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Wednesday, September 16, 2009
Federal Reserve's 5 Tips for Shopping for a Mortgage
by Broderick Perkins
Financing the purchase of a home could be the most complex financial decision you'll every endure.
You need all the help you can get.
To help get you started with the basics, the Federal Reserve offers "5 Tips for Shopping for a Mortgage," because, well, the fundamentals always apply.
Don't bite off more than you can chew. Check your budget. You must have a budget so you can estimate what you can afford to pay for a home, including the mortgage, property taxes, insurance, and monthly maintenance and utilities.
You also have to have enough to save for emergencies. Plan ahead to have enough to afford your monthly mortgage payments for several years. Check your credit report to make sure that the information in it is accurate. A higher credit score may help you get a lower interest rate on your mortgage.
Shop around. Online and off, shop lenders, brokers, credit unions, government (city, county state) programs, even seller financing. Shopping around is a bear, but it can save you thousands of dollars.
Understand costs. Shopping around means scrutinizing loan costs and fees not just the annual percentage rate (APR) On any given day, lenders and brokers may offer different interest rates and fees to different consumers for the same loan, even when those consumers have the same loan qualifications. Keep in mind that lenders and brokers also consider the profit they receive if you agree to the terms of a loan with higher fees, higher points, or a higher interest rate.
Learn risks, benefits of loan options. Mortgages have many features -- fixed interest rates, adjustable rates, payment adjustments, interest-only payments, prepayment penalties, balloon payments and more. Consider all the features, including the APR and the settlement costs.
Have your lender calculate how much your monthly payments could be a year from now, and 5 or 10 years from now. A mortgage shopping worksheet can help you identify the features of different loans. Mortgage calculators can help you compare payments and the equity you could build with different mortgage loans.
Get advice from those you trust. Ask family, friends, co-workers, professional associates and others you trust for referrals. Talk with a trusted housing counselor or a real estate attorney that you hire to review your documents before you sign them. You can find a list of counseling resources at NeighborWorks and on the U.S. Department of Housing and Urban Development's (HUD) website or by calling (800) 569-4287.
For more mortgage shopping details, see: "Looking For The Best Mortgage."
Published: September 17, 2009
Financing the purchase of a home could be the most complex financial decision you'll every endure.
You need all the help you can get.
To help get you started with the basics, the Federal Reserve offers "5 Tips for Shopping for a Mortgage," because, well, the fundamentals always apply.
Don't bite off more than you can chew. Check your budget. You must have a budget so you can estimate what you can afford to pay for a home, including the mortgage, property taxes, insurance, and monthly maintenance and utilities.
You also have to have enough to save for emergencies. Plan ahead to have enough to afford your monthly mortgage payments for several years. Check your credit report to make sure that the information in it is accurate. A higher credit score may help you get a lower interest rate on your mortgage.
Shop around. Online and off, shop lenders, brokers, credit unions, government (city, county state) programs, even seller financing. Shopping around is a bear, but it can save you thousands of dollars.
Understand costs. Shopping around means scrutinizing loan costs and fees not just the annual percentage rate (APR) On any given day, lenders and brokers may offer different interest rates and fees to different consumers for the same loan, even when those consumers have the same loan qualifications. Keep in mind that lenders and brokers also consider the profit they receive if you agree to the terms of a loan with higher fees, higher points, or a higher interest rate.
Learn risks, benefits of loan options. Mortgages have many features -- fixed interest rates, adjustable rates, payment adjustments, interest-only payments, prepayment penalties, balloon payments and more. Consider all the features, including the APR and the settlement costs.
Have your lender calculate how much your monthly payments could be a year from now, and 5 or 10 years from now. A mortgage shopping worksheet can help you identify the features of different loans. Mortgage calculators can help you compare payments and the equity you could build with different mortgage loans.
Get advice from those you trust. Ask family, friends, co-workers, professional associates and others you trust for referrals. Talk with a trusted housing counselor or a real estate attorney that you hire to review your documents before you sign them. You can find a list of counseling resources at NeighborWorks and on the U.S. Department of Housing and Urban Development's (HUD) website or by calling (800) 569-4287.
For more mortgage shopping details, see: "Looking For The Best Mortgage."
Published: September 17, 2009
Thursday, September 10, 2009
What Should You Do When Your HELOC Freezes Over?
by Broderick Perkins
Lenders are freezing, slashing, and cutting off home equity lines of credit (HELOC), but there's a growing manual of strategies you can use to avoid or mitigate what could be financially debilitating.
Some say it's better to take the equity money and run before lenders make a move. And why shouldn't you prudently cover your assets?
After all, lenders cover their assets when they reduce your home equity line of credit (HELOC).
When your lender issued you the credit card-like line of credit backed by your home, chances are, your home value was much higher.
Now with shrinking values, lenders want to shake you down to reduce the chance they won't get paid should you default on your home -- which now may be worth less than the total of your outstanding mortgages.
Consider it a home equity loan meltdown as home equity stakes have been stumped.
Maybe you didn't use proper home equity protection practices.
In any event, the Federal Reserve offers the latest come-to-your-rescue tips for dealing with home equity that's been hammered.
• Read the notice your lender sends you. Your HELOC lender must provide you a written notice if they have frozen or reduced your HELOC. Your lender must send the notice to you no later than three business days after the freeze or reduction. The notice also must include information about any other changes to your HELOC.
• Call your lender. Even if you have a good payment record, if your home's value has fallen, your lender may freeze or reduce your HELOC. Contact your lender if you have questions or concerns about a freeze or reduction.
• Learn why your lender froze or reduced your HELOC. A freeze or reduction notice should include specific reasons for the action. The most common reasons for a HELOC freeze or reduction are, again, a decline in the value of your home, or a change in your financial circumstances.
Understanding your lender's reasoning may help if you want to take steps to have your credit line reinstated to its original amount. For example, a lender may not be aware that you made significant equity saving home improvements to help shore up the value of your home and its equity.
Or, if your financial circumstances changed for the worse and that change resulted in a lower credit score, investigate ways to rebuild your credit.
• Ask your lender how to have your HELOC reinstated. Your lender must reinstate your credit privileges when the conditions permitting the freeze or reduction no longer exist. You may need to put in writing your request to have your line of credit reinstated. Once your lender receives your written request, they must promptly investigate and determine whether your HELOC can be reinstated.
• Remember that your lender can impose fees for reinstating your HELOC. Fees include costs for an appraisal or credit report. Your lender cannot, however, charge you a fee to reinstate your credit line once the condition that caused them to freeze or reduce your HELOC no longer exists.
For more information: New federal consumer protections for HELOCs are in the pipeline.
Published: September 10, 2009
Lenders are freezing, slashing, and cutting off home equity lines of credit (HELOC), but there's a growing manual of strategies you can use to avoid or mitigate what could be financially debilitating.
Some say it's better to take the equity money and run before lenders make a move. And why shouldn't you prudently cover your assets?
After all, lenders cover their assets when they reduce your home equity line of credit (HELOC).
When your lender issued you the credit card-like line of credit backed by your home, chances are, your home value was much higher.
Now with shrinking values, lenders want to shake you down to reduce the chance they won't get paid should you default on your home -- which now may be worth less than the total of your outstanding mortgages.
Consider it a home equity loan meltdown as home equity stakes have been stumped.
Maybe you didn't use proper home equity protection practices.
In any event, the Federal Reserve offers the latest come-to-your-rescue tips for dealing with home equity that's been hammered.
• Read the notice your lender sends you. Your HELOC lender must provide you a written notice if they have frozen or reduced your HELOC. Your lender must send the notice to you no later than three business days after the freeze or reduction. The notice also must include information about any other changes to your HELOC.
• Call your lender. Even if you have a good payment record, if your home's value has fallen, your lender may freeze or reduce your HELOC. Contact your lender if you have questions or concerns about a freeze or reduction.
• Learn why your lender froze or reduced your HELOC. A freeze or reduction notice should include specific reasons for the action. The most common reasons for a HELOC freeze or reduction are, again, a decline in the value of your home, or a change in your financial circumstances.
Understanding your lender's reasoning may help if you want to take steps to have your credit line reinstated to its original amount. For example, a lender may not be aware that you made significant equity saving home improvements to help shore up the value of your home and its equity.
Or, if your financial circumstances changed for the worse and that change resulted in a lower credit score, investigate ways to rebuild your credit.
• Ask your lender how to have your HELOC reinstated. Your lender must reinstate your credit privileges when the conditions permitting the freeze or reduction no longer exist. You may need to put in writing your request to have your line of credit reinstated. Once your lender receives your written request, they must promptly investigate and determine whether your HELOC can be reinstated.
• Remember that your lender can impose fees for reinstating your HELOC. Fees include costs for an appraisal or credit report. Your lender cannot, however, charge you a fee to reinstate your credit line once the condition that caused them to freeze or reduce your HELOC no longer exists.
For more information: New federal consumer protections for HELOCs are in the pipeline.
Published: September 10, 2009
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