Should you negotiate out of escrow

Nearly all lenders require low-down-payment borrowers to pay homeowners insurance premiums, HOA fees, and property tax payments into a lender-managed escrow fund. Even some low LTV borrowers are required to pay taxes and insurance into escrow accounts. Account balances can reach 5,000 to 10,000 or more. Yet many lenders pay no interest on these funds. Even worse, I've seen lenders charge borrowers administrative fees for the privilege of letting the bank keep their money for them. Although...

How Much Will FHA Finance

If you would like to buy a low- to mid-priced home, carefully consider the FHA 203(b) program. In this context, the meaning of mid-priced depends on where you live because FHA sets specific loan limits for each locale around the country. In high-priced cities such as Los Angeles, San Diego, Washington, D.C., and Boston, the FHA maximum loan currently tops out (for single-family houses, condos, and town homes) at 362,790. In the lowest-priced areas of the country, the maximum FHA home loan comes...

Credit Scoring Doesnt Rate You Personally

The credit scorers select certain characteristics that you share with others who have (or have not) paid their bills as scheduled then, based on these selected characteristics, the scorer's mathematical formula assigns you a number. Supposedly, this assessment accurately gauges the risks you present to the lender but it doesn't. Why Because you are a unique individual. Although you share some similarities with this computer sample of borrowers, you also differ in many ways of which the credit...

Credit counselors and debt management firms do not improve your credit record or boost your credit scores

Why go to a credit counseling-debt management service Three reasons To get help with budgeting to seek legal advice about bankruptcy and creditor collection practices and to prevent or stop creditor collection efforts. If you've got good credit, budgeting assistance can help you retain it. If you've bruised or busted your credit, however, debt management or consolidation plans will not redeem you anytime soon. To most creditors, you either pay your bills on time or you don't. They may agree to...

Credit Scores Adjust Like Molasses to Changes in Credit Management

To improve your long-term credit score, change your credit profile. Pay your bills conscientiously close excessive accounts reduce the amount of your outstanding balances but total payoffs of all accounts may hurt because you want to maintain an active credit experience and resolve disputes, liens, judgments, and write-offs. No one can quickly overcome the stains that soil a credit report when they lawfully belong there. Just clean them up as best you can. At the same time, manage your credit...

Credit Scoring Is Spreading

If you've received a preapproved credit card in the mail or obtained instant credit at Sears, Home Depot, or Best Buy, you've been run through a credit-scoring program. That's why the store could quickly decide with only slight information from you (social security number, name, address). Even insurance companies (especially auto) now turn to credit scores to decide whether to insure you and, if so, at what price. Employers, too, have started running credit scores on job applicants and, in some...

Credit Scores May Adjust Slowly

Your credit score may take 30 to 60 days to incorporate new or changed credit file data. In the meantime, if your loan program requires a 660 score and your uncorrected score stands at 648, you could be out of luck. (Some mortgage lenders use the lowest middle score of all loan applicants. Most lenders do not merely average credit scores. So, ask your loan rep in what precise way the lender weighs the individual scores of a single borrower as well as the multiple scores of two or more...

One Borrower Multiple Credit Scores

Earlier, Mortgage Secrets discussed the fact that any given borrower will receive a credit score from each credit repository. Should the credit data in these files materially differ, the corresponding credit scores will differ. This fact brings up the question Which score will the lender choose to use if one or two of your scores fall below program minimums To a certain extent, it will depend on the persuasive story you tell. In most instances the lender selects the lowest middle score of all...

Credit scores influence but do not determine the terms and costs of your loan

As emphasized, most mortgage lenders assess your creditworthiness through credit scoring. Fannie Mae, Freddie Mac, FHA, VA, and portfolio lenders such as Washington Mutual all follow some form of this so-called black box credit evaluation. If your credit score pops out at, say, 720 or higher, problems are not likely. Just make sure you've not messed up any of the other Cs of credit approval, and you're home free at (or near) the lowest interest rates and costs available (provided that you...

What Is Credit Scoring

Through credit scoring, lenders try to push personal judgment away from credit evaluation. Credit scoring data from auto loans, department store accounts, and credit cards prove that computer statistical programs can distinguish platinum, gold, copper, lead, and plastic far better than backoffice loan clerks or front-office loan reps. To create these credit-scoring programs, math whizzes study the credit profiles, borrowing habits, and payback records for millions of people. Then they search...

Most credit repair firms or deceptive tactics cant fix your credit or boost your credit scores

Erase bad credit the credit repair ads say. The Federal Trade Commission (FTC) says something quite different. Don't be misled by credit repair ads. . . . Promises to repair or clean up a bad credit file can almost never be kept. How do these firms get away with making false promises They just operate until the government shuts them down then they open shop again under a new name. Even worse, many tactics these firms promote could land you in jail. For example, one trick they pull is to get you...

Can you prepay without restriction or penalty

During the 1980s, prepayment restrictions almost died out. But by the late 1990s, they were back. Why To cut down the number of borrowers who refinance and pay off higher rate loans. When rates trend lower, serial refinancers can cost lenders billions of dollars in lost interest and excessive loan origination costs especially for zero-point loans, negativepoint loans, and low teaser-rate ARMs. Lenders pay loan reps large sales commissions that they hope to earn back over the life of the loan. A...

Let tenants pay your mortgage

In my 1996 book, Stop Renting Now , I advised, To increase borrowing power, let tenants pay your mortgage. Choose a two- to four-unit rental property and live in one unit for a few years. Collect rent from the other units. Anyone who followed this advice would have multiplied their original investment many times over. Although Secret 4 introduced this topic, let's revisit this possibility. Should You Buy a Two- to Four-Family Home (or Larger) I'm trying to buy my first home, but without...

How to Really Calculate the After Tax Cost of Your Monthly Mortgage Payments

To accurately calculate your tax break, first estimate your total monthly payment Monthly payment P + I + HOI + MI + Tx + HOA Recall that monthly payments may include items other than principal and interest, such as property insurance, HOA fees, mortgage insurance, and so forth. As a starting point, estimate the amount you will pay for each monthly expense. Next, back out only the amounts for interest and property taxes.5 For example, if your total monthly payment of 1,600 includes every item...

The True Cost of Low Down Payments

To obtain that low-down-payment loan, you'll pay the lender yearly interest on that extra 15,000 ( 95,000 less 80,000), plus you'll pay the annual premium for the PMI. Recall (Secret 60), mortgage insurers risk-adjust their premiums according to your credit profile and other Cs. In addition, rate and premium schedules change as insurer loss experience hits peaks and valleys. Consequently, you can't apply the results shown in Table 6.1 to your situation. You can, though, apply this technique to...

Down Payment Assistance Is Available Throughout the United States

Mortgage Secrets has emphasized various Fannie's initiatives only because Fannie provides the largest and most widely publicized effort to encourage local governments to offer financial assistance to first-time homebuy-ers. Yet, many large and small cities and counties haven't waited for Fannie to lead the way. They offer their own down payment and assistance programs. In Cobb County, Georgia, for example, Donna White and her two children bought in the Parkside at Village on the Park new home...

Gary W Eldred

106 MORTGAGE SECRETS ALL BORROWERS MUST LEARN But Lenders Don't Tell 106 MORTGAGE SECRETS ALL BORROWERS MUST LEARN But Lenders Don't Tell 106 MORTGAGE SECRETS ALL BORROWERS MUST LEARN But Lenders Don't Tell Copyright 2008 by Gary W. Eldred, PhD. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. Wiley Bicentennial Logo Richard J. Pacifico No part of this publication may be reproduced, stored in a retrieval system, or...

Save Money on Your Credit Reports

If you don't want to pay for your credit information, you have several alternatives. Consumerinfo.com. This web site operated by Experian will give you a free credit report, but it also will automatically enroll you in a 79.95 credit-monitoring service. Cancel this service within 30 days and you owe nothing. Free reports. Various states require credit bureaus to provide reports for free, or at nominal cost. Also, under federal law, you may receive free reports from each of the repositories if...

Negotiate a preforeclosure workout

Each year in every city, hundreds (sometimes thousands) of property owners skid into a financial wreck. Divorce, job loss, accident, illness, business failure, binge spending, destructive borrowing, and other setbacks render people unable to make their mortgage payments. But rather than effectively deal with their mortgage problem as soon as trouble hits, most owners hang on too long hoping for a miraculous rescue. Because miraculous rescues rarely occur, most of these people end up facing...

Let Fannie or Freddie treat you to belowmarket financing

Fannie Mae and Freddie Mac, two large players in the nation's secondary mortgage market, usually don't loan directly to investors or homebuyers but they buy mortgages that are made by banks, credit unions, and other mortgage lenders. Sometimes when a loan Fannie or Freddie owns goes bad, Fannie or Freddie requires the originating lender to buy back the mortgage. The lender then adds another foreclosed property to its REO portfolio. But, when lenders follow all of Fannie's or Freddie's...

Turning Up the Lights

Fortunately, even though the credit scorers have not shined much light into their black boxes, mortgage loan reps and underwriters who see everyday results are beginning to develop some keen insights. In addition, while still cloaking their systems in secrecy, credit scorers have reluctantly released some clues over which borrowers can puzzle. Indeed, myfico.com will give you pointers on how to improve your FICO scores. To learn how much your scores actually do improve (if any) over the next 12...

Try it before you buy it

The try it before you buy it technique is called the lease option. It combines a lease agreement for a home, a townhouse, or apartment with an option (a contractual right) to buy that property at a later date. In the early 1980s, Robert Brass called lease options the most overlooked and underused property finance possibility. At that time, most homebuyers, home sellers, and real estate agents remained clueless about this technique. Times have changed. Wherever I travel throughout the United...

Improve your credit scores

When credit scoring caught the public's eye, credit score providers not only refused to tell borrowers how they rated in the system, they also refused to tell precisely how the system itself operates. Today, that refusal still stands. Until Congress or state legislators force the issue, credit scoring remains a black box operation. Credit scorers enter your credit data into their programs and out pops a number, but they won't reveal how or why they calculated that figure. You're left in the...

Bogus credit counselors can scam you too

As sham credit repair firms finally begin to get the tar and feathers they deserve, many similar scam operations now do business as credit counselors, debt consolidators, and get out of debt for dimes on the dollar firms. Similar to their credit repair brethren, these firms typically over-promise, overcharge, and under-deliver. Rather than detail all of their seedy practices, let me pass along the recommendations of Clark Howard, one of the best consumer intelligence experts in the country. For...

Perfect Your Credit Profile

Today, if your credit score sits above say, 720, you might whiz through the loan underwriting process. As a borrower you can choose from among the lowest-cost, lowest interest-rate mortgages. The lender may ask for relatively few documents and verifications, it may waive mortgage insurance, and perhaps even loan you the amount you need for a down payment. If instead your credit profile ranges somewhere between bottom of the barrel and looks decent, lenders have created loan products, interest...

Discover your credit scores

In the late 1990s, when mortgage lenders began widespread use of credit scores, the credit score providers told lenders to keep the scores secret from the borrowers. The score providers would otherwise cut off the lender. This secrecy created a howl of protest. 4 Unless, perhaps, your credit score makes you look better than you deserve. Nevertheless, eloan.com braved the storm and began releasing scores to its customers. True to their word, the credit score providers threatened to throw...

Bankruptcy Chapter doesnt necessarily ruin your credit

Many hapless borrowers are talked into ill-fated debt management repayment plans including Chapter 13 bankruptcy. They are told that bankruptcy (Chapter 7 liquidation) will ruin their credit. It stays in the credit file for 10 years. In response, these troubled debtors quake with the fear of stigma and the thought of becoming a credit leper. While it is true that both Chapter 13 (debt repayment) and Chapter 7 (liquidation) show up in your credit report for 10 years, it does not follow that...

Just say no to home equity loans

Cash out your home equity while rates are low. Use your home equity as a checkbook. Take that vacation you've always wanted. You've earned it, now use your home for the good things in life you couldn't enjoy before. Pay down your credit card balances, buy a new car, consolidate loans just 3.9 percent interest. You've seen the ads. They're everywhere radio, television, newspapers, and dinner-hour telephone calls. During a typical month, I receive a dozen or more junk mail offerings, nearly all...

Contact the Credit Source and the Repository Simultaneously

Most credit advisors tell you to notify the credit repository, point out the change you deserve, and formally, in writing, seek compliance with your request. This is good advice except for one critical fact Credit repositories primarily report only that information given to them by your creditors. Unless the repository has botched the data it's been given (quite possible), the repository must contact the (mis)reporting creditor. If the creditor does not respond within 30 days, the repository...

Refinance and invest the proceeds

Promoters of every type of cockeyed scheme and speculation claim to offer investment opportunities. Peddlers of financial products, purveyors of financial services, pandering politicians, and even car dealers tell us to buy what they are selling because they offer us a good investment. Commodities, jewelry, condo timeshares, baseball cards, and old Mason jars all are marketed as worthy investments. Even luxury goods i.e., wealth-destroying extravagances such as 5,000 wristwatches and 80,000...

Table Total Equity Buildup Appreciation Years

Purchase price 171,000 220,000 Appreciated value 5 p.a. 219,393 282,260 Mortgage balance 5 years 114,498 187,201 Total equity 104,895 95,059 8 percent annual appreciation rate before the 30-year mortgage actually gave you a larger equity after five years. Common advice says buy the most expensive property you can afford and you will build wealth faster through leverage and appreciation. But this advice can err. For many borrowers in many cities, the 15-year term, even on a lower-priced property...

Local governments assist with down payments

In Oakland, California, several years back, Lynne Jerome and her husband Brian Conan had for years wanted to become homeowners. But they could never put together enough for a down payment.1 We tried, says Lynne, but it was always out of our reach. With Lynne studying for a graduate degree and Brian's work as a truck driver, their family income didn't go far in the expensive California housing market. We always paid a lot of money for rent each month, says Lynne, probably comparable to a...

Cut the cost of PMI by learning where rates break

Private mortgage insurance can add other costs to your monthly payment when you finance with little or nothing down. Mortgage insurers, however, do not charge all borrowers the same amount of premium. Instead, they use risk-adjusted pricing. In a manner similar to the way lenders risk-adjust interest rates, conditions, and terms, mortgage insurers vary their premiums according to risk factors such as Borrowers' financial profile such as net worth, cash reserves, job stability, and so on For...

The USDA offers a prime choice for low to moderateincome homebuyers

I'd like to write to the president about expanding this program, says Tom Dixon of Catawba County, North Carolina. In referring to the United States Department of Agriculture's Rural Development Administration mortgage, Tom enthuses that, It's a great program . . . this loan can get people into their own houses. This loan makes a tremendous difference to their lives. Under this program, anyone who has a steady job and good credit can afford a house. That's the wonderful thing about this loan....

Refuse to yield to oversized yieldspread premiums YSPs

Most mortgage originators want to sell you a loan to earn a commission. No loans, no paycheck. Plus, loan reps earn their highest commissions when they sell you higher-cost loan products. If your loan rep says, The best I can do is a rate of 6.25 percent and 2 points, don't accept that claim as the gospel truth. Just like a car salesperson or any other type of salesperson , the loan rep may be testing you. If you agree, great. If you balk, the rep can say, Oh, wait a minute, I've just thought...

Multiple Borrowers Multiple Scores

Even when you and your spouse co-borrower show more than adequate income to buy and finance a property, both borrowers often need credit scores or explanations that surpass lender standards. Without meeting this requirement, the lower-score borrower might have to withdraw as a co-borrower. The lender will then limit the loan amount to the qualifying capacity of the higher-score borrower. You can work around this problem. Buy a two- or four-unit property, or a home with an accessory apartment,...

Buying Subject to Assuming Without Consent

Again notice that the wording of Paragraph No. 18 does not stop the owners from selling a mortgaged property to anyone they choose to. Nor in such sales does it require the sellers or the buyers to pay off the loan. The due on sale clause merely gives the lender the right or option to call the loan due. Sometimes when buyers and sellers believe that a lender won't allow an assumption, they complete the sale and never inform the lender that the owner has sold the property. The buyer then makes...

HUD may hold the keys to your home or investment property

Each year, FHA insures hundreds of thousands of new mortgage loans. The total number of these outstanding FHA mortgages runs into the millions. When FHA borrowers fail to repay their lenders as scheduled absent a successful workout , the owner of the mortgage will force the property into a foreclosure sale. Then speaking generally the lender turns in a claim to HUD FHA's parent . HUD pays the lender the amount due under its mortgage insurance coverage and acquires the foreclosed property. HUD...

Pledged Retirement Accounts

In terms of popularity, Elmer Frank adds, Retirement accounts have become one of the most frequent sources of pledged collateral for our firsttime buyers. We don't even require that the account belong to the buyers. We'll accept funds from any close family member. On no-down-payment mortgages, we usually like to see 30 percent, but for good customers, we've gone as low as 20 percent. In other words, Elmer continues, we'll give buyers a no-down-payment, 100 percent loan, if, say, those buyers or...

Index

Accessory apartments, 41-42, 262 Adjustable rate mortgage ARM , 51-54 Alternative documentation, 100 Appraised value, 198-200 Appreciation, 229 APRs annual percentage rates , 94-96, 190-191 ARM adjustments, 92 ARM affordability, 77 ARM assumables, 57 ARM baseline, 92 ARM caps, 92-93 ARM conversions, 93-94 ARM index, 88-90 ARM margin, 91-92 ARM risks, 73-74 Assumable mortgage, 54-57, 79-80, 144, 153, 177, 196-198 Automated underwriting, 4-5 Bait and switch, 85, 209 Balloon mortgage, 155-156...

You can make your qualifying ratios look better

For many but not all loans, lenders judge your borrowing power through their use of two qualifying ratios the housing cost front ratio, and the total debt back ratio. Both the housing cost ratio and the total debt ratio give lenders a way to measure whether your income looks like it's large enough to cover your mortgage payments, monthly debts, and other living expenses see examples below . Run-of-the-mill loan reps will merely plug your financial data into their AU program. Savvy loan reps...

Never buy biweekly baloney

After closing a mortgage, some lenders go back to their borrowers to extract even more money. Preying on their borrowers' inability to perform compound interest calculations, these lenders promise to prepare a new early payoff system that will permit their borrowers to save thousands in interest for a small fee of just 395. Under these plans you pay 50 percent of your scheduled monthly payment 26 times a year biweekly instead of the full payment 12 times a year. Mortgage Secrets calls this type...

Second Mortgage Specialists

When possible, get sellers to carry back financing. But if the sellers cannot or will not assist with seller financing, turn to a lender who offers second mortgages. Here's what Eagle Mortgage says in a promotional brochure that this company mails to Realtors If you knew how to lower the monthly payments on a property purchase for your A credit buyers, while helping them build equity faster would you be interested enough to listen what if you could help your marginal B and C credit customers...

Avoid the bang of a bursting balloon

Sellers who agree to carry back a second mortgage frequently insist on a payoff term of seven years or less. Some sellers want their money the sooner the better. From your view, a short-term second mortgage usually won't make much sense. The short term sends the monthly payments too high. But here's how to solve this problem. It's called a balloon mortgage. When you use a balloon mortgage, you make monthly payments and then pay the outstanding balance after maybe five or seven years. Say the...

Use pledged collateral to eliminate PMI

If you don't have enough money for a big down payment, and you can't or don't want to buy mortgage insurance or obtain a second mortgage, you've got another possibility. It's called pledged collateral. We don't care where the collateral comes from, says Elmer Frank of First American Savings. As long as we feel secure, we'll consider the loan. We've taken stocks, bonds, mortgages, retirement accounts, and once a Mercedes 300 SL Gullwing. We did, though, refuse to accept a racehorse.

Save s with a Mortgage Credit Certificate MCC

The mortgage credit certificate MCC can shave 1,000s off the cost of home financing. This tax credit is available in about 25 states. Although an MCC doesn't directly reduce your interest rate, it does help you qualify for a larger mortgage with lower payments by cutting thousands of dollars off your income tax bill. State and local housing finance agencies cooperate to sponsor MCC programs with selected mortgage lenders. An ad for the Massachusetts American Dream MCC first-time buyer mortgage...

Some Teasers Bait the Hook to Catch the Gullible and Desperate

As standard operating procedure, lenders advertise enticing ARM rates or monthly payments to make their phones ring. In response to such an ad for a 2.95 percent ARM, I called the lender. As it turned out, the loan did guarantee that I would pay the 2.95 percent interest rate during the first year. However, the mortgage was attached to the following gotchas. Negative amortization If the underlying index for the loan went up during that first year, the extra amounts owed would add to the...

Lift your qualifying income

We previously assumed that your qualifying income totaled 7,000 a month. That was simple. In the real world, lenders qualify you according to a variety of actual and potential income sources such as Rents received from rental units you own or are buying Look through this list. Is your total income set precisely Consider overtime, bonuses, commissions, self-employment, and tips. Over months or years, these amounts could jump up or down. Or think about unemployment insurance. How could someone...

Lenders set their own standards

Some loan advisors claim that the big national mortgage companies, Fannie Mae and Freddie Mac, set underwriting standards for nearly all mortgage loans. Fannie and Freddie actually account for less than 40 percent of the residential real estate financing issued throughout the United States. A big number, yes, but hardly all-powerful. Moreover, Fannie and Freddie do not perfectly mirror each other. Both Fannie and Freddie publish underwriting guidelines, not edicts.1 Lenders who sell loans to...

Use compensating factors to justify higher qualifying ratios

In this age of automated underwriting, some loan reps forget that the qualifying guidelines within their software programs do not rule absolutely. If you fail some standard loan rule, you can still gain mortgage approval if you stress your compensating factors. What types of compensating factors will lenders consider Virtually anything positive that reasonably demonstrates that you will faithfully pay your monthly obligations. Here are a dozen examples 1. Your rent payments equal or exceed the...