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You must have been advised in the past, when applying for a mortgage as to all the dos and don’ts. But now it’s time for you to be in the driver’s seat and take charge of this round of Q and A and make sure you extract as much pertinent information as you can from your mortgage officer before buying a house. While customers are expected to jump through the highest hoops in order to impress their mortgage officer, their mortgage officers are not as forthcoming with information as their clients are expected to be. Here is a list of questions that we feel you should get  out of the way prior to settling on a particular lender.

Questions To Ask Your Lending Officer

Some of the important questions you need to ask your lending officer about your home loan may involve:

• The Terms Of The Loan: It is best to start the application of with this question. It is always beneficial to understand the terms of the mortgage upfront rather than wait and be surprised with something that you should have cleared up at the very outset. Ask questions like, what are the terms of the mortgage, what is the interest only period, what are the undisclosed charges that could apply to this loan structure etc.

• Can I Pay Off The Mortgage Early?: Often consumers feel that there are no penalties, which apply to paying off their mortgage early. This could be a mistake. Quite often you will find that your mortgage provider will charge you penalty interest for paying off your mortgage early.

• What Interest Rates Are You Looking At: If you are looking at getting yourself a fixed interest mortgage loan, then it is easy to figure out what your payments are going to be now or a future date. If however, you decide to brave the market and get yourself a variable loan, you might want to quiz your mortgage officer on the kind of range you might be looking at with regards to interest rates and payments.

• Principal And Interest Break Ups:  Another thing that you might want to figure out is what is the principal and interest break up. You may want to ask your mortgage officer as to how much of your repayments go towards the principal component and how much goes towards the interest component. The reason this should be of interest to you is owing to the fact that you should want the majority of your payments to go towards the principal component thereby reducing your overall interest payments.

• Other Factors: In addition to the aforementioned questions you would should also ask your mortgage officer questions like, if there re any closing costs.  These are hidden costs and are sometimes added over the above the general costs associated with getting a mortgage. It is always beneficial to have these factors cleared up front as you find yourself short on the day of settlement. Further you should also enquire whether it is possible for you to get a fixed mortgage. If you can qualify for one, ask your mortgage officer to explain the terms and conditions of a fixed mortgage.

These are some of the questions you might want to ask your mortgage officer prior to settling down on a particular lender. As with any investment it is very essential that you do your research adequately.

References:

1. Ten Questions to Ask Your Mortgage Officer – Fine Tuned Finances
2. 10 questions for lenders – BankRate
3. Ask the Lender the Right Questions – Yahoo Finance

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On November 6th President Barrack Obama signed a bill extending and expanding the tax credit for first homebuyers. The $8,000 first home buyers tax credit has been extended till June 30. In addition to this the government has also decided to expand the tax credit to another $6,500 to encompass current home owners who are looking to make new purchases.

Changes To The Homebuyers Credit

In an interesting move by the government to spur market sales the government has extended the homebuyer tax credit to existing homeowners as well. In order to qualify for the homebuyer credit, homeowners should have lived in their existing properties for a period of 5 years consecutively in the last 8 years. In addition to this, the grant for the first home buyers has also been revamped. To qualify now individuals should earn less than $125,000 and couples should have a combined income of less than $250,000. These amounts have been revised upwards from $75,000 and $150,000 respectively.

Homebuyer Credit Stimulus – What It Means

This brings us to the next topic of discussion, what of this information do you need to know:

1. Buyers Are Expected To Surge: If you are a seller who is waiting to sell his property but has been unable to owing to the slack demand in the market, this might be the right time. With the extension of the homebuyer tax credit, experts expect there to be a surge in the numbers of buyers in the market. In addition to this one must also keep in mind that the extension of the homebuyer credit grant in conjunction with the expansion to include existing home owners and low interest rates, makes this a largely buyers market.
2. Timing Is Important: While home buyers have up to April 2010 to make the homebuyer credutgrant, as long as it is under contract by then, only as long as they close it out by the end of June. However, while consumers think that this is a lot of time, in reality they should start shopping now if they feel they are eligible. In the housing world a couple of months is not enough of a window to close the deal. It would be beneficial to have the property under contract by the end of March 2010 so as to ensure you have enough time to close the property.
3. Slow Months: While the seller are headed into the months which are traditionally regarded as the slowest for the real estate industry, with the extension of the homebuyer tax credit and also it’s expansion, a lot of new buyers are going to rush into the market therefore making these slow months rather busy to ensure that they make the grant in time.

If however you are in the middle of negotiations or have recently signed a contract it may be beneficial to check your eligibility. As a first step contact your real estate agent or banker to ensure that you can take full advantage of the grant. This extra money will go a long way irrespective of if you are a first home buyer or a existing home owner.

In addition to this prospective home buyers should remember that they can take advantage of the tax credit as long as they have a contract by the end of April and close it out by the end of June. Hence it is very important that consumers time their purchase decisions and ensure that they have sufficient time to make the grant.

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In the not so distant past it was possible to get a no down payment mortgage loan or a 100 percent lend as the market place calls it. However with the recent economic meltdown and tightened lending policies, no deposit loans are fast becoming the “Dodos” of the banking world. In other words they are extinct. This leaves clients with the obligation of coming up with sufficient funds to be able to secure a mortgage nowadays.

Come to think of it, one of the chief advantages of putting down a down payment for mortgage is that it creates instant owners equity in the market. In addition to this, the larger the down payment, the smaller your monthly interest payments on your mortgage.  In addition to this several industry experts have found that several first homebuyers who are not accustomed to owing a property find it hard to cope with owning an maintaining their homes. Hence as a precaution it is advisable that individuals should not allocate all their money towards their down payments and should store a bit in reserve. As a result of this a lot of mortgage programs nowadays have cash reserve requirements for individuals.

Getting A Down Payment For House

Some quick fixes to getting a house down payment are as follows:

• Ask your parents for the deposit amount as a non-repayable gift. This will ensure that the banks do not treat the mortgage down payment amount from your parents as another debt.
• You can also create your house down payment by selling assets such as cars, boats, bikes collectibles etc.
• In addition to this you could also liquidate your investments such as stocks and managed funds.
• Another alternative for a down payment mortgage could easily be recycling your tax refund and using that as a deposit.
• You could borrow the mortgage down payment from your IRA account.
• If you have received a bonus at work and are planning to buy a property, set this amount aside to use it as your down payment.
• In addition to the above-mentioned methods you could also look into private mortgage down payment assistance programs or if you are an employee of the government you could look into home buyer programs for public servants.

Alternative Methods To Getting a Down Payment

• Government Backed Programs: Apart from the above-mentioned methods there are other alternatives to securing a house down payment for your mortgage loan as well. For instance, The FHA backed mortgage Insurance program allows borrower to secure a loan with as little as a 3% deposit, the entire of  which could be a gift. However, you must be a approved applicant first. In addition the loan programs run by the Department of Veteran Affairs allows retired servicemen to get a home loan without any deposit at all.
• Private Assistance Programs: Private Assistance programs such as Nehimiah and AmeriDream are extremely popular and controversial at the same time. While these programs convert sellers equity into the buyers house down payment, they are not without flaw. One may ask him or herself the question that if an individual did not have the discipline to save up for a deposit,  will they have the discipline to make their repayments.

Hence, as stated there are several ways an individual can come up with a mortgage down payment for their home, but it is always advisable to ensure that you have saved up for it and have made adequate contributions.

Reference:

1. How to come up with a down payment – House Hunt
2. How to come up with a down payment – MSN Money

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The Obama government in line with its “Making Home Affordable Program” put into the place the Parallel Second Lien Program to help honest home owners combat the growing financial pressure and stay in their homes longer and achieve greater affordability. These 2nd lien efforts are being taken to help home owners keep their houses and in tandem combat the growing US foreclosure situation and stabilize the housing market which in turn will strengthen the economy.

Main Aim Of The Second Lien Program

The Parallel Second Lien Program is designed to work in tandem with the first lien program under the HAMP guidelines (Home Affordable Modification Program). Numerous borrowers who are at risk of being foreclosed upon already have second mortgages and are under stress. The Obama Government in order to rectify the situation has brought in to effect the Second Lien Program. Under the 2nd lien program once the first lien has been modified in accordance with the Home Affordable Modification, lenders who are partaking in the parallel second lien mortgage must automatically reduce the payments on the second mortgage to a pre-set protocol. In addition to this the lenders who have issued the second mortgage will have the option of extinguishing the second mortgage altogether. This lump sum payment will be a calculation based on a formula which has been devised by the US treasury. The aim as you can see in on the principal portion of the loan more than the interest.

Second Lien Loan Modifications

The government fully understands that even with a second lien mortgage, borrowers are at risk of losing their homes should they have an unaffordable second mortgage. In order to obliterate this risk the government has taken the following steps:

• Amortization Of Loans: The interest rate is kept at 1% for the first five years and is then increased to the same as that on the first mortgage following the loan modification. In addition to this second mortgage is so created that it matches the term of the first mortgage after it has been modifies while making room for principal forbearance in the same proportion as the first mortgage.
• Interest Only Loans: In the case of interest only loans, the interest is kept at 2% for the first 5 years and is then increased to match that of the first mortgage after it has been modified. Once again the interest only loan is amortized to suit the first mortgage and is expected to make room for principal forbearance the same as the first mortgage.

Second Lien Mortgage Features

Some of the other features of the parallel second lien program are mentioned below:

• The 2nd lien program also entails some thing known as incentive payments. Put simply this means that in addition to the fact that borrowers receive a loan modification they also receive incentive payments of $250 per year for the first five years which can be credited to their mortgage payments.
• Lender can extinguish the 2nd lien loan altogether by accepting a large lump sum payment which is calculated on the basis of the formula devised by the US treasury.

These are some of the features of the parallel second lien program as incorporated by the Obama government in accordance with the “Making Home Affordable Program”.

References:

1. Obama Administration Announces New Details on Making Home Affordable Program – U.S. Department of Treasury
2. Making Home Affordable Second Lien Program – My Dollar Plan
3. Obama mortgage plan has some issues – Market Watch, The Wall Street Journal

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A lot of consumers with FHA home loans have been asking the questions as to whether they are entitled to a refund from the Federal Housing Association. The answer to this may be a “YES”, provided you took out your FHA home loan post 1st September 1983, have been up to date on your FHA home loan payments and paid an upfront amount for your FHA home loan mortgage insurance.

In accordance with the rules laid out by the Department of Housing and Urban Development (2), upfront mortgage insurance of MIP is a requirement on most FHA loans. FHA requires these payments to be submitted to itself within 10 days of the closing or disbursement date, whichever comes last.

Once consumers have paid of their FHA loans they are entitled to receive an FHA refund for a portion of the upfront Mortgage Insurance Payment. This might not be the case in the event that the loan was assumed or was refinanced in an FHA to FHA refinance program. However to fully understand your eligibility it ma be beneficial to keep the following facts in mind:

How Are FHA Home Loan Program Refunds Determined?

Once the loan is terminated the FHA commissioner determines the amount of FHA refund due. FHA Refunds are directly related to the number of months for which the FHA home loan was insured. The following might be useful information:

• FHA home loans which had a closing date prior to January 1st 2001 and were endorsed before 8th December 2004, no refund is due after the 7th year of insurance.
• For an FHA home loan closed on or after January 1st 2001 and endorsed before 8th December 2004, no FHA refund is due after the 5th year of insurance.
• For a loan  closed on or after 8th December 2004, no FHA refund is due unless the loan was refinanced and in which case the no refund is due after the third year of insurance.

How Are FHA Government Home Loan Refunds Processed?

Once your mortgage insurance is terminated, the mortgage company will notify HUD of the termination. As a subsequent course of action if you are eligible for an FHA refund, HUD will request the Department of Treasury to issue you a cheque for your refunds amount or will send you an application for a Premier Refund or for a Distributive share payment. This is when you will need to carefully complete the application, notarize it and provide HUD with supporting information and documentation. Once all the information is in order and the application has been closely reviewed, you will either be issued with a cheque from the Department of Treasury or will be requested for more information.

Following Up Your FHA Home Loan Program Refund

If after a period of 45 days of you paying off your FHA home loan, you have not received either an FHA refund or an application from HUD, contact your mortgage company. Ensure that they have sent off all the correct documentation to HUD. If everything has been correctly sent and everything is in order and a period of 120 days have passed and you have received nothing contact the HUD immediately.

This is a bit of information to help you understand and track your FHA refund. In most cases if consumers have any questions or issues with regard to their refunds they should contact HUD on (800) 697 6967 or mail the Department of Housing and Urban Development at P.O.Box 23699, Washington DC 20026-3699.

References:

1. How are FHA Refunds Determined? – Federal Housing Association
2. FHA Homeowners Fact Sheet – U.S. Department of Housing and Urban Development

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Consumers looking to buy a new house can now heave a sigh of relief as the USA government has decided to allow first home buyers a tax credit of up to $8,000 on the purchase of their new homes. However it is important that consumers understand the criteria and implications of the first-time home buyers tax credits.
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Consumers often are of the opinion that refinancing is a hassle free process which will relieve them of their building financial stress. This however is not necessarily true. If you are not aware of the things to look out for when mortgage refinancing, you could end up taking three steps backward instead of forward. Consumers who are unsure of what to look out for when refinancing should do a bit of research and home work as to evaluate what their options are with regard to refinancing.

Costs Of Home Loan Refinancing

This is one of the most important things to be weary of when refinancing. Below mentioned are the main costs associated with refinancing and how they can wipe out any savings consumers might have made by switching. In spite of the fact that loans may be at all time low rates at the moment, the increase in costs associated with them can be a huge set back to any savings which might have resulted from the refinance.

1. Processing Fees: In order to remain profitable, many lender have commenced predatory practices of introducing additional fees for the exact same amount of work. For instance, consumers are now charged not only an application fees but also processing fees and underwriting fees. When tallied these fees add up to several hundred dollars and can greatly reduce savings. Make sure you check the fees of a few banks before settling.
2. Fannie Mae and Freddie Mac: For all loans which are purchased by Fannie Mae or Freddie Mac, they charge anywhere between 0.25% to 3% of the loan value in fees. If the loan is a cash out refinance they charge another 0.25% to 3%. Make sure that you ask your bank if the loan is going to be sold to Fannie Mae or Freddie Mac, because if it is, be prepared to be hit with the fees.
3. Valuation Fees: With the new regulations in place, from now on whether a deal goes through or not, the valuer who carried out the valuation on the property which is to be refinanced will need to be paid. Hence from now on be prepared to pay the valuation fee upfront as soon as you apply.
4. Mortgage Insurance: As more and more insurance companies start paying attention to FICO scores while calculating premiums, individuals with lower FICO scores can expect to pay more in mortgage insurance. Mortgage insurance is compulsory for anyone who is looking to borrow more than 80% of the property value. With the shift in risk assessment individuals with marginally lower FICO scores have seen their insurance premiums rise.

Dos and Don’ts Of A Mortgage Refinance

Below mentioned are some of the golden rules when it comes down to refinancing. This should help consumers better understand the things to look out for when refinancing:

1. Do not be pressured into refinancing by Debt Collectors.
2. Try and avoid refinancing your home in order to pay off unsecured debt like your credit card debt or medical bills. This is a grave mistake consumers often make as they trade in unsecured credit with little risk for secured debt with a lot of risk.
3. Avoid refinancing over and over again with the same lender. If you are being constantly urged to do this, this can only mean that the lender is trying to maximize profit by urging clients to refinance.
4. Make sure that you do no refinance low interest loans with high interest ones. This will cause you to lose any savings that you thought you might have made. Moreover this will also reduce the equity growth in your house.
5. Avoid scam refinances. There are a lot of predators in the home loan market and it is advisable that you should keep an eye out for them.
6. Be careful of the adage “too good to be true”, because if it seems like it is too good to be true then it probably is.

These are few basic pointers to help consumers understand the things they should look out for when refinancing.

References:

1. Refinancing Dos and Don’ts – Community Housing Resource Center
2. 4 Costly Refinancing Fees to Watch out For – Smar Money, The Wall Street Journal

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Every now and then individuals ponder on how to pay off their mortgage loans faster.  Lets face it, every individual would like to lead a debt free life and your mortgage is one of the most important debts you will acquire in your life. Being able to pay off your mortgage early is not only beneficial because you have gotten rid of a major debt but also because it will open up a lot of investment avenues for you. Below mentioned are a few tips top help you may your mortgage off sooner.
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Often consumers in the senior age bracket query what is a reverse mortgage and what purpose if any does it serve. Before analyzing reverse mortgages, one must bear in mind that reverse mortgages are available to senior citizens and enable them to release any used equity in their property.

Reverse Mortgage Information: How Does It Work

With a regular mortgage loan, the mortgagee makes monthly contributions and that regularly reduces the balance of the loan. At the end of the 30 years, the loan is paid off and the property is released from the holding of the bank or finance company. In a reverse mortgage however, the borrower makes no repayments on the loan. The loan repayments or interest payment are allowed to capitalize and they keep adding to the balance of the loan. On the death of the account holders the house is sold and the sales proceeds are transferred to the bank which had given the borrowers the reverse mortgage.

Requirements For Reverse Mortgage for Seniors

In order to qualify for a reverse mortgage loan, a borrower must be at least 62 years old. While there are no specific income or credit rating requirements stipulated by the Department of Housing and Urban Development (2), it may be beneficial for the applicant to check whether they qualify for the loan in the first place. In addition to this, should the borrower have any pending bankruptcy charges etc, it may slow down the entire reverse mortgage process. Securities such as mobile homes and caravans are acceptable in a reverse mortgage, however they need to meet certain conditions.In a reverse mortgage loan, the client takes out a mortgage on the appreciated value of the house and can get the equity amount paid to them in either installments or in a lump sum. The funds can be used at the customer’s discretion, but prior to that the customer needs to pay out the existing mortgage as the reverse mortgage can be the only mortgage on the property.

It may be noted that not all securities are acceptable as security in a reverse mortgage for seniors. The HUD usually recommends that the borrower should seek independent advice from an HUD approved source in order to completely understand the implications of a reverse mortgage. Recently the maximum loan limit on a reverse mortgage was raised to $625,500. In the year 2008 the limit was $417,000. Another point to bear in mind is that the lender can charge the client a maximum of $6,000 as loan origination fee.

Reverse Mortgage Calculator

In order to determine the amount of money available to a consumer, the following factors are taken into consideration by a reverse mortgage calculator:

• The age of the applicant
• The valuation price and condition of the house and if any repair work is required on the property.
• The interest rate as determined by the US treasury.
• The property value in question, and
• The type of advance, whether it is a lump sum or a revolving credit instrument.

Having taken these factors into consideration the total annual lending cost for the reverse mortgage is calculated. In addition to this it must be remembered that the amount of money received from a reverse mortgage is not taxable.

Hence it is very essential for the consumer and family members applying for the reverse mortgage to completely understand the scope and implications of a reverse mortgage prior to applying for one. While a reverse mortgage loan can be very beneficial and a last resort solution it can also have severe implications on the remaining family members of the applicant after the applicant’s death.

References:

1. Appendix 22 – U.S. Department of Housing and Urban Development
2. Top Ten Things to Know if You’re Interested in a Reverse Mortgage - U.S. Department of Housing and Urban Development

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Home Equity Loans, also known as HEL have gained a lot of popularity in the past few years. These home equity mortgage loans are a good way to fund expenses such as improvements and repairs around the house or unexpected bills or even higher education. Home equity loans are often a second mortgage on your property and consequentially reduce the equity component in your house. HEL’s in addition also create a second lien/charge on your property. One must however remember that in order to be considered for a home equity loan it is a given that the consumer must have good to excellent credit history.

Equity Home Loan Information: How Does It Work

Take a look at the diagram above. In this scenario when the home equity mortage loan was taken out, the entire house was valued at $500,000. The consumer contributed $100,000 towards the purchase of the property and borrowed the remaining $400,000. Now let us take a look at the value of the property value and the loan situation after 5 years: In this case after valuing the property after 5 years the value has increased to $750,000 thereby giving the consumer equity in the property of $350,000. The client can borrow against this equity. Once the client approaches a bank or a lender, the lender will value the equity property and will calculate the equity the client has in his/her property in the same way will lend funds against that amount. This new lend will create a second or a third mortgage on the property as the case may be. It must however be remembered that equity in a property is not always positive. It can in a lot of cases during a market downturn as we have just experienced, be negative. Consider the above example, if after valuing the property after 5 years, the value had fallen to $350,000 from $500,000, the client would have negative equity in the property of (350,000-400,000 = – $50,000) negative $50,000.

Equity Home Loans Types

Home Equity Loans can be of two types:

1. Open End Home Equity Loan: In this type of a home equity loan the lender creates a line of credit (revolving credit) for the consumer and the client can borrow as much as is required and when required. The interest on this charged only on the used amount of the line of credit.
2. Closed End Home Equity Loan: In a closed end home equity loan the lender gives the client an entire lump sum amount. The interest is fixed on these loans and they can be amortized over 15 years over the life of the loan.

Advantages of Equity Loans

Some of the advantages of home equity loans are:

• One of the main advantages of a home equity loan is that the loan amount can be used for any purpose as deemed fit for the client.
• Another advantage of HELs is that the interest component of the home equity mortgage loan can be tax deductible based on which tax bracket you fall under and also the purpose of the loan.
• In addition to this depending on whether or not you have a Line of Credit as your home equity loan, you can draw the funds as and when required.

Disadvantages Of Equity Loans

While home equity loans come with a host of plus points, there are some disadvantages worth considering as well.

• The primary disadvantage of a home equity loan is that it increases the repayments on your home loan and can place your mortgage account in danger of arrears and consequently of a foreclosure.
• Another disadvantage may be the fact that with the increased repayments you may disadvantage yourself from being able to borrow in the future owing to reduced servicing capacity. Increased payments may also cause you to miss payments and therefore affect your FICO score.
• In a lot of cases during market downturns you could actually end up owing money rather than having equity in your house owing to the fact that your property was undervalued due to existing market conditions.

As with any loan it is always prudent to take into consideration your financial position. While home equity loans have a lot of advantages, they also have certain disadvantages. It is essential to weigh both pros and cons prior to making a decision regarding the same. Before making a decision on whether or not to get a home equity consider your long and short term financial goals and its possible consequences.

Reference:

1. What Home Equity Debt Is – Bank Rate

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