Budgeting Your Project

The Way to Get Prequalified for a Mortgage

Prequalifying for a mortgage does not mean you will automatically be entitled to a loan, but it can get your home hunt began on the ideal foot. When you prequalify for a mortgage, then you take a list of your own income, debts and assets and send them to your prospective creditors. This gives creditors the information they want to evaluate your program before you have a deadline and gives you an notion of what price range you can afford. It also shows lenders you are financially responsible enough to assess your finances before shopping for a home and may speed things along when you make an application for real.

Visit your lender branch or site and ask for a prequalification form. For instance, Bank of America’s site provides an internet prequalification form it asserts it is possible to fill out in under 10 minutes.

Fill in the shape. Prequalification types vary, but creditors will often ask for your address, purpose of your loan, purchase time period, amount you plan to borrow and the type of property you need to purchase. You will also need to offer a history of your employment and evidence of income.

Authorize your lender to perform a credit rating. The Fair Credit Reporting Act requires creditors to ask customers to provide a credit report authorization and release before running a credit rating.

File your application. Online applications may get a response in minutes. Other programs may take weeks or days to get a response.

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How Can I Bid on a Foreclosed House?

When a homeowner can’t make his mortgage payment, then the lender could take the home back, a process called foreclosure. The house is then put on the market, sometimes at a cost substantially lower than market value. This makes foreclosed houses attractive to both consumers and investors looking for a bargain. Although there may be more competition and there are no warranties that the house is free of defects, the procedure for bidding on a foreclosure isn’t terribly different from that of purchasing any other home.

Find a lender and apply for a mortgage, unless you will be paying money for your home. Your creditor will advise you as to what documents you want to present to your underwriter. These typically include copies of tax returns, bank statements, pay stubs and also a list of your debts and the amount paid on them every month.

Hire a realtor. Most lenders will only entertain bids presented by accredited real estate agents. Consult your lender for a referral to someone she has worked with and urges.

Decide on a foreclosure home you want to buy and have your property agent compose the bidding. If the house is fresh to the sector and appears to be a fantastic bargain, bear in mind that you may be competing with investors, therefore make your best and highest offer and allow it to be subject to performing an inspection of the state of the house. If the house has been sitting on the market for a while, it’s either overpriced or there are significant defects. A lower offer would be appropriate under these conditions.

Prepare yourself to cover an earnest money deposit to follow your purchase agreement. The amount of the deposit varies by area, and your realtor can advise you on this. Some lenders just provide you a few days until you will be required to forfeit the deposit should you not obtain the house, so make sure you schedule all inspections immediately.

Hire a licensed contractor or home inspector. If the house has been on the market for more than a month, then have the review done before you place the offer. Most foreclosed houses are sold within an as-is condition, and the bank will not cover any repairs. It is a great idea to know the area of any work that should be done so you can cost your offer so.

Request that your broker submit your bid and wait word from your bank as to whether it’s accepted.

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What Will Boost Home Equity?

One of the primary advantages of owning a home is the chance to construct equity. Equity is the portion of house which the owner has already paid off, or the gap between the property’s value and the owner’s overall debt into the mortgage lender. On the path to 100 percent equity, in which the homeowner owns the house , building equity may be a large advantage in handling personal finances and profiting from a home sale.


Homeowners have plenty of reasons. More home equity means the chance to borrow more money with a second mortgage in the form of a home equity loan or a home equity line of credit. These loans offer money for funding home improvements, paying medical bills, funding a child’s education or buying consumer products like a new car, boat or RV. Home equity allows the owner put that money toward a house or retirement savings and to gain more from selling the home.

Down Payment

Upon buying a house, the first down payment that a mortgage borrower earns is the very first step toward building equity. A typical 20 percent down payment gives the borrower just 20 percent home equity, which is measured as 20 percent of the house’s fair market value. A larger down payment means more equity, and may also reduce monthly mortgage obligations.

Mortgage Payments

Each mortgage payment that a homeowner earns includes a portion of the principal of their loan and interest that accrues every month. The primary part goes toward building equity equity, and with every passing month the homeowner has slightly more equity. Making double payments may speed up the process and cause more equity faster. Homeowners who have an interest-only mortgage lose the chance to construct equity, since they briefly only pay interest in order to maintain payments at an affordable level.

Home Improvements

Anything that increases the value of a house also increases the owner’s equity. This is home improvements could be such investment. Homeowners who invest in regular maintenance, together with other jobs like improvements and renovations, are helping to boost their equity while at the same time making the home a more enjoyable place to call home. Landscaping, new fittings and adding energy-efficient appliances boost home values and increase the owner’s equity.

The Real Estate Market

Finally, the real estate market itself may cause large changes in home equity. The supply of homes on the market and the demand from home buyers may drive home worth up or push them down. When mortgage rates are low, more buyers may be in the current market, which may lead to home values to rise and current owners to gain equity. Improvements in a neighborhood or area that make it a much more appealing place to live could have the exact same effect on a local level.

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FHA Seasoning Guidelines

Federal Housing Administration (FHA) seasoning guidelines pertain to the buying and selling of homes. The best example is a house that is bought by an investor and then sold to someone who is using an FHA-insured mortgage to purchase it. Seasoning itself is the waiting interval between the time when the house was purchased and when it might be offered to a buyer using an FHA-insured mortgage. Furthermore, private lenders might also have their own seasoning requirements.


FHA seasoning guidelines were put in place to help buyers buying a house that’s been”flipped” by an investor. Flipping is the procedure of buying a house and then quickly turning it about for resale at a higher price. Specific guidelines which regulate flipped houses and if they can be offered to buyers using FHA-insured mortgages are located in the Code of Federal Regulations, Title 24, subsection 203.37per month (b)(2).

Time Frame

FHA seasoning rules try to prevent abuse of the flipping process, mostly by shareholders. Specifically, they require that a house needs to be owned at least 90 days before it can be sold to someone using an FHA-insured mortgage. Exemptions, of course, also exist. For example, real-estate owned (REO, or bank-owned) or foreclosed properties being marketed do not have to fulfill seasoning guidelines. Almost all other houses, however, are subject to the 90-day waiting interval.


Many investors believe that their actions are unfairly punished by FHA seasoning requirements. Certainly, a couple of bad apple investors have a tendency to spoil the game for everyone. Before, they’ve taken advantage of over-eager buyers employing FHA-insured mortgages. For instance, some have been put into houses that had inflated evaluations and weren’t worth what they offered for. Requiring a 90 day time interval between purchase by one buyer and sale to another is believed to help lessen such activities.


With housing markets across the country more volatile than the FHA has introduced waivers to the seasoning procedure. In reality, the 90-day requirement was suspended, as of summer 2010, in an attempt to reduce the amount of houses sitting unsold on the market. This is only for 2010, although the FHA guarantees to inspect the market and decide whether to expand the suspension for future years. REO and foreclosed properties will continue to be exempt, however.


Waivers of the seasoning requirement have to be justified if the house sells for 20 percent more than its acquisition price. In this aspect, the FHA will require that the lender making the FHA-insured loan supply evidence behind the price growth. This might be in the form of repair bills and the like. The lender has to pay for an FHA-specific property review and supply it to the buyer prior to the closing.

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FHA & PMI Rules

It’s easy to become confused by Federal Housing Authority (FHA) insurance requirements concerning Private Mortgage Insurance (PMI). An FHA loan is in fact just a conventional mortgage loan guaranteed by the FHA, which is a federal agency operating under the U.S. Department of Housing and Urban Development (HUD). Interestingly, though, although the FHA provides insurance to the mortgage creditor, the FHA also requires borrowers to purchase PMI.

FHA Insurance

To clear up the confusion, the FHA does not actually require borrowers to purchase PMI from a traditional, personal PMI company. Instead, the PMI a borrower pays actually goes directly to the FHA. The FHA is your insurance company. Sothe PMI payments you make actually cover your FHA insurance on your loan. In exchange for your PMI payments, the FHA guarantees to lenders when the lender forecloses, then the FHA will purchase the house for the complete value of the mortgage loan. The FHA requires PMI payments for as long as you’ve got less than 20% equity in your property. Since many FHA borrowers only supply the minimal 3.5 percent down payment, most borrowers should pay PMI.

Closing Prices

The FHA requires two kinds of PMI premium payments. The first is that a sizable premium payment that the borrower must pay at the time of closing on the mortgage loan. Before 2010 the FHA required an initial PMI payment equivalent to 1.75% of the whole loan amount. However, as of 2010 the FHA increased that initial payment to 2.25 percent of the entire loan amount. However, borrowers who take part in a FHA-approved”HELP–Homebuyer Education Learning Program” can qualify for the elderly 1.75 percent premium payment.

Monthly Premiums

The second type of PMI premium payment required by the FHA is monthly PMI premium payments for as long as the borrower has less than 20% equity in the house. If your house has increased in value as closing, then you may have a current appraisal performed to prove that you now have 20% in the house. Until that happens, the FHA requires monthly payments equivalent to 1/12 of 0.5 percent of the entire loan amount.

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What Are Sale Strategies?

Short sales are house sales in which the creditor takes less than what is owed to the mortgage. A dealer initiates a brief sale when his house is worth significantly less than the mortgage and he can’t keep up with the mortgage obligations. A creditor isn’t required to take a brief sale; it may choose to foreclose rather than

Sellers: Work with Your Lender

A 2008″Washington Post” article looking at short sales in northern Virginia reported that just one in 20 short sales offers there actually resulted in a sale. The reason? The lender review process. Each creditor has its own review process and time line, which range from weeks to months. Because lenders don’t need to encourage borrowers to default on loans just because their houses are”under water” (the home is worth significantly less than the loan), they create borrowers establish they can’t continue to make payments. This is referred to as the hardship review. Likewise, the creditor wants to verify the house is indeed under water and that the selling cost is as close to market value as possible. This entails the lender’s review of a comparative market analysis (CMA) or evaluation. If the sellers have not worked with the creditor before they record their land, the hardship and CMA testimonials happen in tandem with all the lender’s review of the purchaser’s offer. In the best of worlds, the reviews are finished in 45 days. In the worst, the creditor never responds and the seller wakes up into some foreclosure one morning a few weeks or months later. The Homes Affordable Foreclosure Alternatives program (HAFA), begun in the spring of 2010, offers incentives to lenders and borrowers alike to streamline the brief sale process. It requires lenders to provide vendors with its sale provisions and review CMAs and hardship applications up front. Lenders in the application agree to operate within standard real estate transaction time frames and deadlines throughout the sales process. If you are a seller, speak to your lender before you list your house. Ask if your lender participates in HAFA, and it will be a voluntary program. If not, request a CMA and hardship review. Ask about time frames for offer reply and give your lender with whatever it asks for in its own review.

Buyers: Patience is the Key

1 consequence of long delays in brief sales is that each and every time a prospective buyer walks away from a bargain, the cost is very likely to return. Short sales are generally advertised as such in multiple listing services. If you are a buyer, know up front that the trade-off for a possibly excellent price on a brief sale is a lengthy wait in the contract review process. If you are in a hurry to close, stay away from short sales. But if you’ve found your dream house and it is a brief sale, hunker down. It may take months to close, but if you’re not in a hurry, you won’t have missed anything.

Agents: Educate Your Clients

As the broker of a short-sale buyer or seller, the most important move you can make is to highlight how long the process may take. Don’t gloss over the frustrations likely to arise after days and weeks of no response from the lending company. Instead, prepare your customers for struggle when learning everything you can about the lender’s process and its history in local short sales. Instead of customers who walk out of a deal possibly blaming you, you’ll have customers recommending you to others as a short-sale specialist.

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GNMA Fund Risks

GNMA funds are mutual funds which have mortgage-backed securities issued by the Government National Mortgage Association, or Ginnie Mae. The U.S. government ensures the payment of interest and principal from Ginnie Mae bonds. GNMA funds are a choice for investors looking to get a higher but safe rate of interest, but these funds still have a few dangers.

Interest Rate Risk

The Ginnie Mae bonds held with GNMA funds are marketable securities, and their worth is dependent on current market interest rates for similar securities. Bond costs, such as GNMA bonds, vary inversely to changes in rates of interest. If prices rise, the market cost of the Ginnie Mae bonds in a portfolio will decline. The fund reflects these cost declines with a decreasing share price. In a rising rate environment, the share value of a GNMA fund can diminish faster than the interest paid makes up for the decline. This result is particularly detrimental to investors that are taking their fund dividends in cash and see their principal value decreasing.

Prepayment Risk

A GNMA mortgage protection is compensated from a pool of mortgages with the same interest rate and maturity. Ginnie Maes are securities. As the homeowners at the pool make their mortgage payments, the Ginnie Mae bond holders receive monthly payments of principal and interest. When mortgage interest rates decline, the homeowners can decide to refinance their mortgages, and the GNMA fund owning the bonds will start to receive larger principal payments from the bonds it holds. Bonds with fixed maturities will see their market values increase when prices drop. GNMA funds will see their principal come in faster, which will have to be reinvested at lower rates of interest. Investors at a GNMA fund will probably find their dividend rate decline at a faster speed than with a fund which owns fixed-maturity bonds.

Duration Risk

The open-ended length of GNMA securities has exactly the contrary effect if prices rise. Homeowners whose mortgages make up the Ginnie Mae pools will be less likely to refinance their low-rate mortgages, and the expected length of their GNMA bonds will lengthen. This usually means a Ginnie Mae fund will receive principal payments in a slower rate. Less principal repayments means less money which can be reinvested in the higher current interest prices. In a rising rate environment, GNMA fund holders will see their share values drop, and the capital will probably require longer to have the ability to pay the higher prices of their current bond market.

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Mortgage Calculation: How Much Can I Borrow?

People looking for a mortgage usually begin by asking,”How much can I borrow?” That question may be better phrased as,”How much does lenders allow me to borrow?” Banks and other lenders use formulas to determine the maximum amount that they think you can manage based on how much cash you have and the amount of the income is already spoken .


Lenders look at your mortgage application with two numbers in mind. The first is the gross income, or how much money you make each month before taxes. The next is the total amount of money you spend each month on household debt obligations –everything from house and car payments to credit card debt and student loans. Lenders refer to this relationship between those amounts as the”debt-to-income ratio,” or DTI, and it is expressed as a percentage. By way of example, if your before-tax household income is $7,000 per month, and your total monthly debt payments add up to $2,100, then your DTI will be 30 percent ($2,100 will be 30 percent of $7,000). Lenders also look at the”housing ratio” That’s the portion of your gross income that would be eaten up from your house payment. Say that your debt obligations, $1,800 is for a house payment. Your housing ratio is about 26 percent.


Most lenders do not wish to see a DTI higher than about 36 percent and a housing ratio higher than about 28 percent. If your gross monthly income is $7,000, you are able to afford a maximum house payment of about $1,960, out of a maximum monthly debt load of about $2,520. If your monthly debt obligations are already pretty high on your income, then that’s going to decrease the quantity that mortgage lenders are willing to give you.


Once you’ve determined your maximum monthly payment, then you can start to figure out how much you can borrow. Use the above illustration of a $1,960 maximum payment. The very first point to notice is that, so far as lenders are concerned, your house payment does not just include the principal and interest you’re repaying the bank. Additionally, it includes the costs of real estate taxes and insurance premiums. These vary based on where you live, which means you’ll have to do some research. As an example, in California in 2010, the average cost of homeowners insurance has been 730, based on HomeInsurance.com. That comes out to about $60 per month. And state your property taxes come out to $3,600 a year, or $300 per month. Blend both –$360–and subtract it from your maximum monthly payment. In this case, you get $1,600.


There are lots of easily available mortgage calculators that you can use to interpret your own monthly payment to some mortgage figure. You’ll need to get some idea of what interest rates can be found. Using the Bankrate.com calculator, for example, you find that a $268,000 mortgage for 30 years at 6 percent interest provides you a monthly payment of about $1,600. Does a $240,000 loan at 7% interest, or a $280,000 loan at 5.5 percent.


The 28 percent and 36 percent thresholds”went off” for a while during the housing bubble of the early 2000s, when important lenders were accepting DTIs of as large as 49 percent, based on Bloomberg Businessweek. The tighter lending standards that followed the bursting of this bubble created 28 percent and 36 percent regular again.

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Factors Affecting the Prime Rate

The prime rate is among the most important amounts for the U.S. economy. Lenders rely upon it to ascertain what interest rates they’ll charge on mortgage loans, home equity lines of credit and credit cards. This rate, which relies on the federal funding rates set by banks, fluctuates very little over time. There are some factors, however, that may make it fall or rise.

Federal Funds Rate

The biggest factor influencing the United States’ prime rate is the federal funds rate. Here is the rate that banks charge each other for the overnight loans that they create as a way to fulfill federally set funding requirements. Generally, the prime rate will endure about 3 percentage points above the federal funds rate. The U.S. prime rate really changes very little.

The Wall Street Journal

The financial newspaper The Wall Street Journal is actually the market of, and really sets, the prime rate. Before the end of 2008, The Wall Street Journal mechanically changed the prime rate whenever 23 from 30 of the nation’s largest banks changed their federal funding rates. Today, however, the Wall Street Journal bases its prime rate on the base rates charged by the nation’s top 10 banks. When seven of those 10 have changed their base prices, the paper changes its prime rate so. This has caused a stable rate: The Wall Street Journal has retained its prime rate at 3.25 percent since December of 2008.

Open Market Committee

According to the Fed (U.S.) Prime Rate Website, the prime rate is most likely to change after a meeting of the Federal Reserve Board’s Open Market Committee. This body retains its meetings eight times annually, though it may hold emergency meetings at any moment.

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What Do Landlords Search for on a Credit Check?

Many landlords possess the properties they rent out to tenants. If a tenant damages the property, or fails to pay the rent required to live inside, the landlord might be left with additional expenses related to the property. A landlord would like to ensure that he chooses a responsible renter who will take care of his house and pay the rent in time. Performing a credit check on a potential tenant may give a landlord a reasonable indication of what to expect from that tenant.


Landlords look at a potential tenant’s credit report for evidence that the candidate has created consistency, stability and predictability. Consistency is demonstrated by what a potential tenant does over and over fiscally. If a credit check reveals that a debtor has on-time payments with several accounts, over many decades, then she is consistent. Stability can be determined by a number of factors. The number of years at work, the number of accounts available, and the payment history all contribute to equilibrium. A potential tenant that can deal with her financial responsibilities and works for the same employer longterm is a financially secure individual. Landlords check credit reports to forecast the behaviour of the person who will be renting the house.

Rental History

Landlords can conduct credit checks to learn more about a potential tenant’s past rentals. The leasing history of a renter is utilized to ascertain a tenant’s behaviour in future lease situations. Any landlord who reports a tenant’s payment history to a credit bureau, will show up on a credit rating. Landlords can check a credit report to see whether any money is owed to your prior landlord. A landlord may use rental history information to determine where a tenant has lived and make inquires about those rental agreements.


A tenant’s debts have an influence on the tenant’s ability to pay for a particular lease. The tenant should be able to pay her rent together with all of her other financial obligations each month. A potential tenant’s credit to find out how much debt a renter gets may be checked by A landlord. When the landlord knows the potential tenant’s debt load, he can compare that to your income and ascertain whether she is able to rent the area.


Credit reports include both open accounts and closed accounts. Open accounts are usually revolving credit–where there is a payment due monthly until the whole balance is paid off–just like using a credit card. Closed accounts may either be paid in full or using a balance due to the creditor. Credit checks which contain”fulfilled balances” are closed accounts which have been paid in full. A credit score report detailing several accounts paid on-time greatly helps a potential renter come out ahead in a credit rating. Landlords seem to see that the potential tenant has more accounts paid more than reports which were not.


Landlords check credit reports to see whether there are any bankruptcies. Bankruptcies remain on credit reports for up to ten decades. A bankruptcy listing allows a landlord to observe all of the accounts and companies included in the potential tenant’s insolvency. There is a difference between a discharged bankruptcy (finished ) and also a pending bankruptcy (ongoing). A potential tenant having a discharged bankruptcy is typically a better risk than one with a impending bankruptcy. When a bankruptcy is pending, it is possible for a tenant to be relieved of all current financial obligations–such as any remaining rental payments because of a landlord. For this reason, landlords check credit reports to make sure that there are not any impending bankruptcy activities.


Some landlords may carry out a credit check to find out whether there are some foreclosures in a potential tenant’s past. A foreclosure is a legal act in which a lender repossesses a home. In many foreclosures, the borrower is left with a balance to pay after the land is removed and resold. A landlord may do a credit check to see if any monies are owed in the aftermath of a foreclosure proceedings.

Credit Bureaus

It is very important to be aware that there are three different credit agencies that a landlord may use to conduct a credit check on a potential tenant. These credit bureaus are Equifax, Experian and Transunion. The credit bureaus are independent of one another and each can contain different information from a different bureau. A landlord may use any or all of the bureaus to check credit information of a potential tenant. Many landlords also charge a credit report fee to potential tenants.

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