Florida Mortgage Fraud

According to CNNmoney.com Florida has the second highest rate of mortgage fraud in 2009 in the United States when compared with the rate of fraud expected. We actually were the mortgage fraud leader in 2006 and 2007. Leading the pack is Rhode Island, but from my observations Florida mortgage scam artists are fighting hard to climb back to the top and regain the title and associated glory.

What is fueling this illegal mortgage activity in Florida?

Mortgage money is getting harder and harder to come by in this depressed economic market. And whenever the going gets rough a certain segment of the population sees a golden opportunity to feed off of the misfortunes of others. If you think something is illegal, unethical or just plain wrong you’re probably right.

Think twice before you consider doing business with anyone that talks about “creative financing” or “stated income loans” or buying your short sale and selling it back to you later. Many such situations are an attempt at mortgage fraud and will land you directly in jail. This goes for home buyers, home sellers, Realtors and mortgage brokers. If it seems too good to be true it probably is.

What is Mortgage Fraud?

Mortgage Fraud is a crime punishable by law where potential buyers of homes or land attempt to deceive lenders by providing incorrect financial information or by blatantly omitting details which would cause banks to not lend them money.

Adjustable Rate Mortgages – A Guide to ARM Loans

by Brandon Cornett

Many home buyers choose the adjustable rate mortgage (ARM) in order to save money during the first few years of homeownership. But later, these same homeowners run into trouble when the adjustable rate mortgage adjusts (hence the name) to higher interest rates.

In many cases, such adjustments can greatly increase the size of the overall mortgage payment, which catches a lot of homeowners off guard. In this guide, we will examine the adjustable rate mortgage in more detail. After reading this guide, you will better understand the ARM loan and will be able to make wise decisions about such loans.

What Is an ARM?
As the name implies, an adjustable-rate mortgage differs from a fixed rate mortgage in the way it adjusts to a new interest rate at some future point in time. Fixed rate mortgage loans carry the same interest rate through the entire life of the loan. So the interest rate you would pay in Year 1 would be the same rate as years 5, 10, 15 … all the way through the end of the loan’s term. On the other hand, with an adjustable rate mortgage, the interest rate will change periodically. This can cause payments to go up or down, depending on the prevailing rate at the time of adjustment (and other factors).

In other words, an adjustable rate mortgage is a loan with an interest rate that changes at some point in the future. Most of the time, ARM loans start off with a lower monthly payment than a fixed rate mortgage. But keep the following points in mind:

- Unlike a fixed rate mortgage, the payments on an adjustable rate mortgage can change. This can increase the size of your mortgage, sometimes significantly.

- You cannot predict what the interest rates will do three or five years from now, when your ARM loan adjusts.

- It’s possible that you could eventually owe more money than you borrowed.
If you want to pay off your ARM early to avoid payment increases, many lenders will charge a penalty fee for it.

Shopping for an Adjustable Rate Mortgage
When shopping for a mortgage, it’s important to compare the rates and terms offered by different lenders. It’s like anything else in life — only by shopping around can you find the best deal. These days, comparing one adjustable rate mortgage to another can be confusing. That’s because you have to understand the concepts of index, margin, caps, payment options, etc. It is beyond the scope of this article to show comparison examples, data charts, etc. But you can get plenty of those from the Federal Reserve’s tutorial on ARM loans, available through the link below:

http://www.federalreserve.gov/pubs/arms/arms_english.htm

Primary Advantage of an ARM Loan
The biggest advantage of an adjustable rate mortgage is the lower initial interest rate. Most lenders charge lower initial rates for an ARM loan than they charge for fixed rate mortgages. And since the interest rate is a key ingredient of the mortgage payment, this would in turn lower the mortgage amount you have to pay each month. For many first-time home buyers, this can be a big selling point for the adjustable rate mortgage. But there is also a key disadvantage to these loans.

Primary Disadvantage of an ARM Loan
As we have discussed, the characteristic that makes an adjustable rate mortgage unique is that the interest rate adjusts periodically. When and how often the loan adjusts is something you will know in advance, because the lender is required by law to tell you those things. But the amount it adjusts will remain an unknown variable, because nobody can predict what interest rates will do in the future. This is the primary disadvantage of an adjustable rate mortgage, the uncertainty of interest rate changes / increases.

Key Ingredients of the Adjustable Rate Mortgage
To get an even better understanding of how the ARM loan works, you should understand the key ingredients of such a loan.

* Initial Rate – We have already discussed how an adjustable rate mortgage loan starts off with a relatively low interest rate in the beginning. This is known as the initial rate, and it will stay in place for a limited period of time — usually 1 to 5 years. But here’s the thing to remember. On most adjustable rate mortgages, the initial interest rate (and by extension the initial payment amount) can vary greatly from the rates and payments you would face later in the loan’s term.

* Adjustment Period – This is just what it sounds like, the period during which your adjustable rate mortgage adjusts to a new interest rate (and payment amount). Usually, the interest rate on an ARM loan will change every month, quarter, year, 3 years, or 5 years, with the latter options being the most common. A loan with an adjustment period of 1 year is called a 1-year ARM, which means the interest rate and payment can change once per year (after the initial period).

* Loan Descriptions – The law requires that mortgage lenders must give you written information on each type of ARM loan you are interested in. The information they provide must explain the term / conditions for each adjustable rate mortgage, as well as details about the index and margin (which determine the interest rate), how your rate will be determined, how often the rate will change, caps (or limits) on rate changes, plus an example of how high your monthly mortgage payment might go based on adjustments.

* Interest Rate Caps – Interest-rate caps are an important concept in the world of adjustable rate mortgage loans. A cap is just what it sounds like … a limit on the amount your interest rate can increase. Interest rate caps come in two versions: 1. Periodic adjustment caps limit how much the interest rate can go up or down from one adjustment to the next (after the first adjustment). 2. Lifetime caps limit the interest-rate increase over the life of the loan. Lifetime caps are required by law, so you’ll find them on nearly all adjustable rate mortgage loans.

* Payment Caps – Many ARM loans also cap (or limit) the amount your monthly payment can increase at the time of each adjustment. So if your adjustable rate mortgage loan had a payment cap of 8%, your monthly payment would not increase more than 8% over your previous payment amount. Be Careful Choosing an ARM Loan

Avoiding Payment Shock
In your financial planning, the biggest thing you want to avoid is payment shock. Payment shock is what happens when your mortgage payment rises steeply during a rate adjustment. For example, let’s say you took out an adjustable rate mortgage for a $200,000 loan. During the first year of an ARM, you’ll usually enjoy a very low interest rate. That’s the primary benefit. So let’s say you start out with a 4% interest rate that later goes up to a 7% interest rate (after the second year). During the first two years, the mortgage payments would be somewhere in the neighborhood of $950 per month. But after the adjustment at year two, those payments would go up to more than $1,300. That’s a big difference.

Percentage points may not seem like much by themselves. But when you plug them into a mortgage calculator, you can see how significant they really are. So if you are considering an adjustable rate mortgage, just be wise about it and think long-term. If you plan to stay in the home and hold the loan for many years, make sure you have a plan for when the rate adjusts. Or make sure you can handle a significantly larger mortgage payment.

Conclusion
Here’s what we want you to take away from this lesson. Adjustable rate mortgages offer benefits up front (during the initial period) in the form of lower interest rates. But they are full of uncertainty later on, and this can lead to unpleasant financial surprises. If you understand this concept, and you plan to sell the home a few years down the road, an ARM loan might be a good option for you.

But if you’re not comfortable with the uncertainty of rate and payment adjustments, or if you plan to stay in the home (and hold the mortgage) for many years, an ARM loan might be a bad idea.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

5 Tips for Homebuyers Seeking a Mortgage

Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.

“Borrowers are going to have to prove they are the borrower they say they are,” says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.

Gumbinger says homebuyers should consider these things before they apply for a loan.

1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.

2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: “A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”

3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.

4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.

5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.

Source: Chicago Tribune, Mary Umberger (02/15/09)

The Reverse Mortgage Loan Explained

If you are a senior citizen over the age of 60, and you own a home, I’m willing to bet you’ve been hearing about reverse mortgage loans lately. But why is this lending option so popular among seniors lately, and how does it work anyway? Let’s take a look.

What is a Reverse Mortgage Anyway?

It’s a type of loan that is made against that value of your home. In this way, it’s similar to a home equity loan. But the similarities end there. With a reverse mortgage, the borrower does not have to pay the loan back for as long as they live in the home. So in essence, it’s a way for senior citizens to convert the value of their homes into cash, and without having to repay it right away.

This unique lending option is typically aimed at senior citizens who own their own homes. In fact, the HUD reverse mortgage program (one of the first of its kind) actually has a strict age requirement — applicants must be at least 62 years old for this federally insured program.

As of this writing, the HUD program is one of the most popular. In addition to being 62 or older, applicants for a HUD reverse mortgage must either own the home outright or have a low mortgage balance that can be paid off at closing (with part of the proceeds from the loan).

How Much Can I Borrow?

Here again, the amount will differ from one lender to the next. But in general, the amount you can borrow on this type of mortgage will depend on several factors:

1. Your age
2. The current interest rates
3. The appraised value of your home

This means that people who are older, who have more valuable homes, and who borrow when rates are lower will qualify for a higher amount (generally speaking, of course).

When Do I Pay It Back?

First, keep in mind that the exact details of a reverse mortgage will vary from one lending institution to the next. In most cases, you do not have to pay anything back until (A) you die, (B) you sell the home, or (C) your move out of the home.

In other words, the loan will have to be paid back when the home is no longer your primary residence, for whatever reason. When one of these conditions has occurred, and the loan repayment is due, you (or your estate) will have to repay the amount borrowed plus any lending fees.

Increasingly Popular Among Senior Citizens

The number of reverse mortgages has been rising steadily over the last few years. One reason for this is that there’s a larger pool of potential borrowers each year, because the number of seniors 62 and older is increasing (better medical treatment, better health, etc.). Another reason for the growing popularity has to do with good old-fashioned marketing. The lenders that offer these programs have been pretty active in their marketing efforts lately.

As a result of these and other factors, the number of seniors pursuing this lending option has increased significantly over the last few years. For example, from 2005 – 2006 there was a 56% increase in the number of reverse mortgages granted to senior citizens in the United States.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting http://www.homebuyinginstitute.com

Getting Mortgage Quotes Online – Safely and Smartly

by Brandon Cornett

The Internet has changed nearly every aspect of the real estate process, and that includes the way we research, compare and apply for mortgage loans. These days, you can use the Internet to save time and energy when shopping for home financing. But there’s a right way and a wrong way to go about it.

In this article, I’ll explain the process of obtaining quotes from lenders via the Web, and how to do it safely and smartly.

Unbiased Advice for Consumers

It’s customary to withhold the author’s bio until the end of an article. But I feel it’s necessary to share something about myself at this point. Many of the mortgage advice articles you find online these days were written by the lenders themselves (or ghost-written on their behalf). But these authors are clearly biased when it comes to this subject. They want to sell mortgage loans — it’s what they do for a living. So their articles are written to educate readers toward a certain product or service.

On the contrary, I am not selling mortgages. I publish a consumer-oriented website full of helpful, unbiased information on this subject. So the purpose of this article is not to educate you toward a certain product or service, but merely to educate you.

The Benefits of Online Quoting

Let’s talk for a moment about the benefits of getting home loan quotes via the Web. The first and most obvious advantage is convenience. Before lending institutions embraced the Internet, you had to spend a lot of time on the phone in order to get multiple quotes. Or even worse, you had to drive around town to local branches and offices.

Using the Internet, however, you can fill out a simple form on a mortgage “aggregator” website and get offers from several lenders in response. This is a big time-saver, and it makes life a lot easier. But it’s not the only benefit of using the Web.

You also have access to a wider variety of mortgage products when you use the Internet to obtain quotes. Some lenders specialize in a certain type of home loan, while others offer a broader range of packages and terms. The Internet opens all of these possibilities up to you. As a direct result, you are more likely to find a mortgage product that matches your financial needs.

Being Smart About the Process

Anytime you conduct financial business online, you have to be smart and cautious in order to protect your identity. That applies to getting loan quotes as well. So let’s talk about the ways you can be a smart consumer when shopping for mortgage offers via the Web.

- Use Trusted Websites – The big names you see on TV all the time (Lending Tree, Ditech, Eloan, etc.) are usually your best option, in terms of security and trustworthiness. These companies have a lot at stake, so they take things like Internet security very seriously. In other words, stay away from “Joe’s Mortgage Emporium” and other questionable websites.

- Learn Your Credit Score – When you request quotes from multiple lenders, they will present you with some basic information. After all, they can’t fully qualify you for a loan or determine the interest rate until they conduct a more formal review of your credit and financial history. So if you know your credit score in advance (and whether you are at, below, or above the average), you’ll be able to determine how realistic those quotes are.

- Determine Your Own Budget – Don’t let a mortgage company suggest what you can or cannot afford, in terms of a monthly payment. You have to determine that for yourself. A lender can only tell you how much of a loan they’ll offer you — not how much you can realistically afford. So use mortgage calculators and other budgeting tools to find out what your limits are with regard to monthly payments.

Conclusion and Summary

The Internet can certainly save you a lot of time when shopping for a home loan. It can also open up a wider range of mortgage products and terms. But like any other financial process, you have to be smart about getting quotes online. Stick with reputable companies and websites. Conduct a financial self-assessment of your own. A little homework goes a long way.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting http://www.homebuyinginstitute.com

Home Equity Loans – 3 Common Scams to Avoid

Home equity loans remain one of the most popular financing tools among homeowners. It can give you quick access to cash by leveraging the equity (or ownership) you have in your home. It can be an effective way to finance a home renovation, education costs, or even a second home.

But home equity loans also get a lot of homeowners into trouble each year, and in the worst-case scenarios they can even result in foreclosure and loss of the home. On top of that, there are some common scams associated with equity loans and lines of credit. The Federal Trade Commission (FTC) is constantly tracking the latest scams and warning homeowners about them. Here’s a summary of some of the more common scenarios you should watch out for…

1. Equity Stripping

In this scenario, the lender will actually help you “pad” your stated income on the loan application form in order to qualify you for the loan. “Why would they do such a thing?” you might ask. Predatory lenders use this tactic because they don’t care about your actual ability to make the payments — they will simply foreclose on your house and benefit from the equity you’ve built up over the years.

If your income is outside of certain parameters, but the lender says “we can make that work,” you should already be on your guard. That’s red flag #1. If they try to persuade you that you can make payments that seem out of reach, you have another warning sign. You’re the only person who should be making decisions about your ability to pay back a home equity loan!

2. The Helpful Contractor Scam

This scenario usually starts with a home improvement contractor (such as a roofer) who knocks on the door of homeowners to offer their services. Many of the homeowners will say, “Sorry, but that kind of project is not in our budget right now.” The contractor will counter this by saying he works with a lender who can help offset the cost. Long story short — the homeowner signs some papers that turn out to be a home equity loan.

This scam is not as common as it once was. But it still happens on a regular basis all across America, so it’s worth mentioning in our list. Unfortunately, as with many scams, the elderly are often the target with this approach.

The first thing you need to realize is that a reputable contractor will rarely practice door-to-door marketing. That’s the first red flag. Additionally, a contractor should never refer you to a third-party lender — it’s a conflict of interest. That’s the second red flag.

3. Loan “Stacking” or Flipping

I refer to this scam as “loan stacking,” because that’s what takes place. The more common term for it is “loan flipping.” Regardless of what you call it, the scenario goes like this. The lender will offer the homeowner a second equity loan after the homeowner has already received a first one (and made a few payments on it). Basically, the lender refinances the initial loan to grant the homeowner additional money.

In some cases, this will happen more than once. And with each new round of financing, the rates typically get higher and the fees larger. The borrower now has even more money to use for whatever prompted the first equity loan — but they also have a lot more debt spread out over a longer period of time. Homeowners who fall prey to this scam often get in over their heads with all the fees that stack up on them. It’s a good way to lose your home.

Fortunately, They’re Not All Sharks

I don’t mean to scare you away from the home equity loan as a source of financing. On the contrary, it can be a useful tool for a responsible borrower, and there are plenty of reputable lenders that will offer you fair terms and treatment. I’m simply trying to warn you about the common scams that go along with these types of loans.

My advice is to use a lender you’ve heard of before, a company who has been around for a long time and has a reputation at stake. Be a smart consumer when pursuing such a program. Do plenty of research and let common sense guide you.

About the Author: Brandon Cornett is the creator of the Home Buying Institute, an educational website that offers advice to home buyers and homeowner alike. To learn more about home equity loans and other mortgage topics, visit the Institute online at www.homebuyinginstitute.com

How to Buy a Home With a Low Down Payment

It’s no surprise that so many Americans are looking for ways to buy a home with a low down payment.

After all, with so many other costs associated with a home purchase — like closing costs, furniture, moving expenses, etc. — coming up with a large down payment isn’t always an option. So the idea of buying a home with a low down payment can be very appealing to many buyers, especially first time home buyers.

Many people mistakenly believe that a down payment of at least 20 percent is required in all mortgage scenarios. This is the way things were for a long time. But these days, there are more flexible loan programs and terms available to home buyers. In fact, some mortgage lenders will extend loans to qualified buyers with a down payment as low as 5 percent of the purchase price.

Generally, a mortgage loan with a down payment of less than 20 percent is referred to as a low down payment mortgage loan.

But like all things in life (and in home buying), there are special conditions to buying a home with a low down payment. For instance, many mortgage lenders who grant loans with such a low down payment usually require that the loan be insured in some way. This insurance is aptly called mortgage insurance.

Mortgage Insurance for a Low Down Payment
Mortgage insurance is just what it sounds like — insurance on a home mortgage loan. This type of insurance protects the lender financially in the event that a homeowner defaults (ceases to make payments) on the mortgage.

Mortgage lenders usually require mortgage insurance on loans with a down payment of 20 percent or less. In other words, some form of mortgage insurance is almost always required for a low down payment mortgage. The home buyer is usually required to pay the cost of this mortgage insurance.

Two Types of Mortgage Insurance – Government and Private
Let’s recap what we have covered so far. We know that it’s possible to buy a home with a low down payment, and that a 20 percent down payment is not always necessary. We also said that most lenders who offer mortgages with a low down payment (below 20 percent) will also require some form of mortgage insurance. Thus, buying a home with a low down payment almost always requires mortgage insurance.

With that straight, let’s talk about the two types of mortgage insurance — governmental and private.

Government Mortgage Insurance
Government-backed mortgages are usually insured by one of three federal organizations. These mortgages are either insured by (A) the Federal Housing Administration, or FHA; (B) the Department of Veterans Affairs, or VA; or (C) the Department of Agriculture’s Rural Housing Service, or RHS.

Each of these agencies has its own criteria for the types of loans they will ensure. For example, the VA Home Loan program only applies to military veterans or their spouses, and RHS loans are usually reserved for people in rural areas.

The FHA requires a minimum down payment of 3 percent. They also limit the loan amount that they’re willing to ensure based on geographic area.

So this is governmental path to buying a home with a low down payment. When you obtain a mortgage loan backed by one of the federal organizations listed above, you can make a down payment less than the traditional 20 percent.

Private Mortgage Insurance
In addition to the three governmental options above, there are also private companies willing to insure mortgage loans. This too can be a path to home buying with a lower down payment. Private mortgage insurance is aptly referred to as PMI. Private mortgage insurance is available to a much wider audience than the governmental options listed above. For instance, there are no restrictions regarding military service or rural residence.

Private mortgage insurance, or PMI, is available on a wide variety of low down payment home loans and there is no pre-determined limit on the loan amount (as there usually is with the government-backed mortgage loans).

Conclusion
These days, it is certainly possible to buy a home with a low down payment. In this context, “low” refers to a down payment of less than 20 percent. These types of home loans require some form of mortgage insurance, either government insurance or private mortgage insurance (PMI). Here are some resources to help you learn more about home buying with low money down.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting
www.homebuyinginstitute.com

Should I Refinance My Mortgage Loan Now?

by Brandon Cornett

You’ve probably heard a lot about mortgage refinancing on the news lately. In fact, if you’re a homeowner you’ve probably received a few offers in the mail from lenders as well.

The reason you hear so much about this topic lately has a lot to do with the mortgage / foreclosure crisis we are seeing right now. Many homeowners are in situations similar to those they have heard about on the news, having an adjustable rate mortgage set to adjust in the near future … and facing a possible spike in mortgage payments as a result. So, these homeowners naturally look into refinancing as a way to avoid such payment hikes.

The question is — when should you refinance your mortgage loan, and when should you avoid it? This question is high on the list of many homeowners, so I will do my best to shed some light on the subject.

When Refinancing Makes Sense

There are some general rules you can use to determine whether or not a refi makes sense for your situation. Bear in mind, however, that these are just general rules of thumb. So don’t make any financial decisions based on these “rules” alone. Do some further research into the subject and seek the advice of a financial professional.

With that being said, here’s a basic guide on when to refinance a home loan, from a financial standpoint:

Switching from an ARM to a fixed rate – This is a common reason why homeowners pursue a refi in the first place, especially with all the negative press the adjustable rate mortgage (ARM) loan has been getting lately. Eventually, an ARM will adjust to a higher interest rate that catches a lot of homeowners off guard. So many people use refinancing as a way to move to a more predictable fixed-rate mortgage.

Capitalizing on Lower Interest Rates — This is another common reason why people refinance their home loans. When the rates are low, homeowners in certain situations can refi to a lower interest rate, and thus reduce their overall monthly mortgage payment.

The goal of both of these strategies is the same … to either (A) lower the interest rate on the loan, or (B) prevent the interest rate from rising through a mortgage adjustment. In both cases, the goal is to pay less money each month on the mortgage payment.

It’s Not Always a Good Idea

Now is a good time to point out that a mortgage refi is not always a good idea. And I can illustrate this through another rule of thumb: If the money you pay to refinance the loan (closing costs) exceeds the amount of money you save over the term of the new loan (lower interest rates), then it doesn’t make sense to pursue it. After all, nobody wants to pay more than they save in a financial transaction.

The key here is to do the proper research to find out what you would pay, as well as what you would save by refinancing. Once you’ve determined those numbers, you will have a much easier time deciding if a refi is right for you.

About the Author: Brandon Cornett publishes a blog about refinancing success as well as several other real estate websites. Visit the author online at http://www.mortgage-refinance-advice.com/blog

FHA Home Loans to the Rescue – Help for Homeowners

by Brandon Cornett

You can’t turn on the TV these days without seeing a news story about the U.S. economy in general and the housing market in particular. Starting in 2007, we began to see record numbers of home foreclosures, a trend that continued into 2008 (and one that shows no sign of slowing).

But for many homeowners, help is on the horizon. And it comes in the form of FHA refinance loans. Let’s take a closer look at this new program and what it promises to do.

Housing and Economic Recovery Act

The recently passed Housing and Economic Recovery Act of 2008 will help “at least 400,000 families” who are struggling with their mortgage payments and facing foreclosure. It will do this by providing FHA-insured refinance loans to switch the homeowners from high-rate ARM loans to lower fixed-rate mortgages. For those accepted into the program, the end result will be a lower monthly payment and more desirable fixed rate that will no longer adjust / increase.

History of the FHA

The Federal Housing Administration was created in 1934, during the Great Depression, to make home financing available to a greater number of Americans. The FHA does not actually make home loans to consumers. Instead, they insure certain loans made by private lending institutions.

You’ve probably heard the term “government-backed financing” before. The FHA program is an example of this. By having government insurance in their favor, private lenders are more willing to offer mortgages to borrowers they normally wouldn’t qualify (due to credit problems or other qualification issues). The lender is assured of getting their money back on the loan, even if the homeowner defaults and stops making payments. That’s what the FHA insurance does.

The Refinancing Angle

Traditionally, the FHA program was focused on helping buyers in the purchase of a home. But as a result of the aforementioned Housing and Economic Recovery Act, the program is being opened up to homeowners who want to refinance. According to the HUD website, “an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages.” The program is slated to begin in October of 2008. To find out if you are eligible, visit the HUD website or refer to the Home Buying Institute resources mentioned at the end of this article.

Getting Away from ARM Loans

The goal of this new program is two-fold. It is designed to help struggling homeowners who have adjustable-rate mortgages (ARMs) convert to fixed rates. It’s also designed to lower their mortgage rates in the process. Lower rates and less uncertainty — a double win.

About the Author: Brandon Cornett is the publisher of Home Buying Institute, a website that offers advice for home buyers and mortgage shoppers. To learn more about FHA loan program or related topics, visit the Institute at www.homebuyinginstitute.com

Credit and Home Buying – Like Peas and Carrots

by Brandon Cornett

In the classic film Forrest Gump, Tom Hank’s character said that “Jenny and me was like peas and carrots,” referring to how inseparable they were when growing up in Greenbow, Alabama.

Borrowing that analogy from Forrest, home buying and credit scores are like peas and carrots too. The two concepts are inseparable, so anyone planning to buy a home in the near future must understand the importance of credit.

The Credit and Mortgage Connection

For most people, purchasing a home means taking out a mortgage loan to pay for it. Unless, of course, you’ve just inherited a fortune from Uncle Ernie, won the lottery, or invested in Apple Computers stock back in the 1980′s. If you fall into one of those categories, count yourself lucky.

But for the rest of us “average folks,” buying a new home is only possible through the use of a mortgage loan. And this is where credit comes into the picture.

To obtain a home loan, you must have a credit history behind you (and ideally a good one). Lenders will review your financial background to “weigh” you in terms of risk:

- If you have a history of being financially responsible, then you’ll have a higher credit score and will be more likely to get a good interest rate on your home loan. You are a low-risk borrower for the lender.

- On the other hand, if you have a history of missing bill payments, carrying too much debt, or similar examples of bad financial management, you will have a lower credit score. In this scenario, it will be harder to obtain a loan for home buying purposes, and even if you do you’ll pay a higher interest rate on the loan.

The two points outlined above have always been true. But good credit is even more important for home buyers today, due to tighter regulations on the lending industry. So let’s talk about the things you can do to maintain a higher score:

Credit Score Needed to Buy a Home

What kind of score do you need for home buying in today’s economy? Well, this will partly depend on the lender you choose. But suffice to say that a better score will certainly make your home buying process a lot easier. Not only will you have an easier time qualifying for a loan, but you’ll also qualify for a better interest rate on that loan. This translates into money saved each month!

The average credit score in the United States currently falls between 650 and 700, depending on whom you ask. Higher is always better. According to experts, a score of 720 or above is ideal for home buying purposes because it will ensure that (A) you get qualified for a mortgage loan in the first place and (B) you get a good interest rate on the loan.

Carrots and Peas … Like Never Before

Good credit is more important for home buyers today than it was in the past. That’s because in the past, there were plenty of subprime lenders willing to offer home loans to borrowers with bad credit scores. Of course, they would charge them astronomically high interest rates on the loans, which is partly what led to the mortgage crisis of 2007 – 2008.

As a direct result of that crisis, there are very few subprime lenders around anymore. That particular business model is simply not viable anymore. So while there were plenty of subprime (bad credit) mortgages in the past, they simply aren’t around anymore.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

Tips for Getting the Best Mortgage Rate

by Brandon Cornett

As a home buyer, it only makes sense to try and obtain the lowest interest rate when applying for a mortgage. After all, that rate is a primary component of the mortgage payment, so it has a direct bearing on the amount of money you’ll pay each month.

But how do you get a low rate when applying for a home loan? This is the question many home buyers want to know. So in this article, I’ll explain three important concepts you should keep in mind when seeking the best rates from mortgage lenders.

Concept #1 – Your Credit Score Plays a Role

The first thing to realize is that the interest rate you are offered will be partly determined by your credit score and financial history. In other words, the best mortgage terms are usually reserved for those home buyers with the best credit scores.

What does this mean to you when buying a home and applying for a loan? It means that your credit score will often dictate the type of interest rates you are offered. So if you have a bad credit history, and your score illustrates this to the lender, then there’s little chance you’ll be getting the best interest rate. If this is the case, you should focus on improving your credit score before you go shopping for a mortgage online.

Concept #2 – The Mortgage Type Makes a Difference

The type of home loan you select also plays a role in determining the interest rate you receive. So it’s important for home buyers to understand this concept as well. For example, an adjustable rate mortgage (ARM) loan will generally come with a lower interest rate than a fixed-rate loan — but that is only for the first few years. Of course, the rate on an ARM loan will also adjust at some predetermined point in the future, and typically this adjustment means a higher interest rate! That’s another thing to keep in mind when mortgage shopping.

Concept #3 – You Must Compare Lenders on Key Factors

There is one last thing I want to touch on, and that is the need to shop around in order to get the most favorable rates from a lender. Shopping for a loan is just like shopping for anything else — you have to compare multiple lenders in order to find one that offers the best rates and terms on the loan.

Many buyers don’t realize that ten different lenders may offer you ten slightly different mortgages. The interest rate will vary, the terms will vary, the closings costs will vary … you get the idea. And these make a big difference in the amount of money you pay over the long haul. That is why it’s so important to compare lenders and to carefully review the information they present to you, ideally with a financial advisor of some kind (or at least someone who is mortgage-savvy).

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

How to Be a Real Estate Statistic – The Good Kind

2007 was a year of record-breaking real estate statistics in the United States. Unfortunately, most of those stats were bad. Just ask the hundreds of thousands of homeowners who faced foreclosure last year!

On the up side, there is a lot you can do to prevent this kind of real estate misery, and to avoid becoming a negative real estate statistic. Education goes a long way in this regard, and that’s why I continue to publish articles like this.

So with that said, here are five ways to be a good real estate statistic in 2008, instead of a negative one:

1. Understand and Guard Your Credit

Good credit has always been important for home buyers who are shopping for a mortgage loan. But it will be even more important this year, and for the foreseeable future. Last year’s subprime mortgage crisis has led to tougher regulation of the lending industry. As a result, most lenders (those that are regulated anyway) will be paying closer attention to the credit scores of borrowers.

So your first step is to understand the importance of credit in the real estate world. Your next step should be ordering a copy of your credit report so you’ll know where you stand, compared to the average consumer in this country. You should also check your credit reports for errors and work to get them corrected if need be.

You are entitled to one free credit report per year, from all three of the credit-reporting companies. There are several websites you can use (including my own) to request all three reports at once, which is certainly the convenient way to do things.

Also, if your credit score is low — lower than average, this is — you should work on improving it. You can do this by paying down your debt, paying all of you bills on time, and being financially responsible in general.

2. Don’t Buy Over Your Head

Many of the negative real estate statistics from 2007 were people who bought more home than they could rightfully afford. Of course, some of the lenders were to blame as well, mainly for offering ARM loans with low teaser rates during the introductory period, and glossing over the potential rise in monthly payments that would ensue.

Here’s the bottom line. If you can’t afford a home, you just can’t afford a home. Instead of pursuing dangerously “creative” financing methods to purchase that new home, focus on improving your financial situation first. Reduce your debt. Save up some cash. Try to increase your income, if at all possible. You might even relocate to an area where the housing costs are more within your reach. Heck, that’s the main reason I moved from San Diego to Austin!

Avoid buying beyond your financial means. It never ends well, and you will likely end up as a bad real estate statistic instead of a good one!

3. Choose Your Mortgage Type Carefully

In the previous point, I talked about the perils of the adjustable rate mortgage (ARM) loan, for people who don’t truly understand the ARM.

Don’t get me wrong … an adjustable-rate mortgage can be a good idea, mainly if you have plans to sell or refinance the home within a few years. In that case, you could save yourself some money by paying lower interest rates in the short term.

Here’s the key to success when choosing a type of mortgage loan. First of all, you have to understand the pros and cons of the different mortgage types. Secondly, you have to be realistic about your future plans. If you’ll be staying in the home for many years, you might be better off with a fixed-rate mortgage that can weather the financial storms of the future without being affected by them.

Research the different types of mortgage loans, and then match your loan to your home-buying situation and future plans.

4. Don’t Trust Lenders … Or the Government

Here’s a real “shocker.” Mortgage lenders are in the business of lending money to people, and making a profit while doing so. Surprised by this? I told you it was a revelation! Mortgage lenders will do everything they can to get somebody to borrow from them, as long as they don’t get burned in the short term.

So you really can’t trust a lender to tell you what you can and cannot afford to pay each month. The only thing a lender can tell you with certainty is whether or not you’re qualified for the mortgage … not whether or not you can realistically afford it. And if they sell the loan to the secondary market after granting it to you, then they don’t really have to worry about your financial woes down the road.

But what about the government? Surely they are looking out for home buyers, right? Well, not always. You see, there are these people called lobbyists, and many of them represent the lending industry. They make big contributions to certain political campaigns (like Schwarzenegger and Bush, to name only two) in order to influence regulations — or the lack of regulations — on the lending industry as a whole.

So don’t expect the government to come riding to your rescue if you get in over your head with a mortgage loan. You must be a smart consumer, an educated consumer, and a self-reliant consumer.

5. Be Proactive in Times of Trouble

Even if you adhere to the other four guidelines on this list, but you still find yourself in trouble, you should be proactive about finding a solution. In other words, don’t procrastinate.

Here’s an example of what I mean.

Let’s say you buy a new home and take on a mortgage loan to pay for it. Everything is fine for the first two or three years, but then you run into some unexpected hospital bills and other expenses. So you get behind on your mortgage payments. But you fully expect to be back on track in a few months.

Here’s where it pays to be proactive. If you contact your mortgage lender and explain that your financial problems are only temporary, they probably have ways to help you out.

Generally speaking, mortgage lenders want to avoid foreclosure as much as the homeowner does. After all, they are in the business of loaning money, not managing and selling properties. That’s why most lenders will work with homeowners to come up with a solution to temporary setbacks. Some lenders have tools at their disposal to help in such cases, such as repayment plans and lump-sum reinstatements. But you won’t know about them unless you’re proactive about it.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

Behind on your mortgage? Modify or Sell!

Plenty of borrowers think it wise to avoid calls from their lender when they start to fall behind on their monthly mortgage payments. Nothing could be further from the truth and this decision could very well be laying the foundation for an eventual foreclosure. It makes much more sense to have those conversations, explain your position, and then see what sort of resolution your bank offers.

Many home owners that are in trouble with their mortgages don’t even realize how common their situation is today. If they only knew how many other people are in the same boat they might not feel so embarrassed and might actually have a chance of solving the problem.

Be proactive. Call your lender.

Give your bank a call or visit their Internet home page. You might be surprised how many lenders have solutions right on the home page. This should tell you that financial troubles are obviously quite common in 2008 and 2009. Why else would lenders place links right on the home page offering loan modifications and short sale assistance?

What is a loan modification?

A loan modification is simply where your bank adjusts the terms of your loan to make it more affordable to you, the borrower. Most loan modifications involve a simple adjustment of the interest rate on your existing loan from a higher rate to a lower rate, but the loan modification doesn’t address an even bigger concern. If you owe $180,000 and your home is now only worth $90,000 a loan modification isn’t going to help with this $90,000 difference. Sure, it will lower your monthly payments, but the $90,000 difference will stay with you for years and years while the market continues to decline, eventually stabilizes, and then finally climbs slowly back to the $180,000 price level. A short sale might make more sense.

If dealing with your bank scares the heck out of you contact a qualified Realtor to handle the short sale process. And a short sale might be your best option. A short sale is where you sell your home for less than you owe the bank – with your banks approval, naturally. It is a tricky, complicated and stressful experience for most borrowers so hiring a Realtor makes sense.

Wachovia Loss Mitigation Contact Information

Here is the current contact information for the Wachovia Loss Mitigation department. Please feel free to leave your comments and questions about the Wachovia Bank short sale process. Keep in mind I am a Florida Realtor and not an employee of Wachovia. I cannot help you with your short sale unless you are located in Florida and are interested in hiring me to list your home. I don’t work as a short sale consultant. This page is here for your benefit and I will try to answer questions as they arise, but don’t post personal information here thinking I will be able to help you negotiate your Wachovia short sale. Call the Wachovia Loss Mitigation contact information below if you need to sell your home short.

Wachovia Corporation
(866) 642-8608
8:00 a.m.-5:30 p.m. Monday-Thursday
8:30 a.m.-4:00 p.m. Friday

Low-Income Home Buying Programs Explained

What are low-income home buying programs, and how do they help home buyers?

I get this question a lot, especially from first-time home buyers. So here’s an overview of low-income home buying programs, how they work, and where you can learn more.

Generally speaking, a low-income home buying program is any program that’s designed to help home buyers who may not otherwise qualify for a mortgage loan.

Normally, when you talk about such programs, you’re talking about a loan that gets some form of government backing. In other words, the government backs or guarantees a loan on behalf of the home buyer who is applying for the loan. This is the essence of how most low-income home buying programs work.

When the government backs a loan for a slightly unqualified borrower, mortgage lenders will be more inclined to loan money to that borrower. The lender is comfortable doing this, because in the event that the borrower defaults on the loan, the government has agreed to back it, so the lender would still be paid.

Fannie Mae
Fannie Mae is a shortened version of Federal National Mortgage Association (FNMA). Congress created this organization in 1938. According to their website, Fannie Mae “provides financial products and services that make it possible for low-, moderate-, and middle-income families to buy homes of their own.”

Learn more at www.FannieMae.com

Freddie Mac
Freddie Mac is a shortened version of Federal Home Loan Mortgage Corporation. Congress chartered this organization in 1970. Freddie Mac supports the secondary mortgage market by purchasing residential mortgage loans and reselling them to investors (mostly on Wall Street). This increases the availability and affordability of home loans for low- and middle-income Americans.

Learn more at www.FreddieMac.com

As a home buyer, you wouldn’t normally deal directly with an organization like Freddie Mac or Fannie Mae, but they do have a role in the low-income home buying process.

Federal Housing Authority
The Federal Housing Authority (FHA) also supports low-income home buying in the U.S. This organization was created as part of The National Housing Act of 1934. The FHA insures mortgages, which helps low-income home buyers qualify for mortgage loans they might not otherwise qualify for.

Learn more at www.FHA.gov

Rural Housing Authority
The Rural Housing Authority (RHA) can assist low-income home buyers in certain situations. The RHA is part of the United States Department of Agriculture (USDA). Unlike the organizations listed above, the RHA actually makes direct loans to home buyers. They also guarantee loans for home buyers in rural areas.

Learn more at www.rurdev.usda.gov/rhs

Veteran’s Administration Home Loans
The Veteran’s Administration (VA) helps home buyers by guaranteeing loans made by mortgage lenders. The VA does not actually make direct loans. The VA home loan program is reserved for U.S. military veterans and their spouses. To apply to this program, one must first obtain a Certificate of Eligibility from the VA. The home buyer would then present this certificate to their mortgage lender.

Learn more at www.homeloans.va.gov

State-Sponsored Programs
In addition to the federal programs listed above, there are many programs unique to certain states. For instance, the Michigan State Housing Development Authority “makes low interest mortgage loans available through [their] network of experienced lenders.” Most other states have similar programs, in one form or another.

State programs are too numerous to list on this page. To learn more about them, searching online for home buying programs in your state.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

Buying a House in the New Economy – Advice For Buyers

by Brandon Cornett

Jean Chatzky, the financial editor for the Today Show, was on TV recently to talk to consumers about their credit scores. She confirmed something I already knew, but backed it up with some eye-opening numbers.

Specifically, Jean was explaining the credit score you need to qualify for the best mortgage rates when buying a home. Here is how she broke it down:

* May 2006 – Borrowers needed a credit score of 620 to get the best rates.

* May 2008 – Borrowers needed a 760 or above to get the best rates.

That’s an increase of 140 points, which is a significant difference when you consider that the overall credit range only goes from 300 – 850.

Recent Economic Changes

Credit has always been important when buying a house and applying for a mortgage loan, but today it’s more important than ever. To fully understand the reasons for this, we need to look back over recent economic changes.

The subprime mortgage “meltdown” that started in 2007 caused widespread economic changes that we are still seeing today in 2008. Many lending institutions went out of business, and thousands of Americans lost their homes due to foreclosure. This caused a general tightening of credit that affected consumers and businesses alike.

What It Means for Home Buying

If you are planning to buy a home in the near future, this has everything to do with you. As a result of these and other factors, the process of buying a house in today’s market is more challenging. As I’ve already stated, you will need a higher credit score for home buying today than in the past, especially if you want to quality for the best rates on your loan.

Additionally, buyers with bad credit have fewer options today, because the subprime mortgage is practically extinct. This makes financial responsibility all the more important for buyers in the modern economy.

So what credit score is needed for home buying in today’s economy? Well, this will still depend on the individual mortgage lender involved and their particular lending practices. But it’s important to realize that there’s a big difference between qualifying for a mortgage loan and getting a good rate on the loan. For example, you might get approved for a mortgage with a credit score of 580. But you certainly won’t get the best rate at that level. This means you will pay more each month as long as you keep the loan.

According to the figures presented by Jean Chatzky, a couple of years ago you could have elevated your score by just 40 points to qualify for the best interest rates — i.e., you would boost it from a 580 to a 620. Today, however, you would have to increase your credit level by 180 points (from 580 to 760) to qualify for the best rates. That’s a huge difference!

My Advice to Buyers

The home buyers of today need better credit than the buyers of, say, three or four years ago. The federal government is putting more pressure on lenders. The mortgage lenders are scrutinizing borrowers. And borrowers are under increased pressure to have good credit scores to qualify for loans.

All of this is unlikely to change anytime soon. So if you fall into the bad credit range, my advice to you is this:

Do not buy a home until you get your financial “house” in order. Even if you do get qualified with a low score, you are going to pay a huge amount of interest on the loan. So instead of rushing out to buy a home before you’re financially ready, focus instead on improving your credit score. Pay all of your bills on time. Minimize your debt. And start saving money — the more of it the better.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

“Free credit report dot com baby?”

Ok, I admit it. I absolutely love the FreeCreditReport.com song! You know, the one where the guys are driving down the road singing about how they could have been driving a nice car had they checked their credit report through FreeCreditReport.com. The song is catchy, but the offer is quite misleading.

Well I’m shopping for a new car, which one’s me? A cool convertible or an S-U-V. Too bad I didn’t know my credit was whacked, so I driving off the lot in a used sub-compact. F-R-E-E, that spells “free”, credit report dot com baby. Saw their ads on my TV. Thought about goin’ but was too lazy. Now instead of lookin’ fly and rolling phat, my legs are sticking to the vinyl and my posse’s getting laughed at. F-R-E-E, that spells “free”, credit report dot com baby…

There is nothing free about FreeCreditReport.com. I learned this the hard way. So I’m trying to save you the headache by letting you know that you really have to read the small print with this “deal.” When you sign up to receive your free credit report you are actually signing up for “Triple Advantage,” a ripoff program (my opinion) that charges your credit card $14.95 every month if you don’t cancel the program within the first 7-days. How many people remember to cancel the Triple Advantage program within 7-days? Probably very few. And then you get your credit card bill and you’re left wondering how a free credit report could be so costly.

So enjoy the song and commercial, but don’t get ripped off by this company. You are entitled to a FREE copy of each of your credit reports every year from the 3 credit agencies. You can monitor your own credit without paying for this Triple Advantage program. All 3 credit agencies make it simple to contest items that appear on your credit report. You don’t need to waste about $180 per year for someone to tell you what you can read for free.

To order your credit reports…

1. Experian – Click and order your FREE report now
2. Equifax – Click and order your FREE report now
3. TransUnion – Click and order your FREE report now

Mortgage Loan Rates – 5 Things a Home Buyer Should Know

by Brandon Cornett

Buying a home requires plenty of homework (no pun intended). There are new concepts to grasp, unfamiliar terminology to learn, and plenty of decisions to make along the way.

The mortgage loan interest rate is one of the topics that confuse a lot of home buyers, especially the first-time buyers who are new to the process. So in this article, I’ll explain how an interest rate gets applied to a home loan, and how it affects you as the borrower.

5 Things a Buyer Should Know

1. The rates offered by a lender will vary from one person to the next. It’s largely based on a borrower’s credit score. The higher your score, the better the rates you’ll be offered when applying for a loan. This is why you see so much fine print on the advertisements of mortgage companies — there’s a lot of variance involved. So when they offer a “teaser rate” in their marketing materials, it may or may not apply to you.

2. The interest rate is one of four factors that will determine the size of your monthly mortgage payment. Collectively, these factors are referred to with the acronym PITI. The ‘P’ stands for the principal amount you borrow. The first ‘I’ stands for the interest you pay on the loan. The ‘T’ is for taxes on the home. Lastly, the final ‘I’ is for insurance (i.e., the homeowner’s policy you are required to have before closing.)

3. In order to qualify for the best rates on a mortgage loan, borrowers need a higher credit score today than they needed just a few years ago (a 750 or higher in many cases). If you’ve been watching the news lately, you can probably guess why. The subprime mortgage mess of 2007 – 2008 has led to tougher restrictions on lenders. In turn, the lending institutions have tightened up on their loan criteria for qualification, rate assignments, etc.

4. Every buyer should study the key differences (and pros and cons) between adjustable and fixed-rate home loans. With an adjustable mortgage, or ARM, the interest rate will typically start out low for an introductory period. This period commonly lasts for three to five years, after which the loan will adjust or “reset” to a higher rate. In many cases, this increase can be significant and will therefore lead to a bigger mortgage payment each month.

5. For buyers who plan to remain in a house longer than three to five years, the fixed-rate mortgage is usually the best option. As the name suggests, this type of loan will carry the same level of interest for the entire time you’re paying it (regardless of what the economy does). This offers a level of financial certainty, which for many borrowers is all the reason they need to choose this option over the ARM.

Clearly there is much more to learn about interest rates, as they apply to buying a house. But I hope the points I’ve made above give you a better understanding of this subject. I recommend you learn more about each of the items covered above, particularly the pros and cons of adjustable versus fixed mortgages. Being an educated consumer is the first step toward success in the real estate world.

About the Author: Brandon Cornett publishes a home buying blog that has offered house buying tips and advice since 2006. To learn more about this and related topics, visit the author’s blog at HomeBuyingInstitute.com

Free legal advice to troubled homeowners

TALLAHASSEE, Fla. – July 10, 2008 – Florida homeowners facing foreclosure have access to a lawyer and free legal advice through a program offered by the Florida Bar and Florida Legal Services. 
 
According to Florida Legal Services Inc., 77,000 state homeowners are in foreclosure, making Florida second in the nation only to California. And many others are at least 30 days past due on their mortgage payment, which places them at risk of having their loans foreclosed.
 
Florida Legal Services and the Florida Bar Association have partnered in establishing a toll-free hotline – (866) 607-2187 – that consumers can call. They’ll be asked a few initial questions about their situation to ensure accurate placement, and then be sent to a free attorney. The attorney will then negotiate with the lender on behalf of the client to keep the home from being foreclosed.
 
“I applaud Florida Legal Services and the Florida Bar for offering this public service,” says Florida Agriculture and Consumer Services Commissioner Charles H. Bronson. “Any effort that helps families keep their homes in this uncertain economy is beneficial.”
 
More than 10,000 Florida attorneys have volunteered their services in the program, according to Florida Legal Services Inc.

Attractive, secure financing options

Having good credit and secured down-payment capital are the most sure-fire ways to get the best mortgage deal. Fixed rates are more affordable, and many federally funded programs are available for first-time homeowners, teachers and police officers. Affordable housing loan programs are back in the picture too.

How To Fix Errors On Your Credit Report

by Brandon Cornett

Errors within your credit reports can negatively affect your credit score, making it lower than it really should be.

In turn, this makes it harder to qualify for a home loan, a car loan, or obtain any form of financial lending for that matter. And if you do qualify for financing, you will almost certainly pay a higher interest rate because of that score. So errors on those reports must be identified and correcting, no matter how long it takes you.

Before we go any further, I want to point out an important distinction. In this article, I am not offering tips on how to improve a credit score (one that is low because of bad financial habits on the part of the consumer). Instead, I’m focusing on plain old mistakes on your reports, such as a line of credit that should not be there, or a documented bankruptcy that never happened, etc.

In other words, I’m telling you how to fix things that aren’t your fault. So with that clear, let’s press on!

The “How” of Correcting Errors

The first thing you need to understand is that you have three different reports, and they contain exclusive / proprietary data as opposed to “shared” data. This means that you could actually see different information on all three of them.

It also means that you could encounter a mistake on one particular report (the one from TransUnion, for example), while the data provided by Equifax and Experian appeared to be correct. So if you ever have to dispute a mistake on your information, you must contact the company that produced the erroneous report, as the information provided is specific to that company.

All three of the companies mentioned above have a “Disputes” section of their website. That’s where you need to go in order to get the ball rolling. Filling out a dispute form is a way of saying, “Hey, this information is incorrect, and you need to fix it because it’s affecting my financial status!”

So, you found an error on one or more of your credit reports and you have diligently submitted a dispute / correction form through the appropriate website above. That’s all there is to it, right?

Unfortunately, no…

You Are Not a Preferred Customer

Here’s something else you should take away from this article. When you first begin contacting a credit-reporting company about a mistake within your information, you will quickly realize that you are not their customer. You will realize this because they will probably treat you in a fashion that suggests the same.

The mortgage company who pays to obtain your credit information is their customer. The car dealer who pays for this information is also their customer too. But you are not their customer. You are a number … a piece of data to them. And when you start demanding their review of a potential mistake, you become a nuisance as well.

Is this right and fair? Of course not. Personally, I don’t think a private company should even be able to collect such information. And if they do collect such information, they should be proactive about safeguarding the data and ensuring the correctness of it. But this is not the case.

I just want you to understand the reality of the situation before you become involved with it. When you go into the process understanding the dynamic, you’ll be better prepared for what you must do next, which is to stay on top of them until things are sorted out!

Weak Legislation to the Rescue

As you have probably guessed, the three credit-reporting agencies are regulated by Congress. However, “regulation” in this context just means there are some rules on paper — it doesn’t mean those rules are actually enforced. Specifically, the Fair Credit Reporting Act dictates certain obligations these companies have, with regard to maintaining credit information on consumers. (and correcting that information when it is clearly in error).

The law was created back in 1970, and it has been more recently amended (2003) to try and force the credit-reporting companies to be more responsive. Still, many consumer advocates argue that the act does not go far enough to protect consumers, that it is lazily enforced, and that the core problems that prompted the creation of the act are still very much around today.

The credit-reporting companies are not governmental organizations, as many consumers believe. They are companies driven by profit. In other words, it’s in their interest to make as money as possible (as with any other company), but it’s not necessarily in their interest to look after consumers.

As a last resort — if you’re previous efforts to correct reporting errors have proven unsuccessful — you can sue the company who has produced the erroneous information. If you can prove that certain information is false, and that the report has thus caused you financial harm, you could be entitled to damages (monies) paid by the company.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

How to Apply Online for a Mortgage Loan

by Brandon Cornett

The Internet has transformed many aspects of the real estate and mortgage loan industries. These days, you can take virtual tours of homes, track property listings online, and even apply online for a mortgage loan.

Consumer empowerment is always a good thing. But there are certain things you need to know before you apply online for a home mortgage loan. By researching the online loan process before venturing into it, you will be better prepared to take the right steps toward success.

Applying for a Mortgage Loan Online

It’s important to note that the mortgage application process varies from one borrower to the next. Your process, for example, will be influenced by the amount you’re trying to borrow, your credit history, your debt-to-income ratio and other factors. With that said, here’s how the basic process works when you apply online for a mortgage / home loan.

1. Review your credit report.
2. Determine your mortgage budget.
3. Make a list of online lenders.
4. Provide basic information at first.
5. Compare the interest rates offered.
6. Compare other elements of the loan.
7. Get everything in writing!

1. Review Your Credit Report

When applying for a mortgage loan, this should always be one of the first steps you take. You can be sure that mortgage lenders will review your credit report and credit score (two different things) with a fine-tooth comb, so it makes sense for you to review these things first. Make sure your credit report doesn’t have any errors or discrepancies. If it does, submit a correction request to the company with the erroneous report — either Equifax, TransUnion or Experian.

2. Determine Your Mortgage Budget

Before you apply online for a mortgage / home loan, you need to know how much of a mortgage loan you can afford. Don’t rely on the lender to tell you where your budget lies. You need to determine that for yourself. When a mortgage lender approves or disapproves a loan, they do so based on credit scores, risk factors, and other data-driven elements. They do not consider how the loan will affect your quality of life … so that’s your job. Use an online mortgage calculator to reduce a hypothetical sales price down to its monthly payments. This will help you determine where your mortgage “comfort zone” lies.

3. Make a List of Online Mortgage Lenders

Once you’ve completed the self-assessment process outlined above, you are ready to create a list of lenders that offer online mortgage application. These companies can be loosely categorized in one of two ways — they will either be (A) traditional mortgage lenders with an online application tool, or (B) a web-based lender who specializes in the online mortgage process. Examples of the latter include E-Loan, Ditech and Quicken Loans.

As a rule of thumb, stick with the online mortgage lenders who have been around a while, and those who have a strong reputation (like the three mentioned above). This is primarily for information security purposes. Empowered by the anonymity of the Internet, some unethical “lenders” seek to take advantage of consumers through their online application tools. This can lead to identity theft, among other things.

Before you apply online for a home mortgage loan, always make sure you are using a trusted, well-known mortgage company. It’s also a good idea to look for a VeriSign or e-Trust logo / link on their site. This will give you even more comfort by knowing the website has been reviewed by a company specializing in online security.

4. Only Provide Basic Information at First

Most online mortgage lenders will only ask you for some preliminary information regarding your income, debt, etc. They do this so for basic screening purposes — they want to make sure you’re somewhat qualified for a mortgage loan before taking the time to review a full application.

This is good for you too. By providing only basic information up front, you can find out if the lender is even willing to work with you. In this way, you can avoid filling out a full mortgage application for a company who cannot help you. This will also limit the number of credit inquires made by lenders. If you have too many credit inquires (by frequently applying online for a mortgage, for example), it can send a red flag to other lenders that you’re having trouble being approved.

5. Compare Interest Rates Offered to You

The interest rate is one of the key elements that determines the mortgage amount you’ll pay each month. So it should also be a key decision-making factor when you apply online for a mortgage / home loan. Many times, online lenders can offer better interest rates than traditional “bricks-and-mortar” lenders. Companies like E-Loan and Ditech have become extremely efficient at the online mortgage process. This obviously limits face-to-face time, paperwork, and other factors that can increase the lender’s overhead.

The world of online mortgages is a highly competitive one. If you have decent credit and are generally a good candidate for a mortgage, online lenders will try to offer you the lowest rate and best terms possible, in order to get your business. Keep this mind when applying online for a mortgage.

6. Compare Other Elements of the Mortgage

Interest is only one part of the mortgage picture. So when comparing online lenders, be sure to ask about closing costs, prepayment penalties, and other aspects of the “fine print.” For an excellent article on comparing mortgage lenders, click here.

7. Get Everything in Writing

When you apply online for a home loan, it’s absolutely critical that you get everything in writing. This is good financial practice in general, but it’s especially important with large financial transactions such as mortgage loans. For example, if a lender promises you a certain interest rate based on your qualification and credit score, ask them where it says that in writing.

Lenders are required to provide you with this information within a day or two of your mortgage application. This is a basic requirement of the Real Estate Settlement Procedures Act, or RESPA.

Conclusion
We hope you have enjoyed this guide to online mortgage loans. Elsewhere on this website, you can learn more about the types of mortgage loans, information about your credit report, and other topics related to home buying and mortgages.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting http://www.homebuyinginstitute.com

Should I do a loan modification?

Lenders have become much more willing to modify the terms of mortgages recently. But is a loan modification going to solve your financial problems in the long term? Probably not. While lowering your monthly payment is appealing (at first glace) it is not enough to address the fact that your home is no longer worth what it was a few years ago. So your bank is willing to knock your interest down from 7.85% to 5.85%. Good. But what about the $85,000 in equity that has evaporated into thin air? Are they going to lower your principle balance? This is the big question and the one you should be asking.

If your lender will lower your interest rate without charging you a fee then you have no reason not to jump on that opportunity. Do the loan modification immediately. But don’t assume that a lower interest rate is a magical solution to your mortgage crisis. It is only one piece of the pie. The real solution is a principle reduction.

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