Buying a Home? Prepare, Compare, Negotiate

The U.S. Housing market has taken some heavy blows in the slowly mending recession, but it is not dead. People are buying and selling houses. But if you are in the buying mode, it is more important than ever that you be informed. A recent release by the Federal Reserve Board, titled “Looking for the Best Mortgage” has several key words: Prepare, Compare and Negotiate.

Determine Your Best Mortgage Payments

Start the process by an honest and realistic assessment of your ability to purchase a home. Be certain up front how much you can afford for a down payment and closing costs. Use a free mortgage calculator to determine your monthly payments. Start with your credit report. If it is less than perfect, due to illness or temporary loss of income, don’t just give up, assuming that you would be limited to high-cost lenders. If the information in the report is accurate but you have good reasons for the negatives, explain them to a potential lender or broker. If the less-than-perfect report can’t be explained, you probably will end up paying more. But don’t assume. Ask how a past credit history affects the price of a loan and what you would need to do to offset the current bad rating. You can obtain a current credit report by visiting www.annualcreditreport.com or calling 877-322-8228. Or go directly to the reporting agency. Equifax: (800) 685-1111; TransUnion: (800) 99196-8800; Experian: (888) 397-3742.

Mortgage Lending

Be ware of the types of lenders, including commercial banks, mortgage companies, thrift institutions and credit unions. Different lenders may quote you different prices. Contact several and compare. You may work through a mortgage broker, who would arrange a transaction rather than lending money directly. Remember that a broker is not obligated to find the best deal for you unless you have signed a contract. Consider contacting more than one broker, just as you do with the lending institutions. It may not be clear if you are dealing with a lender or a broker. Some institutions operate in both capacities and their advertisements likely do not use the word “broker.” Ask if a broker is involved in your potential purchase. A broker is usually paid a fee separate from and in addition to the lender’s origination and other fees. His compensation may be in the form of “points” paid at closing or as an add-on to your interest rate or both. Ask how your broker will be compensated so you can compared the various fees. Negotiate if it is appropriate.

Shop and Compare Mortgage Lenders

Be sure to get mortgage information from several lenders or brokers. Just the monthly payment or the interest rate is not enough. Seek information about the same loan amount, loan term and type of loan so you can compare the details. Interest rates fluctuate, sometimes several times in the same day. Even very small differences may make an impact on your payment. Ask if the rate is fixed or adjustable. If you choose an adjustable rate, keep in mind that when the rate goes up, so will your monthly payment. Get the details. Ask about the loan’s annual percentage rate, which takes into account not only the interest rate but points, broker fees and certain other credit charges, expressed as a yearly rate. Points are fees paid to the lender or broker and often are linked to the interest rate. Usually, the more points you pay, the lower the rate, to compensate for the larger amount. Your local newspaper has information about current rates and points. Ask that points be quoted as a dollar amount rather than as a number of points. A home loan is likely to involve several fees such as loan origination or underwriting, broker, transaction, settlement and closing costs. Some are negotiable. Ask. Application and appraisal fees often are required when you apply, others are paid at closing. You may be able to borrow the money to meet fees, but that will increase the loan amount and total costs. “No cost” loans may be available, bu they usually involve higher rates. Several items may be lumped into one fee. Ask questions until you understand what each fee is for.

Down Payment Requirements For Mortgages

Down payment requirements vary. They range from as little as 5 percent to 20 percent, depending on the lender’s policy. If a smaller down payment is involved, the lender may require the purchase of private mortgage insurance. Government-assisted programs such as FHA, VA or Rural Development Services generally require substantially smaller down payments. Don’t look just at the amount, be informed on all the variables.

Negotiating Your Mortgage Terms

Once you have the background information on what lenders offer, prepare to negotiate. Be aware that on any given day, lenders and brokers may offer different prices for the same loans to different customers, even if they have the same loan qualifications. Loan officers and brokers often are allowed to keep some or all of this difference as extra compensation. Such higher prices are termed ” overages.” When they occur, they are built into the prices quoted to consumers. Have the lender or broker write down all the loan’s associated costs and see if any of the elements can be waived or reduced. Be sure that one fee is not lowered while another is being raised through points. You may simply ask for better terms, quoting those more favorable that you have found elsewhere if that would be helpful. Once you feel you have done the best possible, you may want to lock in the loan. Be clear on the rate you have agreed on and how long the lock-in lasts. A fee, sometimes refundable at closing, may be charged for the lock-in. The arrangement also could backfire on you if interest rates go down while you’re waiting to close. Again, time to negotiate a compromise if possible.

Legal Protection For Home Buyers

Remember that there are laws that protect you as a potential home buyer. The Equal Credit Opportunity Act prevents discrimination based on race, color, religion, national origin, sex, marital status or age or whether any part of your income comes from a public assistance program The Fair Housing Act provides the same protections, adding handicapping conditions and familial status to the conditions that cannot be used as determinants for loans. A consumer cannot be refused a loan or charged more or offered less favorable terms because of any of the listed conditions.

For most Americans, a home is the most significant purchase they make. It is a process that should involve your best effort. Take your time. Prepare. Compare. Negotiate

How to Qualify for a Home Loan

Owning a home has been considered a logical investment, as it gives a sense of security. It is asset than can be passed on to the next generation. With the recent turn in the economy, buying a home is becoming more enticing as property prices are going down. Although this is true, purchasing a home can still be expensive. Obtaining a home loan can help in being able to purchase property.

To apply for a home loan, banks normally check the applicant’s background, whether they have a good, steady job or some other stable source of income. Credit line is also checked, whether the applicant has been responsibly paying his/her debts well. An applicant must also have collateral as financial back up, as an assurance that the applicant will be paying back the loan in full.

Do some research on how much you can ask from lenders.  This will give a general idea in figures of how much you can borrow, how much of your income is needed for the down payment as well as for the succeeding payments. Evaluate how much you can afford to spend for the house loan, in consideration with other existing monthly payments. It is recommended that less than a third of the applicant’s monthly income be spent on the payments for the loan and property.

Start saving money for the purchasing of the house before attempting to apply for a home loan. Possible ways of saving for the home loan and property purchase include taking a second job or reducing unnecessary expenses. This initial investment is a good demonstration to the lender of the applicant’s good intent in purchasing a house. There are also other options to be considered in obtaining financial support when purchasing a house such as the Veteran’s Administration loan for veterans. Consult with your real estate agent regarding other financial support options.

As a result of the recent development in the economy, banks are becoming more stringent in assessing applications. However, there are ways of improving chances when applying for a home loan. In order to prepare for qualifying for a home loan, it is recommended that the applicant obtain a copy of their credit report from a qualified agency. There are services which can send a report annually or directly contact the agencies for an immediate copy. Take note of outstanding or unpaid credit, as this is an important aspect that banks check for. Pay back all debts. If this is not completely possible, then make it as low as possible. This is important as it sends a note to the lender of the applicant’s reliability in paying back the loan.

Banks normally ask for collateral as an assurance that the applicant will pay back his/her loan. Other properties in real estate or investments in the stock market are possible sources of collateral.

There are no definite rules that can assure the applicant will obtain the home loan. Loans are approved on a case to case basis. However, following these tips increases the chances of getting the home loan. Do not despair if you are denied a home loan but see it as a sign that there may be areas in your application that need improving.

Why Our Housing Market Failed and Why a Bailout is Necessary

Why did the housing market FAIL?  GREED, CORRUPTION and IGNORANCE!

In 2003, I was taking some Mortgage Banking courses to obtain my Mortgage Banking Certification. One of the courses was introducing, what they termed  new instruments for financing mortgages. The new instruments were not available in the state of Texas at that time due to the state Homestead Laws.However, later that year they would become effective because the laws would be relaxed allowing homeowners to decide if they wanted the protection of the current laws or wanted to take advantage of one of the new financial mortgage instruments to get more house than current laws allowed them to have with their present income.

I was not new to the mortgage industry.  I had been in the mortgage business for 20 years.  I also recognized that these instruments were not new either.  They were just redesigns of the products used by Savings and Loans during the 1980s for the most part.

I voiced an unpopular opinion at that time.  I said to all who would listen, This is NOT good! There are to many greedy and uninformed people for this to work.  We will see the S&L crisis happen all over again, only worse this time because of the increased practice of securitizing pools of mortgages and marketing them to investors as MBS (Mortgage Backed Securities) investment pools.

I watched as the parent company of the company I worked for went from buying and selling pools of loans in the $100,000 to $1,000,000 range to $1,000,000 to $1,000,000,000 range in a matter of 6 months to a year.

New residential construction sprang up on every vacant lot.  Older homes were bought out, torn down and huge new houses took their place.  Everyone who could identify a hammer from a nail was now home builder.

Older residences were selling on the market for 3, 4, 5 times the actual replacement cost, let alone the actual value.  Everyone was trading up from the home the owned before to one 3 or 4 times bigger, newer and of course better. Greedy lenders convinced greedy and gullible buyers that by the time the ARM (Adjustable Rate Mortgage) they were purchasing to buy the house actually went up, their salary would have increased to equal the adjustment.  Anyone and everyone could own a home now.  It didn’t matter that the end payment was many times more that their income warranted they would be able to sell or refinance when the time came to pay more.

Why should we pay to bail out the housing market? WHY BAIL OUT GREED, CORRUPTION and IGNORANCE?  I don’t know, no one has convinced me yet.

But, I don’t want to see the Economy collapse.

I personally do NOT believe in bailing out companies or homeowners because they made a bad judgment call, and certainly not greedy or uninformed people. I saw too much to even pretend that I imagine that the majority of those involved don’t deserve exactly what has happened, including the investors.

However, (and this need a lot more research, as to bail out terms and conditions) we are dealing with a different age and economic mix than prevailed in the 1980s.  Many of our investors are foreign entities.  The soundness of our dollar on the worldwide marketplace and our economic standing in the world depend on our ability to stabilize the market and regain the trust of the entire world.  We have no choice but to underwrite the investments that are held by so many foreign investors.

This being acknowledged, a very strict oversight committee must oversee this bail out.  Not by backbiting, corrupt politicians, but an honest, trustworthy, independent committee.  Our main problem here, of course, is finding honest, trustworthy, independent and (let me add) incorruptible people that are experts in the mortgage industry.

This article was written by Virginia Ritchie.

Mortgage loans in the news

Mortgage loans are in the news today as two of the largest mortgage companies in the United States, Fannie Mae and Freddie Mac, lost nearly half of their stock value during the week of July 11, 2008.  They own over one half of all the mortgages in the United States, with a total value of $5.2 trillion dollars.  They have posted $11 billion in losses.  Read more