While a lot of time has been focused on the mortgage process, budgeting needs to be addressed. If more people were in touch with their budgets, fewer problems would exist in the financial arena.
To begin a budget, you must first choose your priorities. This could be deciding if you want to own/keep a house, or rent an apartment. It could be if you want to work to live, or live to work, or possibly have a balance of both. You may want to tour the world and need to budget your resources to be able to do this. By establishing your priorities up front, you can determine the best plan of attack.
The second step is to determine what I call your monthly nut. This is the total of your bills required to survive at the basic level. This would include NEEDS to maintain your current state of existence. Things like mortgage/rent payments, necessary utilities like water and electricity. Main staples from the grocery store, etc. Extras like eating out for lunch, or junk food, or even extras like chips are NOT in this category. I would however include items like donations to a religion in this category as help from a divine source is always needed!
Some people may find that they currently do not have enough available funds to meet even their current living requirements. In these cases you must change your current living arrangements! Whether you find a new job, or reduce your expenses, you can’t spend more than you bring in for long.
Step three is to look at the amount you need for your ‘monthly nut’ and the amount you have left. If there is nothing left you need to plan for a way to increase your monthly income. 2nd jobs, promotions at work, or starting a business need to be looked at. You can’t live comfortably paycheck to paycheck.
Any left over money can then be planned for in two ways. The first way is to immediately set aside some money for retirement/rainy days. We will all have them, it is best to plan for it in advance.
Then you can begin looking at extras and luxuries. Extras are the Cheetos, cable TV, eating lunch at a restaurant instead of bringing lunch, etc. Luxuries are things like a new car (or 2 cars) weekend trips, etc.
Another way to save a lot of money simply is by what I call ‘buying in advance’. This is a simple concept where you watch for deals and buy things before you need them. If you see a deal for breakfast cereal for $1 a box instead of $3 a box, buy 20 boxes. You know you will use it, why wait until you need it? You can save $40.00 in one day! School/work clothes are the same way. I just bought a $70 pair of shoes for $25 at a major store. I didn’t need them, but they are not a trendy pair, and I will use them. By buying in advance, I will save $50 down the road.
By taking some time to plan for the road ahead, we can all put ourselves in a much better economic position!
This is a topic we have tried to stay away from, however it needs to be addressed.
Loan modifications are, by definition, a modification of the original terms of the loan. In essence, it is breaking the terms of the contract that you agreed to. I make that statement knowing that I will come under fire for making it, however we all are outraged when a corporation doesn’t fulfil their contractual agreement, and this is no different. We are not trying to get on a soapbox with this statement, but it is a matter of fact.
That said, there are many people who can benefit from loan modifications, and in some cases this is the only current option for them to take.
As the underwriting standards have tightened, many good people who pay all their bills on time have found themselves unable to refinance their mortgage. Some of these people have paid their mortgage on time but due to having an adjustable mortgage, or a pick-a-payment mortgage, they now cannot afford their new payments. Rather than lose a home to foreclosure, a loan modification is a good alternative.
There are many groups that will offer to negotiate a loan modification for you. Some of these groups require a large payment up front, some only charge for results. There is not a reliable way to predict results, however it is our opinion that you should only work with someone who gives you a clear indication of what you will be charged for.
Never make a payment in advance of work, unless you understand whether the payment is refundable or not, and that this is specified in writing.
Our recommendation is to start with your current lender before contracting an outside company to negotiate for you. Many lenders offer this service, and will not charge you for it. While there are a lot of hoops to jump through, it could save you thousands of dollars to do the paperwork yourself rather than paying someone else to do it for you!
If your current lender will not work with you, there are plenty of sources to choose from, but there are a lot of people who would like you to pay them up front with no guarantee of results.
As with any contract, make sure you are dealing with a legitimate company, get everything in writing, and understand what you are paying for BEFORE you sign anything or give anyone a credit card number.
There are many legitimate companies trying to provide a service to you, but there are also some who would be happy to take your money and not guarantee results.
YOU are the only one who can protect yourself from being taken advantage of. Do your homework on the companies you work with, don’t say yes to the first one who contacts you!
The focus of many articles these days are ‘poor underwriting standards’ and the people affected by them.
This article isn’t meant to address those, it is meant to help us avoid the problems created by poor underwriting standards.
Most people would agree that today underwriting standards are very restrictive, and are preventing many qualified borrowers from getting loans. This will not always be the case, lending guidelines tend to go in cycles, and will loosen again.
The best way to protect yourself from poor underwriting standards is by using common sense. The best way to protect yourself from getting ripped off in the loan process is by shopping around, and asking a lot of questions to make sure you understand what you are getting into. This site will give you a lot of the information you need to know what questions to ask.
When getting a loan, even if everyone tells you that you qualify for the loan, use common sense to make sure you can afford it. Only you know all the details of your financial life. You may have financial needs that don’t show up on paper, or you may qualify for a loan that would cost you more money than you want to spend.
For example, in the past couple of years, there were loans available that would allow someone to use 55% of their income on their housing & debt payments. This may work for someone who makes $15,000 a month, but not for someone making $3000 a month.
Before you sign loan documents, make sure you run it through your budget as well. If someone tells you that you qualify for a $300,000 loan, ask what the payment is, and ask enough questions to understand the term of the loan. If you only plan on being in the home for 5 years, you may not want a fixed rate loan (unless those rates are lower than the adjustable as they are today)
Similarly, if you plan on staying in the home forever, you shouldn’t take a shorter term adjustable rate loan.
Here is a pretty simple way to look at a budget:
Even though the underwriter will look at your gross income, you should not. You have to pay taxes, medical insurance, retirement, (don’t forget this one) etc.
Don’t forget groceries, necessities, and if you are buying a house for the first time, utilities and maintenance are usually more expensive. Also, make sure you leave a little money for having fun. You don’t want to be a slave to your house, or not have any money to save.
If you can fit everything into your budget, then the loan might be right for you! If you have questions, DON”T SIGN UNTIL THOSE QUESTIONS ARE RESOLVED!
YOU are responsible for making sure you can repay the loan. The best way to protect yourself from getting a bad loan is to take accountability, and only trust yourself.
In a couple of new announcements, Fannie Mae has made a change that could positively affect the housing market. Just like everything else, the implementation of these guideline changes will determine how big the affect will be, but Fannie Mae has announced a new ‘Streamlined refinance’ option that appears to not require much income documentation, and this one is specifically targeting those who are paying their bills on time!
A second announcement made a couple of days earlier raises the number of financed properties from 4 to 10 – but only for qualified buyers. This is a big move in helping reduce the number of homes on the market by allowing those who have the means to afford these to actually do so without having to pay cash.
For more details on these guidelines, visit www.TotalRealty.net.
Now for the tricky part – not every lender will know about these guideline changes yet, and not all lenders will implement them immediately….. Shop around, and make sure you compare your quotes at www.CheckMyFees.com to ensure you are getting a fair deal on your mortgage loan!
With the market turbulence, one thing is certain – everything will continue to change! Property values could continue to trend downward, largely caused by the surplus of properties on the market.
The surplus is largely caused by the lack of available financing in the market. What lack of financing? Well…..
Keep in mind that these are not official numbers, these are more assumptions based on market experience.
In the past Subprime loans accounted for ~20% of the mortgages funded in any market. These loans are now effectively gone. These were the subprime loans that paid back, not the stupid loans that were made.
Self Employed business owners who take legal tax deductions to reduce their tax burden in the past used “no-doc” or “stated income” loans to qualify. These were people who paid back their loans as well. When you take into account the percentage of small business owners in the U.S, and this is probably another 20-30% of the prior people who would be given a loan.
Add to that the people who would like to purchase (and can afford)another investment property, but already have 4 properties financed, they now cannot qualify for a loan through traditional terms. That easily could be another 5-10% or more now that property values have dipped to levels where homes will cash flow.
Add it up and you have anywhere from 40-60% of all prior qualified (as in they could actually pay the loans back) borrowers who now are out of the market.
When you remove half of all the participants from any market, you will cause significant chaos. That is what is happening in the market today.
In regards to how this affects your home loan, work closely with your mortgage professional. If you are on the border of being able to qualify for a loan, that should be more important to you than the interest rate at this point. As long as there is a good benefit to getting your loan, don’t worry about an 1/8th or 1/4% in rate as waiting too long can cost you the loan altogether!
The title doesn’t seem to make sense for a site created to help you get a good mortgage does it….?
The reality is this – there are many factors that go into a good loan, not just the rate.
When you compare your loan at www.CheckMyFees.com, you will find yourself asked for a few different bits of information. Rate is one of those, but so is the APR you were quoted. The fees you pay for a loan can vary by hundreds and in some cases thousands of dollars, and your rate can vary widely depending on the lender you choose, and how you decide to pay closing costs.
Another factor that needs to be thought through is the stability of the lender you choose. Many borrowers go to the bank thinking they are the best sources (and in some cases they are) but your best bet is to make a few calls to banks, brokers, and credit unions.
Make sure you compare your loan rate, and closing costs to see what the best deal will be for you. Also discuss your future plans with your mortgage professional. If you plan on moving out of the home in 3-5 years, an Adjustable Rate Mortgage (ARM) may make sense again. Rates on ARMs have recently come down under where fixed rates are and could save you money.
Also if you are only going to be in the loan short term, having the bank pay your closing costs by charging a higher interest rate could make sense. If you plan on staying in the home for 30 years, getting the lowest rate possible will probably make sense.
Your mortgage professional should be able to run a few different scenarios to help you receive the best benefit possible.
Many people who have been waiting for rates to go down may be surprised when they call their loan officer this week and find that rates have gone up!
As market volatility increases, interest rates become more volatile as well.
When you are looking at refinancing your loan, make sure you compare all the aspects of the loan, not just the interest rate. Compare the benefit of the loan you are getting overall – is it lowering your payment, is it paying off consumer debt currently at higher terms, Is it allowing you to do something you would not other wise do (buy a new home, pay for college, new addition, etc) and most importantly – can you afford the loan?
If the answer to this is yes, then make the decision when the rates are right for you, and lock and close your loan as quickly as possible.
One more thing to look at as well. When rates drop significantly, and you are locked at a higher rate (typically .375 to .5 higher than market) if you are ready to close your loan, some lenders will renegotiate the rate you are locked at. You won’t get the lowest rate, but you will meet in the middle somewhere. While this may not be as good as you ‘could’ have received if you had timed the market just right, you will be protected from the swings the wrong direction.
For example, people could have locked rates in the high 4′s last week. This week they would be in the 5′s. (and I guarantee there are a lot of people in that exact situation right now!) While rates could come back down, there is always the possibility that they will not.
Everyone has a different method. Some people shop online, some call friends. Some people call their local bank, others call the credit union.
Some people are concerned only about rates, others do not want any fees.
Which model is right? That depends on your situation, and your plans for the future, and you should discuss your plans with your mortgage professional. Let them outline a plan for you, and then explain why this plan makes sense for you.
For example – if you plan on staying in your home for 30 years, then a 30 year fixed mortgage may make sense for you. Paying points in this market could make sense as rates are at levels we may not see again, and you may actually keep this loan until you pay it off! If you plan on moving in a few years it may make sense to go with a no-cost refinance.
To shop for a loan, I recommend always picking up the phone and making a few calls. When discussing the situation, make sure you are very honest about any issues that affect your credit, or employment situation. If you are doing a refinance, you also need to be honest about any issues that could affect your property. Hiding things typically only causes problems down the road.
When you are quoted a rate, make sure you get a break down of the costs associated with the quote, and ask for a ‘Good Faith Estimate’ as this will show you, in writing, what the costs are. Don’t blindly believe deals that seem to good to be true, there are still many deceptive or misleading tactic being used.
For example, I called a bank recently to ask for a rate quote and was given a rate and was told there were no points associated with the quote. When I probed further I was informed that there were no points required to buy the rate down, but there was a 1.5% origination charge. Technically this quote was accurate, however other lenders include the origination charge in their points.
I have heard other lenders quoting rates on a ‘fixed mortgage’ and in the disclaimer it states the loan is amortized for 30 years, however it is only fixed for 5 years.
Bottom line, make sure you know what loan makes the most sense for your situation, and get your quotes in writing. This will alleviate any confusion that can arise.
Lastly, don’t make the mistake of choosing your loan soley on price. While you don’t want to pay more than you need to, dealing with a true professional can save you time, frustration, and even money over someone who just wants to get you in the door, but may not truly understand your situation.
To compare your loan quote to others in your area, visit our site at www.CheckMyFees.com!
In a report on Wednesday, Freddie Mac reported that mortgage rates are at a new low – 5.01% down from 5.10 last week, and last year’s average was 5.87%.
This is great news for homeowners, and may be time for you to compare your loan to the terms that are currently available. With the economy still in trouble, many factors are driving interest rates to all time lows! Compare your loan by checking with banks and mortgage brokers in your area to see if you can save money by refinancing!
Make sure to keep in mind though that the rate is only part of the picture. Some banks are currently telling customers they will need 90 days to close their loan. If they are giving you a great deal, it may be worth the wait, but you should be able to get your loan done in less than 45 days in the current market. To lock in a rate for 90 days it is typically more expensive and could end up costing you more money in closing costs.
You can compare your quotes to others in your area by visiting our web site at www.CheckMyFees.com! No memberships, no personal information, we don’t want to do your loan, we just want to make sure you get a FAIR deal!
Today saw more turbulence on the mortgage front…. Rates opened great, and ended higher. Money that lenders pay for higher interest rates (common for ‘no-cost’ refinances) are thinner than the past meaning to get a loan with no out of pocket costs, you will pay a higher interest rate.
Many banks are now posting extended underwriting times, I heard of one major bank in the Seattle, WA area qu0ting 90 days before they can close your loan! Rather than going to a bank for the name only, consider a mortgage broker who can take your loan to whoever has the best rates AND turn times. This can get you saving money quicker!
As always, make sure you do your homework, read our pages on mortgage terms if you have questions on all the verbiage you will be barraged with during the loan process. Compare loan quotes before you get too deep in the process and be ready to act quickly when you see an opportunity (i.e. rates where you want them) as lately the best rates have only been available for a couple of hours and then they go up.
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