How to lose your dream home, in 5 easy steps

written by Kim Jones, Brand Mortgage

Lose your dream home in 5 easy steps...Steadily since 2005, mortgage lenders have tightened their guidelines. Today, as compared to recent history, it takes more income, more assets and a better credit rating to get approved for a home loan.

That said, it is no wonder that one in four mortgage applications were denied in 2010, according to analysis conducted by the Wall Street Journal. But banks cannot bear all the blame.

The 5 most-common mistakes that mortgage applicants make:

As a loan officer, I've witnessed too many mortgage applicants make the same mistakes which always ensure their applications wind up being denied. There are just some things you should never do while your home loan is "in-process." Here are the five most-common mistakes I see mortgage applicants make:

1. Do not go "self-employed" or quit your job:

When you are a full-time, salaried employee, your lender considers you "safe." This is why you can get approved for a mortgage with just one day of W-2 job history. The lender knows your next paycheck is just around the corner and how much you will be paid.

For the self-employed, that guarantee is absent. Lenders want to see consistency of income. Unless you have two years of history as a self-employed person, you will not get to use your income for mortgage qualification purposes at all.

Furthermore, the self-employment net is wider than you would think. It does not include just company owners. Self-employed includes business owners, persons owning more than 25 percent in an entity and W-2 employees whose salary is more than 25 percent bonus or commission.

So, while your loan is in-process, do not quit your job, do not start a new company, and most certainly, do not switch from a salaried position to a commissioned one. Each could ruin your approval.

2. Do not finance a new car:

Just because you are buying a home with a garage does not mean you need to fill it (at least, not right away). Buying a car too soon is one of the most common mistakes that homebuyers make.

The problem is that most car loans carry monthly payments of between $300 and $1,000. Those are debts that did not exist at the time of your mortgage application. The new debt can push your debt-to-income ratio beyond the allowable limit and cause your loan to get turned down.

Also, be especially careful when your current car loan has 10 months remaining or fewer. For mortgage qualification purposes, debt like this is counted as $0; it is considered paid-in-full by lenders.

If you do a trade-in and then take out a new loan, the new payments will count against you.

3. Do not open new credit cards:

When you are shopping for furniture and accoutrements, if you have not closed on your home, resist the ubiquitous call to "save 10 percent by opening up a store credit card today". With each credit application, you damage your FICO score and you add to your monthly debt liabilities.

These two items combine to threaten your mortgage approval. Sure, you may save 10 percent at the register, but that will be a tiny sum as compared to possibly losing your dream home.

4. Do not forget to pay your bills:

Paying your bills on time will also help maintain your credit score while your loan is in-process. That includes student loans, tax bills, mortgage loans, credit cards--everything. Even if the bill is in dispute, make sure you pay it on time.

There will be plenty of time to argue with your creditors after your home has closed. Until then, do not do anything that will damage your credit score or result in collection.

5. Do not list your home for sale:

If you are in the process of refinancing your home, do not list it for sale. Lenders do not approve home loans if the underlying collateral (i.e. the home) is "on the market."

In fact, only a few select banks will lend to you if your home was listed within the last three months. After approval, you are welcome to sell. It is your home, after all.

Here is a bonus tip: You need to know that your pre-approval is finite. It expires as mortgage rates change. The amount for which you can qualify for today will not be the same as what you can qualify for tomorrow. This is because mortgage rates change all the time.

At today's mortgage rates, no matter your price point, a 1 percent increase in mortgage rates lowers your maximum purchase price by 10.75 percent. That is a huge reduction and a figure that buyers should ignore at their own peril.

You can contact Kim Jones at Brand Mortgage (678.468.4046)

Understanding the Debt-to-Income Ratio to Qualify for FHA Loans

One of the most important factors in qualifying for an FHA home loan is the debt-to-income ratio. In this post I will explain this so you can be aware of your own debt-to-income ratio and make sure it is where you need to qualify for an FHA loan.

There are 2 different important ratios FHA underwriters look at when approving a FHA loan. The first is your housing ratio or “front ratio”. This is simply taking your TOTAL housing payment (monthly mortgage payment + monthly mortgage insurance + property taxes divided by 12 + homeowners insurance divided by 12 + monthly condo HOA if you have it) as a percentage as your total gross (before tax) monthly income. So if your total housing payment is $2,000 per month and your gross monthly income is $6,0000, $2,000/$6,000=33%. So your housing ratio is 33%.

The more important ratio looked at for qualification for an FHA loan is your “back-end ratio”. This is your total housing payment + all the total of all other monthly payments that show up on your credit as a percentage of your gross income. So if you have a housing payment of $2,000 + a $200 auto loan payment + $100 student loan payment + $50 minimum monthly credit card payment, your total debt for the purposes of the back-end ratio would be $2,350. So take $2,350 and divide it by $6,000 gross income and you have a 39% back-end ratio. Items such as utilities, car insurance, cell phone payment, etc… are NOT counted in this ratio. It is only your total housing payment + items that appear on your credit (most commonly auto loans, student loans and credit cards, personal loans).

So in this case a 33% front ratio and a 39% back ratio would qualify for an FHA home loan as long as the borrower meets all of the other guidelines (job history, credit score). The maximum ratios can be much lower for what is called a “manual underwrite”. A manual underwrite is generally done only if you have below a 580 credit score. In this case you have to start out with a 31% maximum housing ratio and a 43% back ratio. The underwriter does have wiggle room if you have compensating factors.

But if you have average to good credit, the maximum ratios can be much higher than 31/43 above. Generally you can get up to 50% back-end ratio and possibly above if you have other compensating factors (solid credit, cash reserves). But regardless of the maximum ratios, the most important thing for your as a homeowner is only taking on a housing payment that you feel you can comfortably afford.

Some tips to keep in mind if you feel like your debt-to-income ratio for a FHA home loan is too high for the house you want to buy or on the borderline:

• Try to buy your auto with cash or pay it off early so you remove that payment from your debt-to-income ratio calculation
• You might be able to refinace your auto loan to lower your payment or auto loan interest rate
• Try to pay off your credit cards and either carry a small balance or none at all
• See if you can get your student loan payments deferred for 12 mos or more (then these payments do not have to be included in your DTI). But keep in mind that you will have to make these payments eventually, so only take on a housing payment that will allow you to do this in the future

Written by Rob Chomentowski.

See full article here.

Nearly Half of Home Buyers Surveyed Don’t Understand Essential Information about Mortgages

SEATTLE, May 3, 2011 /PRNewswire/ — As the housing market continues to struggle with high inventory and a lack of demand, home buyers appear ill-prepared to take out a mortgage, answering basic questions about mortgage information wrong nearly half (46 percent) of the time (i) according to a Zillow Mortgage Marketplace survey(ii). In fact, 44 percent admitted they are not confident in their knowledge of mortgages or the mortgage process. Zillow® Mortgage Marketplace, with Ipsos, surveyed prospective home buyers, asking them to gauge their own knowledge of mortgages, and asking basic questions about mortgage facts.

For example, more than half (57 percent) of prospective home buyers who were polled do not understand how adjustable rate mortgages (ARMs) work. When asked if interest rates on 5/1 ARMs always reset higher after five years, the majority of home buyers answered yes. In fact, the interest rate will adjust to the prevailing rate after five years, even if rates have declined(iii). Currently, many borrowers whose ARMs have recently reset have lower interest rates than they did when they took out the loan.

Additionally, one-third (34 percent) of the respondents who are prospective home buyers do not understand that lender fees are negotiable and that they vary by lender. They believe lenders are required by law to charge the same fees for credit reports and appraisals, when in fact home buyers can save money by shopping for the lowest fees.

“Most people wouldn’t jump out of a plane if they didn’t know how to use a parachute, yet each year many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about mortgages,” said Zillow Mortgage Marketplace Director, Erin Lantz. “By simply spending a few hours researching how a mortgage works, and by shopping around for the most competitive rates and fees, buyers can save a lot of money.”

Additional Survey Findings

• Nearly half (45 percent) of polled prospective home buyers believe that they should always buy mortgage discount points when obtaining a mortgage. However, because mortgage discount points are simply prepaid interest, the decision should depend on how long you intend to own the home. In some cases, you may not plan to remain in the house for long enough to break even after buying points.
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• More than half (55 percent) of prospective home buyers in the study do not understand that mortgage rates vary throughout the day. In reality, mortgage rates can change rapidly, similar to how stock prices can change throughout the day. To get the optimum rate, it is important to monitor rates and shop around.
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• More than one-third (37 percent) of prospective home buyers who were polled believe that pre-qualifying for a loan means they have secured financing. In fact, “pre-qualification” is used to describe the earliest step in the process when a lender approximates how much you can afford, but does not run your credit or request any sort of documentation to verify the information you provide. Although there is not a reliable industry standard definition of pre-qualification, it is not until a lender has approved your loan application without conditions that you can rest assured that the lender has committed to financing your loan.
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• More than two in five (42 percent) of the polled prospective home buyers do not understand that Federal Housing Administration (FHA) loans are available to ALL buyers. Instead, they believe only first-time buyers qualify. FHA loans can cost less for many buyers, including repeat buyers with low to average credit scores and with down payments of less than 20 percent.

Interactive Online Quiz and Resources Available

An online version of the Zillow Mortgage Marketplace survey, the “Mortgage IQ Quiz,” is available at www.zillow.com/mortgage/quiz/ and contains the correct answers and detailed explanations to each question. Following the quiz, participants are given a score and resources to learn more about mortgages and the mortgage process.

RE/MAX is #1 again! (a.k.a. Why it is imperative to work with an experienced agent in this market)

Who’s the best in real estate? Based on recently released results, it's me, your friendly RE/MAX agent. =)

Year-end sales data for 2010 are in: For the 13th consecutive year, RE/MAX sold more real estate than any competitor. And RE/MAX agents average more transaction sides than agents with any other national brand ... in most cases twice as many.

Why is this important? Because we get the job done, better than anyone else. And in this market, you need the best on your side.

It’s what matters most to buyers and sellers in today’s real estate market – working with a professional real estate agent who has the experience to get the job done. And statistics show, that is a RE/MAX agent. For the 13th consecutive year, nobody sells more real estate than RE/MAX.

And, RE/MAX agents continue to be the most productive sales force in real estate with the highest average transaction sides of the national brands. According to statistics reported by the major national brands cited in the 2011 RE/MAX versus the Industry report, RE/MAX agents in the U.S. averaged 13.1 transaction sides last year, nearly two times the next closest competitor, Coldwell Banker at 7.1

“Our focus is on being the best sales force, not the biggest, and we continue to hit that mark,” said RE/MAX Chairman and Co-Founder Dave Liniger. “What we are is the home of top producers – experienced professionals with a deep belief in themselves, a higher level of training, an unmatched work ethic, and a serious approach to their careers. That’s our competitive advantage, and our agents have kept RE/MAX on top, in the ways that matter most, and that’s why more consumers have turned to RE/MAX for more than a decade.”

New Loans Could Raise The Price Of Homeownership

Buyers on the fence:

This could have dramatic implications for you!

Lock in your rate in the next two months!

FROM NPR: Since the housing bubble collapsed, it's been harder for many Americans to qualify for a home loan. But soon, it might get even more difficult.

The government is reshaping the mortgage market. And right now there is strong political support for requiring much bigger down payments for most home loans. Powerful congressional Democrats and Republicans support the move, as does the Obama administration.

In a matter of weeks, federal regulators are expected to unveil new rules for home loans. The buzz is that the rules could translate into mandatory 10 percent or even 20 percent down payments for most new loans in the U.S., which would be a significant change.

A Mandatory Down Payment

For the average-priced home that would mean saving $18,000 to $36,000 for a down payment. Some experts think that's a good idea.

"We put too many people into houses they weren't qualified to buy, they didn't have income [and] they didn't have skin in the game," says Edward Pinto, a fellow with the American Enterprise Institute.

Read the full article here.