Better credit can save cash
By Marcie Geffner – LendingTree.com

Want to save an easy $105 this year? If you’re an average consumer, that’s how much you could cut your annual finance charges if you improved your credit score by just 30 points, according to a new survey released by the Consumer Federation of America (CFA) and Washington Mutual Bank.

Boosting your credit score by a mere 30 out of several hundred points might be much easier than you’d think it would be. According to the survey, these five strategies may be among your easiest opportunities for improvement:

● Pay all of your bills on time and in full every month.
● Don’t max out, or get close to maxing out, the limits on your credit cards or revolving credit accounts.
● Pay off your debts, rather than transferring your balances from one account to another.
● Don’t open multiple new credit accounts all at one time or in rapid succession.
● Check your credit report annually and take action to correct any mistakes that might have been made.

The survey also found that in some ways consumers have become better-informed about credit scores in recent years. But in other ways, consumers still harbor misconceptions and misunderstandings.

With that in mind, here are a few important points to remember:

● Your credit score is based on your history of using credit and paying your debts. Your personal characteristics such as your income, age, marital status, home state, education or ethnicity have no effect on your credit history or credit score.

● You can improve your credit score by using credit responsibly. For example, your credit score can increase if you pay off a large credit-card balance, but decrease if you make a late payment on a credit-card or max out your limit on a credit-card.

● You’re legally entitled to a free look at your credit report (but not your credit score) once each year. If you also want to find out your score, you’ll have to pay a small fee. An exception occurs if you’ve been turned down for a mortgage loan or credit-card. In that case, you’re entitled to a free credit score as well.

The bottom line is that the more you know about credit, the better prepared you’ll be to use credit wisely–and that can be easier on your wallet.

Housing bill to aid homeowners
By Marcie Geffner – LendingTree.com

The federal government is poised to enact a major housing bill that aims to assist first-time home buyers, homeowners who need to refinance their mortgage and an assortment of housing-related companies.

The House of Representatives has already passed the 694-page bill, which is now being heard in the Senate. President Bush has said he will sign the bill, which could be on his desk within a few days.

The details won’t be official until the ink dries on the President’s signature, but here’s a summary of several key points:

FHA refinancing program 
A new FHA loan program would be established to help struggling homeowners refinance their mortgage with a new 30-year, fixed-rate FHA loan.

To qualify, the homeowner must:

• have an existing mortgage originated before Jan. 1, 2008,
• be unable to afford the payments on that mortgage,
• have a mortgage debt-to-income ratio of at least 31 percent (or potentially higher),
• live in the home and
• meet a number of other requirements.

The homeowner’s current lender would have to agree to reduce the amount owed on the existing mortgage to no more than 90 percent of the home’s current market value.

Borrowers who want to apply for this program should first contact their current mortgage servicer and then an FHA-approved lender. Borrowers will have to pay a monthly premium for FHA mortgage insurance, be reasonably able to afford the payments on the new mortgage and share a portion of future appreciation in the value of the home with the FHA.

First-time home buyer tax credit
Home buyers who purchased a home on or after April 9, 2008, or before July 1, 2009, and had not owned a home during the previous three years would be eligible for a federal income tax credit of up to $7,500. The credit would have to be repaid over a 15-year-period and would be phased out for taxpayers whose adjusted gross income exceeds $75,000 (single filers) or $150,000 (joint tax return).

Higher loan limits 
The maximum loan limit for FHA-backed loans would be increased to 115 percent of the local-area median home price. The maximum loan limit for loans that could be purchased by Fannie Mae and Freddie Mac would be set permanently at $625,500. The Department of Veterans Affairs loan limit also would be increased.

New Fannie Mae, Freddie Mac regulator 
A new federal regulator would be created to oversee Fannie Mae and Freddie Mac. The government’s thinking is that a new tougher regulator would enhance Wall Street’s confidence in the two government-sponsored mortgage companies. That could indirectly result in lower mortgage interest rates, which would be an added benefit for home-loan borrowers.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Rising rates may make ARMs riskier
Refinancing could protect you from higher monthly mortgage payments.

If you have an adjustable-rate mortgage (ARM) and are worried about the prospect of higher interest rates later this year, you might want to consider refinancing to take advantage of today’s still-attractive interest rates on fixed-rate mortgages.

If your ARM has already been reset or is scheduled to reset soon and your new monthly payment won’t be affordable, the decision to refinance your ARM may be simple. Yet the decision still should be made carefully since your mortgage is most likely your largest monthly expense.

In addition to the outlook for interest rates, other factors you should consider include:

• Your tolerance for risk.
• The interest rate caps on your current ARM.
• How long you intend to own your home.

If you refinanced your ARM today with a fixed-rate mortgage, you’d be protected from the possibility of higher interest rates and monthly payments in the future. That’s because a fixed rate means exactly that: The rate never changes over the entire term of the loan, be it 15, 30 or even 40 years. A 30-year fixed-rate mortgage originated today at 6.5 percent would still have that same 6.5 percent interest rate in the year 2038, when it would be paid in full.

Remember that refinancing usually extends the term of the loan, which results in a longer time–and more payments–until the loan is paid off.

Interest rates are already higher today than they were a year ago on 30-year and 15-year fixed-rate mortgages and most ARMs. The good news for borrowers, however, is that loan fees and points are lower, on average, than they were a year ago on some loan products.

Higher interest rates could be on the horizon if inflation, which refers to higher prices, forces the Federal Reserve to hike bank interest rates. The Fed doesn’t directly set interest rates on mortgages, auto loans or credit-cards, but its actions indirectly affect the general direction of rates that consumers pay.

Before you decide to refinance your loan, review your current ARM with your loan officer. Find out how much your interest rate and payment could increase and when each adjustment will occur. How comfortable–or uncomfortable–would you be if the worst-case scenario for your ARM came true? If that scenario makes you queasy, refinancing could be a smart way to protect yourself from that risk.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Rate locks when rates are rising
By Marcie Geffner – LendingTree.com

If you’re ready to apply for a home loan, but are concerned that interest rates might go up before your loan closes, a rate lock might be just what you need.

A rate lock puts a hold on your interest rate for a set period of time, though you’ll still have to qualify for the loan to receive that rate.

If you expect your loan to close quickly and you’re willing to take a chance that interest rates might go up, a lock might not be important to you. But if there could be a delay before your loan closes or you couldn’t afford the loan if the rate went up, a lock might be a smart precaution. Ask your loan officer to help you weigh the pros and cons and decided when to lock your rate, if at all.

Some lenders will lock your rate when you submit your application. Others will float the rate until your loan is approved or even longer, unless you purchase a lock.

Don’t confuse a rate lock with a fixed-rate loan. A lock holds the rate while your loan is being processed. It doesn’t mean your rate can’t change after your loan is funded.

If you want to consider a lock, be sure to ask these questions:

● Does the lock apply to the interest rate and points?
A “point” is a fee that’s equal to 1 percent of the loan amount. Some borrowers “pay points” to reduce the interest rate on their loan. A lock should cover both the rate and points.

● When will the lock expire?
A typical rate lock is good for 30 days, but a longer or shorter period might be appropriate, depending on how soon you expect your loan to close. Most lenders charge a higher fee to lock your rate for a longer time. If you don’t want to take any chance that your rate might increase, err on the side of caution and get a longer lock.

● Can the rate float down?
One disadvantage of a rate lock is that if you lock your rate and then the interest rate goes down, the lender might not give you that lower rate. Some lenders allow a one-time float downward after the rate is locked.

If a rate lock is important to you, be sure to work with a reputable lender who will honor that commitment and process your loan in a timely manner. Insist that the terms of the lock be put in writing, and keep in close contact with your loan officer to make sure your loan will close before your lock expires.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Fed holds interest rates steady
By Marcie Geffner – LendingTree.com

The Federal Reserve decided Wednesday to keep its key interest rate unchanged at 2 percent. That’s good news for home buyers and homeowners who feared an increase in the benchmark federal-funds rate might trigger higher interest rates on home loans.

The Fed held steady because it is trying to balance the different pressures on the U.S. economy. On the one hand, the Fed suggested in its statement, the economy has been strong enough to continue growing and withstand the current risks. But on the other hand, the Fed statement noted, “the upside risks to inflation and inflation expectations have increased” and “uncertainty about the inflation outlook remains high.” Inflation, which refers to higher prices, is one of the Fed’s chief concerns.

The Fed doesn’t directly set the interest rates that borrowers pay on home mortgages, auto loans or credit cards. But the Fed’s actions indirectly affect the rates that lenders charge on those loan products. Nonetheless, interest rates that you’ll pay on your loans could change even though the Fed decided to hold to its current course and neither raise nor lower its key rate.

Homeowners who have an adjustable-rate mortgage (ARM) should be especially diligent about the outlook for higher interest rates. Find out when your ARM will reset and how much your monthly payments might increase at that time. If you’re concerned about the risk of even higher payments in the future, you might want to refinance your ARM with a fixed-rate mortgage.

If you’re shopping for a home or want to refinance your current mortgage, be sure to discuss the interest rate outlook with your loan officer.

The bottom line for borrowers is that higher interest rates on home loans may still be on the horizon despite the Fed’s inaction this week.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Is now a good time to buy a home?
By Marcie Geffner – LendingTree.com

Ask some of your friends, relatives and neighbors whether now is a good time to buy a home, and you’ll probably get conflicting answers. Some may say yes since home prices have fallen, but others may caution you against buying now since prices may continue to fall.

The right answer is that buying a home should depend more on your own personal situation than on market conditions–or other people’s advice.

To assess your own situation, you’ll want to weigh the pros and cons of buying now or waiting and hoping that prices fall further. Here are six factors to consider:

● Employment. If your income is steady, you may feel confident buying a home now. But if your job feels insecure or you might relocate to take a different job, you might not want to commit to buying a home just yet.

● Mobility. If you’re planning to move within a few years, buying a home now could turn out to be a costly choice if prices in your area are declining. But if you’re planning to stay put for a while, a home could be a good long-term investment.

● Budget. If you aren’t certain you can afford to own a home, buying now might not be realistic. But if you’ve assessed your budget and feel you’re financially ready to handle a house payment, plus property taxes, homeowner’s insurance and maintenance costs, becoming a homeowner may make sense for you.

● Prices. If you already own a home, you may be hesistant to sell it at today’s prices. But keep in mind that if you sold your current home for less money now, you might be able to buy your next home at a lower price too.

● Rent. If you’re renting and your rent is affordable, you may want to hold on to your apartment. But if rents are on the rise in your area, you might value the security of a fixed housing payment. Trading your apartment for a home also could give you several additional tax deductions.

● Interest Rates. Remember that higher interest rates can wipe out the benefit of lower home prices. For example, if you had a 30-year, fixed-rate loan of $300,000 at 5.75 percent, your monthly payment would be approximately $1,751. If instead, your loan amount was only $280,000, but the interest rate was 6.5 percent, your payment would be $1,770, which would be $19 more per month.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

FHASecure program expanded
By Marcie Geffner – Lending Tree.com

The Federal Housing Administration (FHA) has announced an expansion of its FHASecure loan program, which is designed to help homeowners who can’t afford the monthly payments on their existing subprime adjustable-rate mortgage (ARM).

The FHASecure program allows borrowers to use an FHA loan to refinance a subprime ARM if the original lender agrees to reduce the amount the homeowner owes as an alternative to foreclosure. The lender may require a separate loan for repayment of the “gap” between the amount owed and the reduced amount. Homeowners who have used the FHASecure program were able to cut their mortgage payments by $400 a month on average, according to the FHA.

The expanded program is scheduled to take effect in July 2008 and will be open to:

● Borrowers who were late on three monthly mortgage payments, either consecutively or three times in the previous 12 months. A loan-to-value (LTV) ratio of 90 percent is required. (The LTV ratio is applied to the refinance and based on a new appraisal prepared by an FHA-approved appraiser.)

● Borrowers who were late on only two monthly mortgage payments, either consecutively or twice in the previous 12 months. An LTV ratio of 97 percent is required.

Like all FHA-insured loans, the FHASecure program requires mortgage insurance, which is paid for by the borrower and protects the lender in case the borrower defaults on the loan. The expanded FHASecure program will give borrowers who are more creditworthy a price break on their mortgage insurance.

Homeowners who want to refinance a subprime ARM or other type of loan, but don’t meet the FHASecure guidelines may be able to utilize another FHA loan program or obtain a non-FHA loan.

The FHA is a federal government agency within the U.S. Department of Housing and Urban Development. The agency has helped 220,000 borrowers refinance their mortgages since September 2007 and plans to stretch that figure to 500,000 borrowers by the end of 2008.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.