blog for week ended 7/30/10:

http://www.loanbiz.com/blog/

Borrowers are going to continue having a tough time getting approved for  mortgage loans, according to Michael J. Williams, Fannie Mae’s CEO. Many potential home buyers have been turned away by mortgage lenders looking to minimize their risks as the economic crisis has lingered.

Mortgage Loans for the Next Generation

“A solid majority of renters assume it will be tougher for their kids to buy a home–and they’re right, too,” Williams said at a recent Women in Housing and Finance event. He added: “Across the board, we see a much deeper understanding of how credit, income, job security and a down payment could stand in the way of buying a home.”

Qualifying for a Home Loan

So what can be done to improve your chance of getting approved for a home loan? Let’s look at each of the key areas Williams mentioned.

• Credit. You must clean up bad credit and so that mortgage lenders view your situation in favorable terms. Pay off debt, fix mistakes on your credit report, and avoid being late with monthly payments on bills.
• Income. The days of the getting a home loan without proof of income are over. Whether you are buying a home or refinancing an existing mortgage, be prepared to provide payment stubs, W-2 forms, tax returns, and proof of other assets.
• Job security. Although the media tends to focus on the doom and gloom of high unemployment rates, the fact of the matter is that most adults are still employed in some capacity. The longer you have been employed in a job, the more that helps your mortgage loan application. Try to avoid changing jobs if you plan to apply for a home mortgage.
• Down payment. The amount of money you have to use as a down payment is just as important as what mortgage rate you get. That’s because the more money you have to put towards a home, the less your monthly payments will be. Putting down at least 20% as a down payment also helps you avoid paying mortgage insurance.

Yes, it’s going to be difficult going forward to get approved by a mortgage lender. But that doesn’t mean you have to give up your dream of getting a home loan. If you’re confident you can get approved now, you can begin comparing mortgage rates here.

About 65% to 75% of mortgage loans modified through the government’s loan modification program but not backed by the federal government are expected to go into default, according to a report from credit-rating agency Fitch Ratings.

Too Much Debt

The report said that the main reason many home loans modified through the Home Affordable Modification Program (HAMP) are expected to go bad is because borrowers don’t receive help with other debt problems.

“Many of these borrowers still have very heavy levels of other debt, auto loans, credit cards and other expenses” Diane Pendley, a Fitch managing director, told CNNMoney. “We’re talking borrowers who don’t have cash reserves. If they did, they wouldn’t be in this position in the first place. It doesn’t take much for them to get in the same situation again.”

Mortgage Lenders Foreclose

A homeowner who defaults on a home loan that has been modified is likely to face foreclosure.  Mortgage lenders are probably not going to give homeowners a second modification deal.

Asking for a Short Sale

Homeowners who find themselves in the position of defaulting on a mortgage loan that was previously modified, may be able to negotiate a short sale. A short sale occurs when a mortgage lender agrees to let you sell a home for less than what is owed on it. Mortgage lenders sometimes agree to short sales rather than deal with foreclosing on a property mortgage loan.

If you are about to default on a home loan that has been modified consider the following things that could help you arrange a short sale:

• Mortgage lenders are more likely to approve a short sale if you already have a buyer lined up
• It may take several attempts to contact your mortgage lender before getting approval for a short sale
• You must provide all documentation requested as soon as possible if a short sale has been approved

Arrange a Deed-in-Lieu Deal

In some cases you may be able to get your mortgage lender to agree to a deed-in-lieu deal. That occurs when you give back your property to the lender because you can’t afford to make monthly payments on a home mortgage. The mortgage lender is then free to sell the property to try and pay off the balance of your home loan.

There is  no guarantee that your mortgage lender is going to agree to a short sale or deed-in-lieu. But if you truly believe that you are going to default on a home loan that has already been modified, contact your mortgage lender to discuss your options.

College expenses can put a serious dent in your wallet. Although many students qualify for financial aid, parents may still be expected to contribute to tuition and housing costs. Does it make sense to buy a condo or house for a college student instead of having them live in a dorm? Here are 5 things to consider before beginning a house hunt.

1. Do you need a home loan to pay for the purchase? If so, are you really in a position financially to take on monthly mortgage payments? Use a mortgage payment calculator to figure out how much house you might be able to afford.
2. Expect mortgage lenders to scrutinize your credit history. Lenders want to know that if they underwrite a home mortgage, that you are able to pay it back. Mortgage lenders are going to want to see proof of income, assets, investments, and tax returns. Also expect to provide documentation that you have made mortgage payments on time for the house you live in.
3. Don’t expect Junior to pay the mortgage each month. Unless your college student has a steady income and expects to work full-time, it is unlikely that your child can make the mortgage payments. If your student is attending school full-time, that should be considered a job. Any money earned from a part-time job can be used for food and household expenses.
4. Are you able to afford utilities and maintenance costs? If you already own a home, you know that there always seems to be something that needs to be fixed or replaced. Also factor in the cost of routine maintenance such as mowing grass and snow plowing if your child won’t be doing the work.
5. Be honest with yourself–is your kid responsible enough to maintain a home? You don’t want to invest in a property only to have your college student trash the place. Also, consider your child’s maturity level. When you consider everything, you may decide that living in a dormitory is a better option.

Finally, have you checked out rentals near the college campus? Before shopping around for mortgage loans and visiting open houses, see what types of properties are available in the area. You may find an apartment, condo, or home for rent that is suitable for your student and much cheaper than applying for a mortgage to buy a property.

If you were expecting mortgage rates to begin rising this year, you may have to wait a while longer. Current mortgage rates are surprisingly low, with 30-year fixed-rate home loans averaging 4.86% and 15-year rates averaging 4.24%. Many economists had expected mortgage rates to rise to around 6% this year, but the European debt crisis has resulted in investors pouring money into American bonds, which has helped lower mortgage rates.

Time for a Home Refinance?

The lower mortgage rates mean you can still get a good deal on a refinance. “It’s another very good opportunity for anyone who hasn’t yet been able to refinance — or has missed other chances,” Keith Gumbinger, vice president of HSH Associates, told MarketWatch. “Rates have unexpectedly returned to near 50-year lows due to the overseas mess, but it’s worth noting that such sudden declines have proven fleeting in the past, with rates bouncing higher just as soon as a permanent (or potentially permanent) solution has been identified.”

Get a Mortgage to Buy a Home

Current mortgage rates are also good news for people applying for a loan to purchase a home. Getting pre-approved for a mortgage loan can improve your chances of having an offer for a house accepted by the sellers. Some real estate agents won’t even work with you unless you have a letter from a mortgage lender that shows you have been preapproved for a home loan.

You can search for mortgage rateshere to get started on the process of getting preapproved. Getting a preapproval letter doesn’t mean you have to actually apply for a home loan with a particular mortgage lender when you are ready to buy. Any preapproval you get probably expires in about three months time, but you may be able to get an extension if necessary.

Documentation Is Important

 Whether you want to do a home refinance or buy a house, you need to provide documentation of your income to mortgage lenders. You need to show proof that you are employed or have a steady income. Mortgage lenders also want to know that you aren’t carrying too much debt relative to your income. Among the financial documents you might have to provide are tax returns, W-2 statements, bank account statements, and recent pay stubs.

Don’t Waith Too Long

Current mortgage rates are very attractive if you want to refinance or buy a home. But don’t expect mortgage rates to remain at such low levels for the long-term. Get moving if you want to lock in a mortgage deal before interest rates begin rising.

Current mortgage rates are low and it seems like it might be a good time to refinance your home loan. You’ve even begun to gather quotes from several local mortgage lenders advertising competitive mortgage rates. But does it make sense to do a mortgage refinance at this time?

Use a Loan Calculator

It is important to determine the amount of time it’s going to take to recoup any money you put out to refinance. Use the “Is it time to refi?” loan calculator to compare several mortgage quotes. The following example walks you through the steps of using the loan calculator.

Existing Home Mortgage

First, the loan calculator asks for information about your existing mortgage.

• What is the original term of your home mortgage? For this example let’s use 30 years.
• What is the original amount of your mortgage loan? Our example uses $250,000.
• What is the current balance of your home loan?  ($175,000)
• How long have you had the mortgage? (8 years)
• What is your current interest rate? (7%)

New Home Loan 

Next, the loan calculator needs information about the new mortgage.

• What is the amount of the new loan? ($175,000)
• What is the new mortgage term? (15 years)
• What is the interest rate on the new loan? (5%)
• How much are the estimated closing costs? (2%)
• How long do you plan to remain in the home after doing a mortgage refinance? (10 years)

How Much Would You Save?

When you run the numbers in the loan calculator, you get a report detailing your potential savings. Using the numbers in this example you would go from having a monthly mortgage payment of $1,663 to paying $1,384. Over the 10-year period that you plan to remain in the home you would save $33,524 due to the decreased monthly mortgage payment.

Reducing Mortgage Loan Principal

The loan calculator also gives an analysis of the reduction of loan principal. In this scenario if you refinanced and stayed in the home for 10 years the principal would be reduced by $101,667. However, if you did not refinance your mortgage, the principal would be reduced by $111,194 over the 10-year period.

Total Savings

The last part of the report shows that the estimated cost of refinancing is $3,500, which is based on the 2% closing costs. It also shows that the total amout that would be saved by refinancing would be $20,497.

Applying for a mortgage loan can be an intimidating process if you aren’t sure what to do. That’s why it’s important to assemble a team of knowledgeable professionals to help you through the mortgage loan application process. The team you choose should include some of the following professionals.

Mortgage Lender

Before you even begin to hunt for  a home it’s important to choose a reputable mortgage lender who is willing to commit to loaning money to you. An experienced mortgage broker can help you shop for home loans from a variety of lenders.

You can also go directly to mortgage lenders to inquire about mortgage rates and terms. Choose a mortgage loan officer who can explain the different programs and takes time to assess you needs.

Real Estate Agent

A knowledgeable real estate agent can help you find listings in the area you want to buy a home. Agents should have information about recent purchasing activity in the area and access to the Multiple Listinig Service (MLS).

Avoid choosing an agent who haven’t sold any homes in the area you are interested in or who seems green about what’s involved with the home buying process. Another red flag is when a real estate agent won’t take your calls or spend much time helping you.

Real Estate Attorney

Find an attorney that specializes in real estate transactions before you get to the point of making an offer on a home. It’s important to have an attorney who can review your offer to purchase a home. An attorney will review all paperwork, prepare and register legal documents, and make sure you get a clean title to the property you buy. Your attorney is also going to be present when you close on the deal.

Home Inspector

Once you make an offer on a home you should make the deal contingent on having it inspected by a qualified professional. A home inspector goes through the property you want to buy and looks for areas that could be trouble, such as faulty wiring, bad plumbing, or a leaky roof. Most states require home inspectors to be licensed so only use one who has credentials that are up to date.

Getting a home loan to purchase a house is a huge investment of your time and money. Make sure you are getting the proper guidance from people who are qualified so you don’t run into problems later.

Reverse mortgages have fans and critics. These home loans allow people 62 and older to borrow against the equity in their property. Here are some of the pros and cons for reverse home loans.

Pros of Reverse Loans

It can be difficult to cover all your financial obligations if you don’t have enough money coming in each month. Many seniors use reverse mortgages to supplement their income. Some advantages of these loans are:

1. Money borrowed doesn’t have to repaid until you move or die. There are no monthly payments as with a traditional mortgage loan.
2. You can use reverse mortgage proceeds for any purpose, including medical bills, debt, or home repairs. The money can be received as a lump sum, through installments, or as a line of credit.
3. The amount you can borrow increases as you age and as your home value rises. A reverse mortgage counselor can help figure out how much you might be able to borrow.

Cons of Reverse Home Mortgages

Reverse loans have some drawbacks you should be aware of:

1. Borrowing money this way can decrease the inheritance you leave behind for you kids. If leaving a home or other assets to your heirs is important, consult with an estate planner to decide if a reverse mortgage is a good move.
2. Reverse mortgages use negative amortization, so the balance grows over time. People who receive the money through a line of credit could have the option of paying back some of the money as they go along to cut the balance owed.
3. There are limits to how much you can borrow with a reverse loan. Currently, the limit for a Home Equity Conversion Mortgage (HECM) is $625,000.

Reverse Mortgage Counseling

Reverse mortgage loans should be considered carefully and used as a last resort for finding a new income stream. Before applying for a loan you must receive counseling from a Department of Housing and Urban Development-approved counselor.

A counselor can review your finances and determine if there are alternatives to reverse loans that may be more helpful. Search for information on reverse loan counselors in your area at the HUD Web site.

Compare Reverse Loans

It’s important to get as much information about reverse loans as you can before starting the application process. Compare different loan offers to decide if borrowing money this way is right for you.

The government’s tax credit for home buyers must be claimed by the end of the month. So if you are dragging your feet on signing a purchase contract, get moving.

Is Your Mortgage in Place?

Under federal guidelines you may be eligible for the tax credit if you sign a contract by April 30, and close on a home by June 30 of this year. If you need a home loan to buy, you need to have that in place so you can make a solid offer for a home.

Military Extension

However, members of the military, foreign service, and intelligence community who qualify have until April 30, 2011, to sign a contract, and until June 30, 2011, to close on a home purchase.

According the Internal Revenue Service:

Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

Extension Seems Unlikely

With positive news out this week about a gain in home sales attributed in large part to the government’s tax credit, you may be wondering if there are plans to extend the credit for everyone else. That’s not likely, according to housing experts.  

“It’s time for the housing market to stand on its own two feet,” a spokesman for the National Association of Realtors told the Wall Street Journal.

Working Overtime to Negotiate Deals

With the April 30 deadline looming, it’s not surprising that many people are scrambling to get deals in place.

Vicki Cox Golder, president of the National Realtors Association, said in a statement:

Realtors are working harder than ever to negotiate transactions, arrange services and complete paperwork. Because many repeat buyers need to sell their current home first, many will be purchasing later without the tax credit but now have the benefit of a more buoyant housing market.

Getting a Mortgage without Tax Credit 

Even if you miss the tax credit deadline, home prices are affordable in many areas and current mortgage rates are still low.

Use a loan calculator to run the numbers and see if it makes sense to buy a home even if you miss the deadline for the tax credit.

Are you unemployed and need help with a mortgage loan? Get in line. Many homeowners have been frustrated with unsuccessful attempts to get help with troubled home loans.

Recent changes in the government’s Home Affordable Modification Program (HAMP) are aimed at allowing borrowers who have been laid off and are underwater on mortgage loans to receive modifications.

Help with Mortgage Loans

The Obama administration’s plan includes local housing agency intiatives, homebuyer tax credits, mortgage loan modifications, refinancing, and community development programs. Depending upon a borrowers situation, they may receive assistance with remaining in a home or relocating to more affordable housing.

HAMP has helped more than 4 million homeowners refinance mortgage loans. Another million are saving an average of $500 a month due to mortgage modifications.

Help for Unemployed

So exactly how can the changes to the program help if you are unemployed?

1. Depending upon your situation you may qualify to have mortgage payments reduced for three to six months while you hunt for a new job.
2. If you don’t find employment or find a job with less income, you could be considered for a permanent mortgage loan modification or HAMP’s alternatives to foreclosure program.
3. Mortgage loan servicers may receive incentives for writing down your principal. They also are being encouraged to extinguish second liens, which could help borrowers who want to complete short sales.
4. Mortgage servicers may receive incentives for improving communication with borrowers.

Is It Enough?

The government’s mortgage loan modification program has hit snags along the way. Critics say mortgage loan servicers were slow to respond and not enough people have been helped, something the Obama administration has acknowledged.

Others say the recent changes in HAMP are only a stopgap since unemployment benefits are no longer going to be factored into income when deciding if a borrower qualifies for a having mortgage loan payments reduced. So far unemployment benefits could be factored into income as long as borrowers could prove the payments would last for nine months. 

Mortgages and Long Term Unemployment

“Any programs that give people breathing space while they’re out looking for work … are a positive thing,” Mark Pearce, the top N.C. mortgage regulator and a leader in national foreclosure-prevention efforts, said in the Miami Herald. However, ”This program doesn’t address the folks that are unemployed for a longer period of time.”