“How much can I borrow?” is the first thing you need to think about when buying a home. Mortgage lenders consider several factors, such as your income, the property’s value, and their assessment on your ability to repay the loan.
Online calculators can compute this. They determine the maximum monthly payments on mortgage and the qualified maximum loan amount.
Lenders will look at three things to determine how much you can borrow:
- Ability to repay the loan
Your income will give lenders an idea as to how much will go to monthly payments on mortgage (front-end ratio). Your payment— principal and interest— should not be more than 28% of your gross monthly salary. Lenders also consider other debts such as car loans, credit card payments, and child support (back-end ratio) that must not exceed 36% of your gross income.
You can easily get a loan with a regular income and a clean credit history.
Lenders will also look at property values. The loan to value (LTV) ratio or the relationship between the property’s actual value and your loan amount is important. If you’re looking for a loan of $200,000 on a house worth $400,000, there is a 50% LTV rate. A high LTV rate means more risk for the lender. Most lenders loan up to 75% of the property’s value. They will also assess your ability to afford the loan by checking your average bills and other expenses.
Seek the help of experienced mortgage advisors to get accurate results. This will keep you from thinking “how much can I borrow?”
Mortgage rate predictions and calculating your mortgage can help you buy a home.
In today’s tough times, knowing when to buy a house is important—it’s knowledge that can determine your financial future. Mortgage rates are unpredictable these days, and buying at the wrong time can mean large debts in the future.
Mortgage rates play an important role in the whole financial scene. When it goes up, it affects your ability to invest in properties (i.e. buying a house) and hinders cash flow in the economy. When it goes down, it becomes easy to buy a house. More homebuilders will build houses, injecting money and stimulating the economy.
According to data from mortgage giant Freddie Mac, mortgage rates in September 2008 dropped significantly. During the early weeks of the month, rates for 30-year fixed-rate mortgages went down to 5.93 percent from 6.35 percent. It then went on to drop to 5.78 percent. However, it went up again to 6.09 percent at the end of the month. What do these numbers mean? It simply tells you that mortgage rates can change anytime.
Mortgage rate predictions will allow you to foresee if mortgage rates will go up or down by using economic factors as reference. Using mathematical mortgage formulas can help you come up with a more accurate data and a sound prediction. Mathematical mortgage formulas can determine how much you will be paying for mortgage in case you decide to buy a house.
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A new government housing bill may help you and about 3 million other troubled homeowners avoid foreclosures through loan modifications, according to administration officials.
The housing rescue bill may use about $50 billion of the $700 billion bailout funds to guarantee your mortgage. It aims to encourage lenders to lengthen loan terms and lower interest rates for a five-year period so that you can have lower mortgage payments.
Loan modification works by adjusting certain terms in your loan. Your lender can reduce the principal loan balance or interest rate. They can even extend the life of the loan, giving you more time to pay off your debt. Lenders are more willing to work with you on this because it would cost less than having to go through a foreclosure process. For this reason, it is important that you contact your lender at the earliest sign of trouble.
According to the Mortgage Bankers Association, more than 4 million homeowners are already at least one payment behind their mortgages and that 500,000 were facing foreclosure, which makes the need for mortgage help necessary.
The Federal Deposit Insurance Corp. would be tasked to run the new federal housing bill in the making. It is by far the biggest effort made by the government to reduce the damages of the housing collapse that has affected global financial markets. Should it push thru, many Americans will be saved from their financial woes.
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Reverse mortgage is a mortgage loan where you receive money from your lenders, instead of paying them, while maintaining complete ownership of your home.
This allows you to tap into the equity of your homes and convert it to cash, which you can use for living expenses or any purpose you desire. This loan type has no income, medical, or credit requirements and doesn’t oblige you to make monthly mortgage payments.
You qualify for a reverse mortgage if:
- You are at least 62 years old (in cases where there are more than one person in the title, both must be at least 62 years old)
- The home serves as your primary residence
- You live in a single-family home, condo, townhouse, manufactured home, and 1-4 unit homes where you are occupying at least one unit
- You have received counseling session from a source approved by the HUD
You can receive a lump sum, monthly payments, or a line of credit. You can also choose the terms for your reverse mortgages. In addition, you or your heirs don’t have a personal liability because the Federal Housing Administration insures both you and the lender against losses. The lender can only look to the property for repayment.
You are only required to repay the loan when the mortgage ends, you permanently move out or sell the house. The repayment is taken out of the home equity. Your heirs can also sell the property and use the money to pay for the loan.
Like many homeowners, you may be having a hard time keeping up with mortgage payments. One thing you can do to avoid possible foreclosure is to refinance your mortgage.
Mortgage refinancing essentially pays off your current mortgage and creates a new one. Luckily, you can refinance through the Federal Housing Administration (FHA). FHA can swap adjustable mortgages that are about to go to a higher rate to a fixed-rate mortgage.
This would give you lower FHA mortgage rates. It will also allow you to pay off your loan. With FHA refinancing you can also add extra payments on each month to lessen the amount you’d have to pay for the principal and interest.
The following are reasons why you should refinance to FHA loans:
- Current FHA rates are more attractive than those offered by conventional loans. You only need to pay 3 to 5 percent down payment with an FHA mortgage unlike traditional loans that can require as much as 20 percent.
- Qualification is easier because you don’t have to have a perfect credit history to qualify for a loan.
- FHA mortgage rates remain fixed for the whole life of your loan, which means monthly payments remain the same.
- If you have an adjustable-rate FHA loan, your current rate can only increase one to two percentage points in a year, and 5 to 6 percentage points over the life of the loan.
- Homeowners aged 62 and above can convert their home equity to monthly cash payments.
- Various FHA programs see to it that homeowners are protected from foreclosures.
There’s a government program that can help you with your mortgage, to prevent foreclosure.
The Hope for Homeowners (H4H) program, approved by Congress last July, will allow you to refinance to a more affordable 30-year fixed-rate mortgage through the Federal Housing Administration or FHA. The program, which runs from October 1, 2008 until September 30, 2011, is an alternative to expensive mortgages that will help you keep your homes.
You’re eligible for the program if you:
- are living in your current home, which is your primary residence
- have no ownership interest in another home
- cannot pay your mortgage without assistance
- have made at least 6 payments for your mortgage that should have originated on or before January 1, 2008
- have paid more than 31 percent of your monthly income as of March 2008
- can prove that you haven’t been convicted of fraud in the past decade, missed debt payments deliberately, and didn’t provide false information to get your current mortgage
Hope for Homeowners is a voluntary program, which means you and your lender must mutually agree to the terms of the program.
Other terms in the program are the following:
- loans awarded will be based on your ability to repay the loan
- borrowers have to share any equity and future value appreciation with the FHA
- lenders have to take in significant losses, which are less than the losses associated with foreclosure, to benefit from the profits of government-backed loans,
- new mortgage will not be more than 90 percent of the new appraised value
- borrowers can’t take on a second mortgage for the first five years from getting the new loan
More information on how to apply for the H4H program is available at the U.S. Department of Housing and Urban Development (HUD) website.
If you are having second thoughts about buying a house amid the current housing crisis, Federal Housing Administration (FHA) loans may just make you change your mind.
FHA-insured loans are becoming more attractive to homebuyers these days. Borrowers have set their sights on federal insured loans because getting conventional loans from private institutions have become more difficult due to tighter lending procedures. As a matter of fact, 530,000 FHA loans were given to people who bought and refinanced their houses this year. The preference to FHA loans has caused a 160 percent increase compared to the same period last year.
FHA loans are among the best choices for homebuyers. It doesn’t matter if you are buying a home for the first time or planning to refinance your mortgage. These loans require you to pay only a 3 percent down payment—way cheaper than what private insurers demand for conventional loans. With a 3 percent down payment, you can save a lot of money that you can use for other things. In addition, you can make extra payments on your monthly mortgage payments so that you can pay off the loan at a faster rate and save money on interest.
There will be some slight changes though. The housing bill, which was signed into law in the latter part of July, will raise the down payment requirement for FHA loans to 3.5 percent. Don’t be disappointed because this increase is meant to prevent foreclosures in the future. The bill will also get rid of seller-funded assistance, a practice where sellers provide homebuyers money to pay for down payment.
You can be assured that these developments concerning FHA loans would not get in the way of the program’s goal of helping more people have access to decent and affordable homes.
After the federal bailout of mortgage giants Fannie Mae and Freddie Mac, the government is planning to buy billions worth of troubled mortgages along with other illiquid assets from banks to avoid a financial meltdown.
According to the government plan, the Treasury Department will buy illiquid assets—assets that cannot be easily converted to cash—from banks to stabilize the financial market. These include toxic mortgages or bad housing loans that caused a cave in in the housing market, which over time, contributed to the collapse of prominent banks.
When banks have a lot of bad loans in their hands, it basically means that they are holding liabilities instead of assets. These ‘assets’ are not worth much because they don’t hold enough value—they can’t be turned to cash (or liquidated) without difficulty. Simply put, these institutions don’t have enough money they can use to make loans. This is the reason why some banks are making it difficult for borrowers to get a mortgage.
The government sees the need to take the financial burden off troubled banks. Once the $700 billion budget gets approved, the government will try to buy bad mortgages at discount prices from banks so that they can resume making more loans and help jumpstart the recovery of the housing market. This would make it easier for you to get more affordable mortgages and buy a house in the future. You could also get help with loan modification and a possible reduction in interest rate on your loan balance.
The federal rescue could also revive investor confidence in the financial market. As a matter of fact, the stock market improved after plans for the government rescue was announced.
Treasury Secretary Henry Paulson is working on getting the plan approved by Congress as soon as possible.
It looks like taxpayers won’t have to worry about shouldering the cost of a federal rescue for Fannie Mae and Freddie Mac, because it may not be necessary.
Shares of both financial institutions rose last week—an indication that they can survive the housing storm without financial assistance from the government. Fannie rose 43 cents while Freddie went up to 68 cents. Both government-sponsored enterprises appear to have enough money to cover billions of losses caused by troubled mortgages. This is also a positive sign that the housing market is slowly stabilizing. Incidentally, homebuyers are starting to show interest in purchasing homes. As a matter of fact, there was an increase in the number of new home sales last July. More home sales are expected in September and October because of low prices.
The Mortgage Bankers Association also reports an increase in mortgage applications last week. The 7.5 percent increase shows that more people are trying to purchase homes. Home purchase applications increased 10.5 percent, while refinance applications jumped 2.1 percent.
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If you are interested in applying for a mortgage loan but feel like your credit history would make it hard for you to get approved, don’t fall prey to brokers and loan officers who claim that they can get you a good deal.
Mortgage fraud has increased rapidly along with the ailing housing crisis. Between the latter part of 2007 and the first three months this year, mortgage scams have climbed 42 percent, according to industry sources. Fraudulent mortgage brokers and loan officers dupe borrowers and lenders into getting mortgage loans approved.
They do this by changing financial information in application forms (employment description, income, financial assets) to make it appear as if the borrower has a very good credit standing. They resort to different schemes to fool lenders by using someone else’s personal information. Some would even go as far as paying someone with good credit history in exchange for his or her financial information.
It’s surprising that despite the stricter lending procedures we have today, there are still those who manage to do this. In hindsight, these measures could’ve contributed to the rise in scams because more people can’t qualify for loans. Brokers and loan officers, who earn by commission each time a client gets approved, do everything they can to land a successful deal, including cheating.
Identity theft is one of the crimes committed by scammers. In fact, it makes up 6 percent of the fraud cases in Illinois, which has third highest number of mortgage frauds in the country.
In order to avoid becoming a scam victim, you must first know how these guys operate. That way, you’ll know when a scam is unfolding right before your very eyes. You must take care not to let anyone have access to your personal and financial information like your Social Security number, credit card and bank account numbers. Don’t disclose information over the phone and avoid clicking on links inside emails sent to you. Most of the times, these links would ask you to “click here” to verify your information. It also helps if you can shred or burn important financial documents to protect yourselves from these scams.
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US Law Enforcers Nab Fraudulent Mortgage Brokers
