billboards, but don’t actually offer that deal to anyone. When the borrower inquires about the low rate, he or she is told that it is not available anymore, but a slightly higher rate can still be obtained.

2. Bait and remember. Mortgage loans have pretty high closing costs. These costs should be taken into consideration when applying for a mortgage loan and your lender should inform you of them. But some lenders pretend that they forgot to inform you until you are too far into the process to back out. This can be a very expensive problem for you, as some of the closing fees are as high as several thousands of dollars.

3. Loan steering. Some lenders may deny your application for an advantageous loan which features great terms, such as a low interest rate and low closing costs, even though you are perfectly qualified for that mortgage. In order to make more money, they will steer you towards a more expensive loan, giving you reasons for being denied on the better loan such as having a low credit score or problems with your income.

4. Adjustable-rate mortgages. Adjustable-rate mortgage loans are perfectly legal, but the lenders are required to inform the borrower of how much the loan interest rate can fluctuate in the future. Some lenders offer great deals on adjustable-rate mortgages initially, but with very high interest rates in the future.

5. Negative-amortization loans. This type of loan is illegal in most areas of the United States, but some lenders still get away with offering it to their customers. A negative-amortization loan requires you to pay a smaller interest than what it is owed, with the difference being added to the principal balance of the loan. This leads to a principal balance that increases over time instead of decreasing.

6. Cash-out refinancing. Cash-out refinancing is legitimate and is a viable option in certain situations, but some lenders use it in order to get borrowers to use it for paying off smaller debt. This seems like a good choice for borrowers because their monthly payments for credit card and other debt decreases, but the overall cost will be much greater than their initial debt.

7. Equity stripping. An owner who is struggling financially is convinced to transfer the title to his or her home in order to qualify for a different loan, after which the owner loses ownership of the home. Also, when this happens there is a big chance that the owner will still owe money on the home that he or she lost.

When it comes to homeowner scams, prevention is the most important. Sometimes, home owners find out they have been fooled a little too late, and it may be too late to turn back. While some scams are a hundred percent illegal, and there’s little you can do about them if you have been targeted, some can be avoided by simply documenting yourself and reading the fine print.

Shared Equity Mortgages- Are They Worth It?

Shared Equity Mortgages- Are They Worth It-150x150The purchase of a home involves a large investment, money that not everyone has available. A down payment of 20 percent or more will have to be made in order to avoid paying private mortgage insurance. Add several fees and closing costs to that and you are looking at an initial investment of tens of thousands of dollars. Borrowing that kind of money from a relative can be extremely difficult. Your family member could invest that money into something that will yield a nice return, so it would be unfair to deprive them of that. One solution would be for the relative or even a friend to become a co-investor in your home.

Shared equity mortgages allow you to find a co-investor that will provide part of the down payment, with the condition that he or she has the right to a percentage of the property’s value. While home prices can increase over time, and both investors can turn a profit, there is always the risk that home values will decrease, and both investors will lose money. Fortunately, real estate is a profitable investment more often than not, so a shared equity mortgage can make more sense than many other investments. By using a shared equity mortgage, parents also have the chance to help their children become home owners without having to dip into their investment funds.

Advantages of Shared Equity Mortgages

The largest advantage of shared equity mortgages is that, depending on everyone’s financial situation, one person can only occupy the home, while the other invests in it. This way, the person occupying the home doesn’t need good credit or money for the down payment, while the investor makes a larger return on his or her investment.

Another benefit is that someone can become a home owner much quicker than it would take if he or she took time to save money for the down payment and closing costs. Of course, the profit will have to be shared with the other investor in the future, so deciding if a shared equity mortgage is right for you depends mostly on your plans.

A third advantage is that both people who have invested in the home have the right to benefit from the real estate ownership tax benefits. When writing the shared equity mortgage agreement, the investor must not be considered a lender, because that would disqualify him from being entitled to tax benefits. Also, the person who will occupy the home must not be considered a tenant in the written agreement. This can be avoided by hiring an attorney to draft the shared equity mortgage agreement.

Disadvantages of Shared Equity Mortgages

The biggest disadvantage is that, if the housing market drops, the investor will lose money. That is a risk that investors take when making any investment, but the real estate industry has proved to be a fairly solid investment over time. Another disadvantage is that sharing equity can become expensive if the two parties involved start disagreeing on things like who pays for the property taxes and insurance. Also, the investors’ credit score can be negatively affected if the mortgage goes into default.

Shared equity loans can be a win-win for both parties, as long as there is a written agreement in place. One of the parties gets to become a home owner, without spending too much on the initial costs of buying a home, while the other party gets to invest their money into something that will most likely generate a profit.