The troubled economy has caused some homeowners to consider accelerating their mortgage loan payments. Although many financial experts caution against paying off a home loan early, many people are ignoring that advice and focusing on owning their homes faster.

Mortgage Interest

One of the most common reasons given to discourage people from paying off a mortgage early is because they won’t be able to deduct the interest they paid on their income tax returns.

Before you accept this argument hook, line, and sinker, use a mortgage payment calculator to see if the amount of interest you can deduct on a tax return beats what you can save on interest by aggressively attacking mortgage principal.

Saving and Investing

Another argument against paying off a home mortgage early involves the notion that you could earn more by investing the money you would put toward extra payments. In some cases you would earn more by investing the money. But it’s important to stay true to yourself and decide what type of risk you want to take with your cash.

Are you going to feel more secure with your money in the stock market or some other type of investment, or are you going to be happier knowing that you are going to own your home free and clear in a few years? Only you can decide if mortgage acceleration is right for your situation.

How to Accelerate Mortgage Loan Payments

If paying off a home mortgage early appeals to you, consider these popular methods:

• Make mortgage loan payments biweekly instead of monthly. This amounts to making 13 payments a year instead of only 12. Although many banks offer to set up biweekly payments for a fee, you can do it on your own. Simply cut your monthly home loan payment in half and pay that amount every two weeks.
• Use bonuses, tax refunds, and other windfalls to pay down your home loan. Make sure you direct the mortgage lender to apply the funds to your principal.
• Refinance mortgage to pay it off in 15 years. Depending upon how much principal you owe, expect to see the monthly payments increase. Make sure you have the income to support the higher mortgage payments.

Pay off Other Debt

Finally, when deciding whether or not to pay off a mortgage loan early, consider whether or not you have other debts. If you have high interest credit card debt or other loans, use extra cash to pay them off before turning your attention to acclerating mortgage payments. 

Having bad credit can keep you from qualifying for a home loan.  But that doesn’t mean you can’t work toward becoming a homeowner. Consider renting a house that gives you an option to buy it.

What Is a Lease-Option?

A rent-to-own or lease-option deal allows you to rent a home and pay extra each month toward purchasing the property at a later date for a specific price. When you sign the lease the seller requires you to pay an option fee of up to 5% of the purchase price.

Lease-options specify a period of time that you have to decide whether or not to actually buy the property. If you don’t excercise your option to purchase the home, you lose the option fee and the additional money paid toward the purchase. 

Why Rent-to-Own?

A rent-to-own deal can allow you “try out” a house and neighborhood before committing to buying property there. Also, if you can’t get a mortgage loan because of bad credit, a lease-option gives you time to save up money for a down payment. You also can work on cleaning up bad credit, although rent payments are not factored into the credit scoring formula, according to the Mortgage Professor. Having good credit and a hefty down payment improves the chances of a mortgage lender giving you a home loan down.

Deals Can Backfire

Use caution when entering into a rent-to-own deal. Make sure you understand all the terms and use an attorney to review the contract. Some problems that can derail your plans to buy a home this way include losing your option fee and rent payments by falling behind on rent payments. The deal also dies (and you lose the money) if you get evicted. Make sure that any home you lease-option isn’t in the foreclosure process so you don’t lose your money.

Falling Home Values

Also keep in mind that signing a lease-option contract could backfire if real-estate prices continue to drop. The home’s value could fall below the purchase price by the time you actually have to make a decision to buy it. A recent report by Fiserv and Moody’s Economy.com said the average home price in the U.S. is likely to fall 6% by 2011.

Lease-options can work in your favor if you know what you’re doing. But don’t get in over your head just because you are too eager to buy a house when you really can’t afford one. You can rent a place while taking the time to repair credit and save up a down payment without getting into a contract that could result in losing your shirt.

People struggling with mortgage loans in five states are getting additional aid to get them through the housing crisis. President Obama said the government plans to give $1.5 billion to local and state housing agencies in an effort to help troubled homeowners.

Help for Troubled Mortgage Loans

Funds are to go to agencies in Nevada, California, Arizona, Florida, and Michgan, states hit hardest by the housing downturn. Those states have seen housing prices plunge more than 20% from their peak.

Money can be used in various ways, including modifying home loans that are underwater or helping unemployed people struggling with mortgages to avoid foreclosure. Housing agencies can also use the aid for “programs encouraging sustainable and affordable homeownership,” according to the White House blog.

Get Help with Your Mortgage

While these programs should help many troubled homeowners, you may need to look for relief sooner than that. Contact your mortgage lender or loan servicer if you are already behind on monthly payments. You may be eligible for a mortgage refinance or loan modification.

Refinance Mortgage

Mortgage refinancing through the government’s program requires:

• Your mortgage loan to be guaranteed by Fannie Mae or Freddie Mac
• You to be current on mortgage payments
• The ability to make payments on the refinanced home loan
• You to be the owner-occupant of a one- to four-family home

If you don’t have a home mortgage guaranteed by Fannie Mae of Freddie Mac, don’t assume that your mortgage lender can’t help you. They may have some other program to help you do a mortgage refinance.

Mortgage Loan Modification

Getting approved for a home loan modification through the government’s program requires:

• Your mortgage payment (including taxes and insurance) to be greater than 31% of your monthly gross income
• You must be able to document financial hardship that is keeping you from affording your mortgage payment
• Have a first lien that originated before Jan. 1, 2009

If you are facing foreclosure, mortgage loan servicers can’t proceed with a foreclosure sale until you’ve been evaluated for help through the mortgage loan modification program.

Contact Mortgage Lender

The most important takeaway is that you must be proactive about getting help with your mortgage loan. Ducking and dodging phone calls and letters from your mortgage lender isn’t going to help your situation. Be diligent about tracking down someone at your mortgage lender who is authorized to set up some kind of deal to get back on track with your home loan.

CitiMortgage is giving some homeowners struggling with mortgage loans a break. The mortgage lender is allowing distressed homeowners in six states to remain in their homes rather than face foreclosure.

Foreclosure Alternatives Program

CitiMortgage is offering the deed-in-lieu program to people who currently have a home loan through CitiMortgage and live in Texas, Florida, Michigan, Illinois, New Jersey, and Ohio. They must be at least 90 days delinquent on mortgages to qualify for help.

The distressed homeowners will be able to remain in their homes for six months while figuring out where to move. After six months, they must agree to sign over their property deeds to the mortgage lender.

Sanjiv Das, CEO of CitiMortgage, said in a statement, “At CitiMortgage, we’re committed to finding every solution possible to help families facing foreclosure. However, the reality is that not every homeowner has the financial ability to remain in their home. The goal of the program is to help homeowners make a smooth transition into the next chapter of their lives.”

Mortgage Lender Gives Relocation Help 

As part of the agreement, CitiMortgage provides relocation counseling and at least $1,000 to help borrowers move to other housing.

Some homeowners may receive assistance with certain housing expenses if they can’t afford them. Although borrowers are responsible for utility bills, the mortgage lender may help with other costs, such as homeowner’s association dues and escrow fees.

Keeping Homes from Being Trashed

The assistance program also requires homeowners to maintain homes in their current condition. “Once the owner moves, we get the property that’s in better condition, so we can immediately market it,” Mark Rodgers, Citigroup’s director of public affairs, told the South Florida Business Journal.  ”It’s much more likely to sell quickly in good condition than in bad condition.”

Mortgage Modification or Short Sale

Before a distressed homeowner is helped through a deed-in-lieu of foreclosure, the lender evaluates the situation to see if a mortgage modification can help. Borrowers who don’t qualify for a mortgage loan modification may get approval for a short sale. That allows them to sell for less than they owe on a home loan.

Only when a homeowner can’t be helped with a mortage loan modification or short sale are they considered for the deed-in-lieu program.

It’s a buyer’s market right now for people wanting to purchase homes. Housing prices are affordable and mortgage rates are low. But if you don’t have a sizable down payment saved up, you could end up straining your finances.

Use a Mortgage Payment Calculator

Before applying for a home loan you should go on a fact-finding mission to determine how much house you can afford. While it’s fun to visit open houses and browse through homes for sale at various Web sites, it’s just as important to crunch the numbers with a mortgage payment calculator to see what your monthly bill is going to look like.

Your Down Payment Matters

So much attention gets focused on mortgage rates that many people don’t really stop to think about how the size of their down payment is a key factor in how money they’ll shell out for housing payments for the next 30 years or so.

During the housing boom, mortgage lenders often enticed borrowers with home loans that required zero or low down payments. Millions of home buyers jumped into these mortgage loans, desperate to get a piece of America’s homeownership dream even though it meant high monthly payments or mortgage rates that would adjust up in the future.

Who Can Get Low Down Payments?

Mortgage lenders are reluctant to offer many borrowers low down payment mortgage loans these days. Some borrowers may be able to qualify for low down payments, but many mortgage lenders are looking for 20% down to underwrite home loans at the best mortgage rates.

FHA Changes Down Payment Rules

Even the Federal Housing Administration is rethinking its 3.5% down payment option. It recently announced a policy change to only allow people with credit scores of at least 580 to qualify for the 3.5% down payment. Borrowers with lower credit scores must put down at least 10% on a mortgage loan.

Beyond Home Loan Principal and Interest

When using a mortgage calculator be sure to plug in your estimated costs for homeowners insurance, property taxes, and homeowners association (HOA) dues. Depending upon where you buy a home, these costs could add a significant amount of money to your monthly housing bill.

Are You Ready to Get a Mortgage Loan?

Your fact-finding mission should determine whether or not you are ready to apply for a mortgage loan and buy a home. After running all the numbers through your calculator and looking at how much debt you can afford to carry on your current income, it may be prudent to postpone a home purchase. But if you feel that you are ready to take the plunge, shop around and compare quotes from several mortgage lenders to find the best deal.

Expect to pay more money to borrow a mortgage loan insured by the Federal Housing Administration  (FHA). Policy changes at the agency are designed to help the FHA better manage its risk as the housing market recovers.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to under-served communities, and supporting the nation’s economic recovery is critically important,” FHA Commissioner David Stevens said in a statement.

Here’s what you can expect if you apply for an FHA mortgage.

Mortgage Insurance Premiums Rise

The FHA is raising the mortgage insurance premium (MIP) to help build up capital reserves and help spur private lending. The upfront MIP is rising to 2.25% from 1.75%. The FHA intends to shift some of the premium increase to the annual MIP from the upfront MIP so it can have less impact on borrowers.

Mortgage Loans and FICO Scores

 The policy changes now require borrowers to have a FICO score of at 580 to qualify for the 3.5% down payment on a FHA home loan. Anyone who has a FICO score below 580 must make a down payment of at least 10%. The new credit score requirement goes into effect this summer.

Less Help from Sellers

The revised guidelines decrease the amount of help you can get from the seller when buying a home. The FHA is reducing concessions by sellers to 3% from 6%. Concessions include things such as sellers helping with closing costs. This change conforms to industry standards.

More Enforcement on Mortgage Lenders

The FHA also says it plans to report performance rankings on mortgage lenders as a complement to Neighborhood Watch data. The move is aimed at making mortgage lenders more accountable.

Troubled Mortgage Loans

As the economy has struggled more borrowers have turned to FHA mortgages because they require smaller down payments than other loans. About 30% of new home loans are insured by the FHA. Now, the FHA finds itself burdened with a slew of troubled loans.

The FHA says it is still committed to proving mortgages to first-time homebuyers. But the tougher lending requirements mean some people may not qualify for  mortgage loans.

“It will slow the growth in demand.  Any time you put up roadblocks, fewer people will qualify,” Joel Naroff, of Naroff Economic Advisors, told USA Today. “This is just the beginning of clearer and more specific requirements so we don’t get into the mess we got into again. In the short term, it will have an effect, but it won’t be a huge effect.”

Builder magazine recently had an article about whether or not the McMansion is dead. McMansions certainly seem out of reach for many Americans at a time when unemployment is high, demand for food stamps is up, and being frugal is in vogue.

McMansions Sitting Empty

It’s likely that the inability of many Americans to obtain jumbo mortgage loans combined with a movements to downsize may slow development of these supersized homes. Also, there seems to be an overall feeling among many folks that McMansions are wasteful. About 69% of Americans said the American home had gotten too large, according to a CNNMoney poll.

So should you give up your dream of owning a larger home, even it if can’t exactly be called a McMansion? Not necessarily. But here are a few practical things to consider.

Mortgage Debt-to-Income Ratio

You need a healthy income to afford home loan payments on a large home. Use a mortgage payment calculator to determine how much house you can afford. Keep in mind that you need to have a debt-to-income ratio within underwriter guidelines to get approved for a home loan.

Mortgage lenders usually don’t want you to have more than a 28/36 debt-to-income ratio. In other words, your housing expenses (including taxes and insurance) should ideally use up no more than 28% of your gross income, and your total debt (including a mortgage) should use up no more than 36% of your income.

Other Housing Costs Add Up

In addition to monthly mortgage payments, expect to shell out money for other housing-related costs. Those bills include utilities, repairs, and maintenance. Depending upon where you live you also may have to budget for lawn care, snow removal, or homeowner’s association dues.

Jumbo Mortgage Rates

Mortgage lenders set higher mortgage rates for jumbo home loans. There also tend to be more fees. What is classified as a jumbo mortgage loan differs from one area to the next. In most states mortgages over the conventional loan limit of $417,000 are considered jumbo loans. You are unlikely to qualify for this type of mortgage unless you have excellent credit and a substantial down payment.

Ultimately, the decision to buy a large home is a personal one. But among the things to consider are whether you really require a lot of space, believe your income is going to remain stable, have a lot of family members who plan to live there and share the expenses, and whether or not you have the time and money to maintain a large property.

Mortgage refinance rates have edged up recently but are still low enough for many people to apply for a loan. If you’ve been paying on a home loan for several years, refinancing to get a 15-year mortgage can help you pay off your home quicker. But should you do it?

Lower Mortgage Rates

Mortgage loans with a 15-year term have lower mortgage rates than 30-year loans. That means you end up paying less interest over the life of a loan. For instance, 30-year fixed  mortgage rates are averaging 5.14%, while 15-year fixed loans are averaging 4.54%, according to Freddie Mac.

High Monthly Payments

But refinancing into a 15-year loan from a 30-year mortgage usually means your monthly payment is going to rise. For example, a 30-year mortgage  for $200,000 with a 5.14% rate would have monthly payments of $1,090.82, while the same amount for 15 years at 4.54% would have monthly payments of $1,534.08. Use a mortgage payment calculator to run different scenarios for interest rates and terms.

More Homeowners Refinance for 15 Years

Despite the higher payments, 15-year mortgages are popular these days. About one in five mortgage refinancings in November were for 15-year mortgage loans, according to the Mortgage Bankers Association. “My general advice is homeowners who have 30-year mortgages — and they’ve been in them for 3 or 4 years — it’s prudent not to go back into a 30-year mortgage,” Amir Syed of American Street Mortgage told CBS2.

Mortgage Principal and Interest Payments

Most of your mortgage payments go toward interest in the early years of amortization. So if you already have a 30-year home loan and refinance for another 30 years, you end up starting over again with most of your payments going toward interest.

It’s important to discuss all the numbers with your mortgage lender to determine if it really makes sense to refinance. Use the refinance savings calculator to determine if you can save money by refinancing and how long it is going to take to recoup the cost of refinancing.

Financial Freedom

For many people paying off their home represents true financial freedom. A 15-year mortgage is one way to reach this goal quicker, although you may have to make some sacrifices in your monthly budget to afford higher mortgage payments.

You can get free, no obligation mortgage refinance quotes here to determine if a 15-year loan can help you.

Many homeowners who have trouble making mortgage payments turn to savings and investment accounts for funds. But some financial experts recommend that homeowners seek help from mortgage loan modification or refinance programs before depleting their savings or ending up in foreclosure, according to a Consumer Reports article. 

Keeping money in a savings account can allow you to have access to cash in the event of an emergency. Here are some things to remember about getting help with your home loan.

Mortgage Loan Modifications

The government’s Making Home Affordable program has helped about 650,000 homeowners modify mortgages since February. That’s about 20% of the people who are eligible for help through the program.

If you are struggling to stay current with mortgage payments or are already behind on payments, you could qualify for a home loan modification. You also must:

• Have a first lien that originated on or before Jan. 1, 2009
• Have monthly mortgage payments (including taxes and insurance) greater than 31% of of your monthly gross income
• Be able to document that you are having trouble making mortgage payments because of a financial hardship

Even if you don’t have a mortgage loan guaranteed by Fannie Mae or Freddie Mac, you could qualify for assistance. Contact your mortgage loan service to find out if you qualify for help. Mortgage modifications last for a three-month trial period, but are supposed to be extended for five years if you make the payments on time.

Refinance to Lower Mortgage Rate

Mortgage rates are very competitive right now if you want to refinance. Even if you’re home has lost some value during the housing crunch, a mortgage refinance isn’t impossible.  You may qualify for a refinance if:

• Your home loan is owned or guaranteed by Fannie Mae or Freddie Mac
• You are current on your mortgage payments
• The amount you owe on your first lien doesn’t exceed 125% of the current market value of your property
• You have income to make payments after mortgage refinancing

Lowering Monthly Payments

Even if there is a second lien on your home, you could qualify for a refinance. If you currently have a high mortgage rate, refinancing should lower your monthly payments. However, if you currently have an interest-only loan and refinance into a fixed-rate mortgage, your monthly payments may not decrease. But refinancing should result in an overall savings over the life of the mortgage loan.

When seeking help with a mortgage loan it’s always best to contact your loan servicer directly. Avoid using companies that offer to modify your mortgage for a fee that is paid upfront.

Congress voted this week to extend the tax credit for first-time home buyers, and President Barack Obama is expected to sign legislation today. Here’s what you need to know if you’re hunting for a home loan.

The original tax credit program is set to expire on Nov. 30.  But under the extended program, home buyers will have until April 30, 2010, to sign a purchase agreement. They must close on mortgage loans by June 30.

Tax Credit for More Home Buyers

The tax credit is for first-time home buyers who have not owned a home in the previous three years. The tax credit worth up to $8,000 can be deducted on federal income tax returns. New home buyers are still eligible for that amount under the program.

However, the expanded program is supposed to allow people who have lived in their home for at least five years to receive a tax credit of up to $6,500 when purchasing another home. So if you’ve been looking for a mortgage for a new house, this may be an incentive to get moving on selling your current home.

Higher Income Eligibility

The legislation for the extended program allows people with higher incomes to qualify for the tax credit, according to an article in the Chicago Sun-Times. The credit phases out for individuals who earn above $125,000, up from $75,000. For joint filers the credit phases out if they earn more than $225,000, up from $150,000.

Current Mortgage Rates Are Low

With mortgage rates still so low, buying a home now may be more affordable than waiting until the housing market recovers more. Still, you may experience some tradeoffs for moving now. First, you may not be able to sell your current home at the price you hope to get. It’s a buyer’s market, so you may need to make some concessions or offer some incentives to get your property sold.

Second, if you plan to get a home loan to buy another house, you only have a limited time to close on it to qualify for the credit. If you don’t close by the deadline, you lose out on the tax credit even if you had been counting on it to help with the costs of buying a new home.

Mortgage Quotes

Find mortgage quotes from several lenders to get an idea of how large of a mortgage you can get. Run the numbers carefully to decide if you really want to move at this time. Just because the government is offering a tax credit for home buyers doesn’t mean that purchasing a home is the right choice for you.