Archive for April, 2007
50-Year Mortgage A Viable Alternative.
Posted by: | CommentsGetting a 50-year loan is a perfectly rational way to avoid an interest-only or payment-option adjustable-rate mortgage. Both of these loans feature Adjustable Rate Mortgages (ARMs), but can also feature a negative amortization factor… which if the borrower doesn’t administer or manage properly, can cause problems in the long run.
With an interest-only mortgage, the minimum monthly payment puts little or no money toward principal. And, a payment-option ARM can go a little further… in some circumstances, the minimum monthly payment doesn’t cover the interest accrued that month. A borrower could make a minimum payment at the beginning of the month, and then going into the next month, could find that he now owes more than was owed before the payment. This situation is referred to as negative amortization, or “going negative.” It can be avoided if the borrower pays attention to his mortgage statements, and makes more than the minimum payment. However, some borrowers don’t pay attention and get into trouble.
For borrowers who want to avoid the possibility of going negative, the 50-year mortgage might make sense. It offers lower monthly payments than a traditional 30-year mortgage… like the interest-only or payment-option loan. And, it also offers a predictable and fixed housing payment. Additionally, in areas where housing prices are rising or have risen substantially, the lower payments provided by a 50-year mortgage make a home or property more affordable. Want more information about the 50-year mortgage? Consult your Mortgage Match loan consultant.
New Rules for Mortgages.
Posted by: | CommentsAs a result of the “subprime fallout”, there are new rules in the business of getting a mortgage; particularly if you’re a credit-challenged borrower. If you’re not familiar with current events as they pertain to mortgages, and don’t exactly know what’s meant by the “subprime fallout”, here’s the situation in a nutshell. For the past 2 to 3 years, and perhaps as long as 4 years ago, mortgage lenders reached out to credit-challenged borrowers with new programs that essentially relaxed the standards for buying a home with no money down. For a time, borrowers with less than fair credit were able to obtain zero down loans. This might sound good so far, but things happened that caused lots of problems with these loans. It’s a little too long and complicated to recount the whole story and discuss all of the factors involved. But, the end result was that many of the borrowers who obtained these loans started defaulting on their payments. Soon, foreclosures followed in very high numbers, and the lenders who made these loans found themselves in serious trouble. A large number of these lenders have gone out of business because of this. And, this is what prompted the new rules of the mortgage “game”. While these new guidelines aren’t etched in concrete yet, new universal standards are beginning to take shape. Before the subprime fallout, borrowers with midscore FICOs down to 580, and who could document their incomes, could obtain zero down, interest only mortgages. Now, that magic FICO score is in the low 600s… with 600 being about the lowest acceptable FICO midscore number. Many lenders have put the minimum FICO at 620 for zero down. For a “stated income” loan, the new minimum FICO score seems to be 640. Since these standards are rapidly changing with modifications and new policies being added every week, it’s best to talk with a Mortgage Match loan consultant for the most up-to-date information.
What is an insurance score?
Posted by: | CommentsWhat is an insurance score?
Your insurance score is based on your credit score and can be used to calculate your insurance premiums.
Think your credit score affects only your ability to borrow money? Think again. Your credit score also can affect your access to homeowner and car insurance and the size of your monthly premiums. In fact, your credit score can be used to determine your “insurance score.” Never heard of such a thing? Here are the basics on credit-based insurance scores:
Definition of insurance score
As defined by the Insurance Information Institute (III), a person’s insurance score is “a numerical ranking based on a person’s credit history.”
Use of insurance scores
In order to fairly calculate premiums and predict risk, insurance providers try to predict who will submit claims prior to this actually occurring. Insurance carriers do not charge their customers a standard rate, but rather, one that is tailored to each individual’s potential risk. According to the III, actuarial studies have found that a person’s financial stability serves as a good indicator for making these predictions, helping insurers determine a person’s insurance risk level and calculate premium charges equal to that risk level. That is, people with good credit are typically less like to suffer a loss or submit a claim than those with poor credit.
Insurance score criteria
Although a person’s credit record is used in determining his or her credit-based insurance score, it is not the only contributing factor. Some of the data taken from a credit record for use in calculating an insurance score includes:
- Payment history
- Credit history and type
- Length of payment and credit history
- Outstanding debt
- Available credit
- Items of public record – bankruptcies, etc.
When compared to a credit score, an insurance score generally relies more heavily on information such as whether you’ve paid your bills on time and for what length of time, and less so on the amount of debt you have outstanding. Moreover, the importance of your insurance score depends upon where you live – each state has different insurance regulations – and the insurance company you use.
How much do insurance scores matter?
Keep in mind that insurance scores are not the only criteria used to determine if you qualify for insurance and what rate you pay. Insurers also look at motor vehicle reports, your driving record, claims history, home condition or auto features, as well as other information. So an insurance score alone will not dictate the price you’ll pay for insurance or whether or not you qualify.
Also, your insurer may not even use a credit-based insurance score. Some states do not allow credit history to be used for insurance purposes or have regulations regarding how the information can be used. Different insurance companies weigh credit data differently. If you’re interested in knowing whether your insurer uses credit information and insurance scores in their underwriting decisions, contact your insurer directly.
Improving your insurance score
You can work to improve your credit-based insurance score in many of the same ways you would work to improve your credit score. The easiest thing you can do is always pay all your bills on time, as well as eliminate any outstanding balances on your credit cards. This does not mean closing all of your accounts when paying off your credit cards, because a good credit record typically includes one or two accounts that have been open and used responsibly for a certain amount of time.
Minimum requirements to qualify for a mortgage
Posted by: | CommentsMinimum requirements to qualify for a mortgage
In the market for a mortgage? Know what lenders are looking for in borrowers.
Have you reached the point in your life when you’re tired of renting and want to take the plunge into home ownership? Buying a home is an exciting step, but before you start packing, you may want to become familiar with the characteristics lenders are looking for in borrowers. That way, when the time comes to put in an offer on the home of your dreams, you’ll have the confidence that comes with having qualified for a mortgage. Here’s what you need to know before applying for that loan:
Down payment
When purchasing a home, it’s best to have saved money for a down payment. Lenders want to know how much of a down payment you’re going to be making in relation to the overall cost of the home. This percentage is known as your loan-to-value (LTV) ratio. Lenders calculate your LTV ratio by dividing the amount you are asking to borrow by the value of the home you want to buy. Ideally, you want to have an LTV ratio of 80 percent or less. If you have a LTV higher than 80 percent you will most likely have to pay for private mortgage insurance. It’s therefore a good idea to save for a 20 percent down payment. If 20 percent is out of the question, it’s a good idea to put 15, 10, or even 5 percent down. That way you will have some equity in your home. Also, keep in mind that mortgage lenders will want verifiable proof that these funds exist, so have your bank statement.
Limited debts
Lenders generally require that your monthly home ownership costs plus other monthly debt payments – such as car loans, student loans and credit card bills – be no greater than 36 percent of your gross monthly income. Mortgage lenders look at your debt-to-income (DTI) ratio to determine how much this amount is and how much you can afford to borrow. This ratio is calculated by dividing your pre-tax income by the amount used to pay off debts on a monthly basis. Your credit card payments are included in this calculation as the minimum payment required, not the amount you owe each month. Your total potential mortgage payment should include taxes and property insurance.
Credit history
Your credit score plays a major role in your borrowing and interest rate eligibility. A credit score of 720 or higher should earn you the most favorable interest rate. If your score is below 720 but above 675, you may no longer be approved for the best rate, but you should have still be able to find a good loan. If your score is below 620 you may fall into the “subprime” category which means it may be more difficult to find a loan with a low interest rate. Before you apply for a loan, it’s a good idea to take a look at your credit report to make sure there are no errors. All Americans are entitled to one free credit check a year. Also be sure to check your credit score three to six months before applying for a mortgage, so you have enough time to correct any problems. To get your actual credit score, you can visit one of the three major bureaus – Equifax, Experian and TransUnion – or get it through LendingTree.com. If your credit score is less than perfect, you can take steps to improve it before you buy a home. Click here for tips on how to build a good credit score.
Employment record
Your job history is also important in whether you qualify for a loan. Lenders will look more favorably at someone who has kept the same job for two or more years than someone who has changed positions frequently. However, some job moves are looked upon more favorably than others – particularly those resulting in equal or more pay. If you are self-employed or work on a commission, lenders will likely require more financial information from you, such as personal and business tax returns.
The bottom line
Buying a home can be a great investment. By making sure you have everything you need to qualify for a loan, you can begin your home shopping today with confidence that your mortgage application will be approved.
Lending Guidelines
Posted by: | CommentsLending Guidelines
As of March 29, 2007. These guidelines will update monthly.
You may have heard the buzz about changes in the mortgage industry. Due to changes in the housing market, lenders are updating their lending guidelines to better protect borrowers. Here’s a chart to help you figure out how the new standards affect you.
Please note that these are general guidelines and may not apply to all lenders. Even if you meet the down payment and credit score requirements detailed below, you are not guaranteed to get loan offers.
|
Down Payment Required |
||
|
Credit Score |
Current |
Old |
|
680+ |
None |
None |
|
660-679 |
None |
None |
|
620-659 |
5% |
None |
|
580-619 |
10% |
None |
|
560-579 |
15% |
10% |
|
540-559 |
20% |
10% |
|
Down Payment Required |
||
|
Credit Score |
Current |
Old |
|
680+ |
5% |
None |
|
660-679 |
10% |
None |
|
620-659 |
10% |
None |
|
580-619 |
15% |
10% |
|
560-579 |
20% |
10% |
|
540-559 |
25% |
15% |
|
Maximum CLTV Allowed |
||
|
Credit Score |
Current |
Old |
|
680+ |
100% |
100% |
|
660-679 |
100% |
100% |
|
620-659 |
95% |
100% |
|
580-619 |
90% |
100% |
|
560-579 |
85% |
90% |
|
540-559 |
80% |
90% |
|
Maximum CLTV Allowed |
||
|
Credit Score |
Current |
Old |
|
680+ |
95% |
100% |
|
660-679 |
90% |
100% |
|
620-659 |
90% |
100% |
|
580-619 |
85% |
90% |
|
560-579 |
80% |
90% |
|
540-559 |
75% |
85% |
|
Maximum CLTV Allowed |
||
|
Credit Score |
Current |
Old |
|
680+ |
100% |
100% |
|
660-679 |
95% |
100% |
|
620-659 |
90% |
95% |
|
580-619 |
90% |
100% |
|
560-579 |
85% |
90% |
|
540-559 |
80% |
90% |
|
Maximum CLTV Allowed |
||
|
Credit Score |
Current |
Old |
|
680+ |
90% |
90% |
|
660-679 |
90% |
90% |
|
620-659 |
75% |
80% |
|
580-619 |
85% |
90% |
|
560-579 |
80% |
90% |
|
540-559 |
75% |
85% |
|
Maximum CLTV Allowed |
||
|
Credit Score |
Current |
Old |
|
680+ |
125% |
125% |
|
660-679 |
100% |
100% |
|
620-659 |
90% |
95% |
|
580-619 |
- |
- |
|
560-579 |
- |
- |
|
540-559 |
- |
- |
|
Maximum CLTV Allowed |
||
|
Credit Score |
Current |
Old |
|
680+ |
95% |
100% |
|
660-679 |
90% |
95% |
|
620-659 |
- |
90% |
|
580-619 |
- |
- |
|
560-579 |
- |
- |
|
540-559 |
- |
- |
Notes and definitions:
CLTV is the Combined Loan-to-Value ratio, or the combined amount of all loans on a property divided by the appraised value of the property.
Stated income is when employment is stated and verbally verified, and income is stated but not verified.
Credit scores below 620 are considered subprime.
All information is based on owner-occupied homes.
Important warning about “upfront fee” requests
Posted by: | CommentsImportant warning about “upfront fee” requests
Don’t be fooled by scams asking you to pay a fee prior to your loan application.
LendingTree cares about your privacy and would like to alert you to possible fraudulent activity known as an “upfront fee scam.” In an upfront fee scam, a “lender” requires some sort of payment, often called “insurance”, before an application has been taken or processed. No legitimate lender does this.
If you receive calls, letters or emails from “lenders” who say that they are LendingTree or who tell you that they represent LendingTree, make sure you know the facts:
• LendingTree only matches customers with lenders on our network, including LendingTree Loans. You will be notified of lenders you are matched with either through emails from LendingTree or by a LendingTree Loan Specialist over the phone. Click here to review a full list of LendingTree lenders.
• LendingTree and our lenders will not ask you to pay any money for approving a loan, guaranteeing a loan or for “insuring” a loan.
• LendingTree and our lenders will not ask you to send a copy of your driver’s license or social security card before you have submitted an application with a loan officer. Please note: If you complete a loan request through LendingTree, you have not completed a loan application. You must do this with the lenders with whom you are matched.
• LendingTree and our lenders will never ask for your bank account information before you complete your loan application.
Legitimate lenders may ask for and charge an interest rate lock fee, application fee or appraisal fee once you begin working with a loan officer. LendingTree suggests that you use a credit card when paying any fee for your protection.
For additional information on this important issue, please see: http://www.ftc.gov/bcp/conline/pubs/tmarkg/loans.pdf
Is now the time to refinance your ARM?
Posted by: | CommentsIs now the time to refinance your ARM?
If the interest rate on your ARM is due to adjust soon, you should consider whether it makes sense to get a new loan.
Like many home buyers, you may have chosen an adjustable-rate mortgage because the introductory interest rate kept your monthly mortgage payments affordable during your early years of homeownership. But every adjustable-rate mortgage resets sooner or later, and when yours adjusts, you might be facing a substantially higher monthly payment.
The possibility that your payment might climb even higher may prompt you to consider refinancing your adjustable-rate mortgage with a different loan product. The choice to refinance isn’t easy, but there is no need to panic or overreact to a higher payment.
Factors to consider
The difference between the reset monthly payment on your existing mortgage and the amount you would pay on a new mortgage is the most obvious factor to consider, but shouldn’t be the only factor you keep in mind. Other considerations might include the caps and adjustment periods on your current mortgage, the outlook for higher (or lower) interest rates, the cost to you in time and money to obtain a new mortgage, and how much longer you expect to own your home.
The caps and adjustment periods on an adjustable-rate mortgage can protect you against substantially higher payments even if interest rates continue to rise. It’s difficult to predict interest rates, but you can educate yourself and pay attention to financial-market news, so you can make smarter decisions.
A new mortgage can cost thousands of dollars and take many hours to research, apply for and close. If you expect to sell your home within a few years, the benefits of a new mortgage might not justify the outlay of time and money. That’s especially true if you itemize your income tax deductions since a higher mortgage payment could be partially offset by a bigger break on your taxes. (Consult a tax advisor about your situation.)
New mortgage may be advantageous
If you obtained an adjustable-rate mortgage within the past few years, your payments might not be lower on a new fixed-rate mortgage today because interest rates now are likely higher than they were when your mortgage was originated.
Moreover, if you refinanced into a new loan that wouldn’t be paid off as quickly as your existing mortgage, you would have to make more payments into the future. For example, if you had made payments for five years on a 30-year ARM, you would have 25 years of payments left to make. But if you refinanced your ARM to avoid higher payments and you chose a 30-year term, you would be making payments for an additional five years. That means lower monthly payments might not be advantageous because you might need to make a lot more of them to pay off your new loan.
A new loan might offer other benefits, however. For instance, a fixed-rate mortgage would protect you against the possibility of even higher monthly payments in the future, an advantage that’s especially important if you plan to own your home for a long time.
Adjustable rate can be advantageous as well
You also might want to refinance one type of adjustable-rate loan into another type of adjustable-rate loan that would reduce, but not eliminate your exposure to higher interest rates. A lender can help you figure out which products might accomplish this objective.
An adjustable-rate mortgage may offer a key benefit that’s simply not a function of fixed-rate products: That is, your payments could be reset lower as well as higher as interest rates fluctuate over time. An adjustable rate is always riskier than a fixed rate, but if you can shoulder that risk, you may be rewarded with lower payments in the future.