6 ways to get a mortgage more easily in today’s crazy market
Despite homeowner relief and low interest rates, many homeowners are still struggling to get mortgages today. I ran into this issue myself – 11 lenders later I found the one that was decent. It takes patience and is often frustrating.
Those struggling the most are those with either lower than 700 FICO scores, or those who are self employed that were using stated income loans. Here are 6 tips to getting a mortgage more easily in today’s market.
Be prepared with documents! Scan your pay stubs, keep copies of your current employment records, and if you are self employed, keep a letter from your accountant and business license copy in a PDF format. This saves tremendous time when you go to file.
Stay away from companies that will “raise your FICO”. Most of these are scams – they will take your money but you won’t see your credit score increase. One way to do that legitimately though is to, rather than paying off your high interest cards first (which makes the most financial sense in most cases), is to pay 50% of each card. Once your cards drop to 50% of their available limit, your FICO goes up as you are considered a less risky borrower. Another way to improve FICOs is to not close old loans and show them paid off – and until the end of the year, if you are an authorized user on someone else’s card, this can help improve your score too (provided they’re not over their limit!)
Shop around – big time. Lenders are advertising easy loans, but the devil is in the details. Look out for origination fees (as much as 2% or more of the loan amount!), penalties for having a “lower than 700” credit score, and companies that wont take your loan if you have a 2nd mortgage.
Maximize your 1st mortgage. Try to get as much as you can on your primary mortgage because the cost of HELOCs and 2nds today behind other loans at the 75% combined loan to value rate is very high.
Don’t just take your brokers word for it. Some brokers have access to great lenders that you don’t have access to through wholesale lending. But that doesn’t mean you shouldn’t also shop around yourself. Compare what your broker finds to what you find, and be prepared with all the documentation you can handle.
Do your own appraisal. Particularly on jumbos or in areas that are “declining markets” (each bank is different in terms of zip codes they consider in the declining market arena), the banks are often using their own internal appraisals and rather than over inflating price as many did, they’re coming in far less than they should be to be fair and accurate. Having your own appraisal can be a good baseline to see if the banks are ripping you off. If they can show a higher LTV, they can charge you more for the loan!
Dani Babb
Wednesday, September 10, 2008
Sunday, June 8, 2008
House Trading - Myths and Truths
Interested in trading your house (recommended company is onlinehousetrading.com) but not quite sure what to believe? Do you have agents telling you it isn’t legitimate, but you’re hearing on the news that it is?
House Trading is a legitimate business that matches two sellers and two buyers together to trade homes. Check out onlinehousetrading.com for more information! This is particularly useful for military families needing to move – and fast.
Let me first identify myths and truths:
Your equity position matters. It doesn’t matter if you have $1000 equity or $500,000 equity because you are getting a mortgage for the other house.
It won’t work because banks won’t let you trade mortgages. That is true but with House Trading both parties are simply buying each others homes. Both parties acquire a new mortgage or pay cash.
Both homes need to be the same price because if not you have to make up the difference in cash. That would be like someone telling you if you sold your $300k home that you had to buy another $300k home. As long as you can qualify for the mortgage you can buy what ever you want.
Let’s look at a couple of typical scenarios; upsizing and downsizing a home. House Trading Scenarios
Upsizing:
Seller A has a home valued at $350,000
Seller B has a home valued at $450,000
Equity doesn’t matter! Seller A would get a loan for Seller B’s house and Seller B would get a loan for Seller A’s house.
They will simply buy each others homes.
Downsizing:
Seller A has a home valued at $550,000
Seller B has a home valued at $450,000
Equity doesn’t matter! Seller A would get a loan for Seller B’s house and Seller B would get a loan for Seller A’s house.
House Trading is a legitimate business that matches two sellers and two buyers together to trade homes. Check out onlinehousetrading.com for more information! This is particularly useful for military families needing to move – and fast.
Let me first identify myths and truths:
Your equity position matters. It doesn’t matter if you have $1000 equity or $500,000 equity because you are getting a mortgage for the other house.
It won’t work because banks won’t let you trade mortgages. That is true but with House Trading both parties are simply buying each others homes. Both parties acquire a new mortgage or pay cash.
Both homes need to be the same price because if not you have to make up the difference in cash. That would be like someone telling you if you sold your $300k home that you had to buy another $300k home. As long as you can qualify for the mortgage you can buy what ever you want.
Let’s look at a couple of typical scenarios; upsizing and downsizing a home. House Trading Scenarios
Upsizing:
Seller A has a home valued at $350,000
Seller B has a home valued at $450,000
Equity doesn’t matter! Seller A would get a loan for Seller B’s house and Seller B would get a loan for Seller A’s house.
They will simply buy each others homes.
Downsizing:
Seller A has a home valued at $550,000
Seller B has a home valued at $450,000
Equity doesn’t matter! Seller A would get a loan for Seller B’s house and Seller B would get a loan for Seller A’s house.
Tuesday, March 18, 2008
Abandoned Homes Helping the Poor?
The abandoned homes in areas like Detroit and Stockton are hurting neighborhoods - badly.
But they're helping some poor, remarkably enough.
There is a bright spot for some of these abandoned houses.
Many of these homes, usually foreclosures, find transients have moved in, steal power, tear apart walls for copper plumbing, and set fires to make drugs or heat the home. Police are struggling in many neighborhoods to keep this under control (Source: Yahoo Real Estate). There is a consistent problem with crimes and thefts on foreclosed homes. In the past, these thieves would steal from the outside of the home; now they steal from inside, too - with little repercussion. Even the local humane society shelters are over capacity with pets left behind.
However, there is a bright side here - finally.
Some charities are buying the homes, like Habitat for Humanity, fixing up the abandoned properties, and taking advantage of the low priced homes - basically shells by the time they're robbed and stripped of valuable wiring and plumbing. But, charities are now starting to get these shells for rock bottom prices, use volunteer labor, and turn them into housing for the poor.
Dani
But they're helping some poor, remarkably enough.
There is a bright spot for some of these abandoned houses.
Many of these homes, usually foreclosures, find transients have moved in, steal power, tear apart walls for copper plumbing, and set fires to make drugs or heat the home. Police are struggling in many neighborhoods to keep this under control (Source: Yahoo Real Estate). There is a consistent problem with crimes and thefts on foreclosed homes. In the past, these thieves would steal from the outside of the home; now they steal from inside, too - with little repercussion. Even the local humane society shelters are over capacity with pets left behind.
However, there is a bright side here - finally.
Some charities are buying the homes, like Habitat for Humanity, fixing up the abandoned properties, and taking advantage of the low priced homes - basically shells by the time they're robbed and stripped of valuable wiring and plumbing. But, charities are now starting to get these shells for rock bottom prices, use volunteer labor, and turn them into housing for the poor.
Dani
Saturday, March 15, 2008
Bernanke's Big Bust
The Fed Chairman on Friday March 14th outlined what the Fed is proposing to alleviate the housing crisis. Here are the highlights, and the negative outcomes as a result as I see them - government stay out if these are going to be the plans!
1. Prohibiting lenders from issuing loans that borrowers cannot repay. BIG problem here. We have no accurate way of assessing this. The traditional method, FICO scores, is no longer accurate. The FICO doesn’t take into consideration mortgage resets, and is fairly easily manipulated by people who fix credit. FICO says plans are in the works but a new algorithm wont be released until 2009. Also, more people today earn non traditional income - income working from home on 1099s and so forth. These people are often highly qualified but may not be able to get a loan.
2. Making lenders verify income and assets. I have no problem with verifying assets. But, it's difficult to verify income by many of today's workers. For instance, many of us work off of 1099s and take business deductions. This makes it nearly impossible for the bank to see how much we really make.
3. Requiring escrow accounts for high priced loans. This sounds great, but it's a rip off for the consumer! People are better managers of their money than institutions are. If they aren't, they pay a price. Here is a fact. Take a $1,000,000 home, the "low end" price for many areas in Southern California. If we had to put even 1% into escrow, that is $12,000/year. That is money we could have invested and earned interest on. Unless the bank is going to fork over the interest we could have earned by investing it ourselves, forget it!
4. Ban repayment penalties including loan flipping - While Id love to be able to refi my primary residence without a prepay penalty, the truth is that loans with prepays often come at cheaper interest rates because the bank knows they’ll get X dollars from the consumer. Do this, and the banks will offset this income with higher rates. Period.
Bottom line - none of these are answers to the housing crisis.
1. Prohibiting lenders from issuing loans that borrowers cannot repay. BIG problem here. We have no accurate way of assessing this. The traditional method, FICO scores, is no longer accurate. The FICO doesn’t take into consideration mortgage resets, and is fairly easily manipulated by people who fix credit. FICO says plans are in the works but a new algorithm wont be released until 2009. Also, more people today earn non traditional income - income working from home on 1099s and so forth. These people are often highly qualified but may not be able to get a loan.
2. Making lenders verify income and assets. I have no problem with verifying assets. But, it's difficult to verify income by many of today's workers. For instance, many of us work off of 1099s and take business deductions. This makes it nearly impossible for the bank to see how much we really make.
3. Requiring escrow accounts for high priced loans. This sounds great, but it's a rip off for the consumer! People are better managers of their money than institutions are. If they aren't, they pay a price. Here is a fact. Take a $1,000,000 home, the "low end" price for many areas in Southern California. If we had to put even 1% into escrow, that is $12,000/year. That is money we could have invested and earned interest on. Unless the bank is going to fork over the interest we could have earned by investing it ourselves, forget it!
4. Ban repayment penalties including loan flipping - While Id love to be able to refi my primary residence without a prepay penalty, the truth is that loans with prepays often come at cheaper interest rates because the bank knows they’ll get X dollars from the consumer. Do this, and the banks will offset this income with higher rates. Period.
Bottom line - none of these are answers to the housing crisis.
Thursday, February 28, 2008
Freddie & Fannie can buy more loans!
Good afternoon,
Federal Regulators Fannie Mae and Freddie Mac, the biggest buyers of home mortgages, are going to remove limits on the amount of loans and securities that they can own. This could help the housing market. (Source: The New York Times) This could help relieve the credit crunch in the long term though it is a risky move for the two mortgage giants.
According to the agencies that control these mortgage companies, they are making the change because the organizations began filing financial reports again after lapsing years ago. This is questionable and may be more related to the mortgage “crisis”. One still remaining limitation of course is that Fannie and Freddie still have to hold 30% more capital than they are required to by law, due to tumultuous times in the mortgage market.
Fannie Mae reported a 2 billion dollar loss for 2007, and is noting that home prices will further decline in 08. This is following a 4 billion dollar profit in 06.
In many ways, this means that large mortgage buyers will hold many loans – including potentially fatal loans. While this might help the home market, it isn’t the best financial investment the government could make. Democrats in Congress are of course calling for more. The fact is, few investors are buying mortgage backed securities these days - so without Freddie and Fannie, there are very few investors to buy them. Without investors, banks won’t create loans. Without loans, the credit crunch continues.
Bottom line: it may help home prices, and it may help lenders – but it will surely be a bad deal for these two agencies. I wonder who will ultimately pay for the deals gone bad.
Dani
Federal Regulators Fannie Mae and Freddie Mac, the biggest buyers of home mortgages, are going to remove limits on the amount of loans and securities that they can own. This could help the housing market. (Source: The New York Times) This could help relieve the credit crunch in the long term though it is a risky move for the two mortgage giants.
According to the agencies that control these mortgage companies, they are making the change because the organizations began filing financial reports again after lapsing years ago. This is questionable and may be more related to the mortgage “crisis”. One still remaining limitation of course is that Fannie and Freddie still have to hold 30% more capital than they are required to by law, due to tumultuous times in the mortgage market.
Fannie Mae reported a 2 billion dollar loss for 2007, and is noting that home prices will further decline in 08. This is following a 4 billion dollar profit in 06.
In many ways, this means that large mortgage buyers will hold many loans – including potentially fatal loans. While this might help the home market, it isn’t the best financial investment the government could make. Democrats in Congress are of course calling for more. The fact is, few investors are buying mortgage backed securities these days - so without Freddie and Fannie, there are very few investors to buy them. Without investors, banks won’t create loans. Without loans, the credit crunch continues.
Bottom line: it may help home prices, and it may help lenders – but it will surely be a bad deal for these two agencies. I wonder who will ultimately pay for the deals gone bad.
Dani
Wednesday, February 20, 2008
How to Recession Proof Your Life!
In today’s turbulent economic times, we can lose 2% of our 401k value in a day; 5% in 6 months in our homes; the instability requires a solid plan of action to recession proof your life!
About 40% of economists surveyed today believe a recession is likely in 2008. So what can you do to be prepared:
1) Secure any income. If you have income streams, document them and be sure they’re safe for the next few years.
2) Start getting your financial house in a database, literally. Use a money tool like Quicken or even Excel to help you keep track of things like mortgage balances and credit card debt. Sometimes seeing how much you are in debt can help curb spending, too.
3) Prioritize your debts. You get an $8000 tax return right? You owe $7500 on your car; so it would be nice to remove that payment! But what if you’re paying 6% on your car and 15% on your credit card? Even if the $8000 won’t make much of a difference in your balance, it will make a difference in how much of your money goes to interest each month. Pay the debt that has the highest interest rate first!
4) Transfer balances. Lots of us get the balance transfer offers from credit card companies and ignore them. This is easy to do. But, simply shifting money from one card to another, even if it buys you 6 months with no interest, can save thousands in a year.
5) Begin saving if you haven’t already. It’s very easy to feel insecure right now with fluctuating markets.
6) Take stock in your stocks. Figure out what is in your 401k. Don’t just put it in and forget about it. Look at the balances, re-balance your portfolio, and make sure you are invested wisely for the future. Most investment planners will have you invest based on when you intend to retire or when you need the money.
7) Look for all the tax incentives you can find! There are lots of ways to save money on taxes; 401ks, IRAs, and some not-so-common savings plans such as college funds and donations. Talk with a tax planner and save your money instead of giving it to Uncle Sam.
8) Have 6 months savings. In otherwords, if your bills cost you $3000 per month, you need a minimum of $18000 in liquid capital. This should be something secure, like a six or twelve month CD.
9) Finally, get spending under control. Throughout the early 2000s, many were using their homes as ATMs, feeling the market would continue to increase. We know how detrimental that can be! Figure out where your money goes by keeping track of it for 2-3 months. You will know what you can cut out, and where to save some extra money.
Is this a good time to buy a house? The answer is a resounding absolutely definitely YES!
Is this a good time to buy a house? The answer is a resounding absolutely definitely YES!
Here are the reasons – speaking as a consumer advocate/investor (I am looking for deals like crazy)
1. We always want to buy low/sell high in any investment, whether it is stocks or real estate. This is low! In some areas it’s a 20 year low.
2. Rates are dropping (finally). As rates continue to drop, those who qualify (tighter lending standards are a good thing... it means there’s a very good chance you will be able to afford the house you are approved for) will find it even less expensive to buy the house of their dreams.
3. Foreclosures, while bad for home values, are a great investment. Buying homes in pre foreclosure, saving the homeowner from a foreclosure on their credit record and getting a good deal.
4. The baby boomers that will be moving to Sun Belt states in the next 2 to 15 years will help the markets bounce back in these areas that were pummeled by low housing prices.
5. This is a good time to buy a short sale or REO property. The prices are low; the banks are really trying to keep foreclosures off of their books.
6. This can be a good alternative to stocks, particularly if you get positive cash flow.
7. Home builders are giving away upgrades; and in some areas nearly giving away the farm, too.
Now.. it is absolutely critical that people evaluate several areas before buying. Do your homework!
1. The overall trend in the area they’re buying in. Is it still going drastically downward? Is the national average a 4% loss and the loss in the area they want to buy 30%? A red flag.
2. Are there a lot of people in foreclosure in the area? Is the area in the top 50 metro areas? If so it’s a sign prices may drop further, and you should wait a bit longer before buying.
3. Is there high crime or low crime? Lower obviously is better. Higher crime leads to people moving away, and well.. criminals moving in.
4. Decent schools? This is always a good selling point if you need to get out quickly.
5. Can you afford it??? Don’t overbuy!
6. Finally.. are jobs moving TO or FROM the area? Moving from is a bad sign (e.g. the rust belt states.. Michigan, Ohio etc..) moving to? Round Rock/Austin Texas, Las Vegas.. good deals. Jobs will ultimately support the market!
With good decisions and proper research, it’s a FANTASTIC time to buy.
Dani Babb, PhD, MBA
Here are the reasons – speaking as a consumer advocate/investor (I am looking for deals like crazy)
1. We always want to buy low/sell high in any investment, whether it is stocks or real estate. This is low! In some areas it’s a 20 year low.
2. Rates are dropping (finally). As rates continue to drop, those who qualify (tighter lending standards are a good thing... it means there’s a very good chance you will be able to afford the house you are approved for) will find it even less expensive to buy the house of their dreams.
3. Foreclosures, while bad for home values, are a great investment. Buying homes in pre foreclosure, saving the homeowner from a foreclosure on their credit record and getting a good deal.
4. The baby boomers that will be moving to Sun Belt states in the next 2 to 15 years will help the markets bounce back in these areas that were pummeled by low housing prices.
5. This is a good time to buy a short sale or REO property. The prices are low; the banks are really trying to keep foreclosures off of their books.
6. This can be a good alternative to stocks, particularly if you get positive cash flow.
7. Home builders are giving away upgrades; and in some areas nearly giving away the farm, too.
Now.. it is absolutely critical that people evaluate several areas before buying. Do your homework!
1. The overall trend in the area they’re buying in. Is it still going drastically downward? Is the national average a 4% loss and the loss in the area they want to buy 30%? A red flag.
2. Are there a lot of people in foreclosure in the area? Is the area in the top 50 metro areas? If so it’s a sign prices may drop further, and you should wait a bit longer before buying.
3. Is there high crime or low crime? Lower obviously is better. Higher crime leads to people moving away, and well.. criminals moving in.
4. Decent schools? This is always a good selling point if you need to get out quickly.
5. Can you afford it??? Don’t overbuy!
6. Finally.. are jobs moving TO or FROM the area? Moving from is a bad sign (e.g. the rust belt states.. Michigan, Ohio etc..) moving to? Round Rock/Austin Texas, Las Vegas.. good deals. Jobs will ultimately support the market!
With good decisions and proper research, it’s a FANTASTIC time to buy.
Dani Babb, PhD, MBA
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