This article was on MSN Money today and I thought it was helpful for those of you shopping for a mortgage..
8 big mortgage mistakes and how to avoid them
You can borrow too much or prepare too little. You can misjudge terms or overestimate your credit. With so much at stake, it’s no wonder so much can go wrong.
By Liz Pulliam Weston
Applying for a mortgage can be a daunting experience.
It's not enough that you're agreeing to take on the biggest debt of your life, one that represents two to three times your annual income. You're also confronted with piles of paperwork, flurries of fees and a tidal wave of terms, from amortization to title insurance, whose meaning is fuzzy at best." Whether it's a professor at Stanford or a ditch digger," said San Francisco mortgage broker Leon Huntting, "most people don't understand the loan process."
In this confusing and pressure-filled atmosphere, it's easy to make some mistakes. Here are some common ones that lenders and mortgage brokers see, and what you can do to prevent them.
Not fixing your credit
Mortgage brokers say they're confounded at the number of buyers who apply for a mortgage with their fingers crossed, hoping their credit will allow them to qualify for a loan. Before you even think about applying for a mortgage, obtain copies of your credit report and your FICO credit score. Your FICO score is the three-digit number that's used in 75% of mortgage-lending decisions. You can order your FICO score on the Web for a fee of $14.95, which includes a copy of your credit report. Doing this at least six months in advance should give you plenty of time to challenge any errors on your report and ensure that they're removed by the time you're ready to apply for a loan. You can also see the legitimate factors that are hurting your score and do something about them, such as paying off an overdue bill or paying down credit card debt.
Not looking for first-time home buyers' programs
These programs, typically sponsored by state, county or city governments, often offer better interest rates and terms than you'll find among private lenders, said mortgage consultant Diane St. James. Some are tailored for people with damaged credit, while most can help people with little saved for a down payment.
Some of these resources are listed on St. James' educational Web site, ABC Mortgage Consulting. You can also call the housing agencies for your state, county and city to see what they offer.
Not getting pre-approved for a loan
Many first-time borrowers confuse being "pre-qualified" with being "pre-approved." Pre-qualification is a pretty casual process, where a lender tells you how much money you probably can borrow based on how much money you make, how much debt you already have and how much cash you have for the down payment.
Getting pre-approval, by contrast, is a much more rigorous process and involves actually applying for a loan. You typically submit tax returns, pay stubs and other information. The lender verifies the information and checks your credit. If all goes well, the lender agrees in writing to make the loan.
In a hot or even warm real estate market, the house hunter who is only pre-qualified is a cooked goose. Home sellers and their agents give much more weight to offers being made by buyers who already have a loan lined up.
Borrowing too much money
Many people take out the biggest loan they possibly can, figuring that their incomes will eventually increase enough to make the payments comfortable. But few first-time buyers have any clear idea of how expensive homeownership can be. Not only will you shell out more for mortgage payments than you probably did for rent, but you'll also need to cover property taxes and homeowners insurance, as well as higher bills for utilities, maintenance and repairs than you faced as a renter.
Lenders are perfectly willing to let you overextend, knowing that you'll probably forgo vacations, retirement savings and new clothes for the kids rather than default on your mortgage.
"Mortgage money … is way too easy to get," said Ted Grose, president of the California Association of Mortgage Brokers. "People tend to overbuy … and that can really stress family life. It's also a formula for foreclosure."
Instead of going to the edge of affordability, consider limiting your housing costs -- mortgage payments, property taxes and homeowners insurance -- to 25% or so of your gross income. That's a much more sustainable level for most people, financial planners say, than the 33% lenders are typically willing to give you.
Not shopping around for rates and terms
Mortgage broker Allen Jackson of Bristol Home Loans in Bellflower, Calif., sees too many borrowers with decent credit getting stuck with loans meant for people with poor credit. So-called "subprime" loans are often more profitable, so less ethical mortgage brokers may push them.
If the borrower doesn't know what the prevailing interest rates are for someone with their credit standing, Jackson said, they can easily pay thousands of dollars more than they need to. You can see a listing of loan rates by credit score at MyFico.com, and a comprehensive listing of prevailing rates and fees can be found in MSN Money's Banking area.
Even people with a few dings on their credit can often qualify for better loans than they're typically offered, said Grose of 1st Mortgage Advisors in Los Angeles. He believes most of the people being shunted into government loan programs, such as Federal Housing Administration (FHA) loans, would pay less if they used mortgages now being offered by private-sector lenders.
Paying junk fees
Lenders can boost their profits by adding on a variety of fees. Some may be legitimate, some may be inflated and others may be pure fluff. Lenders may charge for "document preparation," for example, when all that involves typically is having a computer spit out a form. Or they may charge $150 for a credit check that cost them $15.
The time to challenge junk fees is not when you're about to sign the loan papers. Use a mortgage broker or call a number of lenders to compare their loans. Ask about the interest rate, the "points" charged to get that rate (each point is 1% of the total loan amount) and any other fees the lender charges. Then you can compare terms.
Once you've selected a lender, you'll be given a good-faith estimate of closing costs, which should include any fees being charged. Ask about each fee, and try to negotiate down the ones that seem excessive.
If the lender won't negotiate, "take that estimate to someone else," St. James said. "I'll bet they can beat it."
Unfortunately, this doesn't absolutely guarantee you won't face junk fees when it comes time to sign the loan. Many borrowers complain that they still face higher costs than were originally estimated, and so far the federal government has done little to prevent the practice. You can try challenging junk fees at this point, but most likely you'll have to bite the bullet and pay the fees to get your loan.
Not planning for closing costs
The day you're scheduled to get your loan, known as closing, you'll also be expected to write a check for a number of expenses, which typically include attorney's fees, taxes, title insurance, prepaid homeowners insurance, points and other lenders' fees. Together, these are known as closing costs, and the total can be eye-popping: somewhere between 2% to 7% of the selling price of the house. "Usually, when people see the closing costs, they're like a deer in the headlights," said mortgage broker Huntting, who works for Pacific Guarantee Mortgage. "It's much more than they ever think it's going to be."
Plan for closing costs by getting a good-faith estimate from your lender as early in the loan process as possible. Make sure you have the cash on hand (or rather, in your checking account) and that it doesn't "disappear" before closing because of sloppy bookkeeping or a last-minute emergency.
Not having enough cash on hand after closing
After borrowing too much, and scraping together every last dime for closing costs, many home buyers have nothing left in the bank to pay for anything unforeseen happening --and something unforeseen always happens.
"It costs so much just to move in," Grose said. "Then the water heater breaks."
Some people are so tapped out by the process, Jackson said, that they're not able to make their first mortgage payment on time. That's why "more and more lenders are requiring [borrowers have] three months' reserves after closing," Jackson said.
That's a smart idea for borrowers, anyway. Having three months' reserves, which means a fund equal to three months' worth of expenses, will help you handle the added costs of homeownership with much less stress.
Thursday, September 20, 2007
Friday, September 14, 2007
30-year mortgage rates lowest in four months!
Good news for current homowners looking to refinance OR new buyers! This story was published by the associated press today.
By: Martin Crutsinger
Associated Press
WASHINGTON - Rates on 30-year mortgages dropped this week to the lowest point in four months, providing some relief for people hoping to refinance their existing mortgages.
Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.31 percent this week, the lowest level since May 17, when 30-year mortgages averaged 6.21 percent. The rate had been 6.46 percent last week.
Ease to homeowners
All mortgage products surveyed by Freddie Mac showed declines this week. Frank Nothaft, the company's chief economist, said this should provide help to homeowners who are hoping to refinance existing adjustable rate loans that are resetting from low introductory "teaser" rates.
An estimated 2 million such loans will reset over the next 18 months, raising fears about a wave of delinquencies as homeowners are unable to meet the new payments. Top Bush administration officials met with major mortgage servicing companies on Wednesday to urge them to extend as much assistance as possible to homeowners trying to avoid default by refinancing into mortgages they can afford.
Cutting interest rate
Many economists believe the Federal Reserve will decide at its Tuesday meeting to cut a key interest rate in an effort to insulate the economy from recent turmoil in housing and financial markets.
Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, averaged 5.97 percent this week, down from 6.15 percent last week.
Rates on five-year adjustable rate mortgages averaged 6.17 percent, down from 6.32 percent, while one-year ARMs dropped to 5.66 percent. The mortgage rates do not include add-on fees known as points. Thirty-year mortgages carried a nationwide average fee of 0.5 point while 15-year mortgages carried an average fee of 0.4 point. Five-year ARMs had an average fee of 0.6 point and one-year ARMs carried an average fee of 0.8 point.
By: Martin Crutsinger
Associated Press
WASHINGTON - Rates on 30-year mortgages dropped this week to the lowest point in four months, providing some relief for people hoping to refinance their existing mortgages.
Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.31 percent this week, the lowest level since May 17, when 30-year mortgages averaged 6.21 percent. The rate had been 6.46 percent last week.
Ease to homeowners
All mortgage products surveyed by Freddie Mac showed declines this week. Frank Nothaft, the company's chief economist, said this should provide help to homeowners who are hoping to refinance existing adjustable rate loans that are resetting from low introductory "teaser" rates.
An estimated 2 million such loans will reset over the next 18 months, raising fears about a wave of delinquencies as homeowners are unable to meet the new payments. Top Bush administration officials met with major mortgage servicing companies on Wednesday to urge them to extend as much assistance as possible to homeowners trying to avoid default by refinancing into mortgages they can afford.
Cutting interest rate
Many economists believe the Federal Reserve will decide at its Tuesday meeting to cut a key interest rate in an effort to insulate the economy from recent turmoil in housing and financial markets.
Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, averaged 5.97 percent this week, down from 6.15 percent last week.
Rates on five-year adjustable rate mortgages averaged 6.17 percent, down from 6.32 percent, while one-year ARMs dropped to 5.66 percent. The mortgage rates do not include add-on fees known as points. Thirty-year mortgages carried a nationwide average fee of 0.5 point while 15-year mortgages carried an average fee of 0.4 point. Five-year ARMs had an average fee of 0.6 point and one-year ARMs carried an average fee of 0.8 point.
Thursday, September 6, 2007
Do you think a home-owner bailout is the right thing to do to help the mortgage and housing markets?
Read this article from MSN Money regarding speculative "bail-out" program for homewoners facing foreclosure. We would appreciate your thoughts or comments. Please click on the "comments" link under the article:
Bush's mortgage bailout just might work
If insider buying is any indication, home builders and financial-services providers expect dramatic reversals of fortune in the coming months.
By Jon Markman
With his stunning decision last week to let a federal housing agency guarantee mortgages of distressed homeowners, President Bush appears to have launched a "surge" in the financial markets to match the Pentagon's efforts in Iraq.
His plan seems straightforward:
First, use winks and nods to convince his top Federal Reserve appointee, Ben Bernanke, that it would be in the best interest of both men to slash interest-rate targets by as much as a percentage point, and to do it quickly so the move has time to work its magic before the next election.
Second, use every lever available in the executive branch to provide a direct, emphatic bailout to overstretched mortgage holders at risk of foreclosure.
And third, dump as much of the financial burden for paying for the rescue of voters, aka homeowners, on the nation's banks, rather than on taxpayers.
If the market comes to believe his plan will succeed -- and the plan just might -- you can expect a rally in the shares of financial-services providers and home builders that will stun even the bulls, with big-cap banks such as Wells Fargo (WFC, news, msgs) and SunTrust Banks (STI, news, msgs) rising as much as 25% over the next 12 months and some beaten-down home builders doubling in value.
Bush's surge solution for homeowners would, ironically, take a page from his father's rescue of Latin American governments and bankers in 1989 with a set of financial instruments that came to be known as Brady bonds. In that case, U.S. banks had lent billions of dollars to Latin American companies for use in economy building without obtaining sufficient collateral.
After thousands of loans went into default, it became clear that the money had been siphoned off by kleptocrats and crooks, and there was therefore no cash flow available for repayments. When U.S. banks clamored to be made whole, Latin American governments took over their citizens' obligations but did not have the ability to make payments, either.
Richard Bove, a banking analyst at brokerage Punk Ziegel, points out that the first Bush administration then had two choices: support U.S. banks and demand that the countries tax their people to pay back the loans, or blame the U.S. banks for making idiotic loans in the first place, force them to forgive the debts and let the crooks keep their booty.
President George H.W. Bush chose the latter in the interest of hemispheric amity and stability, and some creative geniuses in a Treasury Department headed by former Wall Street banker Nicholas Brady figured out a way for the governments of Mexico, Argentina and Brazil to convert the bad loans into dollar-denominated bonds that could be sold elsewhere. In effect, Bush 41 whisked bad credits off balance sheets south of the border with a stroke of a pen.
Now Bush 43 faces the same dilemma, only this time the bad loans are right here at home. His choices: He can thumb his nose at lenders who made stupid loans, castigate brainless homeowners who took out mortgages they could not repay, jail fraudster mortgage brokers who exploited a loosey-goosey system to generate exorbitant fees -- and stand smugly by as families in Republican strongholds across the West and South lose their homes. Or he could follow his dad's Brady bonds solution and basically forgive and forget by launching a mortgage bailout of unprecedented scope.
Based on Bush's announcement last week of a new Federal Housing Administration program to help around 80,000 at-risk homeowners obtain debt relief -- an effort modest in scope but stunning in its reversal of prior policy -- it's clear he will go for the latter in the interest of helping his party avoid a wipeout next November.
Bove notes that a precedent for a widespread mortgage-assistance program lies in the Emergency Home Finance Act of 1970, which established these mechanisms to help challenged households:
Banks would originate mortgage loans with 1% interest rates.
The Federal Housing Administration and Department of Veterans Affairs would insure the loans against loss.
The Government National Mortgage Association, aka Ginnie Mae, would buy the mortgages at par from the banks, allowing the banks to make a small profit.
Ginnie Mae, taking a sizable loss, would then sell these loans to Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) at a discount so that the buyers would earn reasonable yields.
Fannie and Freddie would fund these purchases with low-cost, government-guaranteed debt.
As a result, Bove speculates, tens of thousands of at-risk homeowners would get to keep their homes. Ginnie Mae would lose tens of billions of dollars that would be repaid by banks and taxpayers at a pace and in a manner similar to the Iraq reconstruction effort. Fannie Mae and Freddie Mac would end up with huge increases in the sizes of their portfolios. And, most importantly, the nationwide housing collapse would disappear as an election theme for Democrats.
Although this may seem a bit far-fetched, insiders in the financial services and home-building industries are buying their own companies' shares these days at a record pace -- essentially betting that something like this scenario will transpire. Home-building companies' executives bought $15.9 million worth of their firms' annihilated shares in August, the largest monthly purchase in the sector since Thomson Financial started keeping track in 1990.
The last time that insiders even came close to this level of buying, in September 2001, the sector rose 55% in value over the next six months while the S&P 500 Index ($INX) advanced 10%. Thomson analysts suggest raw valuation is a factor in insiders' zeal for their stocks -- as the price-to-book value of the sector hit 0.75 last month, the lowest since October 1990 -- but clearly a larger motivating force is at work.
The bottom line is that Bush has ample tools at his disposal to make the foreclosure crisis vanish if he is willing to make a financial and political commitment on a par with his pledge to stabilize Iraq. With almost one in every 7.5 housing units in the United States empty due to overbuilding during the easy-money years, it would take years for enough demand to emerge under normal conditions to soak up supply. But don't underestimate the president's capacity and motivation to speed up the process with a surge of looser credit and check writing.
Wells Fargo, now trading at $36.50 a share, could easily go to $50 in a year in this scenario, as its competition from the likes of Countrywide Financial (CFC, news, msgs) and lesser mortgage bankers and brokers have been thrashed and it has its pick of the best talent fleeing those firms. SunTrust, now trading at $78, could go to $95. . . .
The three home builders with the most insider buying are Meritage Homes (MTH, news, msgs), where one insider bought $12.9 million in shares in August; Brookfield Homes (BHS, news, msgs), where three insiders bought $1.4 million; and Lennar (LEN, news, msgs), where one insider spent $845,100. Shares of these three builders are down 63%, 49% and 46%, respectively.
Read this article from MSN Money regarding speculative "bail-out" program for homewoners facing foreclosure. We would appreciate your thoughts or comments. Please click on the "comments" link under the article:
Bush's mortgage bailout just might work
If insider buying is any indication, home builders and financial-services providers expect dramatic reversals of fortune in the coming months.
By Jon Markman
With his stunning decision last week to let a federal housing agency guarantee mortgages of distressed homeowners, President Bush appears to have launched a "surge" in the financial markets to match the Pentagon's efforts in Iraq.
His plan seems straightforward:
First, use winks and nods to convince his top Federal Reserve appointee, Ben Bernanke, that it would be in the best interest of both men to slash interest-rate targets by as much as a percentage point, and to do it quickly so the move has time to work its magic before the next election.
Second, use every lever available in the executive branch to provide a direct, emphatic bailout to overstretched mortgage holders at risk of foreclosure.
And third, dump as much of the financial burden for paying for the rescue of voters, aka homeowners, on the nation's banks, rather than on taxpayers.
If the market comes to believe his plan will succeed -- and the plan just might -- you can expect a rally in the shares of financial-services providers and home builders that will stun even the bulls, with big-cap banks such as Wells Fargo (WFC, news, msgs) and SunTrust Banks (STI, news, msgs) rising as much as 25% over the next 12 months and some beaten-down home builders doubling in value.
Bush's surge solution for homeowners would, ironically, take a page from his father's rescue of Latin American governments and bankers in 1989 with a set of financial instruments that came to be known as Brady bonds. In that case, U.S. banks had lent billions of dollars to Latin American companies for use in economy building without obtaining sufficient collateral.
After thousands of loans went into default, it became clear that the money had been siphoned off by kleptocrats and crooks, and there was therefore no cash flow available for repayments. When U.S. banks clamored to be made whole, Latin American governments took over their citizens' obligations but did not have the ability to make payments, either.
Richard Bove, a banking analyst at brokerage Punk Ziegel, points out that the first Bush administration then had two choices: support U.S. banks and demand that the countries tax their people to pay back the loans, or blame the U.S. banks for making idiotic loans in the first place, force them to forgive the debts and let the crooks keep their booty.
President George H.W. Bush chose the latter in the interest of hemispheric amity and stability, and some creative geniuses in a Treasury Department headed by former Wall Street banker Nicholas Brady figured out a way for the governments of Mexico, Argentina and Brazil to convert the bad loans into dollar-denominated bonds that could be sold elsewhere. In effect, Bush 41 whisked bad credits off balance sheets south of the border with a stroke of a pen.
Now Bush 43 faces the same dilemma, only this time the bad loans are right here at home. His choices: He can thumb his nose at lenders who made stupid loans, castigate brainless homeowners who took out mortgages they could not repay, jail fraudster mortgage brokers who exploited a loosey-goosey system to generate exorbitant fees -- and stand smugly by as families in Republican strongholds across the West and South lose their homes. Or he could follow his dad's Brady bonds solution and basically forgive and forget by launching a mortgage bailout of unprecedented scope.
Based on Bush's announcement last week of a new Federal Housing Administration program to help around 80,000 at-risk homeowners obtain debt relief -- an effort modest in scope but stunning in its reversal of prior policy -- it's clear he will go for the latter in the interest of helping his party avoid a wipeout next November.
Bove notes that a precedent for a widespread mortgage-assistance program lies in the Emergency Home Finance Act of 1970, which established these mechanisms to help challenged households:
Banks would originate mortgage loans with 1% interest rates.
The Federal Housing Administration and Department of Veterans Affairs would insure the loans against loss.
The Government National Mortgage Association, aka Ginnie Mae, would buy the mortgages at par from the banks, allowing the banks to make a small profit.
Ginnie Mae, taking a sizable loss, would then sell these loans to Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) at a discount so that the buyers would earn reasonable yields.
Fannie and Freddie would fund these purchases with low-cost, government-guaranteed debt.
As a result, Bove speculates, tens of thousands of at-risk homeowners would get to keep their homes. Ginnie Mae would lose tens of billions of dollars that would be repaid by banks and taxpayers at a pace and in a manner similar to the Iraq reconstruction effort. Fannie Mae and Freddie Mac would end up with huge increases in the sizes of their portfolios. And, most importantly, the nationwide housing collapse would disappear as an election theme for Democrats.
Although this may seem a bit far-fetched, insiders in the financial services and home-building industries are buying their own companies' shares these days at a record pace -- essentially betting that something like this scenario will transpire. Home-building companies' executives bought $15.9 million worth of their firms' annihilated shares in August, the largest monthly purchase in the sector since Thomson Financial started keeping track in 1990.
The last time that insiders even came close to this level of buying, in September 2001, the sector rose 55% in value over the next six months while the S&P 500 Index ($INX) advanced 10%. Thomson analysts suggest raw valuation is a factor in insiders' zeal for their stocks -- as the price-to-book value of the sector hit 0.75 last month, the lowest since October 1990 -- but clearly a larger motivating force is at work.
The bottom line is that Bush has ample tools at his disposal to make the foreclosure crisis vanish if he is willing to make a financial and political commitment on a par with his pledge to stabilize Iraq. With almost one in every 7.5 housing units in the United States empty due to overbuilding during the easy-money years, it would take years for enough demand to emerge under normal conditions to soak up supply. But don't underestimate the president's capacity and motivation to speed up the process with a surge of looser credit and check writing.
Wells Fargo, now trading at $36.50 a share, could easily go to $50 in a year in this scenario, as its competition from the likes of Countrywide Financial (CFC, news, msgs) and lesser mortgage bankers and brokers have been thrashed and it has its pick of the best talent fleeing those firms. SunTrust, now trading at $78, could go to $95. . . .
The three home builders with the most insider buying are Meritage Homes (MTH, news, msgs), where one insider bought $12.9 million in shares in August; Brookfield Homes (BHS, news, msgs), where three insiders bought $1.4 million; and Lennar (LEN, news, msgs), where one insider spent $845,100. Shares of these three builders are down 63%, 49% and 46%, respectively.
Subscribe to:
Posts (Atom)
