Posts Tagged ‘Mortgage’

One option is to make loan payments every other week instead of once a month. With 52 weeks in the year, you’re making 26 half-payments, or 13 full payments a year, as opposed to 12 monthly payments. That extra trickle of principal into your account could allow you to pay off your 30-year loan much faster, typically, in 22 to 24 years. However, this plan is not without its flaws.

First of all, some lenders don’t accept bi-weekly payments, and many that do will charge you a fee of several hundred dollars to set up the payment plan. Now, other lenders that do accept your bi-weekly payments may only credit your account once a month. When that happens, you don’t receive any benefit from paying more frequently, so you’ll have to check with your lender.

And then there’s the matter of liquidity. If you do pay bi-weekly, you are still shelling out more cash than with a monthly payment. That may be fine when everything is going well financially, but all it takes is a lost job or a medical emergency or another unexpected crisis, and suddenly, you could be in need of the extra money that you’re currently putting towards your mortgage payment.

So here’s an idea that may offer you most of the benefit of bi-weekly payments without the obligation and cost of arranging it with your mortgage company.

Most lenders do not penalize customers for paying extra principal, so what you could do is to add an amount equaling an additional one-twelfth of your monthly payment to the check you send to your lender each month. Your mortgage payment coupon may even have a line for you to write in that extra amount to be designated towards principal.

You will end up essentially making an extra monthly payment each year, the same effect as paying bi-weekly, and you’ll still have the flexibility of stopping that extra payment when you find yourself in a cash emergency.

Of course, if you’re really fortunate, you could refinance your mortgage, and then use your monthly savings to pay down your principal even faster. That way, you’ll be saving money now and later! That really is a great idea and here’s one more, if you need help finding a mortgage professional, look no further than your REALTOR®. Your REALTOR® will be more than happy to help set you on the road to savings! And saving money? That is a great idea.

Scenario 1

Mary Ellen has owned an apartment in Denver, Colorado for five years that she inherited from her grandmother. However, she doesn’t live there and rents it out.

She’s been thinking about buying a new house, but wonders, if she would qualify for the first time home buyer tax credit if she does? Does owning an investment property disqualify her from getting the tax credit?

Answer: No! As long as Mary Ellen has not owned a home and used it as her principal residence within the last three years, she’s eligible for the credit. Investment property does not count!

Of course, Mary Ellen does have to be careful that the rental income does not push her above the income limits for the tax credit. That limit is 125-thousand dollars a year, for a single taxpayer.

As the deadline is coming up, Mary Ellen shouldn’t be dragging her feet if she can help it.

Scenario 2

Jake wants to buy an RV and live in it full time. If he’s never owned a home before and the RV is his primary residence, does he qualify?

No. RV’s with built-in motors do not qualify for the tax credit.

So Jake says, OK, I’ll get a travel trailer instead. I’ll park it, and put it on blocks, and hook it up to the trailer park’s utilities. Will the trailer qualify?

Yes! Because the IRS says that although RV’s with built-in motors do not qualify, travel trailers do and so do mobile homes. As long as they are, as the IRS puts it, ‘affixed to the land.’ So go ahead and get that Airstream…just make sure you affix it to the lot!

Scenario 3

Beth bought her first condo in January, 2009. She rents out an extra room to a friend to help pay the mortgage. Can she qualify for the $8,000 credit? Or does renting out the room disqualify her?

Answer: She does qualify for the $8,000.

It’s perfectly fine for Beth to rent out part of her principal residence and still claim the credit—however, Beth should talk to a tax advisor, because in some cases where there are separate units in the same building, you can only claim the credit on a portion of the house value. If it’s a room in the shared space, then Beth should be okay—it really only gets complicated in duplexes or other separated properties. But it’s worth checking.

Scenario 4

Jonathan has never owned a home, and he and his girlfriend Devon want to buy a house together.

But…they’re not married, and have no plans to get married anytime soon. If they buy a home together, can they still get the tax credit?

Answer: yes.

The IRS does allow the tax credit for people who are not married, who buy a home together. However, they don’t get two tax credits but have to split one. So, if they qualified for the $8000 first time home buyers credit, they’d have to split it between them.

Actually, and this is interesting…the IRS doesn’t even say they have to split it 50/50. They just say the buyers have to split it in a reasonable way.

For instance, looking at this scenario, if Devon put down a lot more of the down payment, Jonathan could give her a bigger share of the tax credit, or all of it…if he’s really generous. The IRS doesn’t care, a long as everyone qualifies on their own, and the tax credit doesn’t exceed $8000…or $6500 for a repeat buyer.

So this just goes to show that nothing is as simple as it looks. There are a lot of ways to make the tax credit work and this is your last chance to take advantage of it.

Getting a pre-approval is easy, it’s free, and it can often be done in a matter of hours, or even minutes. And you are not obligated to any lender until you actually purchase a home, either.

Now, before we go any further, let’s make an important distinction. You are looking to be pre-approved for a mortgage, as opposed to being pre-qualified. A pre-qualification is usually based on a phone call with the lender, in which they do a verbal review of your finances and based on that conversation, they figure out roughly how much you can borrow. It’s a good piece of information for you to have, but it’s a “ballpark” estimate at best.

Pre-approval, by comparison, is a much more formal process that examines your financial picture in depth and examines the actual documents as well. Your bank statements, paycheck stubs, recent tax returns, and information about other loans you have, including credit card balances will all be checked, as will your credit report. Once your lender has these details, they’ll determine, in writing, how much you’ll be eligible to borrow to purchase a home.

Now, we need to point out that, just as you are not obligated at this point, neither is the lender. Your pre-approval letter will help you make a successful offer to buy a home, but once the that offer is accepted by the seller, your lender is going to want to examine the deal in even greater detail, including having the home appraised to make sure it’s worth what both you and the seller say it’s worth. Once that’s done, the loan will be approved, and you’ll be a big step closer to closing on the home.

So what does it take to be pre-approved for a mortgage?

Well, it all starts with your credit score, and to get your foot in the door for a decent mortgage rate, you’ll probably need a FICO score of 650 or higher. That score could vary up or down, but not by much. If you want the best possible rates, you’ll likely need that score to be 760 or above.

You will also need a down payment. The amount of down payment will vary, depending on the type of loan. FHA, or federal-backed mortgages, require 3-and-a-half percent down, while conventional loans require more, usually around 20 percent. You won’t need that cash in hand just yet, but you will need to be able to show the lender that you can get it.

The lender will also check your debt-to-income ratio. You can have great credit, but the more debt you have, the tougher it will be to be pre-approved. Your prospective lender will also need to see proof that you have a steady source of income, whether it’s through a job or investments.

Once you’ve done all of this, and your lender gives you its blessing, you will find out the maximum amount the bank is willing to lend you. Don’t assume you have to get a loan of that size, a smaller mortgage is OK too!

Being pre-approved for a mortgage moves you from the rank of “buyer wanna-be” to “real estate mover and shaker”. Call your REALTOR® today, and get a few names of trusted mortgage experts. Or, talk to your friends and see who they used for their mortgage.

In other news, two new studies just out this week conclude that most efforts to modify troubled home loans with easier terms will only delay , and not prevent the loss of homes to foreclosure. Both reports – one by Standard and Poor’s, the other by the John Burns Real Estate Consulting group – predict that foreclosures will continue to play a big role in the pricing of homes over the next several years. The Burns study estimates that five million homes that are already delinquent will go through foreclosure or similar procedures that will put them on the market over the next few years. That’s nearly two-thirds of the households that are currently behind on their mortgage payments. The S&P study makes a similar prediction. According to The Wall Street Journal, the problems are largely concentrated in four states – Florida, Nevada, Arizona and California. John Burns, whose group conducted one of the studies, says the demand for foreclosed properties remains strong, so he expects home prices overall to remain steady over the next few years, as long as the economy continues to recover and mortgage interest rates don’t jump quickly.

So much focus has been placed on finding people to buy foreclosed homes that new home construction is falling to critically low levels. Brian Wesbury, the chief economist at First Trust Advisors tells Forbes magazine that a housing shortage could strike next year. Wesbury says the nation needs one and a half million houses a year just to keep up with population growth, and that doesn’t even account for homes that are torn down or lost to disasters such as fires.
Government figures put housing starts in December at an annualized rate of just 557-thousand, or about a third of what Wesbury says is needed. You might think that with so many foreclosures that the demand for new housing would fall, but Wesbury says the extra bump from foreclosures will not sustain the nation’s housing needs for long. Ironically, though, some economists say foreclosures will likely rise as long as the nation’s job shortage continues. And one of toughest sectors to find a job in right now – is home construction.

With everything we’ve heard about foreclosures and people owing more to the bank than their homes are worth, it all just sounds like a bad sequel to that Kevin Costner movie, Waterworld, but we’re not as washed up as you may think. A little seen, little-talked about piece of research from none other than the Federal Reserve shows that net equity in Americans’ homes grew by nearly a trillion dollars from the first quarter of last year to the end of the summer. Now – that number itself is not all that impressive compared to the boom years, but it does follow three straight years of seeing home equity values fall and eventually dive underwater, so it could very well be a sign that the down cycle in home values is coming to an end. And that’s good news for people seeking new mortgages, because the fewer underwater homes there are in your neighborhood, the chances are likely that owners will walk away from their loans altogether, and the better chance new owners will have of getting a loan.

Foreclosure has become so trendy that even the rich are getting in on it. Nearly 19-thousand homes worth a million dollars or more went into foreclosure last year in the US – That’s a 162 percent increase over the previous year, according to RealtyTrac. Prices of those kinds of homes have fallen by about a quarter since 2007, and Forbes Magazine reports that more and more desperate homeowners are choosing to sell at auction instead of facing perhaps years to sell their homes. Josh Brian Losh, who runs the website LuxuryRealEstate.com, says “Any home owner selling in this economy is on the market because they have to be.”

A mortgage is usually the single biggest expense in most people’s monthly budget. So, it’s understandable that people want to spend as little on their mortgages as possible, which is why the lower interest rates can be tempting. But there are other things to take into consideration. Namely, you have to look also at your lifestyle and your personality.

The old-school, conventional fixed rate mortgages are still the most common. The biggest advantage: Peace of mind. Fixed rate mortgages appeal to buyers who want to lock in a rate they are happy with, and forget about it. It’s a great choice for people who want consistency in their budgeting and want to know all the time what their monthly payments will look like.

One question: would you prefer a 15 year, or 30 year mortgage? There are advantage to both options. Monthly payments on a 30 year loan are generally lower than on a 15 year loan. Those who opt for a 15 year loan build equity more quickly and pay less interest over the life of the loan.

However, whether it’s a 30, or 15 year note, getting a conventional mortgage often requires a big down payment — 20% or more!

If you don’t have that kind of cash in your savings account, then check out FHA loans. Guaranteed by the federal government, FHA loans are filled with incentives like rates and low down payments. Buyers who don’t have a lot saved for a down payment can put down as little as 3.5%. There are some restrictions, however, as to the types of properties you can buy because not all of them are eligible under FHA rules.

Now, for some people, the fixed rate route, is not the best route. For some people, ARMs, or adjustable rate mortgages, are the best option. They’re unpredictable, but that is not necessarily bad thing.

During the initial fixed period, the rate can be really low, meaning payments on that loan will be low. That fixed period generally lasts sometime between one and 10 years.
Many ARMs come with the option to convert to a fixed rate loan, for a fee. This might appeal to someone who enjoys watching rates going up and down and who will jump on a great fixed rate when the time is right.

These days, Balloon mortgages are rare, but if you look hard enough, you might be able to find one. In a balloon mortgage, the term is short, with a term of usually 5 to 7 years. The payments are low because they are based on a term of 30 year loan. They also carry a lower interest rate as well. But, there is substantial risk associated with balloon mortgages. The problem comes at the end of the term when the borrower needs to pay off the outstanding balance. And, the big question there is…what if property values have gone down? You might not be able to refinance.

There is usually an option to reset this type of loan, but it is not automatic and requires the borrower be in good standing at the end of the loan. It may also be a useful instrument for anyone who knows they are going to sell a property in just a few years, well before the loan has to be paid.

Now all these options can be confusing — talk to your REALTOR®, and explain your plans. Discuss your mortgage options – especially, how much risk is too much risk. This will help you be sure the mortgage you pick, is the right mortgage for you.