When should you go for a mortgage? Check out yourself

Have you taken out credit cards, personal loans or an auto loan? If you have high interest credit cards, consider paying them down and avoid using more than 10% of your cards' limit at any given time. However, if you are debt-free, you can possibly go for a bigger mortgage depending upon other factors. You may be saving for your retirement by investing into employer sponsored plans like 401k/403b as well as the IRAs. You may like to save for your child's education (Coverdell education Savings and 529 Plan) as well. So, decide whether you're comfortable with managing a mortgage as well as savings plan.

However, if you have too much of credit card debt, pay it off and then start saving for future. Otherwise, managing credit cards, savings and then a mortgage may be quite difficult!

If you're looking for mortgage in a market where borrowing is costly and difficult, then having poor credit will cost you a lot. In such markets, a borrower with a score of 620 is no longer considered creditworthy! At least you should have a score of 680 to qualify for better rates and terms.

Although there are FHA and VA programs for those having poor credit, yet, if you want to get the best program and avoid mortgage problems in future, then wait till you repair your credit and then apply for a loan.

Often lenders take the initiative and work with borrowers in improving their credit scores prior to offering the loan. However, if your score is between 640 and 680, consider putting down 10-15% of purchase price so that some of the best programs are available to you.

As for the credit history, most lenders look for 3-5 tradelines (mortgage, second mortgage, credit cards, auto loan, student loan, store card, gas card, secured/unsecured installment loan etc) in good standing for the past 2 years.

Most lenders will require you to have cash reserves/savings equal to at least 6 months of mortgage payments (PITI) apart from what you'll pay for closing costs and down payment.

However, not all programs (such as the FHA loans) require this but it's better to have some cash reserves so that in case there's an emergency you don't miss a payment and bring down your credit score.

In order to take on additional debt, you'd have to calculate how much of your income (include all sources of income) is being spent on current debts such as credit cards, personal loan, auto loan etc. This is given by the debt-to-income ratio or DTI.

The DTI = (total monthly debt payment/gross monthly income)
So, the % of income put into paying off debts = DTI * 100

Check out yourself the DTI using Debt-to-income Ratio calculator.

The higher the DTI, the lower are your chances of getting a mortgage because you pose a higher risk to lenders if you're already having a lot of debts to pay for.

If it's a declining market with home prices going down, you may like to wait till prices get better. This is because lenders may reduce the loan amount as investors won't provide enough funds.

Moreover, if you cannot pay off the mortgage and decide to sell the home, you won't get enough proceeds because the home value will turn out to be lower than what you owe. Thus, in a declining market, you can't rely on home sales to pay down your mortgage. Rather you'd have to choose options which will have a negative impact on your credit.

However, if you're planning to occupy the house for a long time and your finances are in good shape, you may go for a home that's losing value now as you have the time to wait till prices get higher.

The lending industry has been changing with time to keep pace with inflation and economy. With market changes and scenarios like the credit crunch (due to sub-prime mortgage crisis in 2007), lenders have come up with stricter lending guidelines in order to reduce the rising rate of foreclosures.

Due to market changes, certain programs are simply not available. For example, due to the rising concern over foreclosures (in 2007-2008 beginning) and borrowers' inability to pay off loans, lenders have almost stopped offering 100% financing or 80/20 loans.

View the original article here

Mortgage Points - What are the types and how do you benefit?

Hi carlark,

Welcome to this forum.

Points are also known as discount points. These are some kind of fees that the lenders charge at closing. If the borrower pays these points, he may be offered lower interest rates for the entire loan period.

Eugene has given you some very good information regarding points and I agree with him that the buyer should look the net amount that they need to pay. Points are some kinds of baits to attract the buyers.

There is an article regarding Discount points. You can check it out- http://www.mortgagefit.com/discount-point.html

Feel free to ask if you have any further questions.

Thanks,
Larry

View the original article here

Refinance a mortgage at the right time and for right reasons

Thanks for rating this article.
With mortgage refinancing, you can replace your original mortgage with a new one with better terms and conditions but the new mortgage should be within your affordable limit. The same property that you used as collateral to secure the original mortgage is used to secure the new loan also. The new loan proceeds are utilized to pay off the existing mortgage. In case there is any remaining money after paying down the original mortgage, that amount can be used to meet other financial obligations.

Example: Suppose each of the two borrowers A and B took out mortgage loan worth of $500,000. Again, say after 5 years, both A and B paid down $250,000. So, for both these borrowers, remaining unpaid mortgage amount is $250,000.

Borrower A then took out another loan worth of $250,000, so as to repay the remaining balance on the existing mortgage. This depicts a case of simple refinance.

Borrower B then took out another loan worth of $350,000. Out of this new loan amount, B used $250,000 to pay down the original mortgage. B could use the remaining $100,000 to meet other financial obligations. This describes a case of cash out refinance.

The first scenario is a simple refinance while the second is that of a "cash-out refinance".

You may not always be eligible for refinancing or the situation may not always be conducive for refinancing. You have to time your move correctly so as to reap its benefits. You need to check out these crucial things carefully before applying for mortgage refinancing - If you have built up equity:
You may be eligible for refinancing when you have built up equity of at least 10% in your home. However, for mortgages owned by Fannie Mae, the equity requirement is 5%. It is possible to get the refinance approval even with less than 5% equity, but in that case you may have to pay a certain sum of money to compensate for the deficiency in equity.
If the refinance rate is sufficiently low:
If the current mortgage rate is sufficiently lower than the rate on the original mortgage, then it may be wise to opt for refinancing. Here, you need to follow the 2% Rule. As per the 2% Rule, refinancing is beneficial for you in case the refinance rate is 2% lower than the rate on the original loan. Here, the savings accrued from low rate outweigh the costs of the new loan after a certain period of time, which is called the break-even period. To get benefits of refinance, you have to stay in the house at least till the break-even period.
If you have removed negative items and paid off debts:
Before plunging into refinancing, obtain your credit report from the credit bureaus and review it carefully. If you find some negative items such as collections or late payments, dispute those items immediately and get those items removed from your report. Prior to refinancing, pay down as much debts as possible. All these will work in your favor in getting the refinance approval.
If you have no late payments in past 1 year:
If you have history of late payments in the past 1 year, then your refinance appeal may be rejected. So, before refinancing, make sure you don't have any late payments in the past 1 year.
Despite the fact that refinance has several benefits, it is not always a good idea to go for mortgage refinancing. There are some cases when your refinance appeal is rejected by the lender or it may not fetch the desired returns. Here are some cases when refinancing is not a good idea at all-If the property value has declined sharply:
If the value of your property has declined appreciably, the remaining balance on your original loan may be higher than the refinance loan amount. In other words, with the new loan proceeds, you won't be able to pay down the original mortgage loan.
If you have already used up your equity:
Your equity is the key to get approved for refinancing. If you have already used up your equity by taking out a home equity loan (HEL) or a home equity line of credit (HELOC), then going for refinancing would not be a good idea.
If you have only a few years left on the existing loan:
It does not make good sense to go for refinancing if you have only a few years left on your existing loan. It is not rational to refinance the loan which you have almost paid off. If you have almost paid down a 30-year fixed rate mortgage, then it is unwise to opt for refinancing. After all, refinancing is just like taking out a new loan and all the costs associated with taking out a fresh loan are applicable here too.

View the original article here

Types of mortgage loans - Compare and choose the best option

Join us as a Community Member / Lender

Thanks for rating this article.
function rate_cur_show(){document.getElementById('rate_present').style.display="block";document.getElementById('rate_do').style.display="none";}function rate_show(){document.getElementById('rate_do').style.display="block";document.getElementById('rate_present').style.display="none";}function selstar(val){for(var x=1;x 0){ $('.tabs').css( "Display", "none" ); }*/ // screenwidth = 1024; var url = window.location.href; if(screenwidth The mortgage industry offers a variety of loan programs suitable for a wide range of borrowers. There are loans that require high payments but there are also programs specially developed to provide homeownership opportunities to low-income families. These mortgages have special features and one really needs to get a brief idea of their pros and cons before he applies for it.

This section provides you with an explanation of mortgage types and their features. Apart from highlighting the types of mortgage loans, this section also mentions who all are suitable for the different types of mortgages. The purpose is to help you explore the features of various types of mortgage loans so that you can compare and choose the one that's best for you.

Fixed rate mortgage
(40, 30, 15, 10 years) Fixed rate of interest and hence fixed Monthly payments throughout the loan term. Borrowers who are planning to occupy the property for at least 10 years. Those who don't prefer higher payments.
Interest rate and the monthly payment remain the same for 10 years. From the 11th year, the rate is adjusted every year. This will change the payments each year for the rest of the loan term.Intend to occupy the property for more than 10 years. Like to make stable payments initially but can afford higher payments later on. Plan to leave the property within 10 years. Want to continue with the loan even if there are changes in the plan.
Interest rate and monthly payments remain fixed for the first 7 years. From the 8th year, interest rates are adjusted every year. The payments are thus changed every year till the loan period is over. Plan to stay in the property for more than 7 years. Prefer stable payments initially but can keep up with higher payments later on. Plan to vacate the house after 7 years. Want to carry out with the loan in case the plan changes.
Fixed rate and monthly payments for first 7 years. On the 8th year, the interest rate is adjusted according to prevailing market rates. The resulting payments will remain constant for the remaining loan period.Plan to occupy the property for more than 7 years. Those who can afford just 1 payment adjustment. Those who plan to move out within 7 years. Those who want to continue with the loan in case there is any change in the plan.
Interest rate and monthly payment remain the same for the first 5 years of the loan period. The rate is adjusted on the 6th year to reflect the prevailing rate. The resulting payment remains constant throughout the rest of the loan term.Borrowers intending to stay in the property for more than 5 years. Those who can bear with one payment adjustment Borrowers who plan to move within 5 years. Those who want the loan to remain in force in case of any change in the plans.

For the first 5 years, the interest rate and monthly payment remain constant. But from the 6th year, the rates adjust after every 5 years and 1 year respectively.Those who can put up at the property for more than 5 years. Borrowers who like stability in monthly payments initially although there may be increase in payments later on. Those who may leave the house within 5 years. Borrowers who want to continue with the loan in case plans change.
The interest rate and monthly payments remain fixed for the first 3 years. From the 4th year, the rates are adjusted in every 3 years and 1 year respectively.Borrowers who plan to stay in the property for than 3 years. Those who can accept initial payment stability and any changes later on. Borrowers willing to abandon the property in less than 3 years. Those who want the loan to remain in force in case of any change in the plan.
The interest rate is adjusted every year as a result of which the monthly payments also vary each year for the entire loan term.Borrowers who want to take advantage of low rates. Those who can bear additional costs due to yearly payment changes. Borrowers who cannot qualify for high rate loan programs.
Interest rate and monthly payments remain unchanged for the first 5 years. After 5 years, the borrower must refinance the loan (which is largely due) at the prevailing rates.Borrowers who plan to occupy the residence for more than 5 years. Those who can refinance their previous loans at the prevailing market rates.
Those who intend to vacate the property within 5 years. Those who like stability in payments.
Interest rate and monthly payments remain fixed for 7 years. At the end of 7 years, the borrower should refinance into a new loan at the prevailing market rates.Borrowers who want to live in the property for a time period exceeding 7 years. Those who can refinance at the available market rates. Those who are planning to move out of the property within 7 years. Borrowers who prefer payment stability.
Related Articles

Last updated on January 17, 2013 I'm buying a home and my fiancée is going to gift me a portion of the down payment for a home we buy. The mortgage will be in my name...
posted on 2011-01-23 14:03:48what does a morgage consist of? how much down payment will i need? What is a pre qualification? What area some general tips for new ...
posted on 2009-04-13 12:37:02The mortgage industry offers a variety of loan programs suitable for a wide range of borrowers. There are loans that require high payme...
posted on 2005-12-08 20:23:58     Post subject: rewant to remortgage the property in both mine and partners name and then sign the property over to partner     Post subject: RE:Hi frank,

It seems that you want to take a loan in order to remortgage your property. But you haven't provided us with all the details regarding your loan request, your credit score, and the state where you reside.

Our Community comprises of a group of lenders offering different types of mortgage loans for borrowers having various income and credit profiles. So if you can give us some more details, then I can send your query to our loan department. They shall consult the lenders and then contact you as soon as possible. So please sign up with us with the details, so that we can proceed further.

Regards,
Jessica.

    Post subject: Mobile home purchaseMy wife and I want to purchase a Mobile Home in CA. We don't have the greatest credit (each of us is around 590) but we have a good combined income around $95,000 annually. Could we still qualify for any of the types of mortgage loans?     Post subject: types of mortgage loans for mobile homeHi Guest,

Welcome to the forum.

Your credit score is not too good but your combined annual income is very good. so I think you can go for FHA loans as these are not a score driven program.

Check out the article at http://www.mortgagefit.com/mobile-homeloan.html and get an idea about the various types of mortgage loans available for purchasing mobile home.

Feel free to ask if you have any further questions.

Best of luck,
Larry

    Post subject: bk affects your chances to get any of the types of mortgagesHave a recent foreclosure and bankruptcy and want to know how this affects the ability to purchase a home with the help of different types of mortgages.     Post subject: foreclosure affects getting various types of mortgage loansHi lilcash,

Welcome to the forum.

How would you face the foreclosure and bankruptcy together? Can you please explain your situation a bit more?

BTW it will have a huge negative effect on your credit report. It will drop your credit score by 250 to 300 points and will remain on your credit report for 10 years. So you may not get approved for any program out of the different types of mortgages in coming 3 or 4 years. From now on pay all the bills and payments on time and try to improve your credit score.

Feel free to ask if you have any further questions.

Best of luck,
Larry

    Post subject: improve credit & qualify for any types of mortgagesmy husband and I both have bad credit, we are renting a home and have to purchase it by 2009, everything on our credit is collections and charge offs, what is the best way to achieve this. we have a combined income of 110,000. advise on how to settle and clear our credit and get our scores up so that we're able to choose the best out of the types of mortgage loans.     Post subject: no down payment - what types of mortgage loans are suitable?what types of mortgage loans are suitable if you have land but no down payment-land is estimated at $30,000 + want to put man. home at approx cost of $90,000. on land     Post subject: good explanation mortgage typesGood deal Jessica! It's in plain english and very informative. Thanks for investing some of your time to make things a little easier for the rest of us!
_________________
Scott McKay
FreeOnlineCreditGuide.com     Post subject: closing datemy husband has this guy that is refinancing on our home and we are getting some cash put in our pocket. We can't figure out what is taking so long, to find a processor and lender. We have been waiting since Sept. 2008. We had been told for 4 weeks now, that we will close next week (repeat). We are getting very frustrated. Any suggestions about this situation.     Post subject: CRT,

One of two things is happening, either you have a mortgage person who doesn't know what they are doing, or your loan pkg is a challenging one.

If your scores are below 580, you have open collections, or recent judgments, have an unstable work history, or late pymts on credit over the past 2 years...then it is probably a credit issue. If this is not the case, then it is the mortgage person.

Kim
_________________
(770) 886-3140

    Post subject: using bank account as collateralHello: Is it possible to use a bank account or bonds as collateral in a loan?
Could you send the reply to me email? "profjdyme@gmail.com"
Thank you,
Prof. J Dyme

[Link deactivated as per forum rules. Thanks]

View the original article here

Obama report on Fannie, Freddie plan may boost mortgage rates

The Obama administration wants to raise fees for borrowers and require larger down payments for home loans as part of a long-term effort to restructure the nation's housing market. But it warned that these measures could boost mortgage rates and make it harder for home buyers to secure the 30-year fixed-rate mortgage, a mainstay of American home buying for decades.

In a long-awaited white paper, the administration said it intends to wind down the federal mortgage giants Fannie Mae and Freddie Mac and curtail the Federal Housing Administration to help reduce the government's outsized role in mortgage funding.

The housing finance system, which has ensured that Americans can get home loans, came crashing down in the financial crisis, helping fuel millions of foreclosures and the recession.

"I think it's absolutely the case that the U.S. government provided too much support for housing, too strong incentives for investment in housing," Treasury Secretary Timothy F. Geithner said Friday during a speech at the Brookings Institution. He noted that in addition to those fundamental mistakes, the government "allowed a huge amount of basic mortgage business to shift where there was no regulation or oversight."

But in proposing a strategy for the future, administration officials acknowledged they are walking a tightrope. Any steps that dial back government support too dramatically - making mortgages more expensive - could extend the housing decline.

Geithner said that a new housing finance system without Fannie and Freddie could take seven years to put in place, suggesting it might fall in part to future administrations.

"We have to see the process of repair in the housing market completed," Geithner said.

The white paper focuses on a series of short steps to increase fees and down-payment requirements. The administration hopes these measures will allow banks to more effectively compete in offering loans without government guarantees.

The report offers three options for replacing Fannie and Freddie. They include creating a new government agency that would continue to insure mortgages or a new agency that would step in only during times of crisis. Each, however, could put taxpayers at more risk of having to bail out the mortgage market during big declines.

The most drastic option would end government backing for home loans beyond the FHA. But the administration warned that this measure could affect access to credit for many potential homeowners. It could boost mortgage rates the most, the officials said, and it could make it harder for community banks to compete in the housing market.

In not offering a single long-term vision for the housing finance system, the administration sought to avoid a contentious clash with Republicans, who often have portrayed the mortgage giants as the chief culprit in the financial crisis. Republicans are likely to agree with the administration's plan to reduce taxpayer support for mortgages over time.

But Rep. Spencer Bachus (R-Ala.), the new chairman of the House Financial Services Committee, said in a statement that while the proposal includes elements that GOP lawmakers have embraced in the past, it "isn't a plan to move us forward, but rather a collection of opinions to consider. What's needed is a real plan, and we intend to sit down with administration officials to find common ground ... we need legislation that protects taxpayers from further losses and future bailouts and builds a stable housing finance system based on private capital."

View the original article here

Major changes ahead for mortgage system as U.S. seeks to scale back role in housing

Fundamental changes are probably ahead for the American mortgage system as the federal government pushes to unwind its unprecedented involvement in the housing market.

These changes could significantly raise the down payments demanded by lenders, curtail the availability of long-term mortgages with fixed interest rates, and increase the cost of borrowing in general.

The government's effort to scale back its role in housing could show up in small ways soon. In April, the Federal Housing Administration plans to raise the annual premium it charges borrowers by a quarter of a percentage point. In October, the maximum size of loans that the federal government backs is scheduled to drop to $625,500 from $729,750. The most dramatic proposal - eliminating mortgage financiers Fannie Mae and Freddie Mac - could take five to seven years.

The thinking is that the government cannot sustain its role in the housing finance system. Federally backed loans make up an outsize share of home purchases - about 90 percent - through Fannie, Freddie and the FHA. Taxpayers have kicked in more than $130 billion to cover Fannie and Freddie losses during the housing crisis, and they could be on the hook for more if the FHA depletes its cash reserves, which are already lower than the level required by law.

All three institutions guarantee that payments will be made to mortgage investors, even when loans go bad. Those guarantees helped keep the housing market from coming to a standstill during the darkest days of the economic crisis.

"But the government is taking on a lot of credit risk," said Mark Zandi, chief economist at Moody's Analytics. "So if loans go bad, it's on the taxpayer. Everyone would find it preferable if the private sector were to take more of the risk."

Loan limits

To that end, the federal government is eager to tackle the "jumbo" loan limits.

In the District and most of its neighboring counties, a temporary federal policy allows the government to back mortgages up to $729,750. Such loans typically carry a lower interest rate than those without government backing, in part because the federal guarantee makes them a safer bet for investors.

"Investors are willing to accept a lower return if their investment is less risky," said Keith Gumbinger, a vice president at HSH Associates.

The Obama administration has supported allowing the maximum loan limit to drop to $625,500 starting Oct. 1 , and Congress is expected to back that move. (Loan limits may be lowered even further for FHA-insured loans, federal officials said, though no details are available.)

Once the cap is lowered, loans larger than $625,500 will fall into the "jumbo" category. Jumbos are perceived to be more risky and therefore often face tougher requirements, such as 30 percent down payments and stellar credit scores.

Standards might ease if the private sector reenters that market, said Eric Gates, president of Apex Home Loans in Rockville. But if the $625,500 cap were in place today, it could lock many potential buyers out, he said.

View the original article here

Mortgage delinquency rates drop

As the labor market improved, the number of homeowners who fell behind on their mortgage payments dropped in the final three months of last year to the lowest level since 2008, according to a national survey released Thursday by the Mortgage Bankers Association.

But the delinquency rate remains higher than what's traditionally normal, and the volume of homes in some stage of foreclosure returned to the record high of early 2010, the report said. The survey covered nearly nine out of 10 primary mortgages.

The data offer a mixed view of the housing market's prospects for recovery any time soon. While delinquency rates have improved across all types of home loans, a swelling supply of low-priced, foreclosed properties suggests that home values could keep eroding and further undermine the ailing housing sector.

"We have to clear out those distressed properties before we can talk about any kind of housing market recovery," said Guy Cecala, publisher of Inside Mortgage Finance. "There are signs of improvement, but I think it's a little early to break out the champagne."

The report's seasonally adjusted figures showed that 8.2 percent of the outstanding loans were delinquent in the fourth quarter of last year, down from 9.1 percent the previous quarter and 9.5 percent a year earlier. Those figures do not include loans that were in foreclosure.

Fewer loans were seriously overdue. The number that were at least three payments past due, for instance, fell to 3.6 percent from a high of 5 percent at the end of the first quarter of 2010.

Mortgages that were only one payment past due are at the lowest level since the recession began in late 2007, suggesting that the employment picture is improving, said Jay Brinkmann, the mortgage banking group's chief economist.

"First-time delinquency is very much a measure of distress in the employment system," he said. "I see all of this as pretty good news. It looks like we've clearly hit the turning point."

Even the percentage of homes entering the foreclosure process slipped a bit, to 1.28 percent from 1.32 percent, in the third quarter. Foreclosure starts rose in only 11 states, with the largest increase in Maryland, where the percentage of homes entering foreclosure rose to 0.9 percent.

Yet the number of loans stuck in foreclosure was up, and that was mostly because many of the country's largest lenders temporarily stopped seizing homes from delinquent borrowers in October after widespread reports of flawed and fraudulent documents.

With so many loans in limbo, the number of homes in some stage of foreclosure rose to 4.63 percent in the fourth quarter. That's up from 4.4 percent the previous quarter and 4.58 percent a year earlier.

About half of the foreclosures are concentrated in five states - Florida, California, Illinois, New York, and New Jersey, Brinkmann said. Four of those states require court approval for foreclosures. When problems with the foreclosure paperwork surfaced in the fall, many of the troubled loans got stuck in the legal process, adding to the foreclosure supply in those areas.

Bank of America, the country's largest financial institution, has since lifted its freeze, and other lenders are starting to do so. Even so, distressed properties continue to make up an unusually large share of home sales.

In January, nearly half of all home purchases involved a distressed property, namely foreclosures or "short sale" transactions that enable borrowers to sell their homes for less than they owe on their mortgages, according to the Campbell/Inside Mortgage Finance Housing Pulse, an index that tracks such sales.

Foreclosures tend to drag down the values of surrounding properties, making many borrowers vulnerable to losing their homes. That's because many borrowers end up owing more on their mortgages than their homes are worth. If they lose their jobs or face other financial setbacks, they are unable to sell or refinance their way out of trouble.

Cecala of Inside Mortgage Finance estimated that 4.5 million loans are seriously delinquent or in the foreclosure process already, based on Thursday's survey. Even if 1 million of those loans were modified each year and another 1 million foreclosures were sold, it would take more than two years to clear them off the market, he said.

"And that's assuming that no more foreclosures are added to that inventory," he said.

View the original article here

Mortgage rates down as investors react to Japan crisis

Mortgage rates fell to the lowest level in almost two months, tracking a drop in Treasury yields as Japan's deepening nuclear crisis spurred demand for relatively safe investments.

The average rate for 30-year fixed loans declined to 4.76 percent this week from 4.88 percent last week, according to Freddie Mac. The average 15-year rate was 3.97 percent, down from 4.15 percent.

The average rate on adjustable-rate mortgages that are fixed for the first five years was 3.57 percent this week, down from 3.73 percent last week. Rates on one-year ARMs averaged 3.17 percent, down from 3.21 percent.

Yields on 10-year Treasury notes, which are benchmarks for some consumer loans, fell this week to the lowest level since December, and stocks sank, reflecting investors' concern about the situation in Japan.

"There's been a little flight to - I don't want to say safety - quality," said Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan data in Pompton Plains, N.J. "As long as trouble remains in the forefront, interest rates are likely to be lower than they otherwise would be."

Mortgage applications fell 0.7 percent in the week ended March 11, according to the Mortgage Bankers Association. The association's measure of purchase applications declined 4 percent; refinancings climbed 0.9 percent.

Housing starts plunged to a 22-month low in February, and permits for construction fell to a record low, the Commerce Department said. Homebuilders are competing with foreclosures and falling prices for existing homes.

Mortgage rates began climbing from a record low of 4.17 percent in the week ended Nov. 11 and reached a 10-month high of 5.05 percent in February.

- From news services

4.88

Last week

4.76

This week

View the original article here

As deficit looms larger, senators' eye cuts in mortgage interest deductions

Just because President Obama's latest budget proposal calls for rollbacks in mortgage interest deductions solely for high-income taxpayers, should you assume that all of your write-offs as a homeowner are secure from attack?

Absolutely not. In fact, those tax benefits - from capital gains exclusions to home-equity and second-home interest deductions -might be more vulnerable to broad-based cutbacks during the next two years than at any time in decades.

Here's why: An influential, bipartisan group of lawmakers on Capitol Hill, led by a so-called "gang of six" in the Senate, is drafting a legislative framework that would essentially seek to implement much of the president's deficit reduction commission report released last December. The legislation would set annual targets for higher revenues and lower spending in multiple budget categories, and would impose automatic, severe cuts if Congress did not hit those targets. Congress would have two years to figure out how and where to make the required reductions.

The Senate group, which is quietly working with deficit-reduction advocates in the House, consists of Majority Whip Richard J. Durbin (D-Ill.), Tom Coburn (R-Okla.), Budget Committee Chairman Kent Conrad (D-N.D.), Mike Crapo (R-Idaho), Mark R. Warner (D-Va.) and Saxby Chambliss (R-Ga.).

Durbin and Conrad were members of the commission. Both voted to approve the final report, which called for $1.7 trillion in federal discretionary spending cuts and $180 billion in tax revenue increases over the coming 10 years. The commission argued that across-the-board trimming of spending and tax benefits is necessary to control the wildfire national debt, now more than $14 trillion and rising fast, which is projected to exceed 90 percent of the country's gross domestic product by 2020 if left on its current path.

Among the tax expenditures the commission specifically targeted were the annual breaks that now flow to homeowners, including mortgage interest write-offs for first and second homes, deductions for home equity lines of credit and second mortgages, property tax write-offs and the $250,000 and $500,000 capital gains exclusions for single and married taxpayers, respectively, who sell their houses at a profit.

President Obama praised the broad goals of the commission but only included a relatively small cutback in mortgage interest deductions - a 28 percent deduction cap on write-offs by single taxpayers with incomes higher than $200,000 and married taxpayers earning more than $250,000 - in his own budget proposal for the upcoming fiscal year.

The legislative draft, which is expected to be circulated to senators in March, already is controversial. For example, Sen. Charles Schumer (D-N.Y.) reportedly is demanding that Social Security changes be exempt from the plan. But members of the drafting group disagree and argue that, to be effective and fair, no major budget-related items - no matter how politically sensitive - can be omitted.

"Everything has to be on the table," said Coburn. "There can be no sacred cows and pet priorities." As to tax code changes, Durbin said that the only way to reduce the deficit is to "ensure that everyone pays their fair share . . . we need to look at the money we forgo every time we hand out a new tax break. These 'tax expenditures' cost the Treasury as much as we spend in appropriations each year with much less oversight."

What's on the line for housing and homeowners, whose write-offs have been widely assumed to be politically untouchable? Big money by any measure. According to the latest estimates prepared by the congressional Joint Committee on Taxation, the mortgage interest deduction will cost the government $99.8 billion in uncollected taxes this fiscal year and $107.3 billion in fiscal 2012. Homeowner property tax write-offs will cost $26.6 billion in uncollected taxes this year and $31.6 billion in 2012. The $250,000/$500,000 tax-free exclusions on capital gains for home sale profits are projected to cost the Treasury about $19 billion this year and $21 billion next year.

No one anticipates that these benefits could be eliminated or even severely slashed within a couple of years. And while housing trade groups have not yet spoken out about the plan being drafted in the Senate, they privately worry that, because of the sheer size of the national debt, leaders from both parties could conceivably join with the president to structure some form of grand debt reduction compromise that requires all special interests to chip in.

"We definitely take this seriously," said Rob Dietz, an economist and tax specialist for the National Association of Home Builders. "We are going to have to continue to make the case for housing, and remind [Congress] just how important housing is to the economy."

View the original article here

Peak buying time ahead, mortgage rates rise

The average rate on a 30-year mortgage topped 5 percent this week for the first time since April, and higher rates could further hamper the struggling housing market ahead of the spring's prime home-buying season.

Freddie Mac said Thursday that the average rate rose to 5.05 percent from 4.81 percent the previous week. It hit a 40-year low of 4.17 percent in November. The average rate on the 15-year home loan, a popular refinance option, increased from 4.08 percent to to 4.29 percent. The average rate on a five-year adjustable-rate mortgage rose to 3.92 percent from 3.69 percent, and the average rate on one-year adjustable-rate home loans increased from 3.26 percent to 3.35 percent.

Thirty-year rates are following the yields on the 10-year Treasury note, which are spiking on fears of higher inflation. Investors have been demanding higher Treasury yields since the Federal Reserve began its $600 billion bond-buying program to boost the economy.

Rates may not have an effect on homebuying until they reach about 6 percent, said Tom Tzitzouris, head of the fixed-income department at Strategas Research Partners in New York. The current levels are a "neutral zone," and buyers are neither prodded to sign nor discouraged from the market, he said.

"If you get another uptick again next week, you may see some movement," said Tzitzouris, who previously worked as a valuation manager for Freddie Mac and as a debt securities analyst for Fannie Mae.

The payment difference between today's rate and the historically low rate in November on a $200,000 loan is less than $100 a month, not enough to price a buyer out of a market, said Greg McBride, a senior financial analyst with Bankrate.com. There also are many buyers who are paying cash.

Mortgage applications fell for the second time in three weeks, a Mortgage Bankers Association index showed Wednesday. The group's gauge of purchases decreased 1.4 percent in the week ended Feb. 4, and its refinancing measure dropped 7.7 percent.

To calculate average mortgage rates, Freddie Mac collects rates from lenders across the country on Monday through Wednesday of each week. Rates often fluctuate significantly, even within a single day.

The rates do not include add-on fees, known as points. One point is equal to 1 percent of the total loan amount. The average fee for the 30-year and 15-year loan in Freddie Mac's survey was 0.7 point. The average fee for the five-year and 1-year ARM was 0.6 point.

-From news services

4.81%

Last week

5.05%

This week

View the original article here

Major changes ahead for mortgage system as U.S. seeks to scale back role in housing

Fundamental changes are probably ahead for the American mortgage system as the federal government pushes to unwind its unprecedented involvement in the housing market.

These changes could significantly raise the down payments demanded by lenders, curtail the availability of long-term mortgages with fixed interest rates, and increase the cost of borrowing in general.

The government's effort to scale back its role in housing could show up in small ways soon. In April, the Federal Housing Administration plans to raise the annual premium it charges borrowers by a quarter of a percentage point. In October, the maximum size of loans that the federal government backs is scheduled to drop to $625,500 from $729,750. The most dramatic proposal - eliminating mortgage financiers Fannie Mae and Freddie Mac - could take five to seven years.

The thinking is that the government cannot sustain its role in the housing finance system. Federally backed loans make up an outsize share of home purchases - about 90 percent - through Fannie, Freddie and the FHA. Taxpayers have kicked in more than $130 billion to cover Fannie and Freddie losses during the housing crisis, and they could be on the hook for more if the FHA depletes its cash reserves, which are already lower than the level required by law.

All three institutions guarantee that payments will be made to mortgage investors, even when loans go bad. Those guarantees helped keep the housing market from coming to a standstill during the darkest days of the economic crisis.

"But the government is taking on a lot of credit risk," said Mark Zandi, chief economist at Moody's Analytics. "So if loans go bad, it's on the taxpayer. Everyone would find it preferable if the private sector were to take more of the risk."

Loan limits

To that end, the federal government is eager to tackle the "jumbo" loan limits.

In the District and most of its neighboring counties, a temporary federal policy allows the government to back mortgages up to $729,750. Such loans typically carry a lower interest rate than those without government backing, in part because the federal guarantee makes them a safer bet for investors.

"Investors are willing to accept a lower return if their investment is less risky," said Keith Gumbinger, a vice president at HSH Associates.

The Obama administration has supported allowing the maximum loan limit to drop to $625,500 starting Oct. 1 , and Congress is expected to back that move. (Loan limits may be lowered even further for FHA-insured loans, federal officials said, though no details are available.)

Once the cap is lowered, loans larger than $625,500 will fall into the "jumbo" category. Jumbos are perceived to be more risky and therefore often face tougher requirements, such as 30 percent down payments and stellar credit scores.

Standards might ease if the private sector reenters that market, said Eric Gates, president of Apex Home Loans in Rockville. But if the $625,500 cap were in place today, it could lock many potential buyers out, he said.

View the original article here

Mortgage applications rise as loan costs hold steady

Mortgage interest rates were little changed from last week, keeping borrowing costs steady as demand for home loans increases.

The average rate for a 30-year fixed loan rose to 4.88 percent this week from 4.87 percent last week, according to Freddie Mac. The average 15-year rate was unchanged at 4.15 percent, the mortgage-finance company said in a statement.

Adjustable-rate mortgages that are fixed for five years averaged 3.73 percent this week, up from 3.72 percent. Rates on one-year adjustables averaged 3.21 percent, down from 3.23 percent last week.

Mortgage applications rose 16 percent in the week that ended March 4, the biggest gain since June, according to the Mortgage Bankers Association's index. The group's measure of purchase applications increased 13 percent and its refinancing gauge jumped 17 percent.

The median price for an existing home fell to $158,800 in January, the lowest since 2002, according to the National Association of Realtors. Home sales rose 22 percent from October to January, the realty group said.

This week's rise in the 30-year mortgage rate was the first in four weeks. Rates began climbing from a record low of 4.17 percent in the week that ended Nov. 11 and reached a 10-month high of 5.05 percent in February. The rate's decline since then has pushed the monthly payment for a $300,000 mortgage down to about $1,589, from $1,620.

Freddie Mac's average rates do not include prepaid interest, known as points. Each point equals 1 percent of the loan amount. This week, there was an average 0.7 of a point charged on 30-year and 15-year fixed loans. There was an average 0.6 of a point on five-year hybrid ARMs, and 0.5 of a point on one-year ARMs.

- From news services

4.87%

Last week

4.88%

This week

View the original article here

How A Mortgage Protection Life Insurance Benefits You And Your Family

View the original article here