Many people dream of owning a home. They do whatever they can to scrape together a down payment on a mortgage loan and work many years to pay it off. But should you buy a home or continue to rent? Here are some things to consider.

1. Are you ready for the responsibility? Owning a home involves a variety of chores and financial investments. Are you ready to do yard work, home repairs, and other tasks that you currently don’t have to think about because you have a landlord? If you are not willing to do the work, or can’t afford to pay someone else to do it, you may not be ready for homeownership.
2. Do you have enough saved up for a down payment on a home loan? The larger the down payment, the smaller your monthly payments are going to be. Mortgage lenders also look more favorably on people who have a sizable down payment, healthy income, and low levels of debt.
3. Have you done your homework to understand the different types of mortgage products available? Just because your friend got a 15-year mortgage loan doesn’t mean that’s the right product for you. Knowledge is power and can keep you from getting into the wrong type of mortgage.
4. Do you need assistance from a first-time homebuyer program in your community? You may be able to get free advice from a housing counselor or help with a down payment.
5. Do you plan to use the first-time homebuyer tax credit? If so, you need to have a contract on a home before May 1, 2010, and must close on the home before July 1, 2010. If you qualify for the tax credit, you could receive up to $8,000.
6. Have you shopped around for mortgage quotes to get an idea of how much you can borrow? Compare offers from several mortgage lenders before choosing one to do business with.
7. Have you carefully researched the neighborhood you want to move to? Have a real estate agent do a comparative analysis of homes that are similar to what you want to purchase. Ask about foreclosure rates in the area and whether there is any data on how many homes are underwater on mortgages.

There are a lot of things to consider before taking the leap from renting to homeownership. Avoid feeling pressured to buy a home because everyone tells you that is the American dream. You may be content to continue renting a while. Consider all your options carefully so that you have no regrets in the future.

According to Freddie Mac data, mortgage rates averaged 4.95% for 30-year loans, and 4.32% for 15-year mortgages.

How Long Can Mortgage Rates Remain Low?

Current mortgage rates are near historical lows, but some housing experts believe rates may begin to rise this year. It is unclear what may happen to rates. However, you still have time to take advantage of low mortgage rates by refinancing, so keep the following things in mind as you shop for a loan:

1. You can’t time mortgage rates. Interest rates fluctuate all the time, so it’s difficult to predict with certainty which way they are headed at any given point in time. If you shop around for a refinance deal, consider asking your mortgage lender to lock in your rate. In most cases you must pay a fee to lock in a mortgage rate for a specific period of time, which is usually about 60 days
2. Don’t assume that your current mortgage lender has the best refinance deal. Shop around and compare deals for mortgage refinancing. The good faith estimate (GFE) can help you compare apples-to-apples. Let your current mortgage lender know about other offers to see if they can match them or give you a better deal
3. You could end up paying mortgage insurance (MI) if your property value has fallen significantly. If your home appraisal leaves you with less than 20% equity, expect to pay for MI. You can avoid MI by using any money you have saved to make a one-time payment at closing to boost your home equity
4. If you don’t have a title insurance policy to protect yourself, now is the time to get one. Title insurance is issued to protect your mortgage lender against problems that may be related to the property title. In many cases, you have to ask for an owner’s title insurance policy that protects you
5. Unless you are desperate to raise cash, it’s probably not a good idea to cash out equity when you refinance. With housing values still falling in many areas, you may want to hold on to as much equity as you can

Consider refinancing if you are struggling to make your monthly payments, have a high interest rate, or have an adjustable rate mortgage. However, refinancing your mortgage may not make sense if you plan to sell your home soon, or already have a low mortgage rate. Use a loan calculator to determine if refinancing can save you money.

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.

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.”

The federal government has released new guidelines that are aimed at speeding up the  short sale process to help homeowners avoid foreclosure. The new rules issued by the U.S. Treasury Department at set to take effect on April 5, 2010.

Distressed Mortgages and Short Sales

Homeowners who have trouble making payments on mortgage loans may be able to avoid foreclosure by arranging a short sale. A short sale occurs when a mortgage lender allows a homeowner to sell a home for less than the amount of the mortgage.

If you use a short sale to get rid of a troubled home loan, it can hurt your credit score. For instance, your Vantage score would fall about 120 to 130 points, according to a Baltimore Sun article. Vantage scores are put together by the three credit bureaus, but aren’t used by lenders. However, they are a good indicator of what your FICO score would be.

Home Loans and Deed-in-Lieu

The program also allows qualified homeowners to complete a deed-in-lieu. That involves giving your home back to the mortgage lender to avoid foreclosure. A deed-in-lieu affects your credit score about the same as a short sale.

Incentives for Short Sales

The new guidelines offer incentives for borrowers, servicers, and investors to complete short sales and deed-in-lieu deals. Incentives include:

• Mortgage loan servicers may receive up to $1,000
• Borrowers may receive up to $1,500 in relocation expenses
• Second lien holders may receive up to $1,000 to release their claims

Improved Documentation

The program also aims to standardize the documentation for short sales to outline the rights and responsibilities of all parties involved. Specific timelines for completing deals are to be included. In many cases, short sales have taken many months to complete, and in some cases the deals have fallen apart.

Selling Properties

Mortgage loan servicers are required under the new rules to give borrowers at least 90 days to market and sell their properties. Homes must be listed with a licensed realtor. Foreclosures are not allowed to occur during the marketing period if the seller is making a real effort to sell a home.

If you’ve gotten behind on mortgage loan payments and are facing foreclosure, there may be help from a Fannie Mae program. The housing agency is allowing some homeowners to voluntarily transfer their properties back to their mortgage lenders and stay in the homes as a renters. Here are some details of the Deed-for-Lease Program.

Mortgage Refinance or Modification

You may have tried unsuccessfully to do a mortgage refinance or loan modification. Fannie Mae’s program allows you to complete a deed-in-lieu of foreclosure and lease back your house at the current market rate for up to 12 months. Your mortgage must be owned or guaranteed by Fannie Mae. The idea is that even though you are struggling to keep up with mortgage payments, you might be able afford a lower rent.

“This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” said Jay Ryan, vice president of Fannie Mae, in a statement.

Who Can Qualify?

 To participate in the Deed for Lease program you must:

• Live in the home as your primary residence
• Be released from subordinate liens on the property, such as a second mortgage
• Be able to document that the market rental rate is less than 31% of your gross income
• Submit to a credit check
• If the property you live in has tenants, they also may be eligible to rent through the program
• Get renters insurance if you have a pet
• Pass a property inspection
• Not have an illegal activity on the premises

Advantages to Rental Program

So why is Fannie Mae letting people rent back their properties instead of foreclosing? One reason is that it is better to keep people in a property rather than let it sit abandoned. Foreclosed homes that sit abandoned often fall into disrepair or attract vandals and and other criminal activity.

Mortage Lenders as Landlords

Some lenders, however, are reluctant to get into the landord business even if homeowners are struggling with mortgages. “We’re in the lending business. We’re not really equipped to be landlords,” Tom Kelly, a spokesman for JPMorgan Chase, told Time magazine.

Contact your mortgage loan servicer to discuss participating in this program if you’ve exhausted other options such as a trying to refinance, sell your house, or get a loan modification.

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.