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Home Buyers Use 100% Financing

Over the last decade, typical conventional lenders have been offering 100% financing to home buyers This usually involves creating an 80% first trust deed and a 20% second trust deed. This further allows home buyers to purchase a home with no money down.

To understand how this works, you will also need to understand two basic types of loans:

Conforming and Jumbo.

Conforming interest rates cover loan amounts up to $417,000. Jumbo loans amounts cover loans over $417,000.

The differences between conforming and jumbo loans are usually the interest rates and certain conditions required. Conforming interest rates are lower than jumbo interest rates.

When you are looking on the internet for current interest rate quotes, the typical rates shown are for conforming rates.

Your first trust deed or the 80% loan is based on conforming or jumbo rates, depending on the purchase price of your property.

The second trust deed or the 20% loan is based on what's called "piggy back" 2nd financing, wherein the lender gives special rates based on the fact that you are also obtaining a new first trust deed with that lender.

The interest rate for the 2nd trust deed is going to be higher than the first trust deed, sometimes as much as 3% to 5% higher.

The lender then gives you what's called a blended rate, combining the interest on the first trust deed and the interest on the second trust deed.

Typically, this type of 100% financing is fixed for 2 to 7 years and many include prepayment penalties.

Some lenders also require an impound or escrow account to pay property taxes and home owner's insurance in your monthly payment. There will be an initial deposit prior to closing to establish your tax and insurance account so that when these bills are due, there is enough in the impound account to pay these bills.

This loan program will help you purchase a home with no money down.

If your loan comes with a prepayment penalty, when that period is over, you are free to refinance the two loans into one, fixed for 30 years, if you so desire.

A really good aspect of 80/20 type financing; there is no mortgage insurance premium to pay each month, which will keep your monthly payment lower. This premium is typically based on .50% of the loan amount divided by 12. (example; loan amount of $250,000, monthly mortgage insurance premium would be approximately $104.17) There is also an upfront premium to pay in your closing costs. Some lenders will add this to your 1st trust deed loan amount.

In order to have no mortgage insurance the first trust deed must be at 80% or lower.

There is also a single 100% loan available.

If you have necessary credit and debt requirements, it is possible to obtain a 100% first trust deed. Each lender who gives this type of financing has their requirements.

You will be making a single monthly payment based on your entire purchase price.

This type of loan will include the monthly mortgage insurance payment added into your monthly payment as the loan is over 80% of the purchase price.

To recap, 100% financing means that you are financing the whole purchase price of the home you are buying. You are putting no money down. Under typical circumstances the financing is 80% first trust deed and a 20% second trust deed.

Because you are financing the whole purchase price, interest rates may be higher than a typical 30 year fixed rate loan, but you are putting no money down. The lender is taking a higher risk so interest rates are probably going to be higher.

By Patti Schopper
Published: 9/6/2006

Home Buying Tips

You probably have already heard the usual home buying tips. Here are three that aren't as common.

1. Home Buying Tip - Buying A House Isn't Always The Best Plan

Of course real estate agents may say that buying a home is always a good idea. It certainly is good for them, as well as for title companies and bankers. But it isn't necessarily a good idea for you.

Believe it or not, there are towns where the home values haven't gone up much - if at all - in ten years or more. Of course in the last year (this is being written in 2007) the prices in many areas have actually dropped in value. The point? Home values do not always go up - at least not in a given year or even several. So don't buy a home as a get-rich plan.

Maybe you are sure that prices will rise where you are. Even then, though, a home isn't necessarily a good investment, if rents are low relative to home prices. In Tucson, Arizona, for example, a two-bedroom home might sell for $190,000, but you can rent one for just $750 per month. If you spend $700 less each month versus buying, and bank that money, you could be further ahead financially three years from now.

Consider how long you'll be in the home. This is important because of transaction costs. Buying and later selling your home can cost 10% of the home value. It will have to go up that much in value just to even break even. If you move in the first couple years and prices have gone nowhere, you'll end up thousands of dollars further behind.

2. Home Buying Tip - A Real Estate Agent Is Not Your Friend

Even if your agent actually is your friend, she won't necessarily look out for your best interest. In fact, she can't, if she is working for the seller. Unless specifically is working as a buyer's agent, she is legally obligated to work for the interest of the seller. The seller, after all, is the one paying the commission. If you say something like "I might go $5,000 higher," she is obligated to pass on this information to the seller.

Even with a buyers agent, be careful, because people talk - even good agents. Don't say things you don't want known by all. Also keep in mind that agents make money only when there is a sale, and they make more on larger sales. This might mean less than perfect objectivity when helping you choose a home.

3. Home Buying Tip - Low Offers Sometime Work

The real estate agents out there won't appreciate this tip, because low offers are embarrassing for them to bring to a seller. It may even be embarrassing for you to make the offer. However, I have a friend who embarrassed himself into a lakefront home for 15% less than it was worth. Would you like to immediately increase your net worth by $40,000 when buying a home?

By Steven Gillman
Published: 6/21/2007

How to Show Your Home for Sale

When buyers make an appointment to see your home they have already made several important decisions. They have selected your neighborhood as a possible location. Your lot and exterior style appeals to them. Your price is within their range. If the floor plan and interior style works for them, and if the buyers feel a sense of trust in your home, they will move to the contract stage. Here are some tips to help you make the most of this important step in the sale of your home - the showing.

1. Setting Showing Appointments

Homes may be shown by appointment with the Realtor, appointment with the owner, or by using the house key placed in a lockbox. The lockbox is a popular system in many areas, and facilitates showings by all members of the local Multiple Listing Board. To arrange a showing, agents must first call your home or cell number. If you do not answer, they may leave a message, and proceed with the showing. Most lockboxes record the agent's identity and time of showing. Whether your home is shown by special appointment or by the lockbox system, the objective is to make your home easy to show to potential buyers. This is your first contact with the buyer, and you should make them feel welcome in your home.

When you receive a call from a Realtor for a showing, keep in mind that he/she is showing lots of homes, and it is difficult to set precise times. Be flexible on the timing, and allow a window of one hour for arrival, if possible. If you are going to be at home, you may ask the Realtor to alert you when they are 15 minutes away. You may occasionally receive a last minute call, with the visitors already in your driveway. If you are prepared for a showing, invite them to come in. If you are not ready, let the Realtor know that you need some time to prepare. Always thank Realtors for trying to show your home. You need them to come back!

2. Consider Children & Pets

If you have children it is very important to educate them on the showing procedure. They should know that real estate agents will be calling for appointments to show their home, and they should know how to respond. If they are at home by themselves during the day, they will need to let in the agent and buyers, and vacate the house during the showing. They may wait in the backyard or go to a neighbor's house. Televisions and video games should be turned off. Hopefully, they will know how to tidy up the kitchen. Children must know that an advance phone call by the agent is required for a showing. They must not allow entry to anyone who comes to the door without an agent.

Pets pose special problems for showings. If pets are left in the home during the day, leave a note alerting the agents that a pet is in the house. Give instructions as to how your pets should be handled. For example, "Cat must not be allowed outdoors." Often pets are fearful or uncertain about strangers entering the house when you are not home. Many people are afraid of (or allergic to) pets, and are not happy to encounter them in the house. It would be best to crate your pets during showings, place them in a restricted area, such as the laundry room, or take them out of the house. Keep in mind that a great variety of people may enter your home, including children. If there is any uncertainty as to how your pets will react to strangers, you should remove them from your home during showings.

3. Provide Lots of Information

Have brochures laid out on a table for prospective buyers. Anticipate the information that would interest your buyers. Examples are: a copy of your survey or floor plan, photos of neighborhood amenities, school information, neighborhood newsletter, nearby country club, golf course, etc. Answer their questions early. Remember, prospective homeowners are choosing a home and community - a lifestyle.

4. Don't Hang Around

Do not be present for the showing. Sit outside or run an errand. When you are there, buyers may feel that they are intruding. They will not discuss changes they might make to your home, or how they would use the space. This could limit the time spent in your home. Never take over the showing or attempt to sell your house. You do not know the buyer's special interests, and may inadvertently turn them off. Remember that this not a social visit. Buyers need to make an emotional commitment to your home. They usually need some quiet time to experience your home and sense how they would enjoy living there. Your presence is distracting and inhibiting to potential buyers.

5. Appeal to Buyers With Sights, Sounds and Scents

People gather impressions about your house from all senses - sight, sound and smell. Improve your home's appeal to all senses. Leave blinds open, and consider removing some screens. Natural light sells houses! Increase the sizes of your bulbs if the light is dim in certain areas. Put on some instrumental music, but keep it very low and mellow. Do not leave televisions on. Have the temperature cool in summer and warm in winter. Use pleasant scents, such as candles or potpourri. An unpleasant odor will have a very negative impact on a buyer's reaction to your home. In particular, cigarettes and pet odors are a turn-off. Do not try to mask an unpleasant smell with another smell. Work toward a clean, fresh smell.

6. Have a Safe Showing

Keep in mind that the public will be entering your home, and consider their safety and yours. Do you have rugs, wires or small toys that could be stumbled over? Buyers should be able to move easily from room to room. You may need to remove some furniture to keep traffic patterns open. Leave your stairs completely free of clutter. Replace any missing handrails. Remove valuable objects from tables where they may be accidentally bumped. If you use candles for a nice scent, do not leave them burning when you leave the house. Do not leave money, guns, medicines, jewelry, x rated magazines or any personal items in public view. Consider your security, and the buyer's safety as you prepare your home for viewing.

7. Set the Stage

Consider using a staging service to help you present your home. It should be perfectly clean and clutter free. Homes generally look better with furniture, but they must not appear crowded. Your furniture and accessories should give your home a very general appeal. Avoid strong political, personal or artistic statements. The focal point should be the house, rather than your family. Use decorative objects, such as pillows, framed photographs, books, fresh towels and flowers. Create a mood with natural and lamp lighting and soft music. The goal is to make potential buyers feel that they could move right in. Home buying is an emotional process. You must build a sense of trust and attachment to your home during the short time that buyers are in your home. They must positively imagine themselves enjoying your home and gardens.

By Roselind Hejl
Published: 6/24/2006

Neutralize Your Home For Sale

We often arrange our homes to express ourselves - our travels, collections, families, favorite colors and unique tastes. However, when selling a home, the goal is to create just the opposite - a clean, neutral background that many different buyers would like to move into. Buyers must feel that they could fit right in and be comfortable in your house. You can help to create this feeling inexpensively by simply cleaning and neutralizing your home before putting it on the market.

(1) Clean Wall to Wall

Clean bath tile with mildew cleaner. Often the caulking around the bathtub is darkened. This may need to be removed and replaced. It can be purchased in rolls, which is easier to install. Wash or replace shower curtains. Make sure all soap residue is removed. Remove toilet brushes or cleaners from view in bathrooms. Mirrors, counters and all bath fixtures should be immaculate. Buy new soaps and towels, if necessary.

Have the windows cleaned. Clean windows add a sparkle to the room. During showings, open blinds and expose as much glass as possible. Nothing sells a house better than natural light. If your lights are dim, increase the size of the bulbs. Combine indoor lamp lighting with natural light for warm, cheerful rooms. Remove any broken blinds or dusty curtains.

Floors must be immaculate. Make sure that your tile grout is perfectly clean. If your flooring is worn or damaged, consider replacing it. Often clients ask if they should provide an allowance for carpet replacement. Rather than offering an allowance, go ahead and replace the carpet. Your home will benefit from the improvement in presentation. New carpet will transform a house, and make everything in it look better. Do not worry about whether the buyers will like it. Just choose a neutral shade.

Walls usually need touch up, especially if there are children or pets in the house. Freshly painted walls are a strong contributor to the value of your home. Don't forget the baseboards and door trim. Fix nicks and paint over, for a fresh new look. Remember to leave some labeled paint cans for your buyers. They will appreciate it. Surfaces that cannot be cleaned can be painted.

The kitchen carries a lot of weight in the purchase decision. Kitchen appliances and countertops must sparkle. If needed, new stove burner pans may be purchased at Home Depot. Make sure the oven is clean. Look closely at cabinets. Repaint or refinish any scuffed cabinetry. Do not leave trash containers on display. Clean, and empty the under sink cabinet. Do not display any object that is stained or dirty. Invest in new kitchen towels.

Buyers are sensitive to bad smells, and will be suspicious of a house with an odor. Pleasant smells are subtle, but important. Use potpourri, candles or cinnamon sticks in hot water. Do not use air fresheners to cover up bad smells - this just compounds the problem. Remove the source of the smell first. Often, people cannot recognize a smell in their own home. If you smoke, have pets, or cook with strong spices, ask for feedback on smells from a third party. Unfortunately, if pets have used your carpet as a bathroom, the only choice is to replace the carpet. Cleaning does not work. The smell is in the pad under the carpet. In the garage, chemicals that have a strong odor should be sealed in plastic bags or removed.

You may need to wash the exterior of your house with mildew cleaner, or with detergent and chlorine bleach. Often the shady areas have dark stains that will disappear with washing. Deck wood may need to be washed and sealed. Clean out flower beds and add fresh mulch. Purchase a new door mat.

(2) Neutralize the Space

Simplify Floor Materials
Neutral colors will increase the pool of potential buyers for your home. Your home will appeal to a wider audience. Stay within the range of tans, beiges, and cream colors for tile and carpets. Avoid strong colored or white carpets. Wood floors may be variety of browns. Natural stone floors have their own earth tones that work well. Avoid having many changes in floor materials, if possible.

Use Muted Wall Colors
Unify the house with the same or similar colors. Accent walls are OK in moderation. If buyers see pink and purple walls, they see work. Remember, buyers are in the process of moving, and are already overwhelmed with things to do. Light colors can be very appealing, but stay fairly neutral. Grayed yellows, sage greens, creams, light browns, and tans are muted colors that create a warmer, richer look. In general, avoid stark white, very dark, or bold colors.

Refinish cabinets
One of the problems we often see in kitchens is worn out cabinet finish. Consider painting woodwork for a fresh new look. Natural wood cabinets can be improved by lemon oil or wax. "Howard's Restore-a-finish" from Benjamin-Moore Paints works wonders to bring back color on scratched, or faded cabinets. New, updated cabinet pulls are an inexpensive improvement for cabinets. If you have dated wallpaper, consider painting the walls instead of replacing paper.

Create a Neutral Background
Strong political or artistic statements are not appropriate when your home is on the market. We do not want buyers to focus on these matters while viewing your house. Large groups of family photos are distracting. Collections, trophies, clippings and projects should be put away, for display in your next home. It is hard for buyers to look past these and visualize themselves in your house. Create a clean, simplified background. Within this background, use nice pieces of furniture, books, art and other objects to add color and beauty. Flowers in the entry and kitchen are very nice touches. Find the best visual presentation using your furniture and possessions.

Clean and Neutralize to Sell
It seems obvious that you should clean you house for sale, but, surprisingly, many people do not. An immaculately clean house is a well cared for house - the kind that buyers love. Clean the place wall to wall. Paint over anything that cannot be cleaned. Neutralize the space in terms of colors and objects on display. Allow buyers to imagine themselves in your home during the showing. The goal is to reach the buyer emotionally, and sell your house quickly and profitably.

By Roselind Hejl
Published: 4/26/2006

Home Equity Loan - When Does Refinancing Make Sense?

For the last two years, interest rates have been much lower than anytime during the last thirty years. This has resulted in an unprecedented boom in real estate sales, home refinancing and home equity lending, as borrowers try to take advantage of these rates for the long term. But refinancing or even borrowing against your home’s equity may not make sense for everyone. When is it a good idea to refinance your home? When is it not advisable?

Traditionally, lenders advised homeowners not to refinance unless doing so would lower the interest rate on the loan by 1-2%. While anyone who can save 2% on their interest rate would almost certainly benefit from doing so, others might find refinancing worthwhile even with a smaller reduction in the interest rate. Increased competition among lenders has brought the costs of refinancing down in recent years, so homeowners can realize a significant reduction in their home payments with reductions of ½% or so, depending on the size of their mortgage.

The key to whether or not refinancing makes sense is how long the homeowner intends to remain in his or her home. The costs of the refinancing, which can run $1000-2000, are amortized over the life of the loan. For many people, a reduction of $50 or more in the house payment would be more than enough to justify a new mortgage. If payments cannot be reduced by at least that much, or if the homeowner plans to live in the home only a short while, refinancing may not be a good option.

Refinancing may also make sense for those with Adjustable Rate Mortgages (ARMs.) At the moment, at 30-year fixed-rate mortgage is quite competitive with an ARM, and may actually be cheaper. With rates at historic lows, an ARM can only adjust upward, making it a less desirable choice in comparison with a fixed-rate loan.

Anyone considering a home remodeling project or debt consolidation might ordinarily think of a home equity loan or line of credit. These are often wise choices, as they offer deductible interest and great repayment flexibility. On the other hand, a chance to obtain a 30-year loan at 5% might make a complete refinancing with a cash-out option a better choice, as home equity rates are somewhat higher than first mortgages.

A new mortgage might also make sense for anyone with a second mortgage or a piggyback loan. A piggyback loan is a second loan used at the time of a home’s purchase to help the buyer avoid paying the sometimes-expensive private mortgage insurance. Simultaneous payments on two mortgages will be higher than paying on one, so this might be a great time to roll them together on a refinance. The same applies to anyone carrying a large credit card balance; that money could be rolled into a home loan with deductible interest at a lower rate. Anyone considering such a move should be careful, however, as failure to repay that debt could lead to home foreclosure.

Now is a great time for any homeowner to consider whether or not a new mortgage could help lower their payments. With interest rates as low as they are now, the timing is great, and there’s nowhere for the rates to go but up.

by Charles Essmeier

Home Equity Loan - Still a Better Idea Than a 401(K) Loan

Anyone who borrows money is always looking for the cheapest source of funding. That makes sense; no one wants to pay more in interest than is absolutely necessary. And anyone with a sizeable amount of debt, such as credit card debt or a student loan, would be wise to consolidate their debt with a lower interest loan. One source of such a loan is a 401(K) account, which many consumers may have through their employer. Since the interest rate on Federal student loans rose on July 1, many students who missed that deadline may be wondering if consolidating through a 401(K) loan is a good alternative. Is it?

In a previous article, we have outlined several reasons why borrowing against a 401(K) account may be less favorable than using a home equity loan instead. The reasons include the fact that the interest on a 401(K) loan is not tax deductible, and that the borrower loses the ability for his or her investment to compound over time. If you have borrowed the money, it can’t earn interest and the cost over twenty or thirty years could be dear. In addition to those, there are other reasons why a home equity loan would be a better source of consolidation funds.

The 401(K) loan is tempting. There is no credit check, the interest rate is usually favorable, and you are paying the interest back to yourself. The additional disadvantages are considerable, though. The money you borrow from your retirement account was money invested before taxes. The money you pay back is after-tax money, effectively increasing the amount that has to be paid back. Worse, should you lose your job, the 401(K) loan must be paid back immediately, in full. Should this not be possible, the loan is treated as a distribution, requiring the payment of a 10% penalty in addition to state and Federal taxes. With the job market still rather volatile, the additional risk of borrowing against a retirement account is substantial.

Borrowing against a tax-deferred retirement fund is rarely a good debt consolidation option. The tax disadvantages, the threat of penalties and immediate repayment and loss of compounding generally make such a loan a bad idea. Those with existing student loans should probably keep them; the interest is tax deductible and the rate is still lower than with most other consumer loans. For most anyone else, a home equity loan would be a better choice, offering deductible interest, fewer risks, and a fixed repayment schedule. Anyone considering a consolidation loan should consider all of these options carefully, as the cost of choosing poorly could be great.

by Charles Essmeier

Home Equity - Don’t Spend it on Risky Investments

The housing market has exploded in the last five years, and homeowners are finding that the equity in their homes is greater than it has ever been. The equity in a home is the difference between the market value of the home and the amount still owed on it. As home prices increase, so does the equity for those who own their homes. In parts of California, home values have tripled during the last five years, and homeowners are doing increasingly risky things with their newfound “wealth.” Anyone considering borrowing against their home’s equity should carefully consider the possible pitfalls of doing so.

Traditionally, most home equity lending was done for purposes of home additions or remodels. These have been considered low-risk loans, as the house is collateral for a loan that improves the house itself. As a bonus, the improvement usually increases the value of the home, making the loan even safer for the lending company. Occasionally, homeowners default on such loans, but the foreclosed property can easily be sold to recoup the loss. Times have changed, and many, if not most, home equity borrowers are now using the money for different, and riskier purposes.

Thousands of people who have suddenly found themselves with hundreds of thousands of dollars of equity in their homes are treating that value as a windfall of cash. Instead of traditional uses, such as home improvements, borrowers are using their equity to buy more real estate to use as rental property. There are cases of individuals with homes valued at several hundred thousand dollars who have borrowed against their equity, bought more property, borrowed against that equity, and repeated this process six, seven, ten or more times, attempting to build up an empire of rental property. It’s hard enough for most people to manage one mortgage, but some people who are caught up in the “equity frenzy” are now managing ten or more of them! On the surface, it may appear that these intrepid individuals are simply taking advantage of an opportunity, turning several hundred thousand dollars worth of equity into millions of dollars worth of rental property. On the other hand, these “investors” may be inviting disaster.

As more and more people buy real estate on speculation, the equilibrium of the real estate market is affected. The additional competition among buyers, fueled by the real estate speculators, is causing prices to go up even more. Eventually, the market is going to peak. Buyers who need a home to actually live there can only pay so much for them before the homes simply become unaffordable. And not every speculator can own ten rental properties, as the market can only support so many rental properties before the market becomes saturated. Once that happens, prices will fall. And when they do, all of these buyers who purchased their homes using their own home’s equity will find themselves under a mountain of debt.

It’s nice to have some equity in your home. It’s also nice to be able to borrow against that equity for home improvements or debt consolidation. Using your equity as though it was cash you can freely spend is dangerous, as many speculators will soon learn.

by Charles Essmeier

Bad Credit? Get a Home Loan You Can Afford

When shopping for a bad credit mortgage it's important to consider your whole financial situation before settling on a new home. You might find that you can qualify for more home than you thought--but can you afford it?

Bad Credit Mortgage Tips: Do the Math

When you apply for your bad credit home loan your mortgage lenders consider a number of factors to determine how much they will lend you. Typically, the most important items they'll be looking at are:

Your income

Your credit history

Your monthly expenses

Whether you are single or will have a co-signer

A general rule of thumb in figuring out how much you can afford on your home loan is a mortgage payment-to-income ratio of about 30%. If you make $2000 a month you qualify for a mortgage payment of about $600. Hard money lenders may approve you for a considerably higher payment, but do you really want half your take home pay going to house payments?

Be Safe and Smart

Use a mortgage calculator to determine how much down payment you will need, as well as how much your monthly payments will be. This kind of homework prior to applying for your bad credit mortgage could make all the difference in avoiding a home loan that will cost you too much.

Consider All the Factors

When trying to figure out how large a home loan you can afford consider all the factors involved. Remember to consider all of your monthly expenses including:

Student loans

Car payments

Credit cards and loans

Savings and retirement

Child support or alimony

Work With Your Mortgage Lender

Your mortgage lender shouldn't be qualifying you for a home loan you can't afford, so work with your loan officer and provide accurate information to find the right number. By gathering all your financial details together before applying for your bad credit mortgage you save yourself some time and make it easier for your loan officer to help you. Taking this extra step can really help smooth out the mortgage application process and help you get into a bad credit home loan that's right for you.

By Gabriel Traverso
Mortgage Credit Problems Columnist

Avoid Predatory Lending and Unregulated Bad Credit Lenders

A recent article by the Washington Post indicated that federal regulators were concerned about the 2 million subprime mortgages that are expected to adjust in the next 2 years. About half of subprime loans are made by lenders subject to no federal regulation, and a substantial number of these loans were made without considering the borrower's ability to repay them.

Federal Deposit Insurance Corp. (FDIC) Vice Chairman Martin Gruenberg indicated that the rapid growth in subprime lending has generated a rash of predatory lending activity. "It now appears that the most elementary notion of predatory lending--the failure to underwrite based in the borrower's ability to pay--became prevalent in the subprime home mortgage market," he said.

Because many subprime lenders don't take deposits like banks do, they fall under a hodgepodge of different laws depending on the state in which they are licensed. Nineteen states, for example, don't do criminal background checks on lenders. And fully half the states have no laws against predatory lending.

If you have bad credit, how do you know that you're getting a fair deal? First, shop around for your mortgage--and make sure that at least one bid comes from a federally-regulated lender (you can check the site). Federal lenders also display the Fair Housing Lender and FDIC logos. Compare all bids and throw out those that are out of line. Then, look at those that remain and make sure that the payment is affordable to you--now and if it adjusts upward in the future. If you already have a home loan you suspect might be from a predatory bad credit mortgage lender, get some bids from reputable firms--you might be able to refinance into a better loan today.

By Gina Pogol
Mortgage Credit Problems Columnist

A Home Equity Loan - Is It For You?

Home equity loans are often touted as being the solution to so many things – giving you access to money for home repairs or improvements, a way to consolidate debt, finance a sudden family emergency, or even as a way to start an investment portfolio. There’s a lot to think about, though, before you go and sign up for the first home equity loan you see.

A home equity loan is like a second mortgage on your home. If your home is currently worth $130,000, and you have a mortgage against it for $70,000, then you have $60,000 of equity available. Some home equity loans may allow you to borrow up to 80% of your home’s value, others may go higher in special circumstances. In this example, you would be able to borrow another $34,000 as a home equity loan and still have only borrowed 80%.

So the first step is to get a reasonably good idea of what your home is worth on the market. Your friendly realtor may help with this, but be aware that sometimes they can inflate the value in the hope of getting your business. You can also look at what price similar houses close by have sold for. Or you can pay a qualified valuer to assess your home.

Now you have a starting figure, you can work out how much equity you have in your home. The other important figure to work out is how much you need for whatever purpose you have in mind. Hopefully that works out to be less than the equity available! It’s even better if it’s less than 80% of the available equity.

At this point it’s important not to get carried away. It can be all too easy to say, well, I have $50,000 available and I really only need $30,000 to complete the repairs, so why not borrow $40,000 and blow the rest on a holiday? Remember – the more you borrow, the more it will cost you in repayments. It’s very easy to borrow too much, only to find yourself struggling to meet the payments and maybe even losing your home.

You also need to decide what type of home equity loan you want. There are two main types – a closed end loan and a line of credit. A closed end loan is basically the same as a standard home mortgage – you borrow the amount for a set period of time, and make payments over time to gradually pay off the balance.

A line of credit, on the other hand, is like having a credit card with a big limit. Some banks will require you to make minimum payments each month, others only require payments if you’re at your limit. Either way, the loan will only be for a set period of time, and at the end of that you will either have to extend the time period or refinance the loan with another lender. This type of facility can be useful if you’re disciplined with your money, but if you’re the type of person whose credits cards are always at their limits, it may not be a good idea at all to have ready access to such a large amount of credit.

Next, you need to work out how long you want to borrow the money for. This will vary depending on how much money you are borrowing, the type of home equity loan and how much you can afford to pay. There are lots of good mortgage calculators online that can help you to work this out. If borrowing the money over 5 years for a closed end loan means you won’t be able to meet the payments, then see if spreading the loan over 10 years becomes more affordable for you. You will pay more in the long run, but at least you won’t default on your loan.

When you know what you want, it’s time to go and find it! It may be worth starting with banks recommended to you by friends and family – at least they’ll be able to give feedback on their experiences. You can also shop around online, looking for the best deal.

Finally, when you have chosen the loan you want and are ready to proceed, do two more things. Firstly, check for fees. Banks are aware of the need to be competitive, and will often avoid charging up front fees for that reason. However it’s amazing what can be hidden in the fine print of a contract. So read any loan documents thoroughly before signing. If you can, get the contract explained to you by your legal advisor.

Home equity loans can be a wonderful tool when used correctly. Do your homework first, find the loan that best matches what you want, and go for it. Just make sure you don’t over extend yourself or sign documents that will give you nightmares forever.

by Felicity Walker

5 Tips for Savvy Use of Your Home Equity Line of Credit

Tapping your home's equity to pay college expenses, consolidate credit card debt or even to buy a new car or boat is common place. Many economists attribute the additional buying power afforded consumers through home equity debt as a primary reason the nation's economy has been able to emerge from the recent recession. Yet, aside from simply allowing consumers to spendmore, the flexibility and efficiency of a home equity line of credit (HELOC) can provide the financially savvy person with the means to savemoney, make money or simply take advantageof opportune situations he or she might otherwise miss out on. Here are five tips to show you how:

Tip 1: Take Advantage of Higher Insurance Deductibles! You probably know that raising deductibles on auto and homeowners insurance policies can mean big savings on insurance premiums. If you increase the deductible on a homeowner's policy from $500 to $1,000, you'll cut your premium by as much as 25%! Yet many people don't do this because they fear they may not have the necessary cash available in the event of a loss. With low-interest cash readily available through a home equity line of credit you'll have the security and confidence you need to raise your deductibles and reap the savings!

Tip 2: Lock In Big Savings! Credit card companies (e.g. the GM card) frequently have shopping programs with names like "Main Street Savings" on a 30-day free trial basis. These programs allow you to buy discounted gift cards (20% discount) for major national retailers like Target, Sears, and Home Depot. The flexibility afforded by a home equity line of credit can allow you to purchase (during the free trial period) a large amount of discounted gift cards for major retailers you frequent. Then use these cards instead of cash or credit when you purchase everyday items (The cash you would have spent can be used to pay down the HELOC). Although you pay low interest on the home equity credit line, you receive a front-end discount of 20% on everything bought. When combined with store coupons and sales, you can realize total savings of 70% or more! In short, a HELOC provides the low interest cash availability to take advantage of bargains like this that you might otherwise have to pass on.

Tip 3: Take Advantage of 0% Balance Transfer Offers! We've all seen no-fee credit card offering Ŕ% APR" on balance transfers for 6, 12, and even 18 months. If you have a balance on your HELOC, you may be able to take advantage of these offers. Here's an example of how: last year I accepted such an offer and promptly transferred $10,000 from my home equity credit line balance (which had a 4.25% rate). Then I cut up the card! For the next eleven months, I paid the monthly minimum credit card payment (3% of the outstanding balance) by writing a check from my home equity line of credit. In the twelfth month, prior to the expiration of the 0% offer, I paid off the remaining balance with another home equity credit line check. During the 12 months, I also made sure to continue my regular payment towards the HELOC at the same level, meaning that more of each went to pay down principal and less went to interest. Net result: interest savings of over $350.00, lower principal balance on my HELOC, and a positive addition to my credit repayment history!

Tip 4: First Pay With a Rewards Credit Card! If you're contemplating using your HELOC for a major purchase, you should consider whether or not the merchant your dealing with accepts credit cards. Why? Because it makes a great deal of sense to pay first with a rewards credit card and then pay off the card with your HELOC check. On a recent $14,000 bathroom remodel, I was able to charge plumbing services, cabinets, and almost everything else to my Fidelity/MBNA 529 College Rewards Mastercard. This card pays you back by putting 2% of everything charged into a 529 college savings plan. Result: $280.00 in college savings that would have been missed if I paid the bills directly with home equity credit line checks! Whatever rewards credit card you favor, it's sensible to pay first with the card whenever possible. Keep in mind, though, you must promptly pay off the balance and not incur finance charges.

Tip 5: Replace Your 1st Mortgage with a HELOC! According to Money Magazine, if you have more equity than debt and plan to stay in your home for 3 years or less, you should consider replacing your first mortgage with a home equity line of credit. HELOCs are currently available around the country at rates of 4% or lower. Even if rates increase a full percentage point each year, they'll still be low when you pay off the loan. Best of all, there are no closing costs with most HELOCS so you won't have to worry about recouping them through interest savings as you do with a traditional mortgage refinance. A savvy person - using tip 3 in conjunction with tip 5 - might even move a portion of his mortgage to a 0% credit card thanks to the flexibility of a home equity line of credit.

by Tim Paul

A home loan can help you own your dream home

Owning your dream home need not just be a dream. You can own it with a home loan offered by any number of financial institutions to help meet the shortfall between the purchase price of the home and the down payment that you provide.

The two types of home loans or mortgages that you need to know are:

Fixed rate mortgage: Home loans of this type carry a fixed rate of interest throughout the term of the loan. Your monthly payments remain constant making budgeting easier.

Adjustable rate mortgage (ARM): In this type of mortgage, you monthly payments change with each change in the interest rate. ARMs have a lower interest rate than fixed rate loans, thus, qualifying you for a larger amount.

Tips for obtaining home loans

•Avail the services of a mortgage broker who can use established relationships to negotiate a favourable interest rate.

•Pre-qualify your mortgage so that you have a jump start towards acquiring your home as you will know the amount that is available to you for making the purchase. By pre-qualifying you can lock in the interest rate for a certain period. If the interest rate falls, you get the lower interest rate. The interest rate will be the same, even if it rises during the pre-qualifying period.

•Ensure that you have a good credit history. Obtain your credit report from a credit rating agency to assess your credit score. Get any errors that you notice corrected immediately as it could give you a better credit rating. A high credit score can help you obtain a lower interest rate.

•Ensure all your documentation such as your latest pay stub, proof of down payment amount, property purchase agreement, title deed is in order.

If you already own a home but you do not consider it to be your dream home, you could use a home improvement loan to enhance its market value, sell the home and repay your home improvement loan and then buy your dream home. Home improvement loans are secured against your home equity, thus, protecting lenders interests.

This article may be freely distributed providing no alterations are made to the text and the links remains intact.

by Paul Heath

Bad Credit Home Loans: The ARM is Not For Everyone

Over the past few years home prices have risen such that many homeowners turned to alternative home loans like ARMs and interest-only mortgages. For those with bad credit this may not be the right move.

An Adjustable Rate Mortgage Means Rising Payments

An adjustable rate mortgage differs from a traditional fixed-rate loan in that you are often given a lower initial rate, maybe for a term of one month to several years, and then your mortgage rate moves with the financial index on which it is based. The problem is that a bad credit adjustable rate can carry a margin many points higher than the index to compensate the lender for the higher risk of a carrying a bad credit loan. Your payments could increase prohibitively when the ARM provision kicks in even if prevailing interest rates do not.

Bad Credit Mortgages Are a Short Term Solution

If you have bad credit, the sub prime rate you can get today is probably not the rate you're going to want tomorrow. What's so great about a thirty year fixed rate that is 5 points higher than the rate good credit borrowers pay? The idea behind taking a bad credit mortgage is that you make your payments, develop a better debt management track record, and put some distance between your deadbeat past and your good credit citizenship today. You want the lowest rate and payment available--for a couple of years.

ARMs: Betting On Your Future

Bad credit borrowers are different from other borrowers--your bad credit mortgage is a temporary solution, not a way of life. Find a hybrid ARM with a payment you can manage (if you can't then set your sights lower), get a rate that is fixed for 2 or 3 years, and make sure there isn't a prepayment penalty longer than your 2 or 3 year fixed rate period. Then use the next two or three years wisely.

By Gabriel Traverso
Mortgage Credit Problems Columnist

Benefits of a Home Improvement Loan

Some of the many benefits of a Home Improvement Loan are outlined below. Home Improvement Loans are ideal if you need more space but cannot afford to move house. Lofts can be converted and extensions built. As the number of mortgage applications declines Home Improvement Loans are an increasingly popular option for home owners and growing families.

A Home Improvement Loan is great if you want to raise a large amount; are having problems getting an unsecured loan; or have a bad credit history – you may be able to get a Home Improvement Loan even when you have been turned down for an unsecured loan.

Moving property is expensive – solicitors, estate agents, stamp duty, new soft furnishings – the list seems to go on and on. And most of this is money down the drain. Why move home when you can get a Home Improvement Loan and save money? A Home improvement Loan could be the easiest and cheapest way to make improvements to your home.

With a Home Improvement Loan you can borrow from £5,000 to £75,000 with low monthly repayments. The loan can be repaid over any term between 5 and 25 years, depending on your available income and the amount of equity in the property that is to provide the security for the loan.

With competitive rates and a quick decision a home improvement loan could well be just what you need to enable you to finance your dream improvements.

Some obvious benefits of a Home Improvement Loan are:

An easy and manageable route to generating extra cash. With a remortgage you have the same expenses you do when taking on a mortgage, surveys, valuation, mortgage indemnity and solicitors fees to pay. With a Home Improvement Loan you have none of this, making it easier to arrange.

You can use the cash for any purpose - for example, debt consolidation, home improvements, buying a car or going on holiday.

Using a Home Improvement Loan for Debt Consolidation means that with one single payment each month, you have more control over your monthly budget.

Borrow from £5,000 to £75,000

Repayment period can be anything from 5 - 25 years

Protected payment plans can provide extra peace of mind

You can add value to your property

Save on all moving costs

Get the home of your dreams without moving house

by John Mussi

Home Loan Calculator - Help With Financial Figures

When you use a home loan calculator, you can see what your new home loan will actually cost over time.

A home loan calculator can help you use logic, instead of emotion when buying or refinancing a home loan. Sometimes emotions can take over as soon as you walk into a new home you really love.

How Home Loan Calculators Can Help

Using a home loan calculator, you can find out what your monthly home loan payments will be. A home loan calculator can save you from a bankruptcy later down the road, because of over estimating what a loan cost will be.

Home loan calculators can give you all the information you need before acquiring a home loan or refinancing a home loan. The best place to find a home loan calculator is online. Most are free and very simple to use.

Home loan calculators are an advantage when comparing home loans and refinancing online. When considering two or more home loans, you can easily see what the best loan is for you financial situation.

Home loan calculators can take the place of having to be a financial expert. Most of the work is done for you with a few entries and clicks of the mouse. You then have some solid figures to work with.

Home loan calculators are very simple to use online. If you can use a keyboard and a computer mouse, you have everything you need to make a wise financial decision.

With home loan calculators, you can easily see the difference in monthly loan payments. When you enter an interest rate of 5% and compare it to an interest rate of 5.75%, you may be surprised at the cost of a home loan over a 30-year term.

You can try many different term and rates to find out what looks best to you for a home loan. This is where a home loan calculator can really help when you're on a tight budget. Having lower monthly home loan payments may work better for you, than saving money over the term of your loan.

With home loan calculators, you can take the mystery out of what your home loan will cost. This, in itself, will help you feel great about your new home purchase or refinance. With a true picture of your loan budget, a home loan calculator is invaluable.

You can find all the information, tools, resources and advice online. Taking the time out to educate yourself can save you thousands of dollars and give you peace of mind.

Michalis 'BIG Mike' Kotzakolios

Home Loan Interest Rates – Important Factors To Consider Before You Purchase A Home

Before you run off and purchase a new home you may want to educated yourself with the different type of home loan interest rates that are available. This first step can help save you both time and most importantly money.

What is a Fixed-Rate Mortgage?

With a fixed-rate mortgage, the interest rate is fixed for the life of the loan and the debt is amortized, or paid in equal monthly installments. It has a steady, flat payment with no change. Whether that life, or amortization period, is 30 years, 15 years, or even less, the payments remain constant until the balance is zero.

This is the type of loan for someone with no tolerance for movement in home loan interest rates, someone who invests in government bonds rather than volatile stocks and new ventures, someone who does not want to review the money rate section of the Wall Street Journal daily to figure out what the next mortgage payment will be. If you have a fixed income, or one that does not move with the economy, this is your loan. Or if you are merely conservative by nature, this is your type of home loan.

Home loan interest rates with a fixed-rate are predictable. You have certainty that as the years go by, you will never have payment shock. What you paid in the first month of your home ownership is that same amount you will pay when you’re old and gray and the roof on your home has been replaced once or twice.

What is an Adjustable Rate Mortgage?

With an adjustable-rate mortgage (ARM), the home loan interest rates are adjusted periodically to keep it consonant with changing market rates. It has a lower start interest rate, the easiest qualifying, and is usually predictable early, but not always. Bankers like this because the loan stays close to their cost of funds, a phenomenon referred to as marking to market. This allows banks or institutions the ability to match their assets to their liabilities.

The ARM is the loan for a good planner who has alternative sources of funds or disposable assets. Handling an adjustable-rate mortgage is really a cash-flow issue, so entrepreneurs who are adept at dealing with the cash fluctuations in a business are often well suited for home loan interest rates with an ARM. Also, it is a good loan if you expect windfall profits that will allow you to reduce the principle substantially, thereby lowering your monthly debt.

ARMs involve a teaser rate so the initial payments are lower with home loan interest rates. This introductory rate is arbitrary, set by the lenders to lure you into a deal. Another advantage is that the ARM adjusts to the then-current balance, and one of the factors that influence the size of your payment is the ever-increasing balance for which the interest is charged.

In general, ARMs allow you to qualify for a higher loan amount. If you are in the early years of your career, an ARM may be the best route to your dream home. Or there may be times of low interest rates when you feel as if you’ve gotten a healthy bonus. And, if you are a good planner, that “bonus” should allow you to handle the upward shifts in home loan interest rates with ease, or to add to your payment amount to reduce the principle balance.

Dean Shainin

Equity loan

An equity loan allows you to borrow money from a lender to the amount of the money you have paid into a property. Equity loans usually refer to home equity where the loan provided is backed by the money you have paid into your home. There is a lien put on the equity of your home after you have borrowed the money.

Many people find an equity loan an appealing option due to the very low rates they offer. The low rates are mostly due to the fact that they are backed by a property you already own. However since the lien is put on your home, you may end up losing your home to the lender if you fail to pay. The lender may auction off the home and pay you the amount outside the lien.

A low rate equity loan can be used for a variety of different tasks. You can use the money to start a new home improvement project or put up an addition to your home. You can use it to take a much-awaited vacation or pay for your kid’s college tuitions.

Equity loan rates have been so low lately that some people even borrow the money to invest it. This can be a dangerous proposition however, since if your investment tanks you may end up losing your home.

There are two main types of equity loans you can get on your house. A home equity loan is a lump sum payment equal to a percentage of the money you have paid into your home. A home equity line of credit is different and works more like a credit card, where you borrow only the money you need from your home equity.

Equity loans have to be paid back, usually on a monthly basis. This includes the principal payment plus interest for the month. If you do not pay on time, you can end up ruining your credit and be forced to pay a higher loan rate on any credit you apply for. On the other hand, timely payments can help you raise your credit score so you are able to refinance your equity loans and secure even lower interest rates.

by Jakob Jelling

Debt consolidation - Options for Reducing Your Debt

Studies show that Americans are now saving less than ever before. Along with that, Americans are carrying a heavier debt load than ever. It’s easy for a home loan, a car loan and a few credit card bills to get out of hand, and many people are struggling with more debt than they can easily pay. To make matters worse, new bankruptcy legislation will make it harder than ever to file bankruptcy for those who simply cannot pay their bills.

There are a number of solutions available that allow most people to reduce their interest rate on their debt, reduce their total monthly payment, or both:

  • Ask for a lower rate on your credit card. If you have been making payments regularly, and you haven’t had a history of late payment, you may be able to lower your interest rate on your credit cards simply by calling your credit card company and asking them! It doesn’t always work, but the market for credit cards is pretty competitive these days, and many lenders would rather lower your interest rate than lose you as a customer. It’s worth asking.
  • Get a new credit card. If your lender isn’t willing to lower your rate, shop around for a credit card with a better interest rate. There is no reason to be paying 20% or more in credit card interest if you don’t have to. The interest on credit cards is not tax deductible, but if you can get a credit card with a lower interest rate and you move balances from other cards to that one, you can save quite a bit.
  • Take out a traditional bank loan with collateral. You can probably obtain a simple installment loan from your bank by putting up cash or investments as collateral for the loan. Like credit cards, the interest isn’t tax deductible, but the interest rate may be better than credit cards, and if you consolidate several payments into one with a bank loan, you will lower your monthly payment.
  • Take out a home equity loan or home equity line of credit. If you have equity in your home, you can borrow up to 80% of your equity in either a lump sum or a revolving line of credit. Interest rates are still quite low on home loans, so this one could be a good way to consolidate your debt. As a bonus, the interest is tax deductible. A minor downside is the fact that these loans usually have application fees and/or closing costs.

Most people can utilize one of the ideas above to help them reduce their debt. If none of these options work for you, you should consider speaking to a credit counselor, who can outline other options that may work for you. Many credit-counseling agencies are non-profit, so it may be worth your while to talk to a credit counselor if nothing else will work.

by Charles Essmeier

Buying A Home When Rates Go Up

Many people fret the rising tide of interest rates. You’ll hear things like, “Did I miss the boat? Is it too expensive now to buy a home? How can I afford the house of my dreams? Maybe I should wait! Maybe I should just rent for a while! Maybe the rates will go down in a few weeks. “

Stop! Nonsense, I say!

I bought my first home at close to 9%. Buyers from the 80’s told me I was getting in at a bargain, and anyway, who cares? I don’t. I refinanced long, long, long ago. 9% is just a part of history now.

So, here’s 5 important points you need to keep in mind, when the ebb and flow of interest rates, ebbs up, more than it flows down…

1.There’s no better time, then NOW!
2.Long Term Investing
3.Creative Financing
4.Uncreative Financing
5.Buying a Home when Rates go Down

1.There’s no better time, then NOW!:

I know it sounds cliché, but it’s true. There’s no better time to buy, then now. Why?

a)Because if rates are going up, then the law of supply and demand insists that the rising price of homes will likely slow down.

b)Since appreciation slows down when rates go up, this is an opportunity to buy at a perceived discount

c)Remember, rates fluctuate, and nothings forever. So, it’s more important to get your darned foot in the door, right now. You can always refinance later, as rates ebb and flow back down. You’ll still have the benefit of having gotten into the house, at a lower, discounted price, and you can then enjoy both a low rate when you refinance, alongside knowing that you got the house when prices slowed down, maximizing the gain when appreciation revs back up again.

See what I mean? Don’t wait. It only gets more expensive. There’s always, no better time, then NOW!

2.Long Term Investing:

If this is your first home, then you have to think beyond the next year or so, and move your frame of reference into a longer futuristic point of view.

a)Are you going to live in the same house, for at least 5 years?

b)Most of us would answer yes, therefore, you need to be more concerned with real estate in the long term, let’s say beyond 5 years, and you need to be less concerned with the short term rise and fall of rates. You’ll drive yourself nuts otherwise.

c) 5 years is a pretty solid range of time, for rates to go both up, and down. In other words, history proves that for the most part, you’ll live through the ebb and flow of rising and falling rates, as a homeowner, and you know what? You’ll survive; in fact, you’ll thrive, because you’ll enjoy a net gain in appreciation over the long term.

So rates go up and down in the short term, but in the long term, real estate always appreciates, and that means that homeowners always win.

3.Creative Financing:

This is the good stuff. When rates go up, opportunities abound. You see, many homeowners, builders, and developers, find themselves in more negotiable positions because of the laws of supply and demand. Surplus rises, and buyers slow down.

a)If financing is an issue, then you may be able to negotiate with the owner to carry the note, and completely bypass more conventional lending institutions.

b)If affordability is an issue, then perhaps you’ll find many more re-sales out there, perhaps fixer-uppers, ready to negotiate for a lower price (Can you say, built in equity?)

c)If discounts and incentives are your game, then perhaps you’ll locate some developers anxious to move inventory, with a flare for adding a rebate, or doing you’re landscaping, or building that retaining wall you wanted.

The key here (and this is very important), is to find an excellent real estate agent. I can’t stress enough, how important it is to have someone on your side, who understands the lay of the land. Don’t go at it alone. Just go find someone knowledgeable, who you can trust, and who is ready and willing to roll up their sleeves, and go to work for you.

4.Uncreative Financing:

As of the writing of this article, rates are still very, very low. Anything below 7%, for a fixed rate, in my opinion, is totally workable.

a)Between 1979 and 1990, fixed interest rates ranged from 11% to 16% on average. This is highly unusual historically, of course, but it is an excellent benchmark, when you evaluate how good, or bad, things are right now.

b)So as you’re exploring your choices, don’t lose sight of the big picture. Getting your foot in the door is more valuable, then being left out in the cold.

c)One other important point. For all those homeowners that purchased in the 80s, do you think they’re terribly concerned now about the ebb and flow of rates? Do you think they kept their 11% fixed rate loan, or do you think they refinanced when it dropped down to 6% (or paid the house off by now). I’d venture a guess, that virtually all of them; have a nice, hefty, bulky, attractive pot of equity sitting on their front porch step today.

5.Buying a Home when Rates Go Down:

When rates go down, of course, it’s obvious that getting a loan and buying a house is extremely attractive.

a)But when rates go down, there is a lack of homes on inventory.

b)Can you say, “Non-negotiable”, or “bidding war”, or “oops, sorry…Already sold!”

c)When rates go down, the seller is in the driver’s seat, and the buyer is running around with checkbook in hand, yelling “Where do I sign?”

Keep that in mind. Which would you prefer? Personally, I dislike high rates, but I LOVE being in the drivers’ seat. I guess in the end, you’ve just got to work with whatever environment exists today. Any way you look at it, you can’t stop and wait until the cards stack up in your favor. You just have to dive in, and get started. If you like to be creative, if you like opportunities, and if you like to be in the drivers seat then rising rates shouldn’t bother you in the slightest. Renting is more of a crime to your finances, in the long run.

We’ve enjoyed providing this information to you, and we wish you the best of luck in your pursuits. Remember to always seek out good advice from those you trust, and never turn your back on your own common sense.

by Tom Levine

Home Buyer Beware - Know the Signs of Real Estate Market Trouble

Lots of articles have appeared recently about the booming real estate market in the United States. Home prices, especially on the East and West coasts, are not only at record levels, but are increasing at record rates. In some areas around Washington, D.C. and San Francisco, home prices have tripled in the last five years. While many homeowners have been enjoying huge increases in their equity, realized when they either sell their home or borrow against it, the market has become increasingly difficult for those trying to buy homes. It may get worse, as there are now some strong signs that the market may be near its peak:

  • The prices of homes in many markets are so high that few buyers can purchase them using traditional mortgages. In Washington, D.C., for instance, 48% of new mortgages are of the interest-only variety, where the buyer pays only the interest on the loan for the first few years. This keeps the payments low enough that the buyer can qualify for the loan. The problem is that the buyer is only paying interest and not actually contributing to the purchase price of the home. The fact that so many buyers are obtaining interest-only loans suggests that prices in those markets may be too high to be sustained.

  • Many home appraisers have complained that lenders are constantly pressuring them to “make the numbers” when appraising homes. Appraisers in some modestly-appreciating markets, such as Buffalo, NY, say that they are often given a value when assigned an appraisal, with the unspoken understanding that their appraisal is expected to come in at or above that figure. The lending industry is competitive, and lenders want to issue as many loans as possible. It would appear that quite a few of them are even willing to lend money when the home doesn’t appraise for the asking price. Appraisers point out that if they don’t provide the “requested” figures, then the lenders will simply hire other appraisers.

  • The foreclosure rate is increasing. The rate increased in March and April over the same months last year, suggesting that more buyers may have discovered that they have mortgages on which they cannot make the payments. The foreclosure rates are the highest in Florida and Texas, which have foreclosure rates that are nearly triple the national average. With interest rates near historic lows, mortgages are more likely to become even less affordable as interest rates increase.

What this means for prospective buyers is that they must do even more research before buying a home. Buyers should genuinely consider whether or not they could actually afford to make home payments that include a reduction in principal. If a buyer can’t afford a home without taking out an interest-only loan, the buyer probably can’t afford the home. Buyers should be suspicious of home appraisals and should, if possible, ask the appraiser if they are being pressured to provide a predetermined figure. Every buyer wants his or her home to appraise for at least the amount of the loan. But the current market is one where buyers are straining to make payments on prices that are at record levels. The last thing any buyer wants is to strain to make payments on a mortgage that exceeds the value of the home. The real estate market is in a precarious state at the moment, and prospective buyers should do as much research as possible to make sure that they can both pay for, and keep, their new home.

by Charles Essmeier

Bad Credit? A New Home Loan Could Help

Having bad credit or poor credit won't prevent you from getting a home loan. If you work hard at keeping your credit clean, making your mortgage payments on time can go a long way to bringing your credit score up.

Lenders are offering more bad credit mortgages today than ever before. In 1999 about 5% of the loans offered fell into the subprime category, whereas in 2006 about a fifth of the total loans offered fell into that category, according to the Federal Reserve. Generally, anything below "fair" credit, or a score of about 600 is considered a bad credit mortgage.

Bad Credit Mortgage: What Can I Expect?

With the shift in the economy and many analysts expecting a recession, some lenders are tightening their guidelines and moving away from bad credit home loans. However, there are still plenty of lenders to work with and now is a good time to start shopping around.

Where does your bad or poor credit leave you in a loan? Well, you can expect to pay interest rates anywhere from one percent to three percent higher than someone with good or excellent credit -- a FICO score of 700 or higher. It will depend on the mortgage type, your equity or down payment, your income, the amount of savings you have, and the programs your loan officer can find you. If you have a score of at least 600 you should be able to get approved for 100 percent of the property value, but check with your loan officer.

Take Action

With house prices stabilizing and the economy on careful footing, don't wait too long to start shopping for your home loan. Now is still an excellent time to get into a mortgage, even with bad credit, but if you wait around interest rates could continue to go up. Find out what options are available to you and start improving your credit while you enjoy your new home.

By Gabriel Traverso
Mortgage Credit Problems Columnist

Bad Credit Home Equity Loans

A home equity loan allows you to borrow against the equity you have built in your house. Even if you have no equity, you may be able to borrow up to 125% of the value of your home. You can use the extra cash to consolidate bills, fund college tuition, or any other reason you see fit. If you have bad credit, you can still apply and be approved for a home equity loan. Mortgage lenders are offering great interest rates and easy terms on home equity loans, even if your credit history is less than perfect.

A home equity loan will give you the financial means to pay off your debts and begin rebuilding your credit. You can use the cash for any reason you choose and you may even lower your monthly mortgage payments in the process. Don't let bad credit stop you from applying for a home equity loan. Lenders are competing for your business and can offer you numerous options and choices when you apply for a home equity loan.

Homeowners have an advantage when bad credit prevents them from obtaining new credit accounts. You can use the equity in your home to secure a loan up to 125% of your home's appraised value. Bad credit will not exclude you from apply for and being approved for a home equity loan. Lenders are currently offering loan products for all types of credit situations. If you have bad credit and own your home, a home equity loan can be designed to fit your individual needs. You can begin rebuilding your credit and get the extra cash you need to pay off high interest credit cards, past due accounts, and any other expenses you may have.

Bad credit will not prevent you from applying for a home equity loan. You could even be approved for a home equity loan up to 125% of your home's value. Begin rebuilding your credit and get the extra cash you need to put you on the path to financial freedom. It is even possible for you to lower the amount of your monthly mortgage payments with a home equity loan. You can have extra cash in your wallet each month to help you repair your credit history. A home equity loan, even if you have bad credit, can be the solution the stress and pressure that comes from past due bills and endless calls from creditors.

by Carrie Reeder

Home Equity Line of Credit - Great Idea for Rainy Day Emergencies

Most Americans tend to live on a paycheck-to-paycheck basis, and the typical household has nearly $10,000 in credit card debt. Adding to that is the fact that Americans are saving money at the lowest rate in history. We spend what we earn, when we earn it, and there’s little or nothing available when a disaster or an emergency strikes. How can the average American make sure there will be money available for that “rainy day” emergency?

One possible solution would be to open a home equity line of credit. The equity in a home is the difference between the value of the home in the market and the amount owed on the mortgage. Rising real estate prices across the country have left Americans with record amounts of home equity, and record numbers of homeowners are borrowing against the equity in their home. There are two main types of home equity loans; the traditional loan and the line of credit. The traditional loan lends a fixed amount of money that is repaid at a fixed interest rate over a fixed amount of time. This is ideal when the money is borrowed for a specific purpose, such as a home-remodeling project.

The home equity line of credit, on the other hand, gives the borrower great flexibility. The amount of money is capped at a certain amount, but the borrower writes checks to use the money when they need it. The borrower only makes payments when he or she actually writes a check to use some of the money, and the interest rate on the loan is adjustable. The line of credit is the perfect source of funds for that “rainy day” emergency. The costs of obtaining a line of credit are minimal, and the paperwork is much less involved than the paperwork associated with obtaining a primary mortgage. The beauty of a line of credit is that there are no additional costs if the money isn’t used. The homeowner is under no obligation to use any of the money, but he or she can simply sleep soundly, knowing that it is available should an emergency arise in the future.

Americans, as a group, tend not to save much of what they earn. But even poor savers who own their own homes can prepare themselves for unexpected financial emergencies by taking out a home equity line of credit. One never knows when an emergency will strike, but it is always a good idea to be prepared to face one.

by Charles Essmeier

Home Equity - Is it Time to Cash Out and Move?

During the last five years, home prices have increased nationwide. In some parts of the country, notably California, home prices have doubled or even tripled. The median price of a home in the Los Angeles area is now nearly $450,000 and in the San Francisco area, the price is approaching $600,000. As the economy continues to improve, the price of housing continues to rise in California and elsewhere. Many people who have owned their homes for more than three years are suddenly finding themselves with hundreds of thousands of dollars in equity. Of course, equity is only a theoretical gain, and if the price of housing goes down, equity can go away. You only get to keep your equity as cash if you sell your home. Many homeowners are doing just that.

Home equity loans are increasingly popular these days, and many people with large amounts of equity in their homes are borrowing against it and using the money for home improvements, dream vacations or other luxury items. Others are simply cashing out and moving elsewhere. While prices on both coasts are rising at a breathtaking rate, price increases in most of the country are still more modest. A homeowner in California who bought a home five years ago for $200,000 may have a home worth $500,000 today. If that homeowner were to sell that home and move to Texas, or Iowa or even parts of Florida, he or she could buy a comparable or even larger home, pay cash, and probably keep a healthy profit to invest. For most Americans, the equity in their home is their single largest asset. Examining that equity to see if it can be used more wisely would be a sound move, particularly as real estate experts warn of a housing “bubble” that may soon reduce prices to more realistic levels. Should this “correction” in the market take place, homeowner equity could be seriously reduced.

Obviously, selling a home and moving just to pocket the equity is not something that suits everyone. While it may make sense from a financial standpoint, it will mean finding a new employer, finding a new home, finding new friends and moving children to new schools and friends. Anyone considering such a move would be well advised to carefully consider all of the ramifications of simply picking up and moving. On the other hand, the opportunity to extract several hundred thousand dollars in cash from a home is a rare one, and investing it wisely could go a long way towards financing a better lifestyle or a more comfortable retirement. Homeowners should be aware that there might be capital gains taxes to be paid on the sale of a home. Those considering selling their home to extract their equity would probably benefit from a consultation with a financial advisor.

by Charles Essmeier

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