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.

Rising Rates Means More Rejections – 8 Ways to Make Sure Your Credit is Up to Par

Fix Credit to Meet Rising RatesThe interest rate that you will qualify for, when taking out a mortgage loan, has a large impact on how much money you will be spending on your mortgage over the life of the loan. Interest rates used to be at near record lows until not long ago, but it looks like those times are over. The economy is recovering and, with it, so are the interest rates. Mortgage rates have been steadily increasing lately, causing more people to apply for mortgages. Getting a mortgage loan while the interest rates are still relatively low has determined many people who were considering the purchase of a home act now, before rates climb to an even higher level (Read: 4 Things Home Buyers Should Look Out for With Mortgage Rates On the Rise).

The difference between all-time low interest rates and current interest rates may not seem like much. One or two percent sound like a very small difference, but if you consider the fact that it is one or two percent of several hundreds of thousands of dollars yearly, you might not think one or two percent is negligible anymore. That small difference can mean tens or even hundreds of thousands of dollars over time.

Unfortunately, the increase in interest rates has also resulted in an increase in the number of people whose applications were rejected. You can learn more about this if you click here. Because people were applying for a mortgage on a short notice, in order to still take advantage of the low interest rates, many didn’t have time to make sure that they can actually qualify for the mortgage. One of the most important requirements when applying for a mortgage loan is that you have a good credit score. Buying a home with a low credit score will attract a higher down payment requirement, a higher interest rate, and, many times, rejection.

The good news is that your credit score is one aspect of your financial life that you can improve by just making a few changes and taking a few precautions. Having a good credit score will not only allow you to qualify much easier and quicker for a mortgage loan, but also qualify you for lower interest rates, meaning that you will be paying much less on your mortgage each month (Read: Boost Your Credit Quickly With These Simple Tips).

8 Ways to Make Sure You Have a Good Credit Score

A good credit score is something that you can be proud of, because it means that you are a responsible person that knows how to manage his or her finances. Unfortunately, life doesn’t always go as planned and certain events, over which you have little power, can quickly ruin your credit score, making the purchase of a home very difficult or even impossible. Avoiding putting yourself in a situation where your credit score could be damaged is ideal and should be a top priority, but sometimes things that are out of your control happen, and the only way in which you can recover is by rebuilding your credit score.

Here are 8 ways in which you can make sure your credit is up to par when applying for a mortgage loan.

  1. Get a copy of your credit report. You have the right to a free copy of your credit report per year. Knowing what your credit report contains is very important when trying to make sure that you can qualify for a mortgage loan. By looking over your credit report you can get a clear understanding of what your credit score is, what problems you have, and how you can start improving (Read: The Top 10 Components for Maintaining a Good Credit Score).
  2. Find errors on your credit report and dispute them. Errors on a credit report are not very common, but they do happen. The best way to find them is to carefully read your credit report and look for any inaccuracies or misinformation. These errors could have a large impact on your credit score, so finding them and disputing them as soon as possible is very important (Read: How Your Credit Score is Calculated).
  3. Pay your bills on time. The easiest way in which you can make sure your credit score is in a good range, and actually improving over time, is to not miss any payments and pay your bills on time each month. Being late for even a month can have a large negative impact on your credit score, and jeopardize your chance of getting approved for a mortgage loan.
  4. Avoid having too much debt. Especially before buying a home, having too much debt can seriously lower your chances of being approved for a mortgage loan. Large debt will also lower your credit score, making it even harder to qualify for a mortgage. Waiting until after you have bought a home to make any other large purchases using credit is recommended.
  5. Don’t take out too many credit cards. Credit card applications will appear on your credit report, and will affect your credit score. Lenders will also see you as someone who takes out too much credit, and will be reticent when deciding if they should approve your mortgage application or not.
  6. Keep using your current credit cards. Just having a credit card is not enough to keep your credit score in a good range. Using your cards, even for small purchases will be reported and actually increase your credit score by establishing credit history. Simply closing credit card accounts that you are not using will decrease your credit score. Click here to read more.
  7. Pay off some of your debt. Paying off debt will increase your credit score quicker than anything else. Your debt-to-income ratio will also improve, increasing your chances of receiving a mortgage loan without much difficulty. Having an unfavorable debt-to-income ratio will usually result in a mortgage loan application rejection.
  8. Extend your credit limit. Extending your credit limit will decrease the percentage of credit that you are using compared to how much credit you can use. Lenders will be more likely to extend the credit limit for a good customer, so choose a credit card with which you have had a long and clean history. Unfortunately, the credit limit extension means a new credit report check, so your credit score may decrease a little, but should recover quickly.

Making sure your credit is up to par when applying for a mortgage loan is one of the best ways of increasing your chances of approval. Interest rates are increasing, so you might think that this is your last chance of getting a fairly good rate. The truth is that it is a good idea to get a mortgage before rates climb even higher, but applying for a mortgage with a sub-par credit score will only result in a waste of time and money (Read: What Credit Score Do I Need to Qualify for a Mortgage?).

Paying Off Mortgage and Retiring – 5 Reasons Why One Should Come Before the Other

Paying Off Mortgage Before RetirementBeing free of debt is a great way of enjoying your retirement years. Most people agree that paying off your mortgage before you retire is something that will give you peace of mind and more financial freedom. However, many people end up retiring before their mortgage is paid off, which might not be necessarily a bad thing. Like everything when it comes to mortgages, what is best for one home owner may not be the best for another. Essentially, paying off your mortgage before your retirement years is advantageous, but there are cases in which not paying it off is the better choice, especially if getting rid of your mortgage involves a large financial sacrifice (Read: Should You Rely on Home Equity When You Retire? Think Again!).

When is it better to Not Pay off Your Mortgage

Not having to worry about a large debt after retiring will most likely make your life much easier. Unfortunately, paying off a mortgage earlier is not always a good idea. With today’s interest rates, you are probably paying less than 5 percent on your mortgage loan, and more than 10 percent on your credit card balances. Mortgages are considered a good debt, which means that you should pay them off last, and worry more about other type of debt.

Unless you have large assets that you can use while retiring, you should think twice before paying off your mortgage. Your retirement accounts have more tax advantages, so you should put your money into those before paying off debt. An even worse idea is to pay off your mortgage using money from your retirement accounts. You will have to pay a large penalty for the withdrawal, and end up spending more than you would on your mortgage.

Also, if you are able to refinance your mortgage loan, you could be saving thousands of dollars. However, refinancing is expensive and you have to include closing costs in your calculations before deciding if refinancing will save you money, or you should keep paying the mortgage as before (Read: Do You Make These Mistakes? Don’t Kill Your Mortgage Refinance!).

Reasons to Pay Off Your Mortgage before Retiring

There are more reasons to pay off your mortgage before retiring than there are to not pay it off. To find out even more reasons click here. Taking the necessary steps to make sure that your retirement accounts are replenished is very important before deciding whether paying off your mortgage is worth it or not. Here are the reasons why getting rid of your mortgage should come before retiring.

  1. Peace of mind. After years of making large payments each month, you can finally say that you truly own your home. This is especially important after retiring, when your income probably won’t be as large as before, and the chances of generating additional income are thin. Finding a job, investing or starting a business in your retirement years is unlikely, so not having to worry about the risk of losing your home if something unforeseen happens, or about having to make a large payment each month, is a blessing. To learn more about the benefits see this.
  2. Savings in interest. Over the life of a mortgage loan, you will be paying tens or hundreds of thousands of dollars in interest, so paying it off as soon as possible means that you avoid paying all that interest. Even refinancing into a shorter loan will bring great savings, as long as you don’t spend a lot on the closing costs. Not only will you be mortgage free by the time you reach your retirement years, but you can also use the money that you saved for something that will make your retirement much more enjoyable.
  3. It allows you to focus on spending less. The process of paying off your mortgage allows you to focus on saving for retirement, as well. If you wouldn’t have a monthly mortgage payment, you might be tempted to use that money to make other large purchases, like an expensive car. Deciding to pay off your mortgage puts things into perspective and gives you a chance to focus on your future plans.
  4. Build equity. Paying off your mortgage means that, if you ever need money once you are retired, you can take out a loan against the equity in your home or sell the home and have access to all the equity in it. You can use the money to pay your medical bills, buy a condo, or even for traveling (Read: Home Equity Loan).
  5. Avoid higher interest rates if your rate is adjustable. Adjustable-rate mortgages can be either advantageous or disadvantageous, depending on how the interest rate fluctuates. If the interest rate keeps rising, then you might end up with a larger down payment during your retirement years, so paying your mortgage off makes sense.

Not paying off your mortgage before retiring makes sense in some cases, but not having to pay a large bill each month is more beneficial. Unless you have to dip into your savings and retirement accounts to pay off your mortgage, the peace of mind that not having a mortgage brings outweighs the pros of keeping your mortgage during your retirement years.

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.

4 Reasons Why Your Underwater Mortgage Won’t Be Saved By Eminent Domain

Underwater MortgageMany home owners have been affected by the recent housing market crash. Many people have lost their homes to foreclosure, while others ended up owning a home that is worth much less than it did when they bought it. Having to pay back a mortgage loan for a home that is worth much less than it did before the crisis will make most home owners want to get rid of it. Unfortunately, selling your home for less than you owe, means that you will have to pay back the difference to your lender.

Abandoning your home if your mortgage is underwater is a solution, but you will have to live with the consequences of foreclosure (Read: The Foreclosure Process). Having your credit ruined and not being able to take out a new loan for several years is not an option for most people. Because many home owners are underwater on their mortgage and facing foreclosure, many municipalities have started looking for solutions to avoid having to deal with whole neighborhoods of deserted homes. One of the ways in which counties and cities are trying to help home owners who own more than their homes are worth is eminent domain. Click here to read more.

What is Eminent Domain?

The power of eminent domain allows the government and its agencies to take private property and use it in a way that benefits the public. For example, the government can use a seized property for a school, a park, a new road and more. The owner of the property that is seized by the government under eminent domain is entitled to compensation, which is usually the fair market value of the property.

The government agency that is interested in your property hires an appraiser who will inspect and appraise the property, after which the organization makes you an offer. The offer will generally be low, but there is some room for negotiations. After the negotiations, if you are not satisfied with the offer, the organization will schedule a public hearing in which it will have to prove why your property is needed for public use. After the public hearing, the government agency will submit a complaint against you in court, which you can challenge, but it will be most likely overruled. Your attorney will have to obtain appraisal reports from other appraisers in order to determine the property’s fair market value.

Eminent domain can also be used to help home owner whose mortgages are underwater. Some analysts say that underwater mortgages slow down the economy, so using eminent domain will help the economy and allow people to stay in their homes. Others say that using eminent domain to save underwater mortgages will hurt the economy because lenders will react to this by increasing interest rates. Click here to learn more about the restrictions.

Reasons Why Using Eminent Domain Won’t Save Underwater Mortgages

Using eminent domain to save underwater mortgages was attempted in a few Californian cities back in 2012. The plan was abandoned because it didn’t receive the public support that was expected, and was strongly opposed by mortgage regulators Freddie Mac and Fannie Mae. While the plan to use eminent domain to come to the rescue of those with underwater mortgages sounds fairly good in theory, it has plenty of disadvantages. Here are the reasons why your underwater mortgage won’t be saved by eminent domain.

  1. The eminent domain process is very complicated. Many home owners won’t agree to this method because they probably won’t receive as much money as their home is worth at current market prices. Each home is different, has unique features, so designing a simple plan will be very difficult and will become bureaucratic.
  2. Eminent domain can be abused. Most people don’t support this plan because it can easily be abused, so some home owners may receive more than they deserve for their properties, or less. Also, home appraisals rely on the appraiser’s judgment, so there is a chance that mistakes will be made, and many properties will be appraised incorrectly.
  3. Lenders and mortgage regulators oppose this solution. Fannie Mae and Freddie Mac, who guarantee 90 percent of all mortgages issued in the United States, do not agree with using eminent domain to save underwater mortgages, so they are threatening with limiting business activities in cities that use this solution.
  4. The government will be put in an awkward position. Because mortgages are contracts between lenders and borrowers, a government intervention will not be well received by most lenders. The government usually refrains from interfering with private contracts.

Saving underwater mortgages by using eminent domain may seem like a good idea, but there are serious repercussions to following this plan, and most cities will most likely try other methods of helping those with underwater mortgages (Read: How These Alternatives Can Help You Avoid Foreclosure). Eminent domain has its uses, but using it to save underwater mortgages will only cause controversy and put the government in a bad light.

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).

Self-Employed? Here’s How You Can Qualify for a Mortgage!

Self-Employed-Here's How You Can Qualify for a Mortgage- 150x150Being self-employed certainly has some great advantages, like not having a boss or setting your own work hours. But not being an employee also has its disadvantages, such as not having paid sick days or paid vacations. The biggest downside, though, is that buying a home is a bit more difficult. With all of the strict requirements, becoming a home owner is tough even for people with steady jobs. Not having a full-time job, a regular income and an employer’s tax form can make it even more difficult for a self-employed worker to get a mortgage loan.

However, it is not impossible. Buying a home when you are self-employed will require more documents than getting a mortgage as a full-time regular employee, and it will probably take longer, but it is doable. Most lenders will probably be worried that you won’t be able to make enough money to pay your mortgage, while others will simply not want to deal with the hassle of giving a mortgage loan to a self-employed home buyer.

Expectations When Shopping for a Mortgage

Most lenders will regard you as a high risk borrower, so you will probably have to pay a higher interest rate than someone who works for a company or an institution. Interest rates advertised by borrowers are really low, but they are normally reserved for home buyers with perfect credit scores and perfect financial situations. The rates that you, as a self-employed worker, will get will probably be much higher than the interest rates that are advertised.

Because you are not looked at as the ideal borrower, you will most likely have to shop around more until you will be able to find a lender who is willing to work with you. Also, your ability to negotiate a lower interest rate will most likely be very limited. Based on your loan-to-value ratio, you will probably have to come up with a larger down payment, as well.

Mortgage Loan Options

Lenders try to stay away from giving out risky loans in order to protect themselves, but there are a few types of mortgage loans that lenders may be willing to give to self-employed workers. One of these loans is the Stated Income/Stated Asset Mortgage loan, which is based on the amount that you declare is your income. The bank will not verify this amount, but you will be required to provide a large amount of documentation, from a list of your clients, to several IRS forms.

Another loan that lenders might give you is the No Documentation Loan, which is great for self-employed workers with low profit, or even those who don’t make any profit at all. However, you will have to pay a much higher interest rate, and probably make a larger down payment.

However, if you are able to provide your lender with enough documentation that proves your income, you can qualify for a regular mortgage loan, which has lower interest rates, and a lower down payment requirement. Traditional employees receive a W-2 form, which reports his or her income, but a self-employed person will have to provide other types of documents, such as tax returns, a business license, balance sheets or profit and loss statements.

Make Yourself Less of a Risk

If you are sure that you can afford a mortgage, and would like to encounter as less difficulty as possible when applying for a loan, you should start by making yourself less of a risk in the eyes of a lender. You should start by improving your credit score as much as possible. Besides making you qualify much easier for a mortgage loan, a perfect credit score will ensure that you receive a much better interest rate on your mortgage.

By making a larger than usual down payment, your lender will regard you as less of a risk. Also, having savings will look good in the eyes of a lender, as you will be less likely to abandon the mortgage if your business stops making a profit.

Lenders may regard you as a higher risk if you are self-employed, but the truth is that a person who is working a full job can be an even higher risk than a self-employed worker. A traditional employee loses all of his or her income when fired, while a self-employed worker probably has several clients, and the chances of losing all of them at the same time are slim. If your business is doing well and you can prove to your lender that you can make monthly payments on your mortgage, then there shouldn’t be any issues getting a mortgage loan if you are self-employed.