Look for Gov't Programs to Help with Home Purchase

We are not going to sugarcoat things: for many people it has gotten a lot tougher to put together the financing they need in order to purchase a home. But this does not mean that it is impossible. What is does mean, however, is that it may take more work on the part of would-be buyers to make that dream of home ownership a reality.

There are programs in place to help you buy a house, but these programs are not going to go out looking for you. It is not hard to find banks that would like you to apply for loans, but finding programs that will help you become a homeowner takes some work. It is up to you to look for assistance.

In Montgomery County, you can contact the Housing Opportunities Commission by phone at 301-929-6700 or look them up on the web at hocmc.org.

Prince George's County has a Department of Housing and Community Development. You can call them at 301-883-5570 or go to their website: http://www.princegeorgescountymd.gov/Government/AgencyIndex/HCD/index.asp.

Want to Buy a Fixer-Upper? FInancing is Your First Challenge

If you think you have the know-how, energy, time and patience to buy a fixer-upper, then you should go for it. However, before you take the plunge, be aware that one of the first hurdles you will face is getting financing for your dream project.

Lenders are already wary of giving people money to buy homes that are recently built and/or in amazing condition, so of course they are also skittish about lending money for houses that involve work.

You can strengthen your loan application if you have a report from an engineer or contractor estimates that show how much time and money it will take to finish fixing up the home you want to buy. You can also get a real estate professional to help you with a report to reassure lenders that you will not be improving the property to the point where it must then be priced way above the prices for comparable homes in that neighborhood.

You can turn to John Day with your questions about Maryland real estate. Call him anytime at 410-507-2909.

Lenders Must Inform Consumers if Credit Rating Affects Loan Rates

A recent Washington Post column alerted readers to the fact now "rules require lenders to alert consumers whenever derogatory credit data cause them to be charged higher rates, higher down payments or less than optimal terms on a "risk-based pricing" system."

This will help protect not just the individual consumer in question, but other consumers as well. How? Well, what some of you may not have known was that some of the wave of foreclosures in the housing crisis was a result of lenders deciding that instead of rejecting applicants that did not fit their criteria, they would just give them loans at higher rates. Giving homes loans to high-risk borrowers at increased rates, masked problems that rose to the surface later.

You can take matters into your own hands by monitoring your credit own reports and making sure that they are free of errors. That way, when you go to get a loan, you will already know your rating, will have a good idea of where you stand, and will not need any alerts from a lender.

New Gov't Program May Standardize Short Sales

The Washington Post recently reported that the federal government has plans for a standardized short sale plan that we will be hearing more about in the months to come.

If you did not know already, a short sale is when the bank agrees to accept less than what a homeowner owes on a mortgage. Why would a bank do this, you might ask--isn't their main goal to make money? Yes, but if a bank believes that permitting a homeowner to do a short sale will bring in more money than a foreclosure will, they are more likely to agree to a short sale.

The recent Washington Post article states:

"This usually means you need to bring in a real estate agent who knows the ropes..."

If you are considering a short sale and own a home in Maryland, then John Day is an knowledgeable agent with experience in negotiating short sales. Call him today at 410-507-2909 or click on the title of this blog post to learn more.

FHA Gets Stricter with Condo Buildings Too

We have already mentioned that new rules and changes brewing at the FHA could have detrimental effects on the housing market and we must include condos in that mix, along with stand-alone residences.

The FHA will now limit the number of buyers in a condo building who can receive an FHA loan. This move will shut out many potential condo buyers, since the FHA is behind about one out of every four new loans. It also puts added pressure on developers—so much so that some developers may have to cancel new projects since they will not be able to be certain of finding enough buyers who do not need to rely on the FHA for a loan.

In addition to the rules that restrict the number of FHA-backed loans for a condo building, they agency has also decided to up the ante on the number of condos that must be pre-sold before they will insure loans in a condo building. For now, 30 percent of the units in a building must be pre-sold to get FHA backing; in 2011 that percentage will increase of 50 percent.

Read more on the stricter FHA guidelines:

Homebuyers Hurt if FHA Changes Rules

FHA Guidelines May Become Stricter

Recent Drop in 30-year Mortgage Rates

Last week some news outlets reported that the average interest late for a 30-year mortgage had dropped to a very low point-4.71 percent. If you were not already aware, this low rate is influenced by the fact that the federal government is really trying to encourage homeownership. Homeownership is the cornerstone of economic prosperity and the government hopes that an increase in homeownership will have a ripple affect throughout our shaky economy.

Although the federal government would love to see you buy a home, this does not mean that buying a home is without its challenges. Lenders have become stricter about lending people money to buy homes. After all that has happened with high numbers of people defaulting on their home loans, you can see why lending institutions are wary.

If you think you would like to buy a home and feel that you are financially stable, this is great time to consider homeownership. With low interest rates and owners who really want to find qualified buyers, you may be pleasantly surprised.

Also read:

Are You Ready to Buy a Home?

When People With Good Credit Default on Mortgages...

A study conducted by national credit bureau Experian and Oliver Wyman, a consulting company, came up with some surprising stats about people who walk away from their mortgages.

In addition to those who fall on hard times and walk away, there area number of people who “strategically default”—meaning that they walk away on purpose and not because they are overwhelmed. In fact, these people do not have sporadic records of payment; instead, they keep up with payments regularly until they decide to stop. The study found that people with high credit scores are 50 percent more likely to strategically default than people with low credit scores.

There are many indications that people who default strategically do so with full awareness that their credit records will take a hit, but they do it anyway because they think this decision will eventually pay off. The study simply gathered this information and did not pass any judgment on those who make a calculated decision to stop paying the mortgages on their primary homes and investment properties, but if the pattern continues, we are sure that someone will.

Mortgages Have Gone Green Too

Some of you may already be aware that you can get tax credits for making energy-saving improvements to a home you own, but did you know that going green can save you some greenbacks, even when it comes to getting a mortgage for a home you want to own?
There are some lending institutions that will gladly give their clients discounts and incentives if they purchase energy efficient homes or agree to make green improvements to the home they plan to buy.

For example J.P. Morgan will give you a $500 discount if you buy a home that has an Energy Star rating that indicates that it meets green standards.

And with an EEM (Energy-Efficient Mortgage), you can fold the costs of energy-saving improvements into your home loan. This requires more paperwork (of course) and an energy audit.

However, whatever extra steps that may be necessary to get such discounts, they are probably well worth it. You save initially when you purchase the home and you will save on energy costs while you own it.

Take Advantage of New Reverse Mortgage Limits

The Washington Post recently reviewed new reverse mortgage laws, noting that for some senior citizens “Reverse Mortgages Come to the Rescue” since the recent financial downturn has taken a toll on their retirement funds.

In the past, reverse mortgages have been used for additional funds for people who plan to stay in their homes, but as the Post notes, you can also use a reverse mortgage if you plan to relocated or downsize to a house that is not as large as your current home.

Some of the stipulations to take advantage of the raise in the reverse mortgage limit (from $417,000 to $625,500) include a minimum age requirement of 62 years and taking out the mortgage on a primary residence that is completely (or close to being completely) paid off. That higher limit for reverse mortgages will only be in effect until the end of this year, unless the government decides to extend the program.

And note that getting a reverse mortgage is not free; there are fees to be paid, as there would be with a regular mortgage. Fees include closing costs, interest and an origination fee that is not to exceed $6,000.

What Happens to the Mortgage When Cohabitating Couples Separate?

We've discussed before how the changing economic landscape has affected relationships and real estate since the economic downturn has kept some divorcing couples together.

This is not a new problem and it is not just an issue for people who married and are divorcing. Since it is also the norm for cohabiting couples to purchase property together, they have to decide what to do with their property if they separate. If both agree to sell, fine. If one partner wants to stay, that is more complicated.

There are two separate issues in these situations:

1. Removing the name of one partner from a deed--This part can be relatively simple as long as both partners agree to sign a new deed that lists only one of them as the owner.

2. Removing one partner from the mortgage--This part is not so easy. If the person who wants to leave the home can get the person staying to agree to get a new loan with one name only, then they can pay off the mortgage that has both names. It is also possible that after seeing that the loan has only been paid by one person for a certain period of time, the mortgage company will be convinced to remover one name. (If you are the one leaving, you have to hope that your former partner is responsible and can afford to shoulder the mortgage alone.)

One person can also force a sale by taking the matter to court.

Less May Be More When Calculating the Mortgage You Can Afford

When it comes to buying a home, it is up to you to keep your best interest in mind. Yes, we are going through a recession and the real estate market has been shaken up, but that still does not mean that everyone is being as cautious as they should be.

One thing to understand, especially if you are a first-time home buyer is that a lender may tell you the maximum amount of money you can borrow. This is not because they are out to get you--they are simply giving you an option.

It is up to you to figure out if you need to go for the maximum or go for less based on your situation and financial goals. A lender does not take into account things like your desire for frequent travel, funding your child's college education.

One recommended guideline is that you not spend more than 28% of your monthly gross income one your mortgage and related expenses (such as property taxes and insurance). Even this guideline does not have to be followed to the letter because you are certainly free to go for a percentage that is lower than 28%, depending on your other expenses.

Three Things to Consider Before Refinancing

If you are thinking about refinancing your home loan, just don't run out and do it without making certain that you will actually benefit. Of course it sounds like a good idea, but refinancing is not a one-size-fits-all option.

1. Check your current rate.
This seems like a like a no-brainer, but it is step that some homeowners skip. Is your rate not that different from what is being offered? Will you really save money by refinancing?

2. Check the fees.
Refinancing is about more than getting a killer rate, there are fees involved. Do the math because when you add up the fees, paltry savings may not be worth the effort it takes to refinance. You might save more money by cutting regular expenses like phone and cable bills.

3. Check your other loans.
Do you already have a home equity loan? You need to see if the holder of that home equity loan will be willing to subordinate to the bank that owns your original home loan. (In other words, can you refinance your mortgage and leave your home equity loan as it is?) In cases where you cannot do this, you may have to pay off that home equity loan before you can refinance.

Is Job Loss Insurance Worth It?

Earlier in the week, I wrote about how job loss insurance is being used as an incentive to get buyers into homes. It sounds like a great idea. With financial uncertainty and many people finding themselves unemployed, many people would welcome such assurance.

At least one real estate expert does not feel that mortgage payment insurance is really all that is cracked up to be. This expert pointed out that plans, such as the ones that offer to pay your mortgage for six months if you lose your job, won't do much for you in the long run. He was of the opinion that since some people will spend more than six months on the hunt for a new job, this type of insurance will not save them. He recommended doing all you can to negotiate the best possible price, rather than opting for job loss insurance.

Only you know your financial situation and if you have a good amount of savings, six months or so of mortgage payments may be just the life raft you need as you look for a new job should you become unemployed.

As with any possible home buying incentive, you have to weigh the pros and cons and do your research to see if it will be of real benefit.

Mortgages with Job Loss Insurance

Both builders and real estate agents alike are offering a new incentive to lure buyers: mortgage insurance that is predicated on a buyer's possible unemployment. 

These mortgage protection programs help ease the fears of buyers who want to take advantage of the fact that home prices have dropped, but are unsure because the job market is not steady. Everyone keeps saying this is a good time to buy, but homeownership is a big responsibility. Everyone is nervous about signing those closing documents, even in good times. So potential buyers tend to be that much more nervous during a shaky economy.

Let's be clear: this insurance does not take over an entire mortgage. The plans vary in the amount of coverage, of course. Some of these stipulate that if a buyer loses their job, their mortgage will be paid for a certain amount of time, if the buyer loses their job within X years of closing on a home. 

One of these programs promises to refund a buyer's mortgage payments if their home falls below sale price X years after sale. This surprisingly generous program also lets people walk away from their home if they find that they cannot make mortgage payments.

Uncle Sam Wants You...to Refinance

Last week, President Obama urged Americans to take advantage of the low mortgage rates to refinance their homes. For those with 30-year mortgages, the rates have fallen to 4.78 percent, which means that compared to one year ago, rates have been lowered by more than a full percentage point.

Sadly, hardworking homeowners are not the only ones looking to take advantage of these historic lows in the mortgage rates. There are many disreputable companies that have sprung up to try to make money off of people's desire to get some relief.

For example, no one should require that you give them money up front to help refinance your mortgage. Also be wary of anyone who pressures you to agree to something, but will not provide complete details about rates and terms. You should not sign documents without understanding them and you should be able to take the time you need to read over them.

You can visit www.makinghomeaffordable.gov to get more information and to see if you are someone who can take advantage of lower mortgage rates.

The "Making Home Affordable" Initiative

Last week, the federal government announced a program called the "Making Home Affordable" initiative. This program will run until 2012. Estimates of just how many homeowners could be helped by this program have varied widely; some sources say 5 million, while other sources say 10 million. The program guidelines aim to help those who are struggling, while excluding those who have been negligent or greedy. Like most government programs, it is fairly detailed, but we've outlined a few of the terms below:

-To receive this assistance, the mortgage on a single-family property must be less than 729,750.

-The home in question has to be a primary residence and cannot be left empty or condemned.

-Only loans made on or before January 1, 2009 qualify.

-As a homeowner you may be eligible to have your principal payments reduced by up to $1000, every year, for up to five years.

-You may still be considered if you are in bankruptcy.

-You can only have your home loan modified once under this program.

You can go to financialstability.gov for more details and get access to self-assessment tools to see if you qualify for assistance under this program.

How is Escrow Used?

Many lenders will require that a borrower open an escrow account to deal with related expenses such as property taxes and homeowner's insurance. After making the first deposit the homeowner usually makes monthly payments. Often, these monthly payments are added on to the mortgage payment. Then, the escrow agent will release the money as instructed.

Escrow is good for homeowners because it means you can spread the costs of property taxes and homeowners insurance throughout the year. When you pay these costs directly, you must pay them as soon as they are due and that usually means you will be making large, lump sum payments. With an escrow account, that first deposit, plus the monthly deposits make it possible for you to spread out the insurance and tax costs.

Lenders like escrow accounts because using them gives the lender assurance that a borrower will pay for their taxes and insurance in a timely manner. Your lender does not want you to default on your property taxes any more than you do. It is the same with homeowner's insurance. It is in the lender's best interest that you pay these costs because your home is the collateral for the loan they have given you.

What is Escrow?

What is Escrow?

Escrow is one of those terms that you may have heard mentioned in conjunction to a home sale, but you may not be sure about what it really means. When you put money in escrow you and the other party involved in a transaction are entrusting that money to a third party to hold until certain conditions are met.

And of course this is not just any third party, but an escrow agent who is supposed to be neutral because this person works for the lender and the borrower. The escrow agent is tasked with holding onto the money for the transaction and releasing it once the terms that the two parties have previously agreed upon are met. Escrow is used for a wide range of real estate transactions. There is no set amount of money that must be involved to use the services of an escrow agent.

The money you put in an escrow account does not earn interest in most states, so this is not a money-making venture. It is a way to make sure that you pay very important costs that are related to maintaining home ownership. Since insurance and taxes change yearly, your lender will make adjustments to the amount you pay, of needed.

Come back on Wednesday to learn more about how escrow is used in real estate transactions.

Have you Considered a Loan backed by the FHA?

There has been talk recently of FHA (Federal Housing Authority) loans and people may use the phrase as a shortcut because technically the FHA is not really an issuer of home loans. The FHA does, however, act as a buffer, backing loans and providing insurance for lenders against default.

Loans backed by the FHA may require more documentation, but they are an option for people who may find themselves shut out of the current market because of a so-so credit score or because they don't have a large down payment. Would-be home buyers are looking into these loans more frequently these days since banks are getting more stringent in the light of the glut of foreclosures.

Pros:
-FHA loans require a down payment of 3.5%
-These loans have a lower minimum credit score.
-They are insured against default and lenders like this.
-Less restrictive about borrower's debt-to-income ratio.

Cons:
-Borrowers must give complete account for 2 years of income. They must also give reasons for any times of unemployment.
-Home must be appraised by a selected appraiser.
-In the past, FHA-backed loans had a high default rate, and this may concern some lenders, but now the default rate on these loans is not much different from the rate for regular loans.

Be Patient with Refinancing Process, pt. 2

The wait time in lines for everything is getting longer these days...and as we mentioned in a post last week, this includes the wait time to talk to your lender about refinancing your home loan.

But do not despair. Although you were likely advised to go back to your current lender (and this is very sound advice by the way), that does not mean that you cannot shop around. If you want to get the best deal you can get, you need to be armed with information. This means that you should talk to several lenders, including the lender who currently holds your home loan.

If you decided to refinance, call your lender and find that you cannot get an appointment to discuss your options right away, use that time to call up other lenders and read more about the process, so that you can be ready.

Refinancing sounds like a great idea, and it is in many situations. Still, you want to make sure that you are signing up for something that will save you money and not costs more in the long run.

Be Patient with Refinancing Process, pt. 1

Not too long ago, we asked: Should you join the rush to refinance?

With the changes in the economy and the changes to interest rates, a lot of people are looking into refinancing their homes. And, as some rather harried loan and banking professionals will tell you, A LOT of people are calling their lenders to get this process started. Banks are fielding lots of calls about refinancing home loans and their staffs are definitely feeling some strain.

Like all employers, banks are taking a hit and some have laid off staff recently or they had a re-shuffling a few years ago. In any case, many people are finding that when they call to talk about refinancing they are not the person on the other end of the line cannot help them right this minute.

If you believe that refinancing is the right step for you, be patient. Your lender may be fielding a lot of inquiries about this, but that does not mean that you should give up. Once you have made up your mind about something, your first desire is to jump on it right away, but in this case, it may take a little longer than you thought it would. And that is not a bad thing. You may change your mind in the interim.

FTC Warns Consumers About Mortgage Fraud

The Federal Trade Commission is warning people to be very careful when signing on for mortgages at the low rates that a currently being offered.

And the FTC even issued a special caution for people who are minorities since it seems that these are the people that certain companies are targeting.

Some people are finding in hindsight that they were charged more than necessary for origination fees and/or that they are paying much higher principal and interest payments--even for loans that are touted to have low rates.

This is a sad thing to see. Not to say that this was okay even during the housing boom because it was not okay then either.

Be certain that you get all of the details for your mortgage and its fees, written out, upfront. And don't be afraid to ask your loan officer what commission they get for various items.

Afterward, comparison shop to see if another lender has a better deal. As you do this you will get a better idea of the quality of the first lender’s offer. If it still stands out as being better than anything else that you have seen, this is good news. But if it doesn’t measure up, then you will be glad that you were able to see that before you signed any papers.

Loan modification vs. Loan refinancing

Although it seems like both of these terms involve making changes to a loan that a home owner currently has, they are not the same.

Loan modification is done to change an existing loan for home owners who are in danger of losing their home. You do not have to be delinquent in your payments to approach a lender about loan modification. For example, if you have an Adjustable Rate Mortgage and you can show that the increase in payments goes beyond your ability to pay, you may qualify for loan modification.

Modifying a loan can involve reducing an interest rate or instituting a grace period where the home owner does not have to make payments for a specified time.

In contrast, when someone refinances a loan, they are actually taking out a new mortgage on their home. The "refinance" part makes it seem like it is just changing the prior loan, when really it is a new loan. And obviously, loan refinancing is not for those who are in danger of losing their homes. It is for those who are not having trouble keeping up with payments and are looking to benefit from the equity they have built up in their property.

Should You Join the Rush the Refinance?

Last week, I mentioned that there is a little boom in mortgage refinancing.
Because of the Federal Reserve's action of cutting interest rates, there is much more interest in refinancing home loans. As is always the case when it comes to money and loans, you do need to be careful. And unfortunately when people are eager to do something, there are always certain people who are just as eager to take advantage of them.

When you sit down with a mortgage broker to go over your options for refinancing, do not get pushed into a loan that does not feel quite right.

You need to make certain that refinancing will actually be of some benefit to you. Do not let the allure of lower interest rates blind you to the practicalities of your own situation. If the lower interest rate will not help you because the fees outweigh the benefits or you think you may not stay in your home, perhaps you should not refinance.

Remember that a mortgage broker gets a fee for closing a refinancing deal, so they are interested in seeing it through. And there are some mortgage brokers who will point you towards a loan that will not save you very much money.

Rate Cut Ushers in Rush to Refinance

In case you've been so busy with Christmas shopping or coupon clipping to notice--interested rates for 30-year fixed rate mortgages are at the lowest they have been in more than 30 years.

Last week record numbers of people called their mortgage brokers because of the changes in interest rates. If you were not one of them, you may be wondering if you need to go ahead and make that call.

Well, that depends...

Do you want to sell soon?
People who are refinancing their mortgages will see a drop in their monthly payment, but you have to remember that refinancing is not free.

If your refinancing costs are added into the total amount of your loan, then it will take time for you to break even.

How is your credit?
Just as you are thinking twice before you buy things--be they necessities or luxury items, banks are also being just as cautions. Although the Federal Reserve has paved the way for many people to refinance, it doesn't mean that everyone will be able to do so. A lot of people have refinanced already, but you have to remember that those people likely have good credit scores and a certain amount of equity in their homes already.

Check back on Monday for more information on the recent rush to refinance.

Research Potential Lenders

When you are looking for a lender, it pays to do your homework. True, you do want a loan, but that does not mean you have to take a loan from any institution. Sometimes home buyers get intimidated because they know they need a loan to purchase a home and they do not want to do too much digging.

Ask around--Treat your search for a lender like you would a search for anything else. You need referrals. Get some opinions from homeowners who you think have sound judgment.

Check out the menu--What kinds of loans do the lenders you are considering offer? Do they only have one kind of loan or is there a variety? When it comes to loans, look for a lender with a range.

Check out fees and interest rates--Of course you want to look at the APR, but don't stop there. In order to really understand what you will be expected to pay, request a "good faith estimate" to get an idea of the fees that are related to a home loan with lenders you are considering.

Older Americans Hit Hard by Foreclosure Crisis

Who do you picture when you think of the foreclosure crisis? Perhaps you envision someone who is young, someone who took a subprime loan because they figured they had the earning potential to cover the loan. But young people are not the only ones who have suffered as the result of predatory lending and subprime mortgages. And the older you are, the less time you have to recover from such a setback.

According to AARP this is not the case at all. The AARP Public Policy Institute has released a report entitled "A First Look at Older Americans and the Mortgage Crisis. The mortgages of people 50 and over represent about 28 percent of all delinquencies and foreclosures connected to the foreclosure crisis.

Many homeowners who are 50 and above have been really hit hard by the mortgage crisis. Sometimes they are buying another home, thinking that they'd finally get the home they really wanted. Others may have spent all their adult lives dreaming of homeownership, and bought their first homes using the less than favorable loans that were becoming easier to get.

Whatever the case, consider checking in on your relatives and friends that are 50 and above. If it is not too delicate a subject, ask them how they are managing their mortgage payments. If you or someone you know in Maryland is facing foreclosure, call me at 410-507-2909, if you need assistance.

What Records to Keep

As we find that more and more records are going online, some people wonder if they have to keep every single piece of paper related to their home. You may want to reduce clutter, but you still need to hold on to some V.I.P.s (Very Important Papers).

One real estate columnist advised that if you have refinanced your home and are sure that everything has been paid off and is in order, you can consider getting rid of those papers. You can do this if you wish, but if you are the kind of person who would feel really uneasy about it, hold onto mortgage papers, even when everything is settled. Unless keeping them is burdensome, it just makes sense to keep papers for major purchases.

You should definitely keep HUD-1 statements for any home you have purchased, even when the mortgages are paid off. A HUD-1 statement can be used to prove how much you paid for the home and what you paid in closing costs, if you need to be able to document this for some reason.

And be certain to hold onto all records of home improvement. Having records for every dollar spent on home improvement can make a big difference come tax time.

Changes to the Laws for Reverse Mortgages

Homeowners who are at least 62 years old can borrow against the equity in their homes using a reverse mortgage. Instead of having monthly mortgage payment, they would not have to pay the money back unless they sell, move somewhere else or pass away. In order to get a reverse mortgage, one must own the home or have a rather low balance left on a mortgage.

Once it has been arranged, the borrowers can get the loan money in several ways: as a lump sum, in fixed monthly installments or as a line of credit that they can tap into at will.

This year's Housing and Economic Recovery Act has altered the rules for reverse mortgages in an attempt to help seniors who may need such a mortgage to buy long-term health insurance or to increase their incomes. The loan amount has been increased and there is special consideration for those who live in areas where the cost of housing is above average.

You can visit the National Reverse Mortgage Lenders Association website to learn more.

Fannie and Freddie are Changing

With all the talk about change these days, you should know that change is coming to the mortgage industry.

New York state’s Attorney General, Mario Cuomo, has agreed to end his investigation of Fannie Mae and Freddie Mac after the two organizations agreed to change the way they do business.

Cuomo was quoted as saying that he thinks this will really change the mortgage industry since Fannie Mae and Freddie Mac are so influential.

If you didn’t know, Fannie Mae, which is based in Washington, DC, stands for Federal National Mortgage Association. The Federal Home Loan Mortgage Corporation or Freddie Mac is based in MacLean, VA.

Fannie Mae and Freddie Mac have admitted no wrongdoing, but each organization will pay $12 million to set up an in independent committee to keep an eye on the way homes are being appraised.

Mortgage lenders who work with Fannie Mae and Freddie Mac will no longer be able to use their own staff for initial appraisals. Nor will they be able to use appraisal management firms that have interest in or own outright.

Get Pre-approved Before You Get in the Game

If you are house hunting without a pre-approved loan, go back to START. You are really rolling the dice and taking a chance if you go shopping for a house without one.

Getting pre-approved means that you know how much you house you can afford before you check out one listing. This makes a big difference when you shop. It means you can do a targeted search, instead of trying to imagine how much you will have to spend on a house. This will save you time because you won’t spend your days looking at properties that are out of your price range. If you qualify for more than you imagined you would, then you can confidently look at houses that you may have thought were too pricey.

Being pre-approved means that your credit rating and other qualifications have already been vetted by a lender. Even if you know that you are an excellent candidate for a loan, a seller does not know that. When you show up, already pre-approved, this tells a seller that you mean business and that you are not just cruising around, looking at open houses for fun.

Buyers who show up pre-approved are on their way to the winning the game.

Watch out for Predatory Lenders

Do you think you might be dealing with a predatory lender? Sometimes it is hard to tell. All predatory lending practices are illegal, but some may seem more harmless than others.

For example, if the appraisal says a property is worth a certain amount, then the property must be worth that amount, right? Maybe and maybe not. Check to see what other homes in the immediate area are worth. If the one you hope to purchased doesn’t seem to be grander then others, yet it appraises for a lot more, this should raise a red flag.

The whole point of applying for a mortgage is to buy a property, so if a lender is offering you money, you should take it right? Perhaps. It is illegal to knowingly lend someone more money than they can afford to repay. It is also not ethical to tell borrowers to “fudge” details about their earnings or finances so they can qualify for a loan.

Many borrowers like their lender or they want to like their lender since this is someone who is in a gatekeeper position. And it is wrong for a lender to take advantage of someone’s trust to cajole that person into buying more house than they can afford. It is also not good if you feel any pressure from your lender to agree to a high-risk loan, such as one that has very stiff penalties for prepayment or one with interest-only payments.

Bank of America is set to buy Countrywide

In case you haven’t heard the latest news in the finance and mortgage industries: Bank of America has announced plans to buy Countrywide.

Some experts feel that this buyout could give a tiny shot of confidence to an industry that has been badly shaken in recent months. In no way does this deal mean that everything is now okay, but every little bit helps.

If you are a Countrywide customer, you may notice nothing new, other than being asked to send your mortgage payment to a different address. Or the fact that you get more marketing mail from Bank of America.

Countrywide is the country’s largest mortgage servicer. One is six homeowners has a loan through Countrywide, a company that has a reputation for trying to work with customers to prevent foreclosure. There is some talk that Bank of America may be less accommodating, but no one knows that for sure.

One group of people that may be affected are those who have large accounts with Bank of America. It is possible that having a mortgage and banking at the same place could result in exceeding FDIC coverage limits. People in that situation do have options, however. There is extended coverage available, especially if you have more than one kind of account.

Congress Gives Homeowners a Break

The growing crisis in the housing market has prompted Congress to act and relieve some of the anxiety and pain the American public is experiencing. In two separate bills, the Senate has turned its attention to the real estate industry and we can only hope that these measures will really provide the assistance that homeowners need.

The FHA Modernization Act could lower down payments, while at the same time also making the mortgage rates higher for loans that the FHA insures. The FHA Modernization Act has been in the works for a long time and just in time for Christmas, the Senate decided to give out the gift of its approval.

The Mortgage Forgiveness Debt Relief Act is a complicated piece of legislation, but one of its main tenets is that it aims to help homeowners who are threatened with foreclosure. It will make it easier for homeowners to refinance a mortgage because they will not have to pay as much in taxes. Under this Act there will be a three-year window during which homeowners can refinance and not pay taxes on the debt that has been forgiven.

For more information on the Mortgage Forgiveness Debt Relief Act, check out this fact sheet.

New Plan to Help Homeowners

The Bush administration detailed a plan to assist struggling homeowners yesterday. The night before I went to a reception and overheard someone in the mortgage industry discussing why he thinks the plan won’t help much.

Like anything else, if it can help you, you’ll be quite happy. But if you find that you do not meet the qualifications, it will be easy to say that the plan didn’t work.

For example, the plan will not help everyone an adjustable rate mortgage (ARM). It has been fashioned to be a lifesaver for someone who would lose their homes if there is a significant increase in their mortgage payment. Homeowners who are already facing foreclosure probably won’t benefit from the plan.

If you purchased a home with an ARM between 1/1/05 and 7/31/07 and your rate is set to increase between 1/1/08 and 7/31/10, you may qualify to have your rate frozen under the plan.

The thought behind the plan is that it will help to stabilize the troubled housing market. Unfortunately, it is not a cure-all. Although it has been called a bailout, it is not a bailout in the truest sense. The government will not be handing out money or forgiving all home loans. It is worth it to investigate whether you qualify if you are in need of this assistance.

If you have any questions, feel free to to drop me a line at john.day@longandfoster.com.

Have you heard of the 28/36 rule?

Lenders generally follow the 28/36 rule when they are looking at mortgage applications. This rule lets them decide if you really can afford the property you want to buy.

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This means that you should be able to set aside up to 28% of your monthly gross income for a mortgage payment, property taxes, and insurance.
Notice that the 28% is the highest percentage of your gross income that should be used to cover basic housing expenses. As you know, your net and gross incomes are certainly not the same. The lender does not consider your utility bills or lawn maintenance when running the numbers, but you have to think about these things.

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For a mortgage lender to feel comfortable lending to you, they want to see that your total debt payments add up to no more than 36% of your gross income. Again, this is the highest percentage, so if your total debt is well under 36% of your gross income you will be even more attractive to lenders.

These rules are not absolute, however. But knowing them can help you if you are thinking about buying a home. Crunch the numbers so you know where you stand before you make an appointment with a lender. Click the title of this post to go to the Homes Buy Day website where you will find several useful mortgage calculators.

Mortgage Czar?

In light of recent unrest due to the practices of subprime mortgage lenders, some members of Congress have asked the President to appoint a "mortgage czar." They don't think that reform in the mortgage industry is coming fast enough and feel that having someone tasked with overseeing changes will help speed up the process. Of course all of Congress does not agree that this is a necessary step, so all we can do is watch and wait to see if this position goes from idea to reality.

However, you don't have to wait until they figure it out to aggressively pursue your own interests when it comes to buying a home. You can be your own "mortgage czar."

The Homes Buy Day mortgage center is a great resource to use as you prepare to enter the world of real estate. You'll find information about lenders you can trust. (Click the post title to visit our mortgage center.)

At our mortgage center you'll also find links to several excellent mortgage calculators, reputable title companies, credit tips, mortgage tips, a glossary of terms, and great hints for both home buyers and sellers. At Homes Buy Day we understand that the process of buying or selling a home can be confusing, even overwhelming. It is up to you to act in your own best interest and we want to be there to help.

Questions First-Time Home Buyers Should Ask

Everyone will tell you this is a great time to buy a house. Inventory is up, prices are down and interest rates are low. If you've been thinking about taking that big step, packing up apartment life, and becoming a homeowner, the time is now. Smart buyers will do their homework and ask some important questions before signing on the dotted line.

• Are you the right lender for me? Interview several lenders before you select one. Ask friends, family and your realtor to suggest reliable lenders. Make sure your feel comfortable with your lender. Ask about points, closing costs, pre-payment penalties, escrow requirements, mortgage insurance. Find out how long they've been in business and make sure they are familiar with first-time buyer programs.
• What can I afford? Before you start house hunting, sit down with your lender. Based on a review of your finances and current debt, your lender will prequalify you for a mortgage. This will tell you the price range you can consider while shopping for a home. Think about how much of your monthly income you want to devote to house payments. If you want to decrease your monthly mortgage payment, shop below your prequalified range.
• Will you fill out a seller's questionnaire? When you find a home you like, have your realtor ask the seller's to fill out a questionnaire. This standardized three-page form available from your realtor may uncover possible issues like major repairs or pets that are not required to be disclosed on the disclosure form.
• Are there any liens, covenants or restrictions? Typically your real estate agent will do a preliminary title report, checking for liens. Make sure he also reviews the covenants, conditions and restrictions that may be imposed in neighborhoods with a homeowners' association. Restrictions on pets or bans on parking recreational vehicles in driveways may affect your decision to buy.
• Has a home inspection been performed? Even if the seller has performed a home inspection, you may decide to have one done yourself. The cost is usually $150 to $200 and your realtor should be able to recommend a qualified inspector. A home inspection may turn up problems or leaks of which the seller was unaware. Your purchase should be contingent on the home inspection and successful resolution of any issues.
• Does the home come with a home warranty? Sellers today often offer and pay for a one to two-year home warranty. Annual cost is about $350 to protect you from expensive repairs to major systems like the furnace, roof, etc. Read the fine print to make sure you understand what the warranty covers. There is usually a per-incident deductible.

For more valuable tips for home buyers, click the post title. You'll find valuable information for both buyers and sellers on John Day's Homes Buy Day website.

Banks Tighten Subprime Lending Standards

Responding to Congressional investigations and pressure from the Federal Reserve, the nation's banks are tightening their lending standards for subprime mortgages. In a national survey, half of the country's biggest banks reported implementing more stringent lending rules for home loans to borrowers with weak credit histories. Subprime borrowers typically have credit scores of 620 or lower. The survey polled the nation's 49 largest banks which account for 71% of all residential loans made by commercial banks.

Subprime loans include adjustable rate loans (ARMs) with multiple payment options, interest only mortgages, and Alt-A loans which require limited income verification. Some banks like Chase will no longer issue ARM loans to subprime borrowers unless they demonstrate an ability to continue payments when the interest rate increases.

About 10% of the banks surveyed were also tightening requirements for traditional 30-year mortgages, even to borrowers with strong credit histories. None of the banks had plans to loosen lending rules.

Keep in mind that the majority of subprime mortgages do not come from banks, they come from finance companies. As reported by the Mortgage Bankers Association, the percentage of subprime loans that were 30 or more days past due increased to a record 15.8% in the first quarter of this year and has continued climbing.

For an explanation of the factors that led to the subprime mortgage fiasco that has sent the nation's housing industry into a tailspin, click the post title to read John Day's informative article The Effects of Easy Money in the Homes Buy Day monthly newsletter.

Tips on Shopping for a Mortgage

Finding a lender and sorting through the mortgage maze can be confusing. You want someone reliable whom you can trust to help guide you through the many mortgage options available today. Consider the following points in selecting a lender and mortgage product:

• How long do you plan to stay in your home? If you plan to stay in your home more than 5 years, fixed-rate mortgages will generally give you a better rate. Adjustable-rate mortgages (ARMs) give short-term flexibility.
• Carefully compare terms, interest rates, points, private mortgage insurance, closing costs, pre-payment penalties, etc. The mortgage with the lowest interest rate might not actually be the best value once you consider all the associated costs.
• Ask your lender for a good faith estimate that details all the costs associated with your mortgage.
• Ask your lender how long the lock-in period is; that is, how long the quoted rate will be honored. If rates drop while your loan is being processed, will you get the lower rate?
• Find out how long the loan process with take and ask for a closing date. Some lenders will pay a penalty for your inconvenience if loan processing goes past the agreed date.

Ask your realtor to recommend a professional lender. Your realtor can be a tremendous resource in helping you find lenders, title companies, inspectors, repair people, etc. Click on the post title to visit John Day's Homes Buy Day Mortgage Center for helpful information and tools you can use to select a lender and determine which mortgage is right for you.

4-Step Plan for Rookie Home Buyers

With prices and loan rates low and inventory high, this is an ideal time to buy a home. Many first-timers are taking the plunge, but it pays to have a plan first. The high foreclosure rates show what can happen if you buy without doing your homework.

Responsible buyers can follow these four steps to ensure they're financially prepared to purchase and own a home:

• Credit check. Order a credit report and assess your credit. Most mortgage lenders use FICO scores to determine loan eligibility. Generally the higher your FICO score, the lower your interest rate. If your score is higher than 650, you shouldn't have any trouble qualifying for a mortgage. If it's under 600, try to reduce your debt before applying. If you spend more than 36% of your gross monthly income on debt, lenders are less apt to consider you a good loan risk.
• Do the math. Figure out how much you can comfortably borrow. It's not always a good idea to borrow the full amount offered. Many mortgage lenders will loan you up to 33% of your gross income, but financial planners say you're smarter to borrow no more than 25%.
• Leave some breathing room. If you've been renting, you're used to calling the landlord when the sink leaks or the A/C goes on the fritz. As a homeowner you'll be shouldering all the maintenance costs of your new home. Don't forget to factor into your budget a monthly amount to cover present and future maintenance, repairs and improvements.
• Save first. Save enough money to cover purchase costs before you buy a house. The mortgage amount won't generally cover closing costs or a home inspection, appraisal or warranty. Closing costs run from 3% to 6% of the purchase price depending on where you live. Your realtor can give you a fairly accurate figure.

An experienced realtor like John Day can help you prepare for buying your first home. A good listener and patient teacher, John will guide you effortlessly through every step of your home purchase from prequalification to closing and escrow. Visit John Day's website for more valuable information for home buyers. (You'll find great tips for sellers too!) Take a virtual tour of hundreds of the latest listings in the Maryland and Washington DC metro area. Give John a call and start shopping for your dream house today. If you're buying or selling a home, John Day is your key to success.

What to Do When Your Home Is Worth Less than Your Mortgage

It's every homeowner's nightmare scenario: You have to sell your home but the sale price won't cover your mortgage. This kind of bad dream doesn't happen often. Usually homeowners can wait it out until the market improves, purchase prices go up again, and things balance out. The problem is that this takes time, sometimes years. Some people don't have time to wait out the market. A job transfer, divorce, illness or other necessity may force them to sell now. If you bought high during the recent boom but need to sell this summer when prices have been forced down by high market inventories, you could have a serious problem.

What do you do if you can't sell your house for enough to meet the closing costs? First of all, don't neglect your mortgage payment. You'll do serious damage to your credit rating and make matters much worse. You do have options, says veteran realtor John Day. The best might be a short sale.

A short sale "is when you fess up to the lender, let them know about your hardship and ask if they would please accept less money than you owe," John explains.

Obviously, lenders are reluctant to do this which makes short sales fraught with stress and tension. Of course, the circumstances that brought you to the decision are stressful in themselves, then there's the exacting paperwork associated with a short sale which adds to the stress. It's best to have an experienced real estate agent by your side to help guide you through the process. A knowledgeable agent like John Day not only knows the ropes and understands the process, but can provide much needed advice and moral support.

To find out how to initiate a short sale and the process involved, read John Day's excellent June newsletter (just click the post title). Here's what to expect if you attempt a short sale:

• Make sure you date and keep copies of everything. You should also date and document every phone call for your records, including the name of the person you talked to.


• Contact your lender's loan service department and explain your problem.


• Submit paperwork and a financial statement. (They'll be looking for assets you can cash in to make up the difference between the sale price and your loan amount.)


• Your realtor puts your house on the market, finds a buyer and obtains a bona fide offer.


• Submit the contracts and paperwork to your lender.


• Wait. Your lender will need some time to make a decision.

If you're selling your home, contact veteran realtor John Day. A top seller with prestigious Long & Foster Realtors, John has the experience and expertise to sell your home for the highest possible price.

If you're facing a potential short sale, you want John Day by your side. John will do everything he can to help you get through what will be a stressful process. Give John a call today and visit John's website for lots of great tips on selling and buying a house. If you're buying or selling a home in Maryland or the Washington DC metro area, John Day is your key to success.

Visit Our Mortgage Center for Tools and Tips on Home Loans

Purchasing a home is the biggest financial decision most of us make during our lifetime. With so many loan products available today, it's difficult to know what will mesh best with your finances and lifestyle. Recent scandals in the mortgage loan industry have made many home buyers gun shy about choosing a lender.

At Homes Buy Day we understand your concerns. On our website mortgage center, you'll find information about lenders you can trust. (Click the post title to visit our mortgage center.) These are lenders we can recommend personally who exhibit the highest degree of professionalism and utmost integrity. One of our recommended lenders is Prosperity Mortgage which serves Montgomery County and western Maryland, including the Washington DC metro area. With a focus on meeting the individual needs of each customer, Prosperity Mortgage provides knowledgeable, superior service while exhibiting the highest professionalism and integrity. Click the link to find out more.

At our mortgage center you'll also find links to several excellent mortgage calculators, reputable title companies, credit tips, mortgage tips, a glossary of terms, and great hints for both home buyers and sellers. At Homes Buy Day we understand that the process of buying or selling a home can be confusing, even overwhelming. Our experienced realtors will successfully guide you through every confusing step, from pre-qualification to closing and escrow.

Visit the Homes Buy Day website to view hundreds of homes in Maryland and the Washington DC metro area. Give us a call and let us help you find the home of your dreams or sell your home.

Protect Yourself Against Mortgage Fraud

The neighbors were concerned. In their upscale New Albany, Ohio neighborhood, six $350,000 homes had been sold in the past six months, at least the homes all displayed "sold" signs in their front yards. But no one had moved in, no one had been around to mow the grass, you couldn't see any furniture when you peeked in the window, calls to the realty number displayed on the sold signs got a disconnect message. It was more than curious. It was downright worrisome. Afraid the neglected homes would negatively affect their property values and diminish their own efforts to sell, the neighbors called police.

A lengthy investigation turned up a local mortgage fraud ring. Buying quarter to half million dollar homes with creative financing packages and no money down, the ring had pocketed the loan money, abandoned the homes, defaulted on the mortgages and made a ton of money in the process. It was shocking!

It always is. No one expects to be a victim of mortgage fraud. That's something that happens to the other guy. Well a lot of "other guys" just like you have been duped by the perpetrators of mortgage fraud. In the past year mortgage default and foreclosures have become rampant across the country, jumping 47% this spring compared to a year ago, according to RealtyTrac, Inc. Foreclosures are highest among borrowers with marginal credit who were enticed to take out high-priced loans on homes they ultimately couldn't afford. The crisis has lead Senators Sherrod Brown (Ohio), Charles Schumer (New York) and Bob Casey (Pennsylvania) to introduce a bill that would mandate tougher federal standards for mortgage lenders and provide funding for consumer programs to educate homeowners and help them avoid foreclosure.

Every homeowner needs to protect himself against mortgage fraud, says veteran Maryland realtor John Day. He urges buyers to think before they sign on the dotted line.

• Don't falsify information on a loan application or allow yourself to be a party to false information provided by a mortgage broker or lender.
• Don't participate in falsely inflating a home's appraisal.
• Don't sign fake supporting documentation for your loan and don't ever sign a blank form.
• Don't purchase loans disguised as refinances.
• Don't trust businesses or websites that promise to boost your credit score for a fee.

Good advice for all homeowners -- buyers and sellers. Another piece of advice, DO work with an honest, reputable, qualified real estate agent like John Day. A lead agent at prestigious Long & Foster Realtors, John will guide you through the confusing process of buying or selling a home in Maryland or the Washington DC metro area. Visit John’s Homes Buy Day website for great tips and to check out the latest listings. If you’re buying or selling a home, John Day is your key to success.

Understanding Mortgage Loans

Mortgage loans can be confusing. Loose mortgage practices in the past couple of years created havoc in the housing market and mortgage industry, pushing many unwary homeowners to the brink of foreclosure, and often over the edge. To protect yourself, keep in mind these important points when you're shopping for a home mortgage:

• Clean up your credit. Before you start shopping for a home, pay off as much debt as possible, pay down your credit card balances, and make sure you pay your bills on time. At least 6 months before applying for a mortgage, check your credit reports for errors and get your record corrected. By law, you are entitled to one free report per year from Experian, Trans Union and Equifax. Get a report from all three. Scores can vary by agency and lenders will use the middle score to set your mortgage rate.
• Figure out how much you can spend. You should not spend more than 28% of your gross monthly income on housing, including mortgage, interest, property taxes and insurance. Your total monthly debt payments, including mortgage, credit cards and car loans shouldn't exceed 36%. Those are the numbers the banks will use in determining the limits of your home loan.
• Fixed or adjustable rate? Fixed-rate loans are the mortgage of choice today. Interest rates are at 40-year lows which makes locking them in for the life of your loan an attractive option. If you choose an adjustable-rate loan, make sure you can afford the payments at the highest rate and watch out for prepayment penalties.
• Understand the numbers. When you buy a house, it's easy to get confused by all the numbers thrown at you. It's important to understand the true price of your home loan. Don't neglect to figure in escrow payments for property taxes and homeowners insurance and closing costs. Shop around to get the best deal and get good faith estimates from your favorite three so you can make a direct comparison.

An experienced realtor like John Day can help walk you through the maze of information and requirements involved in buying or selling a home. You'll find John personable and easy to talk to. John is knowledgeable about the process of buying or selling a home and can answer all your questions. He's a top agent with prestigious Long & Foster Realtors and a real estate educator. With years of experience buying and selling homes in Maryland and the Washington DC metro area, John is also intimately familiar with each communities and neighborhood. Experience matters. If you're buying or selling a home, John Day is your key to success. Click the post title to visit John Day's website to learn more about his services and view the latest listings.