Refinancing your mortgage with an FHA Loan

By Tony Caro

Among the several programs put in place by the federal government to promote home ownership, there is one that offers homeowners a number of benefits. The FHA loan, insured by the Federal Housing Administration, allows lenders to give would-be homeowners a better deal on their mortgage. This also means that a homeowner has the opportunity to get a mortgage more quickly with easier qualification, a low closing cost and a low down payment.
 

Who Can Benefit From An FHA Loan?
 

There are five situations from which would-be homeowners can benefit from getting an FHA loan.
 

1. Those looking to improve the energy efficiency of their homes can take advantage of the FHA Energy-Efficient Mortgage. This option eliminates the need for homeowners to take out a second mortgage on their home in order to cover energy efficiency upgrades.
 

2. Seniors wanting to get money from their homes but continue to live there can do so with the FHA Reverse Mortgage, which allows for partial conversion of home equity into cash.
 

3. First-time home buyers can enjoy down payments as low as 3.5% of the purchase price of their 1-4 unit property, with fees and closing costs included in the loan.
 

4. Those who need financing for a mobile or factory-built home can take advantage of two FHA products.
 

5. One-loan coverage for those looking to either purchase a fixer-upper home or remodel or repair their current home is available.
 

What's Needed To Qualify For An FHA Loan?
 

There is an income requirement for the FHA loan. Your DTI (debt-to-income) ratio - which is your total monthly household expenses divided by your total monthly gross income - must be at .43 or lower. Looking at your credit report will reveal some of your monthly expenses, which will need to be added to your property taxes, insurance and your new mortgage payment amount.
 

If you are self-employed and have had your business for two years or more, the question of your FHA loan qualification can be answered by consulting your tax return for your net income after deductions. Dividing that number by 12 will reveal your total monthly gross income. However, these aren't the only two ways you can qualify. If your debt ratio exceeds their limits, you may still qualify for an FHA loan if you:
 

-  Have three months of reserve savings in your bank account after closing;
-  Use credit sparingly; 

-  Either paying an amount that equals or exceeds new mortgage payment amount;

-  Can verify an earnings increase;
-  Will see a minimal increase in your housing payment.
 

Why FHA Loans Aren't For Anyone
 

Although the FHA loan has many benefits, as with anything else you're looking to purchase, there are always caveats.
 

First of all, you will have to have some sort of credit history in order to be able to apply for an FHA loan. Even though your credit doesn't have to be perfect, you will need to show at least some evidence that you are capable of handling credit. There may be considerations for extenuating circumstances, such as when a wage earner falls ill, as well as for bankruptcies and collections.
 

FHA loans come with a 1% up front, and 0.85 to 0.9% annual insurance premium for the first five years. And this is regardless of whether or not your home has sufficient equity or your loan to value ratio is 20%.
 

You will also see a lower loan amount with FHA loans, which means you may not be able to borrow as much as you need.
 

Finally, there are fewer options for home loans with FHA than there are for other loaning institutions. This is because the FHA loan serves the basic needs of a particular group of buyers. As such, the loans are of low risk to lenders.
 

The FHA is just one option when the goal is to become a homeowner. Understanding which options are available to you can mean that you're more informed when the time comes to make a decision about how you want to handle your mortgage.

Citations:

• Information on FHA Loans
  

Guest author Tony Caro writes on a variety of topics, and is particularly well-versed in the topic of refinancing your home mortgage.  He is a frequent contributor at http://www.refinancehomemortgageguide.com/.  You can also find Tony on Google.

When to refinance real estate loans

 

Wise refinancing is a budget makeover blessing. The decision to refinance also makes financial benefits more possible when utilized to its full potential. This is because aside from being a safe place to live or raise children, the right property mortgage offers the opportunity to build financial security, generate an income and even save money by growing food.

Real estate does not have to provide a yield, and depends on whether or not a property will be a primary residence or an investment. In many cases, mortgagees benefit from accumulated equity, which is the value of a building minus outstanding mortgage owed on it. In effect, this makes real estate a kind of savings instrument. Some  advantages  specific to refinancing mortgages are listed below:

• Lower monthly payments
• Equity enhanced qualification
• Streamlined application process
• Competitive interest rates
• Inclusion of renovation costs

Before re-applying for a mortgage, it is important to go over some key principles. These concepts are important because they affect the affordability, financial advantages and total cost of a mortgage. Moreover, proper understanding and weighing of the following mortgage components and their influence on buyer finances adds reason to refinancing, and makes the right refinancing choice worthwhile. 

• Time left on existing mortgage
• Future value of property
• Total interest costs of refinance
• Remaining balance of mortgage
• Early payment and loan terms

After identifying and measuring the impact of refinancing using the aforementioned items, the next step to think about is how much a mortgage will cost. How a loan is amortized or paid off over time has a substantial impact on the outlay. To illustrate, interest on a mortgage is not typically paid evenly throughout the life of the loan. Oftentimes, the largest part of the interest is paid in the first five years because lenders know that statistically, mortgagees are more likely to sell the property or relocate after this time period. When reviewing refinancing options, try these techniques to clarify the benefits and any disadvantages:

• Compare mortgages side by side
• Determine interest rate savings
• Evaluate effect of extra payments
• Assess impact of refinancing costs
• Weigh advantages of shorter term

When a mortgage is refinanced at a lower rate, it provides property and home owners a chance to lower their total expenditures. For instance, a mortgage refinance at a rate just 25 basis points or .25 percent lower than a mortgage loan of $125,000 with an original rate of five percent, and including insurance and property tax, costs $6,828.43 less over a term of 30 years. When considering refinance options, take the time to determine if the total savings from the lowered interest rate exceeds the cost of resetting the amortization schedule plus refinancing fees. If they do, then refinancing a mortgage is more likely to be the right choice.

The Correlation Between Mortgage Rates and Home Sales

Low mortgage rates are thought to lead to higher sales numbers due to the economic theory of supply and demand. However, this relationship between mortgage rates and home sales numbers is not always as strong as some economists might think. This is made evident in a study by Christopher Mayer and R. Glenn Hubbard of the Columbia Business School whose findings indicate a more diverse set of influences on home sales.

CC BY 2.0 Attribution "Tasja"

In light of the above findings, the correlation between mortgage rates and home sales numbers involves understanding additional variables that can influence home sales. Examples of these factors include Federal Reserve Bank 'quantitative easing' policy, the business cycle of the mortgage industry, economic conditions and federal regulations. Despite all the additional variables that influence mortgage rates and home selling, the connection between mortgage rates and home sales is relatively strong when averaged out historically.

• Quantitative easing

Quantitative easing is a policy practiced by the U.S. Federal Reserve Bank when economic conditions warrant an increase in financial liquidity i.e. availability of funds for banks from the Federal Reserve. When the Federal Reserve Bank lowers its Federal Funds Rate, the affect tends to directly correlate with mortgage rates as the availability of money increases. Another program the Federal Reserve Bank implements is Permanent Open Market Operations (POMO). This program eases the financial strain on financial institutions that are connected to the mortgage industry via purchase of mortgage backed securities

• Statistical significance

The correlation between mortgage rates and home sales numbers is only valid when statistically significant. Moreover, quantitative easing only works under normal market conditions, and not necessarily when the economy is struggling in an exceptional recession, is in a secular trend, or during a housing market down cycle. For example, in an October 2006 document by James D. Hamilton, Economist at the University of California, San Diego, it is claimed the drops in the Fed funds rate leads to changes in mortgage rates that create increased home sales, albeit over time. However, two years later, throughout 2008, home sales declined despite historically low mortgage rates.

• Historical economic trends

The relationship between mortgage rates and home sales numbers is also evident in the economic history of the United States. Historically, when demand for mortgages drop, an indirect correlation also exits between mortgage rates and treasury yields as these financial instruments also decline during times of economic contraction. This pattern is evident in graphs of historical mortgage rates and 10 treasury yields plotted over a timeline. Moreover, the trendline reveals more often that not, that mortgage rates lower when 10 year treasury yields also decline indicating another relationship between government debt and mortgage rates. This is evident in this graph of Federal Reserve data presented by Mortgage and Refinancing Info.

• The U.S. housing market

After the severe decline in U.S. housing market valuation(s) in 2007, the prices of homes plummeted and a financial crisis ensued. As a result of the financial crisis, lenders saw a drop in demand for home loans which caused a corresponding drop in mortgage rates. When graphed, a clear pattern between home sales and mortgage rates emerges suggesting a drop in one may also lead to a decline in the other rather than a rise in home sales due to lower costs. In other words, lower mortgage rates may also have a non-inverse relationship with home sales when a housing market is in a strong enough downward cycle.

• Mortgage regulation

Mortgage regulation also impacts the correlation between mortgage rates and home sales numbers. Following the housing market bubble burst between 2007-2008, the financial services industry gained increased government scrutiny regarding lending practices. A result of this was tighter lending rules requiring larger down-payments, higher consumer credibility and consumer protection rules. One such example being the Dodd-Frank Wall Street and Reform and Consumer Protection Act of 2010. A potential financially adverse side affect of all these rules is an inhibition in the rate of lending despite their perceived benefit to the economy and consumers.

Sources:

1. http://bit.ly/bNMs3p (Federal Reserve Bank of Dallas)
2. http://bit.ly/d5NRSR (Hubbard, Columbia Business School)
3. http://bit.ly/bAjrMx (Bloomberg)
4. http://bit.ly/boXnJX (Hamilton UCSD)
5. http://bit.ly/cLrJH (Truth about mortgages)

How to get a better rate on your mortgage

Mortgages are often one of the largest expenditures a household has. Such being the case, it makes sense to find ways to get a better rate on mortgage loans. Fortunately, several methods exist to obtain lower rates or at least work toward the goal of lower rates. The following techniques can be used toward obtaining a better rate on a mortgage.

• Mortgage Duration

Switching from a 30 year mortgage loan to a 20 or 15 year mortgage can also get you a better interest rate. This is because the lender will recover its money faster which in effect lowers its lending risk and lowering the rate. If a shorter-term mortgage is affordable, it can lead to a much faster payment of the principal value of the mortgage, and lessen overall loan cost significantly.

• Equity value

Increases in equity value, be they through market appreciation or extra payments into a mortgage can also lower lending risk. By having more value in a home, your chances of getting a better rate on your mortgage increases. This method is more likely to work if mortgage rates are steady or declining, as otherwise, the higher equity value is working against an increasing mortgage rate trend.

• PMI Insurance

Property Mortgage Insurance (PMI) is usually required on loans that have less than 20% of the total loan amount paid off. By surpassing this 20% requirement, PMI can be dropped leading to a lower monthly cost of the mortgage where PMI is included in the interest rate calculation. PMI can be lowered by making extra payments or by adding a down-payment on  a refinance. 

• Credit rating

A better credit rating usually leads to better interest rates so it follows a higher credit rating can lead to a better rate on a mortgage loan. If your credit rating isn't as high as it could be, it could be higher within a few months if basic, yet important steps are taken to rebuild credit rating.

• Refinance

Even with the same credit rating it may be possible to refinance at a lower rate if aggregate mortgage loan rates have moved down from the rate at which you originally financed your real estate. A refinance that drops Annual Percentage Yield (APY) 1% or more could be enough to cover any extra fees related to the refinance in addition to lowering total interest paid.

To get a better rate on a mortgage loan more than one of the above techniques may be used. This has the affect of compounding the value of the lower interest rate. For example, a home that is refinanced at a rate 1% lower than the original mortgage that is also reduced in duration by 5 years and has a down-payment that puts that principal higher than 20% lowers the interest in three ways. The total decline in interest rate may then, be higher than the original 1% lower refinance rate.

Disadvantages of a reverse mortgage

Disadvantages of reverse mortgages exist in addition to the advantages, however the disadvantages aren't always consistently applicable to all mortgagees. Since reverse mortgages are crafty yet worldly-wise financial instruments that may or may not be the best retirement income opportunity for you, a good understanding of them is useful when weighing your financial choices.

Depending on the conditions within the housing market and your personal circumstances a reverse mortgage also has potential disadvantages that may not exist at the time of origination. Specifically, if the income provided by a reverse mortgage is essential, and for some reason you have to leave your home, that income may vanish as a requirement of reverse mortgages is for them to be paid after leaving the home.

Another disadvantage of reverse mortgage is valuation and interest rate risk. Although the two tend to have an inverse relationship,  if the housing market is experiencing slow sales, low construction levels, and high foreclosures the prospect of price appreciation dims and a larger reverse payout reduced. Even if the reverse mortgage is refinanced at a higher amount in the future, most of the costs of the original reverse mortgage are duplicated in the refinance.

The costs of reverse mortgages are also a disadvantage as origination of the loan run into multiple thousands of dollars. According to the Reverse Mortgage Lenders Association (RMLA), the costs of a reverse mortgage include a two percent origination fee for the first $200,000 and one percent thereafter, an additional two percent mortgage insurance fee, closing costs, appraisal fee and loan servicing fees. So for example, a $190,000 reverse mortgage would cost as much as $8,000-$10,000 to originate.

Qualification for reverse mortgages isn't always a shoe in either. Typically a high ratio of equity to debt should be present to qualify for and acquire the most loan from the property and even then the income may not be as advantageous as other financial strategies such as downsizing the home and reinvesting the surplus capital for another type of income stream that isn't from a reverse mortgage loan.

Reverse mortgage terms may not be flexible either. If you haven't paid your property tax, mortgage insurance or don't meet home maintenance requirements the mortgage may be called in. This could pose a significant problem for tenured reverse mortgages with lifetime income streams. In light of this, being fully aware of the terms of the mortgage prior to origination is a good idea.

Lastly, if you are planning on having a large estate for a charitable foundation or any other number of reasons, reverse mortgages might be a disadvantage to you due to their net worth depreciating effect. Serious health problems can also be a disadvantage in reverse mortgages.  For example, if your health requires relocation into a location other than your home, the terms of the mortgage can require the home to be liquidated and reverse mortgage income to expire. If this scenario hasn't been accounted for in advance it could  pose a significant disadvantage to the financial practicality of a reverse mortgage.

Sources:

1. http://bit.ly/dqrKFD (Reverse Mortgage Lenders Association)
2. http://bit.ly/YcRvH  (Federal Trade Commission)
3. http://bit.ly/owKrR  (Department of Housing and Urban Development)
4. http://aarp.us/bJ8Q3K(American Association of Retired Persons)
5. http://bit.ly/d75ktu (Washington State Department of Financial Institutions)

Where to look to get the best mortgage rates

Looking for the best mortgage interest rate need not be complicated or difficult. To make it less difficult, first identify the type of loan you are looking and qualify for, then find out what companies or organizations service these types of loans. For example, if you are seeking affordable housing solutions and have a low to medium income, you may even qualify for a zero percent forgivable mortgage through programs such as Community Frameworks. Similar programs exist nationwide, but are subject to resource and application limitations.

For mortgage borrowers who only qualify for non-subsidized mortgages, good rates can still be found. The most recent edition of a national newspaper's business section should have basic average mortgage rates such as 30 year, 15 year and Adjustable Mortgage Rates. Sites like mortgageloan.com can help you look for and compare the best  average mortgage rates by region, loan type, loan amount and credit.  However, this does not mean you can't get a lower rate than the national average. This is because other factors can influence what your actual mortgage rate will be.

• Regional differences

Different regions of the country may be experiencing different economic conditions which can also influence mortgage rates. For example, Nevada, California and Florida all experienced large home price depreciation and foreclosures in the years following the housing bubble burst in 2007-2008. These conditions may make mortgage rates in these areas lower than in other areas of the country. For example, on October 22, 2010, several of the 30 year fixed rate mortgages on Zillow.com were quoted at rates as much as 50 basis points or half a percent lower than the national average of 4.24 percent.

• Selecting a financial institution

When looking to get the best mortgage rates, another thing to consider is the financial institution or mortgage lender. If you are purchasing a home directly from an owner via a rent to own type situation, the rate may be privately negotiable as the lending formula is probably not the same as a mortgage bank. Mortgage banks and banks that offer mortgage loans may differ due to competition. For this reason where you look for mortgage rates in your area could yield several different rates.

• Type of mortgage loan

The type of mortgage product can also influence what you find in places that offer mortgage loan products. For example, the rate and terms of a 203(K) FHA mortgage rehab loan can differ from an REO mortgage on government owned property. Each loan may be subject to different housing regulations and therefore varying interest rate allowances, benchmarks and restrictions. This is especially the case with government and non-profit mortgage loans.

• Mortgage rate variables

The best mortgage rates are dependent on a few financial variables that are ideally factored into the equation when looking for them. A mortgage loan officer should be able to inform you about some of these factors when applying for a mortgage. A basic rule of thumb is the less risk there is to the bank, the lower the rate will be. Risk is calculated using debt to income ratio, credit score, down payment amount, asset worth etc.

• Lowering mortgage rates

After having looked for the best mortgage rates and found some ballpark estimates you then have a mortgage rate with which to improve upon. For example, if you are looking for a 15 year refinance for under $100,000.00 what can you do to lower the rate from the existing quote you are given by a broker, online rate quote, or mortgage lender?  For example, you may be able to purchase 'points', which is essentially an extra upfront cost that is entered into your good faith estimate and lowers your mortgage rate.

Sources: (Date of record, October 22, 2010)

1. http://bit.ly/a74Pny (Zillow.com)
2. http://bit.ly/agLURp (Community Frameworks)
3. http://bit.ly/c4SZMo (Mortgageloan.com)
4. http://bit.ly/2VAul8 (HUD)
5. http://bit.ly/anU2YX (Fannie Mae)

A Look at How Construction Loans Work

Construction loans are issued for the time period in which construction is to take place. Since most buildings don't take 15 years or longer to construct, the monthly payments can be higher for construction loans if they are not financed in such a way as to either delay payments until completion of construction or after becoming non-construction permanent loans.

How to get a construction loan

Construction loans require construction loan applications that require information and documentation pertaining to the borrowers financial profile, project feasibility and legitimacy and builder related data. For example, in the case of a construction loan obtained from a bank, information about the builder, contractors, site location and details, in addition to the borrower(s) financial profile can be required.

The following link is a sample individual construction loan checklist that illustrates some of the documents required by construction loan lenders. In the case of businesses applying for construction loans, documents and information relating to the businesses' financial profile are included in the application. As with mortgages, many documents may be requested by the loan officer or the application. Some of the items a lender may look at are listed as follows:

Building related information:

• Construction permit
• Builder references, licenses, insurance and contracts
• Contractor references, licenses, insurance and agreements
• Professional appraisal of construction costs
• Liens on property if any
• Materials and labor cost details
• Land zoning authorization

Individual information:

• Tax filings from previous years
• Pay stubs and employer information
• Assets and liabilities documents
• Credit report and score
• Personal identification
• Cosigner documentation if joint

Construction loan tips

Since construction loans are complicated and involve a lot of details, patience and dedication to properly completing the loan application process is useful not only in protecting the lender, but the borrower from wrongful practices. The construction loan application can assist with reviewing and rethinking the construction, its terms, costs and potential pitfalls.

• Acquire three references from each builder and contractor
• Utilize a building appraiser who is not connected to the builder
• Obtain multiple bids on building contracts and sub-contracts
• Finance through the builder at low rates
• Agree to terms that pay only in accordance with project completion
• Try to get a transition loan that converts to a mortgage after completion
• Establish an escrow account early for construction-mortgage conversion costs

Where to get a construction loan

Construction loans can be obtained from either builders, developers or financial institutions. Not all banks offer construction loans so locating a financial institution that offers construction loans is an essential step in acquiring one. Shopping around for construction loan lenders that have a variety of construction loan products and services and low rates and mortgage lending may be advantageous as a full service construction loan lender could save a lot of headaches associated with obtaining the loan.

Advantages and disadvantages of construction loans

As with many ventures, there are advantages and disadvantages to construction loans. The dream of building a self-designed property can be a nice one and may pay off in the end, but there are many areas where complications can arise and costs can surpass expectations. Being aware of the advantages and disadvantages of construction loans can be helpful.

Advantages:

• Cost of building may be cheaper than purchasing new
• Design specifications can be customized
• Equity may be built into property during or soon after construction
• Location of home can be chosen in accordance with land zoning
• Sales tax on building materials is deductible on IRS Form 1040, Schedule A
• Interest on the construction loan may also be tax deductible

Disadvantages:

• Builder may file for bankruptcy
• Monthly payments can be higher
• More documentation is required than a mortgage
• Annual Percentage Rates can average higher than mortgages
• Strong collaboration is needed to facilitate the building
• A land loan may also be required
• Income may vanish leading to delinquency

Summary

Construction loans are used to finance construction projects such as homes, warehouses, and office space. These types of loans may be converted into permanent loans upon completion of construction and if done, a new application procedure can be bypassed. There are many details involved with construction and consequently, when applying for a construction loan from a bank, the bank will want to know a lot of these details. Some builders offer financing themselves. This simplifies the process but may or may not cost more. As with many things, the pros and cons of construction loans might be best considered carefully and patiently.

Sources:

1. http://www.bankrate.com/brm/news/mtg/20020515c.asp
2. http://www.ownerbuilder.com/ConstructionLoan.shtml
3. http://www.ent.com/rates/ratecategoryoverview.asp?id=14
4. http://www.myownhomebuilder.com/tax-benefits-building-your-own-home/
5. http://www.bankrate.com/brm/news/mtg/20020515h.asp

How to qualify for stimulus refinance loans

Qualifying for stimulus refinance loans involves identifying which governement stimulus program one is eligable to apply for refinancing through. Two such programs are The Homeowners Affordability and Stability Plan which is part of U.S. Government's Housing and Economic Recovery Act, and the Hope for Home Owners (H4H) program.

The U.S. Government has estimated millions of American residents will be able to qualify for these loans in order to assist in building household financial stability. Stimulus loan finance is not available to everyone as this article will illustrate. However, for those that do qualify, the problem of low to negative home equity value is addressed by the loan refinancing section of the plan.

What a stimulus refinance loans is

A stimulus refinance loan specifically addresses the problem of refinance disqualification from lowered home value or financial distress. Moreover, in the Homeowners Affordability and Stability Plan, the goal is to help responsible mortgage owners refinance their existing mortages even if they have less than 20% equity value in their homes. The refinancing options available to qualifying individuals include both fixed rate and adjustable rate mortgages and the benefits of these loans are as follows:

• Rewards homeowners who have consistently paid their mortgage
• Helps lowers mortgagees mortgage interest rate
• Assists in generating more equity value in property over less time
• Ameliorates some of the refinancing complications exacerbated by refinancing policies
• Potential to reduce mortgage amount by $1000 for 5 years (savingtoinvest.com)

Hope for Homeowners loans are different from Homeowners Affodability and Stability plan loans in the sense that the homeowners may be struggling to keep up with mortgage payments. This program refinances loans at 96.5% of current appraised value thereby taking the burden of equity loss off the qualifying loan applicants financial profile. These loans must also be qualified and applied for through existing home mortgage lenders and may also involve a restructuring of the existing loan using the pre-existing mortage amount.

Qualification criteria

The qualification criteria for Homeowners Affordability and Stability plan require what is called conformity' which means the existing mortgage must be sponsored or guaranteed by either Freddie Mac or Fannie Mae, two of the largest U.S. mortgage buyers with accountability to the Government. Additionally, the mortgages must be under a predetermined financial value, be for a residence, and cannot have a market value of less than 5% of the pre-refinanced mortgage amount. Other criteria include the time in which the refinancing takes place and when the original mortgage was obtained.

After qualification has been determined, especially mortgage ownership or guarantee from Freddie Mac or Fannie Mae, the refinance loan can be applied for through a loan officer at the existing financial institution that maintains the mortgage In such case, several documents are required as in the case of most mortgages. Typically these include income information, identification, tax documents, existing debt, assets etc.

Accodring to the Department of Housing and Urban Development, Federal Housing Administration, qualifying for the H4H program involves meeting the pre-determined criteria. These criteria include loan origination prior to January 1, 2008, non-intentional default, mortgage payment in excess of 31% of the mortgagee's gross monthly income and truthful application for original mortgage i.e. non-falsified income and/or other information. These and any other qualifying factors can be viewed at the FHA website or discussed with mortgage servicers.

Summary

Stimulus refinance loans are aimed at existing homeowners with either low equity value or troubled financial situations. Since the Homeowners Affordability and Stability Plan loans only address existing homeowners with good credit histories and specific borrowing criteria, they only apply to certain homeowners.

Similar qualifying criteria are applied to the H4H program, specifically financial difficulties during home ownership. These criteria are illustrated in this article and in the case of the Housing affordability loans, include mortgage support by one of two named U.S. large mortgage buyers. This may automatically exclude certain mortgagees in similar situations who did not take out conforming' mortgages.

For those who do qualify for stimulus refinance loans, the benefits can include lower mortgage interest premiums, reduce mortgage, refinancing qualification, and low equity relief. To apply for and/or learn more about the stimulus refinance loan options, it may be helpful to contact a loan officer, Housing and Urban Development department (HUD) representative or the U.S. Department of the Treasury.

Sources:

1. http://www.savingtoinvest.com/2009/03/will-my-mortgage-now-qualify-for.html
2. http://www.debtconsolidationpost.com/?p=702
3. http://www.treas.gov/press/releases/tg33.htm
4. http://findarticles.com/p/articles/mi_m0EIN/is_2009_Feb_24/ai_n31375948/
5. http://portal.hud.gov/portal/page?_pageid=73,7601299&_dad=portal&_schema=PORTAL

What does it take to refinance a mortgage?

Refinancing a mortgage for a lower interest rate can be a great way to reduce monthly expenses and lower the overall cost of a home. There are a number of refinancing options available to consumers, but the mortgage refinancing benefits and process can vary between financial institutions. Generally, what it takes to refinance a mortgage is influenced by a few essential variables.

• Credit rating
• Debt to income ratio
• Equity in home
• Valuation of the home
• Individual cash flow

Online financial institutions may be able to offer better quotes with a digital network, however local banks may have better service. Also, as financially beneficial a mortgage finance process can be, it is important to keep in mind how the costs breakdown over time.

Assessment of the refinance terms

Before signing the contract for a mortgage refinance it is important to determine whether or not the refinance will be worthwhile and how much you will save, have to pay etc. To do this, calculate the amount of a refinanced mortgage and compare that to your current mortgage payment.

For example, if a current home valued at $225,000 has a monthly payment of $1363.49 and the refinance is for 5.4% the new monthly payment is $1263.44, however this does not include costs that may be built into the previous monthly payment such as annual property tax, hazard insurance, and mortgage insurance.

If these additional costs add up to 30 basis points or .3%, then the monthly payment becomes $1305.90. Add to this refinance costs and principal lost to the resetting of the amortization schedule. Moreover, if the refinance costs are $2000.00 and included in the mortgage, the cost becomes $1317.51 per month.

In addition to the above, if the original mortgage is 5 years old and is reset to 30 years at the new rate, 360 new interest payments will become due on top of the 5 years of interest already paid. If the new amortized interest plus the previous 5 years of interest adds up to more than the previous mortgage at the 6,1% rate, then the refinance is not worthwhile. For these reasons, be sure to include enough percentage difference between the refinance and the existing mortgage to make it worthwhile.

Pre-qualification

Pre-qualification at a couple of well selected mortgage refinance facilitators can come with as little as a good credit score. The pre-qualification may also provide a prospective mortgagee with several competing quotes. However, pre-approval for a mortgage requires more documentation than pre-qualification. Typically a mortgage refinance requires the applicant to demonstrate debt to income ratio, net asset value, gross annual income, tax compliance, and property details such as assessed value, title deed, and insurance.

Choosing a bank

Choosing between a local bank and online banks for mortgage refinancing is an important decision in the home refinancing process. If your local bank provides good service, knows you and has interest rates as low as online financial institutions or refinance quotes, this bank may be a better choice. This is because for something as expensive and involved as a mortgage, it can be helpful to have the face to face and telephone contact in addition to proximity in the case of sorting out details related to personal finance.

Refinance planning

In a New York Times interview by Bob Tdeschi with mortgage industry experts Regina Garlin and Nicholas Bratsafolis, Bob Tedeschi highlights the relevance of timing when applying for home refinancing. Moreover, Tedeschi's interview brings up the concern that mortgage refinances could fail or not be worthwhile because mortgage rates will not stay at historical lows forever, and home equity values may drop below a point required for the refinance to be approved. In other words, mortgage processing times themselves can take up to 3 months, in which time the value of a home's mortgage may drop below the traditional allowable refinance.

To illustrate the above point, if your home currently has an assessed value of $275, 000.00, and your current mortgage is for $260,000.00, the real estate's value may be getting too low for the bank to approve a traditional refinance. You may also want to keep in mind the affect of refinancing cost on the mortgage application if that cost is included in the refinance value. The reason for this consideration is that the mortgage value may rise above assessed value after these refinance costs are included.

Tips for Getting a Mortgage on a Small Property

If an individual can afford consistent monthly rent payments, that individual may also be able to make payments on some small property mortgages. While mortgages may not be right for everyone, mortgage loans for small property can be more manageable than a larger, potentially less practical mortgage loan. This article will illustrate some of the key issues pertaining to the mortgage acquisition process and provide tips and ideas that may useful for persons wishing to obtain a mortgage for small property.

Personal considerations

Obtaining loans for and owning property involve more time and effort than renting, however it may be worthwhile if more freedom, financial control and individual responsibility for property is called for. Mortgage loans are also used in real estate investing to leverage income potential. Before tackling the financial issues of a mortgage, a couple of personal reflections may prove beneficial in the property buying process.

• Assess Personal Needs and Traits: Mortgages may not suit everyone. When owning property there is more personal responsibility for property maintenance and repair that in the case of rental agreements may be taken care of by the property management company.

• Forecast Future Living: If one has a young family or is moving into the empty nest stage of life, a smaller property may or may not be a necessity. Knowing what living requirements would be most suitable ahead of time can help one determine whether a small property mortgage is the right thing to do.

Financial considerations

• Loan Type: There are many mortgage loan products available on the market. Finding the right one can be the difference between an out of control housing situation and a constant and manageable real estate loan. Some loans require home appraisals and high credit standards while others may require average credit scores but high earnings capacity.

• Mortgage Lender: Determining which mortgage lender is right is an important step in finding a mortgage. A few good places to start inquiring about loans may include large and small lenders alike. The Federal Housing Administration (FHA), and other well established financially solvent mortgage lenders such as Fannie Mae, Wells Fargo and Company or Bank of America constitute some of the reputable national lenders. Additionally smaller, fiscally responsible local banks may also be ideal depending on where one is located, one's relationship with the bank and the loan product.

• Additional Expenses: Property ownership can involve additional expenses such as home warranty agreements, utilities and replacement equipment. In a rental agreement, many of these additional costs are paid for as defined in the lease terms. Being aware of the potential for such additional expenses can make home ownership less of a surprise and a more realistic proposition.

• Cash Down Payment: The larger the up front cash payment, the lower the monthly mortgage payment and monthly expenses will be. Things like mortgage insurance and higher interest rates can be waved with large down payments making them a good idea if feasible. Moreover, if it is affordable, a 20% or higher down payment may be a good idea if that capital can't yield a higher return than the savings from lower interest payments.

• Affordability: Mortgage companies that issue prime loans have tougher restrictions for obtaining mortgages of any size. Factors they are likely to consider are monthly income, capital savings, credit history and asset values. Typically, mortgage companies base mortgage loan calculations on the 29% rule where the 29% of one's pre-tax income is used to assess how much loan a buyer can take on.

Property related concerns

In addition to personal and financial considerations, there is another relevant element to the mortgage 

buying process. Specifically, the property itself is a factor because small properties are not always cheap or a good investment. A few matters relating to the property itself are as follows:

• Location: If the small property is located in a high-priced area of downtown New York, or London, it is not likely to be cheap. Thus a small property mortgage does not always equate to an affordable mortgage.

• Condition: Older homes tend to have greater potential for costly restoration and repair making a small mortgage less practical. Even thought the mortgage may be small in such an instance, the cost of maintaining the home may not.

• Insurance Costs: Insurance costs such as hazard insurance can add a nice chunk of cash to a monthly mortgage payment. If one lives in an area or region prone to natural disaster, the cost of insurance will likely increase the cost of the small property mortgage.

Small property mortgages are not that different from large property mortgages. They may be more manageable if certain conditions such as location, age of home and insurance costs don't inflate the actual cost of the mortgage. Before obtaining a small mortgage loan it may be a good idea to ponder some of the information and tips contained in this article. Doing so may better prepare one for the potential hidden costs, living consideration and utilization of financial strategies.

Pros and Cons of Co-Signing for a Home as a Couple

Co-signing on home mortgages can be performed through joint tenancy, joint tenancy in common and sometimes through a business partnership if the couple co-signing are also business owners. The type of agreement and context of the co-signing can influence the potential benefits and disadvantages of co-singing a loan.

• Joint tenancy

In a joint tenancy there are two co-owners, which implies should something adverse happen to one of the owners, the property becomes the responsibility of the survivor, non-imprisoned, financially solvent or benefactor of divorce proceedings.

• Business partnership

Should the couple co-sign the home loan via a business i.e. a second home that is to be used for business or investment purposes, that property may be subject to different regulation and rules. Consequently, the benefits and disadvantages associated with such a loan may also be varied.

• Joint tenancy in common

In the case of Joint Tenancy in common, the terms of ownership are similar to that of joint tenancy however the ownership does not necessarily pass onto the surviving co-owner in the even to death.

Advantages of Co-ownership/Joint Tenancy

Taking into account the above types of co-singing agreements, co-signing a property and property loan brings a handful of benefits that may make the deal worthwhile. A few of those advantages are listed below with reasons why they are useful

• Financial liquidity and default avoidance: If for some reason, one partner should become sick or incapacitated in some way, having a co-owner can help insure the home is not lost in the case of a missed payment or default due to sudden illness or circumstance.

• Upkeep and maintenance: Having more than one owner can assist in the functionality of a home. Homes often have associated duties, tasks and sometimes repairs and multiple owners may allow more time for such responsibility.

• Tax deductions: If the all or part of the home is operated exclusively for business purposes, that part of the home may be subject to mortgage interest and overhead expense tax deductions. In the case of a couple who do not operate a business, mortgage interest payments can be a potential tax benefit as well.

• 'Rights of survivorship': In the event of death, the property and loan automatically become property of the co-owner in joint tenancy, and the property of the beneficiaries in joint tenancy in common. Depending on who and what the circumstances include, this may be an advantage at least in the sense ownership is clarified.

Disadvantages of Co-Ownership/Joint Tenancy

There are unfortunately also potential disadvantages associated with joint ownership of a home. Whether or not these disadvantages outweigh the advantages is a matter of subjectivity and individual feeling.

• Mortgage assumption

In the case of divorce the loan may be 'assumable' meaning that one co-owner may be removed from the loan and/or replaced with another co-owner if possible. This may be a beneficial clause in the mortgage loan, but may be downright unpleasant should the actual need arise.

• Credit rating

When two or more people co-sign on a loan, the payments related to that loan can affect both owners credit history and records. Should only one party be financially responsible or no agreement be made regarding payments on the loan, a default on the loan could damage two credit ratings instead of just one. (This may also be a benefit should the reverse scenario be true.)

• Psycho-financial independence

In the event of financial co-ownership, a degree of financial independence is essentially lost. For some couples, this may present a psychological level of union that is uncomfortable and/or unwanted.

• Dysfunctional business relationship

While a loan that is co-signed may have been approved in good faith, good intention and with financial responsibility in mind, those things may be no match for a dysfunctional business relationship. A dysfunctional relationship can ruin professional agreements, marital agreements and financial agreements without distinction.

Summary

Co-signing loans between couples have a great deal of potential in terms of financial management, taxes, legal matters and property maintenance. Essentially, if the relationship is strong and likely to continue being strong based on all logical measures of such 'strength of union', the decision of couples to co-own property may be prudent.

To the contrary, there are also certain disadvantages that the couple may want to consider regardless of the strength of their relationship. For example, the couple may find psycho-financial independence to be of more importance than fiscal practicality.

Each situation is unique, and thus the above information may be considered supplemental to the individual situations surrounding a couple's financial, personal and possibly business relationship. In other words, the information contained herein, clarifies potential advantages and hazards that may arise should a couple co-sign on a home loan.

Guide to sub-prime mortgage loans online

Sub-prime mortgages are loans to property buyers who's credit rating is generally below 650 or C or below if a letter rating system is used. Sub-prime loans can become more risky to both borrowers and lenders if they are coupled with a type of loan that will reset to a higher monthly mortgage payment in the future. Sub-prime mortgages can be obtained both at banks and online via online mortgage loan providers.

To obtain a sub-prime mortgage online, one should have a credit rating disqualifying them for an alt-a or prime mortgage, both of which are subject to higher credit score requirements. Sub-prime mortgage lenders can be found on the internet and assist individuals with sub-par credit scores obtain mortgage loans if said applicants pre-qualify. Sub-prime mortgages may include either higher interest fixed loans, interest only mortgages or adjustable rate mortgages.

Benefits of online sub-prime mortgage loans

The benefits of sub-prime mortgages are they allow home-buyers with weak credit an opportunity to build credit where that chance may otherwise have not existed. Sub prime mortgages may also have affordable payments if the mortgage loan amount is small enough and if the interest rate is low enough at the time of acquisition i.e. if the prime rate is low at the time of the loan, this is likely to have a favorable affect on the mortgage rate. Sub-prime mortgages also offer the opportunity of home ownership to individuals who might otherwise not have that chance.

Advantages of online sub-prime mortgage loans

There are several advantages to online sub-prime mortgages. Specifically, the mortgages are easier to attain with bad credit than prime loans. Also, in the case of an online sub-prime mortgage broker, several financial institutions may be searched and compared for lending rates and offers. If the loans are adjustable rate mortgage with short term fixed rates, they may be advantageous if the borrower plans on selling the associated property within that time period.

Disadvantages of online sub-prime mortgage loans

Disadvantages may be realized if the prime rate rises to high or rapidly causing adjustable rates to rise or if the mortgage borrower passes the fixed period of an adjustable rate loan.

Furthermore, interest only sub-prime loans may incur excessively high payments if the mortgage amount is very high since a percentage amount increase in cost is multiplied the size of the loan.

Sub-prime mortgage loans are considered a high lending risk within the banking industry and consequently charge higher interest rates to adjust for that risk. Sub-prime mortgage loan applications can be applied for online using web search engines and financial institutions with online banking facilities.

Within the sub-prime lending market are also varying types of loans such as adjustable rate mortgages, fixed interest rates and interest only loans. Additionally, fees and costs associated with the mortgage may differ between online financial institutions making comparison shopping and research a useful in obtaining the best possible after origination cost.