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 »

Late yesterday (Tuesday) afternoon, the Federal Reserve slashed its target for the overnight federal funds rate to a range of 0 to 0.25 percent. That may sound like meaningless gobbledygook, but it’s not. It’s an all-time record low. Read the rest of this entry »

California legislators are in the process of approving a bill that would provide state tax relief for eligible homeowners who’ve had debt forgiven by mortgage lenders through relief provisions including mortgage modifications and short sales. This is another step toward cleaning up the mortgage mess; If homeowners facing the loss of their homes can also expect to lose their shirts paying taxes, what’s their incentive for staying in their homes and cooperating with lenders?  No one wants more people to walk away from homes they can’t sell, or mortgages they can’t pay.

The bill, which has been unanimously passed by California’s state Senate, is now in the hands of the state Assembly. It’s important to note that tax relief would be available only to owner-occupants.

While the action of the Federal Reserve to lower its rate to 2.25% grabbed the headlines, a little further behind the scenes were several positive indications for the mortgage markets:

• Regulators cleared the way for Fannie Mae and Freddie Mac to insure more mortgages
• Oil prices — a key element of inflation — took a sharp dive
• Yields on 30-year bonds fell nearly 30 basis points in one week

As much as the regulatory actions indicate a desire to ease the mortgage crisis and stimulate the economy, it is the financial market developments that could indicate a fundamental improvement in conditions on the way.

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One of the challenges faced by the average home owner or potential buyer is deciphering how to react to big-picture news about the mortgage market. Often, the right move runs counter to the news cycle.

Over the past week, that news cycle continued to focus on negative stories. For example:

• Mortgage foreclosures were reported to be up sharply in February over the prior year’s levels
• Treasury Secretary Henry Paulson outlined proposals to tighten regulation on mortgage lenders
• Meanwhile, one result of mounting economic concerns is that mortgage rates remain near the 6% level, which is low by a few different measures

In other words, the macro-economic view of housing and mortgages continues to be bleak. It may be counter-intuitive, but this could well be an environment which calls for action, on the part of home owners and potential buyers alike.

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Fannie Mae and Freddie Mac have raised their loan limits, a move designed to make mortgage funds available and to ease the loan approval process for borrowers living in areas where housing prices are very high.

The new lending limits vary according to region, but typically allow for more borrowing power in areas where housing prices far exceed Fannie and Freddie’s previous loan limit of $417,000.  As an example, borrowers in Honolulu, HI may now qualify to borrow as much s $793,750 under the new loan limits.

This is great news, as it evens the playing field for borrowers and mortgage lenders in areas with astronomical home values. The ability to qualify for conforming mortgages can  ease the mortgage applicaton process and help borrowers save on financing costs associated with non-conforming jumbo loans.

Hope Now, the housing assistance coalition, has assisted more than one million households struggling with foreclosure. It’s important to note that approximately 278,000 of these cases involved loan modifications. Modifying the terms of a mortgage loan can help homeowners maintain their payments by eliminating rapid rate increases, negative amortization and other “exotic” terms that can make it difficult for homeowners to make payments once the initial period of very low payments expires.

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