A false sense of equity

With so many Americans living with a false sense of security (so-called home equity), it's no wonder that increased expenditure to an all time high. When it's not print, a home loan of equity, to pay credit card debt way is you, it is the pressure of the big kid toys as boats to cars and oversized electronics. But what does this additional expenditure? Part - inflated values at home - against their equity to borrow money in which House and homeowners. The problem is in some areas of the country, "Bloating" the value of the equity in their homes is due to a temporary. This equity used to retire as security are considered, but more and more people watching their equity dwindle away to experience increasing debt on their home and payments that extend in your golden years during which. In a world where reality TV is a new form of entertainment, it's like a high stakes game of "reality monopoly" watch.

Here is just a quick example, I was able to testify in my life: a home was around 1970 prices range from $40 k, and bought a 30-year mortgage with a monthly payment of around $80. By the mid-1990s that was home almost paid off, but the car was always old. The logical solution seemed most take a home equity loan and buy a new car. Why not - was it always an increasingly popular way of obtaining the things which would otherwise not affordable. Some years later, then an expensive machine sew an another new car, and finally - a cruise with friends.Today - home is valued around $300 k and the total monthly payment is a savings in the range of $700.Keiner from the more extreme examples, but a great example of the way home and homeowners show your home equity rather than a current account.

Were Credit Unions Bailed Out?

For a while, credit unions could do no wrong.
Regulators recently stepped in to bolster credit unions as a result of losses from subprime mortgages.? Critics quickly called the move a bailout, putting credit unions in the same camp as mean old-fashioned banks.? Credit union supporters, on their heels, argue that it's not a bailout.
Whatever you want to call it (and however you define a bailout), nobody's happy.? The impeccable image of credit unions has diminished, and we're back to more finger-pointing.? So does it matter to credit union customers?
Most credit union members will not notice any changes.? Insured funds are just as safe as before.? However, credit unions (like banks) will have to pay more for insurance going forward, so it will be harder for them to offer the best rate

Family Loan

Borrowers sometimes find that a family loan is the best option. What does it take to set up a family loan properly? You have to consider financial and personal topics to make sure the loan does not become a nightmare.
A family loan is any loan between family members. It doesn’t matter what the money is for. It’s just a loan that does not use a bank or other traditional lender.

To properly design a family loan, the deal must make financial sense. It should be: A good deal for the borrower A good deal for the lender Compliant with local laws and tax laws If you start with the goal of a win/win situation, your family loan has a better shot at success.

Forgiving loan balances or payments, and charging too little interest on a family loan can create problems. Make sure you consult with a tax expert to see if your loan follows all the rules. Lenders generally have to charge at least the Applicable Federal Rate (AFR), and follow other requirements.

A family loan is more than a business transaction. Since you know the other party, you should be aware that personal issues make the deal more complicated. Relationships can end on a sour note, holidays can be awkward, and others (who were not part of the deal) can end up in a tough situation if a family loan goes bad.

To reduce the likelihood of problems, be open about everything. There’s no such thing as being too precise or clear about your objectives. Double check with your family members to ensure they see things the same way you do.

Some people say that these loans are always a bad idea. They suggest that you give the money to the family member, or find another way to help them indirectly. Consider all the possibilities before making a family loan.
Another suggestion is that lenders should be prepared to lose money on the deal. If you’re not willing to risk kissing that money goodbye, a family loan is a bad idea unless you have collateral.
The best way to do a family loan is with a formal document. Spell out the terms of the loan just like a bank would. If any collateral is used, be sure the document is sufficient to secure the lender’s interest (work with an attorney to make sure documents will work in your state).
Good documentation keeps everybody on the same page. You can find sample documents online, purchase loan agreements specific to your needs, or pay a service provider to formalize your family loan for you.
If you want help with a family loan, there are several services that provide documentation, legal matters, and payments. 

Setting up a family loan is a big deal. Make sure you watch out for some common pitfalls before you move forward.

How to Calculate Loans

When getting a loan, it helps to calculate loan payments and costs. Use that information to compare loans and determine which one fits your needs. You can calculate loans yourself using formulas, or use an online calculator. Learn your options and how to calculate loan specifics.

Why should you calculate loans on your own? You’ll learn a lot about what you’re getting into. When you calculate loan payments, costs, and payoff schedules, you understand how much it really costs to borrow. You can change the ingredients of the loan calculations and run ‘what if’ scenarios.

A common first step is to calculate loan payments. It’s important to know how much you’ll need to come up with each month (or quarter, or other period). To calculate loan payments, you’ll need to know a few things about your loan: the loan amount, interest rate, and length of repayment. Play with the numbers as you calculate loan payments to see how changing one of the ingredients changes the outcome.

When you borrow money, you pay interest and/or fees. If it’s not clear what the costs are, you can calculate loan costs on your own. The loan with the lowest interest rate, fee, or APR is not always the best one. Use those numbers along with an understanding of how you’ll use the loan to pick the best one. A rule of thumb is that high transaction fees do less damage for loans that last a long time.

Unless you have an interest only loan, you’ll pay off your loan a gradually with each payment. That payoff process is called amortization. You should calculate loan amortization to see how much you’ll pay off after a given amount of time. It may surprise you to see that your first few payments are mostly applied to interest - they barely reduce your loan balance.

If you really want to work with the nuts and bolts, you can calculate loan components with a spreadsheet. This allows you to easily run ‘what if’ scenarios by changing only one cell of the spreadsheet. The pages below are designed to calculate loans like mortgages, but you can customize and adjust for other loan types as well.

Mortgage

Definition: A mortgage is an agreement to give up an interest in something if you fail to perform some duty. In many cases, it means that you'll give up your home if you fail to repay your home loan as agreed. You can use mortgage as a verb, meaning "to pledge".

Mortgage and "home loan" are often used interchangeably. However, the mortgage is really the agreement that makes your home loan work -- the bank wouldn't lend you hundreds of thousands of dollars unless they knew they could claim your home in the event of your default.

 

No Closing Cost Refinance

Definition: A no closing cost refinance is a transaction where you refinance without paying closing costs. A refinance happens when your new loan pays off and replaces an old loan. A no closing cost refinance means that you avoid paying up-front closing costs when you complete the transaction.

While they sound attractive, no closing cost refinances are not always your best bet. By avoiding closing costs today, you might set yourself up for higher overall expenses over time. To understand the tradeoffs, learn the basics of no closing cost loans.

If you’re going to use a no closing cost refinance, make sure it makes sense. Generally, no closing cost refinances make the most sense when: You won’t keep the loan for very long Interest rates are expected to drop You plan to refinance or sell the property soon Also Known As: No closing cost mortgage, no closing cost refinancing.

Mortgage Refinancing

Mortgage refinancing is an important move. You can save a lot of money or make an expensive mistake. If you’re considering mortgage refinancing, arm yourself with knowledge. Let’s review the basics and what you need to do to prepare.

A mortgage refinancing transaction happens when you swap out an old loan for a new (ideally better) one. You pay off the old loan with the proceeds of a new one.

By refinancing, you can improve your financial situation. In particular, you can: Lower monthly payment Lower lifetime interest costs Reduce risk Get cash out for other purposes Consolidate debt and possibly get tax benefits

Of course, mortgage refinancing is not free. You’ll pay fees to your new lender to compensate them for offering the loan. You may also pay for legal documents and filings, credit checks, appraisals, and more.

Even if a loan is advertised as a "no closing cost" loan, you’re paying those fees. Generally this happens through a higher interest rate.

You need to weigh the pros and cons of your old mortgage and a new mortgage to decide. In general, mortgage refinancing is a good move when you can save money by locking in a lower interest rate or payment, shorten your loan term, or restructure debt optimally.

Once you understand the costs, evaluate how much you’ll save over time and how long it will take to recoup any up-front costs associated with mortgage refinancing. Will you keep the loan (or live in the home) long enough to make it worthwhile?

Mortgage refinancing is a good idea when you’ll truly benefit from a new loan. Some clues that it might be a good idea are: Interest rates are low Your credit has improved since you got your first loan You will keep the loan for a long time You can avoid getting stung by a high risk mortgage You can get an amortizing loan instead of an interest only loan

You should avoid refinancing your mortgage if you’ll waste money and increase risk. Sometimes having a lower interest rate and monthly payment can cost more in the long run - even if they help you today. You also need to be sure you can recoup all the mortgage refinancing fees before you pull the trigger.

Comparing APR - Mistakes

When you see a loan’s APR, you assume that the loan will be paid off over its entire lifetime. For example, the APR on a 30 year loan is calculated with the assumption that you’ll keep the loan for 30 years. In reality, most people do not keep their loans alive that long. 7 years or so is more like it.

If you pay off a 30 year loan after 7 years, APR will lead you down the wrong path. You’ll see lower APRs on loans with high up-front fees and lower interest rates. Unfortunately, you won’t be able to spread the up-front costs you paid over very many years.

If you pay your loan off early, the actual APR is higher than what you see quoted. APR is most useful if you plan to keep the loan forever.

Make the most of your money despite troubling financial times.

Second Mortgages

When you need money, sometimes a second mortgage is the answer. Second mortgages serve a variety of purposes, and are described with various names. This page is a basic overview of second mortgages, how they are used, and disadvantages of second mortgages. You may be familiar with a plan-vanilla mortgage, so what’s a second mortgage? It’s simply another mortgage on your home – a loan secured against the property. The term “second” indicates that the loan does not have priority on your home in case you default. Instead, your first mortgage has priority and would be paid before any funds go towards the second mortgage.

Why would somebody risk their home with a second mortgage? These types of loans are appropriate for times when you need a lot of money. You may not have unlimited credit on your credit cards, and finding the cash just lying around is difficult.

Where is there a lot of equity or value? In the home. By borrowing against a home, borrowers can get bigger loans. In addition, second mortgages may allow for bigger loans because the lender considers a loan against the home to be safer.

Some common uses for second mortgages are:

Some people use second mortgages for other uses – and sometimes they are not wise uses. It can be tempting to tap a large source of money with a second mortgage, but you have to remember that you’re borrowing against your home. In some cases, a second mortgage is the only way to pay for a need.

The main disadvantage with second mortgages is that you are risking your home by using one. This is a serious risk: if you can’t pay the loan back, a second mortgage can be catastrophic. Make sure that your intended use of funds is worth the risk you’re taking by using a second mortgage.

Another drawback is that second mortgages have slightly higher rates than senior mortgage rates. This is because the second mortgage won’t be paid until the first one is (in the event of a default). Because the loan is riskier than a plain-vanilla mortgage, the rate is higher. However, the rate may be lower than alternative sources like credit cards.

Finally, you may have to pay hefty second mortgage fees. There are a lot of hoops to jump through and services to pay for. Depending on how much you need and how long you’ll need it, a second mortgage may not work simply because of the fees.

You can find a second mortgage almost anywhere. These are big-ticket loans that lenders love. A good start is to shop a second mortgage with an institution you’re already working with – like your existing bank or credit union. Or, you can try to get your second mortgage from the lender that has your primary mortgage. This way, you can hopefully save a few bucks on fees.

Make the most of your money despite troubling financial times.

Home Equity Loan Tax Deduction

One nice feature of home equity loans is that borrowers may get a tax deduction on interest paid for the loan. Before you try this, you should understand that the tax deduction is not unlimited. This page explains how the tax deduction really works.

Taxpayers can claim a deduction on interest paid on a loan secured by their first or second home. Most home equity loans fall into this category, but borrowers can get confused if they have multiple “second” homes or mortgages in excess of a home’s value. For details on how a home might qualify, see IRS Publication 936sSection 1.

This goes without saying, but the advantage is that you save money. For example, you may use a home equity loan as part of a debt consolidation program. Suddenly, the interest you pay becomes tax deductible – not just an expense. Of course, you still have to make the debt go away. If you run the numbers this can work out in your favor.

The interest deduction from your home equity loan is not unlimited. You can generally deduct interest you pay on the first $100,000 of a home equity loan. After that, it depends. If the home equity loan was used to improve your first or second home – or to purchase a second home – you can probably take the deduction on an amount up to $1 million or the value of the home. IRS Publication 936 Section 2 contains more detail.

As far as the alternative minimum tax (AMT) goes, your home equity loan deductions will only help you if you used the money for home improvements.

Tax laws are complex and they change often. If you’re thinking about taking a mortgage interest deduction, make sure it’s legal. The IRS Website irs websites is really pretty helpful. In addition, it’s probably worth the modest expense of visiting with a good local tax advisor just to make sure. Make your money despite troubling financial times.

Home Equity Loans

Home equity loans allow a homeowner to borrow money by pledging the house as collateral. Borrowers who want to borrow a relatively large amount of money or who don’t have good credit often find the home equity loan to be attractive. A home equity loan is a type of second mortgage, not to be confused with a home equity line of credit.

Lenders may be more liberal because they view home equity loans as relatively safe. You can’t disappear with your house or hide it if you default on your loan, so the lender has a good chance of collecting the collateral. Also, you are likely to make your payments a priority if your home is on the line.

Advantages of Home Equity Loans

Home equity loans are attractive to borrowers for a few main reasons: They typically have a lower interest rate (or APR) They are easier to qualify for if you have bad credit Payments on a home equity loan may be tax deductible Borrowers can get relatively large loans with this type of loan

Common Home Equity Loan Uses

Borrowers use home equity loans for some of life’s larger expenses, because homes tend to have a lot of value to borrow against. For example, you find that a lot of borrowers want to Remodel or renovate the house Pay for a family member’s college education Finance the purchase of a second home Consolidate  high-interest debts

Pitfalls of Home Equity Loans

Before using a home equity loan for any purpose, you should be aware of the pitfalls of these loans. The main thing is that you can lose your home if you fail to meet the payment schedule required by the loan.

Another common pitfall of home equity loans is that scammers have found plenty of ways to cheat homeowners out of their most valuable asset. Be sure that you know who you’re doing business with. If something smells fishy (like a high-pressure sales pitch or an inability to put things in writing), then take a step back and make sure the deal is legitimate.

How to Find the Best Home Equity Loans

Finding the best home equity loan can save you thousands of dollars – at least. In order to get the best loan, I recommend that you: Shop around. Try a variety of sources (banks, brokers, and credit unions) Manage your credit score and make sure your credit reports are accurate Ask your network of friends and family who they recommend Compare your offers to those found on websites and advertisements

Additional Home Equity Loan Tips

To make the deal work out in your best interest, make sure that it is the right deal in the first place. Is a home equity loan a better fit for your needs than a simple credit card account? If you’re not sure, figure it out before you put your home at risk.

Plan out your budget ahead of time. Make sure that taking the loan will not overburden you.

Review and consider insurance to cover the payments if something happens. You may or may not need insurance. If you’re going to include it in your program, try to pay the premiums monthly – not up front.

Loan Payment Calculation

How much will you have to pay for a loan? A loan payment calculation gives you the answer you need. If you just want the answer, use our free online calculator. If you’d rather run the numbers yourself, this loan payment calculation formula shows you how.
Before you start, you need to know what type of loan you’re using. Loan payment calculations are only correct if your inputs are correct. Some loans are interest only loans, where you don’t pay off the loan - you only 'service' it by paying interest. Other loans are amortizing loans, where you pay off the loan balance over time.

If you don’t want to do loan payment calculations manually, use one of these calculators:
Any loan payment calculations you do on your own or with an online calculator should be considered rough estimates. Your lender may use different numbers based on different assumptions.
To do loan payment calculations on your own, use the formula below.

Loan Payment = Amount / Discount Factor
or
P = A / D

You’ll need the following values of the loan payment calculation: Number of Periodic Payments (n) = Payments per year times number of years Periodic Interest Rate (i) = Annual rate divided by number of payments per Discount Factor (D) = [(1 + i) ^n - 1] / [i(1 + i)^n]

Assume you borrow $100,000 at 6% for 30 years to be repaid monthly. What is the monthly payment? n = 360 (30 years times 12 monthly payments per year) i = .005 (6% expressed as .06 divided by 12 payments per year) D = 166.7916 ([(1+.005)^360] / [.005(1+.005)^360]) P = A / D = 100,000 / 166.7916 = 599.55 .

The loan payment calculation for an interest only loan is easier. Multiply the amount you borrow by the annual interest rate. Then divide by the number of payments per year.

Example (using the same loan as above): $100,000 times .06 = $6,000 per year of interest. 6000 divided by 12 equals $500 monthly payments.

Mortgage Loan Calculators

Mortgage loan calculators help you understand your loan. This page covers several mortgage loan calculators for different types of mortgages, and different pieces of your mortgage. By running the numbers yourself, you can understand what you’re getting into. Use these mortgage loan calculators to educate yourself, save time, and get the best deal.

Types of Mortgages

Most mortgage loan calculators can help with two types of mortgages: fixed rate mortgages and interest only mortgages. A fixed rate mortgage gets paid-down (or amortized) over time, so you’ll want to get an amortization schedule along with payment calculations. The mortgage loan calculators below will help you with most mortgages:

Most mortgage loan calculators are not capable of handling exotic high risk mortgages. There are too many moving parts.

Closing Costs

When you get a mortgage, you always pay. Most people know that they’re paying interest, but you might also pay closing costs. Even if you don’t pay fees for closing costs you’re paying them - they’re just hidden by a higher interest rate.

To compare loans, use a mortgage loan calculator that computes Annual Percentage Rate (APR). Keep in mind that you don’t always win by choosing the lowest APR.

How Much to Borrow

You should also use mortgage loan calculators to determine how much you can borrow. Lenders don’t want you to get overextended. Start with one of the mortgage loan calculators above to calculate your monthly payment, then figure out if your income will support the payments. If you don’t have sufficient income, you won’t get the loan.

Home Equity

Finally, get an idea of how much you’re borrowing relative to your home’s value. You can generally borrow up to about 80% of your home’s value. Sometimes you can get away with more, and sometimes you’re limited to less. The bank decides how much risk they’re willing to take and limits your loan to value ratio accordingly.

Do it Yourself

You don't have to use a pre-built mortgage loan calculator. You can build your own models with a spreadsheet, or even do the math by hand. To get some ideas, see How to Calculate Mortgage Payments.

Once you get a handle on all of the factors above, you should run several what-if scenarios with a mortgage loan calculator. Compare quotes from a variety of lenders, and pick the best deal.

Debt Consolidation Programs

Readers are always asking about debt consolidation programs. What are they and what do you need to know about them?
Debt consolidation programs are usually just a big loan that pays off other smaller loans. They can be very beneficial to borrowers, but these programs also have their pitfalls.

When to Use Debt Consolidation Programs

Debt consolidation programs are good for a few situations. If you are paying several different loans off, your life may be easier if you consolidate everything into one loan. You’ll only get one monthly statement and make one payment.

Also, you’ll find that your monthly debt payments decrease if you use a debt consolidation program that stretches your payments out over a longer period of time. This means that you’ll pay out less each month and you can free up some cash.

A tempting (and sometimes successful) strategy is to use a debt consolidation program to manage various high-rate revolving debts. As an example, you might have numerous credit card balances with high interest rates. With a debt consolidation program, you might be able to get a handle on that debt and lower the interest rate (APR) that you’re paying. In general, credit cards have higher rates and secured loans (such as home equity loans) have lower rates.

Things to Remember About Debt Consolidation Programs

Using debt consolidation programs can help you or hurt you. You should be very aware that all these programs do is shift your debt – a debt consolidation program does not eliminate your debt. You owe the money and will have to pay it back sooner or later.

One pitfall of a debt consolidation program is that you may feel like you have less outstanding debt. For example, you’ll notice that your credit cards once again have generous amounts of available credit. If you use this credit you’ll only dig yourself into a deeper hole.

You should also be aware that you may end up paying more total interest if you use a debt consolidation loan. If you stretch out your payments over a longer period of time, it is possible that your total interest cost will be higher. Of course, it may be worth it to you if you can more easily manage your cash flow today.

Finally, remember what you’re risking by using one of these programs. Often, you’ll use a home equity loan or a home equity line of credit to consolidate your debt. The consequences of falling off the payment schedule can include the loss of your home in some cases. Credit card companies can’t take your home. However, if you pledge your home as collateral in a debt consolidation program then your house is fair game for a foreclosure.

How to Find the Best Debt Consolidation Programs

There are a variety of choices, and you should shop around to find one that fits your needs. If you need some ideas on where to start, try this plan: Local credit unions or banks that you already have a relationship with. These are reliable sources that are likely to give you a fair deal. Banks that you don’t already have a relationship with. They might offer you a good deal in order to win your business. Borrow at Person to Person lending sites Mailers offering debt consolidation programs. These lenders already want your business – they’ve mailed you an offer because something about you fits into their desired profile. Only work with a reputable institution that you know you can trust -- some junk mail can get you into a bad deal. If you've never heard of them, watch out. An internet search for “debt consolidation”. Just be extra careful with anything you find. In addition to shopping around, you can ensure that you get the best deal by managing your credit. Loans are hardest to get when you need them the most. Manage your credit, and make sure your credit scores are as high as they can be.

Private Party Loans

Private party loans are loans between individuals. Instead of using a bank or finance company, you agree on loan terms and work together. Some private party loans are a great deal for all involved, with better terms than the bank offers. Sometimes, private party loans are the only option for borrowers with bad credit.

Where can you use a private party loan? Just about anywhere. The bank is always an option, but you should check out alternatives. Private party loans have been used for auto loans, but they’re also useful for home loans, personal loans, business funding, and more.

Sometimes private party loans create a win-win situation: great for lenders (who earn more than they can at the bank) and borrowers (who pay less interest than they would at the bank). When borrowers have poor credit, private party loans may be the only option available, although they may come with higher rates.

There are basically two ways to find private party loans: peer to peer lending services and people you know. To borrow from strangers, visit a peer to peer lending site and apply for a loan. Even if you set up a private party loan with somebody you know, these sites may help with loan documentation and servicing.

Documentation is a key to any private party loan. Make sure everything is spelled out in writing, and everybody understands and agrees. While it may seem overly formal, documentation can prevent headaches and heartbreaks in the future.

To document your private party loan, write an agreement or use somebody else’s. For larger loans, it’s probably best to use a professionally prepared agreement - a lot can go wrong, and good loan agreements anticipate pitfalls.

For private party loan documents, search the web, work with a local attorney, or use a peer to peer lending service. For example, Virgin Money sells agreements and even processes payments on mortgages and other private party loans.

How to Calculate Loans

When getting a loan, it helps to calculate loan payments and costs. Use that information to compare loans and determine which one fits your needs. You can calculate loans yourself using formulas, or use an online calculator. Learn your options and how to calculate loan specifics.

Why should you calculate loans on your own? You’ll learn a lot about what you’re getting into. When you calculate loan payments, costs, and payoff schedules, you understand how much it really costs to borrow. You can change the ingredients of the loan calculations and run ‘what if’ scenarios.

A common first step is to calculate loan payments. It’s important to know how much you’ll need to come up with each month (or quarter, or other period). To calculate loan payments, you’ll need to know a few things about your loan: the loan amount, interest rate, and length of repayment. Play with the numbers as you calculate loan payments to see how changing one of the ingredients changes the outcome.

When you borrow money, you pay interest and/or fees. If it’s not clear what the costs are, you can calculate loan costs on your own. The loan with the lowest interest rate, fee, or APR is not always the best one. Use those numbers along with an understanding of how you’ll use the loan to pick the best one. A rule of thumb is that high transaction fees do less damage for loans that last a long time.

Unless you have an interest only loan, you’ll pay off your loan a gradually with each payment. That payoff process is called amortization. You should calculate loan amortization to see how much you’ll pay off after a given amount of time. It may surprise you to see that your first few payments are mostly applied to interest - they barely reduce your loan balance.

If you really want to work with the nuts and bolts, you can calculate loan components with a spreadsheet. This allows you to easily run ‘what if’ scenarios by changing only one cell of the spreadsheet. The pages below are designed to calculate loans like mortgages, but you can customize and adjust for other loan types as well.

First Time Home Buyer Loans

First time home buyer loans allow buyers to get into a house more easily. However, just because you’re a first time home buyer doesn’t mean you should use a first time home buyer loan. These programs have restrictions and strings attached. While they are a perfect fit for some, first time home buyer loans are the wrong choice for others.

A person’s first home purchase is a big deal. It takes time, energy, and money. To help with the money hurdle, some people use first time home buyer loans. These programs vary depending on where they’re offered, but the general idea is this: first time home buyer loans give financial assistance to qualified borrowers. They may do this in the following ways:
Note that first time home buyer loans available to you might offer any or none of the benefits listed above. You should research first time home buyer loans available in your area.
As you might imagine, individuals who have never owned a home are good candidates. In addition, some programs offer first time home buyer loans to people who have not found a home within the last three years. Again, check to see what’s available to you.

You may have to meet certain income restrictions to qualify for a subsidized first time home buyer loan. In general, these programs try to limit benefits to people with low and moderate income levels. If you earn too much, you won’t qualify for the program.

Most programs put a dollar limit on the property you’re buying. You probably can’t use a first time home buyer loan to buy the more expensive properties in your area. Instead, you’ll be limited to properties on the lower end of the spectrum. Again, the idea is to benefit people who have the most need.

You also have to live in the home as your primary residence. If you're going to rent the place out, don’t use the first time home buyer loan. Finally, the home you buy most likely has to meet some physical requirements. It must be in good condition and free from any safety hazards (such as lead-based paint, for example).

For some first time home buyers, these programs are perfect. They open the door to home ownership where a family would not have been able to buy a home. Communities also benefit from first time home buyer loans – homeowners take care of their property, get involved, and contribute to the economy. Nevertheless, first time home buyer loans can be the wrong choice in some cases.

With a subsidized first time home buyer loan, you face some challenges: Lower value home may not be the home you want You might lose some of the benefits of the program if you sell your home too soon You may have to pay recapture tax for some of the benefits you received You may be limited to a short list of loan types (only 30 year fixed rate mortgages for example) You may have to share increased home values with the program

. With a FICO credit score above 720, you probably won’t see an advantage with the subsidized first time home buyer loan. Once you get below 680, the subsidized program will start to look better. These days, you can get traditional mortgages or FHA loans with very little down.

The best thing to do is to explore all your options. Take a look at what your traditional mortgage lender is offering, and compare it to the subsidized first time home buyer loans. Once you see how the numbers compare, consider the cost of flexibility.

Types of Mortgage Fraud - Raising Awareness

There are many types of mortgage fraud, but to raise awareness about this extremely rampant crime - we all need to be aware of the different types of fraud that are used. As one of our readers pointed out, there are FBI agents that are currently pursuing individuals and groups who are not only committing crimes with full intention of defrauding their customers, but they are also actively investigating common documentation "errors" that can be construed as mortgage fraud.
While not all mortgage professionals are intentionally participating in criminal activity, the only way to stop the "mistakes" that can lead to criminal prosecution is to become truly educated in the mortgage process, and make sure that all the documentation is correct and complete. It is extremely important that the lender or broker provide copies of ALL documentation.
As a consumer, the best protection that you can give yourself is education. Read all documentation BEFORE you sign. Don't just trust that your mortgage broker or lender is going to be completely honest with you. Remember - their paycheck depends on the outcome of the transaction. If you feel uncomfortable, don't give in to pressure, you must feel comfortable with every aspect of the purchase, and may even be in your best interest to have an attorney go over the documents before you sign. If you are put into a position in which you do feel overly pressured, there may be a problem - there may be a hidden agenda that is in the works, and you have every right to take some extra time to read through the disclosures and the documents that you are signing. The key is education - so if you don't understand something, ask questions until you do.

Using Home Equity to Pay Off Credit Debt

Many homeowners around the world are turning to home equity loans, and home equity lines of credit, and even their IRAs and 401(K) funds to decrease or eliminate their credit card debt. Partly fueled by the recent growth in home equity and home values, partially due to lower interest rates on home loans, thousands of people per day are shifting their debt from their cards to their homes. While in some cases this can be beneficial, there are some very real hidden dangers to be aware of when chosing an option that involves taking from your home equity.

One thing that many borrowers are not aware of - or are chosing to ignore - is the definite possibility of homes in your area experiencing a "leveling off" of home values. While over the past few years the equity seemed to grow at an unreasonable rate - without much effort on the part of the borrower, that same equity could essentially disappear just as quickly. In addition to leveling home values, most ARMs are scheduled to begin to reset as early as 2007, and many homeowners will find themselves with a much higher monthly mortgage payment. For those who have a large enough monthly income to compensate for the higher payments, the jump in interest rates may not have as severe of an effect. But most borrowers will experience payment shock - even without adding in the credit card debt, and have a hard time with the monthly payments.

If a borrower has a low monthly payment now, and a higher than normal property value - it can cause a false sense of security, and lead to choices that would not otherwise be made based on the equity in the home. One of the most important thing to remember, is that there are collectors paid to collect on the credit card debt, and by not making the monthly payments on the debt - you could have your cards taken away. When you struggle to pay your monthly mortgage payments, the price is much higher - you could eventually lose your home. Taking the extreme risk of paying off credit card debt may seem like a wise decision due to the difference in interest rates between credit cards and mortgages, but weighing your options as well as the risks may save your home. And the biggest danger of all?? Most Americans who use their home equity to pay off their credit card debt refuse to change their habits and lifestyles, and actually see their zero-balance cards as an invitation to go shopping - perpetuating the cycle. However, in this cycle, there is one detrimental factor - home values will probably not continue to experience the rise, leaving the borrower with very few recovery options for the future.

National Mortgage Regulation System As Soon As 2008

The National Association of Securities Dealers, Inc. and the Conference of State Bank Supervisors have entered into an agreement to develop a nationwide licensing system for state residential mortgage regulators. This 18-month effort, which involves CSBS, the American Association of Residential Mortgage Regulators and the industry to develop uniform mortgage licensing applications that would be used by each state mortgage regulator. Industry leaders are hoping that the system will lead to benefits from access to a national licensing and enforcement repository, and will likely be the result of the uniform application process and produce more closely related regulations throughout the states.
There are quite a few industry skeptics with growing concerns about how such a system will be implemented, but there are a few states that are currently testing the forms for new license applications. We could be seeing this new system available as early as January 2008, and so far a total of 30 state agencies have agreed to participate in the system. An online mortgage banking compliance service, iComply, suggests that careful consideration should be taken when deciding what information will go into the new system. A pilot program was tested in Illinois, in which implementation issues were much more dificult than anyone anticipated.

The Dangers of 125% Financing

There are two main factors that determine how much equity you have in a home: The value of the home, and the amount owed on the home. In other words, if you have a property that is valued at $250,000 and a mortgage loan on which you owe $175,000 then you have $75,000 equity in your home. Since the amount of the loan in a 125% leaves the buyer with no equity, and in most loans, owing more than the home is worth, these loans generally pose the greatest risk and are not usually offered by most lenders. If the homeowner defaults on the mortgage, and the lender forecloses on the property, the lender will require the homeowner to repay the difference - and lose the home.
The present danger with the 125% loan is that many homes values are not rising at the pace they once were. This not only poses a problem for the homeowner, but for the lender as well. At this juncture, if there are lenders out there that are still offering home loans that are above the value of the home, this should be considered a red flag - unless you are taking out the loan to make major improvements on the home that will definitely raise the value of the home.
Some states actually have laws that prevent lenders from loaning out more than the value of the home. Tax deductions are not available on any part of a home equity loan that exceeds the fair market value of the home. The IRS has been monitoring the 125% loans with a watchful eye, making sure than homeowners aren't incorrectly trying to write off too much interest.

Beware of Lenders That Promise the World

When you make the decision to purchase a home, there are generally three types of financing you can opt to use to pay for the home: Cash, owner-carry, or obtaining a loan from a mortgage broker, lender, or loan officer. Chances are that you are least likely to pay cash, finding an owner to finance the purchase limits your choices in which home you would like to buy, which leaves the most popular choice: a mortgage loan. There is one very important thing to remember when looking for a lender or mortgage company - they are in the "sales" business. This is not to say that there aren't honest mortgage professionals in the industry - because there are many truly honest mortgage professionals. But because your purchase means part of your purchase price will include the paychecks of several individuals.
There are many loan officers and brokers that would like you to believe that they are not in a sales related industry, but that would be far from the truth. The reality is that all mortgage brokers, lenders, and loan officers have products that they offer, and if they are a successful sales person, their customers will "buy" their products. I have been involved in the mortgage industry for a long time, however, I believe that consumers have the right to make an informed decision about their purchases. I found a very commonly worded advertisement on Craigslist.org this evening, and thought that I would share something that I found interesting (and common) in the ad.
"Credit score is a big factor as a qualifying tool, but it's not the only one. There is a lot more to it than that and I would be happy to go over with and show you your options. You may qualify for more than you think. So give me a call for a complete NO cost evaluation even if you simply have questions." The first thought when I read the ad is that there are people out there that have bad credit, which could indicate that a buyer is not financially stable, and they are offering to find the most money available for a buyer's purchase. Okay, so in other words, more debt on an already financially strapped individual.first time buyer who does not know what they can or cannot afford, it may mean they are more likely to end up with a low introductory rate that leads to a future rate hike - and a mortgage payment that they can't afford to maintain.

Correcting Prices and the Interest Only Mortgage

There's been quite a bit of talk over the exotic loans and their affects on homeowners' equity lately. The more "leveling" we see in home values and prices over the next few years will have a great impact on how the loans will affect the borrower, and their ability to pay off the mortgage. Combine the "correcting" home values with the lack of payments toward the principal amount, factor in the borrowers' stretched incomes, and you have a recipe for disaster.
The interest only or I/O loan was originally set up and geared towards someone who is financially set and well prepared for the purchase of a home. However, many borrowers "stretched their buying power" with the interest loan, using the bulk of their monthly income to pay the mortgage payments. People who would not otherwise have qualified for a loan - instantly became qualified. The changes and adjustments that the rates may bring, added to the fact that many of these loans are in areas with inflated housing prices, may cause many homeowners to lose their homes and walk away with nothing due to lack of equity built up during the I/O period.
I watched a home go from $250K skyrocket to a range of $450k to $500k in just two years, then "corrected" back down to $350,000 in just a few months. If during that time a buyer "stretched" their buying limits to afford the home at $450k, in less than six months they are owing $100,000 more than the home can sell for, and with rising rates - possibly a mortgage they are no longer comfortable with. Of course, don't forget - there's relatively no equity built up in the first few years, and none for the first 10 years if the borrower obtained an interest only mortgage. Just a hypothetical - yet very real example.

Changes Needed In Mortgage Industry

Is it enough just for consumers to be aware of the issues that the mortgage industry are facing - or maybe the mortgage industry needs to take some responsibility in the relaxed regulations that govern the industry. Possibly, but since that has been a topic of debate among industry leaders due to the increase in publicized mortgage fraud there has been less of an emphasis on the more common problem with loan officers, brokers, and lenders: commission-vision. Okay, so that's not an official, but compared with tunnel-vision the affects are surprisingly similar.
When a professional in the mortgage or lending business only has one thing on their mind, the results can be disasterous for the borrower. There are laws popping up all over the country regulating title loans and payday loans, so why are there not more laws regulating the mortgage industry, designed to protect the consumer? Well, most states have laws, although they could be more defined, and more closely monitored. Some states have no regulatory laws on the industry, and fraud is rising at an alarming rate. But paycheck "boosting" doesn't seem to fit very tightly into the current laws.
So how can you protect yourself as a consumer? Education. Knowledge is power - we've all heard it, but believe it. The more you know about a subject (and are confident about that knowledge) the less likely you are to be dooped. If you were receiving advice from your doctor that you didn't believe or agree with, you may opt for a second opinion - it may be best to also get a second opinion about your mortgage options. Don't believe everything that your loan officer tells you, check it out for yourself - it could save you thousands, or even save your home. The moral of the story? Just don't put all of your marbles into one jar because if it breaks, you may end up loosing your marbles!