What is? 

1. Your Fico Score - The Middle Score of all three credit companies is used to determine the rate you qualify for.  Example: Scores from the three credit Agencies (680, 729. and 710) 710 is the middle score and will be used to determine your credit eligibility for a loan. If your spouse is included in loan the lowest Mid-Score between both borrowers will be used. Lenders usually like your mid-score to be at least a 640. As a general rule of thumb; If your score is between 640 & 680 your down payment would need to be at least 5 to 10%.  If your score is 700 or above you will need only need a 3% down payment. Texas Home Loans are available through many different lenders and product guidelines change often.                                                      

The FHA’s surge in business, which includes many loans to high-risk borrowers who put just 3 percent down in markets where real estate prices are in decline, raises questions about a potential hit to taxpayers in the future. An FHA spokesperson however said there is no cause for concern and that FHA is doing very well and that they expect to continue with current FHA lending programs as is.

My concern with the FHA boom is that values are dropping and nobody’s got a safety net and that’s what worries me about FHA lending. The tax payers are taking on a lot of risk that use to be on the private sector. Look at some of these alarming FHA Lending Stats:

• FHA’s single-family market share has skyrocketed to 17 percent, a nearly six-fold increase in the last two years.This will only continue with current mortgage crisis.
• The volume of FHA-insured single-family mortgages, for both purchases and refinances, has risen from an average of $4.9 billion a month in fiscal 2007 to over $24 billion in the last quarter — a pace that threatens to surpass the agency’s congressional authorization of $180 billion in new business for the year.
• FHA currently insures 4.4 million single-family mortgages — or about one in every 10 U.S. home mortgages, with a total unpaid balance of $474 billion.

FHA borrowers typically have less mone for down payments and poorer credit than conventional borrowers. While most FHA loans require down payments of at least 3 percent, the entire amount can be a gift from a friend, a relative or other sources as long as it isn’t from the seller. The FHA does not set minimum credit scores for borrowers and allows them to have less than stellar credit that would prevent them from obtaining conventional loans.

When subprime lending dried up at Lone Star Financing, FHA quickly became a good option for many of our borrowers, including some with good credit and larger down payments. Across the nation, lenders and mortgage brokers that sell FHA products ramped up that part of their business.

Only time will tell if the subprime debackle will bleed over to FHA lending and tax payers bear the burden of the looser lending practices of the FHA programs.
 

Maybe so, but you’ll have to shop smart to find the cash you need at a price you can afford. The key to consumer credit markets now is this: standards are back. Lenders are no longer throwing money at people who can’t prove they can comfortably pay it back. That means that the first step in the borrowing process is making sure your credit report is squeaky clean and your credit score is a minimum of 680 and preferrably 720. You can get a credit report for at freecreditreport.com or annualcreditreport.com for approximately $16.00.
 
If there are problems,then contact your mortgage broker for a preferred credit repair company and start correcting your credit prior to make application for a loan.

Ultimately the bailout bill should and will go back through the house and will be passed. It may not be in it’s entire original form or be any where near $700 Billion dollars but a traunch of the bill will be approved to tampen down the fears of wallstreet. Consumer confidence must be strengthened to ensure mass panic doesn’t insue and employment tumbles. The big bailout won’t prevent recession, according to many economists, so consumers who don’t have emergency funds and worry about their job security should think thrice before taking on new obligations. so when does a home equity or new loan make sense? A new loan makes a lot of sense for someone seeking to refinance a bad loan, buy their first house at a nice price, or get that fuel-efficient car they’ve been planning on for a while. And though interest rates have moved up slightly during the recent tumultuous weeks in the market, today’s rates may seem low compared to what they are predictted to look like in the future. Most economists are predicting interest rates to gradually start climbing and possible hitting a pinnacle in 24 months at an estimated 8% or higher.

Still not sure if the time is right for you? Whether it’s a home or auto loan, here’s how to find that cash now. Mortgages Conventional borrowers seeking less than $417,000 )Fannie Mae/Freddie Mac limit) in most housing markets—will not have trouble finding loans. Expect to pony up a down payment of at least 5 percent (20 is better) and prove that you can cover all of your monthly debt payments with about 40 percent of your pre-tax income. Big borrowers and commerical loans is where most borrowers will run into problems in the coming months. In short the market needs to correct itself and this will either take two years or five years depending on how much governement intervention this is in the coming years.

• A home that reduces in value: Your refinance may have seemed like a great idea when you realized your home’s value had increased and that you could use the equity to pay off your other debts and get some cash for other expenses by opting for a cash out refinance. But this decision may turn out to be costly in hindsight when the markets drop and takes your home’s value down with them. You’ll find that you owe more that what you have in terms of the value of your home.
• Additional efforts and costs: A new mortgage does not come free – it’s got all the hassles that your old mortgage had, from the trouble you had finding a good mortgage broker to the pesky extra fees you had to pay in the form of closing costs, property taxes (that are due on a home with a higher value) and whatnots. You also have to spend a considerable amount of time and effort on completing the paperwork and documentation satisfactorily.
• Unscrupulous lenders: Most of us are not financial geniuses and hence put our trust in mortgage brokers and lenders to guide us as we weigh the pros and cons of refinancing our mortgage. Unfortunately, there are some mortgage lenders who engage in the practice called churning where they encourage homeowners to go for a refinance even though it’s not favorable to them. Finding a good and scrupulous lender is a key aspect that’s important to the success of a mortgage refinance.
• Erratic and irresponsible spending: A refinance is an opportunity to put past habits behind you and start out on a clean slate. You must control your spending and not rack up more debts as you go forward after you refinance your mortgage or you’re in danger of ending up in a situation worse than when you started. You’re not even back at square one, you’re out of the playing board altogether, for now you have a huge debt on your home and additional debts like those on your credit card. In fact, you’re in danger of losing your home if you can’t make your monthly payments on your mortgage. 

This article is contributed by Sarah Scrafford, who regularly writes on the topic of luxury homes for sale in Canada. She invites your questions, comments and freelancing job inquiries at her email address: sarah.scrafford25@gmail.com 

Subsequently, they btoh became public companies, and their board and management ran them as such. But because they were created by Congress, bond investors came to believe that Congress would always honor the debt they’d issued. This implicit government guarantee means they’ve been able to borrow money for less even than AAA rates—despite the fact that their balance sheets would justify a much lower credit rating and thus higher interest charges. The relatively lower cost of their debt is passed through to borrowers in the form of lower interest rates. But about one third of that credit advantage, or about $10 billion a year, is retained for the benefit of the companies’ stockholders.

Fannie and Freddie have an equity cushion of slightly over $80 billion. It sounds like a lot, but not when compared with the roughly $5.5 trillion of mortgages they either own or guarantee. Even a small decline—say, 2 percent—of the value of those assets would be $110 billion and would wipe out the equity.

Is Fannie and Freddie to be blamed for our current mortgage crisis? No, not really as it is the subprime lenders that have triggered the crisis; the F&F guidelines require substantial higher down payments and carefully documented borrower income statements. It’s their balance sheet that’s the problem. The belief that the government would implicitly back their bonds enabled them to get by with too little equity capital to deal with a downturn. Now, a further loss of confidence in either Fannie or Freddie—that is, a belief that the government wouldn’t back them—would collapse their creditworthiness. Neither would be able to come up with anything like their current share of U.S. mortgages. Anybody with a room-temperature financial IQ knows these companies would be unable to raise the capital they need, either to cover their losses or to rebuild. Indeed, under all scenarios, there is a risk that they will be unable to roll over even the $463 billion of short-term debt they have on their books.

While most analyst still don’t see a true mortgage rebound occuring until early 2009, this Federal relief package should help stabilize the Texas home market and prevent further sliding of house prices across the state.  The long of the short of the Federal bailout is that it is a temporary fix that will only expand the life of this recession. To describe one economist opinion “It’s like giving a heroin addict a fix instead of rehabilitating him. It solves the short term problems, but does nothing to address the long term.”

In sub-divsions and communities across the nation, national news is reporting that local governments are coping with shrinking tax rolls, lenders are saddled with more foreclosed homes than they can sell and empty homes in many neighborhoods are being abandoned, stripped out, or even vandalized.

Like everything associated with the nation’s housing crisis, the fallout from foreclosures is very local, a fact confirmed by hundreds of e-mails from readers in msnbc.com’s Gut Check America. Some regions appear to have escaped relatively unscathed. But in hard-hit states like California, Arizona and Florida, readers report that some neighborhoods are becoming virtual ghost towns.

In Las Vegas, Nevada, “some subdivisions are three quarters vacant, and lots of homes have been abandoned by their owners, and many people are going into bankruptcy. Parts of California are reporting the same foreclosure rates.

Others report a different kind of isolation; many of those losing their home to foreclosure are reluctant to confide in family or friends until the process is complete. Some neighbors are unsure how to respond while others continue free lawn services on neighboring properties to do everything they can to hold property values.
In Mobile, Alabama, there are many reporting that neighborhoods was dotted with “growing weedy yards, windows with papers taped to them and broken. There are about five or six such homes in my post-World War II subdivision. And these are NOT expensive homes!”

With consumer confidence at a 15 year low there is little help on the horizon nationally, and Texas can only hope to ride out this mortgage crisis before feeling any severe reprecussions of the mortgage fallout. 

Bernanke said the one-two punch of the housing and credit crises has put much pressure on our struggling economy. Hiring has slowed and people are likely to tighten their belts further, as they are pinched by high energy prices and watch the value of their homes.

Is a recession pending? The forecast for the economy has worsened in recent months, and the downside risks to growth have increased,” Bernanke said. “To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so.”

Unsold homes have piled up and foreclosures have climbed to record highs.
Given all the dangers facing the economy, the Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” he said, indicating additional rate cuts were likely.

Bernanke appeared with Treasury Secretary Henry Paulson and Christopher Cox, chairman of the Security and Exchange Commission, amid increasing concerns that the economy may be drifting into recession.

The Federal Reserve, which started lowering a key interest rate in September, recently turned much more aggressive. Over the span of just eight days in January, it slashed rates by 1.25 percentage points — the biggest one-month rate reduction in a quarter-century. Economists and Wall Street investors believe the Fed will cut rates even more at its next meeting in March and probably again in April.

“Our economy is clearly in trouble,” said the committee’s chairman, Sen. Christopher Dodd, D-Conn. Restoring investor and consumer confidence, he said, is critical “if we are going to get back on our feet again.”

Bernanke said his forecast is for the economy to continue to endure a “period of sluggish growth.” That would be “followed by a somewhat stronger pace of growth starting later this year” as the effects of the Fed’s rate cuts and a newly enacted stimulus package begin to be felt. The $168 billion package, which includes rebates for people and tax breaks for businesses, was speedily passed by Congress last week and signed into law on Wednesday by President Bush. Analyst predict that will will continue to see Texas mortgage rates drop in the coming weeks and remain low for most of 2008.

Like shopping for a new home loan, it is also important to shop for a replicable refinance broker. It is imperative that you feel comfortable with the loan terms and your choice of what type of refinance mortgage to go with.

Refinancing can become expensive, but knowing why you are choosing to refinance and knowing the opportunities to be had for you, can at the end of the day, result in immense savings for you and your family.

Now let’s take a closer look at the three different types of refinance mortgages discussed in the paragraph above.

Fixed-Rate Mortgage:

Homeowners that plan on being in their home for an extended period of time or till the end-of-time should have or refinance to have a fixed-rate mortgage.

Refinancing your adjustable-rate mortgage to a fixed-rate mortgage might be the way to go for you. Adjustable-rate mortgage interest rates can slowly increase over time, leaving you with a massive house payment that you may not be able to afford. Refinancing this adjustable-rate to a fixed-rate mortgage, will assure you that your rate is steady and there will be no financial surprises from a striking increase in interest rates in the years to come.

If you currently already have a fixed-rate mortgage, you can refinance your existing loan for a shorter term. This will ultimately increase your mortgage payment, but in the end you are paying more of the principle loan amount and less towards interest. When doing this, you increase the equity you have in your home. This can be a great leverage to have someday.

Adjustable-Rate Mortgage:

ARM which stands for an adjustable-rate mortgage, can be very eye-catching to new homeowners looking for a lower interest rate and house payment. An ARM can fluctuate from time-to-time, increasing your mortgage payment. Unlike a fixed-rate mortgage, an ARM typically offers a lower interest rate for the risk involved in carrying this type of variable mortgage.

If you plan on living in your home for only a few years, if you plan on an increase in revenue, or if the fixed rate is soaring, this is a great option for you. It offers a lower mortgage payment for the time being.
Another advantage of going with an ARM is that it typically doesn’t charge prepayment penalties if you should decide to refinance later down the road.

These benefits sound outstanding, but they can go bad real fast, mortgage payments can increase dramatically due to interest rates, and you may become in jeopardy of loosing your home. It is important to understand the advantages and disadvantages of this type of variable-rate loan.

Cash-Out Refinance:

Cash-out refinance involves taking the equity that you have accumulated over the years out of your house. The process entails a new hefty mortgage, which will pay off the existing one, and places extra money on the table. The money can be used as you wish.

Let’s say your home is worth $100,000, and you owe $25,000. The homeowner might be able to get a new mortgage of $75,000. They would then need to pay off the existing $25,000 balance, which leaves them with $50,000.

Having a larger mortgage payment can cause problems if you are not prepared. The homeowner must carefully weigh the risks and they should talk to a mortgage broker that they can trust for advice.

Whatever your reason is to refinance, make certain that you are confident in your decision with the type of refinance you choose and its terms.

Shopping and comparing lenders can become very confusing. Good faith estimates usually look similar at a glance, but if you take a closer look, the lenders may not list the same fees the same way. One lender may charge a fee for something that another lender does not, or the fee may be excessive in comparison. If you see something like this, or if you see a fee that you do not understand, ask questions. You are entitled to understand this document; my advice is to keep asking questions until you get a response that you understand. Buying a home is a major decision in your life, the costs can add up quickly.

The chart below shows the itemized set of codes that the RESPA has created.  For further information on each fee, visit my related article on What you should know about Home Closing Costs at http://www.lonestarfinancing.com/blog/2007/11/13/what-you-should-know-about-home-closing-costs/. This article is  a breakdown of the individual fees involved in the closing of your home, what fees you should look out for, and which fees you might be able to negotiate.

Good Faith Itemized Codes

• 800 - ITEMS PAID IN CONNECTION WITH LOAN:
  • 801 - Origination Fee
  • 802 - Discount Fee
  • 803 - Appraisal Fee
  • 804 - Credit Report
  • 805 - Lender’s Inspection Fee
  • 806 - Mortgage Insurance Application Fee
  • 807 - Assumption Fee
  • 808 - Mortgage Broker Fee
  • 810 - Tax Related Service Fee
  • 811 - Application Fee
  • 812 - Commitment Fee
  • 813 - Lender’s Rate Lock-In Fee
  • 814 - Processing Fee
  • 815 - Underwriting Fee
  • 816 - Wire Transfer Fee
• 900 - ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE:
  • 901 - Interest for days
  • 902 - Mortgage Insurance Premium
  • 903 - Hazard Insurance Premium
  • 904 - County Property Taxes
  • 905 - Flood Insurance
• 1000 - RESERVES DEPOSITED WITH LENDER:
  • 1001 - Hazard Ins.
  • 1002 - Mortgage Ins.
  • 1004 - Tax & Assmt.
  • 1006 - Flood Insurance
• 1100 - TITLE CHARGES:
  • 1101 - Closing or Escrow Fee
  • 1102 - Abstract or Title Search
  • 1103 - Title Examination
  • 1105 - Document Preparation Fee
  • 1106 - Notary Fee
  • 1107 - Attorney’s Fee
  • 1108 - Title Insurance
• 1200 - GOVERNMENT RECORDING AND TRANSFER CHARGES:
  • 1201 - Recording Fee
  • 1202 - City/County Tax/Stamps
  • 1203 - State Tax/Stamps
  • 1204 - Intangible Tax
• 1300 - ADDITIONAL SETTLEMENT CHARGES:
  • 1301 - Survey
  • 1302 - Pest Inspection

For further information on each fee, visit my related article on What you should know about Home Closing Costs. This article is a breakdown of the individual fees involved in the closing of your home.

Rachel McGuire
Austin Mortgage Broker

© 2007 Lone Star Financing - Texas Mortgage Lenders

These first two costs we are going to discuss are of taxes and insurance. No matter where you live you can expect to pay these two costs. These are inevitable and just come along with homeownership.

1. Taxes – Each year you are required by the state you live in to pay property taxes. The more expensive your home, the greater the property taxes. In the example from above, these homeowners pay about 2.1% of the accessed value of the home in taxes each year. This may seem like a lot of money, but being a homeowner has its advantages. You receive an income tax break each year for owning a home. The tax break is usually around the same amount that you pay in during the beginning of the loan as most of your payment goes towards interest. Thus, you get to offset your income by the amount of interest you pay on your mortgage. In our example, the total taxes paid for 2007 is about $3,500. Claiming a Homestead Exemption is also a nice benefit you can claim as long as you intend to live in the house you are buying.
2. Insurance – Insurance protects your property. Your bank or mortgage company may advise certain premiums that they feel you need to safeguard your investment. There is a replacement value set on each home stating what the insurance company thinks the house would be worth if they had to replace it. For the house above, the replacement value is about $210,000. The homeowners of this house pay about .7% of the replacement value in insurance premiums each year. Today, the total insurance premiums paid for 2007 is about $1,400.Now let’s talk about other possible costs associated with owning a home. These are the hidden cost mentioned above required for home upkeep. Homeowners can usually assume to pay about 1% of the purchase price for improvements each year. This is about $1,500 a year for the Austin, Texas home. Here is a list of where the main chunk of your money will be going.
3. Utilities – You can expect to now have to pay for utilities such as gas, water, electric, cable, and maybe even a land line.
4. Appliances – For the most part, homes usually come with a stove, microwave dish washer, but you may have to purchase a refrigerator and a washer and dryer. Don’t forget that these things do break down and it is your responsibility to replace them.
5. Repairs – This is the main upkeep of your home. Repairs are what keep your house afloat. There are usually cosmetic things, but if you don’t keep up with them, like a roof for example, you can then have major problems. A leaky roof can ruin your entire house.
6. Landscaping – This is a key element to this puzzle. Curb appeal is what brings a potential buyer into your home to take a further look. This is something you are constantly taking care of. Matured plants are always a plus.
7. Pest Control – This expense is something your house may not need, but before purchasing your home, you need to make sure to get a termite inspection.

Now let’s take a closer look at your new investment. On average you can assume that your home value will increase about 5% per year. For the Austin, Texas home, it has increased about 7% each year. The graph below depicts the profit of the example home over a seven year period. This can be higher or lower depending on your home, the area in which your home is located, and the upgrades you have done due to the hidden potential. As you can see, there is a substantial profit over just seven years. If you consider the taxes to be a wash due-in-part to an income tax break, the profit is even greater.

As you can see, owning your own home can be a great investment.  In the example I described above, the owner of this home has a cash flow benefit of approximately $84K over renting during the 7 year period we analyzed.  Now you are able to see why the hidden costs of homeownership can obviously mean potential. 

Rachel McGuire
LoneStar Financing

© 2007 Lone Star Financing - Austin Mortgage Brokers