Archive for June, 2007
What to do when a lender says no
Posted by: | CommentsWhat to do when a lender says no
Take a look at your credit history and debt to income ratio if your loan application has been denied.
It’s not uncommon for prospective home-loan borrowers to receive the dreaded news that their application has been denied. While no one welcomes a lender’s “adverse action” letter, there are some steps you can take to get yourself back on track.
The first step is to relax and not panic. An adverse action letter isn’t a personal attack on you, and it doesn’t mean you’re a bad person or a failure. It may mean that you won’t be able to purchase the home you want or that you won’t be able to purchase a home right away, but it doesn’t mean you’ll never be able to own your own home.
The next step is to review your personal situation and try to find out exactly why the lender declined your application. Was your credit score too low? Was your debt-to-income ratio too high? Was the appraiser’s opinion of the home’s value lower than the sales price? Or did some other problem crop up? It’s important to find out the details because each situation requires a different solution.
Check your credit
If your application was denied due to your credit history or credit score, you should request free copies of your credit reports from either AnnualCreditReport.com or the three credit bureaus, TransUnion, Experian and Equifax. Be sure to get all three reports because adverse information in one report may not necessarily appear in the other two reports.
Loan officers rarely have the time or expertise to sort out individual borrowers’ personal financial situations, so you’ll need to swallow any pride or embarrassment that you may feel and ask a trusted family member, friend or other financial advisor to help you understand your credit report and strengthen your credit score. For more information on credit reports and scores, visit the Credit Section of the LendingTree Smart Borrower Center.
Be wary of anyone who promises to “fix” your credit for a fee. While you certainly can improve your own credit score over time, credit repair services typically can’t do much for you that you can’t do on your own if you put in the time and effort.
Take a hard look at your debt-to-income ratio
One of the reasons your loan application was denied may have been that your debt-to-income ratio was too high. If this was the case, you’ll need to increase your income, reduce your debt or borrow less money. To understand this scenario, suppose you earned $2,000 a month and applied for a loan that required a monthly payment of $900. That debt-to-income ratio of 45 percent might be within the guidelines. But if you also had a monthly car payment of, say, $400 and a minimum monthly credit-card payment of, say, $100, those debts would push your debt-to-income ratio to 70 percent, which would be too high. A monthly debt obligation of $1,400 would leave only an inadequate $600 per month for all of your other expenses.
Borrowers who receive an adverse action letter sometimes try to approach another lender in hopes of a happier outcome. That’s not always a smart idea since a lender that’s willing to be more flexible about your situation probably will offer you a more expensive loan on less favorable terms. That quick-fix may solve your immediate problem, but may not be in the best interest of your long-term financial wellbeing.
Myths and facts about credit scores
Posted by: | CommentsMyths and facts about credit scores
Confused about credit scores? Here are some facts you need to know.
Credit scores may be one of the most mysterious and misunderstood aspects of the home loan process. They’re also among the most important factors that determine whether you’ll be able to qualify for a specific loan product. That’s why you should educate yourself about credit scores and understand these facts:
Myth: You have only one credit report and one credit score.
Fact: You have only one credit history – yours. But you probably have at least three credit reports and three credit scores generated by the three major credit bureaus, Transunion®, Experian® and Equifax®.
Myth: The biggest factor in determining your credit score is the number of inquiries from creditors that appear on your credit report.
Fact: Your credit score is determined by several factors, and the number of inquiries is just one small piece of the credit score puzzle. The factors that determine your credit score include payment history, amounts owed, length of credit history, new credit (including number of recent credit inquiries), and types of credit used.
Myth: Too many “soft” inquiries can hurt your credit score.
Fact: “Soft” inquires made by companies that might want to offer you credit in a promotional manner have no effect on your credit score. Nor does checking your own credit report have an effect on your credit score. Rather, checking your own credit is a smart financial habit.
Myth: You can pay someone to “fix” your credit.
Fact: You can educate yourself about credit and improve your own credit score over time, but credit repair services typically can’t do much for you that you can’t do on your own if you put in the time and effort.
Myth: Getting married merges your credit history with your spouse’s.
Fact: Getting married doesn’t merge your credit history with your spouse’s, except to the extent that you and your spouse both become contractually responsible for the same debts (e.g., a joint credit-card account). A “merged” credit report includes both your credit and your spouse’s, but doesn’t merge your separate credit histories.
Myth: Getting divorced separates your credit history from your spouse’s.
Fact: Getting divorced doesn’t end your responsibility for debts that you are contractually obligated to pay. Nor does it end your ex-spouse’s responsibility for debts that he or she is contractually obligated to pay. That’s true even if your divorce decree stipulates that one or the other of you will pay those debts.
Myth: People who earn high incomes or are wealthy always have high credit scores.
Fact: Neither income nor personal wealth has any effect on your credit score. In fact, some people who have high incomes have low credit scores and some people with low incomes have high scores. Remember, your credit score is all about how you manage your debts – no matter how big or small your income.
Check your own credit report
To check your credit situation, request a free online credit report and score from LendingTree.
Current trends predominant in Florida mortgage market
Posted by: | CommentsFlorida Mortgage – Are the current market trends favorable for you?
Mortgage rate overview..The Florida market currently reflects the nationwide drop down in mortgage rates – that of the common fixed rate loan options like 15 year fixed, 30 year fixed and the 1 year ARMs. However, the 5/1 year hybrid ARMs are slightly up by a few basis points and are currently on an upward trend.
Average mortgage rates this week
15 Year FRM
6.55%
30 Year FRM
6.83%
1 Year ARM
6.69%
The statewide 15 year mortgage rates that have been above 6% have dropped down to even below 6%. The 30 year rates have somehow managed to stay above 6% but declined slightly from the previous value. This is due to the stock market pushing long term rates lower as the 10 year Treasury note yields dropped. The 30 year fixed rate mortgage continues to be Florida’s most common home loan. Besides, Hybrid ARMs and interest-only options are quite popular these days.
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Subprime market and how it can affect youThere are concerns about the subprime mortgage market, which has been in trouble nationwide since quite some time. This has affected the secondary market where big companies like the Freddie Mac have refused to buy subprime loans till the end of September. The company has also declared that borrowers going for non-subprime loans will need to qualify at the fully-indexed rate and not the low introductory rate in order to take out adjustable rate mortgages.However, qualifying a borrower with a certain income against a higher rate does not imply that he will not get the loan. But then there are chances that the borrower qualifying for a certain loan amount at the ARM introductory rate may be offered a lower amount in comparison if he has to qualify at the fully indexed rate (higher than introductory rate). This is likely to lessen the demand for homes and that’s not so good news for the housing market which needs more stabilization.However, the expected decline in new home sales can be balanced by slow down in long term rates which are expected to be at low levels as that will help in refinancing. So, A credit borrowers having signed the deal for an ARM can avoid payment shock after a certain number of payments.Despite the delinquencies and defaults in the subprime mortgage industry, it is expected that over 80% of the market would be involved with A credit and the rest 20% would account for the subprime loans. A considerable percentage of borrowers out of the 20% is in some stage of delinquency and cannot get through on account of low equity built up and rising monthly payments. The primary reason behind this is stumbling home prices, which have made it difficult to refinance loans or sell properties to pay down debts.
Trends in Florida housing marketThe housing market in Florida reflects the national trends – slower home sales compared to what it has been last year around this time. However, prices of single family homes have remained steady even with inflation suggesting that there is some kind of stability in the housing market. Since single family housing is the area where most lending transactions happen, therefore the market looks good for investment into single family properties. However, not all markets are progressive. Jacksonville has a slow and steady market compared to Orlando, Tampa, St. Petersburg, Miami and other cities in South Florida.Economy and Florida mortgage rates forecastThe Federal Reserve has kept the Fed Funds Rate almost steady in order to check inflation. However, Consumer price Index has gone up thereby showing signs of higher inflation and hence the Fed is expected not to cut down rates but rather hold them steady. The economy is going through slower growth and this will keep mortgage rates at lower levels. This will find its reflection in the state of Florida too.
Overview of recent mortgage market trend in California
Posted by: | CommentsCalifornia Mortgage Market – Current Trends and Forecast
Strong economic growth and moderate inflation over the final quarter of 2006 contributed to a softer market pattern in 2007. The Federal Reserve has held steady with the Fed Funds rate at which banks offer overnight loans to each other. It continues to do so in order to curb inflation and foster economic growth. The Prime rate which banks charge their potential customers also remains unchanged as it is based upon the Fed Funds rate.
Average mortgage rates this week
15 Year FRM
6.51%
30 Year FRM
6.86%
1 Year ARM
6.19%
andbull; Short term rates staying lowThe Fed Funds rate affects the short term mortgage rates while the Prime rate influences rates on home equity loans and lines of credit. Depending upon Fed Funds rate, initial rates on short term California mortgages (such as 1 year ARM) have gone up with respect to last year’s national average rate, but currently there is a downward trend. Similarly 5 year hybrid ARMs marked an upward trend till the beginning of this year and then dropped down slightly.
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andbull; Long term rates are currently favorableConsidering long term California mortgage rates, 30 year FRM rates have gone up to the highest mark since the nationally recorded rate in October, 2006. 15 year fixed rate loans have been on an upward trend compared to that of a year ago when the national average rate was 5.81%. These rate hikes on the long term mortgages are primarily due to the increasing trend of interest rate on 10 year Treasury note since the final quarter of 2006. However, interest rates on both 30 year and 15 year loans have been pushed downwards.
andbull; Housing market and popular loan optionsThe California housing market though declined in 2006, yet new sales rose a bit in the beginning of this year. Recent homebuyers have gone for long term loan products in order to refinance their interest-only and adjustable rate mortgages. Despite the stabilization in the housing market, new buyers prefer to deal with alternative loan products like interest-only loans and option ARMs. These programs are likely to remain popular this year due to high housing costs.
However, traditional fixed rate loans and the extended fixed rate products such as 40 year and 50 year mortgages are expected to dominate the market in 2007. Besides, Prime rate ARMs (home equity lines of credit) and hybrid ARMs will also be predominant.
andbull; Conforming loan limit remain stableThe conforming loan limit remains unchanged as in 2006. For single-family first mortgages, the maximum limit is $417000 and that for second mortgages is $208,500. However, single-family applications are likely to improve throughout the year and further into 2008. It is expected that the first 6 months of 2007 will be ideal for a home purchase as interest rates will be low during this time.
As for the whole year, interest rates on California mortgages will remain favorable. However, there is a possibility that the Fed Funds rate may go down after being stable for quite some time but then the change will not occur prior to summer. The Fed may take such a decision to curb the Fed Funds rate on account of inflation threats. But currently the economy is likely to expand slightly in 2007 rather than tip into recession. However, there are concerns over foreclosure which in California is the second highest recorded nationally.
Related Forum DiscussionsIntroducing the 50 year Mortgage in CaliforniaPopular mortgage options in South California
Texas Mortgage Market Trends and Overview
Posted by: | CommentsCurrent Trends in Texas Mortgage Market – Impact of subprime market downturn
Current mortgage rates and options
Mortgage rates in Texas have gone up slightly as is the scenario in markets throughout the nation. Fixed rate loans including 30 year and 15 year mortgages have climbed up slightly above 6%. Interest rates on 1 year ARM have gone up to 6.00% whereas 5/1 year hybrid ARM rate have exceeded the 6% mark. 15 year fixed rate loans still remains a popular
Average mortgage rates this week
15 Year FRM
6.50%
30 Year FRM
6.79%
1 Year ARM
6.13%
option for refinancing in Texas. Besides, creative loan products like interest-only loans and option ARMs are being offered to those looking for higher priced homes.
Texas reverse mortgage
The mortgage market in Texas has been able to develop a large base for reverse mortgage borrowers especially those looking for the HUD insured HECMs. The entire volume of reverse mortgages originated in Texas accounts for 5.7% of the total volume of such loans offered throughout United States. For the past few years, the largest number of reverse mortgage originations has taken place at Dallas in Texas. However, the amount of HECM insured by the HUD is restricted to each county in the state. This is known as the 203b limit.
Subprime market
With the shakeout in the subprime mortgage business nationwide, tougher lending standards are expected to follow and this is likely to affect Texas home buyers at a time when home sales are already on a slowdown. Increasing defaults and delinquencies in the subprime market have resulted in foreclosures in large numbers. Almost half of the current home foreclosures in Texas are due to the origination of subprime loans.
Most of the subprime loans in default are adjustable rate mortgages on which borrowers failed to continue the payments due to variation in interest rates. It is expected that owners of entry-level homes may not go for higher priced homes due to lesser number of buyers being available in the market. Besides, borrowers being reluctant to go for higher prices, lenders are also not ready to approve loans until and unless enough documentation is being submitted.
Housing market scenario
In order to prevent loans from going into defaults, big mortgage companies are offering home loans on the basis of more upfront cash, higher income level, and better credit scores. On one hand, these changes can minimize the number of defaults and foreclosures while on the other hand, it will result in fewer home sales in Texas, especially in the northern region. Besides, there being a lack of 100% financing, home sales are likely to get affected further. As of now, sales on low and moderate income home buyers in some areas of Texas (like Dallas) have declined by more than 20% in the past few years.
Due to the disturbance in the subprime market and the decline in home sales, builders who initiated new loan products have abandoned them. They are also concerned over the consequences of tightening lending standards on home sale activities. Home builders have slashed the new home starts by nearly 28% during the first quarter of the year compared to the same period last year. However, in spite of fewer home starts, closings of newly constructed homes are still on the rise.
Mortgage rates ahead
Currently the economy in the state looks strong and consumer spending is expected to improve by the steady growth of employment and increase in household wealth. As such there is a possibility that the Fed may again raise interest rates in order to curb inflation.
What is a Truth in Lending statement?
Posted by: | CommentsWhat is a Truth in Lending statement?
A Truth in Lending (TIL) statement can help you decide if a loan is right for you. But making sense of this document is not always easy.
A Truth in Lending disclosure statement is one of the more important documents in the mortgage process. It is designed to help borrowers understand their borrowing costs in their entirety. Federal law requires that lenders provide a Truth in Lending (TIL) document to all loan applicants within three business days of receiving a loan application, disclosing all costs associated with making and closing the loan.
Here is a breakdown of the some of the charges you may find on your Truth in Lending statement and what they mean:
Annual percentage rate:
The annual percentage rate (APR) is the “cost of credit” or the amount you will pay for the credit provided to you through the loan. APR is calculated at a yearly rate. It includes not only your contractual interest rate, but also any prepaid finance charges paid during or before the loan’s closing – such as origination points, service fees or credit fees, commitment or discount fees, buyer’s points, finder’s feels, etc. – as well as any private mortgage insurance (PMI). PMI is generally required if you put less than 20 percent down on a home. Note that the APR shown on the TIL disclosure statement always exceeds the quoted interest rate because of the additional items noted above. In essence the APR reflects the true cost of your loan.
Finance charge
The finance charge also calculates the cost of credit, however this figure is expressed in dollars rather than a percentage. Like the APR, the finance charge includes the total amount of interest incurred over the loan’s lifetime, plus any prepaid finance charges and mortgage insurance premiums.
Amount financed
The amount financed represents the loan amount minus any prepaid finance charges. The amount financed is important because it provides you with a clear, accurate assessment of the total amount of credit provided through the loan.
Total of payments
The total of payments indicates the total amount you will pay over the course of the loan if you make all required payments. This includes the principal, interest and private mortgage insurance (if required), but not your real estate tax premiums or monthly property insurance payments.
Payment schedule
The payment schedule includes the following information: number of payments, amount of payments, and when payments are due. Keep in mind that the amount of payments does not include payments for real estate taxes or property insurance premiums. If you have an Adjustable Rate Mortgage, the payment schedule will reflect the payments due based on any adjustments. If you have mortgage insurance, the payments may that reflected as well.
Other disclosures
Your Truth in Lending statement will contain a number of additional disclosures below the payment schedule information. Some of these may include whether or not your loan has a demand feature and / or a variable rate feature. A demand feature allows the lender to demand payment of the loan for any reason. A variable rate feature means that your interest rate is not fixed and may change. This essentially indicates that you have an adjustable rate mortgage. There is also a section on the Truth in Lending statement that details the late charge terms. This line will tell you when you will be charged a late fee and how much that fee will be.
Another important disclosure to look for is called prepayment. There are two lines under prepayment. The first tells you whether or not you have to pay a penalty if you pay your loan off early. (Remember this fee could apply if you chose to refinance your mortgage or sell your home before the end of your loan term.) The second line states that if you pay the loan off early, you are, unfortunately, not entitled to a refund of part of your finance charge. Basically, this means that you will pay interest for the period of time in which you use the loan and any previously paid finance charges are non-refundable.
Buying a home is a huge decision. If you have any questions about your Truth in Lending disclosure statement, be sure to ask our lender.
Understanding your escrow account
Posted by: | CommentsUnderstanding your escrow account
Your escrow account is an integral component of your mortgage. Learn more about your escrow account and how it should be managed.
As part of the home loan process, borrowers usually have to establish an escrow or impound account in which to deposit real estate taxes and insurance premiums. The purpose of such an account is to make sure that all real estate taxes and insurance costs will be paid in full and on time, protecting the lender from tax liens as well as uninsured losses.
Escrow accounts are confusing for many home buyers. Here are a few facts to help you better understand your escrow account:
What is an escrow account?
An escrow account is basically a savings account held by a neutral third party that is established when your mortgage is taken out. The money in the account covers estimated local and county real estate taxes, home insurance premiums and any special assessments.
How much money can my lender keep in my escrow account?
The Real Estate Settlement Procedures Act (RESPA) sets limits on the amount a lender can require you to put into your escrow account to that of one-sixth of the total amount of items paid from the account or approximately two months worth of payments. Any account assessments and adjustments are made on a yearly basis, with excess funds at the end of the year of $50 or more returned to the borrower.
How can I make sure my escrow account is operating properly?
The amount in your escrow account can vary throughout the year due to changes in your tax assessments and insurance premiums. If increases occur, the lender will typically cover any extra costs until it can adjust your monthly payment.
Once a year, you will get an escrow statement from your mortgage company for your home, showing how much money you paid that year in taxes and insurance premiums, as well as how much your new escrow payments are for the year ahead. It’s a good idea to review your escrow statement and try to figure out your charges is the smartest route. Mortgage companies have been known to mistakenly ask for too much money for an escrow account.
If you think you may be paying too much into your account, speak with your lender. If things don’t change, you can file a complaint with the U.S. Department of Housing and Urban Development (HUD). It’s important to continue to make your mortgage payment during this time. For more information, you may want to review the Department of Housing and Urban Development’s Web site at: http://www.hud.gov/offices/hsg/sfh/res/respafaq.cfm.
Keep in mind when reviewing your statement that mortgage lenders can forget to pay your taxes on time, which can result in the payment of penalties and interest, which the bank will often debit from your escrow account to cover any extra charges. These fees should be repaid to you, as your lender’s late payment is not your fault.
Can I avoid an escrow account?
It is a lender’s decision whether or not to require an escrow account and many lenders do require such accounts as part of their loan’s terms, particularly government-insured loans such as VA or FHA loans.
If you have a conventional loan and do not pay private mortgage insurance – meaning your loan-to-value ratio is less than 80 percent – a lender may allow you to pay your own property taxes and home insurance premiums, but some lenders may raise your interest rate to cover any added risks.