Category Archives: Finance

After foreclosure: How long until you can buy again?

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Posted by Lily Lam on June 7, 2010 – 2:26 pm
Filed under Finance, For Buyers

(Source: CNN Money)  Financing a home after foreclosure is possible for most homeowners. Those who default on their mortgages due to economic hardships, such as job loss, may receive approval for another mortgage in as little as two years, while it may take more than seven years for strategic defaulters to be approved.

• Lenders utilize several methods in determining whether to grant mortgages, including the amount of money borrowers have saved; employment histories; and payment history.

• According to the chief economist with the Mortgage Bankers Association, lenders may be more willing to finance a mortgage for a borrower who defaulted on their mortgage as a result of factors beyond their control.

• Some homeowners who strategically default—intentionally not meet their mortgage obligations although they have the financial means to do so—assume they can raise their FICO scores by paying their others bills on time. However, most future loan underwriters will scrutinize their records very closely, and if they determine the borrower strategically defaulted on their previous mortgage, the repaired credit score will not overshadow the walkaway.

• Although not impossible for strategic defaulters to finance another home purchase, it likely will be more difficult. Lenders may ask for down payments of 30 percent or more to provide sufficient collateral to enable the bank to recoup most of its money in a foreclosure. These borrowers also may be charged higher interest rates, even above the levels other borrowers with similar credit scores would receive.

Article from: California Association of Realtors

10 Questions to Ask Your Lender

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Posted by Lily Lam on May 3, 2010 – 3:13 pm
Filed under Finance, For Buyers

1. What are the most popular mortgages you offer? Why are they so popular?

2. Which type of mortgage plan do you think would be best for me? Why?

3. Are your rates, terms, fees, and closing costs negotiable?

4. Will I have to buy private mortgage insurance? If so, how much will it cost, and how long will it be required? (NOTE: Private mortgage insurance is usually required if your down payment is less than 20 percent. However, most lenders will let you discontinue PMI when you’ve acquired a certain amount of equity by paying down the loan.)

5. Who will service the loan — your bank or another company?

6. What escrow requirements do you have?

7. How long will this loan be in a lock-in period (in other words, the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if it drops during this period?

8. How long will the loan approval process take?

9. How long will it take to close the loan?

10. Are there any charges or penalties for prepaying the loan?

Source: Realtor magazine

5 Factors That Decide Your Credit Score

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Posted by Lily Lam on April 14, 2010 – 1:37 pm
Filed under Finance, For Buyers

Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:

1. Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.
2. How much you owe.  If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.

3. The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.
4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.

5. The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.

Source: Realtor magazine

Lender Checklist: What You Need for a Mortgage

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Posted by Lily Lam on March 29, 2010 – 12:55 pm
Filed under Finance
  1. W-2 forms — or business tax return forms if you’re self-employed — for the last two or three years for every person signing the loan.
  2. Copies of at least one pay stub for each person signing the loan.
  3. Account numbers of all your credit cards and the amounts for any outstanding balances.
  4.  Copies of two to four months of bank or credit union statements for both checking and savings accounts.
  5.  Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
  6. Addresses where you’ve lived for the last five to seven years, with names of landlords if appropriate.
  7. Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.
  8. Copies of your most recent 401(k) or other retirement account statement.
  9. Documentation to verify additional income, such as child support or a pension.
  10. Copies of personal tax forms for the last two to three years.

Source: Realtor Magazine

Get Your Finances in Order: To-Do List

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Posted by Lily Lam on March 23, 2010 – 2:44 pm
Filed under Finance, For Buyers

1. Develop a household budget. Instead of creating a budget of what you’d like to spend, use receipts to create a budget that reflects your actual spending habits over the last several months. This approach will factor in unexpected expenses, such as car repairs, as well as predictable costs such as rent, utility bills, and groceries.

2. Reduce your debt. Lenders generally look for a total debt load of no more than 36 percent of income. This figure includes your mortgage, which typically ranges between 25 and 28 percent of your net household income. So you need to get monthly payments on the rest of your installment debt — car loans, student loans, and revolving balances on credit cards — down to between 8 and 10 percent of your net monthly income.

3. Look for ways to save. You probably know how much you spend on rent and utilities, but little expenses add up, too. Try writing down everything you spend for one month. You’ll probably spot some great ways to save, whether it’s cutting out that morning trip to Starbucks or eating dinner at home more often.

4. Increase your income. Now’s the time to ask for a raise! If that’s not an option, you may want to consider taking on a second job to get your income at a level high enough to qualify for the home you want.

5. Save for a down payment. Designate a certain amount of money each month to put away in your savings account. Although it’s possible to get a mortgage with only 5 percent down, or even less, you can usually get a better rate if you put down a larger percentage of the total purchase. Aim for a 20 percent down payment.

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

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

Source: Realtor magazine

How Much Can You Afford a House?

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Posted by Lily Lam on March 12, 2010 – 3:41 pm
Filed under Finance, For Buyers

Learn how much you can afford a house, is the first most important factor to understand when you are ready to buy. Depending on your specific situation, your budget will affect your choice of the house. Whether the community, the house size, or  the types of financing and so on.

However, please keep in mind, the banks are not only to consider your income to determine the loan amount. Similarly, the market also has some creative financing options that can help boost your purchasing power.

pre-qualification and pre-approvals

One of the best way to learn your financial situation is to let your real estate agent or bank to pre-qualify your loan. Prequalification is different from the pre-approvals, because it is only an estimate of your affordability. On the other hand, pre-approved loan is a more formal process where the banks exam your financial situation to decide the amount going lending to you.

What factors are important to lender?

Banks and lending institutions will use the following information to determine how much money they would agree to lend. These includes:

  • Your total monthly income
  • your credit histry
  • the amount of your outstanding debts
  • Your savings – or the amount of money you have available for a down payment and closing costs
  • Your choice of mortgage type, year and so on
  • current lending rates

There are two important ratios

Banks and lending institutions also need your financial information to calculate the two very important ratios:

  • Debt-to-income ratio
    Many lenders use a rule of thumb that the amount of debt you are paying on each month (car payment, student loan, credit card, etc,) shouldn’t exceed more than 36 percent of your gross monthly income. FHA loans are slightly more lenient.
  • Housing expense ratio
    It is generally difficult to obtain a loan if the mortgage payment will be more than 28 to 33 percent of your gross monthly income.

Down payments make a difference

If you can make a large down payment, lenders may be more lenient with their qualifying ratios. For example, a person with a 20 percent down payment may be qualified with the 33 percent housing expense ratio, while someone with a 5 percent down payment is held to the stricter 28 percent ratio.

Other ways to improve your purchasing power

  • Gifts
    If you’re having trouble saving money, many lenders will allow you to use gift funds for the down payment and closing costs. However, most lenders require a “gift letter” stating the gift doesn’t have to be repaid, and will also require you to pay at least a portion of the down payment with your own cash.
  • Negotiating Closing Costs
    Through negotiation, some sellers may agree to pay all or most of your closing costs (for example, if you agree to meet their full asking price). If you choose to try this, make sure to ask your real estate agent for advice.
  • Loan Programs
    Many local governments have special loan programs designed to help first-time homebuyers. Loans may be available at reduced interest rates, or with little or no down payments. Check with your local housing authority for more information.
  • Loan Types
    Some homebuyers choose Adjustable Rate Mortgages (ARMs) because of low initial interest rates. Others opt for 30-year loans because they have lower monthly payments than 15-year loans. There are significant differences between different loans, so make sure to discuss the pros and cons of different loans with your agent or lender before making a decision.

About Credit (1)

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Posted by Lily Lam on February 19, 2010 – 2:03 pm
Filed under Finance

For many homebuyers, credit is a big consideration in the buying process. In applying for a mortgage, your credit may be the single factor that opens or closes the door to purchasing the home you want at a low interest rate. You may believe you have a strong credit rating but have never actually seen your credit report. Or perhaps you’re concerned that past credit problems will come back to haunt you as you apply for a mortgage Whichever boat you’re in, the first step is the same: Obtain a copy of your credit report for a small fee and review it for accuracy. Credit reports are maintained by three credit reporting agencies: Experian, TransUnion and Equifax. It’s a good idea to obtain your credit report from all three agencies, since each may contain different information and you don’t know which agency will be supplying your report to your lender. If there is incorrect or missing information that would improve your credit score, report it to the credit bureau. Under the Fair Credit Reporting Act, consumers have the right to review and contest information in their credit reports. Even if your credit report reads exactly like you expected and your credit is in fine shape, going into the mortgage application procedure with peace of mind is worth the nominal fee. What is credit? Credit is a record of a person’s debts and payment history. Credit bureaus compile individual reports of consumer debt through an array of sources, including credit card companies, banks, the IRS, department stores and gasoline companies, and any other entities granting loans. A credit report is a résumé of your financial performance, with information on your payment standing for all the accounts you’ve held for the past seven to 10 years (seven years for accounts not paid as agreed and 10 years for accounts paid as agreed). What is a credit score? Credit scores, also called “beacon scores,” are composites that indicate how likely you are to pay on a loan or credit card as agreed based upon your payment history, amount of debts, length of credit history and types of credit in use. The credit grantor reviewing your loan application compiles your score based on information from your credit report and other data, including your income level. Fair, Isaac and Company (FICO) developed the mathematical formula for establishing scores. Scores range from 300 (poor) to 850 (excellent), and the rule of thumb is the higher the score, the lower the risk to lenders. In the past, consumers have not been allowed to view their credit score or be informed of the factors that determined their scores. However, C.A.R.-sponsored SB 1607, signed by California Gov. Gray Davis on Oct. 2, 2000, granted California homebuyers access to their credit scores and pertinent information about what factors determined their scores. The legislation, which becomes effective July 1, 2001, also allows consumers to receive their credit scores when they request copies of their credit files for a nominal fee. What role does credit play? Lenders review credit reports to determine debts owed and if they are repaid according to the terms of the initial contract. If you have any outstanding debt, lenders will analyze your debt-to-income ratio and how that debt will factor into your ability to make your mortgage payments.