For many people, buying a home is the single largest investment of their life. It can be a wonderful experience and rewarding on many levels, aside from just monetary ones. Since most people do not have enough money saved up to buy a home, it is usually necessary to apply for a mortgage, which is a special type of loan that covers the entire cost of the home.
There are many types of mortgages, but most are for 15 or 30 years, with a payment made each month towards the total amount of the loan. Each loan has an interest rate, with this being the percent of the loan that is being paid to the bank or loan holder. Fixed rate mortgages have an interest rate that remains the same over the entire length of the mortgage.
Variable Rate Mortgages or Adjustable Rate Mortgages(ARM) are a rather new loan device, which offers a lower initial interest rate, which is adjusted every few years. In theory, the interest rate could go up or down each time it is adjusted, but it is a good idea to plan on it always going up. Over the course of the ARM, there should be a set number that represents how high the interest rate can go up.
Many of those with subprime mortgages ended up getting ARMs that did not have a limit on how high they could go and were set to adjust every year, as opposed to every two or three years. As a result, these loans quickly became unaffordable. So, for those who interested in taking advantage of the low initial rate of an ARM, it is a good idea to do a great deal of research and make sure it would not be classified as subprime.
Before a lender can tell you whether or not they will actually offer you a mortgage, it is necessary to complete a mortgage application. This consists of information about your bank, job, and personal history.
Many lenders will provide what is often called a pre-approval letter or a pre-verification letter, but these are usually not taken as seriously as actually being approved for a loan. This is because the loan company does not actually process the application at this point, but instead provides a estimate of what they could offer, providing the information provided is correct.
It is very important to be as honest as possible with your lender at all points, because lying won’t get you anywhere. Eventually, the loan company will run your credit and check your references, so while a lie might get a nice looking pre-approval letter, when it comes time to actually apply for the mortgage, the lie will become apparent.
It is also important to have an idea of what the going interest rates and mortgage terms are. This way, you will be able to compare prospective loan offers with the standard rate and determine whether it is a good deal or not. This is one reason that it is often a good idea to start with your bank. They will usually have a semi-competitive rate that is fairly indicative of the normal mortgage rates. Your bank can also often work quicker than other loan officers and might not even charge anything to check your approval.
The First Time Home Buyers tax credit provides an excellent incentive for new homeowners to take advantage of the extremely low home prices and interest rates being offered. However, there are less than two months left for new homeowners to take advantage of this tax credit, with the incentive program expiring on December 01, 2009.
The first time home buyers tax credit is part of a number of incentive programs designed to stimulate the US economy. Often dubbed the Obama Tax Credit or Obamas First Time Homebuyers Credit, what makes this tax credit unique is that it does not need to be paid back. Instead, the homeowner is given a check for up to $8,000 that can be used for whatever they want, providing the homeowner remains in the home for at least 3 years.
This amount of this tax credit is based off of 10% of the homes value, with a limit of $8,000. This means that any home priced below $80,000 will qualify for 10% of the homes value, while any home priced at or above $80,000 will qualify for $8,000.
One of the great things about this tax incentive is not just that it does not need to be repaid, but that it can be applied for on the 2008 tax return or the 2009 tax return. By claiming it on the 2008 tax return, it is possible to get the money early, by filing for an amended tax return. This is rather simple and involves submitting another IRS form 1040, as well as the required information for the First Time Home Buyers tax credit, tax form 5405.
Another option to receive the money early is to simply adjust the number of deductions claimed on your paycheck. So, for instance, if you normally claim 0, you could claim 2, so less money is taken out of your paycheck each week. However, when going this route, it is very important to keep track of how much money is being taken out, because if you exceed the first time home buyers tax credit, you will end up owing money to the IRS. After you have taken enough money out, it is also essential to switch your deductions back to normal.
It is very important to note, however, that if you owe any money to the IRS, this money will be deducted from the tax credit, with the balance returned to the customer.
Requirements for the First Time Home Buyers Tax Credit
Well, it now appears that GM may have been a little hasty when they decided to add jobs and ramp up production August. In a recent report, it would appear that GM and Chrysler sales have plummeted since the Cash for Clunkers program ended, with Chrysler’s new car sales dropping by almost 50%.
Of course, almost all car companies are reporting some drop in sales in September, which is the first full month with out the government run incentive program Cash for Clunkers.
Saturn, who is in the process of being phased out of production, saw the most significant drop of near 90%.
Boosted by fleet sales, Ford actually weathered the storm fairly well, seeing about a 15% drop in consumer sales, but a 23% increase in fleet sales. In the end, Ford was about 5% below where they were last year in sales. Ford’s Volvo Division, also did quite well, seeing sales increase.
Ford, who was the only company who did not accept bail out money, has been aggressively marketing their cars over seas and overall trouncing other American automakers on most fronts.
Cadillac, which is GM’s luxury brand saw sales increase as well, although this was not enough to bring GM out of the gutter.
It now is clear that Cash for Clunkers was a very effective means of getting the public to purchase a new car, with it going a long way to stimulating the auto industry.
One of the biggest criticisms of the incentive program was that it might be just getting people to push up their car purchases, but not really stimulating that many new sales. The argument being that perhaps most of those who used the Cash for Clunkers program were planning on buying a new car anyway, but pushed up their time table to take advantage of the program.
While it is still too early to say, it is safe to assume that the record sales of August, when Cash for Clunkers was winding down, will probably not be seen again for some time.
With this September Slump in sales, it begs the question whether the boost provided by Cash for Clunkers will be enough to helps the like of Chrysler and GM, who are already fairly close to being unsustainable.
Perhaps the government will have better luck running them than the previous executives though, who seemed to be more concerned with their lifestyle than the direction they had let their companies go.
However, with such a sharp decline, it is hard to think that these companies would be salvageable, well at least not on their own. Fortunately, the tax payers are there, so these companies do not have to worry about making a better product.
There will always be those who try to profit from the misfortunes of others and the current housing market woes are no exception. There are many scams and pit falls that a new home owner can fall into, especially one that is having trouble making their monthly mortgage payments. One such scam, which has grown explosively over the last few years, comes in the guise of Loan Modification Companies.
When someone is behind on their mortgage payments or having trouble making each payment, it often causes them to want to look for an easy fix, so they drop their defenses a little bit. This is exactly what a loan modification company counts on, as they specifically target those in foreclosure or who are struggling to make each mortgage payment.
The loan modification scam usually starts with a letter, a dishonest website, or a call from a telemarketer, which promises that the company can help refinance the mortgage and secure the homeowner a much lower interest rate. These individuals, who are usually nothing more than snake-oil telemarketers who are adept at social engineering, pray upon the fears and troubles of those facing foreclosure, promising to speak with the mortgage holder and negotiate better turns.
However, before they will do any work, they require a large upfront payment. Often, the telemarketers will encourage the homeowner to stop paying their mortgage payments and instead pay the loan modification company, with the promise that they will be able to get the mortgage refinanced.
What loan modification companies won’t tell you, however, is that they can not stop foreclosure and have no direct association with any reputable lenders. Instead, they take the homeowners money, usually at the expense of paying their actual mortgage, only to cut off communication once they have conned enough money from the homeowner.
It is easy to ask how this is possible and much of it has to do with the mind state of those that are facing foreclosure, who are searching for anything that might help them save their home and credit.
However, the companies also operate in a manner that avoids much regulation, by changing their names frequently and setting up dummy corporations. There are hundreds of websites developed by these loan modification hucksters, which are designed to generate leads for their telemarketers.
Usually, by the time people start reporting these companies to the Better Business Bureau or other regulatory agencies, the loan modification company has already moved on.
Today, loan modification firms are more prevalent and profitable than ever, praying off of the large number of foreclosures.
One of the biggest warning signs of a loan modification firm is that they require money up front, before doing any work. This is common amongst most credit fixing scams, so should immediately raise warning flags. Also, if they suggest not paying your mortgage, this is also an indication that they are not operating in your best interests.
It is also very important to research the companies and keep in mind if you can’t find any information on sites like the Better Business Bureau, they could very well be trying to scam you.
This is not to say that all organizations that help fix credit or prevent foreclosure are bad, with there being a number of not-for-profit organizations and several government programs that are designed to do just this. However, it is extremely important to research the company and use good judgment, rather than letting the fear tactics of these scam artist work against you.
A Lock-In is the term used to describe when a lender promises to offer a specific interest rate and loan terms for an extended period of time. With the rapid fluctuation in the housing market and interests rates that can vary multiple times everyday, getting your lender to offer a lock-in can be a very important tool when shopping for a mortgage, but there are also some situations when a lock-in could end up working against you.
People use Lock-Ins, or rate locks, because from the time you apply for a loan to the time you are approved can sometime stretch on for weeks. During this time, interest rates could go up, so if you do not have a rate commitment from the lender, there is nothing keeping them from changing the terms of the loan to a higher interest rate.
Since the way lenders handle rate lock-ins can vary, it is very important to bring up the subject before applying for a mortgage and find out the lenders policies.
Sometimes. This can vary depending on the lender, with some mortgage lenders requiring a lock-in fee to guarantee your interest rate. If the interest rate and points are extremely competitive, than it may be worthwhile to pay this fee. However, most lock-in fees are non-refundable, so it can be a little risky and another added expense, which seem to pile up when you are purchasing a home.
It is important to consider is your credit rating, because if you are unsure whether you will qualify for the loan, it might not be worth using the money. Also, since mortgage brokers are often not working with your best interests in mind, these charges can often simply add a nice bonus to the mortgage brokers pocket.
If you do pay a lock-in fee, make sure that you get it in writing, which is really good advice even if you do not pay anything for the rate-lock.
This can vary, but most Lock-Ins are for 30 or 60 days. It is a good idea to ask how long the lender takes to approve loans and consider the housing market. If it looks like it may take awhile to find a home or get approved, it is a good idea to ask for a longer lock-in.
When the lock-in expires, it is sometimes possible to just re-extend it if the market has not changed. However, the lender is under no obligation to do so and if interests rates have gone up, they will not typically re-extend the lock-in.
If the interest rates go down and you have already requested a lock-in, it can create some problems, as the lender may not want to lower the rate. In the case of a very large drop in interest rates, it is a good idea to put you foot down and demand an increase, although to start with, you should simply ask them if they can.
If the lender refuses to honor the lower rate, you can simply walk away, although this can be hard if you have poor credit.
Before you request an interest rate lock-in, it is a good idea to do some market research, paying close attention to interest rate trends. This will allow you to better analyze the mortgage interest rate and determine if it is a good deal. It is also important to spend some time talking with other lenders and exploring the housing market.
There are many types of subprime mortgages, but one of the most predatory types of mortgages is the Negative Amortization Loan. Negative Amortization Loans can sound attractive at first, but after a few years, it is very easy to end up owing more money on your mortgage than you initially paid.
In a negative Amortization Loan, the monthly payment is less than the total amount of interest owed for that period of time. This difference is then added back onto the loan, which raises the total amount of money that is owed to the mortgage lender.
Negative Amortization Loans are sometimes called a deferred interest loan, Graduated Payment Mortgage(GPM,) or NegAm Mortgage. No matter what the name, if you are paying less than the normal amortization amount every month, you are in a very dangerous position.
Amortization is used to refer to how the payments of a loan will be used to pay down a mortgage. During normal amortization, part of your payment goes toward the interest of a loan and part of it goes towards the principal of the loan.
At first, more of each payment goes towards interest than principal, but over time, this reverses and you begin to pay more towards the principal of the home and less in interest.
To see how each of your payments are used, you can view an Amortization Table, which most lenders will freely provide you with. The Amortization Table will break down all of your payments by month, showing you how much principal you owe after each payment.
A negative amortization loan is when each monthly payment is less than the total amount of interest owed on the loan. The interest that is not paid is then tacked onto the principal of the loan. As a result, each month that you pay negative amortization, the amount you owe on the home increases.
So, as an example, say that during the first year of a 30 year mortgage, a normal mortgage payment would be $500 a month, with $400 going towards interest. In a negative amortization loan, you might only pay $250, with $250 getting added onto your total mortgage balance each month.
As a result, this not only increases how much you owe on the home, but it also increases the amount of interest you owe.
Due to legislation, this is usually only allowed to happen after up to five years, which is referred to as the recast period. However, in five years time, paying negative amortization can result in owing many thousands more than what you paid for the home and what it is worth, which makes selling the home very difficult.
Many people who have negative amortization loans end up short selling, which means selling the home for less than they owe. This is because the principal of the loan vastly exceeds the homes actual value, which is referred to as being underwater on a loan.
When negative amortization loans are coupled with an adjustable rate mortgage, which has an increasing interest rate every few years, it is very easy to end up underwater on the loan. When the adjustable rate increases, which it will, this means that all of the money added on by negative amortization, will also increase.
There are many problems with negative amortization mortgages, which often result in drastic increases in mortgage payments each month. This is often referred to as payment shock, where the amount owed month by month can rapidly increase after the recast period.
While negative amortization loans can be very dangerous, if you plan on quickly selling a home for a profit, it can be a good investment tool, as you will have a lower monthly payment. However, this is very dangerous, as if you can not sell the home or if the value of the home decreases, you will end up owing more than the home is worth.
Many first time home buyers get into trouble over these types of loans, because they have a very low initial monthly payment, which can seem very attractive. However, once the grace period is over and the rate increases, they soon realize they have entered into a predatory loan.