We could all use a little assistance now and then for things like washing dishes and jump-starting a car. How about some assistance making a down payment on a house? This might sound like a bigger favor than an extra hand with the dishes, but once upon a time there was such a thing as down payment assistance programs that allowed sellers or third party organizations to contribute to the funding of down payment and closing costs for FHA loans. These programs existed until 2008, when George W. Bush signed The Housing and Economic Recovery Act of 2008 (H.R. 3221), which included a ban on seller-funded down payment assistance programs.

Despite this ban, there may be a chance of a possible revival of these assistance programs in the future. In January 2009, a bill called the FHA Seller-Financed Downpayment Reform Act of 2009 was introduced. This bill is designed to amend the National Housing Act to allow for exceptions to the ban on mortgage insurance for mortgages involving down payments assisted by the seller, a third party, or anyone else that benefits as a result of the transaction. It only applies to creditworthy borrowers who meet specific credit standards.

As of now, the bill remains in the first phases. It has been referred to the House Committee on Financial Services, but has a ways to go before becoming a law.

How could passing this Act be beneficial?

Supporters of down payment assistance programs note that some programs offer additional cost coverage, easing the transition to homeownership for many first-time home buyers. In addition to the recently extended Home Buyer Tax Credit, down payment assistance could help stimulate the housing market and drive prices back up.

How could passing this Act be detrimental?

Some argue that down payment assistance programs allow for distortion of home values. They believe these programs encourage sellers to mark up prices to make up the difference. There is also speculation of higher rates of default for loans that received down payment assistance because it enables people to buy homes they can’t afford.

What do you think about the FHA Seller-Financed Downpayment Reform Act of 2009? Would you like to see it pass?

Sources: FHA.com. www.fha.com. Govtrack.us. www.govtrack.us.
Photo by: Rombla // CC BY 2.0

You bought your home a couple of years ago, and with the economy in the slumps, you’re having trouble with your mortgage payments. You might be one of many homeowners that have found themselves in a tight bind trying to look for another loan while they still have their mortgage to pay.You may have some good news as the FDIC is proposing to Congress to start up Home Ownership Preservation Loans (HOP).

This loan is designed to help homeowners keep their homes, but must be repaid in full. The HOP loan will be used to pay down 20% of the mortgage’s principal, and the remaining balance on your home loan, payments and interest, will be restructured to help you keep your house. The Treasury’s fund will help cover the first five years of the loan, but after that, the borrower must start repaying the loan.

The restructuring will change certain aspects about the mortgage as well:

• After the principal is paid down by 20% with the HOP loan from the Treasury, a new interest rate for the loan will be determined by the Treasury and capped at the Freddie Mac 30 year fixed rate.

• The restructured mortgage cannot exceed the borrower’s front end debt-to-income ratio (a debt-to-income (DTI) ratio for all housing related expenses greater than 35% of the borrower’s verified current gross income).

• If the borrower defaults, refinances, or sells the property, the Treasury will have priority recovery for the full amount.

To be eligible:

• The loan must be unaffordable. Defined by the FDIC as “front-end DTIs exceeding 40 percent at origination”.

• The original loan must be below the FHA conforming loan limit ($417,000 for the National Loan Limit in 2009).

• The loan also must have been originated between January 1, 2003 and June 30, 2007.

With an additional loan, it could mean that you can keep your home and fend off foreclosure. Which is always nice. Does your home need to be preserved?

Source: FDIC

Have you always dreamed of buying a house, but can’t seem to save the money for it? Before you lose hope in ever being able to afford a house, evaluate your lifestyle to see if there are any major spending obstacles standing in the way of you achieving your dreams. Eliminating those obstacles could be the difference between renting and owning—which is very satisfying. Use these strategies to help assess your finances and develop a plan of action.

Assess your spending.

Take some time to go through old statements and receipts of things you have bought. Are there any trends? Do you consistently spend money on something that has little worth in your life? This can alert you to a dead end spending that is really costing you. You may want to also use a web-based program such as Wesabe or Mint to help you keep track of where your money is going.

Make a conscious effort to save.

Actually opening an account for the purpose of saving to buy a home will be a big step in the right direction. Separating the money you spend on day to day items and the money you are saving for the future will keep you from “accidently” forgetting to save. You may also want to think about designating a certain amount of your paycheck that will go into the account or setting up some other regular deposit routine.

Downgrade excessively expensive purchases.

Sometimes it’s the small things that can make a huge difference. If you are the type of person who only buys the top brand of everything, maybe it’s time to think about downgrading. Test the waters on some lower-cost versions of what you usually buy to see if you could possibly make a long term switch. Try flying coach instead of first class. Try making dinner at home instead of going out every night. Try buying vegetables at the local farmers’ market instead of more expensive imported vegetables at the grocery store. When you make the switch, take note of your savings and set that money aside in your house account. You’ll be impressed by how these changes add up and you might actually find that you like less costly versions even better!

Know your goal amount.

It’s good to have a number to aim for. If your goal number is unrealistic, you will either end up discouraged by too high of an amount or be unpleasantly surprised when getting there still isn’t enough to achieve your goal of homeownership. To calculate this magic number you may want to seek expert advice from a mortgage professional. You can prequalify or be preapproved for a loan to get an idea of how much you need to save for a down payment, what your monthly mortgage payments would look like, and what types of loans are available for you. There is really nothing you can lose by prequalifying or being preapproved because it’s free! You don’t have to decide on a loan right then, and you don’t even have to commit to buying if you change your mind. This will just give you a better idea of what to aim for when you are saving.

Remember, buying a home is a big deal and you probably won’t be able to save this money overnight. Even if it takes you a long time to save you will be pleasantly impressed with how good it feels to wrap your fingers around key that belong to a house that is all your’s.

Photo by: caitlinator // CC BY 2.0

The exciting part about buying a home is actually getting to the point where you can wrap your fingers around the hard metal keys to your new house. Closing on a home is very satisfying. You feel the reality set in that this house is finally yours. Congratulations, you own it!

Though buyers often look forward to the day of their closing, many are not quite sure what to expect at the actual closing meeting. What exactly happens during a closing meeting? What should you be ready for? Here’s some information to give you a better idea of what you should anticipate when you get to this pivotal point of purchasing a home.

Who will be there?

You and the seller won’t be the only ones attending this important meeting. The closing agent, title insurance agent, and escrow agent will all be there (though one person may serve as all three). There may also be a real estate agent present.

Should you do anything beforehand?

Yes! Before the meeting, you should arrange for a walk-though of the home to ensure it is in the condition that you and the seller agreed it would be. You should check for any repairs that the seller should have completed and make sure that all appliances that were included in the contract are still present.

What should you review before the meeting?

It is important you look over your copies of the closing documents carefully. You may even want to have a lawyer read over them with you to be sure there is nothing included that you are not willing to agree to. You should also be aware of all closing costs before the meeting.

What will happen at the meeting?

Typically, you will sign all necessary documents and provide proof of insurance and inspections. You will also need to pay any amount due, such as the down payment. Once these things are taken care of, you are officially the new owner of a home and can leave with keys in hand. Congratulations!

What was your closing experience like? Was there anything you found especially helpful?

Source: Freddie Mac. www.freddiemac.com
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You’ve been preapproved! (…or was it prequalified?) But what does that really mean? Is it the same as prequalifying? The terms ‘preapproved’ and ‘prequalified’ are often confused or used intermittently, but they are not the same thing. Before you go shopping for a house, you should know what each term means what they can do to toot your horn.

Prequalification

A prequalification is simply an estimate of how much money you can borrow. You may get a prequalification from a lender. The process usually involves submitting financial information, such as your income, assets, and debts, and the amount you anticipate having for a down payment. The lender will then evaluate your information and provide you with an estimate of how much they think you can afford to pay for a monthly mortgage.

There is no guarantee from the lender that you will actually be approved for this amount once you apply for the loan, it is just a ballpark number to give you an idea of your price range. Prequalifying through a lender does not indicate a commitment on either side, you to that particular lender or that lender to you. There is also no cost involved in prequalifying (it’s free!).

The best time to get a prequalification is before you even start looking. It will give you a good idea of what you can afford, and let sellers know that you are serious about buying. Because there is no cost or commitment involved, there’s really no reason not to!

Preapproval

A preapproval will provide you with a more serious figure to work with. In order to be preapproved for a loan, you will need to provide the lender with actual documentation of your income, assets, and debts, and hand over your Social Security number. The lender will also need to run a credit check on you so that they can generate a more accurate amount. Unlike a prequalification, a preapproval will generally involve an application fee.

Along with your preapproval, the lender will provide you a letter of commitment, which will include the maximum amount of money they are willing to loan you for a home purchase. This letter, however, is not equivalent to an approval, and you will still need to be approved for a mortgage loan before you are eligible to receive funding so that other factors, like the property appraisal and title search, can be taken into consideration.

A preapproval is very beneficial to have when you are looking to buy a home. Sellers are more likely to accept offers from you if you can show them you are preapproved for financing. Having a preapproval will give you the advantage over other potential buyers who don’t.

Obtaining a preapproval does not bind you to that lender. You will still have the freedom to borrow from whomever you please. However, if you do decide to stick with the lender that preapproved you, the process of applying for a mortgage loan will go much faster.

If you are seriously considering buying a home, you should obtain a prequalification or preapproval beforehand so that you are aware of the price range you can afford.

Photo by: richkidsunite // CC BY 2.0
Source: Mortgage 101. www.mortgage101.com

Myth #1: You need great credit to buy a home.

Contrary to popular belief, you do not have to have perfect credit to buy a home in today’s market. What most mortgage companies are looking for these days is proof that you can afford the payment. As long as you don’t have major delinquencies on your report, such as a bankruptcy or foreclosure, there is usually a way. If you are currently paying rent, this is the best way to show a mortgage company that you can afford to pay your housing expenses. The closer in value your rent is to your proposed housing payment, the better your odds are of qualifying. Always pay your rent by check! This way you can show proof of those payments, if needed.

Myth #2: Lenders share your personal information.

Your personal information is protected by federal and state privacy laws. Generally, lenders must get your permission to share personal financial information with non-affiliates, so you should have no concerns there.

Myth #3: You need to put 20% down to buy a home.

A lot has changed in the mortgage market and the days of ZERO down are long gone, but we’re definitely not back up to 20% down. There are still plenty of options that will allow you to get into a home with a low down payment. The FHA loan is a great example of that. FHA will allow buyers to get into a new home with as little as 3.5% down, so if your buying a home for $100,000 you will only need $3,500 down. Start saving today, and ask for FHA!

Myth #4: Owning a home is more expensive than renting.

This is false in many respects. There has not been a better time to become a homeowner. Home values have declined in all 50 states across our nation, with most values going back to the early 90′s prices. As a buyer this is the ideal time to pick up a home for a fraction of what it was three to four years ago.

Furthermore, if you’re not afraid of a little bit of elbow grease, there are some great deals in the foreclosure market that will allow you to pick up a home for pennies on the dollar, that just require a little TLC. These are great investment opportunities that will allow you to build some quick equity and put yourself in a great financial position. Moreover, rates are lower than they have been in years. This, coupled with the lower home prices, means that you can buy a home and pay the same price, if not less, than you would renting. This is a great opportunity for those still paying their landlord’s mortgage payments.

Myth #5: I’ll get the best deal if I call the agent that has the home for sale.

As a buyer, a Realtor works for you for FREE. Whenever a home is sold, there is a contract set forth between the seller and the seller’s agent. Standard contracts have a 6% commission built into them, with 3% going to the listing agent and 3% going to the buyer’s agent. If the listing agent also brings the buyer, they get the full 6%. Remember, if a home is listed, the agent has already established a relationship with the seller, before you as the buyer even come in to play. They are going to do what they can to make sure both you and the seller are happy, but their original obligation was to the seller (not to mention their commission is based on the sales price).

As a buyer’s agent, they are going to work to get you the best possible deal on the home, as they work for you and you only. They are paid by the seller, through the sale of the home, and are not paid until they find you a home. Working with a buyer’s agent gets you in front of the right listings, and puts someone to work for you to get the best possible deal. When you’re ready to move, call your local real estate office and ask for a buyer’s agent!

Rates are going up. Rates are going down. It feels like a roller coaster! How are these peaks and valleys of interest rates determined? And what can you do to make sure that you get the best rate possible? Knowing the factors involved in their calculation can give you more control over landing low rates, and possibly even allow you to predict which way they’re headed.

Here are the factors that you can control:

Credit Score.
Sure, you know that maintaining good credit is important for many reasons, but it is especially crucial when you want to take out a home loan. Every delinquency you have ever had will be visible to a lender after you submit your application, and they will take these into consideration when calculating your interest rates. The worse your credit history, the higher risk you pose to them as a borrower. Check your score before you even apply, and work to improve it if you need to.

Length of Mortgage.
The longer you take to pay off your loan, the higher your rates will be. Paying off a loan in 30 years as opposed to 5 years means that the lender will be depending on your repayment for longer. Because you have more time to produce the money, you pay at a higher interest rate.

Size of Mortgage.
Plain and simple, if you are asking to borrow a very large amount of money, there is higher possibility that you will default on your loan. After all, you are asking for money that you do not currently have. Lenders accept this risk with the provision of higher interest rates.

Down Payment.
The higher the down payment you make, the less you will need to borrow. As mentioned above, borrowing a smaller amount will decrease your risk as a borrower, making for lower interest rates. Also, a large down payment shows lenders that you have the ability to budget for large expenses, and will be a more reliable borrower.

Here are the factors that you can NOT control:

Supply and Demand.
This principle is very relevant to the mortgage industry. When more people are taking out home loans, rates will go up, and when less people are taking out home loans, rates will go down. Also, if the demand for a particular lender is down, that lender may offer lower rates just to get borrowers in the door.

The Economy.
Unfortunately (or sometimes fortunately), the economy has a heavy weight on interest rates. When inflation rates increase, the Federal Reserve ups their funds rate (the amount of money Federal Reserve Banks charge each other for overnight transfers) in order to lower inflation by making borrowing less enticing. Rates are assessed every six weeks or so, based on how the Federal Reserve perceives the state of the economy.

To get your best rate possible, use these factors to your advantage. Keep your finances in order and make an educated decision on the size and length of your loan. Also, be aware of market trends and how they will affect your rates.

Do you have other tips for getting great rates? How has the economy changed your outlook?

Photo by: LuxTonnerre // CC BY 2.0
Sources: iReference. www.ireference.com. Home Loan Basics. www.homeloanbasics.com.

Congratulations! You’ve found a house. Now all you need is to get through the process of securing a home loan to help you pay for it. Are you ready? How long will it take? What information will you need to supply?

Here’s what to expect when applying for a home loan:

• Paperwork, paperwork, paperwork.
You will need to fill out a lot of paperwork in order to apply for a home loan, starting with the application. Make sure that you have information on your employment, your finances, and the home you are purchasing available for this. Use our handy checklist to make certain you have all of the information you need.

• Got credit? Got good credit?
Once your application materials are submitted, your lender will examine your credit history to gauge whether you will be a responsible borrower. At this point, if there is evidence that you have poor credit the lender may reject your application. You should get a copy of your credit report before applying and to see if you need to improve your score.

• Value: Priceless.
An appraiser will visit the home you are purchasing to determine its value. Based on this and your personal finances, the maximum loan amount will be determined. This is used to decide whether you qualify for the size of the mortgage you want.

• Payment = This + That.
Your lender will use the appraised value of the house to calculate your loan. Usually lenders will allow financing for 80-90% of the maximum value, and you will provide the rest in the form of a down payment. The size of your down payment and the time in which you wish to pay off the loan will be taken into account to calculate your monthly estimated payments.

• The golden ratio (for you).
A predetermined ratio will be used to conclude whether you will qualify for this loan based on the projected mortgage payment and your existing debt. Usually, the ratio is constructed using the percentage of your gross income that may be used on housing expenses (PI, real estate taxes, and insurance) compared to the percent of your gross income that may be used to pay your debts, including the mortgage. Your lender should be able to give you more information on the ratios that they use so that you can calculate for yourself ahead of time.

• Hopin’ and waitin’.
The time involved in the approval process may vary. In most cases it will take less than 30 days for a response, though FHA and VA loans tend to take longer. However, market conditions or insufficient information may prolong the process.

• If at first you don’t succeed…
If you are turned down for a home loan, the lender is required by Federal law to give you a written explanation of the reasons why. Use this to your advantage. Take some time to research alternatives and improve upon the factors that held you back. Then, try again.

Source: The Federal Reserve Board. www.federalreserve.gov.
Photo by: a2gemma // CC BY 2.0

These days in the mortgage world, the phrase “low down payment” is viewed as an anomaly. With investors combating foreclosures and many states caught in a declining market, it hardly seems viable to require little or no cash at the time of closing. Before you lose hope in finding a low down payment option, take a look at these HUD programs you might qualify for:

Are you a United States Veteran? The VA Mortgage offers a true zero out-of-pocket option. That’s right, no down payment! This loan generally provides lower interest rates than comparable mortgages. In order to be eligible for this type of home loan, you must have served on active duty and have been honorably discharged.

Are you a teacher, law enforcement officer, or firefighter/EMT? You may qualify for the Good Neighbor Next Door program, aimed at providing a substantial discount for people with occupations considered to better the community. Those who are eligible can cash in on a 50% discount from the list price of the home. In order to qualify for this program, the home you are buying must be located in a revitalization area and you must commit to reside there for at least 36 months.

Are you currently living in public housing? If you are, you might be able to take advantage of the Homeownership for Public Housing Residents program, which, based on your resources, could require as little as a 1% down payment. This program allows you to convert your monthly rent payments into mortgage payments toward your current unit.

Are you a lower-income home buyer? The American Dream Down Payment Initiative program may be right for you. This is a government-funded program with $200 million available each year to assist lower-income home buyers. Grants for this program may not exceed $10,000 or 6% of the home price, whichever is larger. In order to qualify for this program, you must make less than 80% of the median income in your area.

In addition to these programs, there may be local grants available that can assist you with either part or all of your down payment for a new home. It is important to contact a mortgage lender that knows or can research local grant options in your area, as prerequisites will vary. A local grant coupled with a federally-insured mortgage creates financing that is affordable and safe to the consumer.

Make sure you know your options!