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Should you get a home loan or keep renting?

December 31st, 2010

The state of the nation’s housing market is a frequent topic of discussion. Stories about mortgage rates, home prices, and foreclosures often lead the day’s headlines. If you are a renter you may be wondering if the time will ever be right to buy a home. Regardless of what happens with the broader economy, here are four questions to ask yourself when deciding whether or not to make the leap into homeownership.

  1. Have you paid down debt? Or do you still have a lot of debt from credit cards, student loans, auto loans and other types of financing? When you apply for a home loan your finances are scrutinized by mortgage lenders. One of the factors they are going to focus on is your current debt-to-income ratio. So if you seem to be struggling to pay all the bills with your current debt level, it’s unlikely you are going to get approved for a mortgage. Work on tackling that debt before getting serious about shopping for a mortgage loan.
  2. Do you have a hefty down payment? The more you have saved up for a down payment, the better off you are. When you make a down payment that decreases the amount of principal you have to finance with mortgage loan. Aim for a down payment of 20 percent of the purchase price to avoid mortgage insurance (MI) payments. While there are mortgage loan programs for buyers who don’t have a 20 percent down payment, do yourself a favor and take the time to save as much money as possible.
  3. Can you afford a home? Do you have enough income to cover all the expenses related to owning a home? In addition to monthly mortgage payments for principal and interest, you’ll pay for homeowners insurance and property taxes. Depending upon the community to live in there may be monthly dues. There also will be expenses for routine maintenance and repairs, yard care, snow removal, etc.
  4. Is it a smart move? Are you likely to move anytime soon because of a job change? If there is a good chance that you may have to move soon, buying a home at this time may not be the right move for you. If you’re refinancing, it’s important to look at how long it will take to recoup the closing costs involved with refinancing a home mortgage. Ideally, you would want to remain in the home for at least that amount of time.

Making the move to homeownership is a big step. While current mortgage rates may have you chomping at the bit to get a home loan, it’s important to make sure that your finances can really handle everything that is involved.

Mortgage fraud: suspicious activity on the rise in 2010

December 23rd, 2010

Mortgage loan fraud suspicious activity reports (SARs) rose 7 percent in the first half of 2010 to 35,135 from 32,926 a year earlier, according to the Financial Crimes Enforcement Network (FinCEN). The rise in the number of reports is partly due to “increased attention to older loans spurred by repurchase demands.”

“SARs are one of the most important sources of lead information for mortgage fraud investigations available to law enforcement,” FinCEN Director James H. Freis, Jr. said in a statement. “As a member of the President’s Financial Fraud Enforcement Task Force, FinCEN remains active with law enforcement and other partner agencies in the task force to provide lead information and to identify potential abuses in order to combat mortgage loan fraud.”

Spotting a home loan scam

Mortgage fraud is perpetrated through a variety of schemes. Among the types of fraud that could occur are:

  • Flopping, which is a flipping scheme that occurs when a foreclosed property is sold at an artificially low price to a straw buyer, who turns around and sells it at a higher price and keeps the difference.
  • Submitting fraudulent home loan documents to mortgage lenders. In some cases dishonest mortgage professionals may submit phony documents that inflate the salaries and assets of borrowers.
  • Inflating home appraisals to qualify for mortgage loans
  • Foreclosure rescue scams that target homeowners who are having trouble making mortgage payments

What should you do?

Mortgage fraud can steal your money and your sense of security. That’s why it’s important to take steps to guard against becoming a victim. Among the things you can do to protect yourself are:

  • Get referrals for real estate and mortgage professionals from trustworthy friends and family members
  • Never sign documents that you have not read and do not understand
  • Use a reputable attorney to review all the documents and terms of your transaction
  • Check to make sure that all documents have information that is correct
  • Make sure that a comprehensive title search has been done on the property
  • Be skeptical of real estate professionals who require you to use specific mortgage lenders or home appraisers

Senior citizens are often vulnerable to scams. If you have an elderly relative who seems to be caught up in a troublesome financial transaction, try to find out as much information as you can to determine if they are being scammed.

Mortgage rates are up so should you apply for a loan now?

December 17th, 2010

Mortgage rates have risen over the past few weeks, contributing to a decline in mortgage applications. The average rate on a 30-year fixed mortgage was 4.83 percent this week, compared with 4.61 percent last week, according to Freddie Mac. This rate was 4.17 percent in November, the lowest point recorded by Freddie Mac since it began tracking rates in 1970.

Historical mortgage rates

Have you been dragging your fee about applying for a mortgage refinance or a loan to purchase a home? If so, don’t panic. While mortgage rates have risen during the past few weeks they are still near historic lows. For instance, if you had applied for a mortgage in October 1981, 30-year fixed-rate mortgages were averaging 18.45 percent, according to HSH Associates. Even as recently as 2008, mortgage rates rose above 6 percent.

Improve your profile as a borrower

Mortgage rates can change at any time, but that’s no reason not to shop around to find a good deal. Take steps now to make yourself a more attractive candidate for refinancing or a new home loan. Use the following tips to improve the chance of getting a mortgage:

  • Clean up your credit. Read your credit reports to find inaccurate or outdated information. Contact the credit reporting agency and creditors to clear up any mistakes. Do not wait until you are about to apply for a mortgage loan to do this.
  • Pay off as much debt as possible. Not only do credit cards have high interest, but having too much debt from them can keep you from getting approved for mortgage refinancing or a loan to purchase a property. The less high-interest debt you have, the more income you can put toward monthly mortgage payments.
  • Save as much as possible. Whether you are trying to refinance or buy a home, your ability to bring more cash to the closing can improve your chances of getting a loan. When buying a property, the larger the down payment, the less your monthly payments on a mortgage. If you are refinancing, bringing cash to closing–a cash-in refinance–can boost your home equity, making you a more attractive loan candidate to mortgage lenders.

Shop for mortgage deals

Mortgage rates may continue to climb, or they may fall again. You can’t time the market, so it’s not really worth it to try. If you really want to get a home loan to purchase a property or refinance, go ahead and do what you need to do to qualify for the best loan.

Wrongful foreclosure affecting people current on mortgages

December 11th, 2010

Cases of wrongful foreclosure are on the increase, according to a USA Today article. Reports are pouring in of homeowners who are battling foreclosure proceedings even though they are current on mortgage payments. The mess is being related to stories about banks robo-signing foreclosure documents without reviewing them. Although most of the robo-signing involved people who had stopped paying on mortgage loans, it appears that some homeowners are being targeted for foreclosure proceedings.

Mortgage foreclosure snafu

The USA Today story uses examples of people who were foreclosed upon by banks that they never had mortgage loans with, people who had never missed payments, and even a guy who paid for his house with cash. In some cases, people’s homes were ransacked and padlocked, and their belongings were taken away.

According to the article:

“This is the worst I’ve ever seen it,” said Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates. Diane Thompson, a lawyer with the National Consumer Law Center, has defended hundreds of foreclosure cases. “In virtually every case, I believe the homeowner was not in default when you looked at the surrounding facts. It is a widespread problem throughout the country.”

Lawsuits involving mortgage mess

Some homeowners in wrongful foreclosure cases are attempting to fight back by filing lawsuits against mortgage lenders. Class-action suits have been filed against mortgage lenders in Kentucky and California who foreclosed upon homeowners who claim they made mortgage payments after having home loans modified.

So just how widespread are instances of wrongful foreclosure and could you become a victim? There don’t appear to be any formal statistics for how many homeowners have been affected. But according to the USA Today article:

Tammie Lou Kapusta is a former paralegal with the law offices of David J. Stern, a Florida firm that works for all the major banks and handles up to 70,000 foreclosure cases a year. Kapusta testified in September that she received as many as 50 calls a day from homeowners who said they were the victims of mistakes. But she was told, she testified, to ignore the callers and push through the foreclosures anyway. The law firm is under investigation by the Florida attorney general.

The take away

A lesson to be learned from all this is to always pay attention to correspondence from your mortgage lender. Open all mail in a timely fashion and address any concerns immediately. Apparently having good credit and making mortgage payments on time is no guarantee that you won’t become the victim of a wrongful foreclosure.

Proof of homeowners insurance needed at mortage closing

December 3rd, 2010

Mortgage lenders usually require that you come to closing with a homeowners insurance policy that is paid up for the first year. The insurance policy protects you in case the property is damaged by fire, high wind or other natural disasters. Use the following guide when shopping for a homeowners insurance policy for your new home.

  • Don’t confuse homeowners insurance with mortgage insurance (MI), often referred to as private mortgage insurance (PMI). Homeowners insurance is to cover damage to your home. MI is a fee that you pay to protect the mortgage lender in the event that you default on a home loan. Most mortgage loans require MI if the down payment is less than 20 percent.
  • Homeowners insurance does not cover all disasters. For instance, floods generally are not covered by standard homeowners policies. You won’t need to purchase a flood policy unless you live in a designated flood zone. If you need a flood insurance, the first year’s premium must be paid at closing.
  • Compare several homeowners policies to find the right coverage. Ask people you know for recommendations and whether or not they have ever filed a claim with their insurer.
  • Find out about discounts that may be offered by insurers. Burglar alarms and smoke detectors are among the things that may qualify you for a discount on your policy.
  • Insuring your home, car, boat, etc. with the same insurer may get you a lower premium. Even if you hadn’t planned to get a new auto policy, it may be a good idea to get quotes before choosing a homeowners plan. If you already have a homeowners policy your current insurance firm may reward you for being a long-time customer if you use it for the new policy.
  • Your credit score matters. Many insurance companies pull credit reports as part of the underwriting process. Not only can poor credit keep you from qualifying for the best mortgage rates, but it also can force you to pay higher insurance premiums.
  • Ask for replacement cost coverage instead of actual cash value coverage. If you have to file a claim, replacement cost coverage means you’ll be reimbursed the full amount that it costs to replace your home, subject to policy limits.

Get all the facts before signing up for any insurance policy. Ask for the highest deductible that you can afford to keep the premiums down.