Category Archives: Mortgage Loan News

Five Numbers to Consider Before Getting a Mortgage

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Before starting the process of getting a mortgage, take a closer look at your overall finances to determine whether now’s the right time. There are various factors to consider when getting a mortgage. If you’re applying for your first mortgage ever, you might be unfamiliar with home loan requirements. But even if you have limited knowledge, there are five numbers to help assess whether you’re eligible for a mortgage.

  1. Credit score

Credit scores range from 300 to 850. The good thing about credit is that you don’t need a perfect score to qualify for a home loan. But while your credit doesn’t have to be picture-perfect, it has to fall within an acceptable range.

You can order your credit score from the credit bureaus along with a copy of your credit report. The better your credit score, the better your odds of getting a mortgage. You only need a minimum score of 620 to qualify for a conventional home loan, and a minimum score between 500 and 580 to qualify for an FHA home loan. However, you’ll need a credit score of at least 680 to qualify for a competitive rate.

  1. Size of your down payment

Your assets also determine how much you’re able to receive from a mortgage lender. Nowadays, most mortgage programs require a down payment starting at 3% to 5% for a conventional home loan, and 3.5% for an FHA home loan.

Before applying for a mortgage, check your bank account and investments to see how much you can put toward a down payment. If you’re purchasing a $200,000 home with a conventional loan, you’ll need about 5% down or $10,000. Even if you have enough income to afford a sizable mortgage payment, the lender may not approve a particular loan amount if you don’t have enough cash to cover the down payment.

  1. Housing ratio

A mortgage lender isn’t going to approve your application if the monthly payment takes a great percentage of your gross monthly income. As a general rule, your home mortgage payment can be no more than 28% to 31% of your gross monthly income. So if you’re thinking about buying a home with a $1,500 monthly payment, your gross income must be at least $4,500 a month.

  1. Length of time you’ll live in the home

You also need to think about your future plans. In other words, how many years do you plan to live in the house? Knowing this information beforehand can help you decide between a fixed-rate or an adjustable-rate mortgage.

An adjustable-rate mortgage starts off with a lower interest rate, which can result in a cheaper monthly payment. This low rate is only fixed for the first 3 to 7 years, and then the rate reset every year thereafter. Adjustable-rates are unpredictable. As market interest rates rise, so does your interest rate and monthly payment.

These mortgages are financially beneficially if you move before your first rate adjustment. But if you plan to live in the home long-term, a fixed-rate mortgage is a safer alternative because the rate doesn’t change over the life of the loan.

  1. Debt

Too much consumer debt also has a negative impact on your ability to qualify for a mortgage. As mentioned, your mortgage payment can be no more than 31% of your gross monthly income. In addition, your total monthly debt payments cannot exceed 36% to 43% of your gross monthly income. The more debt you owe, the less you can spend on a house.

Debts that affect purchasing power include car payments, student loans, personal loans and credit cards. To qualify for a larger mortgage, develop a plan to pay off as many debts as possible before proceeding with a home loan.

Mortgage Loan Companies Making Foreclosure Mistakes

The nation’s largest mortgage loan companies are starting to delay foreclosures and determine whether or not they have rushed the foreclosure process for thousands of homeowners without following proper procedures.  Employees of Bank of America, GMAC Mortgage and JPMorgan Chase have admitted to signing documents in a large number of foreclosure cases without verifying information contained in the documents.

In a document obtained by the Associated Press on Friday, Renee Hertzler of Bank of America said in a February deposition that she signed around 7,000 or 8,000 foreclosure documents a month, and said “I typically don’t read them because of the volume that we sign.” Continue reading

Why Some Borrowers Consider Strategic Default

These days, it’s becoming a common situation for homeowners to have upside-down or underwater mortgages. This situation happens when the home value drops below the outstanding mortgage balance. More and more, home owners in this situation are simply walking away from their mortgages – and their homes – rather than holding onto something they can’t afford.

There are different degrees of strategic default. Some homeowners hold on to their mortgages for as long as they possibly can before they finally let go. Others call it quits early, before they’ve exhausted savings and retirement on what could become a hopeless situation. And there are borrowers who walk away from mortgages they can afford to repay, but choose not to put money into a losing investment. Continue reading

More Government Help for Homeowners With Underwater Mortgages

With a large number of homeowners still dealing with underwater mortgages (owing more than their home is worth), the Obama Administration is looking for more opportunities to help.  While some struggling homeowners benefit from the Making Home Affordable Program, (HAMP)with loan modifications designed to keep them in the home without foreclosing, new initiatives are designed to keep people from voluntarily walking away from their homes because they’re paying more than their home is worth.  Under the new government program, FHA’s “Short Refinance” program announced in March,  an estimated 500,000 and 1.5 million homeowners will be helped with a mortgage refinance.

Beginning in September, homeowners who are eligible can begin modifying their home loan.  Other programs, including the Making Home Affordable initiative, were only available to homeowners who were behind with their mortgage payments.  This new initiative requires that homeowners are up to date on their mortgage payments, meet minimum credit score requirements of a 500 FICO score or better, and have proof of their ability to repay the loan. Continue reading

Homeowners report increased frustrations over loan modifications programs

When the Make Home Affordable initiative was announced by President Obama, many of the tens of thousands of homeowners struggling to maintain their house payments breathed a sigh of relief.  It seemed help was finally on the way for consumers who have been hit hard by the recession and tough economy.  Unfortunately for many of the individuals who have applied for help to avoid foreclosure, assistance is somewhat elusive.  Here we look at some of the problems reported by both the major lenders as well as applicants going through the process.

Not enough help

One of the biggest complaints regarding loan modifications through the program is the lack of available help.  With foreclosures at an all time high and millions of people affected by the economy, the number of people in need of help appears to surpass the help available.  Most of the major loan servicers are participating in the Make Home Affordable program, yet compared to the number of applicants, the number of modified loans seems rather small.  According to the Wells Fargo servicers report for July 2010 Make Home Affordable program, out of 177,267 trial loan modifications that had been started, just over 22,000 trial modifications are still in progress with over 46,000 permanent loan modifications being made.  What happens to the remaining applicants that have been denied?  Do those homeowners have additional help, or do they proceed to foreclosure?  These are important things to consider when working with a loan servicer on a loan modification to stay in your home. Continue reading

Good Faith Estimates Now Easier to Understand

As of early 2010, lenders have been making their mortgage loan information more straight-forward and consumer friendly. It used to be that long, complicated forms where confusing consumers and causing bad decisions to be made. With the many changes in the mortgage industry, consumers will now benefit from the revisions and less complex documents necessary to obtain a mortgage as regulated by the new Real Estate Settlement Procedures Act (RESPA).

One prime example of an easier form is the Good Faith Estimate. This form is what outlines the fees, interest, and other financial terms involved in a mortgage loan. The form is meant to serve as a comparison piece for consumers who are shopping for mortgage offers. The new form has advanced from a single page to a three-page document. It more clearly outlines the lender fees and third-party fees that are part of the loan. In the past, consumers have often been left lost in the pile of numbers. The new form is meant to make the numbers game more clarified and comprehensible to all borrowers. Continue reading