Four Big Money Mistakes First Time Homebuyers Make

Four Big Money Mistakes First Time Homebuyers Make
First-time homebuyers almost always make a few mistakes when buying their home. Perhaps they pay too much, choose the wrong type of mortgage or neglect to budget for needed home improvements.

 Working with a trustworthy, experienced lender can help prevent such mistakes. But consumers also need to take responsibility for their budgets and choices.

 "Before buying a home, consumers need to develop a short- and long-term perspective on their purchase," says Michael Harrison, area director for MetLife Home Loans in Southwest Ohio. Following are the four biggest financial mistakes of first-time homebuyers:

Spending the Maximum on Housing
Lenders qualify buyers based on their incomes and debt-to-income ratios without considering how much the borrowers spend on items such as transportation, savings, food and other necessities.

"A lot of first-time buyers are optimistic about the future and excited about buying a home, so they borrow the absolute maximum they can afford instead of allowing themselves wiggle room for a partial loss of income or for future expenses such as children," Harrison says. Financial experts recommend that consumers decide how much they want to spend each month on housing before meeting with a lender. 

"Every buyer should create their own budget and know their limits," says Stephen Adamo, president of Weichert Financial Services in Morris Plains, N.J. Adamo says many first-time homebuyers experience a sizable change in their housing payments. Some new owners may go from $500 per month in rent to a monthly mortgage payment of $2,000, he says. "You need to deal with payment shock," Adamo says.

Not getting pre-qualified early enough
Meeting with a lender for a buyer consultation and pre qualification for a mortgage should be the first step toward homeownership. Yet many first-time homebuyers wait until they are ready to start house hunting before contacting a lender.

 "It's never too early to set up a free buyer consultation with a lender," Adamo says. "Every buyer needs to get pre qualified early enough in the process so that they can make some changes if they need to or correct errors on their credit report." Some buyers may need to spend up to a year saving more money, increasing their incomes or cleaning up their credit before making an offer on a home.

A buyer consultation should include creating long-term financial goals and strategies for buying property, Adamo says.

Misunderstanding the Importance of a High Credit Score
While most consumers know it's important to have a high credit score, not everyone understands how costly a low score can be.

"All mortgage lending is done with a tier of interest rates and terms based on consumer credit scores," Harrison says.
"A credit score of 720 or above will earn you the best rates and can potentially save you thousands of dollars." A score of 680 to 720 can get you good mortgage rates, while a FICO score of 620 is usually about the lowest score to qualify for most loans, Harrison says. Consumers should learn about credit scores the minute they start working, Harrison says.

Websites such as Bankrate provide information about how to improve your credit score. Even after a mortgage approval, consumers must avoid applying for new credit or taking on new debt, Adamo says, because a second credit check is often required before settlement.

Choosing the Wrong Mortgage Product
First-time homebuyers today typically opt for a 30-year fixed-rate mortgage. Their conservatism is a reaction to stories about the dangers of interest-only mortgages and adjustable-rate mortgages. But Harrison says home loan alternatives to a 30-year-fixed sometimes make more sense.

For example, buyers certain they will be relocated by their companies within five years may find a 5/1 ARM "could be a much better mortgage," he says. "There's no reason to pay a premium for a product you don't need like a 30-year loan," Harrison says.

Homebuyers eager to build equity in their homes or who are older and want to live mortgage-free in retirement should consider a 15-year fixed-rate loan or, if they can afford it, even a 10-year mortgage to reach their goals.

Source:  Bankrate

Reverse Mortgage - Get the Facts

Reverse Mortgages: Get the Facts Before Cashing in on Your Home’s Equity

If you’re 62 or older – and looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, or pay for healthcare expenses – you may be considering a reverse mortgage. It’s a product that allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.


The Federal Trade Commission (FTC), the nation’s consumer protection agency, wants you to understand how reverse mortgages work, the types of reverse mortgages available, and how to get the best deal.


In a “regular” mortgage, you make monthly payments to the lender. In a “reverse” mortgage, you receive money from the lender, and generally don’t have to pay it back for as long as you live in your home. The loan is repaid when you die, sell your home, or when your home is no longer your primary residence. The proceeds of a reverse mortgage generally are tax-free, and many reverse mortgages have no income restrictions.

Types of Reverse Mortgages

There are three types of reverse mortgages:

• single-purpose reverse mortgages, offered by some state and local government agencies and nonprofit organizations
• federally-insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs) and backed by the U. S. Department of Housing and Urban Development (HUD)
• proprietary reverse mortgages, private loans that are backed by the companies that develop them

Single-purpose reverse mortgages are the least expensive option. They are not available everywhere and can be used for only one purpose, which is specified by the government or nonprofit lender. For example, the lender might say the loan may be used only to pay for home repairs, improvements, or property taxes. Most homeowners with low or moderate income can qualify for these loans.

HECMs and proprietary reverse mortgages may be more expensive than traditional home loans, and the upfront costs can be high. That’s important to consider, especially if you plan to stay in your home for just a short time or borrow a small amount. HECM loans are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. Some lenders offering proprietary reverse mortgages also require counseling. The counselor is required to explain the loan’s costs and financial implications, and possible alternatives to a HECM, like government and nonprofit programs or a single-purpose or proprietary reverse mortgage. The counselor also should be able to help you compare the costs of different types of reverse mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time. 


To find a counselor, visit www.hud.gov/offices/hsg/sfh/hecm/hecmlist.cfm or call 1-800-569-4287. Most counseling agencies charge around $125 for their services. The fee can be paid from the loan proceeds, but you cannot be turned away if you can’t afford the fee.


How much you can borrow with a HECM or proprietary reverse mortgage depends on several factors, including your age, the type of reverse mortgage you select, the appraised value of your home, and current interest rates. In general, the older you are, the more equity you have in your home, and the less you owe on it, the more money you can get.


The HECM lets you choose among several payment options. You can select:

• a “term” option – fixed monthly cash advances for a specific time.
• a “tenure” option – fixed monthly cash advances for as long as you live in your home.
• a line of credit that lets you draw down the loan proceeds at any time in amounts you choose until you have used up the line of credit.
• a combination of monthly payments and a line of credit.

You can change your payment option any time for about $20.


HECMs generally provide bigger loan advances at a lower total cost compared with proprietary loans. But if you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage. So if your home has a higher appraised value and you have a small mortgage, you may qualify for more funds.

Loan Features

Reverse mortgage loan advances are not taxable, and generally don’t affect your Social Security or Medicare benefits. You retain the title to your home, and you don’t have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence.


In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 consecutive months before the loan must be repaid.


If you’re considering a reverse mortgage, be aware that:

• Lenders generally charge an origination fee, a mortgage insurance premium (for federally-insured HECMs), and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender sometimes sets these fees and costs, although origination fees for HECM reverse mortgages currently are dictated by law. Your upfront costs can be lowered if you borrow a smaller amount through a reverse mortgage product called a "HECM Saver."
• The amount you owe on a reverse mortgage grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases as the loan funds are advanced to you and interest on the loan accrues.
• Although some reverse mortgages have fixed rates, most have variable rates that are tied to a financial index: they are likely to change with market conditions.
• Reverse mortgages can use up all or some of the equity in your home, and leave fewer assets for you and your heirs. Most reverse mortgages have a “nonrecourse” clause, which prevents you or your estate from owing more than the value of your home when the loan becomes due and the home is sold. However, if you or your heirs want to retain ownership of the home, you usually must repay the loan in full – even if the loan balance is greater than the value of the home.
• Because you retain title to your home, you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. If you don’t pay property taxes, carry homeowner’s insurance, or maintain the condition of your home, your loan may become due and payable.
• Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.

Getting a Good Deal

If you’re considering a reverse mortgage, shop around. Compare your options and the terms various lenders offer. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. That can help inform the questions you ask that could lead to a better deal.

• If you want to make a home repair or improvement – or you need help paying your property taxes – find out if you qualify for any low-cost single-purpose loans in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call 1-800-677-1116. Ask about “loan or grant programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs, and how to apply.
• All HECM lenders must follow HUD rules. And while the mortgage insurance premium is the same from lender to lender, most loan costs, including the origination fee, interest rate, closing costs, and servicing fees vary among lenders.
• If you live in a higher-valued home, you may be able to borrow more with a proprietary reverse mortgage, but the more you borrow, the higher your costs. The best way to see key differences between a HECM and a proprietary loan is to do a side-by-side comparison of costs and benefits. Many HECM counselors and lenders can give you this important information.
• No matter what type of reverse mortgage you’re considering, understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates: they show the projected annual average cost of a reverse mortgage, including all the itemized costs.

Be Wary of Sales Pitches

Some sellers may offer you goods or services, like home improvement services, and then suggest that a reverse mortgage would be an easy way to pay for them. If you decide you need what’s being offered, shop around before deciding on any particular seller. Keep in mind that the total cost of the product or service is the price the seller quotes plus the costs – and fees – tied to getting the reverse mortgage.


Some who offer reverse mortgages may pressure you to buy other financial products, like an annuity or long term care insurance. Resist that pressure. You don’t have to buy any products or services to get a reverse mortgage (except to maintain the adequate homeowners or hazard insurance that HUD and other lenders require). In fact, in some situations, it’s illegal to require you to buy other products to get a reverse mortgage.


The bottom line: If you don’t understand the cost or features of a reverse mortgage or any other product offered to you – or if there is pressure or urgency to complete the deal – walk away and take your business elsewhere. Consider seeking the advice of a family member, friend, or someone else you trust.

Your Right to Cancel

With most reverse mortgages, you have at least three business days after closing to cancel the deal for any reason, without penalty. To cancel, you must notify the lender in writing. Send your letter by certified mail, and ask for a return receipt. That will allow you to document what the lender received and when. Keep copies of your correspondence and any enclosures. After you cancel, the lender has 20 days to return any money you’ve paid up to then for the financing.

Reporting Possible Fraud

If you suspect that someone involved in the transaction may be violating the law, let the counselor, lender, or loan servicer know. Then, file a complaint with:

• the Federal Trade Commission (FTC). You can do that online at www.ftccomplaintassistant.gov or by phone at 1-877-FTC-HELP (1-877-382-4357).
• your state Attorney General’s office or state banking regulatory agency.

Whether a reverse mortgage is right for you is a big question. Consider all your options. You may qualify for less costly alternatives. The following organizations have more information:


Reverse Mortgage Education Project
AARP Foundation
601 E Street, NW
Washington, DC 20049
www.aarp.org/revmort
1-800-209-8085


U. S. Department of Housing and Urban Development (HUD)
451 7th Street, SW
Washington, DC 20410
www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm
1-800-CALL-FHA (1-800-225-5342)


Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
www.ftc.gov/bcp/menus/consumer/credit.shtm — Click on “Mortgages & Your Home”
1-877-FTC-HELP (­1-877-382-4357)


The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Do I need an Appraisal to Sell my House?

One of the most common questions people ask is, "do I need an appraisal to sell my house?" An appraisal is a professional assessment of the home's worth. It is performed by a licensed appraiser, who takes into account the property features, the market conditions, and the data on sales of similar properties. The appraiser then uses a formula to calculate the most likely worth of the home. Home sellers generally ask "do I need an appraisal to sell my house" because they believe that the appraisal will help them to determine how much to list the home for.

The answer to the question of "do I need an appraisal to sell my house" is technically NO. It is possible to price a home and list it for sale without the home being formally appraised. In order to determine how much you should ask for the home without an appraisal, you can do some basic research yourself on the Internet to find out what similar homes have sold for. Remember, when doing your own research on the Internet, the other homes that appear comparable to yours may actually have different features or be in a different condition, so any estimates you make on your home's value from this type of research should be considered estimates and not facts.

You can also ask your real estate agent what he believes the house will sell for. Real estate agents look at many properties, and seller's agents are often responsible for listing multiple properties within a given market. As a result, agents begin to learn the value of properties and are able to discern what buyers are looking for. Your real estate agent can thus help you determine the appropriate price to list your home for, without the need for you to hire a professional appraiser.

However, although you do not need to have your home appraised to sell your house, the answer to the question of "do I need an appraisal to sell my house" can be more complicated than a simple no.

While sellers do not need to have the home appraised, buyers often do. Generally, a bank will not authorize a loan until the home is appraised by an approved appraiser of the lender's choosing. The buyer pays for this appraisal, and it may be done after an offer is already made on the home. Still, since the bank will generally not provide a mortgage to the buyer if the home is found to be worth less than expected in the appraisal, technically the answer to the question of "do I need an appraisal to sell my house" can in fact be yes- you do because the buyer may be unable to make the purchase unless the appraisal goes OK.

USDA Loan Requirements

What are the USDA Mortgage Loan Requirements?



To decide if you qualify for an USDA Mortgage Loan, the following will be looked at:

• Your income and your monthly expenses. Standard debt-to-income ratios are 29/41 for USDA Loans. These ratios may be exceeded with compensation factors.
• Your credit history (this is important, but USDA's credit standards are flexible). A FICO score of 620 or above is required for all loans through most lenders.
• Your overall pattern rather than to individual problems you may have had.

To be eligible for an USDA Mortgage, your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income (29% ratio). 
Your credit background will be fairly considered. At least a 620 FICO credit score is required to obtain an USDA approval through most lenders. You must also have enough income to pay your housing costs plus all additional monthly debt (41% ratio). These percentages may be exceeded with compensating factors. Applicants for loans may have an income of up to 115% of the median income for the area. Maximum USDA Loan income limits for your area can be found at http://www.rurdev.usda.gov/HSF-Guar_Income_Limits.html 

Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance.




Can I get an USDA Mortgage Loan after bankruptcy?

Criteria for USDA loan approvals state that if you have been discharged from a Chapter 7 bankruptcy for three years or more, you are eligible to apply for an USDA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make a USDA Loan application.


What are the USDA Down Payment Requirements?

USDA Mortgages have no down payment requirement. Other loan programs don't allow this.


What types of property are eligible?

While USDA Mortgage Guidelines do require that the property be Owner Occupied (OO), they do allow you to purchase condos, planned unit developments, manufactured homes, and single family residences.


What is the maximum amount that I can borrow?

The maximum amount for an USDA Mortgage Loan are determined by:

Maximum loan amount: The is no set maximum loan amount allowed for an USDA Mortgage. Instead, your debt-to-income ratios will dictate how much home your can afford (29/41 ratios). Additionally, your total household monthly income must be within USDA allowed maximum income limits for your area. Maximum USDA Loan income limits for your area can be found at http://www.rurdev.usda.gov/HSF-Guar_Income_Limits.html


Maximum financing: The maximum USDA Mortgage amount will be 100% of the appraised value of the home.

FHA Loans

Mortgage lending has been a quickly transforming environment within the last several years. Additional regulations and guidelines have resulted in hundreds of thousands of families that were able to buy or refinance a property just a couple years ago being unable to get approved for a mortgage loan. A growing number of home buyers are using government-insured FHA home loans because of the favorable terms that they offer, compared to other loan types.  

What is the Federal Housing Administration?

The FHA (quick for Federal Housing Administration) has been in existence since 1934 when it was founded in the course of the Great Depression. Since its inception over 75 years ago, over 37 million mortgages have been insured by the FHA in the United States. The FHA is the largest government insurer of home loans in the world today. FHA Loans have become so popular in today’s lending climate because they can be much more accommodating than other mortgages, but they do contain specific credit, income and property criteria for a mortgage to get approved. A number of the more crucial requirements are listed beneath. 

FHA Loan Income Requirements

The income verification and earnings capacity evaluation of the borrowers is an essential component of the FHA mortgage approval process because it shows the individuals capacity to repay the home loan. FHA loans utilize two separate DTI Ratios (Debt-To-Income Ratios) to determine a borrowers income eligibility. The initial ratio to be applied is the housing cost ratio (Top Ratio). To meet the Top Ratio requirements, the new month to month housing expenses can not exceed 31 percent of the borrowers total income. Housing expenses include principal and interest mortgage payment, taxes and insurance. Once it is determined that the housing ratio meets criteria for approval, the total expense ratio (Bottom Ratio) is applied. To meet Bottom Ratio criteria, the individuals complete monthly expenditures, including the new housing payment, can not exceed 43% of their total monthly income. Other expenses that are factored into the total expense ratio include credit card payments, car payments, student loans, and any other monthly payments that are to be paid. A borrowers credit report may be used to verify monthly expenses. 

FHA Loan Credit Requirements

To meet FHA loan credit criteria, the borrowers almost certainly be required to have a FICO credit score of 620 or above. The credit score used for FHA loan qualification is determined by obtaining the borrower’s scores from each of the three major credit bureaus, then eliminating the highest and lowest scores. This score is referred to as the “middle score” or “mid score”. Although the FHA has set its minimum credit score requirement at a 580 for many of its programs, individual lending institutions are free to add additional requirements and raise the minimum score as they see fit. It can be acceptable for the borrower to posses a bankruptcy in their past and still qualify, but you will find that additional guidelines will apply. If an individual possesses a Chapter 13 bankruptcy in their past, they must provide proof that all court ordered payments have been made on time for at least one year before application. If an individual has a Chapter 7 bankruptcy in their past, they must wait at least two years from the discharge date before application. 

FHA Loan Property Requirements

A home must have an FHA appraisal performed by a certified appraiser to be an acceptable property for an FHA loan. To satisfy the FHA appraisal requirements, the home must be in reasonably good condition. Certain disqualifying appraisal conditions may include but are not limited to structural problems, leaking roofs or missing exterior paint or siding. The property appraised value is extremely significant in the FHA loan process and the home must appraise for at least the purchase price. The highest FHA mortgage amount changes from county to county and metropolitan areas throughout the United States. The smallest maximum FHA loan amount in any county is $271,050, but can reach as large as $729,750 in particular high-cost locations.

Refinancing... Is it a GOOD IDEA??

What is refinancing?

Refinancing replaces your current mortgage with a new loan that has a more favorable interest rate and terms that you can afford to manage. The new loan is secured on the same property as your current loan. The new loan funds are used to pay down the current mortgage while any remaining money can be used to your best advantage.

Example: Mr. & Mrs. Lee both took out a mortgage loan worth $500,000. After 4 years, both of them paid off $250,000. Mr. Lee then took out another home loan worth $250,000 in order to repay the existing loan balance.

On the other hand, Mr. Nava took out another mortgage worth $300,000 in order to repay the unpaid loan balance which is $200,000. Mr. Nava could use the remaining balance in order to fulfill other financial obligations.

The first scenario is a simple refinance while the second is that of a "cash-out refinance".

5 Reasons why you should refinance

If you're thinking of refinancing your house, check out these 6 reasons why a mortgage refinance might be right for you.

• You want to save more:
  Your monthly payments will be reduced if you get a lower interest rate or when the term of the loan is extended. However, with an extended term, you will be paying more in interest during the life of the loan.
• You want to pay down your mortgage quickly:
  You can shorten the length of your mortgage by reducing the term of the loan. Your Monthly payments will go up, but you will be able to save more in interest payments. Moreover, you'll be debt free sooner.
• You need extra cash to pay off credit cards:
  If you have enough equity in your home, you can refinance and borrow more than the current loan balance. With the extra money, you can pay off high interest debts such as credit card balances or installment loans. This refinance loan may be tax deductible under certain conditions.
• You wish to consolidate 2 loans into one:
  If there's enough equity (due to high appreciation), you can consolidate a 1st and 2nd mortgage into a single mortgage. The monthly payment on the new loan might be lower than the combined payments on the first loan and the second mortgage.
• You want to convert an Adjustable Rate Mortgage (ARM) into a Fixed Rate Mortgage (FRM):
  A FRM prevents the lender from increasing your monthly interest payments over the life of the loan, unlike with an ARM. This means your monthly payments will remain the same.

When to refinance mortgage

"Should I refinance my house now?" – This is what most people ask when they're looking to reduce their mortgage payments by taking advantage of low rates. To find the answer, check out the mortgage refinance tips below:

• Build up equity:
  You can refinance when you have built up at least 10% equity in your home (Fannie Mae owned mortgages, require 5% equity). It is possible for you to refinance if you have less than 5% equity, but you may have to pay a certain amount of money in order to make up the difference in equity.
• Check if mortgage refinance interest rates are low:
  It's better to follow the 2% Rule. The 2% Rule allows you to enjoy the benefits of home refinance if the refinance interest rate is 2% lower than your current loan's interest rate. The savings in interest will help you recoup the costs of the new loan, provided you aren't planning to move soon (the break-even period). However, there are no-cost as well as low-cost refinance loans where the costs of getting the loan are included. However, these loans have comparatively higher rates than loans that do not include the refinance costs and your options are limited when the credit market is experiencing a slump. Learn more about the when to refinance rule of thumb.  
  
  As per this rule, if your rate on the mortgage is reduced by at least 2% then only you should refinance to get a benefit.
  As always, compare mortgage refinance interest rates offered by different lenders in order to get the best interest rate. This will help you save more over the life of the loan.
• Pay off any late payments:
  There is no such limit on the number of times you can go for home refinance loans. Most lenders prefer that you have no late payments in the last 12 months before you refinance.
• Remove negatives and improve your credit score:
  Get your credit report from the bureaus and review it for any negative items (late payments, collections, etc) and inaccurate items. Dispute any inaccurate items and remove them from the report. Pay off as much of your debt as you can. Otherwise, you won't get a low interest rate and may not even qualify for a refinance loan. Of course, there are lenders in the subprime lending market who may offer you a mortgage refinance loan, but it's better to avoid them as they'll charge higher interest rates and fees and could be fraudulent.

When NOT to refinance

Refinancing is not a good idea if:

• Your property value has gone down:
  If your property value goes down and you refinance up to 80% of the appraised value, your original mortgage amount may be higher than the amount you borrow. Therefore, the new loan will not be enough to pay down the existing one.
• You have been paying off the first loan for a long time:
  If you are almost finished paying off a 30 year fixed mortgage, then refinancing is not a good idea. You will lose equity in proportion to the amount you borrow over and above the remaining loan amount.
• You have used up enough equity:
  Refinancing is not a good idea if you have already reduced the amount of your equity by taking out a 2nd mortgage or a home equity loan. Refinance loans for 100% of the loan are rare, and with the mortgage market currently in a crisis, are hard to find.
• You have a few years left on the current loan:
  If there are only a few years left on your current loan, then refinancing is not a good idea. Taking out a new loan will only put you deeper into debt just when you were about to become debt free.

Refinancing makes sense for the right reasons and at the right time. You need to decide whether to opt for a simple interest rate adjustment refinance or a refinance that will provide you with extra money. If you'd like to check out what mortgage refinance rates and terms are currently available, request a no-obligation free mortgage refinance quotes from our community lenders and brokers.

Do you really want to pay your mortgage Bi-Weekly?

If you have a mortgage, you may have received and invitation from a bank or mortgage servicing company to make your payments bi-weekly.

The Good thing about this:  Paying half of your mortgage every two weeks could coincide evenly with your paycheck schedule.  Plus you can pay off your mortgage six to eight years early.

Why is it not a good idea?:  Many of the programs come with a hefty price tag.  if you are interested in paying half of your mortgage every two weeks instead of making one full payment every month, get all the details from the institution offering the program, including all of the fees and charges.

If you are serious about this, you could get the same results for free.

Myths and advantages

You need to understand what bi-weekly mortgage programs will and will not do for you.  Here are two common misunderstandings:

Paying your mortgage twice a month gives you better credit.    
NO.  Banks often use an automatic bank draft for their bi-weekly plans, which means all your mortgage payments will be made on time, and that will help your credit.  But you can get the same effect on a monthly plan using electronic bill payment or an automatic bank draft.

Paying twice a month reduces the compound interest on your mortgage.

WRONG.  In fact, even though you are paying biweekly, chance   are, your loan servicing institution is paying your loan monthly.  Which means that if you buy into bi-weekly plan, you are actually loaning the servicing company half of your mortgage payment (interest free) for at least two weeks every month.  What will reduce your interest are the two additional half payments going toward the principal each year.  In other words, by making 26 payments of half your mortgage, you are in effect making 13 monthly payments instead of 12.

Depending on the terms of your loan, and who you ask, one extra payment a year will enable you to pay for your house and average of six to eight years ahead of schedule.

The price tag
Biweekly payment programs are easy, but the convenience comes at a cost. Many lenders offer two ways to pay: upfront or as you go.

Of the top five mortgage-servicing institutions, four charge enrollment fees that range from $295 to $379. Three also levy additional charges on every transaction. If you want to pay as you go -- without the hefty upfront charge -- fees from the same top five servicers average from $4 to $9 a month.

Is it for you?
If you are wowed by the convenience of having the bank automatically draft a payment that coincides with your biweekly paycheck, don't have much discipline when it comes to money and don't mind the extra fees, then you might want to consider a biweekly payment schedule. 

Some questions to ponder:

1. How long are you planning to stay in your house? Granted, any extra money you pay to your mortgage will likely come back as equity when you sell. But if you're looking for a good deal from a biweekly payment plan, you want to be in the house a substantial number of years.

2. How close is retirement? If you'll soon be receiving your retirement money monthly, do you want to spend money setting up a biweekly payment plan?

3. Would an early payoff on your mortgage facilitate other planned financial goals, like sending kids to college, changing careers or early retirement? Or would it make those plans more difficult?

4. Is there a better way to spend this money? "Do you have a Roth IRA?" "Are you making the maximum contribution to your retirement? Something about owning your own home is satisfying. But when you're talking about looking at your home as an investment, look at all the investments you could be making with that money."

Free alternatives to bi-weekly programs

While hundreds of thousands of mortgage holders have signed up for bi-weekly payment programs, they represent only a tiny fraction of the overall number of mortgage holders, according to estimates from the top five loan service providers.

A true biweekly mortgage -- one that you set up when you buy your house or when you refinance -- is rare. Not every lender offers them. In any case, remember that it's possible to get many of the same benefits of a biweekly payment schedule for free.

Here's how:

1. Pay an additional one-twelfth of your mortgage each month. Designate on your coupon that the amount should go against the principal.
2. Contact your loan service agent and find out if you may start sending a half-payment every two weeks without enrolling in their biweekly program. Some banks flat out won't allow it. In some cases, the loan agreement prohibits partial payments. Some mortgage servicing companies will permit it -- but you must write out very specific instructions with each check so that they know where and how to apply the money. If your mortgage institution doesn't seem willing to oblige, don't try this option.
3. If you get a bonus or tax refund each year, add the equivalent of one extra payment to your mortgage. Again, tell the bank that the additional money goes toward the principal.
4. If you get paid biweekly, take half of your mortgage payment from each check and put it in a savings account. At the beginning of the month, write your mortgage check from that account. At least twice a year you'll be including the equivalent of an extra half-payment. Specify on the mortgage coupon that the additional money goes against principal.

What is a Reverse Mortgage?

Reverse mortgages are relatively new products in the world of retirement income, and there's much confusion over how they work. In essence, here's what the national trade group, the National Reverse Mortgage Lenders Association, says about them: "Reverse mortgages are available to seniors 62 years old and older with significant home equity. They are designed to enable elderly homeowners to borrow against the equity in their homes without having to make monthly payments as is required with a traditional 'forward' mortgage or home equity loan. Under a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away. Borrowers may draw down funds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as they continue to live in the home."  

May be a bad deal

Even if the reverse mortgage is not a scam, it may come with so many charges and hidden fees to make it a bad deal. And of course, the person trying to sell it to you probably won't mention that.
If you think you might be interested in a reverse mortgage, your best course would be to speak with a HUD counselor, or a financial planner who does not sell mortgage-related products.

Mistakes to avoid when you are shopping for a Mortgage

Whether you are looking for a Mortgage for your First Home or refinancing your current loan, it is important to know the most important mistakes people make when they looking to get the best deal.

• Choose the loan provider that offers the best price and rate over the telephone, TV advertising or newspaper:  If you look at all of them, you will find a lot of lenders that will beat each other at several different prices, but not one of them have the capacity nor the intention to deliver those offers.  Their intention is to get you interested, move along with the process until it is too late for you to back out.  By then, they will raise the price using a lot of tricks available.  You want to make sure you are talking to a reputable lender and one that will deliver what they are promising.  In order to determine this, they will offer you either a Fee sheet or a Good Faith Estimate.  Now a days, lenders will not issue a Good Faith Estimate unless you have decided you are going to do the loan with them.  They are bound to the fees they quote in the Good Faith and if you are not serious about using them, or you do not have a property or do not know what loan program you are going to be using, it is hard to determine what the real fees will be as they depend on third party providers also, and different loans have different fees. Still before you sign a loan commitment or give them any application fees, you want to make sure you are talking to somebody that will deliver.  Usually application fees are non-refundable.

• Request quotes for rates without giving the lender all the information about your situation:  This might affect the price, the fees and the lender will not be able to give you an accurate quote.  You have to make sure you let them know what you are planning to purchase, type of home, occupancy type, down payment, loan size, equity in the property if you are refinancing, your ability to document your income and assets, etc.  Unless they are not given all the information, they will give you a quote assuming the standard specifications and will give you a low price, this might not be realistic for your situation.
•  Shop for your mortgage on different days:  Because of the market volatility this is a huge NO NO!!  This will not be comparable...Unless you are shopping all of them on the same day, this really is useless and you are wasting your time and energy.  Shop all of them on the same day.
• Confuse a No-Cost Mortgage with as a No-Cash Mortgage:  This is one of the worst mistakes a borrower can make. "No-cash" means the borrower does not have to pay the settlement costs at closing, but the lender doesn’t pay them either. The costs are added to the loan balance, so the borrower pays them over time, with interest.  Buyer usually pays a higher interest rate on a No-Cost mortgage as the costs are calculated and are put into the loan in the interest rate.  Depending on the closing costs, if the lender needs for example $3,000 for closing costs they will charge the borrower the rate that will give them $3,000 in rebate to cover those costs.  Really they is no such thing as free in the mortgage business... you will get charged somehow.

• Select a Lender without knowing any of the other charges except points, then try to negociate them afterwards:  Before you make a decision on whom you are going to use, find out all of their fees, I will write a post in regards to this but please, do make sure you know what you are getting yourself into.  Everything costs money, Title Insurance, Escrow, Credit Reports, Appraisals, Inspections, Flood Certifications, Recording Fees... just to name a few, so make sure you do know about these fees before signing any initial documentation.

Why is your Credit so Important?

Why is your Credit Score so Important? 
Everybody has a credit score calculated at the time your credit report is requested.  That is if you have ever requested credit, meaning a Credit Card, an installment loan or any type of loan that gets reported to a Credit Bureau.

It's based on over 100 different proprietary variables and algorithms developed by Fair Isaac (FICO). The range is 300 to 850. You can get your credit score from Experian or Equifax. Most lenders consider people above 650 to be prime borrowers, meaning they will most likely be approved at favorable rates. According to my credit report from Equifax, 71% of the people with a credit score from 500-550 will default on their credit. Another 51% of buyers with a credit score from 550-600 will default on their credit. That's pretty scary. This is why lenders run your credit report and head straight for your FICO Beacon score.

Do you know your Credit Score?
You should start planning 6 months before you plan to purchase a home.  At this time you want to find out what is in your credit report and if you need to clean something there or pay off some debt so you can be ready to get a mortgage.
Te best way to get a free credit report without getting hit for checking it too often is to go to:

https://www.annualcreditreport.com/cra/index.jsp

 You can request a FREE credit report from this site every 12 months.  This will not give you a score, you will have a choice to purchase one if you decide, but I do believe that the most important thing is to see what is in your report and not worry too much about what your credit score is, unless you really want to know.

I am tired of Renting... Is Buying a Good Idea?

In most cases it's better to buy instead of rent, and to buy as soon as you can afford to do so. The only exceptions are for people who pay very low rent, or who plan on moving in a few years. So, the first thing you need to do is to figure out whether buying is even a good idea for your situation.

Most people think the benefit in buying is to "stop throwing your money away on rent," but in fact the equity you build from buying is mostly offset by the money you will "throw way" on taxes, insurance, maintenance, and mortgage interest, which renters don't pay. The real benefit from buying is that you freeze your monthly payment for 15 to 30 years, and then you stop paying it altogether and the house is yours!

Use the calculator below to compare the advantages and considerations of owning vs. renting a home.

http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH




Savings: Buying

In many cases, the amount of money a renter spends on rent can be about the same as or less than the amount a homeowner spends on a mortgage. With the tax benefit for homeowners, the savings can be significant.


Monthly Expenses: Buying

Your rental company takes part of your rent payment to cover certain housing expenses. When you decide to purchase a home, you accept responsibility for paying for these expenses (listed below). They are additional costs to your monthly mortgage payment and should be included in your budget estimates:

Property Taxes and Special Assessments
Home/Hazard Insurance
Utilities
Maintenance
Home Owner Association (HOA) Fee: Doesn't apply to all purchases. It pays for trash and snow removal and maintenance of common grounds if applicable.
Membership Fee: It may pay for recreational facilities and other services (cable TV).

So, what do you think...?  Are you Ready to be a Home Owner??