All Entries in the "Mortgages" Category
Top 5 Mortgage Questions Among First-Time Home Buyers
Here’s what we did. We reviewed all of the questions emailed to the Home Buying Institute over the last six months. We made a list of the most common mortgage-related questions sent in by home buyers, and we answered them below. What’s the result? A must-read article for first-time home buyers!
So here they are, starting with the most common mortgage question we receive…
1. What credit score do I need to get a mortgage?
In the past, we did not get this question as much as we do today. Yet, it has quickly risen to #1 in terms of frequency. There are two reasons for this — economic recession and media coverage. The housing crisis of 2008 led to a full-scale economic recession in 2009. Long story short, it’s harder to qualify for a mortgage loan in the current economy. Lenders today are more strict with their lending criteria, including credit scores. There has been plenty of media coverage about all of this, and that’s why so many home buyers are asking this question. So let’s answer it.
First, you need to realize that the numbers I’m about to give you are only averages. Every lender has its own standards and criteria, and they vary a lot. Lenders will also review other criteria, in addition to your credit score (income, debt, affordability, etc.). In the current economy, you’ll probably need a credit score of at least 670 to qualify for a mortgage loan. In order to get the best rates on a mortgage, you’ll need a score of 750 or higher. Again, these numbers are not set in stone. They are merely averages taken from recent surveys.
2. How much of a mortgage loan can I afford?
The most important thing to understand is that you must answer this question for yourself. A mortgage lender cannot tell you how much you can afford to pay each month — they can only tell you what they’re willing to lend you. It’s possible to get approved for a mortgage that’s too big for you. It happens all the time, and it often ends up with a foreclosure situation. So you need to set your home buying budget early on in the process, before you start talking to lenders.
This is a relatively simple process. All you need to do is subtract your monthly expenses from your net monthly income (after taxes), and you’ll have a rough idea of what you afford to pay toward a mortgage each month. When you add up your monthly expenses, include everything but your current rent payments — you won’t have a rent when you buy a home. Be sure to account for entertainment / leisure expenses, retirement and savings contributions, and whatever debts you currently have. Subtract these expenses from your monthly income, and use that figure as a monthly limit for your mortgage. Do not exceed that maximum amount, even if a lender approves you for more. Stay within your budget!
3. How do I apply for an FHA loan?
Let’s start with a quick definition. An FHA loan is any home loan that’s insured by the Federal Housing Administration, which is part of the Department of Housing and Urban Development / HUD. The FHA does not actually make loans to consumers — rather, they insure the loans made by primary lenders.
These loans offer certain benefits to first-time home buyers. Lenders receive guaranteed repayment from the federal government, even if the homeowner ends up defaulting on the loan. This government backing makes it easier for home buyers to qualify for FHA loans. You don’t have to put as much money down (as little as 3.5%), and your credit score doesn’t have to be perfect. That’s the primary appeal of FHA home loans.
To apply for an FHA loan, you would need to start on the FHA website. From there, you can find a list of FHA-approved lenders in your area, and you can apply for the program directly through those lenders. You can actually start this process through either the HUD or the FHA websites. Here are the links:
After you submit an application with an FHA-approved lender, they will review your financial situation and tell you (A) if you’re qualified for the program and (B) what kind of rate / terms you might get.
4. How do I get pre-approved for a mortgage loan?
It’s wise to get pre-approved for a mortgage loan before you start house hunting. It helps you limit your search to the types of homes you can actually afford. Sellers will also take your offer more seriously if you have your financing lined up. Fortunately, it’s a straightforward process. Just contact your chosen lender and tell them you want to get pre-approved for a mortgage. They will set up an appointment and tell you what to bring (W-2 statements, bank statements, pay stubs, etc.).
Afterward, the lender will tell you how much they are willing to lend you, based on your financial situation. They’ll also give you a pre-approval letter with the same information.
5. Should I choose a fixed or adjustable-rate mortgage?
A fixed-rate mortgage keeps the same interest rate over the entire life of the loan. On the contrary, an adjustable-rate mortgage (ARM) has an interest rate that will adjust or “reset” every few years. These days, most ARM loans start with a fixed rate for a certain period of time, typically three to five years, and will start adjusting after that. During the initial fixed-rate period, an ARM loan will usually have a lower rate than a regular fixed-rate mortgage. This is why some home buyers choose ARM loans in the first place — to get a lower rate, and thus a smaller mortgage payment each month.
I generally recommend fixed-rate mortgages for people who are going to stay in a house for a long period of time, more than a few years. The only time I would even consider an adjustable / ARM loan would be a short-term residency, where I knew I would be selling the home within a few years. For example, I did my final military tour in Maryland, and I knew I’d be moving out of the state after two years. So I used an ARM loan to get a lower interest rate, and I sold the home long before the three-year point where it would start adjusting. This is the only type of situation where I recommend the ARM loan. For long-term residency, I recommend a fixed-rate mortgage for predictability.
You should learn everything you can about fixed and adjustable mortgages, and choose the one that best suits your needs. Once you learn about the various pros and cons of each option, and obvious choice will begin to emerge.
© 2009, Cornett Communications.
About the Author: Brandon Cornett is a consumer advocate and publisher of the Home Buying Institute. You may visit the author’s website at www.HomeBuyingInstitute.com to learn more about this topic.
How Everything's Changed in Real Estate Finance
“Everything’s Changed!” My favorite line delivered by Holly Hunter in “Raising Arizona ” sums up what’s been going on in the mortgage markets. I started in the mortgage business just over 25 years ago and at that time the available options were Conventional, FHA, VA, & Private Money, that all were fixed rates. We’ve almost come full circle with the exception that there still are a few Alt-A and SubPrime programs available (for those borrowers that don’t meet the more stringent FannieMae, FreddieMac, Federal Housing Administration, or Veterans Administration guidelines). Gone are NoDoc loans where income, employment, or asset information was not required, gone is NoRatio loans where income information was not required, mostly gone are Stated loans where income is stated, but not verified. It’s pretty much if you can’t prove it, you can’t get it … not that that’s not the way it should be, but let’s admit it, there are very savvy accountants many self-employed people use, as well as there being a segment our economy that is cash. That’s where some of these now defunct programs came into play, but over recent years lower down-payments were permitted along with lower credit score thresholds, that turned to be riskier than thought.
The current state of our economy related to housing foreclosures and delinquencies was caused by a number of issues: the burst of the housing bubble and resulting decline in values, job loss or illness impacting peoples ability to meet their budgets, lenders creating products with fast and loose guidelines, homeowners not getting the proper type of mortgage or even the rate they really qualified for from who they trusted, and of course there has been outright fraud. Regardless of the causes, were are where we are now.
What are the options? VA loans permit 100% financing and a Funding Fee (comparable to Private Mortgage Insurance on conventional loans) is added to the loan, which remains for the entire term. FHA loanspermit 97% financing (soon to change to 96.5%) and have both a one time MIP (Mortgage Insurance Premiumcomparable to Private Mortgage Insurance) added to the loan amount as well as a monthly MIP fee added to the payment, these also remain the entire term. Both VA and FHA require “project approval” if the home or town home has a homeowner’s association, or if it is a condominium. Conventional loans technically permit up to 97% for special programs, but unfortunately here in Florida we are (along with many areas throughout the country) in what is termed a “declining market”, which reduces the percentage for loans. Here in Florida , at present the maximum loan for a single-family detached home is 90%, if it is attached (town house or villa) or a condominium then it is limited at 80%. These restrictions will undoubtedly be eased as our market recovers. Conventional loans over 80% require Private Mortgage Insurance, which is typically paid as a monthly fee in your payment.
WOW! What’s the good news? The good news is that mortgage rates are at historically low levels. On December 15th a Conventional 30 year fixed ratewas 4.75% … in my 25 years in business I only remember a day or two about 6 years ago when I was able to lock a few clients this low. Rates were over 12% when I started out in 1983 and for a long time if rates were in the 8’s, that was good. With rates available at or below the 5% range and the available choices in property on the market it is a great time to buy. Remember, interest rates can be very volatile and turn around faster than you think, much faster than real estate values move.
LaMarr Cromer is Broker/Owner of Cromer Mortgage Services, Inc. and has been a FloridaLicensed Mortgage Broker in Palm Beach County since 1983. Contact LaMarr at 561-594-4025, email at lamarr@cromermortgage.biz, or additional information can be found at www.cromermortgage.biz.
Subscribe Now to BloggingJupino and receive the latest information by email.
Refinance with Bad Credit
By Susanne Quirk
I was asked by Refinance.com to review their website. Before committing, I jumped over to Refinance.com for an initial review. I was pleasantly surprised with the depth of knowledge available about mortgages and refinancing. Considering this is a topic of interest to our readers and an opportunity for us to provide that information to you, I agreed.
Even a novice can easily navigate the site and find any information they need. There are a wide range of mortgage and refinance options available depending on your goals including Debt Consolidation, Refinancing and Home Equity Loans.
I wanted to focus on finding information on bad credit. The housing market has been hit hard with foreclosures and it is my hope that this information can provide another option for families in trouble. We discussed short sales in a previous posting which is not an option everyone. Even with bad credit, a mortgage refinance is possible.
For those interested in a home refinance with bad credit, you can read more about the subject by clicking on the Tools & Resources drop down menu and select the Bad Credit category where you can learn in detail about how credit categories are used to rank borrowers based on their credit history. Financial calculators are available to help calculate which loan you can afford as well as bi-weekly, refinance and amortization calculators.
There are many, many loans to choose from and each with a detailed description to point you in the right direction. Loan counselors are available via a toll free number to consult with you on the appropriate loan for your needs. They are trained to help those with bad credit to refinance their mortgages.
Other Articles of Interest:
Troubled Home Owners Look to a Short Sale for Financial ReliefTroubled Home Owners Look to a Short Sale for Financial Relief
By Joe Quirk
The mortgage debacle has brought many homeowners to their knees. What was once an easy solution to reaching their home goals has now become a living nightmare. Sub-prime loans allowed many buyers to purchase a home with little or no money down. Those who received an adjustable rate mortgage enjoyed paying low monthly payments on their new homes. Now their rates are due to increase considerably and many are finding that they are no longer able to make their mortgage payment.
Many financed 100% of their homes and, now because of reasons such as relocation or divorce, are finding that the current housing market has brought the value of their home down and has eroded away all their equity. Making it impossible to sell their home.
There is hope for home owners wanting to get themselves out from under possible foreclosure. President Bush recently urged lenders to work with home owners (see Bank Lenders Asked To Work With Borrowers) who have been in good standing up until the mortgage crisis.
Lenders are ready to work with borrowers to find the best possible solution for all parties involved and increasingly Realtors are assisting home owners sell their homes by negotiating a Short Sale with the lender.
A short sale is an agreement between the home owner and their mortgage lender that allows the owner to sell his property at a lower price than what is owed on the mortgage. “That is too good to be true,” you say. Well, it is not a simple task that can be handled with just a phone call. There is an application and approval process that takes place with the lender. It does take time and work. However, lenders are approving more short sales since they prove to be the better alternative to foreclosures.
Realtors usually are not aware of the need for a short sale until the home owner sees the market value of their home and realizes that it is not enough to pay off the mortgage. Typically, home owners are not aware of all the possible solutions they have available to them. Your Realtor should be able to advise you of all of your options (other options can include repayment plan and loan modifications – please consult with your Realtor or mortgage lender for further details).
This is a trying and difficult time and some home owners find it almost impossible to work through a tough situation such as this. Your Realtor, with your permission, can always assist you in negotiating with your mortgage lender. Realize that there are options for you. Seek the advise of your Realtor as to whether a short sale is the right option for you.
Feds Get Political Pressure to Cut Rates
Amid political pressure, Chairman Bernanke, cut interest rates 50 base points to 4.75 per cent. Both Democrats and Republicans are applauding the move and some are surprised at the bold move based on thoughts that the Chairman would err on the side of caution. The Feds took the step to help improve the financial markets and ward off inflation. The housing market has been hit hard and it is hoped that the move will help to correct the problem. The market surged after the announcement and took this as the first of a “rate-cutting cycle.” Bernanke only commented to “act as needed.”
University of Florida Study Shows FL in Positive Housing Market
The housing market has been hit with a barrage of negative media attention leaving many wondering exactly when the market is going to get better. Those in real estate know that of course it will get better. According to Wayne Archer, Director of the Bergstrom Center for Real Estate Studies, the underlying real estate markets are in fact improving.
The latest study by the University Florida shows that the new housing market is actually stablizing. That is a great sign. It is better to stabilize than to keep moving in the wrong direction. The positive outlook is due to the continual demand for homes and home builders not overbuilding. The Florida market is different from most states in the nation. The growth rate in Florida is continually growing. More and more people are retiring or streamlining their business to live in Florida. That growth rate has helped to stabilize the market.
The study was released after the mortgage crisis entered into the picture. However, Archer believes that the mortgage crisis will not be a major impact to the housing market. Most defaults are from consumers with subprime loans and many are second homes or investment properties. Many consumers will do everything possible to prevent foreclosing on their homes.
In some markets, such as Miami, the market is flooded with condominiums for sale and not enough interested buyers. Unless there is some movement from the International markets, you can expect condominiums in Miami to continue to suffer. Archer does believes the owner-occupied single family homes are still good investments. Prices in some markets may drop over the next year to adjust to a correction in the market, however, he does not foresee widespread declines. “I think homeowners have not yet come to terms with the fact that the price increases we’ve seen in the last two or three years are not going to continue,” he said.
Bank Regulators Ask Lenders To Work With Borrowers
The Palm Beach Post reported today that the FDIC and Federal Reserve have asked lenders to work with homeowners who are struggling to pay their loans. Many consumers with subprime and hybrid mortgages have found themselves unable to pay their mortgage due to the higher interest rates incurred under the current terms of their mortgage. Current accounting and tax rules allow creditors to use flexibility and work with consumers who, under normal circumstances, are timely with their payments. The guidelines were prompted by President Bush’s announcement Friday to proactively preempt further defaults over the next couple of years. Two million mortgages are expected to move from low interest rates to higher unaffordable rates by 2008. Some strategies mentioned to ward of defaults included modifying the terms of the loan, deferring payments or converting adjustable mortgages to fixed rate mortgages. Possible extension of the term of the loan and including missed payments into the loan for repayment.
