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.

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.

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.

Don’t waste time and money when buying a home. Avoid making the following mistakes when purchasing a property.

1. Not setting a budget. Do you have caviar tastes on a crackers and cheese budget? Run the numbers on your finances before heading out to look for a home.  That way you can shop within your budget and won’t experience delays when applying for a mortgage. It’s also important to buy a home within your means. Bigger may seem better until you’re struggling to make the mortgage payments and keep the heat on.
2. Not getting pre-approved for mortgage loans. A pre-approval letter shows that a mortgage lender is committing to give you a home loan. This puts you in a better position to negotiate a deal.
3. Letting emotions take over. Buying a home is probably the biggest purchase you’re going to make in your life. Don’t let your emotions cloud your judgment. If you see a lot of red flags and feel uncomfortable with a deal, don’t ignore those feelings. While you may think you’ve found your dream home, there are other properties out there. 
4. Trying to time mortgage rates. When it’s time to get a home loan, compare current mortgage rates from several mortgage lenders to find the best deal. If you’ve done everything you can to clean up your credit, and save up a nice down payment, you should qualify for a competitive mortgage rate regardless of what’s happening with the economy.
5. Signing contracts without understanding them. Many homeowners caught up in the subprime mortgage mess claim they just didn’t know what they were getting into when they purchased property. You may not be a legal expert, but you must pay one to represent you. Hire a knowledgeable attorney who can review your contract and look out for your interests.
6. Not getting a home inspection. Even if a house looks perfect, there are bound to be some type of problems lurking about. In fact, some new homes could even have problems that wouldn’t be found without a home inspection. Your housing contract should allow for contingencies related to the home inspection.
7. Not taking advantage of programs that help you buy a home, such as the government’s homebuyer tax credit of up to $8,000. Many communities also have programs targeted at first-time homeowners or other information sessions.

Becoming a homeowner can be exciting and scary all at the same time. Learn as much as you can about the process and find reliable professionals for your team to make the home buying process as smooth as possible.

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. 

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.

Single home buyers are more likely to be female than male, according to the National Association of Realtors (NAR). The group found that 20 percent of home buyers were single women, compared with 10% of single men. Singles who were first-time home buyers also were more likely to be women (24%) than men (12%).

Women Know What They Want

Perhaps the higher purchase rate is related to the fact that women tend to make up their minds faster when it comes to purchasing real estate. A Coldwell Banker survey found that 70% of women knew the day they walked into a house that it was right for them, compared with 62% of men.

Women and Subprime Mortgages

But even though it may not take long for women to choose the house of their dreams, it’s important that they don’t rush when choosing a home loan. Studies have shown that women are more likely than men to have subprime mortgages, and Black and Latina women have more subprime home loans than white women.

Comparing Mortgage Loans

So what should you look for when choosing a home mortgage?

• Mortgage rates are important, but so are other fees associated with home loans. Many people — not just women — make the mistake of only focusing on mortgage rates and don’t look at the annual percentage rate (APR), which is the true cost of borrowing money.
• Steer clear of adjustable rate mortgages (ARMS) or other risky products. A fixed-rate mortgage gives you set monthly payments and no surprises.
• Get a Good Faith Estimate (GFE) of closing costs from each mortgage lender offering a deal. The GFE helps you compare apples to apples.
• Look for mortgage lenders with years of experience. Avoid fly-by-night operations that don’t have a track record and make outrageous promises.

You can begin gathering home loan quotes from mortgage lenders here.

Paying for Your Mortgage

Every homeowner should have a solid budget to help them continue making monthly payments on a mortgage while putting money aside in savings. But a single homeowner  who loses her job could end up having an even tougher time paying on a home loan than a married person who is unemployed. Single homeowners usually don’t have a second income to rely on to make mortgage payments, while married people may be able to fall back on the second income.

Never bite off more mortgage than you can afford. Make sure your income covers not only your mortgage payments, but other monthly expenses, too.

The News & Observer has an interesting story about a Pennsylvania home owner who completely paid off his mortgage in 1994, but found out recently that it still showed up as a lien in his county’s records. The poor guy has jumped through a lot of hoops trying to get the matter cleared up even though he has documentation that he paid off the mortgage loan.

Dealing with More Than One Mortgage Lender

What has complicated his efforts to get the case straightened out is that his loan was sold to another mortgage lender. The original mortgage lender said they don’t have records that go back far enough to show he paid off the mortgage.

The homeowner is still struggling to get closure, and his case is a reminder of some things you should do if you plan to pay off your home mortgage early.

Keep Careful Records

Anytime you communicate with your mortgage lender keep careful records of phone calls and mailings. Ask for the name of the individuals you speak with and find out if there is a case number associated with your call.

Pay Off Other Debts First

If you currently have a lot of credit card debt, it makes sense to pay that off first before prepaying on a mortgage. Also, work on building up an emergency savings fund and regularly contribute to a retirement account. Once you’ve accomplished that, direct extra cash to your mortgage.

Be sure to write a note with your payment that explains that you want the extra money applied to the principal. Make sure there is no penalty for prepaying your mortgage loan.

Make Extra Mortgage Payments

While most mortgage lenders offer to set up biweekly payment plans for a fee, you can do this on your own. Just pay half of your monthly mortgage payment every two weeks. This works out to one extra payment a year and reduces the time it takes to pay off your loan, as well as the total interest. Also, use any extra money you get from tax refunds, gifts, or refunds to put toward your mortgage.

Some people argue that it doesn’t make sense to pay off a mortgage loan early because you won’t be able to deduct the mortgage interest. Others say it’s better to keep your money more liquid instead of putting it into a house. But if you want the peace of mind that comes with owning a home free and clear, prepaying your mortgage could work for you.