Mortgage help: Do you qualify?
President Obama's new real estate rescue plan offers two key possible benefits: More refinancing opportunities and greater chance for a loan modification.
Help for those seeking refinancing
This part of the program targets borrowers who have kept current on their mortgages. Many of the homeowners in this group have been unable to lower their housing costs through refinancings because of falling home prices.

Right now, if you're underwater on your mortgage, owing more than the home's market value, forget about qualifying for a refi. In fact, at least 20% equity in your home is now a must, unless you're using an FHA loan.

The new guidelines should help. Even homeowners with debt that exceeds home value by 5% could be eligible. And there will be no prepayment penalties. But your loan must be owned or backed by Fannie Mae or Freddie Mac.

The Administration estimates that this will enable up to 5 million homeowners to obtain lower interest rate mortgages.

Who's not eligible. Homeowners whose property values have dipped severely, putting them underwater by more than 5% are out of luck.

Those with "jumbo" mortgages also don't qualify - only those with "conforming' mortgages do. To be absolutely sure what kind of loan you have, you need to check with your servicer or lender after March 4. But in general, until the past year, loans above $417,000 were considered jumbo mortgages, and Fannie Mae and Freddie Mac were not allowed to buy and guarantee them.

All borrowers will have to prove they have sufficient income to be able to keep up their loan payments, though what would be sufficient proof wasn't yet clear.

Mortgage modification help for at-risk borrowers
Homeowners in default or at risk of default may qualify for loan modifications, which restructure the terms of loans.

Anyone with high combined mortgage debt compared to income or who is underwater may be eligible for a loan modification.

Borrowers with high levels of other debt, such as car loans and credit card debt exceeding 55% of their incomes, may still qualify for a modification but they'll be required to accept debt counseling in a HUD-certified program.

If you qualify, your servicer or lender will reduce your monthly mortgage payments to 31% of your gross income.

The payment would stay there for five years and then gradually revert back to the conforming loan rates in place at the time.

The reduction would come mostly through interest-rate reductions, though in some cases, principal reduction also would be an option.

Borrowers would also receive incentive bonuses of up to $1,000 a year for five years for making payments on time.

President Obama estimated 3 to 4 million homeowners could benefit from the new modification procedures.

Who's not eligible. Speculators, those who bought homes for investment purposes, do not qualify for help -- all homes must be owner/occupied.

The program will also not reward homebuyers who were irresponsible in their borrowing. All applicants will be closely examined by lenders and those who acted unscrupulously by, for example, misrepresenting their incomes in no-doc loan applications, would not qualify.

And, in order to protect taxpayers from excessive expenses, no loans will be modified unless it results in a net savings compared with the costs of foreclosing. Finally, rates would not be lowered below 2%.

That will disqualify many borrowers who simply can't afford any reasonable mortgage payment because of illness, for example, or job loss.

"[The plan] will not reward folks who bought homes they knew from the beginning they would never be able to afford," said Obama. "In short, this plan will not save every home."

No mortgages for amounts above comforming loan limits would be eligible.

Courtesy:CNNMONEY

What the Foreclosure Plan Means for Home Owners
Last Thursday, after Treasury Secretary Henry Paulson explained the Bush administration plans to aid as many as 1.2 million home owners facing the prospect of foreclosure, questions arose quickly. Here are the answers to some of the key ones.

Which adjustable-rate mortgages are affected? To qualify to have their interest rate frozen for five years, home owners must have received a loan sometime between Jan. 1, 2005, and July 31, 2007, and be facing a reset of their interest rate sometime between Jan. 1, 2008, and July 31, 2010.

Who qualifies for this deal? Home owners who haven’t missed a payment, but who might if their mortgage resets. Those who can't afford the higher payments, and who have credit scores below 660 and less than 3 percent equity in their homes, will get the biggest break from the lenders. People who are financially secure enough to pay the higher mortgage payments don’t qualify.

Do owners of second homes or investors qualify? No. The plan excludes people who don’t live in the property that's facing foreclosure.

Why didn’t the plan go further? If home owners are going to pay less on their mortgages than investors expected, then people are going to lose money. Not all of those people are fat cats. Potential losers include pension funds for teachers, firemen, police and an array of mutual funds whose clients are individual investors.

Federal District Court Blocks Implementation of HUD Rule on Downpayment Assistance

In the ongoing battle between nonprofit downpayment assistance organizations and the department of Housing and Urban Development, a federal district court has ordered a temporary injunction preventing the implementation of a proposed HUD rule that prohibits homebuyers who obtain a seller funded downpayment from obtaining an FHA insured loan. The proposed rule would have been enacted on October 31st had U.S. district court judge Paul Friedman not ruled that HUD "failed to supply a reasoned analysis for its departure from its long-standing policy of approval". Recent studies by both the IRS and Government Accountability Office have shown that homes sold using seller funds for a downpayment are much more likely to result in foreclosure and often sell at an inflated value. NAR generally supported the proposed HUD rule as a way to combat rising foreclosure rates in many areas of the country. The court order prevents HUD from implementing the rule until further review. A future court date has not yet been announced.

Getting Back On Track

The summer has been tough – historically high temperatures in many parts of the country, Midwest floods, and almost everywhere major airline flight delays. Housing didn’t have such a great summer either, with home sales and price appreciation still waiting to recover. The subprime mortgage mess didn’t help either. So everyone wants to know: now that the summer is over, when can we expect the housing sector to get back to normal? There’s actually a sequence of events we should look for that need to happen before housing is back on track, and as each of these occurs, the closer the housing recovery will be. Let’s take a look at them.

Mortgage Rates Will Stablize Favorably
Despite the headline news coverage of turmoil in the mortgage market, mortgage rates have actually been falling for borrowers who take out prime conforming loans. Because these borrowers account for the majority of home buyers, affordability conditions for most buyers have improved. FHA loans – the traditional financing vehicle for low-and-moderate income households – have also begun to build market interest and momentum. FHA loans offer very attractive rates nearly comparable to those of conforming loan rates and save homeowners a bundle – about $180,000 in lower interest payments over a 30-year loan cycle compared to high-interest rate subprime loans. A near-certain legislative change that will allow higher FHA loan limits in high cost areas will further free up the mortgage market to offer safer alternative products (i.e., FHA loans) and away from subprime loans. It is important to note, though, that subprime loans may make sense for some home buyers such as young couples with large income potential but little downpayment. But the subprime market share at most should be no more than 5% rather than the 20% market share of recent years.

While mortgage rates look good for conforming and FHA loan clients, the same is not true for jumbo loan borrowers. Without the backing of a guarantee by Fannie Mae and Freddie Mac, bond investors are shying away from jumbo loans. As a result, interest rates on these large loans have increased and will significantly hold back home sales in the high cost housing areas like California. The whiplash will be short-term, however. After sorting through the numbers, bond investors will likely conclude that jumbos are quite safe – even without the government guarantees. A million dollar borrower generally has solid credit and pays bills on time. Any temporary legislative change in raising the loan limit well above the current $417,000 or in permitting the GSEs to purchase jumbos loans to include in their portfolios will mitigate the crisis. (The median prices will artificially trend lower during the period of jumbo loan crisis just due to fewer higher priced home sale transactions).


Pent-Up Demand Will be Unleashed
Consider this – four million net job additions in the past two years during the housing market slump. Yet, home sales have fallen. As home sales fell, people doubled and tripled up because apartment rents increased at their highest pace in five years. These people are waiting to buy a home. Then there are the approximately two million marriages that occur each year. Those newlyweds are waiting to buy a home. About four million babies are born each year – forcing some families to consider trading up from a smaller house or condo to a larger one.

Homebuilders Take Heed
The inventory of both new and existing homes is at high levels. Builders have already cut back production and are encouraged to cut back even further. The market needs less inventory additions in a time of transition. Wall Street should and will punish any builders who add to inventory in the current market. Why build only to lose money on the home? With builders cutting back, inventory will fall. Some home owners of vacant homes will also consider the juicier rent growth and take their “empty” home off the market. In addition, many owners are in a no hurry to sell their home that they actually occupy (except perhaps for those in the few areas of the country that are losing jobs), and they may also choose to delay listing their home for sale or de-list it. Unleashing of that pent-up demand for home buying will also eat into inventory.

Drawing Down the Inventory
The law of (lower) supply and (higher) demand will then firm up home prices. The media will be forced to report on the price gains. Many potential buyers, with solid financial wherewithal, will regain confidence. The wheels of housing turn faster and faster. The full unleashing of the pent-up demand could mean about two million additional homeowners. Such absorption into the marketplace will bring down the current existing-home inventory of four million units and the new home inventory of one million units to a total of three million homes (new and existing) available for sale. That level of inventory equates to a 5-6 months’ supply – generally considered a balanced market condition.

Balanced Gains Ahead
As the housing market recovers, potential home buyers (both first-timers and repeat purchasers) will gain more confidence in the housing sector. This, in turn, will drive more demand for homeownership, helping to keep inventory at or slightly below market balance and spur additional increases in home price appreciation. In sum, a closing of the subprime market does not directly mean equally lower home sales. FHA/VA and conforming government-backed loans will pick up a large chunk of the former subprime market. The jumbo loan concerns will be mitigated over time with better market knowledge, and will be assisted by changes in legislation permitting higher loan limits. Pent-up demand is strong. Inventory will move in the right direction. Builders are assisting by holding back production. A market recovery in 2008. Back-to-the-historical norm in 2009.

Tips for Finding the Perfect Neighborhood

The neighborhood you choose can have a big impact on your lifestyle—safety, available amenities, and convenience all play their part.

1. Make a list of the activities—movies, health club, church—you engage in regularly and stores you visit frequently. See how far you would have to travel from each neighborhood you’re considering to engaging in your most common activities.

2. Check out the school district. The Department of Education in your town can probably provide information on test scores, class size, percentage of students who attend college, and special enrichment programs. If you have school-age children, also consider paying a visit to schools in the neighborhoods you’re considering. Even if you don’t have children, a house in a good school district will be easier to sell in the future.

3. Find out if the neighborhood is safe. Ask the police department for neighborhood crime statistics. Consider not only the number of crimes but also the type—burglaries, armed robberies—and the trend of increasing or decreasing crime. Also, is crime centered in only one part of the neighborhood, such as near a retail area?

4. Determine if the neighborhood is economically stable. Check with your local city economic development office to see if income and property values in the neighborhood are stable or rising. What is the percentage of homes to apartments? Apartments don’t necessarily diminish value, but they do mean a more transient population. Do you see vacant businesses or homes that have been for sale for months?

5. See if you’ll make money. Ask a local REALTOR or call the local REALTOR association to get information about price appreciation trends in the neighborhood. Although past performance is no guarantee of future results, this information may give you a sense of how good an investment your home will be. A REALTOR or the government planning agency also may be able to tell you about planned developments or other changes in the neighborhood—like a new school or highway—that might affect value.

6. See for yourself. Once you’ve narrowed your focus to two or three neighborhoods, go there, and walk around. Are homes tidy and well maintained? Are streets quiet? Pick a warm day if you can and chat with people working or playing outside. Are they friendly? Are their children to play with your family?

8 Steps to Getting Your Finances in Order

1. Develop a family budget. Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.

2. Reduce your debt. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt—car loans, student loans, revolving balances on credit cards—down to between 8 percent and 10 percent of your total income.

3. Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You’ll probably see some great ways to save.

4. Increase your income. It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.

5. Save for a downpayment. Although it’s possible to get a mortgage with only 5 percent down—or even less in some cases—you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent downpayment.

6. Create a house fund. Don’t just plan on saving whatever’s left toward a downpayment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.

7. Keep your job. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.

8. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.


Budget Basics Work Sheet

The first step in getting yourself in financial shape to buy a home is to know what you make and what you spend now. List your income and expenses below.

Income
Take-Home Pay/All Family Members
Child Support/Alimony
Pension/Social Security
Disability/Other Insurance
Interest/Dividends
Other
Total Income

Expenses
Rent/Mortgage
Life Insurance
Health/Disability Insurance
Vehicle Insurance
Homeowners or Other Insurance
Other Loan Payments
Savings/Pension Contribution
Utilities
Credit Card Payments
Car Upkeep
Clothing
Personal Care Products
Groceries
Food Prepared Outside the Home
Medical/Dental/Prescriptions
Household Goods
Recreation/Entertainment
Child Care
Education
Charitable Donations
Miscellaneous
Total Expenses=
Remaining Income After Expenses=

7 Reasons to Own Your Own Home

1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, property taxes you pay, and some of the costs involved in buying your home.

2. Gains. Between 1998 and 2002, national home prices increased at an average of 5.4 percent annually. And while there’s no guarantee of appreciation, a 2001 study by the NATIONAL ASSOCIATION OF REALTORS found that a typical homeowner has approximately $50,000 of unrealized gain in a home.

3. Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.

4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.

5. Predictability. Unlike rent, your mortgage payments don’t go up over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will rise.

6. Freedom. The home is yours. You can decorate any way you want and be able to benefit from your investment for as long as you own the home.

7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

To calculate whether renting or buying is the best financial option for you, use this calculator courtesy of Ginnie Mae:
http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH