Equity in Current Home to Buy Another

Reader Question: I want to purchase another home but I don't have equity in my current home. I am confused about the process. How does this work? Do I have to have equity in my home to purchase another?

I'm not sure whether you would like to buy a home in addition to the one you currently own, or you want to sell the home you live in but purchase a home before the sale takes place. In either scenario, you would need to have sufficient income to pay both mortgages and cash for the down payment on the new/additional home.

The only reason you would ever need equity in your current home to purchase an additional home would be for the down payment (in the event you do not have the cash). In that case, the lender would allow you to borrow against the available equity for your down payment and closing costs. This type of arrangement is referred to as a bridge loan, but they are not easy to secure in the current economy due to declining real estate values and lender restrictions.

Related information on our website:

Home equity loans -- This type of financing is popular among homeowners as a quick source of cash. But there are smart and foolish ways to use an equity loan or credit line, and this article explains the difference.

Buying a new home before selling old one -- Is it possible to buy a new home before selling the old home, and if so how do I go about it? This article provides some answers.

Buying a Home With Parents - Credit Scores and Income

Reader Question: My boyfriend and I along with his parents would like to buy a house together. The problem is he and I both have poor credit but decent incomes and his parents have good credit with low incomes. Would we likely qualify for a loan in today's market?

That's an interesting question. It's almost like a Zen riddle! It sounds like you offset each other's weaknesses. Since you have good income but bad credit, and his parents are the reverse, they might be able to co-sign on the loan to help you all get approved.

If you haven't done so already, I would read up on FHA home loans as well. That might be a good option for you. You would still apply for the mortgage through a private lender, but the FHA would insure the loan. This helps buyers with credit trouble and other issues get approved.

Probably the best thing to do at this point is set up an appointment to talk to a lender. They can look at your financial information (for all four of you) and pre-qualify you based on that. Pre-qualification is the process through which the lender will determine how much of a mortgage you might actually qualify for -- a ballpark range, at least. It's a good way to get the ball rolling.

To prepare for this process, you should start rounding up your financial documents. This includes your most recent W2 forms from the last couple of years, pay stubs, bank statements, retirement account info (if applicable for the parents), etc.

Hope that helps. And hey ... if you end up getting a mortgage loan and would like to share it with other readers, just send me an email when the time comes and I'll update this blog post. Information sharing is critical in this tough economy. Good luck!

-Brandon

Credit Score Needed for FHA Home Loan Program

Reader Question: What credit score do I need to get an FHA first-time home buyer loan?

First, let me clear something up. There is an FHA home loan program designed to make home buying more affordable, but it is not limited to first-time buyers. Anyone can apply for such a loan. With that being said, it can be a useful program for first-time buyers because it can help you get a mortgage loan when you might not otherwise qualify for one.

One of the biggest benefits of FHA loans is that you can often get approved with less money down. For tradition loans, most lenders these days require somewhere in the neighborhood of 20 percent down (especially in light of our current economic issues). But you can theoretically get approved for an FHA home loan with as little as 3^1/2 percent down.

I would love to give you a credit score limit that you need to get qualified for the FHA home loan program, but it's just not possible. Here's why. The FHA does not set the eligibility criteria for these loans, because they are not the one making the actual loan. You still have to apply through a private mortgage lender. So the minimum acceptable credit score will vary, based on which lender you approach.

Because of the FHA's backing, lenders have traditionally been willing to offer loans to buyers will less-than-ideal qualifications (such as a low credit score). You would apply for an FHA loan through a regular lender, and -- theoretically -- you would be able to get approved with less of a down payment, a lower credit score, etc. I used the word "traditionally" above because times have changed. In our current economy, I'm not sure how much difference the FHA backing will make, in terms of getting approved through a private lender.

Find Out if You're Eligible for an FHA Loan

The only way to find out if you're eligible for the FHA home loan program (based on your credit score and other criteria) is to apply for it. There are couple ways to go about this -- and one is much easier than the other...

• The FHA has a list of approved lenders that you can access through this page. I don't know about you, but I personally would not want to contact a long list of lenders to see if I'm eligible for the FHA program.
• An easier way to apply would be through a website like LendingTree. In fact, we have an in-depth explanation of the FHA loan program on our main website, and it has links to the appropriate LendingTree application page. Go there now

I know I didn't answer your credit score question, because there's no way for me to answer it. But I hope you have a better understanding of how it all works now. Good luck.

Related Question:
Will FHA loans be available in 2009?

What Is an H4H Loan? Help for Homeowners Explained

Reader Question: What is a 4h4 loan?

I think you referring to the new H4H program. I put your question as you wrote it above so you would recognize your question. :-)

Hope for Homeowners (H4H) is a program launched by the Federal Housing Administration. I wrote up an explanation of this program about a month ago, on one of our other real estate blogs. So if you want an in-depth explanation of the program, check out this article:
FHA Refinance Program - Hope for Homeowners

Basically, the H4H program is designed to help "at-risk" homeowners refinance their high-interest ARM loans into more affordable fixed-rate mortgages. More specifically, all of the loans made under this program are 30-year fixed (according to the last news release I saw on this subject).

The FHA launched Hope for Homeowners in October of this year, and it's supposed to remain active until September 2011. There are quite a few criteria for this program though, so it's not available to just anyone. You can learn about the eligibility criteria (and even apply for the program) through the link I provided above.

There is a lot of criticism of H4H right now, because it's not helping nearly as many homeowners as the FHA predicted. They boasted that they'd be able to help 400,000 homeowners over the next three years, but so far it's off to a sluggish start. Why? Because many of the people who need help are unable to qualify for a refinance loan -- despite the FHA's backing. Property values have dropped in most of the areas with high foreclosure rates, so a government program does little good for them if the lenders turn them away. (You have to apply for this program through a private lender, like always.)

But I better wrap up this blog post before I go on a tangent about the ineptitude of the federal government! That sums up the Hope for Homeowners program in a small nutshell. You can learn more about this and related topics through the links below.

Related Articles:

• Learn More About H4H
  
• FHA Home Loan Program
• Hope for Homeowners Isn't Helping

I hope that clears up some things for you. Thanks for writing.

Fannie Mae is Not a Mortgage Lender

Reader Question: Is Fannie Mae the only mortgage lender available when the middle credit score is 580?

Let me start by saying Fannie Mae is not a mortgage lender. They do not make home loans to consumers, so they have no say over the qualification criteria set by private lenders. So you can completely remove them from your question. The real question is: "Can I get approved for a mortgage loan with a score of 580?"

With that being said, let's talk about what Fannie Mae actually does...

Fannie Mae (formally, the Federal National Mortgage Association) is part of the secondary mortgage market. They purchase the loans made by private lenders, and then "securitize" those loans and sell them off elsewhere through Wall Street. This provides a steady stream of cash into primary lending market, which encourages more lending. In their own words, Fannie Mae's mission is to "provide liquidity and stability to the U.S. housing and mortgage markets."

So you cannot apply for a loan through Fannie Mae, because consumers are not their primary customers. Their customers are the mortgage lenders themselves, from whom they buy loans.

And at the moment, Fannie Mae has its own problems to worry about. They hold trillions of dollars worth of debt, as a result of buying up mortgages in the secondary market, and much of that is bad debt (because of the subprime mortgage crisis). This is one of the reasons the U.S. government had to bail Fannie Mae and Freddie Mac out of financial ruin recently.

On top of this, Fannie cannot impose its will on the private lenders that you would go to for a loan. The individual lenders will set their own standards, and they can do whatever they want in terms of qualification criteria. Right now, they seem to be turning down any type of loan they view as a risk (such as a loan to a borrower with a low credit score). So I'm not sure a credit score of 580 would qualify you for any type of mortgage loan in this economy, regardless of Fannie Mae's influence.

You can always apply for a home loan and see what the lender(s) tell you. We even have a mortgage quotes page where you can get started with that process through LendingTree. But you would not be applying for a "Fannie Mae mortgage loan."

Related articles:

• Fannie and Freddie Are Part of the Problem
• FHA Loans and the Housing Recovery Act
• Buying a House With a Credit Score of 580

I hope that helps you out some. Good luck with whatever you decide to do.

Can I Buy a Home With No Money Down

Reader Question: Is it possible for a person to get a mortgage loan and buy a home making 34,000 a year, no money down and 10,000 for closing?

It's possible, but how likely it is will depend on (A) the size of the loan and (B) the qualification of the borrower. For example, if it's a relatively small loan and the borrower has good credit, then it may be possible. But as the loan amount gets larger, there will be less chance of qualifying under those conditions. Likewise, if the borrower has bad credit, the chances are even less.

So the size of the mortgage loan plays a big role, as does the strength of your credit score and financial history.

A couple things worth mentioning on this subject:

• In light of recent economic events, most mortgage lenders these days are requiring a down payment for home loans -- 20% down in most cases.
• It used to be possible to find a lender who would finance the entire home value without requiring a down payment. But it's going to be harder to find one of those lenders in the current economy. It's just too risky for them.

Keep in mind that some areas are worse off than others, in terms of buyers getting mortgage loans. For example, here in Austin, Texas, our local mortgage lenders are not suffering as bad as national lenders because they did not get involved in risky subprime lending as much. So while buyers in some areas are having trouble getting mortgage loans, buyers in other areas might have fewer obstacles.

So the only way to find out for sure if you can qualify for a mortgage is to request some quotes from mortgage lenders. You can do that from out mortgage quotes page.

Another article you might want to read:
How to Get a Mortgage In This Economy

I hope that helps you. Good luck.

Entering U.S. With no Credit History - Can I Get a Mortgage Loan?

Reader Question: I am entering the U.S. for the first time and therefore I don't have a credit history at all. I wish to purchase a condo in Orange County for about $150,000 and I am prepared to pay 20% as down payment or equity. What are the chances of getting a mortgage loan?

Normally this would be a fairly easy question to answer, but you are coming into the U.S. at a time when our economy is "touch and go." The economic conditions this month are far different from last month, and who knows what next month will be like.

I have some friends from England who got a mortgage loan soon after entering the U.S., so they were in a similar situation as you (no credit history within the U.S.). I know they had to put 20% down on their home, and it may have been even more than that. It was at least 20% for sure. Both the husband and wife had to show proof of income as well, and also their legal immigration status (visas).

They were able to get approved for a mortgage in the same ballpark as the $150,000 range you are talking about. In fact, their loan was a little more than that amount. With that being said, they went through the process about three years ago ... before the economic crisis ... before the subprime mortgage collapse ... etc. So things may very well be different today.

Having 20% down will certainly help you. With everything going on in the U.S. economy right now, the days of "no interest" mortgage loans are gone. Most lenders today are requiring 20% on mortgage loans, verification of income, and higher credit scores.

The only way to find out for sure is to request a free mortgage quote from lenders. For people who are in questionable qualifying scenarios (such as having no credit history), I usually recommend getting offers through a website like LendingTree. Their service will give you offers from up to four lenders at once, which increase the chance of getting a favorable offer. There's a link in the upper-right section of this blog (under the "Home Buying Tools" label) that will connect you with the LendingTree quotes page.

Hope that helps you out some. Good luck.

Do I Need a Mortgage Cosigner Because of My Age?

Reader Question: I am 58 and planning to purchase my first home. Will I need a cosigner on the mortgage loan?

My initial thought was "no." But it's been a while since I've researched these laws, so I had our researcher look into the issue of mortgage cosigners and the age factor.

The Equal Credit Opportunity Act makes it illegal for creditors (including mortgage lenders) to discourage you from applying based on sex, race, marital status, nationality and age.

According to this legislation, the only time a creditor may consider your age is if "you’re 62 or older, and the creditor will favor you because of your age." A mortgage lender may also use a person's age to determine their creditworthiness. For example, if a person is about to retire due to their age, their income might drop considerably. So a mortgage lender can factor this into their risk calculation.

I recommend reading through the Equal Credit Opportunity Act that's hyperlinked above. It spells out the things I've mentioned, plus a lot more.

So unless you have issues with your credit and/or credit score, or you have insufficient income to qualify for your mortgage, it is highly unlikely a cosigner would be necessary or required.

Hope that helps. Good luck with your home buying process!

ARM Loan Adjusting to Higher Rate

Reader Question: My boyfriend bought a house almost two years ago. His mortgage is an adjustable mortgage. It will adjust next year. His loan is at a 10.25% on a $68,000 loan. He says that in his contract the loan won't get too high? Is this true? And if not, what could his loan be estimated to go up to?

Your boyfriend should contact his lender to get an estimate of what his new mortgage payment will be, after the adjustment next year. Lenders are required to provide this kind of information in accordance with loan disclosure laws. This will help him decide what to do -- whether to refinance or to keep the current loan, for example. In fact, getting away from an adjusting ARM loan is one of the top reasons people refinance their mortgages.

Much of the legislation on loan disclosure (particularly for adjustable rate mortgage loans) is currently being revised. This comes as a result of the subprime mortgage crisis. Adjustable rate mortgages are not "evil" in and of themselves. But when lenders don't disclose the significance of the interest rate increase after the adjusting process, homeowners can be caught off guard by the larger payments.

This is part of the reason why record numbers of Americans are losing their homes to foreclosure right now -- they got a low "teaser" rate on an ARM loan, they kept the loan through the adjustment period, and they couldn't afford the new payments.

If he plans to stay in the home for many more years, he might want to run the numbers to see if it makes sense to refinance.

I can't predict how your boyfriend's ARM loan will adjust. He will have to contact his lender for that kind of information. But I can tell you it's important to do so. The last thing he wants is to be caught off guard by a huge increase in interest, which equates to a larger monthly mortgage payment. Better to look into it now.

Debt to Income Ratio for Mortgage Qualification

Reader Question: What is the highest debt to income ratio that most mortgage underwriters will consider?

Let me start with some basic definitions for those who aren't familiar with this subject. As you might have guessed, your debt-to-income ratio (or DTI) is a comparison between the amount of debt you have and your gross annual income. It is typically expressed as a percentage.

For example, if your gross income is $200,000 per year, and you pay $25,000 per year toward your debt, then your debt-to-income ratio is just over 12 percent. That's the percentage of your gross income that goes toward your debt each year ... more or less.

A mortgage underwriter is the person who reviews the applicant's financial situation to give an approval or disapproval for the loan. In other words, the underwriter determines the level of risk involved with making a loan to a person, based on that person's credit score, financial history, debt-to-income ratio and other factors.

With those definitions out of the way, let's address the question at hand. Traditionally (and in this context, "traditionally" means prior to the current economic crisis), mortgage lenders and underwriters preferred to see a debt-to-income ratio of 25 - 30 percent or lower. That was a general rule of thumb that applied in most cases.

And then came the subprime loan crisis, which soon devolved into the full-blown economic crisis we have now. As a result of this mess, mortgage lenders have basically shifted all of their lending criteria upward. Home buyers today need better credit scores to qualify for mortgages than they did a few years ago. And the debt-to-income ratio is scrutinized more closely as well, but it's only one piece of the larger puzzle.

With that being said, there is no "cut off" that I can offer you. I can only say what the rule of thumb was in the past, and that things are tougher all around these days. The preferred DTI will vary from one lender to the next.

On top of that, many lending institutions -- the ones who haven't collapsed already -- are scurrying around in "self preservation" mode at the moment. So their lending practices and their underwriting criteria are in a state of flux. The debt-to-income limits they had a year ago may be different today.

The only way to find out whether or not a lender will qualify you is to apply for the loan. You can start application the process through LendingTree by using the "Find a Mortgage Loan" link in the upper-right menu area. It's an easy way to get offers from up to four lenders.

Calculating Your Mortgage Payment Amount

Reader question: If I buy a 15 thousand dollar home how much will the mortgage payment be every month?

Is it really a $15,000 home, or did you leave a zero off that number? Just curious.

I can't answer this question because there are some missing pieces. But I can tell you how to run the numbers for yourself. The missing variables I would need to know include: (A) the interest rate on the mortgage loan, (B) the length or "term" of the loan, (C) the amount of money you are putting down, (D) the amount of insurance and taxes you might be rolling into the payment.

The parts of a mortgage payment are referred to by the acronym PITI. This stands for principal (the main loan amount), interest, taxes and insurance. In most cases, all four of these things combined will determine the full amount of the mortgage -- and thus the size of monthly payments.

Interest is the biggest variable in this equation. A lender will use your credit score to determine the interest rate they give you. If you have a good credit score you'll qualify for better / lower rates. If you have a bad credit score, you'll pay more interest and will therefore have a larger mortgage payment each month.

You can use a mortgage calculator to get a ballpark range of what your payments might be. But this is only an approximate figure. You won't know the actual monthly amount until you apply for a mortgage loan and find out what interest rate you're getting.

If you don't know the interest rate yet, then simply enter the loan amount (minus any down payment you are making), and leave the interest rate set to whatever default setting the calculator has. Set the length of the loan -- 15 years, 30 years or whatever. And then hit the "calculate" number. There's your ballpark figure.

Related article: Using a Mortgage Payment Calculator

First Time Home Buyer Loans - A Myth?

So, you're a first time home buyer and you are looking for mortgage loan programs designed specifically with first time buyers in mind. If that's the case, my advice is too keep an open mind and don't get frustrated by your search.

Due to the current state of the economy, the so-called first time home buyer loans are becoming a thing of the past. Sure, there are still home buying grant programs offered by most states. But lenders today don't offer many loan programs designed for first time buyers specifically.

But don't be discouraged. While it may be hard to find a specific program that offers loans for first time home buyers like yourself, you can certainly qualify for a regular mortgage loan. Just don't expect special treatment from lenders -- not in the current economy, at least.

In fact, it's actually harder to quality for a loan today than in the recent past. This comes from increased restrictions placed on mortgage lenders in the wake of the subprime mortgage crisis. You need a better credit score to qualify for a home loan these days, whether you're a first time buyer or not.

I'm not writing this blog post to rain on your parade with gratuitous negativity. On the contrary, I'm trying to save you some time and energy. If you start scouring the Internet looking for information on home loan programs for first time buyers, you will quickly become frustrated.

When I do such a search, I find plenty of people talking about these programs, but nobody seems to know where to find them. There are plenty of "fluff" articles about first time home buyer loans -- there just aren't many programs listed within these articles. That's because the authors can't find these programs either. It's like writing an article about Bigfoot or some other mythical creature, and not providing a shred of evidence as to its existence.

My Advice for First Time Buyers

If this is your first time buying a home, and you need a loan to help cover the cost of the home, here is my advice to you.

• Don't expect special treatment from a lender just because you are buying your first house. You just won't find it, not in this economy.
• Instead, focus on boosting your credit score as much as possible. If you already have a good score, do everything you can to maintain it. Learn more here
• Start putting extra cash away each month. Your first time home buying experience will likely cost more than you think, so start preparing for it now by saving money. Those extra cash reserves will also help you get qualified for your home loan in the first place. Lenders like to see that you have sufficient cash reserves.
• Research the different types of home loans and choose the best one for your situation. This is an area where many first time buyers make mistakes. Pay particular attention to the pros and cons of fixed-rate versus adjustable-rate mortgages. Learn more here
  

Don't be discouraged by what I'm telling you here. While there may not be as many programs designed specifically for first time home buyer loans, you can still qualify for a mortgage (and get a good interest rate on it) if you are otherwise qualified.

In other words, you won't get preferential treatment for being a first-time buyer ... you certainly won't be penalized for it either. Lenders will qualify you based on your credit score, your income, your debt and other factors. If you measure up well in those departments, you should have no trouble getting a loan.

Related articles:

• Low-income home buying programs
• A tutorial for first-time buyers

The Mortgage Approval Process Explained

If you plan to buy a home soon and need a mortgage loan to cover the cost, you probably have questions about the mortgage approval process that awaits you. Most home buyers do. The good news is that the approval process is usually straightforward and easy to understand. Here are the basic steps.

Mortgage Approval by the Numbers

In most cases, the approval process includes the following steps: Pre-qualification, application, documentation review, property appraisal, mortgage approval (if all goes well).

1. Prequalification Process

This is a quick and informal review of your financial situation. The lender will prequalify you for a certain size mortgage loan. Basically, this is a way for the lender to decide whether or not to move forward. If this preliminary review goes well, you move one step closer to mortgage approval.

Among other things, the lender will want to know the approximate cost of the home you plan to buy (even if its hypothetical at this stage), how much money you need to borrow, the type of loan you want -- plus some other basic questions about your financial background, credit history, employment, etc.

2. Mortgage Application

Based on the prequalification process, the lender will have a general idea whether or not you're a good candidate for a mortgage loan. If they feel you are a candidate, you will likely move on to the mortgage application itself. While the prequal document was probably short and simple to complete, the actual application will be longer and more in-depth.

This is where you will have to make a final decision on the type of mortgage loan you want, and also lock in an interest rate for the loan. In nearly all cases, you'll have to pay an application fee as well. At this point, some lenders will give you access to their website where you can check on the approval status of your package.

3. Documentation Review

When completing all of the paperwork for the mortgage approval process -- including, but not limited to, the application -- be as factual as possible. The lender will closely review all of your documentation, pull your credit, verify employment, etc. If they find anything wrong, it could slow down the process or, at the worst, derail it altogether.

4. Property Appraisal

One of the next major steps in the mortgage approval process is the property appraisal. This is where the lender sends a professional home appraiser out to evaluate the property. The lender wants to make sure the home is worth the amount you have agreed to pay for it. Because in the even that you default on the loan and can no longer make payments, the lender will have to take on the property and sell it off through an auction or other means.

5. Mortgage Approval

If everything goes well up to this point, there is very little between you and your new home. You will attend the closing process at some point, where you will have to pay all remaining fees and costs. This is also where you get the keys to your new home!

Obviously, this is a somewhat simplified version of the mortgage approval process you may encounter. Depending on your unique financial circumstances, your process could be more complex than what I've outlined above. But this article will give you a good overview of what to expect during the qualification, as well as the general process that takes place from start to finish.

Good luck, and happy home buying.

Using a Mortgage Loan Payment Calculator

It has always been important to buy within your means. But in light of recent economic events (and the current state of the economy), this is even more important. For anyone buying a home, a mortgage loan payment calculator can help with the all-important task of setting a budget.

But many people don't understand how mortgage payment calculators work, and that all of the numbers mean. So let's take a closer look at these helpful mortgage loan tools.

How a Loan Payment Calculator Works

Different calculators work in different ways. Some ask for more information up front, and therefore provide more accurate numbers upon calculation. While other mortgage calculators ask for less information and provide general "ballpark" numbers. But they all do essentially the same thing.

In most cases, a loan payment calculator will ask for certain pieces of information needed to estimate your monthly payment. This will include the loan amount, the interest rate, and the length or "term" of the loan. Most calculators default to current interest rates over a 30-year fixed-rate term, but you can easily adjust this to get a more accurate number.

Based on the information you provide, the loan payment calculator will tell you how much you could expect to pay each monthly (your mortgage payment). You can then judge how affordable a certain house might be, based on the amount you would have to pay each month.

The Credit & Interest Variable

Of course, there's one very important element that most mortgage loan payment tools don't take into account, and that's your credit score. The interest rate you receive from a lender will be largely based on your credit score. The better your score, the better the interest rate you will receive. This in turn will affect the amount of money you have to pay each month, because interest is a component of a mortgage payment.

Here's what to take away from this article. A payment calculator can help you determine your home-buying budget by breaking a loan amount down into monthly payments. But it's only a ballpark figure -- one that doesn't take your credit score into account. So while they are certainly useful, they are by no means the final word.

You can learn more about this subject or use our own mortgage loan calculator on this page.

Fannie Mae and Freddie Mac - Who Needs Them?

Why do we need Fannie Mae and Freddie Mac in the first place? And why have they been in the news so much lately? In this writer's opinion, both organizations should be left alone to sink or swim of their own accord. But I'll try to remain objective as we investigate the world of Fannie and Freddie ...

Who the Heck Are Fannie and Freddie?

While they may sound like the distant aunt and uncle you never knew you had, Fannie Mae and Freddie Mac are actually big corporations. They are also big players in the secondary mortgage market. In fact, Fannie Mae essentially created the secondary mortgage market. So let's start with "her."

Fannie Mae is Born

Fannie Mae (formally the Federal National Mortgage Corporation, or FNMA) was created by a congressional mandate back in 1938. That's right, history buffs ... at the tail end of the Great Depression. Fannie Mae was — and sort of still is — a program designed to extend home loans to a greater number of Americans by (A) providing federal funding to banks and (B) creating a secondary market where mortgage loans could be sold off to investors.

During and after the Depression, the U.S. housing market essentially collapsed. As a result, mortgage lenders became stricter with their lending practices, only offering loans to the best qualified of applicants. Does this sound familiar? But when Fannie Mae came onto the scene, lenders were able to offer mortgage loans to people who would never have qualified before.

For about the first 30 years of its existence, Fannie Mae was a federal institution with no competition whatsoever. It had basically created the secondary mortgage market, so there were no other institutions to compete with it in that arena.

In 1968, Lyndon B. Johnson privatized Fannie Mae to get it off the "government books." So now you had a private company that received federal support and monopolized a certain area of the American economy. Oops. Well, Americans historically do not like monopolies (unless you're part of the monopoly), so the federal government created Freddie Mac to perform the same basic function as Fannie Mae ... thus preventing the monopoly.

If you think this is a little bizarre, you're not alone. In a sense, Fannie Mae and Freddie Mac are like two government-created Frankenstein's monsters. We created the first monster, but it got too powerful. So we did the only logical thing — we created another monster to compete with the first. The Bride of Frankenstein revisited.

And Freddie Mac Too

The "Freddie" of this equation is the Federal Home Loan Mortgage Corporation (FHLMC), which for some reason is called Freddie Mac for short. So what does this bloated organization with questionable accounting practices do? Basically, they do the same thing as Fannie Mae (see notes about monopoly and Frankenstein above).

Today, Fannie and Freddie both buy mortgages from lending institutions, "package" those mortgages with other financial products, and then sell them to investors throughout the world, from Europe to Asia and most points in between.

What's the purpose of this, you ask? Good question!

As touched on above, the purpose behind Freddie Mac and Fannie Mae is to extend homeownership to more Americans. You see, if Freddie and Fannie weren't there to purchase mortgage loans from lending institutions, there wouldn't be much of a secondary mortgage market. In that case, mortgage lenders would be a lot stricter about who they gave money to.

So without Freddie and Fannie, a person with bad credit and a shaky financial history would be turned away by mortgage lenders. No house for you today. Sorry. Better go play the lottery. But with Freddie Mac and Fannie Mae, mortgage lenders can offer loans to a wider range of people, even the ones they deem a credit risk. That's because they know there's a good chance they can sell off the loan to Freddie Mac.

Obviously, this liberates the mortgage lender from any concerns they might have had about getting their money back. For example, if they sell the loan to Freddie Mac, who in turn sells it off to some Asian bank ... what does the lender care if the borrower defaults on the loan? That's right, they don't care. So, because of Freddie Mac and Fannie Mae, the lenders can offer mortgage loans to people they wouldn't normally consider. Make the loan. Sell it to the secondary market. Wipe your hands clean of any future repercussions or defaults. Nice and neat!

Oh yeah, and during this process, the folks at Freddie Mac and Fannie Mae make a ton of money! In addition to their government sponsorship (and sometimes complete bailouts), these organizations make millions each year from selling off the loans. Witness — the CEO of Freddie Mac made nearly $20 million in 2007 (while the company itself was dropping stock value like a bad habit).

What About Home Buyers?

So what does all of this have to do with a person buying a home these days? Well, suffice it to say that if Freddie and Fannie went belly-up, it would be even tougher to obtain a mortgage loan. It's already tougher in the wake of the subprime crisis that came to a boil last year. Buyers need much higher credit scores these days in order to qualify for the lowest rates on a mortgage loan. Without a secondary mortgage market, that could tighten even more.

But Who Really Benefits?

Some people in the government feel that homeownership should be made available to just about everyone. Hence, we have organizations like Fannie and Freddie to encourage lending to a larger pool of Americans.

But the hard truth is that some people just cannot afford to own a home. Period. If a person has a low credit score as the result of a bad financial history, the last thing they should do is buy a home. Especially a home they know they can't afford. They're only going to make their financial situation worse, because they will pay incredibly high interest rates on the new mortgage loan (as a result of having bad credit).

This is part of the reason we have record numbers of home foreclosures across the United States right now. Banks are giving mortgages to people who have no business taking on a mortgage.

So let's take a quick tally of who really benefits from the existence of Freddie Mac and Fannie Mae. Well, the people running these companies certainly benefit. They make millions in salary each year. The foreign investors certainly benefit -- at least in the beginning.

But do U.S. consumers benefit? Well, if you are one of the people who got into a new home courtesy of the secondary mortgage market, and you subsequently lost that home when the adjustable interest rate skyrocketed ... you might not feel so lucky. You may have wished somebody told you, "No, you should not own a home right now. You should fix your finances and your credit score first."

And if you've been paying attention, the federal government is more interested in bailing out private organizations and lenders these days. But they don't care much about the millions of Americans who have lost their homes.

What about the country as a whole? How do we benefit from the existence of Freddie Mac and Fannie Mae? In reality, not very much. As a result of the secondary mortgage market and money pits like the war in Iraq, we are more indebted to foreign banks now than we ever have been. In fact, these organizations harm our economy in the long run, by encouraging lenders to offer mortgage loans to poorly qualified borrowers ... the kinds of borrowers who become foreclosure statistics later on.

So, should we pump additional tax dollars into Fannie Mae and Freddie Mac to keep them afloat? Should we keep giving mortgage loans to people who simply cannot afford them? Should we plant the seeds for the next mortgage crisis and recession?

I say no. I say the hell with Freddie and Fannie. In the long run, we are much better off without them.

Getting the Lowest Mortgage Rates

All home buyers want the lowest mortgage rates when applying for a home loan, because it directly translates to a smaller mortgage payment each month.

And who doesn't want to shrink the size of their monthly payments?

But how does one obtain the lowest rates on a mortgage loan and, for that matter, why is it important in the first place? These are the subjects we will discuss in this tutorial for first-time home buyers.

Why Low Rates Are Important

First off, let's clear up some terminology here. When we talk about getting the lowest mortgage rates in this context, we are referring to the interest rate a lender offers you as part of your mortgage loan. Interest is a primary component of a home loan. It's the "I' in the acronym PITI (which stands for principal, interest, taxes and insurance).

By the way, you can learn more about this kind of terminology from our mortgage glossary on the main website.

In other words, the interest rate is one of the factors that will determine the size of your monthly mortgage payment. Now you can see why it's important to seek out the lowest interest mortgage rates when applying for a loan.

How Your Credit Score Relates

When you apply for a home loan, you be sure that the mortgage lender will request your credit reports and scores from all three of the credit-reporting companies (Experian, Equifax and TransUnion). Your credit score is one of the major factors that will determine the kind of interest rate they offer you.

Lenders reserve the best / lowest mortgage rates for borrowers who fall into a certain credit category. What score you need to qualify for this category will vary from one lender to another, but it's safe to say that the better (higher) your credit score, the lower the mortgage rate you'll receive.

Here's something not many home buyers realize. Over the last few years, the score needed to qualify for the best rates on a loan has risen. This is largely due to tougher restrictions on mortgage lenders (as a result of subprime mortgage crisis of 2007 - 2008). Today, buyers need a higher credit score to qualify for the lowest rates on a home mortgage loan.

Compare Mortgage Lenders Before You Sign Anything

When it comes to comparing mortgage lenders in preparation for a mortgage loan, I feel it's an area that many home buyers rush through. But failing to do the proper research in advance can cost you a lot of money later on. Here's how...

Buying a home can be very exciting. I know, because I've been through the process three times, and each time is just as exciting as the first. You can't wait to get the ball rolling forward so you can move into that new home, right? Right!

But you need to slow down long enough to do the proper research, and one important area of research is to compare mortgage lenders before choosing one.

Many buyers don't realize that ten different lenders may offer you ten slightly different mortgages. The interest rate will vary, the terms will vary, the closings costs will vary ... you get the idea. And these make a big difference in the amount of money you pay over the long haul.

We have just posted a new article to the Mortgage Loan Process section of the website that offers some tips on how to compare lenders.

You can read the full article here:
How and Why to Compare Mortgage Lenders

Buy Within Your Means to Avoid Mortgage Nightmares

This article is a lesson in responsible home buying. Why do you need to be a responsible home buyer? Because nobody else will look out for you during a real estate transaction. Behold...

• The mortgage lender wants to make money off you by (A) granting you the loan if at all possible and (B) charging the highest interest rate possible without scaring you away. It's just business.
• The seller wants to make as much money off you as possible, because that is what sellers do.
• Your real estate agent is probably not a mortgage professional, and therefore cannot give you advice on how much you can afford.

So who does that leave? It leaves you! You are the only person who will be looking out for your financial best interests during the home buying process.

And I'm reminding you of this fact because a lot of home buyers seem to forget it. Just look at the mortgage mess we have experienced over the last two years. Many of the foreclosures we have seen were the result of home buyers who (A) did not conduct the proper research; (B) did not determine a realistic home-buying budget for themselves; and (C) relied on other people, such as mortgage lenders, to look out for their financial interests.

These are critical mistakes that you must avoid when you buy a home of your own. And here's how to go about it.

Determine How Much You Can Afford

Before you even begin the house-hunting process, you should find out how much of a mortgage loan you can comfortably afford. In this context, "comfortably" means the amount you can pay toward a mortgage each month while still having money left over for living expenses, savings, and quality-of-life items, etc.

The last thing you want is a mortgage payment that forces you to "squeak by" each month, or one that puts you into a foreclosure situation.

Using Mortgage Calculators

A mortgage calculator can help you determine how much of a home you can afford, because it will reduce the hypothetical sale price of a home into monthly payments (factoring interest and the down payment into the equation as well).

Of course, the monthly payment will partly be determined by the interest rate you get on the loan, which will be determined by your credit history and other factors. But this will give you a good idea of where you stand.

Beware of the ARM Loan

An adjustable rate mortgage (ARM) loan can be tempting, because it usually offers a lower introductory rate than a traditional fixed mortgage. But "introductory" is the key word there -- an ARM loan will adjust or "reset" after a few years, and this usually means an increase in the interest rate.

ARM loans are not evil. There are certain scenarios where it makes perfect sense to obtain such a loan, if for example you will only be living in the home for a few years. The key is to understand (A) how this and other types of mortgage loans work and (B) how it affects you as a borrower.

It can sometimes be tempting to "buy above our heads" when it comes to real estate. Nearly every homebuyer has felt the temptation to buy that beautiful house that's just a bit above the budget. But you must exercise caution and responsibility in such moments. You must ask yourself the hard questions about your finances ... you must do your homework and consider the long term ... you must rely only on yourself. These are the keys to avoiding mortgage nightmares in today's economy.

Brandon Cornett is a real estate writer who covers Austin home buying issues, as well as national trends. He is a contributor to many consumer-oriented websites such as http://www.myagentsam.com

Mortgage Loans 101: All About Mortgage Terms

The term of a mortgage refers to the number of years the mortgage is established for. Mortgage terms are generally 15, 20, 30 and 40 years. The vast majority of mortgages are 30-year mortgages.

When considering the term of the mortgage to apply for, keep in mind that only highly qualified applicants will be approved for 15 and 20 year mortgages. These shorter term mortgages have substantially higher payments, but the homeowner can save hundreds of thousands of dollars over the life of the mortgage by paying less interest.

Benefits of Short-Term Loans
Those considering a 15 or 20 year mortgage in order to save interest in the long-term can also apply for, and obtain, a 30-year mortgage and make additional payments towards principle. Remember to find out precisely how to make these extra payments. Some lenders take the extra payment and apply it to the following month's payment rather than directly towards principal. Others will apply it toward the principal, so find out what you need to do to apply it properly.

Also, keep in mind that most real estate contracts will have a mortgage contingency clause that gives you an "out" in case you are not approved for your mortgage. In most cases, the contingency clause is based on your ability to be approved for a 30-year, fixed-rate mortgage, so failure to get a 15, 20 or 40 year mortgage would not be sufficient grounds to terminate the contract and get your down payment back.

New, Longer-Term Mortgages
40-year mortgages do exist, and some lenders are even offering 50-year mortgages. These longer term mortgages will lower your monthly payment, but they will also result in a much higher life-time payment since you are paying interest over an additional 10 or 20 years. These mortgages are popular with those homebuyers who need to keep their initial payments low and expect to refinance down the road.

The Adjustable Rate Mortgage
Added to all of this talk about terms is the fact that you may also apply for an adjustable rate mortgage, or ARM. These mortgages are generally 30 years long. The ARM starts with fixed-rate interest for the initial period (generally 3, 5 or 7 years) and then becomes adjustable rate (based on prevailing rates at the time) for the remainder of the term.

What Terms are Right for You?
The right mortgage term for you will depend on your unique circumstances. That's why it's important to have a realistic idea of your future plans and discuss them with your mortgage lender. Ask for amortization schedules so you can see the difference in monthly payments and overall payments based on the various mortgage terms available to you. An informed decision is the best decision.

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and author's note, and also leave the hyperlinks active.

About the Author
Brandon Cornett is publisher of Home Buying Institute, the Internet's largest library of home buying advice. You can learn more about home mortgage loans by visiting http://www.homebuyinginstitute.com

Countrywide Home Loans Goes to Bank of America

Ah, the saga continues. In the latest installment of "As the Mortgage Industry Crumbles," Countrywide Home Loans are no more. Bank of America announced today that it plans to buy Countrywide Financial for a $4.1 billion stock transfer.

Up until recently, countrywide was the largest mortgage lender in the country. But this year, they became the latest "victim" of the mortgage crisis that came to a head over the last few months.

How many Countrywide home loans have been made over the years? Consider this. As of August 2007, Americans owed around $13 trillion (with a 'T') in mortgages, and Countrywide Home Loans accounted for around $1.4 trillion of that amount -- a larger "slice" than any other single lender, by far.

But record-breaking home foreclosures put a major hurt on Countrywide home loans (and many other lenders). So the company that has been financially ailing for some time is now slated to be sold to Bank of America.

In a typical feel-good statement, BOA chief executive Ken Lewis said that:

Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers.

What does this mean to homeowners and borrowers? Well, it means two things:

• With the loss of Countrywide home loans and others such as Ameriquest, home buyers will have fewer options when shopping for a home loan in the future.
• It also means that, because of the increased scrutiny placed on the lending industry, home loans will be harder to obtain. Generally speaking, home buyers will need better credit to obtain a home loan than in the "easy lending" days of the past.

Want to learn more about Countrywide home loans and the sale of Countrywide Financial to Bank of America? Here's the latest information from the Web.

The Mortgage Crisis of 2007 - A Love Story

In the future, when people cast a financial and historical eye back to 2007, one thing will clearly stand out, and that is the mortgage "meltdown" that came to a head during that year.

In truth, the full effects of this mortgage and lending crisis are yet to been known, even as I write this article in January of 2008. People are, however, beginning to toss the dreaded 'R' word around ... Recession.

And why shouldn't they? Abroad, we are spending money we don't have to fight the seemingly endless "war" in Iraq. While at home we are experiencing the so-called mortgage meltdown -- the worst in recorded financial history. It sure smells like a potential recession.

But this article isn't about recession. It's about love.

You see, many people don't realize that the mortgage crisis of 2007 is really a love story. In fact, there are many different types of love overlapping here. It's just one big love-fest! Consider the following types of love that are present here:

• We American consumers love to buy, even when it's not wise to do so.
• American corporations love to profit from the consumers who love to buy.
• Government officials love to be paid for the trouble of looking the other way.

Looking Back - A Love Story Unfolding

Through the mid 1990's and early 2000's, the number of subprime mortgage loans rose significantly. A subprime loan is basically a loan made to somebody who really shouldn't be taking on the loan. But the loan is made possible out of love. The lenders love to charge high interest on consumers with bad credit, and those consumers love to buy things (in spite of their bad credit).

Some mortgage lenders fell so deeply with this type of lending (and the profits it produced) that they began to focus on it exclusively as a business model. Thus they became known as subprime lenders, and they saw this as a chance to outmaneuver competitors by extending loans to borrowers that their competitors were turning away.

Economists, who love the truth and the data that supports it, began to warn against this practice. So some states began to pass restrictions against certain types of subprime lending.

Ah, but those state politicians also love lobbyist dollars. So they found themselves torn between two loves -- the love of doing the right thing, and the love of money funneled in from the mortgage industry itself. For example, consider the fact that Governor Arnold Schwarzenegger of California received well over a million dollars* from associates of Ameriquest (one of the largest subprime lending companies).

Incidentally, California is one of the states hit worst by the mortgage crisis. Lots of love in California!

So this is yet another example of a politician who loves to receive support from large corporations -- corporations that, in turn, love to shape our country's laws with some good old-fashioned greasing of skids. I loved Arnold in the original Conan movie, by the way, but I don't love him so much as a Governor.

The Love is Spreading All Around Us

The love of money, buying, selling and lobbying has created a mortgage crisis of truly epic proportions. And like any good financial crisis, it has spread to other areas. When consumer lending tightens, business credit and financing usually follows suit. Just listen to what a recent New York Times article had to say about it recently:

"Credit flowing to American companies is drying up at a pace not seen in decades, threatening the creation of jobs and the expansion of businesses, while intensifying worries that the economy may be headed for recession."

At the same time, we are seeing the dollar weaken against foreign currencies around the world. We should be alarmed by this! We should press for change! We should curtail spending! We should question the White House's maniacal love for overspending on fruitless ventures like the war in Iraq. We should ask the question, "How long until the United States goes broke?" But there is another type of love that lulls us into complacency...

Politicians at the highest level love to offer encouragement by playing down the true severity of our financial crisis. They love to soothe us the way one might soothe a child who is teething...

And we just keep swallowing it right up. Because love is blind.

* Sources: Federal Election Commission; National Institute on Money in Politics; Center for Public Integrity; state disclosure offices.

Subprime Mortgage Crisis Explained

by Brandon Cornett of Home Buying Institute

What is this so-called subprime mortgage crisis I keep hearing about on TV? How did it start, and how does it affect me?

These are common questions among home buyers, and with good reason. This crisis of subprime lending has had far-reaching effects. It has also made it harder for poorly qualified home buyers to obtain mortgage loans.

So let's take a closer look at the history, development and impact of the subprime mortgage crisis in the United States.

Brief History of Subprime Lending

Through the mid 90's and early 2000's, the number of subprime mortgage loans rose significantly. This was partly due to the increased competition among lender (largely from online mortgage lenders), which meant that lending institutions had to offer a wider range of mortgage products to a larger audience -- if they wanted to stay competitive, that is.

Many of these lenders began to focus almost exclusively on this type of lending practice, thus they became known as subprime lenders. They saw this as a chance to outmaneuver competitors by extending loans to borrowers that their competitors were turning away. In other words, they offered subprime mortgage loans to subprime borrowers, usually with a much higher interest rate for the borrower ... and higher profit for the lender.

As with most things in the financial world, this lending practice had an up side and a down side. The down side eventually grew into a full-blown mortgage crisis, but we will get to that soon enough.

At an annual housing policy meeting in 2004, Governor Edward Gramlich (who was a member of the Board of Governors of the Federal Reserve at that time) had the following remarks about the two sides to subprime mortgage lending.

On the down side of subprime lending:

While the basic developments in the subprime mortgage market seem positive, the relatively high delinquency rates in the subprime market do raise issues. ... For mortgage lenders the real challenge is to figure out how far to go. ... If lenders do make new loans, can conditions be designed to prevent new delinquencies and foreclosures?"

On the up side of subprime lending:

The obvious advantage of the expansion of subprime mortgage credit is the rise in credit opportunities and homeownership. Because of innovations in the prime and subprime mortgage market, nearly 9 million new homeowners are now able to live in their own homes, improve their neighborhoods, and use their homes to build wealth."

As stated, there is both a good side and a bad side to the practice of subprime mortgage lending. Yes, these types loans extended home ownership to a lot of Americans who probably could not have afforded a home otherwise. But at the same time, they were a contributing factor in the number of home foreclosures in the U.S.

At some point, you have to ask yourself: "Should people who cannot afford a home be treated differently from a lending standpoint? Or should the lenders (and the borrowers) just accept the fact that some people cannot afford to buy homes?" There is no easy answer to this question.

The Subprime Crisis Emerges

Between 2000 and 2006, the number of home foreclosures continued to rise in America. A barrage of studies and data analysis suggested a strong connection between the rise in foreclosures and the subprime mortgage lending market. As you might have guessed, the federal government raised an eyebrow and began to scrutinize the practices of subprime mortgage lenders.

The government certainly did not use the "crisis" word, since it's a surefire trigger for panic. But from 2000 onward, many economists were already talking about the subprime mortgage crisis that was headed our way.

As federal regulators have stepped up pressure and scrutiny, the banking regulators had to tighten their lending standards. We are hearing a lot about this right now, at the time of this blog post (December 2007).

The Adjustable Rate Mortgage

The adjustable-rate mortgage (ARM) loan has played a big part in the subprime mortgage crisis. To understand how, we need to briefly discuss the nature of the ARM loan. With an adjustable rate mortgage, the interest rate will eventually reset or adjust at some future point in time. This type of loan starts with a relatively lower interest rate that appeals to borrowers. But it will later reset to a likely higher interest rate -- sometimes a significantly higher interest rate.

Randall Kroszner, the current Federal Reserve Board Governor, had this to say on the connection between subprime lending, foreclosures, and ARM loans:

This guidance ... underscores that the Federal Reserve and other banking regulators expect lenders to make sure subprime borrowers not only can afford their monthly payments while the introductory rate is in effect but also after the interest rate resets."

Impact of the Mortgage Crisis

When you drop a pebble into still water, it creates a ripple that will continue traveling until it meets resistance or reverse motion. This is an apt analogy regarding the impact of the subprime mortgage crisis in the U.S. The spike in home foreclosures, and the tougher lending standards that were born from it, have had an impact on nearly all aspects of our economy.

For example, this blog post from a business financing company in Texas explains how the subprime crisis has impacted the world of business credit as well.

Being Smart About Subprime Loans

If you ever find yourself in a subprime borrowing situation, the best way to protect yourself is to understand how these things are related (adjustable mortgages, subprime lending, foreclosures, etc.). It's also wise to seek input from an unbiased financial adviser on such matters.

Of course, by the time I finish writing this history of subprime mortgage crisis, this type of lending might be legislated into extinction, thus making all of this a moot point. But until that time, I hope I've done my part to shed some light for consumers.

Who Is to Blame?

Whenever a financial crisis emerges in this country, the blame game starts immediately. So whose fault is all this? Who is to blame for the mortgage crisis that has essentially wrecked our economy? Well, we are all to blame, in one way or another. The greedy lenders are the easiest targets. The politicians who ignored warnings are second in line. And let's not forget all of those consumers who didn't read the fine print.

This article explains the triangle blame game I've just outlined:
The Mortgage Crisis of 2007: A Love Story

Attention Economists: This is obviously a simplified version of events leading up to the current mortgage lending crisis in the U.S. One could write a book about this topic, but I have no intention of doing so. This is an overview and should be treated as such. So please do not email me pointing out gaps in my history of the subprime mortgage crisis ... thanks.

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How to Stop Foreclosure on Your Home

Here comes the angel of real estate doom again, talking about depressing topics during the holidays!

Last time it was credit responsibility, and this time is the subject of home foreclosures.

I don't mean to be depressing ... only realistic. Because only yesterday I was looking at the number of home foreclosures in Central Texas, and they are still staggering.

Now that's depressing!

So, in the spirit of financial responsibility, let's talk about the ways a homeowner can stop foreclosure -- in the unfortunate event that such a situation occurs.

Here's the thing. Mortgage foreclosures are at an all-time hight right now. You know that if you've been watching the news at all lately. But I would venture a guess that around 20% of those foreclosures did not have to happen ... if the homeowners had simply known their options in avoiding foreclosures.

To that end, we have just posted a whopper of a tutorial -- all 1,300 words of it -- on the Home Buying Institute website. It goes over some of the most common (and most effective) options for stopping foreclosure before it happens, and it offers a few links to some related resources on the subject.

Check out the new tutorial here:
How to Stop Foreclosure

The key to understanding your foreclosure-avoidance options is to first classify yourself in one of two ways:

1. Are my financial problems only temporary?

Or...

2. Are my financial problems more long-term?

If your problems are temporary and you will soon be "back on track" and able to pay your mortgage payments in full, then you'll have more options for avoiding foreclosure.

In this scenario, contact your mortgage lender as soon as possible and find out what your options are. Many people don't believe it, but mortgage lenders do NOT want to foreclose on homes. They are in the business of lending money -- not managing properties.

If your financial problems are more long-term, and you simply cannot afford the mortgage anymore, then you will have fewer options. In this scenario, the key is to try and sell or otherwise transfer the property / mortgage so that you can avoid foreclosure. It's not something you want on your financial record.

Check out the tutorial for more on these options:
How to Avoid Foreclosure

Review of New Mortgage Loan Programs

I stumbled across an article today in the Star Tribune (Minnesota newspaper) that Home Buying Institute readers will find helpful.

It's all about changes in the mortgage industry, and mortgage loan programs that are on the rise today. As you know if you've watched the news over the last month, mortgage lenders these days are being pressured to tighten up on their mortgage-qualification guidelines. This comes as a result of the spike in home foreclosures over the last couple of years and the "easy lending" of subprime mortgage loans in the past.

In spite of these supposedly stricter mortgage qualifications, there are still some legitimate mortgage loan programs for buyers will less-than-ideal credit scores.

Here's an article excerpt:

Although the lending landscape has changed, there are still plenty of consumer-friendly loan options for a wide range of home buyers. Ronny Loew, senior mortgage banker at First Horizon Home Loans, Edina, said the industry is responding by taking a more conservative approach. 'We're taking a big step back to the old ways,' he said.

Read the full article here

Buying a Home With Low Down Payment

We have posted a new article to the mortgage process section of the website. As is often the case, this article is in direct response to questions from website visitors. It seems a lot of people want to know about ways to buy a home with a low down payment, and up until now there wasn't a definitive resource or article that addressed the topic.

So we added one.

This new article explains the reality of buying a home with a low down payment, how the process works, how mortgage insurance plays a role, and much more. We also added a few links to related resources offsite. Hope you find it helpful.

Read the article:
Buy a Home With Low Down Payment

Happy home buying!

~Brandon

Subprime Mortgage Loans Being Phased Out

In my previous post, I talked about the subprime mortgage loan and how it relates to the record-breaking number of home foreclosures in recent years. I also mentioned a tutorial I put together to explain how subprime loans work.

A recent article on the Wall Street Journal's website explains that some major lenders are actually phasing out their subprime mortgage loans. Says the Journal: "Some lenders are eliminating what until recently was the most popular type of home-mortgage loan for subprime borrowers, or borrowers with weak credit histories."

This development comes at a time when lenders are under intense scrutiny for their subprime lending practices, as those practices related to borrower default and foreclosure trends.

I will monitor all of this and keep you posted.

Adjustable Rate Mortgages - New Article

The adjustable rate mortgage has been in the news a lot lately. This is partly due to the high number of home foreclosures happening across the country right now. Some mortgage experts claim that adjustable rate mortgages (or ARMs) are playing a big role in the rate of foreclosures.

You see, the ARM loan entices many home buyers because of its low initial interest rate -- lower than a traditional fixed rate loan in most cases. But "initial" is the key word here, because the interest rate and mortgage payment will eventually adjust, hence the name adjustable rate mortgage.

When the interest rate adjusts, many homeowners are caught off guard by just how much it increases their monthly payment. They knew it would adjust -- they just didn't' expect the significance of that adjustment.

Some homeowners plan ahead and are able to refinance or sell the property prior to the loan's adjustment phase. Other homeowners don't plan so well, and when they can't afford the new payment, they often end up as another foreclosure statistic.

That's why we have started a campaign to educate home buyers about the pros and cons of the ARM loan. Our latest installment is a thorough review of the adjustable rate mortgage loan (what they are, how they work, the advantages vs. disadvantages, etc.). This is a pretty lengthy article, but we have made it "required reading" for anyone considering an ARM loan. We do our part!

Adjustable Rate Mortgages - Your Guide to the ARM

Happy home buying!

~Brandon