How to pay off your mortgage earlier

If you listen to any financial guru on talk radio or see them on financial shows on cable news, almost all will generally advise homeowners to pay off their mortgages early, if possible. How much you save depends on the amount of your mortgage, the length of time you pay and your interest rate.

The advisors put forth many strategies to accomplish the goal of paying off the house. Really, it all boils down to one thing: paying extra money up-front to save you money in the long run.

Refinancing isn’t the only option

Occasionally, lenders will offer refinancing programs in order to drop your interest rate. This means that your monthly payment will be less, of course. However, unless it specifically allows you to keep the length of your mortgage static, most of the time when you refinance, your mortgage will be 30 years. Again. If you can swing it, and if they offer it, look for mortgages that offer fewer years. The 15-year refi has been popular over the last couple of decades.

Pay more however and whenever you can

Most lenders will allow you to pay off your loan early without penalty. Any amount you pay extra on the mortgage payment comes right off the principal, which can greatly reduce the amount of interest you pay in the long run.

Here’s where the financial gurus get in a lather and offer all kinds of advice to accomplish your goal.

Round up your payment

Every month, pay your mortgage up to the next $100. If you can’t afford it month in and month out, round up to the next $50. Any money you pay extra comes off the principal.

Switch to biweekly payments

This requires a little more leeway in your budget. When you make biweekly payments, you are simply taking advantage of the fact that there are 52 weeks in the year and 12 months. When you pay half of your regular mortgage payment every two weeks, you will have made 26 half payments, or 13 full monthly payments, by the end of the year.

Pay extra when you have it

Keep in mind that you can make irregular payments and send any amount when you have it. When you get a tax refund, a bonus or any other type of windfall, apply it to your balance.

Take a look at what you’ll save

If you want to have some fun, go to a mortgage calculator and punch in some different options to see how much you’ll save.

Weird things can affect your credit score

Attaining and maintaining a good credit score is important because you could get a lower interest rate on your mortgage, potentially saving you tens of thousands of dollars over the life of your mortgage. In order to get the highest credit score possible we’ve all heard the typical advice for keeping good credit:

• Pay all of your bills on time


• Don't open a bunch of credit cards at once


• Don't file for bankruptcy unless absolutely necessary


• Keep an eye on your report to make sure everything is accurate

Those are the big things. But there are some little things... really strange things... that can add up when it comes to keeping your credit reports clean.

Getting cable or internet

There are some Internet and cable companies out there that will run a hard inquiry on your credit when you sign up for their service. A hard inquiry occurs almost any time you apply for credit - credit card, car loan or home loan, etc. A hard inquiry negatively impacts your credit score by a little bit. If you have too many hard inquiries at once, it can really ding your credit. The company has to have your permission in order to do this, so it shouldn't come as a surprise.

Using a debit card to rent a car

Most rental agencies require that the deposit be paid with a credit card. Some will agree to accept a debit card if you'll allow them to perform a credit check on you, resulting in... you guessed it... a hard inquiry.

Buying a new motorcycle

If you decide to buy a motorcycle, you should know this: Motorcycle loans are sometimes not reported to the credit bureaus as vehicle loans. Instead they are reported as revolving credit, which makes them look like a big chunk of uncollateralized credit card debt. Thirty percent of your FICO score is based on how much credit card debt you carry.

Unpaid tolls

Many toll booths in the country have switched to “toll by plate” systems where the vehicle has a tag in the windshield or on the license plate and the owner is sent a bill every month for toll road usage. Just like anything else, if you neglect to pay the bill on time, it’s reported.

Library fines

Although libraries don’t report directly to credit reporting agencies, many of them turn over unpaid balances to collection agencies, which do. Don’t let $4.00 in late fees ding your credit score.

Storage fees

There are a number of shows on TV depicting auctions of abandoned storage units. In addition to losing all of the stuff they had in those lockers, the delinquent owners have another thing in common: they all have a negative line on their credit report because the storage facility will turn over any remaining balance to a collection agency.

Financing furniture

Taking advantage of a 0% financing promotion at your local furniture store looks like a good opportunity to take advantage of free money. However, your credit could suffer because you’re adding a high balance loan to your credit report and could increase your credit utilization rate since the furniture loan is essentially maxed out.

Parking tickets

It doesn’t seem like a big deal, does it? An increasing number of cities are turning over unpaid parking tickets over to private collections agencies.

A collection action by any business can lower your credit score by up to 100 points or more when it shows up on your credit report. It can remain on your credit report for up to seven years, affecting your credit score for years to come.

Tax breaks expire for homeowners

If you keep a sharp eye out, you'll notice that you'll be paying more taxes soon - not this year, but next - if members of Congress don't act in 2014 to prevent it.

Which means you'll be paying more in taxes next year.

The good news for members of Congress is that they can say they didn't "raise" taxes; they only allowed several tax deductions that have been around for years to expire at midnight on December 31.

Private mortgage insurance premium deduction

If you put less than 20 percent down, chances are good that you're being charged PMI. It's used to protect the lender in case of default. It is usually a small percentage of the monthly payment, so most homeowners don't give it much thought. Over the course of 30 years, that small percentage can add up to thousands of dollars. Depending on your tax bracket, deducting it on your federal tax return can trim your cost by 20-35 percent.

Loan forgiveness

When a homeowner gets under water - owes more than the home is worth - they often use a tactic known as a short sale. The lender accepts what the home sells for in exchange for paid-in-full status. The difference between what was owed and what was made is considered taxable income. However, that tax had been waived for years. This could potentially cost a homeowner who does a short sale thousands of dollars at tax time.

Energy efficient tax credits

For the last few years, homeowners received credits for home improvements that increased the energy efficiency of their home. Those projects could include installing better doors and windows, insulation, furnaces, heat pumps, water heaters and central air conditioning. The credit for those will expire; however, some of the credits for installing solar water heaters, wind turbines, geothermal heat systems and other things will remain.

These three tax breaks will remain in effect for your 2013 return. There is always a chance that Congress will renew some or all of them, but it doesn't seem likely. Make sure to talk to your tax preparer.

Tips for moving in winter

For many people moving during the winter is - if you'll excuse the pun - a cold reality. It seems that more companies transfer personnel during the first two months of the year.

This means that a lot of moving takes place during the winter months. The ice, snow, slippery roads and colder temperatures make moving more of a challenge than do it during the warm spring months.

These tips will help you stay safe during your winter moving day, whether you do it yourself of or hire a professional mover.

1. To avoid slipping hazards shovel driveways and walkways before your truck arrives. Put down ice melt to all walkways between your house and the moving vehicle. Don't forget the back entrance!


2. Dress in layers to stay warm. As the day heats up and you start to work up a sweat, you can always remove a layer.


3. Constantly walking back and forth from a warm house to the cold outside is hard on your body. Leave the heat and electricity on in your home until you are completely moved out but leave the door open to balance the temperatures.


4. Cover entrance ways and floors with old sheets or tarps to avoid tracking mud and snow in.


5. Keep towels by the doors to wipe snow from dolly wheels as you come in and out.


6. Make sure you have enough extra moving pads to protect your belongings from the elements. Also make sure moving pads remain dry at all times.


7. Last things to load onto the truck are shovel and ice melt so you can clear the loading area at your new home.


8. With a high center of gravity and shifting weight in the back, driving a moving truck is completely different from driving any other vehicle. Stopping, especially on snow and ice, presents a challenge even for experienced drivers.


9. Keep the moving ramp clean and dry while loading and unloading.


10. If you are transporting any live plants, they should go in your vehicle or in the cab of your rented moving truck. They could freeze if you move them in the cargo hold of the truck.

Number of home buyers paying with cash increasing

One of the real estate industry trends of 2013 was fairly easy to spot. Cash buyers accounted for one-third of all home sales in the past 12 months. This is about where it has been for the last three years.

Surprisingly, cash home sales took a jump in November, according to RealtyTrac. Cash sales accounted for 42 percent of all homes purchased in November, which is the highest level since RealtyTrac began tracking it. The percentage of cash sales in October was higher than average at 38.4.

Who pays cash?

There are certain segments of the population that have the liquid assets available to pay cash for homes.

• flippers


• retirees who are downsizing


• wealthy who are investing or purchasing vacation homes


• investors who expect the market to improve enough for a good return on investment through rentals


• overseas buyers


• people who have trouble getting financed

What it means

While the housing market is slowly heading back to normal, the rising number of cash sales is a sign that recovery is not complete. The pace is simply not sustainable.

The trend upward in cash-only sales began when mortgage rates began to tick up. Buyers with cash are willing to forego the tax advantage of carrying a mortgage to save on interest. Other savings for cash buyers include loan origination fees, appraisals and some closing costs.

Other advantages for cash buyers include avoiding the loan qualification process and the ability to close the deal very quickly.

How your property taxes are paid

Last week, we talked about where your property taxes go. This week, we’ll talk a little about how they are paid, which for most homeowners is a line item on their mortgage statement.

For most borrowers, holding property taxes in escrow is required by the lender. Some lenders who will let you do it still discourage it by charging you more interest. Today, though, most banks won’t even give you the option of not having an escrow account unless you can prove you have a certain amount of funds on hand or you have a certain amount of equity in your home, usually 20 percent.

No matter what state you live in, if you have a mortgage, chances are pretty good that your lender pays your property taxes through an escrow account. In fact, many people never even become aware of the monthly allocation until their mortgages are paid in full and they are directly responsible for paying the property taxes themselves.

Even if your bank pays your personal property taxes, you should receive a copy of the bill at least once each year, whether you pay your property taxes directly to the tax authorities or through your mortgage lender.

Always keep the latest copy of your tax bill where you have easy access to it. You never know when you might need it to prove residency. For example, some school districts require it when you enroll the kids in school, particularly if you're enrolling them in a new school. And you'll ALWAYS need it to do your income taxes, too!

The obvious reason to use an escrow account is, quite honestly, convenience. Simply adding it to your mortgage payment, not worrying about the paperwork, ensuring that it is paid on time... it honestly negates any cons related to escrow.

Some people who own their home continue to use an escrow account because they can set it on autopilot and don’t have to worry about making the payments when they are due.

What do property taxes pay for?

The end of the year brings holiday celebrations, New Year’s resolutions, football playoffs and bowl games, and for many, the dreaded property tax bill.

If you're like most people, you look at your property tax statement and automatically think "That's too high." But if you take a closer look, you'll see that your property taxes are spent in a lot of different areas, which is why it’s so hard to get lower taxes overall.

Depending upon where you live, your property taxes fund any number of state and local government functions. Here are the most common lines you'll see on your property tax.

Schools

By far, public schools are the largest single line item in nearly any property tax bill. A commitment to providing the best possible education often leads to higher local property values. In addition, the houses in neighborhoods with higher rated schools generally have higher prices. Although public school systems get funding from a variety of sources, including federal government, state government, fund raising efforts, the largest source is generally from property taxes. This is also why any tax reduction attempts meet strong resistance from both school employees and parents of school-aged children.

Public roads and parks

Although a lot of money from gasoline goes to roads, those are mostly financed by state and federal government. City and neighborhood street repair comes from property tax. Public park maintenance is funded as well.

Utilities

Depending upon the area in which you live, your property tax bill may also include certain utility costs that are provided by the county or municipality, which could include sewer, water and maybe garbage collection.

Government administration costs

This is a relatively small part of the local budget, but it covers salaries and benefits for municipal administrative staff and the buildings that house them.

Public safety

Many people mistakenly think that traffic citations fund police budgets, but most of their operating budget is provided through property taxes. Firefighters are also included in this category. This includes not only salary and benefits for policemen and firemen, but support personnel as well the acquisition of buildings and police cars.

Libraries

Although they’re not usually very large parts of your tax bill, they are considered highly desirable in most communities and largely beyond political haggling. When a tax increase is on the ballot, it rarely fails.

City and county allocations

Both rely primarily on real estate tax revenues to support their operations, so taxes are usually collected and paid to both. In many cities and counties, one government agency may collect the tax under a single bill, then apportion the funds, so you may pay your taxes to your municipality who then forwards the required portion to your county.

The pros and cons of buying a home during the holidays

Two weeks ago, we talked about the pros and cons of selling your home during the holiday, so this week we'll talk about why buying your home at the same time presents challenges and opportunities.

The pros

The holiday season can be a good time to find a home. If you are planning to buy a home, but are waiting until the market heats up in the Spring, you might want to reconsider.

Right now, interest rates remain low, but because there is less demand for mortgage loans, you could get an even better rate.

Prices can be lower because sellers may drop their asking price

Fewer buyers = Less competition

Homeowners who keep their homes on the market are motivated sellers

Tax deduction for the current year

Fewer closings = faster transactions

The cons

Of course, there are some disadvantages to trying to buy a new home during the holiday. There's a shortage of inventory—the best homes in your price range may not be available because the seller may choose to wait until Spring. The market is slower because many agents schedule vacations at this time of the year. A blanket of snow can hide defects in the home's exterior and the landscape as well.

If you’re considering buying a new home, this time of year could prove to be advantageous. It could be the best time of year to buy. Talk to your REALTOR® to discuss your options.

How to get a better rate on your mortgage

When you buy a new home, you can reasonably expect that the cost of borrowing will add up to a great deal of money. Anything you can do to shave even tenths of a percent off the percentage rate can potentially save you thousands of dollars over the 30 years you'll carry the mortgage.

There are a number of things you can do to help yourself get a better rate on your mortgage:

Check your credit score

To get an idea of what your credit score is, you can check with free services or at MyFICO.com, which costs around $20. Looking at these reports can give you a general idea of what your score is and how to improve it. If you pull your own scores, make sure to compare them to what your lender is seeing.

Fix any errors on your credit report

Look through your credit report from each company for errors and negative items. Try to fix any errors that you find as quickly as possible. Each reporting agency will have details about disputing information. If the issue is not resolved after filing a complaint, contact the Consumer Financial Protection Bureau.

Pay your bills on time

From time to time, it's easy to put off paying a bill on its due date. It really seems insignificant, especially if you're having trouble making ends meet. Just one late payment, though, can cause your credit score to drop.

Reduce the amount of debt you owe

One of the criteria your mortgage lender looks at is your debt-to-income ratio, which is simply how much debt you are carrying compared with your monthly income. This number affects whether you qualify for a loan and what your interest rate will be.

Keep your old accounts open

Part of your credit score is based on the length of your credit history. It will not hurt to keep an old account open until your mortgage is secured. It may even be beneficial to keep your oldest account open even if your annual fee is due.

Don't apply for any new credit

When you decide that you're going to apply for a mortgage, don't apply for new credit of any kind. Not only can it mess with your debt to income ratios, if you have few accounts or a short credit history, inquiries can have a greater impact on your credit score.

Make sure to discuss your credit scores – and how they affect your mortgage rates – with your lender. They may be able to make other suggestions about how to improve your credit score so that you may qualify for a lower rate, which could save you a lot of money in the long run.

Selling a home during the holidays

The holidays are in full swing. People are busy planning parties, shopping, trying to reach goals for the year, making travel plans. Probably not the best time to sell your home, right?

Not necessarily.

This could be an opportune time to sell your home. Of course, there are some cons to trying to sell at this time of year, but selling now offers you some distinct advantages over waiting until after the first of the year.

1. People looking for a home over the holidays are more likely going to be serious buyers.


2. A lot of sellers take their homes off the market, which means serious buyers have fewer homes to choose from


3. Less competition right now means more money for you.


4. The number of homes on the market will drastically increase after the first of the year. Less demand means less money.


5. Houses show better when they’re decorated over the holidays.


6. Buyers are more emotional during the holidays and tend to spend more money, which means you can get closer to your asking price.


7. Because they are likely to be on vacation, buyers have more time to look at new homes over the holidays and are more likely to come on weekdays.


8. The tax break they receive is a motivating factor for many buyers.


9. Companies traditionally use January to relocate employees who can't wait until there are more homes available in the spring.

It should be noted that there are some drawbacks to selling your home during the holidays. You may prefer not to schedule showings and closings at this time. You may not want to move during this time – not only are schedules hectic, the weather is not always cooperative. Speaking of the weather, if you live in a colder climate, snow and ice cuts down on foot traffic.

If you’re considering selling your home, it could be the best time of year to sell. Talk to your REALTOR® to discuss your options.

Why flood insurance rates are rising

As a homeowner, you may have noticed two developments concerning flood insurance recently:

1. You now have to buy flood insurance


2. It's really expensive

This is not due to your insurance company raising rates because they are paying for damages caused by Hurricane Katrina, Superstorm Sandy, or Midwest flooding in 2012. It is due to the Biggert-Waters Insurance Reform Act of 2012. The Act made sweeping changes to the National Flood Insurance Program and they just kicked in last month. At the point that Congress passed the new law, NFIP was $18 billion in debt.

How does it affect homeowners?

Biggert-Waters phases out flood insurance subsidies on hundreds of thousands of older homes. This means that premiums will necessarily skyrocket. Homes sold after Biggert-Waters passed in July, 2012, or those whose policies lapse, will see their premiums immediately go up to the non-subsidized actuarial rate.

Part of the Act raised what's known as the base flood elevation (BFE) for certain areas, which means that some homeowners who never had to carry flood insurance now have to. If your home is now in a high risk zone, you may have to raise your home by putting it on pylons, which could cost tens of thousands of dollars, but will not significantly increase the value of the home.

Homeowners who have properties in the new FEMA flood zones could experience flood insurance premium increases of 500-1000%. Mortgage payments in effect double when seeing that kind of increase. This means that property values go down. Owning a home along the nation's coasts and river valleys becomes less attractive. Building a new home in these areas becomes almost impossible.

Reaction to Biggert-Waters is gaining momentum as homeowners realize exactly how it affects their homes’ value and premiums. If you find that your premiums have risen, talk to your insurance representative.

Moving truck driving tips

Many people choose to rent a moving truck rather than hiring professional movers in order to save money when they move. Make sure to review all safety information with the rental business before driving the truck.

Here are some guidelines for safe truck driving.

Drive defensively

Practice these basic driving habits so others know your intentions and to help prevent accidents.

• Check the mirrors for other vehicles frequently.


• Never tailgate. Trucks require more time and room to stop.


• Never use the passing lane on the interstate.


• Allow more room and more time for lane changes.


• Watch sharp turns. Trucks are longer and wider than cars, so they need more turning area.


• Always use your turn signal to let other drivers know your intentions.


• And, of course, always wear a seatbelt!

Vehicle safety

• Make sure to familiarize yourself with the truck before hitting the road.


• Never drive if you are over-tired.


• Avoid medication and never drive under the influence of alcohol.


• Bring a friend or family member to help with the driving.


• Stop every two hours or so to prevent fatigue.


• Stop regularly for coffee or soda and a snack, or just to stretch your legs.

Backing up

• Avoid backing up if you can. If you must back up, have someone direct you from the side at the rear.


• If you're towing anything, it's best to NEVER back up.

Save money on fuel

• Obey the speed limits.


• Gradually build to the desired speed.


• On the highway, keep a consistent speed and don't attempt to pass.

Parking

• Set the emergency brake every time you park.


• Turn the wheels away from the curb with the truck faced uphill; toward the curb when facing downhill.


• Look for "drive-through" parking spaces to avoid backing.


• If you're stopping at a hotel, always park in well-lit areas. Lock all doors and padlock the safety chains if you're towing anything.


• At road stops and restaurants, park where you can see the vehicle.

Stopping

• Allow at least five vehicle lengths between you and the vehicle ahead of you.


• Brake earlier than you think you need to.


• Ease off the accelerator when stopping to avoid shifting cargo.

Avoid height-related accidents

• Know the height of the vehicle you're driving.


• Be aware of low canopies, overpasses, bridges, tree branches, parking garages and signs prohibiting truck traffic.


• Don't use the drive-through at a restaurant. Park the truck and walk in.

Does checking your credit hurt your score?

One of the myths surrounding personal credit scores is that checking your own credit reports and scores will make your score go down. That myth has been around for nearly as long as credit reporting agencies.

This myth hurts home buyers because it discourages them from checking their credit report in order to know what’s in it. If your report has erroneous information, at worst it could result in you being turned down for a loan. At best, it could cost you thousands of dollars by paying a higher interest rate than you should.

The simple fact is that checking your own scores does not affect them in any way. It’s what’s known in the industry as a “soft” inquiry. When you make the request, it will show up in your report, but it does not affect your score.

A “hard” inquiry from any potential creditor can adversely affect your credit score because it represents potential new debt that doesn’t yet appear in your credit report as an account. One piece of advice: If you have a friend who works at a bank or car dealership, don’t have them pull a credit report just so you can see it. If you don’t have a long credit history, this hard inquiry could affect your score enough to cause a problem.

Requesting a copy of your own credit report will not affect your credit scores. An inquiry will be added to your report as a record that you requested it. This type of inquiry is sometimes called a “soft” inquiry because it is shown only to you. Therefore, you can check your own credit report as often as you like with no effect on your credit scores.

You can request your own scores from any number of sites for a minimal cost. Ask your REALTOR® to recommend where you should make a request.

Seven things that kill your home sale

Your home can be immaculate, in a great neighborhood and priced right. But when a prospective buyer walks in, they can be persuaded to turn and walk out. Obviously, they're motivated; otherwise they wouldn't have wasted the trip.

If your home has any of following six problems, you may see the buyers turn on their heels and head in the direction of the next property. Two of them, you can't do much about. The others can be fixed, but the cost ranges from not much to quite a bit.

Seven deal-breakers for homebuyers

The backyard isn’t family-friendly

The back yard is something that potential home buyers give great consideration to when buying a home. They imagine cookouts, landscaping, gardens, kids playing and tire swings. If it doesn't match up to their expectations, it's a deal breaker... and there's not much you can do about it.

Mold

You can try to cover it up but it's going to be found in the inspection if you have it. Fixes range from a new piece of drywall behind the bathroom sink to calling out a remediation crew. Don't hide it, especially if you've spent the money to have it removed.

Foundation problems

A crack in the foundation can cause a myriad of other mostly cosmetic, but costly, repairs, from repairing drywall to doorframes. Many buyers walk away from foundation problems. Most lenders require foundation problems to be repaired before closing. And even a fixed foundation can be a deal-breaker because potential homeowners are worried about the damage that it has caused.

Personal belongings

Your sense of style and taste may not appeal to the potential buyer. Ask your REALTOR® about staging your home for sale. He or she will have some suggestions about what should be put in storage until you complete the move. For higher end homes, you may want to consider hiring a staging consultant.

The house is dirty or smelly

Pets, mildew, smoke... these are all turn-offs to potential buyers. Permanent smells and stains, if they aren't a deal-breaker, may mean you'll have to drop the price on your home because the new owner will have to pay to have it cleaned or do it themselves... which can be a big undertaking.

Pest infestation

This is especially true of termites. The damage they can cause is not always immediately apparent. A certified termite inspector knows what to look for and how to eradicate them.

Location

You can have the perfect house, the right number of bedrooms, a great kitchen, plenty of storage space, a clean inspection and a perfect back yard, but if the location is horrible, your house is going to sit for a while.

What is eminent domain, and should I be worried?

One of the things that property owners must be concerned with is eminent domain, which is defined as "the right of a government or its agent to expropriate private property for public use, with payment of compensation."

City, county, state and federal governments can claim eminent domain for any number of reasons. For example, if your property is impeding a road expansion, it may make the claim in order to make the land available for public use.

If you receive notification that a government entity is considering an eminent domain designation on your property, there are two things you should know:

1. They have to pay you fair market value for it.

2. Their offer will be on the low end of fair market value.

Eminent domain power can and has been abused. There can exist a conflict of interest when a developer lobbies a city government for a redevelopment project, only because it plans to construct new buildings for office, retail or housing in order to line their pockets.

The first thing you need to do when faced with eminent domain is hire an attorney who specializes in the area.

1. Agency with the interest in your property will hire an appraiser to inspect and appraise your property.


2. Agency makes an offer, usually a low one.


3. If you don't accept their offer, and are unable to negotiate a fair deal, they will schedule a public hearing. The agency has to prove their case that acquiring the property is necessary for the public good.


4. They will file a complaint against you in Superior Court, and you will be served a summons which requires a response.


5. They will deposit "probable compensation" and file a motion for prejudgment possession with the Court. At this time, you may object once again. If their motion is approved, they may take possession of your property within 30 days.


6. At this time, your attorney will obtain appraisal reports from appraisers and other experts to establish your property's fair market value. These reports are filed with the Court and presented to the agency who filed for eminent domain.


7. Mediation - the two parties come to an agreement, if one can be reached.


8. If you can't come to a compromise, they are forced to make a final offer.


9. If you still do not accept the offer, a trial will be held to determine fair market value of your property and hear any other issues.

Your rights as a property owner vary by your home state. You need to be informed of those rights and the process. For instance, depending on your home state, you may be able to recover attorney fees from the agency who filed the case. Do your homework. Most importantly, hire a successful attorney who specializes in eminent domain cases.

Lenders using new criteria to determine credit risk in mortgage loans

A low credit score doesn't necessarily result in an automatic turn down for a mortgage loan.

Mortgage lenders are looking for borrowers who are good risks, even though they may have little or no credit history. Lenders are now looking at additional criteria, some that they may not have considered a few years ago, in order to find new home buyers who are good risks, even though their credit score may not show it.

Those most likely to gain from this new way of looking at financial history include young adults and new immigrants. They are more likely to be approved without being subjected to extremely high interest rates because their scores are not high.

This "non-traditional" data that lenders are now looking at when considering home loan applications includes:

Information in public records, including property records and professional licenses. A license indicates that a person is a better risk because they have a steady income and commitment in the community.

Rental payment is another category that reporting agencies have begun to consider. Late payments could be an indicator of future behavior.

Utility payments and cell phone bill payment history can also be an indicator of whether a person with little or no payment history takes paying their bills seriously.

The takeaway for many is that even though you may have little credit history, or may have a score that falls somewhere between bad and good, you may be able to secure a loan from a mortgage lender. The first thing you need to do is talk to a lender to see what you qualify for and what a loan will cost. A mortgage lender will also be able to tell you how to improve your scores so that you can get a better rate.

What the government shutdown means for home buyers and sellers

With Congress unable to come to an agreement, we've got a situation known as a partial government shutdown. The last time this happened was in 1995 when there was a shutdown that lasted for 21 days.

Many agencies, such as NASA, have furloughed non-essential personnel. Still others are operating at full capacity, including the military and TSA. There are many, including Housing and Urban Development, which are operating with skeleton crews.

Early reports stated that the Federal Housing Administration would stop processing loan applications. This is not the case. The first contingency plan issued by HUD mistakenly stated that FHA would be unable to endorse any single-family loans and that staff would be furloughed.

The announcement sent a panic through the real estate market. After noticing the error, HUD issued a statement saying that its Office of Single Family Housing will continue to endorse new loans even in the event of a lapse in appropriations.

The FHA is funded through multiyear appropriations. There will be some reductions in staff and furloughs, but it will be able to operate. Because the department will be short-staffed, there could be some delays, but the paperwork will be processed. Multi-family operations, however, are funded on a year-by-year basis. During a shutdown, condo projects would be put on hold because the FHA will not be able to underwrite them.

It is unknown at this time how much of a delay we can expect in single-family loan applications or what the long-term impact of a lengthy shutdown will be. In its statement, HUD said that it does not expect the impact on the housing market to be significant, provided the government shutdown is brief.

How unemployment affects mortgage rates

When Federal Reserve Chairman Ben Bernanke announced last week that the Fed would not curtail its bond buying program, the mortgage industry breathed a sigh of relief. Rates dropped slightly after the announcement.

Interest rates had been rising steadily since May, when Bernanke said the Fed was considering trimming the stimulus program, which pumps $85 billion into the American economy every month.

According to Zillow.com, after declining to a low of 3.21% in December 2012, the national average for a 30-year fixed-rate mortgage was recently 4.44%, more than a point higher less than a year later.

What the Fed said

Although pundits and politicians paint these numbers as rosy, the Fed's announcement as a barometer of the nation's economy isn't quite as positive. Here are the highlights:

1. The Fed will maintain its plan to keep short-term rates at record lows at least until unemployment reaches 6.5 percent.


2. It doesn't project the unemployment rate to reach that level until the end of 2014 or beyond.


3. The Fed predicts that inflation will start to rise next year, to somewhere between 1.4% and 2%. Currently it's about 0.8%.

The Fed's announcement assured the mortgage industry that the stimulus would continue for at least a year. But the announcement said, in a nutshell, that the economy is still not improving as quickly as it would like.

Why the Fed's announcement matters

As it stands now, this is a manipulated market, according to a piece on Bankrate.com. (link to http://www.bankrate.com/finance/mortgages/mortgage-analysis.aspx) One analyst was quoted as saying that rates are probably headed to 5 - 6%, once the Fed cuts back on its stimulus efforts and lets the market decide where mortgage rates should be.

What it means for home buyers

The announcement has a definite effect on the environment if you're looking to buy, sell or refinance your home.

Loans are still cheap... for the time being. We're not likely to see the rates go as low as they were late last year, but for the foreseeable future, rates are likely to drop a bit. If the economy continues to improve as anticipated, rates will keep inching up.

Reasons you should buy a new home before selling your current home

Last week, we discussed the reasons you should sell first, then buy a new home. That is optimal for most people. But there are situations in which buying a new home first, then selling your current home is the right thing to do.

If you have the cash on hand for a down payment and have the means to pay for two mortgages while selling your existing property, buying first offers several advantages.

No pressure to find your dream home

If you're under a deadline to move out of your existing home because the new owners are moving in, you're likely to compromise on what you're looking for in a new home. Buying first offers you the opportunity to look for a new home without any pressure to purchase. You're more likely to hold out for your dream home, rather than settling for one without some of the features you desire.

Wasting money on rental

Finding the right place to rent is almost as difficult as finding a new home. Property managers won't usually sign a month-to-month lease, and they don't like signing a short-term lease. And if they do, they charge more for the same property. So if you sign a six-month lease and find a new home immediately, you'll still be on the hook for whatever is required to break the lease.

You'll only have to move once

Let's face it... moving is a hassle. If you sell your home, and aren't able to find a new home, you either have to move into a rental or move your entire home into storage while you live with friends or relatives. In essence, you're moving twice - once when you move everything to the storage facility, and again when you find a new home.

Knowing the market is essential. Take a hard look at your budget and be realistic about your financial situation. Talk to your mortgage lender to make sure that you can qualify for a second mortgage on a new home. As always, talk to your REALTOR® to take the temperature of the housing market in your area.

Four reasons you should sell your home before buying another

Whether you're moving to a new, bigger home, or downsizing when you become empty nesters, the timeline of buying and selling homes rarely coincides perfectly. So the question is, "Should we sell first or buy first?"

Selling your home before getting serious about buying a new one has some distinct advantages, no matter what the market is doing.

Time is on your side

By selling first, you give yourself the ability to negotiate on both sides of the equation. You can always ask the buyer for a later move-out date so you can have a little extra time to find a new home.

You can be sure how much cash you'll have on hand

With your first home sold, you have the added advantage of using equity to make a larger down payment and can play hard ball when it comes time to make an offer on home #2.

You're more likely to get your target price

If you buy first, you may be forced to take an offer that is much lower than what is fair. Agents know that if you've bought another home, they have an advantage during the negotiation. You'll want to avoid having two mortgage payments. They also know that most people's income will not qualify for a second mortgage with most lenders. They will use that to their advantage.

Most agents will not allow a contingency clause

If you make selling your home contingent upon finding a new one, you are in essence under no obligation to sell. That leaves them with a huge question about their future. Smart agents will not allow this to happen.