Compare Mortgage Rates , Can You Afford To Buy A Home
January 24, 2010 by · Leave a Comment
Can I afford to buy a home? There are many different factors that go into deciding if you can afford to purchase a home. The most important factors are what is my present income and how much do I have saved. Borrowers can qualify for many different loan purchase programs however they must decide if they can afford it and compare mortgage rates
When someone asks “can I afford to buy a home?”, he or she is often thinking of the short term of 1 or 2 years.
Instead, try thinking of the long term. In many parts of the country, over a period of several years, homes increase in value by at least 5% a year. So, home owners have an asset that is growing.
At the same time, if their mortgage has a fixed rate, their housing expenses are staying relatively constant, unlike renters, who are seeing an increase in housing expenses generally of 3% to 5% a year.So, in the long term, home owners have less money going out and an asset increasing in value.
Why should you pay for someone else’s mortgage? In a sense that is what you are doing when you are renting. Contact your mortgage professional to see what price range of home is right for you and let your money work for you and not your landlords,
Investing in a home is still one of the safest places to invest your money. Real estate will almost always appreciate and give a good return on the initial investment.
When considering to buy a home and figuring out how much you can afford, it is a good idea to sit down with your spouse and calculate your total monthly expenses. This should include all of your monthly bills such as car payment, credit card payments, cell phones payment, personal loans, cable/satellite television bills, etc… This way you can calculate how much you can comfortably afford to spend on a monthly mortgage payment and not fall into the trap of buying a home that is out of your price/payment range. Many homeowners and potential homeowners can qualify for homes and monthly payments that are much, much more expensive than what they can comfortably afford, while living the same lifestyle that they are used to. Please remember just because you can qualify for a $400,000 home does not mean you have to buy a $400,000. Buy a home because it meets your needs and most importantly it is within your budget comfortably. Allowing your home to own you instead of you owning your home has been an increasing trend over the past few years with the availability of all of the new mortgage programs and competitive underwriting programs available out there.
Can you afford to continue renting? Home ownership is the most popular investment tool. With a mortgage you gain equity be paying down principle as well as through property appreciation. You can also use the interest paid on your mortgage as a tax deduction, however you may need help with taxes . To determine if you can afford a home you need the experience and expertise of both a good loan officer and a good real estate agent. Together they will help you determine how much you can afford and if there are homes in your area that meet your preference and price range.
As far as most banks loan qualification guidelines are concerned, home owners should have debt payments, including mortgage and other necessary housing expenses, of no more than approximately 45% of gross income. However, since people have different spending habits, homeowners should decide for themselves how much of a mortgage can they afford.
A good rule of thumb is to keep your mortgage payment approximately the same as your current rent payment. If you have been able to pay a rent payment every month, then you should be able to afford a mortgage payment of the same amount.
Regardless of where you live, how much you earn or what type of house you are shopping for, as soon as you find out how much the seller is asking, your first reaction might be something like, “Wow! That’s expensive!” Your initial assessment is correct. With prices rising quickly, particularly in areas like New York and Boston, even starter homes can carry hefty six-figure price tags. Your next reaction is likely to be, “Can I afford that?”
Generally speaking, most prospective homeowners can afford to mortgage a property that costs between 2 and 2.5 times their gross income. Under this formula, a person earning $100,000 per year can afford to mortgage between $200,000 and $250,000. But this calculation is only a general guideline.
Ultimately, when deciding on a property, you need to consider a few more factors. First, it’s a good idea to have an understanding of what your lender thinks you can afford – to gain a precise idea of what size of mortgage their clients can handle, lenders use formulas that are much more complex and thorough. Secondly, you need to determine some personal criteria by evaluating not only your finances but also your preferences.
Many brokers are able to perform a rent vs. buy analysis that will not only compare rate quotes and your monthly payments, but also the potential tax savings, the appreciation of the home, and other factors you may not have considered. In many cases it is actually cheaper in the long run to purchase a home than to continue renting.
Buying REO Properties
January 24, 2010 by · 1 Comment
What IS REO property and how do you buy REO Property ? It is Real Estate Owned. It is property which is in the possession of a lender as a result of foreclosure or forfeiture. In today’s economy there is to put it mildy a surplus of REO property on the market. This may present opportunity for the real estate investor, speculator or home buyer, but be cautious.
Always be sure to conduct home inspection for the bank owned property. The previous property owner might have done something to the property that the bank is not aware of.
Usually, VA or FHA financing is not allowed on REO properties.
The benefit of purchasing a REO owned property would be the discounted prices these properties are priced down to. Lenders are in the business of lending money and will work hard to release properties that have been repossessed and or foreclosed on.
REO – Bank owned properties, can most often be purchased at a discount to current market valuations. Sometimes in really strong real estate Markets, this is not the case.
REO properties are generally sold “as is”, so make you look the property over with a fine tooth comb if you are planning on doing any repairs yourself.
Bank owned properties are often purchased by real estate investors. Many REO houses require a lot of work by investors to be marketable. A handy first time home buyer can buy a REO requiring cosmetic repair and after some repair have instant equity in their home.
Buying Bank Owned Properties
In the world of real estate there are many, many types of properties that you can buy. The majority of the time people hire a real estate agent to help them buy a property that is listed on the MLS (multiple listing service) of the area that they are looking for. Whilst most people go through this route, other, perhaps more astute, or bargain hunting people, look at houses that are either in foreclosure of REO (Real estate owned) by a bank or Loan Company.
A common misconception that people outside of the real estate industry make believes that foreclosure and an REO purchase is the same thing. Although they are similar, they are in fact different; more precisely they are corollaries of each other, with an REO being a direct result of a failed foreclosure sale. To understand the difference between the two and how they vary from each other it is best to define what each is, and their respective merits.
The term Real Estate Owned propriety is sometimes used ambiguously, but has a specific meaning in the real estate industry; a property that has been fore-closured on by a bank or Loan company and has reverted back to the ownership of the lender. So as already explained above an REO is the result of property that has been foreclosed on, and is produced only as a result of a failed foreclosure sale.
Knowing that an REO is the result of a foreclosure leads us to wonder what is foreclosure, what are the benefits of buying a house that has been foreclosed on and what are the reasons why they fail to find a buyer.
Under the terms of foreclosure a bank or Loan Company reposes the property due to the tenants inability to continue with payments on their loan; that they used to purchase the property the first instance.
Once the foreclosure notice has been issued and foreclosure has started the bank or Loan Company legally has the right to sell the property; regardless of whether the tenants haven’t moved out yet.
In order to purchase a property in a foreclosure sale there are a number of items that the bidder needs to successfully complete. Firstly the buyer has to submit a minimum bid that includes the following:
The loan balance on the property. All accrued interest on the property Attorneys fees All costs associated with the foreclosure process.
Regardless of the above, in order to bid at foreclosure the buyer must also have a cashier’s check in hand for the full amount of the bid. If the buyers is successful then they will be offered the house in its ‘as is’ condition; complete with tenants who need evicting and liens secured on the property.
Because of all the difficulties and lack of concrete benefits in buying at foreclosure, most people who want to buy a foreclosed property will go through the REO route.
The REO method of purchase offers much more benefits, incentives and less stress than the foreclosure method.
When a bank or Loan company takes back a property they then have the property listed as a sellable asset on their books. The role of the bank is to maximize the wealth of its shareholders. If the foreclosed property can be sold to release cash to invest, then this is the main motive for the bank or Loan Company; sell the property and invest the cash.
In most situations a bank will be looking for a quick sale, and as such will offer many incentives and benefits to prospective buyers:
Savings of up to 20% off the market value of the property Market an REO purchase as the most simple way for first time homebuyers and experienced investors to buy properties Give prospective buyers have immediate access to the property for home inspections Remove all back taxes and liens Allow negation on rehab costs, interest, closing points, loan amount, etc. Describe the purchase as nearly 100% risk-free Accept a less than normal down payment
Although the benefits of an REO seem to out weigh those of a foreclosure purchase you should not take them at just face value; you should always look into exactly what you are getting and what you are liable for, should you choose to purchaser a property.
In a REO sale the bank will evict the tenants (or you could leave them there and let them pay rent), remove any liens etc and do the basics. Most of the time however the bank will not make any repairs to the house and want to sell it to you in what is called ‘as-is’ condition: the condition the house was in when it reposed it. IF this is the case you should seek the services of a home inspector, to find out the sate of the property and to help you decide whether you wish to continue the transaction.
Although a bank owned property might look like a good deal on the outside, it is necessary that you do your background research on the property before you commit to any contracts. Your first priority should be to find out what the house is worth in today’s current market; having a comparative market analysis carried out will help you with this aspect of the purchase.
The reality that a bank or loan company is trying to sell its REO property does not necessarily mean that they are going to sell the property at a bargain price; such would be going against their role: to maximize shareholder worth.
If after you have had the property checked you still wish to continue with the purchase you will most likely make the bank or Loan Company an initial offer. Generally the bank’s response will be to counter the offer and ask for a higher price; a standard trick for the industry.
The emphasis will now be on you to decide on what you want to do. If you decide that the price that the bank or Loan Company is asking for does not reflect the market value of the property then you can stop and walk away. If you are happy you can counter their offer and submit a new bid.
It is most likely that the bank or Loan Company will have a whole department to handle their REO transaction, and as such it may take a while to get back to you, as around 3 or 4 people may have to review your offer.
If the bank approves your offer, then great for you! If they reject the offer however you should look at whether you are happy paying more or whether you feel that the price they are asking is either above market value or unacceptable to you.
If you continue with the transaction the bank or loan company will draw up a contract. It is necessary for you to take a good look at the contract and maybe have your attorney go over it with you, as once you sign it you are liable for what it states.
If you have not done so by the time you accept the banks offer you should have the house inspected by a professional. If you are waiting for an inspection, and already have the contract drawn up you should have an inspection contingency written into the agreement, so that you can pull out of any deal if the result of an inspection produce surprises or faults you are not comfortable with. You should always remember that the bank or Loan Company will always want to sell the property ‘as-is’.
You should if possible always consult a Realtor or real estate agent before committing to a contract, or indeed making your offer to the bank or Loan Company. If you do have a Realtor working for you, you should as him or her to find out from the listing agent the following details about the property, before you come to you conclusion on the offer you will make:
Are there any inspection reports? What repair work has the bank agreed to? Is there a special “as is” form? How long will it take the bank to accept your offer? How do you, or your agent, deliver the offer?
Improve Your Credit Score One Step at a Time
January 24, 2010 by · Leave a Comment
If you plan to apply for a mortgage or a loan in the future but you have had credit problems in the past then you need to improve your credit score before you can do anything else.
Your credit score is a very important number. Every time you apply for any kind of financial assistance a lender will take a look at your credit score. If you are approved for credit then the number will play a role in the terms of the loan and the interest rate.
A higher credit score is much more advantageous than is a lower one. If you have a lower score you may be approved for credit but you will have a higher interest rate because the lender considers you to be a high risk. This is one reason that you need to work as hard as possible to improve your credit score.
Before you can figure out how to improve your credit score it helps to understand what it is made up of. Your credit score is made up of five specific areas:
· Payment history makes up 35 percent
· Your debts make up 30 percent
· The length of your credit history accounts for 15 percent
· New credit makes up 10 percent
· The credit that you are using at present accounts for 10 percent
In order to improve your credit score one of the most important things you can do is to get into a habit of paying all of your bills on time. This is the most vital aspect that plays a role in your credit score. If you have any payment that is past due by 30 days or more then this can be a black mark on your credit rating. Negative marks such as this can show on your credit report for as long a period as seven years. Don’t let this happen to you. If you want to improve your credit score then pay all of your bills on time. Do not let a credit card bill or utility bill cause you problems with your credit.
The money you owe on any given debt makes a difference in your credit score. To improve your credit score do not live beyond your means. Do not overuse credit and do not borrow more money than you can afford to pay back in the allotted period of time.
If you presently have a great deal of debt then it would do you well to take steps to cut back on extravagant spending. To improve your credit score you must become responsible financially. Pay your bills in a timely way. Pull up your financial straps and improve your credit score. Take it one step at a time and you will find that you are making progress.
Avoiding PMI Private Mortgage Insurance
January 23, 2010 by · 1 Comment
If you have ever purchased or refinanced a home that is over 80% loan to value you have probably heard the term mortgage insurance or are currently paying it. There are several ways to avoid paying or keep the cost of mortgage insurance down.
One way to purchase a home without mortgage insurance is to have an 80/20. That means your first mortgage is at 80 % and your second mortgage is at 20%.
There are many options to avoid mortgage insurance. Financing with 2 loans, LPMI (Lender Paid Mortgage Insurance)which is taking a relatively small rate bump, or by obtaining a subprime loan with a somewhat higher rate will all avoid PMI (Private Mortgage Insurance) If you plan on keeping your home for awhile and you are getting into a great low fixed rate another option is to pay a one time upfront MI (Mortgage Insurance) premium. By paying the one time premium you will be able to get a sizable overall discount of what you would have paid if you chose to pay mortgage insurance monthly. Also, lowering your mortgage term to a 20 year mortgage or a 15 year mortgage will heavily decrease your mortgage insurance payment.
To avoid Private Mortgage Insurance (PMI) on of the things that you may be able to do is to obtain a second mortgage. The lender will only require PMI on a mortgage that is 80% LTV or more and if you keep the first mortgage at 80% and get a second mortgage for the remaining 5-20% this will avoid the PMI.
There are programs with Lender Paid Mortgage Insurance (LPMI) . The rate is slightly higher, but it allows you to secure a mortgage over 80% and have the lender pay the mortgage insurance. Another benefit of this program is that the money you spend on a higher payment from the interest rate is tax deductible, whereas mortgage insurance is not.
If you get a low rate by paying mortgage insurance, it may well be worth paying mortgage insurance for the short term, if you plan on keeping your property for awhile.
Mortgae insurance is avoided in many “sub prime” and “alternative A” lending programs. Although the interest rates may be a little higher, the borrower must keep in mind that interest is tax deductable and the mortgage insurance premiums are not. Often when factoring in the increased tax deduction the sub prime type mortgage makes sense.
Talk to a loan specialist about our piggyback loan programs, which help avoid mortgage insurance entirely in most cases.
Mortgage insurance does not protect you, it protects the lender. If you can avoid having it, it is usually wise to do so.
Keep in mind that if you don’t have enough for a 20% down payment, but have some money to put down, that you can choose to do an 80/10/10 or a 80/15/5 and avoid Mortgage Insurance.
Mortgage insurance costs decrease over time as you gain equity in your home. If the value of your home has increased and the principal balance of your mortgage is at or below 80% of the market value of your home, you may be able to have the mortgage insurance removed. Contact your mortgage company for details
The piggybacked 1st and 2nd mortgage is also known as a combo loan. Some of the different combos are the 80/20 (most common) 70/30 and you may even see any variation of those such as 80/10/10 etc… The second loan on these are what they call self insured loans. Although the second loan will have a higher interest rate you will almost always come out better on a combo loan versus one loan with MI. A couple of reasons why: 1 – your insurance isn’t tax deductible where you interest payments on your second loan are. 2 – you can pay down your second lien off faster leaving you with a payment that is less once this is complete.
If you are currently paying for Private Mortgage Insurance premium on your mortgage, you may be able to drop the PMI coverage. Hire a certified appraiser to evaluate the value of your home. In most cases, a bank would not require PMI if the home value has increased so much where the outstanding loan balance is less than 80% of the increased value. Review your mortgage note or call your lender before ordering the appraisal.
Most people really don’t understand mortgage insurance and think it is something designed to benefit lender. Mortgage insurance, also referred to as private mortgage insurance (PMI), is the reason borrowers were first able to buy home with little or no money down. Loans with less than 20% down are considered high-risk loans and lenders didn’t make them before PMI. With the advent of PMI, the risk to lenders was lessened and they were willing to make loans with little money down.
Stated Income Loan
January 23, 2010 by · Leave a Comment
My loan officer says we are doing a stated income loan. Why dont they want to see my tax returns or pay stubs?
Stated Loans give a little more flexibility when it comes to particuarlly income. With more flexibilty does come more requirements particularly from the credit score necessary to qualify.
An alternative to stated income loans is by using bank statements to qualify as income. Stated income and bank statement loans are there for non traditional income sources and should not be used just for anybody.
Often you simply don’t have a choice. Sometimes a stated loan is the only way to make a paticular loan work. If this is the case with you, make sure you understand exactly what is going on with your loan and why your having to go stated.
One example of a reason that you might need a stated income loan is if you are self employed, and claim significant tax write offs to minimize your taxable income. While this is good for your tax status, most lenders will not be able to use your “real” income and base your debt to income ratios on your taxable income.
Do you have very high credit scores? If so, many lenders will allow you to use a stated income program with little or no increase to the interest rate. High FICO customers are seen as a low risk to lenders so lenders often reduce the burden of gathering documentation in order to earn your business. If you have very high credit scores you should ask your mortgage broker if a stated income program is right for you.
Stated Income mortgage is ideal for home buyers with incomes that are difficult to document. People who receive a good portion of their income in the form of cash tip, such as waiters, taxicab drivers and street vendors may not have paycheck stubs to prove their true earnings. Stated Income loans are created with these homeowners in mind.
Any and all sources of income that is un-documentable would be taken into consideration for a stated income loan. Side jobs where you are paid all cash, is an example of money that would be considered.
Stated income loans are for document relief and not to be used as a way to qualify for a loan in which you cannot afford by falsifying your income. Qualifying for a loan by way of the stated income program can put you in a very tough financial situation if you are not honest with your true income.
Stated income loans should NOT be used to exaggerate your income. If you use a stated income loan to claim you make more money than you do, you are committing mortgage fraud.
Many of those who would not have qualified on a Full Doc Loan will have the option of going with a Stated Income Loan.
