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.

The “shadow inventory” of U.S. real estate rose to 2.1 million homes in August 2010, according to data from CoreLogic, a mortgage research firm. These numbers represent an 8-month supply of homes, compared to a 5-month supply, or 1.9 million homes, a year earlier.

Troubled home loans

Shadow inventory includes homes that are in foreclosure, homes that have mortgage loans that are at least 90 days past due, and real estate owned (REO) properties owned by mortgage lenders but not yet listed for sale. Shadow inventory usually is not included in official statistics about unsold properties. The visible supply of unsold inventory was 4.2 million units, unchanged from a year earlier.

The total supply of unsold homes at the end of August was 23 months, compared with 17 months a year earlier. Usually a supply of 6 to 7 months is considered normal.

“The weak demand for housing is significantly increasing the risk of further price declines in the housing market,” Mark Fleming, chief economist for CoreLogic, said in a statement. “This is being exacerbated by a significant and growing shadow inventory that is likely to persist for some time due to the highly extended time-to-liquidation that servicers are currently experiencing.”

Problems with shadow inventory

Homes included in shadow inventory may be difficult to sell even if they eventually are put on the market. They may be located in areas that have many distressed homes. The properties may need a lot of repairs before they can even be marketed properly.

Delinquent mortgage loans

Meanwhile, the delinquency rate for mortgage loans fell to a seasonally adjusted rate of 9.13 percent of all loans outstanding at the end of the third quarter of 2010, according to the Mortgage Bankers Association.

Michael Fratantoni, MBA’s Vice President of Research and Economics, said in a statement:

“Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes. Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate.”

The delinquency rate includes mortgage loans that behind at least one payment but not in the process of foreclosure. The quantity of home mortgages that were in foreclosure fell to 4.39 percent in the third quarter, down from the previous quarter and down from a year earlier.

A new Federal Trade Commission (FTC) rule is aimed at cracking down on mortgage relief companies that make use deceptive practices. Some homeowners who are struggling financially have become victims of various mortgage relief scams that have proliferated during the housing crisis.

No advance fees for mortgage relief

The FTC rule makes it illegal for firms offering help with mortgage loans to collect advance fees before any services have been provided. Some companies that offer foreclosure rescue or loan modifications services have required homeowners seeking assistance to pay large sums of money upfront without delivering on their promises. Some of the companies claim that they are affiliated with the government and government programs that offer housing assistance.

“At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” FTC Chairman Jon Leibowitz said in a statement. “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

Documentation before collecting money

Now mortgage relief companies must provide written proof that a mortgage lender or servicer has agreed to make changes to a mortgage loan before any fees can be collected. Companies that offer help with mortgages also must inform consumers that they have the right to turn down an offer without paying any fees.

Mortgage relief firms also must disclose to consumers that:

• They are not affiliated with or approved by the government
• They are not affiliated with or approved by mortgage lenders
• Mortgage lenders may not agree to modify home loans
• If they tell customers to stop making payments on a mortgage, that they could lose their home and damage their credit

False claims about help with home mortgages

Mortgage relief companies also must refrain from making false claims about their services. Among those false claims are those that about the likelihood that customers will get the results they want, refund and cancellation policies, whether the company provides legal representation for consumers, and the amount of money a homeowner will save using the company’s services. The FTC rule also prohibits mortgage relief firms from telling consumers to stop communicating with their mortgage lenders or loan servicers.

If you’ve received a notice of foreclosure, you may be confused about what the foreclosure process actually involves. Whether you are current on mortgage loan payments or have fallen behind, the following guide can help you understand how the foreclosure process works.

What is a foreclosure?

A foreclosure is an action by a lender to take ownership of property for which the loan is in default. It starts when a homeowner has fallen behind on home loan payments, thus defaulting on the mortgage loan. By definition the mortgage loan is secured by the value of the home, which means if the homeowner doesn’t pay the loan, the lender has the right to take the house.

Once a loan is in default, the mortgage lender will eventually attempt to recover the outstanding balance owed on the mortgage loan by taking the property and selling it to pay off as much of the loan as possible. The mortgage lender kicks off this process by filing a public Notice of Default.

What are your options after a Notice of Default has been filed?

There are several things that you can do after the foreclosure process has begun.

1. Pay off the default. If you can find a way to pay off the default amount during the pre-foreclosure period, doing so could allow the mortgage loan to be reinstated. Work with your lender to establish a payment schedule.
2. Sell the property. You could choose to sell the property during the pre-foreclosure period and put the proceeds toward the mortgage. Given the current economic conditions, it may be tough to sell your home at the market value.
3. Short sale. If you are underwater on a mortgage loan you won’t earn enough from the sale to pay the full amount owed. In that case you might have to consider a short sale.
4. Loan modification. Explore HAMP (Home Affordable Mortgage Program) and HARP (Home Affordable Refinance Program) loans to see if you qualify for a loan modification or a refinance with government assistance.

More about short sale

A short sale occurs when the mortgage lender agrees to accept less that what is owed on a home mortgage. Generally, you have to prove that you are experiencing extreme financial hardship to qualify for this type of deal. Be prepared to provide a lot of documentation for your financial woes. It’s also a good idea to line up a buyer before approaching the bank to request a short sale.

What if you do nothing?

If you do nothing after the foreclosure is started, the mortgage lender can take the property. The lender would then sell the house to recover as much as it can. The lender would be responsible for any repairs or maintenance needed to get the property in shape to sell. But mortgage lenders are not looking to manage properties, so most would rather find an alternative to having to take ownership. Armed with this information, being upfront with the lender about your situation and reaching agreement on a payment plan may make it possible for you to remain in your home.

Who files for bankruptcy? People of all ages, races, occupations, and socio-economic levels. According to the American Bankruptcy Institute (ABI), U.S. consumer bankruptcy filings rose 11 percent during the first nine months of 2010. The credit crisis, falling home values, and job losses have forced many people to take the desperate step of bankruptcy. Medical debt is also a huge factor.

Bankruptcy filings rise

“While the 2005 bankruptcy overhaul law aimed to reduce filings, overall consumer debt and continued financial stress have led to consumer bankruptcies climbing back to pre-BAPCPA levels,” ABI Executive Director Samuel J. Gerdano said in a statement. “We expect that there will be nearly 1.6 million new bankruptcy filings by year end.”

Mortgage loans and other debts

If you’ve fallen behind on your home loan and other bills, you may feel like there is no choice but to file bankruptcy to get rid of debt. Consider the following things when deciding whether filing for bankruptcy makes sense.

A Chapter 13 bankruptcy would allow you to set up a plan to repay some debts, but you need to have a steady income. The repayment plan would last for three to five years. If you are really struggling to make mortgage payments, a Chapter 13 filing could help stop foreclosure so you can stay in the home and catch up on payments. The bankruptcy judge also might allow a mortgage loan modification.

Liquidating Assets

Many people who have lost their income end up filing a Chapter 7 bankruptcy. Chapter 7 would allow you to liquidate assets to pay off debt. The bankruptcy judge might allow you to keep some basic assets that are necessary for living. You may be able to stay in your home, but that depends upon whether there’s any equity in it. If you have too much equity, the house may need to be sold to pay off debt. Chapter 7 is usually a faster process than Chapter 13.

Bad Credit Rating

Filing for any type of bankruptcy is going to send your credit score plummeting. The bankruptcy will show up for 10 years and can affect everything from getting another home loan, to applying for credit cards, to getting a job. You must talk with a credit counselor before filing for bankruptcy, so look for someone who can really explain the process and help you make the right decision.

Despite continuing struggles in the housing market, a majority of Americans still believe that buying a home is a good investment. A survey by the National Association of Realtors found that 68% of those polled strongly believe that buying a home is a good financial decision.

Job security and mortgages

The survey measures how affordable housing issues affect consumers and found that concerns about job security were at the highest level in eight years. About 70% of those polled said job layoffs and unemployment were a big problem in their area. The job situation makes it tough for many people to qualify for a home loan or get approved for a refinance.

Even with the tough conditions, 39% of renters say owning a home in the future is one of their highest priorities and 24% say it is a moderate priority. Only 21% of renters said owning a home is not a priority. If you’re among those who currently rent but believe that home ownership is in your future, here are some things you can do to prepare yourself.

• Pay off all debt.When it comes time to get a mortgage, you’ll want to have the lowest debt-to-income ratio and the best credit score possible. Pay off credit cards, student loans, and other debt while you are still renting. After those debts have been paid off, put the money you that used to go toward those payments into a savings account. The more money you save for a down payment, the better position you’ll be in when you’re ready to compare mortgage loans.
• Research the ins and outs of getting a mortgage. Read newspapers, magazines, books, and online sources of information to learn more about buying a home. Many homeowners who made the mistake of applying for mortgage loans without doing their homework are now facing foreclosure and other financial problems. Getting as much knowledge as you can about the home buying process will equip you to make smart choices when you finally get ready to buy a home.
• Stay employed for as long as you can. Even if you have a job that you aren’t always thrilled about, it’s better to stay where you are than quit in this job market. If you want a job that pays more money, keep in mind that mortgage lenders usually base part of their decision to approve mortgages on how long you’ve been at your current job. They want to know that you have a stable work history and will repay money you borrow.

You can buy a home

A house can be an important piece of your plan to build wealth. Don’t let the current housing market discourage you from pursuing a dream to own a home.

Current mortgage rates are super low, and many homeowners are rushing to refinance before they begin to rise again. If you’re thinking of refinancing, remember the following things.

• Shop around to compare mortgage rates from several lenders. Not all mortgage lenders offer the same type of deals. Among the differences in refinance programs you may find are deals that offer low closing costs and bonuses or other incentives for closing on time. Some mortgage lenders may even be willing to waive certain fees or closing costs.
• Your credit score does matter. The key to being offered the best mortgage rates lies in your credit score. Mortgage lenders want to see a strong credit report that includes a history of paying bills on time, a low debt-to-income ratio, and no judgments or liens. If you have a spotty credit history, take time to repair your credit before going to a lender to apply for a refinance.
• A refinance could actually increase your monthly payments. That would be the case if you were to choose a 15-year mortgage loan. A 15-year home loan is going to have a lower interest rate than a 30-year loan, but you’re likely to have significantly higher monthly payments with the shorter term.
• Refinancing into a 15-year mortgage can help pay off your home faster. If you can afford the monthly payments without it being a financial hardship, this could be the way to own your home free and clear of debt sooner.
• Refinancing can get you out of an adjustable-rate mortgage (ARM). Many homeowners with ARMs fear the day mortgage rates begin to rise because that means they would end up with a higher monthly payment when their loan resets.
• Be ready to provide documentation for everything. Mortgage lenders want to know how much you earn each month and will ask you for recent pay stubs and your most recent tax return. If you are self-employed, expect to provide an income statement or other information about your business. You also may be asked for proof of assets in savings or investment accounts.
• Make sure you have enough home equity to avoid mortgage insurance (MI) payments. MI is required when you have less than 20% equity in a property.

Depending upon your situation a refinance could allow you to keep a lot more money in your pocket each month. Refinancing also can shave thousands of dollars off the amount of interest paid over the life of a mortgage loan.

What are people looking for these days in newly built homes? According to the American Institute of Architects (AIA), some of the most requested spaces are home offices and outdoor living spaces. There also is growing interest in home features, products, and systems that promote greater energy efficiency and accessibility throughout the home.

Remodeling instead of getting mortgage to move

The AIA’s Home Design Trends Survey for the second quarter of 2010 found, not surprisingly, that homes at the lower end of the price spectrum are doing better than higher-end homes. Remodeling projects continue to gain steam while second homes and vacations homes continue to be the weakest sector of activity. Activity has picked up for kitchen and bath remodels. With housing values still struggling it makes sense for many families to stay put and do renovations than try to get a mortgage to move.

Fewer requests for luxury rooms

The struggling economy has taken a toll on home projects, including the way in which people want to use their homes. It’s tougher to get a mortgage loan these days and people need to make their dollars stretch further. More people are requesting mud rooms, reflecting a need for additional storage space.

Meanwhile, as some people are downsizing their homes, some previously popular luxury rooms are no longer in as great of demand; among them are media rooms/home theaters, exercise/fitness rooms, hobby/game rooms, home workshops, kid’s wings/guest rooms, interior kennels, and interior greenhouses.

Energy efficiency

Many architects surveyed said they were seeing more demand for projects that have immediate savings implications, such as insulation projects. According to the AIA:

Systems with the greatest increase in interest include energy management systems, solar panels/collectors/photovoltaics, and geothermal heating and cooling heat pumps. While it is fair to assume that the actual levels of adoption for solar panels and heat pumps still remains quite low, residential architects are indicating that saturation rates could well begin to increase as interest continues to grow. At the other extreme, systems and technologies where interest has not yet caught on, or where it has begun to wane, include electric docking stations for cars, automated lighting controls, and security systems.

Mortgage loans for new construction

If you are gettin a home loan to purchase new construction, make your dollars stretch to get the most bang for your buck. At some point you may be looking to sell, so it’s a good idea to build a home with features that will appeal to as many potential buyers as possible. You can begin searching for a new home loan here.

Fannie Mae is offering help to military families struggling to make their mortgage payments. The programs will help struggling military families avoid foreclosure by offering a forbearance of up to six months if an active-duty service member dies or is injured, creating a financial hardship for their family.

Mortgage loan help

Fannie Mae is also creating a hotline for military families to call if they need help with home loans. If you need help staying out of foreclosure, the number for the hotline is (877)MIL-4566. Mortgage loan specialist will discuss your options for getting help with a mortgage loan.

Jeff Hayward, Senior Vice President of Fannie Mae’s National Servicing Organization, said in a statement:

The men and women of the Armed Forces have shown extraordinary commitment to our country while facing unique challenges as a result of their service. No family impacted by a death or injury in the line of duty should have to face the additional burden of foreclosure as a result of the hardship. We want to do all we can to provide support to these families at a time of need as we honor their sacrifices and service to our country.

Help for families

Families who seek help with their mortgage and receive a forebearance, also will have credit bureau reporting suspended during that time. That will allow them to recive assistance without having it negatively impact their credit.

Many military families struggle financially, especially when one spouse is deployed overseas. Others, faced with multiple relocations, end up with high levels of debt. In some cases military families rely on credit cards and payday loans to cope with bills, escalating the cycle of debt. In 2007, a law was passed to cap interest rates on payday loans at 36% for members of the military.

To complicate matters, some new veterans have difficulty finding employment. The unemployment rate for veterans is about 14.7%, according to Daily Finance, compared with 9.6% for the entire U.S.

Buying a home is probably the biggest purchase you’ll ever make. Like most people you probably don’t have enough cash on hand to buy a property outright and need to obtain a mortgage loan, which means you are committing to many years of loan payments.

Most mortgage loans are set up to be paid out over a long period of time, such as 30 years, and the interest payments result in paying a whole lot more than the actual purchase price of a property. For instance, if you use a mortgage payment calculator to determine the amount of interest paid on a 30-year fixed mortgage loan for $200,000 at 4.5% interest, you’d pay $164,813.42 in interest over the life of the loan.

Cut Mortgage Costs

So what can you do to decrease the amount of money paid out of your pocket over the life of a home mortgage?

1. Save up a larger down payment. This probably isn’t the first time you’ve heard this piece of advice, but you really can’t afford to ignore it. Using the scenario described above, assume that the down payment on the mortgage is 20%, or $40,0000. The total amount of interest paid out over the 30 years would be $131,850.74. Boost the down payment to 30% ($60,000) and the amount of interest paid would be $115,369.40. The more you put down the less interest you pay and the smaller the monthly payments are going to be.
2. Property taxes and homeowners insurance add to monthly mortgage costs. Shop around for the best homeowners insurance policy you can find. Mortgage lenders require insurance premiums to be paid into an escrow account each month. Take time to compare different policies to find the best one for your situation. It may make sense to increase the deductible to have smaller monthly payments. You also may get discounts for being a long-time customer, having multiple policies, or not filing any claims over a certain period of time.
3. Pay extra toward the principal. Even if you can only spare $50 extra to put toward a mortgage loan each month, do it. Paying down principal faster than the term of the loan can significantly cut your total mortgage bill. If owning your home free and clear of mortgage debt is important, focusing on reducing principal can help.

Refinance to lower payments

Also consider taking advantage of current mortgage rates to refinance out of a high-interest home loan. Decreasing your monthly payments could save hundreds of dollars a month, allowing you to keep more of your take-home pay. You also could refinance and continue paying the same amount each month to reduce principal quicker and cut the total amount of interest paid out over the life of the loan.