Effective January 1, 2010, all loan applications must use a new Good Faith Estimate form in order to be accepted. The Real Estate Settlement Procedures Act (RESPA) requires all mortgage lenders to provide you with a Good Faith Estimate for your mortgage loan. This form is provides you with an itemized list of fees and costs associated with your loan, allowing you to compare the real total costs of different lenders when making your decision.

The new version of this form has been revised by the Department of Housing and Urban Development in order to be more consumer-friendly. The new form will make it easier for you to compare settlement service providers when shopping around by giving you a more clear presentation of loan terms and total settlement charges.

The form includes an improved disclosure of yield spread premiums (YSPs) to help you understand how they influence charges associated with your settlement. The main purpose of these revisions is to prevent home buyers from entering into loan agreements they do not completely understand and may not be able to afford in the long run.

Fees included on the form will fall into three categories:

• Fees that will not increase from the upfront estimate to final closing.
These include lender or broker origination, processing, and underwriting charges, as well as discount charges or “points” based on the quoted interest rate, and local transfer taxes.

• Fees that may increase, but must stay within 10% of the upfront estimate.
This category specifies that while individual items may increase more than 10%, the combined total must not exceed this limit. These items include services such as appraisals, title insurance, settlement services, owner’s title insurance, and other services required by the lender where the lender selects the provider or supplies a list of providers that the borrower must select from.

• Fees that may increase without limit.
This category is of items that are beyond the lender’s control or realm of prediction. These include services that are required by the lender when the borrower chooses the provider, such as title insurance, escrow, homeowner’s hazard insurance, daily interest charges on the loan, and the amount of initial deposit by the borrower into an escrow account.

The form also requires a new standard closing cost statement, the HUD-1. This allows you to do a side-by-side comparison of the costs that you were given upfront to what you were actually asked to pay at closing. In addition to this, the HUD-1 also requires disclosure of confusing fee splits of title insurance premiums for the insurance underwriter and the title agent. The estimate must be provided by a lender and made available to you within three days of accepting your loan application and will be good for ten days.

For more complete information on the changes being made to the Good Faith Estimate form, watch this informational video provided by United Wholesale Mortgage.

Source: The Washington Post. www.washingtonpost.com.
Department of Housing and Urban Development. 24 CFR Parts 203 and 3500, RIN 2502-AI61. Office of the Assistant Secretary for Housing – Federal Housing Commissioner, HUD.
Photo by: atoach // CC BY 2.0

Having a problem qualifying for a credit card due to no credit or bad credit? These days a credit card is almost a necessity. Shopping online, booking hotel rooms or flights, and many subscriptions services require at least a credit card on file. This makes life very difficult for someone who is unable to attain one. An increasingly popular solution has become the prepaid credit card. You simply load money on to it, and charge purchases to it as you would with any other card. It seems like a great option, but is it?

Before you run out to get one, take a look at some of the advantages and disadvantages of having one:

The Advantages:

• 100% Approval Rate: This is the single largest advantage if you have bad credit or no credit because there is no credit check. You are automatically approved regardless of your credit history.

• No Bills: You don’t have to worry about paying this bill on time because there is no bill. Purchases you make are deducted from the amount you put on the card. Imagine shopping without the credit hangover…

• No Interest Charges: The money you can spend using this card is money that you have already loaded on to it, so there are no interest charges for borrowing because you really aren’t borrowing.

• Budgeting: For someone with budgeting issues, this card provides an excellent solution. You can only spend as much as you have loaded on to the card. So when it’s gone, it’s gone. No overdraft fees or out-of-control spending.

The Disadvantages:

• Set Up Fee: You will have to pay a fee to set up the card. These fees generally range from $5- $10. Essentially, you’ll be paying to use money you already have.

• Deposit Fees: Each time you make a deposit to the card, you will be charged additional fees. Again, costing you to use money you already have.

• Limited Use: Some companies will not accept payments from these cards. Many times you will not be able to arrange for monthly billing on a prepaid card because there is no guarantee that money will actually be on the card when the charge should be made.

• Lack of Protection: Unlike normal credit and debit cards, prepaid credit cards do not have ample protection against fraud and theft. Generally, this type of card will not have your name on it, making it an easy target for fraudulent purchases.

• Idle Fees: Many prepaid cards will charge you fees for not using the card for an extended period of time.

Even with all of the additional fees, prepaid cards are somewhat of a godsend for people who need extra help budgeting or are unable to otherwise qualify for a credit card. If you decide to set up a prepaid credit card, shop around. CreditCards.com offers comparisons of most major prepaid cards. Just be sure you know the details before you commit to a card.

Have you ever used a prepaid card? Which one is the best?

Photo by: playerx // CC BY 2.0
Source: NY Daily News. www.nydailynews.com.

In the past year or so, there’s been a lot of news of Fannie Mae—but who is this mystery woman? Why is she always involved in stories on the housing market? Why is she causing us so much trouble? First of all, ‘she’ is not a woman at all, Fannie Mae is simply the name commonly used to describe the Federal National Mortgage Association (traded under the New York Stock Exchange symbol FNMA). Though it is a privately-held company, because it’s considered a government-sponsored enterprise (GSE), it is backed by a standing line of credit from the U.S. Department of Treasury (*ahem* tax dollars).

Fannie Mae was founded in 1938 as a part of the New Deal program by Franklin D. Roosevelt in order to make sure there is money to lend Americans who want to buy homes and need mortgages. It essentially creates a more stable and affordable market so that lower- to middle- income families can buy homes.

However, before you go running to Fannie Mae for a home loan, you should know that Fannie Mae does not directly provide loans to borrowers. Instead, it buys loans from the lenders.

Here’s a basic example of how it works:

• You acquire a home loan from Lender XYZ.

• Lender XYZ can only give out a certain amount in loans, and your loan subtracts from this total amount.

• Lender XYZ sells the rights of your home loan to Fannie Mae, opening up more funds to loan to other home buyers.

• You make your monthly payments to Lender XYZ and the funds are passed on to Fannie Mae.

• Fannie Mae makes money off of this because it can take out loans at a much lower interest rate than you pay.

• Fannie Mae packages your loan with many other home loans in an MBS, which it sells to investors.

• Fannie Mae guarantees the investors they will receive timely payments, regardless of whether you default.

• If too many borrowers default, the government will step in to help Fannie Mae with funding.

In 1970, the Federal Home Loan Mortgage Corporation (FHLMC), more commonly known as Freddie Mac, was created to provide competition for Fannie Mae. Together Fannie Mae and Freddie Mac control around 90% of the U.S. secondary mortgage market.

The recession, coupled with some poor management, made it necessary for the government to take action, and in 2008 the Housing and Economic Recovery Act established the Federal Housing Finance Agency (FHFA) to oversee Fannie Mae and Freddie Mac.

Sources: Fannie Mae. www.fanniemae.com. The Motley Fool. www.fool.com.

This past April, the government began accepting applications for a homeowner assistance program called Making Home Affordable, or MHA. This program is a $75 billion initiative aimed at keeping homeowners in their homes by making their mortgage payments more affordable. MHA has two plans: the Home Affordable Refinance Plan (HARP), and the Home Affordable Modification Plan (HAMP). If you are struggling to make your mortgage payments, one of these plans might be right for you!

Here are the details:

Home Affordable Refinance Program:

Under HARP, borrowers who have been unable to take advantage of current low interest rates because their home’s value has decreased are given the opportunity to refinance, making monthly payments more affordable.

Are you eligible?

• Your mortgage is guaranteed by Fannie Mae or Freddie Mac.
• You are current on your mortgage payments and have not been more than 30 days late on a mortgage payment in the past 12 months.
• The amount you owe on your first lien mortgage does not exceed 125% of its current market value.
• You will reasonably be able to make the payments under the refinanced mortgage.
• The refinanced mortgage will improve the long term stability or affordability of your loan.

How do you apply?

• Find the phone number for your lender on the back of a mortgage statement or coupon book.
• Call your lender and ask for a Home Affordable Refinance application.

What do you need to apply?

• Documentation of the gross monthly income for all borrowers on your mortgage loan (i.e. pay stubs)
• Your most recent tax return.
• Information on any junior lien mortgage you have on the house.
• Account balances and minimum payments due on all of your credit cards.
• Account balances and monthly payments on all other debts.

HARP refinances must have a mortgage note date on or before January 10, 2010.

Home Affordable Modification Program:

Through HAMP, borrowers who are having trouble making mortgage payments can modify their monthly payments to receive relief. Borrowers who maintain timely payments on their modified loans can also accrue rewards up to $1000 per year for up to five years.

How does it work?

The objective of this plan is to get your monthly mortgage payments below 31% of your gross monthly income. The loan servicer will adjust your interest rates to as low as 2% in order to reach this goal. If your monthly mortgage payments are not low enough, your loan may be extended to a maximum of 40 years. If your payments are still above the 31% threshold, your loan servicer will defer a portion of the principal owed (called principal forbearance). In the event that the modification is still not below 31% of your gross monthly income, your loan servicer has the option to forgive a portion of the principal, though this step is not required. You will be placed on a 3-month trial period under the new modified loan agreement. At the end of the trial period, if you have been able to make your monthly mortgage payment, you will remain on the modification plan. Otherwise, you will not be eligible to continue.

Are you eligible?

• You own and occupy the home as your primary residence.
• Your first lien mortgage is no more than $729,750.
• Your first lien mortgage was originated on or before January 1, 2009.
• Your monthly mortgage payment is over 31% of your gross monthly income.
• You can provide documentation that you are struggling due to financial hardship.

How do you apply?

• Check to see if your lender is participating in this program.
• Call your lender and ask for a Home Affordable Modification application.

What do you need to apply?

• Documentation of the gross monthly income for all borrowers on your mortgage loan (i.e. pay stubs)
• Documentation of your most recent tax return.
• Information about your assets.
• Information on any subordinate lien mortgage you have on the house.
• Account balances and minimum payments due on all of your credit cards.
• Account balances and monthly payments on all other debts.
• A letter describing why your mortgage is unaffordable.

Trial modifications must be in place by December 31, 2012.

For more information on these programs, see the MHA website.

Photo by: futureshape // CC BY 2.0

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.

Great news! On August 20th, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act) began effect. This establishes new regulations to protect people like you from the implementation of unfair and deceptive practices by large credit companies. As of now, only the first phase is in place, but the second, more significant phase will become effective February 22, 2010.

Here are the rules that have recently been enforced:

• Changes in terms. Providers are obligated to give at least 45 days notice of any major changes in credit card terms. This has been increased from the previous requirement of 15 days.

• Billing. Billing statements must be issued at least 21 days before payments are due, either by electronically or by mail. This has been increased from the previous requirement of 14 days.

• Balance payment. Borrowers have the option to pay off any outstanding balance within five years at current rates. With this option, the borrower may not make additional charges until the balance is paid.

Here are the changes you can expect to see in February:

• Interest rates. For payments that are less than 60 days late, no increase in interest rates may take place, unless the consumer has signed up for a variable indexed interest rate account.

• Due dates. Payments must be due no earlier than 5 p.m and on the same day each month. If the due date falls on a holiday or weekend, the credit card providers may not count payments received the next day as being late.

• Minimum payments. Monthly statements must exhibit additional information, including the projected period of time to pay off a balance making only minimum payments, the monthly amount required to pay off a balance over 36 months, and a toll-free number to call for credit counseling and debt management.

• Over-limit fees. Providers may not enforce fees for transactions that exceed the borrower’s credit limit where previous consent from the borrower was not given. Without this consent, all transactions that would go beyond the set limit must be denied at the time of purchase.

• Borrower age. Applicants under 21 years of age must demonstrate their ability to make payments or have a parent cosign before being approved for a credit card.

• Calculating interest. Credit card issuers may not calculate interest based on the information from more than one billing cycle.

Photo by: Ebu Cehil // CC BY 2.0
Source: CreditCards.com. www.creditcards.com.

The only yard your kids know is the patch of grass between the sidewalk and the street. It would be much more convenient if you didn’t have to drive all the way to the park every time the kids want to play outside. A house of your own would give you the space you need, plus a yard to enjoy.

You get withdrawal symptoms just going on vacation. This is where your life is. It’s where you want to live. You really don’t see yourself moving out of the area any time soon.

You despise empty white walls. Fearing that your landlord might deduct from your security deposit for every nail hole or coat of paint is no way to live at all. A place of your own would give you the freedom to paint your walls and hang pictures without guilt.

The last time you got something in the mail with the word ‘outstanding’ on it was your fifth grade report card. You have never failed to pay a bill, you have no debt, and you make your payments on time. Your credit is excellent, and you would easily qualify for a prime mortgage.

You have so much stability in your job, you are pretty sure they’ll bury you there. You are comfortable in your job, and the salary is not bad either. Each month you have enough of a surplus from your income to cover a home loan.

Government incentives make you drool. There are a lot of attractive perks for home buyers right now. From the $8,000 tax credit, to low down payments, to $500,000 tax advantages for couples, you are just aching for some of this action.

‘Do-it-yourself’ is your middle name. You know your way around a toolbox and aren’t afraid to tackle a leaky faucet. Maintaining your own place would be no problem for someone like you.

Making monthly rent payments leaves you with a feeling of emptiness.
There is nothing about the concept of renting that makes sense to you. Why do you keep paying for something that you will never really have? If you’re going to be making monthly payments, you might as well be building equity.

Is buying right for you? Crunch the numbers here!

Since I have written typically of the current financial position of the economy, I think it’s best to add the mortgage industry in this.

Whether your looking to lower your payment consolidate debt or purchase a new home the interest rate is a primary factor in your ability to accomplish your goals.

On purchase transactions lower interest rates mean you are able to afford more of a home. You may be looking for a larger home and trying to upgrade your current situation without to much increase in your current payment.

On refinancing transactions the interest rate affects many parts of this type of transaction. For example:

If there is equity in your home and you have accrued some debt. Many times you are able to roll the debt into your home and keep your payment close to the same monthly payment you have now. What better way to avoid higher credit card rates and additional late fees for your payment posting one day late.

Many times if you are able to change your rate at least 1 percentage point your payment (depending on loan size) can save you significantly impact your monthly savings. If you are able to lower your rate and still pay the old payment amount, that savings literally can be additional savings account that you build every month without ever doing anything different.

Looking to do home improvements? Depending on the equity in your home you are able to take cash out to do home improvements and also increase the value of your home at the same time. Again, lower rates have a big impact on keeping your payment close to the same payment your making more of your money work for you.

Just lowering your rate? This option is always available and depending on programs current equity is not a factor. The savings may be minimal sometimes but even the littlest savings saves you over the life of the loan. Be carful for excessive closing costs that may effect your overall savings on the loan.