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.

Hundreds of people are expected to be arrested next week in a nationwide crackdown on mortgage fraud. The Financial Times reported that the Federal Bureau of Investigation (FBI) plans to make the arrests next week.

Lying on Mortgage Loan Applications

Among those expected to be arrested are people who encourage borrowers to lie about income on home loan applications, mislead homeowners about mortgage rescue programs, and inflate home appraisals. A spokesperson for the FBI would not comment to the Financial Times about the expected arrests.

Rampant mortgage fraud helped contribute to the housing crisis. The FBI has opened 23 mortgage fraud tasks forces around the U.S. since 2008.

Signs of Mortgage Fraud 

So what are some of the signs that you might be a target of mortgage fraud?

• Do not trust mortgage brokers who use high-pressure sales tactics. You should never be forced to sign papers for a home loan. A reputable mortgage broker should encourage you to take  time to fully understand different offers from mortgage lenders.
• If you are asked to lie on a mortgage loan application, find a different broker. You should never exaggerate income or assets to qualify for a home loan. If you know that you cannot afford a particular mortgage but your broker manipulates the numbers to make it look like you can, it’s probably a scam.
• Do not trust strangers who promise to save your home from foreclosure. Among the red flags is being asked to sign over the deed to you home. Never believe promises that sound too good to be true, especially if you don’t know the individual making them.
• Some scam artists try to inflate home appraisals to get approved for a refinance or new home mortgage. You can get a comparative analysis of homes from a reputable real estate agent to get an idea of what properties are worth in your area. If an appraisal comes in significantly higher than that, there may be a scam brewing.

Choose Reputable People 

Mortgage fraud is often perpetrated by people who work in the housing industry. That’s why it is important to thoroughly check out any professionals you are considering working with. Ask people you trust to recommend real estate agents, mortgage brokers, mortgage lenders, home appraisers, inspectors, and attorneys.

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

Time for a Home Refinance?

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

Get a Mortgage to Buy a Home

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

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

Documentation Is Important

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

Don’t Waith Too Long

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

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

Use a Loan Calculator

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

Existing Home Mortgage

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

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

New Home Loan 

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

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

How Much Would You Save?

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

Reducing Mortgage Loan Principal

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

Total Savings

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

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.

If you’re in the process of getting a home loan, you may have begun shopping around for homeowners insurance. When comparing policies keep the following tips in mind to help keep your cost down.

Mortgage Related Expenses

Don’t wait until the last minute to get a homeowners policy. Your monthly mortgage costs are going to include not only principle and interest payments, but also insurance and property taxes.

Use a Mortgage Payment Calculator

Mortgage lenders set aside insurance and tax payments in an escrow account until it’s time to pay your insurer and local government. Use a mortgage payment calculator that lets you include the costs of insurance and taxes so you can figure out exactly how much you are going to pay each month.

Pay a Higher Deductible

The higher your deductible the lower your monthly premium. Deductibles usually start at $250, but by increasing the amount to $500 you could save up to 12% on your premiums, according to MSN. Raise it to $1,000 and you could save up to 24%.

Look for Other Discounts

Another way to reduce the amount you pay for insurance is to buy homeowners and auto policies from the same company. Ask your insurer about discounts for being a long-time customer, having an alarm system, or installing smoke detectors.

Replacement Cost

Get insured for the replacement cost on your home. That’s the amount it would actually cost to rebuild the home in your area. Actual cash value coverage only covers the cost to replace your home minus depreciation. 

Mortgage Refincing and Insurance

If you are doing a mortgage refinance, don’t automatically assume that it makes sense to keep your current homeowners insurance policy. Review the policy and get quotes from other insurers. Ask your insurance company if you qualify for discounts and let them know that you plan to take your business elsewhere if it can’t give you a more competitive price.

Switching Policies

Do not cancel your existing insurance policy until you actually have a new one in place. Be prepared to come to the closing with proof that you’ve prepaid up to a year’s worth of premiums for your insurance policy.  

Even if you aren’t getting a new home loan or doing a mortgage refinance it can pay to review an existing homeowners policy. You don’t have to wait until it’s time for the policy to be renewed to look for ways to lower the cost.

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.

I recently wrote about how more than 650,000 home mortgages had been modified this year through October because of the government’s foreclosure prevention plan. That number increased to more than 697,000 mortgage loans through November, but most of them were only trial modifications, according to Bloomberg. 

Permanent Mortgage Loan Modifications

Although the Making Home Affordable program aimed to help 4 million distressed homeowners, only 31,382 mortgages have actually been permanently modified, according to the Treasury Department. GMAC Mortgage Inc., JPMorgan Chase & Co., and Ocwen Financial Corp. completed the most mortgage loan modifications.

What’s Holding up the Process?

Home loan modifications have been affected by a variety of factors. The Obama administration has said that about a third of borrowers failed to provide proper proper documentation to get their mortgage loans modified permanently. Loan servicers also have dropped the ball in many cases. Some loan servicers have lost documents submitted by borrowers or not requested the appropriate documents.

Putting Pressure on Mortgage Lenders

The Treasury Department is stepping up pressure on mortgage lenders to get more loans permanently modified. In the meantime, more homeowners are falling behind on mortgage payments. About 7.9 million homeowners got behind on mortgage payments in the third quarter, according to the Mortgage Bankers Association.

Do Mortgage Modifications Have Poor Outlook?

Laurie Goodman, senior managing director of Amhert Securities Group LP, told Congress last week that the mortgage loan modification program is “destined to fail” because it doesn’t address the fact that so many homeowners have negative equity in their homes.

About a quarter of U.S homeowners have negative equity in their homes. That means they owe more on their mortgages than their homes are worth. Previously, estimates had put the number of homeowners with negative equity at around 32%.

Refinance Mortgage

Mortgage loan modifications obviously don’t work for everyone. But if you still need help lowering your monthly mortgage payments, consider mortgage refinancing. Contact your loan servicer to see if you qualify to refinance your mortgage through the Making Home Affordable program. To get refinancing through the government’s program you must be current on monthly payments and have a home loan that isn’t higher than 125% of your home’s value.

If you don’t qualify for that program, search for refinancing deals from mortgage lenders here.

Some lenders have offered existing mortgage loan customers the chance to refinance with low closing costs. Does that mean you should jump at the chance to do a mortgage refinance if your bank offers such a deal?

Saving Thousands in Mortgage Closing Costs

Depending upon your mortgage loan and the interest rate being offered, there could be the potential to save a lot of money upfront when refinancing. For example, Valley National Bank, based in New Jersey, has been advertising for months a mortgage refinance for a flat fee of $499. Refinancing doesn’t require an appraisal or various other fees common to mortgage closings. The bank says you can save up to $2,000 in fees by refinancing.

Consider Other Factors Before Refinancing

If you’re thinking of refinancing through a similar mortgage program, it’s important to look beyond the closing costs, however. You should factor in how long you have to pay off your current mortgage. Most of the monthly payments go toward interest during the early years of a mortgage. If you’ve been paying on a mortgage loan for many years, it’s important to look at how much money gets put toward interest on a refinanced loan.

Are You Planning to Move?

It may not make sense to refinance if you plan to move soon. Sure the housing market isn’t doing so hot right now, but that doesn’t mean you won’t be able to sell your property in a couple years. It won’t take as long to break even on lower closing costs for a refinance, but getting a new mortgage loan seem like a wise move at this point?

Lower Your Mortgage Payments

Talk to several mortgage lenders to compare deals, even if they involve higher closing costs. Begin searching for mortgage refinance quotes here.

In some cases, refinancings that involve low closing costs may have higher mortgage rates than loans that involve more fees. But if you can significantly lower your monthly payments and are happy with other terms of a mortgage refinance deal, why not go for it? Refinancing into a fixed-rate loan also can give you more financial stability.

Low Mortgage Rates 

Current mortgage rates are very competitive overall. Refinancing could be one way to cut your monthly expenses and save more money in this tough economy. Just make sure you consider a mortgage refinance from all possible angles to avoid any problems later.

This blog isn’t really supposed to be about tips, and hints. But, a couple of days ago, the New York Times gave such a good piece mortgage advice that I just have to pass it on. Read the rest of this entry »