To qualify for FHA loan refinancing, you must:
You do not need a credit report but having one is sometimes helpful. There are some additional considerations to make when using fha financing. FHA loan limits vary by county. You should check to see your county’s loan limits before budgeting for any finance charges. One additional advantage of an fha loan is that they are assumable. While risky, some home sellers are offering what are known as wrap-around loans to offer seller financing.
]]>From: The Associated Press
First American CoreLogic, a research firm affiliated with LoanPerformance, predicts about 1.1 million ARMs totaling $325 billion will sink into foreclosure as rising monthly payments squeeze borrowers. approximately 1.1 million homes will be foreclosed on with losses exceeding $100 billion over the next six years.
Although foreclosures represent less than 1% of total lending and won’t destroy the mortgage industry at current levels, foreclosure rates are rising. Serious delinquency rates (rates of homeowners 60 days behind on their mortgage) are also on the rise. So what do homeowners need to do up front to steer clear of foreclosure danger before they get anywhere near it? The answer is to avoid 6 types of loans.
The first of these loans to be avoided is the subprime loan. Just a few years ago, lenders offered a wide variety of loans to customers with poor and no credit histories. What’s more is that customers with low credit ratings were able to purchase homes with little or no down payments. Just because you can qualify for a mortgage doesn’t mean you are ready for it. Over the last two years foreclosure rates have remained about the same for homeowners with “Prime” mortgages. However, foreclosure rates for “Subprime” homeowners have steadily increased.
The second type of loan to be avoided is the low equity loan. Lenders refer to these loans as high Loan to Value (LTV) loans. For example, if your home is worth $300,000 and you own $270,000, then your LTV would be 90 percent. The higher the LTV, the less equity the owner has in the home. Equity is important because it provides a cushion if the owners fall behind on payments and decides to sell their home. This is most important in areas where property values are falling. Some owners owe more than their homes are worth. And borrowers who owe more than the value of their home are 6 times as likely to be 60 days delinquent on their mortgage payment as owners who have 20-30 percent equity in their homes.
The third type of loan to avoid is the interest-only loan. In some metropolitan areas like San Francisco, more than 60 percent of new homes were purchased with Interest-only loans. And since 2003 the number of interest-only loans used for purchases has risen 20 percent across the board. Interest-only loans have allowed thousands of families afford homes and mortgages that they otherwise could not, especially in areas with rising housing costs. The problem is that borrowers can only delay principal payments so long before they will be, in effect, renting their homes. In a few cases, borrowers choose interest-only loans when they can’t afford the fully amortized payment.
The fourth type of loan to avoid is the negative amortization loan. This loan is meant to be used by a few specific types of people. For example this loan is meant for people who are disciplined in their spending but have big swings in their income. This allows people to make the minimum payment during lean months or pay extra principal during more lucrative months. But borrowers who can only afford the minimum payment will find themselves in serious trouble when the introductory teaser rate expires. Some projections indicate that 32 percent of these loans will default because of resets to the teaser rate.
The fifth loan to avoid is any loan in an area where property values are falling. Housing prices play a major role in projecting foreclosure rates. For each one-percent fall in national housing prices an additional 70,000 loans will enter foreclosure.
The sixth and most important type of loan to avoid if you want to avoid foreclosure is any combination of the loans mentioned. Combining any of the above types of loan layers levels of risk on top of each other.
Overall, it is most important for borrowers to balance cash flow needs with an acceptable level of risk. And before signing for an adjustable rate mortgage, borrowers should consider what the payments will be after the initial period. Traditional adjustable-rate mortgages, interest-only mortgages, and even negative-amortization loans are all excellent mortgage products when fully understood and used wisely. And for those borrowers who are already behind on their payments or actually in foreclosure, there are still options.
]]>It is a form of revolving credit in which your home serves as the collateral. Since your home is likely to be your largest asset, you may wish to use the line of credit only for major items like education, home improvement, or medical bills as opposed to day to day expenses. When you take out a line of credit, you’ll be approved for a specific amount of credit. That is your credit limit, the maximum amount you can borrow at any one time. Your credit limit is usually determined by a percentage of your home’s appraised value, perhaps 75%. The balance owed on your mortgage is subtracted from the percentage of the appraised value, giving you the potential amount available for your line of credit. Your actual line of credit may vary depending on various factors the lender takes into consideration. They usually look for ability to repay, your total financial obligations and your credit history. There is often a fixed period of time during which you can draw from the credit line, say 10 years, for example. You may or may not be able to renew your credit line. Some plans may require payment in full at the end of the period. Others may allow a repayment period during which additional funds may not be able to be drawn. This could be 10 years, it just depends on your lenders rules in your contract. Once your line of credit is approved, however, you can usually withdraw as much as you want up to your credit limit. You may discover there is a minimum amount to draw. You may also be required to draw an initial advance when you set up the credit line. Read your credit agreement carefully, and ask questions upfront. Make sure you understand the conditions and terms.
Reading the agreement will usually satisfy most of your questions regarding the line of credit features, terms and conditions, but be sure to ask about anything you don’t understand. This will help you to decide if this loan product will suit your needs. However, to be sure it is the best answer for your situation, you’ll need to check out the costs associated with it and compare them with the costs and features of the other options out there. Here are the basic costs involved with a home equity line of credit (HELOC)
There are various ways the line can be set up for repayment depending on the lender requirements. There is usually a minimum payment amount. However you can choose to pay more. Some lenders will give you payment options. Regardless of your payment choice, at the end of the loan period, you may end up with a balloon payment if you have only been paying the minimum payment each time. Also, if you have a variable interest rate, your monthly payments can change. If you decide to sell your home, you’ll have to pay off the line of credit.
There are other options. You might consider a second mortgage. It can give you the money you need while setting a fixed monthly payment amount. This often is more attractive to homeowners who are looking for a set amount of money to do home improvement, like say a kitchen remodel, or adding a pool. If you’re looking for cash to take care of emergency home repairs, as needed, you may prefer the home equity line for its flexibility. Obviously, there are many things to consider. Make sure you get the disclosure forms from your lender regarding your particular loan. Study them, and ask questions, if you’re unsure about anything. A home equity line can give you the flexibility to take care of life’s little emergencies, and give you peace of mind. It can also become a headache, if you’re not prepared. So take the time to do a little research. Make sure you are comfortable with your decision.
]]>This step is to get a good faith estimate. Lenders and brokers are required by law to provide customers with a good faith estimate. And most do. But you want to make sure that you ask for it so that you let your lender or broker know that you will hold them accountable to the document.
Your good faith estimate shows a break down of all of your closing fees and impounds. Closing fees are one-time, non-recurring costs associated with closing your loan. These can include title fees, underwriting fees that go to the lender, origination fees that go to your lender or broker, and appraisal fees among others. Impounds are those recurring costs associated with home ownership. In most cases you will allow your lender to impound or pre-collect fees every month that they will put into an escrow account. They will also impound fees at the time of closing. The lender will use those fees to pay your homeowner’s insurance and your property taxes. Since the lender is collecting the fees and paying them directly, they can be assured that your taxes are paid instead of trusting a borrower to pay them. At the end of the year, they will assess your escrow account and either send you a refund check for fees they didn’t end up using, or they will send you a bill for the fees they paid that your account didn’t cover. If you choose to have your lender impound, then both recurring and non-recurring costs will be line-itemed on a Good Faith Estimate (GFE).
What is particularly useful about a GFE is that the federal government has created the form so that it is uniform across lenders. So a borrower looking at a GFE in Massachusetts will have the same form as a borrower looking at a GFE in California. Of course, the numbers may be different, but each of the various types of costs will be listed in the same place. This means that you can take your original GFE with you while you are shopping your loan. Any broker you go to will try very hard to beat a GFE that a potential customer brings in. And if they are unable or unwilling to beat the fees charged on your original GFE, then they can perhaps offer you a shorter pre-payment penalty or a similar incentive.
But when you are shopping your loan, you want to make sure that you are comparing apples to apples. That means you have to make sure that each broker or lender is quoting you the costs for the same loan. For example, if one broker charges $5,000 flat for a 30 year fixed loan and a second broker charges you only $4,000 you want to make sure they too are offering a 30 year fixed and not a 2 year adjustable rate mortgage, for example. You will also want to make sure that each are quoting you their fees for the same loan amount. This is particularly important because fees are often determined as a percentage of your loan amount.
A GFE is also useful because it gives you a fee quote that you can take with you to closing. When you sign your loan documents, you will sign a HUD1. This is your final delineation of closing costs. A title or escrow officer will prepare this document and have you sign it. What is nice is that this final document has the exact same line item numbers as your original Good Faith Estimate. So your appraisal fee will be shown on the same line number on both documents. This makes it easy to compare your final costs with your original quote.
Keep in mind though, your original GFE is an estimate. So if you close at the end of the month instead of the beginning of the month, your fees can be different. Usually you will notice the difference in your recurring closing costs like insurance and taxes and in your pre-paid interest.
In order to avoid surprises, it is a good idea to ask for another GFE right before you close. Typically, you should request it three business days before you sign. This allows the broker time to prepare the document, have an accurate knowledge of what the final costs will be, and also time for you to resolve any concerns that might arise after you review this GFE. A good broker should be able to create a GFE that is within pennies of your actual final costs. Most importantly, don’t be afraid to ask questions. You can ask your loan officer, his or her manager, and whomever guides you through the signing process. When you make an effort to really understand the process, you’ll always pay lower closing costs.
]]>Important Announcement - Effective Immediately
Due to current market conditions, Express Capital Lending will only be accepting new submissions for agency conforming loans (Max Loan Amount $417,000). We appreciate your business, and we will notify everyone when circumstances change.
‘Jumbo Loans’ and the higher risk that they pass on to the lender are no longer available from Express Capital Lending’s wholesale division. This is a big change, but it’s hardly one of the biggest we’ve seen lately and it certainly won’t be the last.
Last week we received this missive from Provident Funding:
Interest Only Changes 8/14/2007
In response to the federal banking agencies’ Interagency Guidance on Nontraditional Mortgage Product Risks (Guidance), Freddie Mac has modified Loan Prospector to require the qualification of Interest Only Mortgages with Fully Indexed, Principal and Interest payment.
Effective 8/14/07, Provident Funding will require that all Borrowers utilizing an Interest Only Loan program through Loan Prospector and Assetwise be qualified with the Fully Indexed, Principal and Interest payment.
All Interest Only loans locked prior to today (8/14/07) will be permitted to qualify with the interest only payment, but must fund prior to the lock expiration date.
This change didn’t affect us as we always qualify people at the fully indexed or ‘note’ rate. However the frequent changes that are going on in the mortgage industry, not to mention companies going belly up, make it prudent to google your lender if you are closing on a purchase. Many borrowers are left hanging at closing only to find out they don’t have a loan and losing their earnest deposit. Be smart, google your lender.
]]>For this, you’re going to need to do some homework. There are a lot of different options available. You’re going to need to check out the ones most likely to serve your purposes. So first, you’re going to want to be sure what it is that you want to accomplish with this loan. To find the best mortgage rates and loan package that fits your needs, you’re going to need to sort through a lot of different options. You may want to have your mortgage broker or loan officer check out the best ones for you, and then explain all the differences so you can decide which one works best in your particular situation.
Before you do anything, you’ll want to get a copy of your credit report and see what’s in it. Look it over carefully for errors. If you’re applying for a no-documentation loan, your credit report is going to be the most important piece of the puzzle as far as your lender is concerned. Once you’ve checked over your credit report, you can contact the reporting companies to correct the mistakes and also have outdated information erased. You’ll want to get rid of everything you can that might negatively affect your credit score. This will take some time, but is probably the most important thing you can do to improve your chances of getting the best loan. Start as soon as possible, so as to give the reporting agencies time to update your information. It’s a good idea to get everything in writing also. For example, if you had a debt or collection item paid off, you’d want to make sure they send you a letter stating the debt has been satisfied in full. That way, if it should show up again on your credit report, you have the necessary documentation to get it removed. You also have proof for the lender’s satisfaction, although they will most likely want to see a credit supplement showing it paid on your actual credit report as well.
Your lender will request various financial documents from you such as bank statements and paystubs. They may want to see you have assets enough to satisfy their program. This means they may want to see your 401K statements. If they do, remember they will want to see all the pages of the statement, not just the summary page. This is true for bank statements, too. So, if you have all your paperwork organized in advance, the process can move that much faster. Think about it this way, you’ve spent all this time shopping for a great rate, finally found it, but now you chance losing it as the rates rise while you’re in your basement or attic searching for a lost tax return. Take the time to get organized. Also, it’s a good idea to make copies of your important papers to give to your lender rather than fiving him your only copy and hoping he remembers to give it back when he’s done with it. Finally, if you’re purchasing a home, talk to your lender first and line up your financing. That way when you do sign a purchase contract, you won’t be waiting and hoping you’ll qualify, because you’ll already be approved. Those who plan ahead are much more likely to get the mortgage loan they prefer, with their desired terms, and skip the aggravating and costly delays. So, what are you waiting for? Go talk to your mortgage broker, get a copy of your credit report, and get your important papers together. You’ll probably sleep better, too.
What does this mean for you the borrower? Some programs have already pretty much disappeared. Your credit score is going to be much more closely reviewed. Your payment history will be checked for 24 months instead of the 12 months previously required. Self-employed borrowers data will be scrutinized more closely and compared to how much others in same field earn on average. Married couples may find it harder to get a loan as instead of accepting the higher credit score of one spouse, they may insist on going with the lower credit score of the two, in qualifying for the loan. Mortgage companies are beginning to be more critical of the appraised value. They may require a second appraisal, and use only the value of the lower appraisal in approving the loan. All this is in an effort to weed out loans that might become problematical for them. The result is you may have to work a little harder for a loan, and some may have to go back and clean up credit problems in order to qualify now for a mortgage. What can you do about it? Remember this is part of the normal lending cycle. Keep improving your credit by paying down debt. Keep looking for the right product for your situation, and make sure you have your paperwork in order, so when you do find the right lender and program, you’ll be ready.
]]>This means that your introductory period will reach its end and your interest rate and payment will begin to periodically adjust. So what does this mean for you?
Most importantly it means that your payment will increase. Rates have risen since you signed your last mortgage note. And in some cases your mortgage payment may increase by 30 percent. So if you were paying $1,200 a month before, you may be looking at a monthly payment closer to $1,560. For many borrowers this will come as quite a shock. Many borrowers are not familiar with the details of their ARM. And there are just as many who can not afford a substantial increase in their monthly payment.
So what are your options? Well, the first thing to do is to pull out all of your mortgage documentation. Determine when it is that your particular loan will readjust. Did you have a 1 year, a 2 year, a 3 year or a 5 year ARM? Did you have an option ARM? If you had an option arm then your loan will probably recast 5 years after you signed. In some cases, however, it may be only 3 years. The highest number of loans will reset around September, October and November. So getting on top of this now would be a good idea.
Next you will want to meet with your mortgage broker or retailer. Have them check your credit and explain your options as far as refinancing goes. This will be the route most of us will take. Remember too that even though mortgage rates are higher now, you probably saved thousands of dollars versus your neighbors who got a fixed rate. And actually mortgage rates are still at historic lows despite having risen over the past year or so.
For a few people, refinancing will not be an option. This may be the case if your credit has seriously deteriorated or if your home’s value has dropped precipitously. You still have options. Your first option is to call your lender. You could tell them you are having a hard time making the new payment and you don’t want to lose the house. Then you could ask if they could possibly extend the loan’s initial period one year. The worst case scenario is that they will say no.
Another option is to sell your home. If you can do so without a realtor, you can save a large amount of money that way. There are numerous websites that give free advice on selling a home without a realtor. And some companies like forsalebyowner.com charge only a small fee and provide you with some of the key services of a realtor such as providing the contract and listing your property on the Multiple Listing Service (MLS).
Hopefully you won’t find yourself in this situation. But regardless of what your home is worth or how your credit has changed, it is still a good time to review your current adjustable rate mortgage and come up with a plan of attack for when your reset takes place.
]]>Once you have this mortgage, you can reset the interest rate, choosing between fixed or adjustable rates. You can alter your payment arrangements, choose an interest only option, or make fully amortized payments of both interest and principal. What this means is that you can adjust you loan terms after origination twice within the same calendar year. The first reset is free, and additional resets are a flat fee of $250, up to two per year. You don’t ever have to apply for a refinance, a 15 minute phone call, or visit to your lender is all it takes. Once your mortgage is paid down sufficiently, you can tap into that equity by writing a check, cash advance, or even use a credit card, in most states. You’ll need a minimum of 10 percent down, but Washington Mutual doesn’t charge an origination fee and waives various other costs you’d typically pay like appraisal and title fees. Your line of credit will continue to grow as you pay down your mortgage over time. On the downside, your interest rate will start off slightly higher, maybe half a percentage point. For most homeowners, this will be worth it, due to the added flexibility. It’s designed to make refinancing easier and help the lender to retain customers who might otherwise shop their loan elsewhere at refinance time. In all it would seem a win-win situation for all.
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