AOL Real Estate - Blog http://realestate.aol.com/blog AOL Real Estate - Blog http://realestate.aol.com/blog/media/feedlogo.gif AOL Real Estate - Blog http://realestate.aol.com/blog en-us Copyright 2013 Weblogs, Inc. The contents of this feed are available for non-commercial use only. Blogsmith http://www.blogsmith.com/Real Estate Broker Warms Up Cold Listings With Hot Modelshttp://realestate.aol.com/blog/2011/04/12/real-estate-broker-warms-up-cold-listings-with-hot-models/http://realestate.aol.com/blog/2011/04/12/real-estate-broker-warms-up-cold-listings-with-hot-models/http://realestate.aol.com/blog/2011/04/12/real-estate-broker-warms-up-cold-listings-with-hot-models/#comments You can thank Vogue for sexing up real estate marketing. When real estate broker Dimitrios Aletras of high-end agency Nest Seekers was flipping through fashion mags, he wondered why he couldn't do for vacant apartments what fashion stylists do with belts and shoes: Get hot models to make them look fabulous.

"I would look at those magazine ads and think, 'Why can't it be this way for real estate, too?'" says Aletras, the agency's director of business development. The result, at left, is an ad campaign that "throws the market on its head. The images really show you the lifestyle you want for yourself," he says. "They are insanely sexy!"
And insanely expensive. To sell the two-bedroom, two-bath Greenwich Village apartment pictured above (asking price: $2.5 million), he pulled a wardrobe that includes pieces from Gucci, Christian
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Louboutin and Yves Saint Laurent. Models from top agencies One Model Management and Elite play the homeowners, and fashion photographer David LaChapelle is said to be advising a bit from afar, while up-and-coming photographers Leah Kelley and Cecil Gilliard are shooting.

The first installment has a Mad Men feel -- an homage to the fact that the location is where Don Draper moves after breaking up with his wife. Next up is a $4 million, high-tech lair at 120 Riverside Boulevard. For that one, Aletras cast a "sexy family" inspired by the famous W magazine photo shoot starring Brad Pitt and Angelina Jolie back when they were just pretending to be a couple. (Cool feature: The "hers" side of the master closet has a fingerprint recognition system.)

The cost of such an endeavor puts it out of the range of the typical homeowner (Aletras won't say how much) but if you're tempted to create an ad campaign for your property for sale, Aletras offers this advice for doing it on a budget.

"To keep costs down, find an up-and-coming photographer -- someone in school who wants to build their portfolio. The same with models and a makeup person," he says. Above all, remember the cardinal rule of photography, which applies to properties as well as people: "Just make sure you work with good lighting." --Shira Levine

Want more tips on how to photograph a property for sale? See these AOL Real Estate guides: More on AOL Real Estate:
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Find homes for sale in your area.
Find foreclosures in your area.
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]]>david lachapelledon drapermad mennest seekersreal estate adsreal estate brokersreal estate listingsreal estate marketingReal estate photographyvogueAol Real Estate Contributor2011-04-12T13:13:00 00:00Home Equity Loans: Fixed or Variable Rates?http://realestate.aol.com/blog/2010/12/09/home-equity-loans-fixed-or-variable-rates/http://realestate.aol.com/blog/2010/12/09/home-equity-loans-fixed-or-variable-rates/http://realestate.aol.com/blog/2010/12/09/home-equity-loans-fixed-or-variable-rates/#commentsFiled under:

While selecting a fixed-rate mortgage loan is usually the best choice in today's market, the decision is not as clear when you're tapping your home's equity for a home equity line of credit or a home equity loan. You can save about 2.5 percent in interest by choosing an equity line, which gives you the flexibility of using it for one project, paying it off and then using it again for another project. With the

While selecting a fixed-rate mortgage loan is usually the best choice in today's market, the decision is not as clear when you're tapping your home's equity for a home equity line of credit or a home equity loan. You can save about 2.5 percent in interest by choosing an equity line, which gives you the flexibility of using it for one project, paying it off and then using it again for another project. With the interest rate savings, you can pay off that variable-rate equity line faster than you could a fixed-rate equity loan, as long as interest rates don't jump.

In today's market, the average interest rate for a $50,000 variable-rate home equity line is 4.83 percent. If you don't want the risk of a variable rate, you'll have to pay 7.24 percent to get a fixed-rate home equity loan for the same amount.

Let's take a quick look at the difference between these two types of loans, then compare payments. The most popular type of loan for tapping one's equity is the home equity line of credit. It's usually a variable-rate interest line of credit on which you pay just the interest over a term of 10 or 15 years. At the end of the term you have what is called a balloon payment that you can either pay off with cash or refinance into a new loan or line of credit. You also can pay off and reuse this credit throughout the life of the loan.

The more traditional type of equity loan is a fixed-rate second mortgage on which you pay both interest and principal, with the intent of repaying the loan in full at the end of the loan's term--10, 15 or 20 years. When the loan is paid off you cannot reuse if for another project. Instead you must apply for a new loan. Interest rates on these types of loans are usually higher because they are guaranteed fixed-rate loans.

Most people choose a traditional fixed-rate second mortgage when planning a one-time project, such as a home addition. The advantage is that the payment on this loan includes principal and interest, so you know the loan will be paid off at the end of the term and you won't be facing a balloon payment.

You can avoid a balloon payment with a home equity line of credit, as long as you pay both principal and interest through the life of the loan and the principal amount is enough to pay down the loan in full.

So how will a variable rate help you get that loan paid off faster? For example, the 15-year payments on the lower interest $50,000 home equity line of credit would be $390.98, if you want to pay it off in full. But if you take a home equity loan you'd be making payments of $394.89 to pay off a $50,000 fixed-rate home equity loan over 20 years. So the lower interest rate would mean you could pay less and be finished paying the debt five years earlier.

There is a catch, though. The payment for the fixed-rate equity loan will never change. The interest rate is guaranteed for 15 years. The interest rate for the variable-rate equity line can change much more frequently depending upon the terms of your contract with the bank. Most of these loans are set to a particular interest rate, such as prime or prime plus 1 percent or more. So when that interest changes, the interest rate on your variable-rate equity line will change.

If you're planning to do a home improvement, pay it off as quickly as possible and then do another, there's no question that the lower interest rate for a home equity line is your best choice. But if you're doing a major project that you want to pay off over 15 or 20 years, you're still better off locking in those long-term fixed rates, even if the rate is higher right now. We don't know when interest rates will jump dramatically, but we do know they're at their historic lows and starting to inch up.

Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Personal Bankruptcy and The Complete Idiot's Guide to Improving Your Credit Score.

 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00Raising Credit Score Reduces Mortgage Costshttp://realestate.aol.com/blog/2010/12/09/raising-credit-score-reduces-mortgage-costs/http://realestate.aol.com/blog/2010/12/09/raising-credit-score-reduces-mortgage-costs/http://realestate.aol.com/blog/2010/12/09/raising-credit-score-reduces-mortgage-costs/#commentsFiled under:

If you have a credit score at 620 -- generally considered the dividing line between good and bad credit -- boosting it by 20 points could save you thousands of dollars on your mortgage. And there are simple ways to do this in a short time. An analysis of about 300,000 loan requests received through Zillow.com in September revealed that a homeowner who raises his or her credit score to 640 points may benefit from

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If you have a credit score at 620 -- generally considered the dividing line between good and bad credit -- boosting it by 20 points could save you thousands of dollars on your mortgage. And there are simple ways to do this in a short time.

An analysis of about 300,000 loan requests received through Zillow.com in September revealed that a homeowner who raises his or her credit score to 640 points may benefit from a 0.10 percent reduction in their annual percentage rate, or APR.

For a $300,000 home loan with a conventional 20 percent down, this yields a savings of $10,000 in interest costs over the life of a 30-year fixed-rate loan.

What about those with credit scores under 620? Without enough loan requests in that segment, Zillow was unable to generate any findings for those deemed to be in the "bad credit" zone. (According to Fico.com, this is an estimated 29.3 percent of all Americans.)

"People with scores under 620 should not expect the same conventional rates," says Jason Biro, author and founder of the nonprofit, Saving Your American Dream. "Lenders are now looking at entire credit history, such as a bankruptcy or foreclosure, and credit worthiness, not just your score."

However, Biro says that those falling within the threshold of 620 to 719 should keep working on their credit scores to benefit from lower interest rates. Here's what you can do to easily boost your score 20 points within a few months:

1. Pull your credit report. Obtain a free copy of credit report from annualcreditreport.com, which you are entitled to each year by federal law. Request a copy from each of the three repositories (Experian, TransUnion, and Equifax) and review them for accuracy.

2. Dispute discrepancies on your credit report. By e-mail or mail, you can appeal any inaccuracies on your report with the repository. According to Biro, if you don't get a response from the agency within 45 days, the law requires that this information be removed from your credit file.

3. Pay your bills on time and don't use more than 30 percent of existing credit. Gail Cunningham, vice president of public relations at the National Foundation for Credit Counseling, says 65 percent of your score depends on paying bills on time and the amount of available credit. She suggests using less than 30 percent of your existing lines of credit to see an immediate jump in your score and being diligent about timely bill paying (all you need to cover is the minimum payment required by the due date).

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4. Request a score improvement analysis. Another option is to get a score improvement analysis, says Biro, in which mortgage brokers or credit counselors can use credit software to see what you should do first -- whether it's paying down debt to closing down accounts -- to bump up your credit score the fastest.

While these tips are what can make the biggest impact in a short amount of time, they won't magically discharge your credit woes overnight, experts say.

Once the errors are corrected, you've reduced your debt or made other necessary adjustments, the improvements should only take a month or so to be reflected in your credit score. However, start to finish, Cunningham recommends beginning the process about three months before you'd like to apply for a loan or refinance your mortgage.

But the good news, she says, is that the lower your credit score, the faster you will see improvement.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00How to Get the Best Refinance Offerhttp://realestate.aol.com/blog/2010/12/09/how-to-get-the-best-refinance-offer/http://realestate.aol.com/blog/2010/12/09/how-to-get-the-best-refinance-offer/http://realestate.aol.com/blog/2010/12/09/how-to-get-the-best-refinance-offer/#commentsFiled under:

With interest rates hitting historic lows, you may be thinking that it's time to look for your best deal. But how do you go about getting the lowest rate possible with the least amount of cost upfront? There are websites out there that make lenders bid for your business and can give you the tools you need to be sure you find the best rate at the lowest cost. So even if you think youWith interest rates hitting historic lows, you may be thinking that it's time to look for your best deal. But how do you go about getting the lowest rate possible with the least amount of cost upfront?

There are websites out there that make lenders bid for your business and can give you the tools you need to be sure you find the best rate at the lowest cost. So even if you think you will want to stay with your current lender, it might be a good idea to explore these other lending partners before committing--how else can you learn about potentially better deals?

To get started, talk with your current lender to find out what it will offer you. Then apply through one of these quote engine website to find out what other lenders will offer. When you get your offers, don't assume that's the bottom line. Lenders can see what others are offering and, to get your business, they will bid lower.

The bottom line when refinancing is getting the lowest possible interest rate on a fixed-rate loan with the lowest possible closing costs. But be sure you're comparing apples to apples when looking at closing costs. Make up a spreadsheet for the closing costs and compare each offer. You may find that the company offering the lowest closing costs is doing that by leaving out some key items, such as tax stamps or other charges unique to your state. When those items are added in the lowest offer could end up being the highest.

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Start negotiating with the other lenders until you have what you think is the best offer. Then go back to your current lender and see if it willl match the interest offered plus lower your closing costs. As long as you've been paying your mortgage on time, your lender will try to save you as a customer. If it doesn't, it's time for a change.

Often your current lender can cut closing costs more easily because they can reuse some of what they already have on hand. For example a title search and title insurance can be one of the most expensive items on your closing statement, but your current lender may be able to update the file and only charge a minimal amount for the service. You would only need to pay the cost for any additional title insurance coverage based on any change in value of the property rather than pay the full cost of the coverage.

Even if you're not planning to work with the same lender you may be able to ask the new lender to use the same title insurance company you currently have and just update the title search and policy to current levels. That can sometimes save you thousands on closing costs.

Even if your house is underwater, you may still be able to refinance and get a lower interest rate on your mortgage. Two programs are now available for underwater homeowners. One is the Home Affordable Refinance Program (HARP), which you can use even if your current mortgage is 125 percent of your home's current market price. Another option, if your lender will voluntarily cooperate, is the FHA Short Refinance option. This one may be harder to get because your lender must agree to reduce the principal you owe on the mortgage.

If you already have an FHA, you may be able to get a lower interest rate using the FHA Streamline refinance, which allows you to get a lower interest rate without even requiring an appraisal.

With all these opportunities available out there to refinance, don't hesitate to check out your chance to lower the interest rate on your home mortgage. Even lowering your rate by just one percent can result in thousands, if not hundreds of thousands of dollars, in savings depending on the size of your loan and the length of its remaining term.


Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score.

 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00Credit Crunch: The Domino Effecthttp://realestate.aol.com/blog/2010/12/09/credit-crunch-the-domino-effect/http://realestate.aol.com/blog/2010/12/09/credit-crunch-the-domino-effect/http://realestate.aol.com/blog/2010/12/09/credit-crunch-the-domino-effect/#commentsFiled under:

Berry James, who dabbles in residential real estate investment in Chicago's Bronzeville neighborhood, says the hefty unemployment rate coupled with the housing crisis has affected the way he conducts business as a landlord and real estate investor. "Everybody is looking at your credit a little bit more seriously now due to the economy." Owner of four properties in the historically black area on Chicago's Near South Side, including his primary residence, he'd like to take

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Berry James, who dabbles in residential real estate investment in Chicago's Bronzeville neighborhood, says the hefty unemployment rate coupled with the housing crisis has affected the way he conducts business as a landlord and real estate investor. "Everybody is looking at your credit a little bit more seriously now due to the economy."

Owner of four properties in the historically black area on Chicago's Near South Side, including his primary residence, he'd like to take advantage of buying up foreclosures to add to his portfolio, but the neighborhood banks he has dealt with on his properties for 30 years are scrutinizing his credit more than they were a few years ago, just as he in turns screens his potential tenants creditworthiness more than he used to.

"There is a ripple effect that is further hurting the real estate business," says James, who is also co-owner of Island Furs, which he says is the only black-owned fur salon in Chicago. He even had a lot of challenges trying to get a loan for his business. "Out of five banks we tried to get loans with, two of them sold and one just wasn't loaning any money."

This domino effect in Bronzeville, a revitalized area known for its recent gentrification, is just a microcosm for the downward spiral the credit crunch is putting on neighborhoods all across America.

Whether as a resident, landlord, or small business owner, residential property owners like James have found that declining real estate prices have impeded their ability to borrow the money they need. Historically, small businesses have regularly used real estate to obtain credit for various purposes.

In fact, 21 percent of small employers have mortgaged real estate for business purposes and 11 percent use real estate as collateral for other business assets, according to a Gallup survey conducted for the National Federation of Independent Business Research Foundation.

In 2009, 44 percent of small businesses seeking credit received only some or none of the money they sought, whereas in the mid-2000s, nine out of 10 small companies seeking credit received it. Without access to those funds, the owners can't reinvest in their businesses or their communities, or even keep up with salaries for their employees, or even themselves.

It seems to be a no-brainer that James is faced with financial challenges at his fur salon business -- aside from the seasonal nature of the fur industry -- consumers, whose spending rose a modest 0.4 percent in July after three falling months, just aren't spending their money on luxury items like fox tail hats and mink stoles, especially not with a national unemployment rate of 9.6 percent.

"Luxury items get put on the back burner as people are taking care of the necessities," says James, who, along with his co-owner, has gone without a salary for several months in an attempt to keep his employees on the payroll. He says some of his tenants have lost jobs, but he is doing what he can to help out some of his loyal, long-time tenants, especially ones with small kids. Some of them are behind on rent payments up to six months, making partial payments or sometimes none at all.

"These are people who have fallen on hard times, but they want to pay their rent," says James. But sometimes the fallout of the economy catches up with them. In one greystone duplex that he purchased for $30,000 in 1990, the majority of the adult occupants in both units lost their jobs. Eventually they left, knowing they would no longer be able to pay the rent, so with the units empty, James decided to rehab-with all the bells and whistles, such as whirlpool tubs, sauna, and granite counter tops.

"With the revitalization of the area, I think that this duplex unit would be desirable," he says. Perhaps more appealing to the influx of doctors, lawyers and other professionals that have been looking to move to the area. One unit has 4-bedrooms, 3 baths, and the other 2-bedrooms and 2-baths.

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But with his own income down from both the fur salon and the rents, combined with the lackluster economy, it wasn't as easy getting a rehab loan as it had been in the past, he says.

"It seems like my credit was scrutinized much more than before," he says. "The bank asked for an additional year of taxes and information - three years worth instead of two." Although he was eventually approved for the $150,000 rehab loan, the bank is slowly disbursing the money in about $30,000 increments, with more frequent checks by an inspector, whose reports follow a more stringent guideline than they did a decade ago.

"They want to make sure a certain percentage of work is done before they disburse anything else," says James. As a result, the rehab that he started in February 2009 is still ongoing. He expects it to be completed by February 2011. In the meantime, he has been paying $1,200 a month on the 6.75% mortgage, not including property taxes, for a building that he owned free and clear and without liens before pursuing the remodeling. To recoup his costs, he hopes to sell the unit next year for around $425,000.

"WIth so many foreclosures on the market now it is a buyer's market and when you have a buyer's market everybody, and with so many people competing for the buyer, that reduces the chance of you selling your property and getting a good price for it."

That's one of the reasons, along with the credit scrutiny, that he says he has put buying foreclosures on hold for now. "I've stopped buying because the banks are not loaning money."

If for some reason he can't sell the duplex when it's ready, he'll rent it out again. His screening process for new tenants is stricter than it once was. "I did my own checking previously with phone calls to references that were put on the rental application, but now I use a third party service to do a background check.

"We look at the credit more seriously now than we did before because with so many people out of work now you want to make sure the tenants are gainfully employed or have a source of income to pay the rent."

Their credit score isn't as high up on the list, he says. "People are having such a hard time that their credit score may not be as good as you would like, but they are still paying their rent. They may not pay their cable bill or phone bill on time, because they are taking care of the necessities -- the luxury items get put on the back burner." Just like fur coats.


Mr. James is related to the writer through marriage.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00How to Tap Home Equity Wiselyhttp://realestate.aol.com/blog/2010/12/09/how-to-tap-home-equity-wisely-02/http://realestate.aol.com/blog/2010/12/09/how-to-tap-home-equity-wisely-02/http://realestate.aol.com/blog/2010/12/09/how-to-tap-home-equity-wisely-02/#commentsFiled under:

Many of the people losing their homes to foreclosure today find themselves in this situation because they used their home as a piggy bank: tapping their home equity beyond what they could truly afford to carry. If you're thinking of tapping into the equity in your home, be sure you can afford to make the payments. Remember you put your home at risk when you take an equity line. Your home becomes collateral; and if


Many of the people losing their homes to foreclosure today find themselves in this situation because they used their home as a piggy bank: tapping their home equity beyond what they could truly afford to carry. If you're thinking of tapping into the equity in your home, be sure you can afford to make the payments.

Remember you put your home at risk when you take an equity line. Your home becomes collateral; and if you can't make the payments, you could lose your home.

Also, given the uncertainty in the housing marketplace, don't even think about taking a loan that would be above 80 percent of the market value of your home. That leaves you some room in case house prices drop further. You'll also get better interest rate offers when you'll still have 20 percent equity left in your home.

Now let's map out the decision-making process for tapping equity safely:

Turn 1: Should you take a equity loan or equity line?

When borrowing against the equity on your home you can choose one of two types of loans. One is a equity loan, which is usually at a fixed rate for a fixed amount of money and time. When you pay off that loan the loan will be closed. The second option is an equity line of credit, which is usually at a variable rate. The advantage of an equity line is that once you have it in place you can pay it off and then tap it again through the term of the loan, which is usually 15 years, but other terms may be available. Check with your bank about the specific terms of their equity line or loan programs.

So which type should you take? That depends upon your plan. Also consider which way you think interest rates will be moving. A fixed-rate equity loan may be your best choice if you know that you only want to use if for one specific purpose, pay it off and close the loan. With a fixed-rate you know the interest rate won't change.

An equity line of credit might be best if you know you have a series of projects you want to do or more than one major purchase you want to make. Your plan is to pay each project or purchase off and then tap the equity. If that's what you want to do than an equity line of credit may be your best bet, but do remember that the interest rate will be variable and could start to creep up when the Federal Reserve starts to raise interest rates again.

Turn 2: What interest rate should you expect?

Interest rates will vary based on your credit score. Those with the best credit scores of 740 or above can get the best rates that you'll see quoted on the Internet. For example, currently you can get a $50,000 equity line for as low as 4.84 percent and a $75,000 equity loan for 8.25 percent.

But those favorable rates only go to people with the best scores. FICO has an excellent breakdown showing what you can expect to pay in interest based on your credit score. This will not necessarily be the final quote that you'll get from your bank, but it gives you an idea of how much more you might have to pay if your credit score is below 740. For example, someone with a credit score of 700 to 719 would pay 0.8 percent more for an equity loan. You can check your credit score for free at CreditKarma.com.

The final interest rate you're actually offered will depend on the lender. Shop around for rates based on your credit score. Some lenders may offer better rates than others.

Turn 3: Check out the fees

You may find a great interest rate, but if the upfront fees are high that could wipe out any savings from a slightly lower interest rate. Generally it's best to look for the lowest fees. In fact, some banks are even offering to pay your appraisal costs and waive any application fees. Make sure there aren't any hidden fees, such as a broker fee to be paid to a third party. Some fees you will likely have to pay include recording fees and an annual fee to use your credit line.

Turn 4: Understand the Tax Benefits

Some people say an equity line is the best way to go, even better than an auto loan or other type of loan, because you can write off the interest. If an auto loan is being offered at 0 percent and you get a good price on the car you want, why put your home at risk at all?

In order to write off the interest on an equity line, you must itemize deductions. If you're not doing that now, the interest on your equity line likely will not be enough to make it worthwhile in the future. So if you're choosing an equity line so you can write off the interest, be certain you'll be able to do so. Also, you can only write off interest on up to $100,000, so if you're taking an equity line of greater than that amount, the interest on the loan above $100,000 won't be deductible.

Equity loans and lines of credit can be a good option for you, but use them wisely. Be sure you'll be able to make the payments for the length of the loan. If you have any doubts about your income, don't put your home at risk.

Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Personal Bankruptcy and The Complete Idiot's Guide to Improving Your Credit Score.

 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00Underwater Borrowers Get a Lifeline on September 7http://realestate.aol.com/blog/2010/12/09/underwater-borrowers-get-a-lifeline-on-september-7/http://realestate.aol.com/blog/2010/12/09/underwater-borrowers-get-a-lifeline-on-september-7/http://realestate.aol.com/blog/2010/12/09/underwater-borrowers-get-a-lifeline-on-september-7/#commentsFiled under:

Is your home underwater? Do you owe the bank more than it's worth? If so, you may finally be able to get a fixed-rate Federal Housing Administration loan with principal reduction. Available to qualified homeowners on Sept. 7, these new FHA loans require banks to write down at least 10 percent of the unpaid balance of the first mortgage. The program ends Dec. 21, 2012. With as many as 20 million homeowners going underwater by
Is your home underwater? Do you owe the bank more than it's worth? If so, you may finally be able to get a fixed-rate Federal Housing Administration loan with principal reduction. Available to qualified homeowners on Sept. 7, these new FHA loans require banks to write down at least 10 percent of the unpaid balance of the first mortgage. The program ends Dec. 21, 2012.

With as many as 20 million homeowners going underwater by 2011, there could be a lot of interest in this new program.

"We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined," FHA Commissioner David H. Stevens said in a statement. "This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product."

The new loan product, called the FHA Short Refinance option, is targeted for those homeowners who are paying on time, but saw large declines in home values in their local markets. If your home is underwater and your interest rate is above 6 percent, you should definitely consider this. Even if you have a good interest rate, the write-down of your first and/or second mortgage may make this deal worth considering.

To qualify for this FHA refinance opportunity, you must be current on your mortgage, and your lender or investor must be willing to write off at least 10 percent of the original first lien on the mortgage. The big hitch is that you must have the consent of your current mortgage lien-holders, so if your lender refuses to participate, you won't be able to take advantage of this refinance program.

For your loan to qualify, you must meet these conditions:

    - Your mortgage must be in a negative equity position.
    - You must be current on your mortgage to be refinanced.
    - You must occupy the subject property (one to four units) as your primary residence.
    - You must qualify for the new loan under standard FHA underwriting and your FICO score must be greater than or equal to 500.
    - Your existing loan must not be an FHA-insured loan.
    - The existing first lien-holder must write off at least 10 percent of the unpaid principal balance.
    - The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
    - If you have other subordinate mortgages (such as an equity line) they must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent.
    - Your total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income. And total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income.
    - You cannot use the new FHA mortgage to pay off existing debt obligations in order to qualify for the new loan.

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If you've already undergone a loan modification, you may still qualify for these new FHA loans. Anyone whose loan was modified under the Making Home Affordable Modification Program may still be eligible beginning the month following the date the modification was permanent. If you were modified using a non-HAMP loan, you must make three on-time monthly payments on the new modified mortgage and be current on the loan.

There are also requirements that you must meet for any secondary financing, such as a home equity loan or home equity line:
    - Your subordinate lien must not provide for a balloon payment before 10 years, unless the property is sold or refinanced.
    - The terms must permit prepayment by the borrower, without penalty, after giving 30 days advance notice.
    - Periodic payments, if any, must be collected monthly.
    - Any monthly payments must be included in the qualifying ratios unless payments have been deferred for no less than 36 months.

To encourage second lien-holders to participate and extinguish fully or partially any second lien, the existing second lien-servicer will be entitled to a onetime incentive of $500 for each successful closing. There also will be an incentive for investors, based on the combined loan-to-value of the existing lien, and all senior liens associated with the mortgage.

Hopefully, these incentives will be enough to encourage your lender to participate.

Lita Epstein has written more than 25 books including "The 250 Questions You Should Ask to Avoid Foreclosure."

 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00Selling Your House to Preserve Your Credithttp://realestate.aol.com/blog/2010/12/09/selling-your-house-to-preserve-your-credit/http://realestate.aol.com/blog/2010/12/09/selling-your-house-to-preserve-your-credit/http://realestate.aol.com/blog/2010/12/09/selling-your-house-to-preserve-your-credit/#commentsFiled under:

Tom and Susan Mundahl haven't paid on their Wells Fargo Home mortgage in three months. This is not the first time in the past 12 months that they have been 90 days or more delinquent paying on their 2-bedroom single-family home in St. Louis Park, Minn. -- a home they purchased in April 2001 for $133,450. They cringe when they think about how the delinquency is affecting their credit score and their ability to move

Photo courtesy of Bill Ronan


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Tom and Susan Mundahl haven't paid on their Wells Fargo Home mortgage in three months. This is not the first time in the past 12 months that they have been 90 days or more delinquent paying on their 2-bedroom single-family home in St. Louis Park, Minn. -- a home they purchased in April 2001 for $133,450. They cringe when they think about how the delinquency is affecting their credit score and their ability to move to a new residence should they lose this one to foreclosure.

"I want to stay where I am, but I am concerned that if I lose my home I am not going to be able to find any affordable housing to rent, and even if I do, no one would want to rent to me because my credit will be so poor," says Susan Mundahl, who, since being laid off in March 2008 from an executive assistant position with the non-profit Hadassah organization, has been unable to find full-time work. Her husband, who recently completed a degree in graphic design, is doing small contract jobs while looking for full-time work.

With a national unemployment rate of 9.5 percent as of July 2010, many homeowners are finding themselves in the same boat of watching their creditworthiness fall as their incomes fall, especially if they are behind in their mortgage payments as they scramble to make ends meet with little to no income.

If this sounds like you or someone you know, there are several things you should know about how this affects your credit.

After 30 days of delinquency a lender will report the late payment to the credit bureaus. As a result, your three-digit credit score with Equifax, Experian or TransUnion, wlll drop a few points, and continue dropping with each missed payment.

After 90 days of delinquency, the lender might send you a letter saying that the foreclosure process will start unless you make good on the missing payments. At this time or soon thereafter they will file a "notice of default" with a local courthouse. This will also negatively impact your credit, as it is reported to the credit bureaus and can affect your chances of refinancing the loan. But you are only in a good position to refinance if your monthly loan amount is 30 percent or less than your monthly income.

As a couple, the Mundahl's receive about $2,400 a month in unemployment benefits, which means more than 50 percent of their income is going toward their $1,290 mortgage and property taxes -- when they pay it. With fees and penalties, they are now behind $4,100 on their remaining mortgage balance of $115,826.

Unless their mortgage payments are brought current by Sept. 7, 2010, according to an August 8 letter they received from Wells Fargo, they could be heading into foreclosure with their entire mortgage note due immediately. A foreclosure would further damage their credit and ability to purchase another home immediately, says Jay Dacey, a Plymouth, Minn-based mortgage specialist, who adds, however, that it can take a bank close to 12 months to finalize foreclosure proceedings. But if they do, a delinquent homeowner's credit would take a hit so severe that they will not be able to purchase again for three years.

"The FHA (Federal Housing Administration) allows a homeowner to purchase a new home immediately after a short sale under certain conditions," says Dacey. "They must have a legitimate reason for the move, cannot be taking advantage of the market, and cannot be late on their existing mortgage."

Here are their options:

Sell the House. The Mundahls, are considering salvaging their credit as well as equity in their house, which has a county assessment of $178,000, by putting the home on the market at a discount, hoping to sell it for about $150,000. They would then move temporarily into a rental while they find jobs and rebuild their credit.

This would be a better plan, says Dacey, than going into foreclosure. But to further protect their credit, he says the Mundahl's should also get caught up on their back payments. "Three or four months of delinquency is not as bad on your credit as 7 or 8 months."

Loan Modification. Homeowners scrambling to keep up with payments could also pursue a loan modification with their existing lender, but that also will damage their credit, says personal finance expert Lynnette Khalfani-Cox, author of Perfect Credit: 7 Steps to a Great Credit Rating. That's because when a loan mod is reported to the credit bureaus it is the same as saying you're not paying as originally agreed, resulting in a status change to your credit profile.

Susan Mundahl says her family is on their second attempt with Wells Fargo to try to get a home loan modification to reduce their payments or at least drop their current 7 percent interest rate to something that will bring their payments down to 25 percent or less of their income.

"When we applied before, in November 2009, Wells Fargo didn't lower our mortgage payment, although on the phone they promised they would," she says. Instead of a loan mod, they received a HUD loan.

HUD Loans. Homeowners with an FHA-insured mortgage may qualify for an interest-free loan to bring the mortgage current. The money gets paid back after you pay off the mortgage or sell the house. This solution, which the Mundahls received in Fall 2009, can help avoid serious credit score damage.

"We were given a HUD loan around $5,000 that was added to on to the back of our Wells Fargo loan," says Mundahl. "I thought Wells Fargo was also going to cut our interest rate also, but they didn't. I am starting not to have high hopes that they will get us into the loan modification program now."

Mundahl, who says they were turned down in the spring for a home equity line of credit due to a poor credit score, says her greatest concern: "Now my credit is ruined, and somehow I'm supposed to convince a prospective landlord to trust me to pay rent. I'd rather have Wells Fargo help us with a loan modification than to sell my home, but we'll do what we need to do."

A Wells Fargo mortgage representative was contacted for this story, but had not responded by time we published.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00New FHA Credit Requirements Turn Up the Heat on Borrowershttp://realestate.aol.com/blog/2010/12/09/new-fha-credit-requirements-turn-up-the-heat-on-borrowers/http://realestate.aol.com/blog/2010/12/09/new-fha-credit-requirements-turn-up-the-heat-on-borrowers/http://realestate.aol.com/blog/2010/12/09/new-fha-credit-requirements-turn-up-the-heat-on-borrowers/#commentsFiled under:

Ever since the housing crisis hit, homeowners unable to secure loans from private lenders -- which have gone back to requiring the traditional 20 percent down payment -- have relied on government-insured loans offered for as little as 3.5 percent down. Now the Federal Housing Administration (FHA) is tightening its belt by making the credit requirements for such loans more stringent. In 2009, defaults on FHA loans surpassed 9 percent, up from 6.8 percent the

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Ever since the housing crisis hit, homeowners unable to secure loans from private lenders -- which have gone back to requiring the traditional 20 percent down payment -- have relied on government-insured loans offered for as little as 3.5 percent down. Now the Federal Housing Administration (FHA) is tightening its belt by making the credit requirements for such loans more stringent.

In 2009, defaults on FHA loans surpassed 9 percent, up from 6.8 percent the year before. As delinquencies on loans rise, the FHA's largess is contracting. According to the Department of Housing and Development's latest quarterly report to Congress, the FHA's reserve funds --used to make up the difference when borrowers default on their loans -- has slumped to $3.5 billion, from $19.3 billion in 2008.

To account for a potential shortfall, the government agency announced some critical changes in January that will impact homeowners with FHA mortgages and for those hoping to qualify.

Some of the most significant changes relate to borrowers' credit profiles. Here's what to expect:


FHA Establishes Credit Score Minimum

In the past, the FHA did not limit borrowers by credit score; instead, that determination was passed along to the lenders underwriting the mortgages. To qualify for the 3.5 percent down bracket, borrowers now will need a credit score of at least 580. For those with credit scores falling somewhere between 500 and 580, the down payment will more than double to 10 percent. No FHA loan will be issued without at least a 500 credit score.

Lenders Get More Cautious

These days, mortgage lenders are keen to avoid the errors of the bubble years. As a result, they are combing applicants' financial records and credit reports with a diligence verging on paranoia. The new FHA credit requirements will only make them more cautious.

It used to be simple for lenders to get their loans insured by the FHA or guaranteed by Fannie Mae. The only instance in which banks would be required to to repurchase a mortgage was in cases of fraud. "Now, if FHA feels the lender didn't follow guidelines, they can refuse to insure and the lender has to pony up the cash to replace the funds on their warehouse line," Greg Cook, a California real estate broker and mortgage banker, told the San Francisco Chronicle. "Multiple buybacks can bankrupt a small lender."

Credit Reports Receive Closer Scrutiny

The general rules about managing your credit profile prior to a purchase still apply, only now borrowers must be hyper-vigilant. Just because you've been pre-approved doesn't mean you can rest easy. In response to FHA's stricter requirements, many borrowers are demanding clients write letters for all credit inquiries that show up after they apply for a mortgage; the loan will not close unless the client can prove they have taken no new debt related to those inquiries.

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In addition, lenders are rechecking borrowers' credit reports right before closing, to make sure no significant changes have occurred since the application was opened. Because of the new FHA credit-score minimums, mortgage applicants should pay off any credit balance immediately, even if it's just a bag of groceries.

All of these modifications are way for the FHA to ensure that their borrowers are more responsible homeowners. In turn, FHA's plan is designed to help the agency to reduce their risks, lower their costs, and sustain the government-subsidized loan program for the long term. With careful planning, qualified borrowers can benefit from the FHA changes, too.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00Making Homes Affordable Act Helps Homeowners Refinance at Low Rateshttp://realestate.aol.com/blog/2010/12/09/making-homes-affordable-act-helps-homeowners-refinance-at-low-rates-02/http://realestate.aol.com/blog/2010/12/09/making-homes-affordable-act-helps-homeowners-refinance-at-low-rates-02/http://realestate.aol.com/blog/2010/12/09/making-homes-affordable-act-helps-homeowners-refinance-at-low-rates-02/#commentsFiled under:

Over 4 million American homeowners with Fannie Mae and Freddie Mac loans have taken advantage of historically low interest rates thanks to the refinancing flexibilities offered through the Making Homes Affordable program. Since the program started, homeowners with a Fannie or Freddie loan have median savings of over $500 per month, for a total of $7 billion in savings. If you still have a mortgage that's at 6 percent or higher, or if you haveOver 4 million American homeowners with Fannie Mae and Freddie Mac loans have taken advantage of historically low interest rates thanks to the refinancing flexibilities offered through the Making Homes Affordable program. Since the program started, homeowners with a Fannie or Freddie loan have median savings of over $500 per month, for a total of $7 billion in savings.

If you still have a mortgage that's at 6 percent or higher, or if you have an adjustable rate mortgage, what are you waiting for? You'll likely never see rates this low. It makes sense to refinance now. The only reason not to refinance would be if you're planning to move in the next two years and can't recoup the refinancing costs.

For homeowners who are having trouble making payments, there's refinancing advice and help available through the Home Affordable Refinance Program (HARP), even if you are unemployed. There's also additional help if you're in one of the five hardest hit states in terms of numbers of foreclosures -- Arizona, California, Florida, Michigan and Nevada.

Here are the basic eligibility requirements to take advantage of HARP:

--You own and occupy a single-family home or are the owner-occupant of at least one unit in a two- to four-unit home.
--The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac.
--You're mortgage payments are current, which means you haven't been more than 30 days late on your mortgage payment in the last 12 months. If you have the loan for less than 12 months, you must never have missed a payment.
--The amount you owe on your first lien mortgage does not exceed 125 percent of the current market value of your property.
--You can pay the new mortgage payments.
--The refinance improves the long term affordability or stability of your loan.
--You can check to see if you're eligible at the Making Home Affordable website.

With rates as low as 4.61 percent for a 30-year fixed loan and 4.09 percent for a 15-year fixed loan, there's no reason to wait any longer. As long as you can lock in a fixed rate or cut your mortgage interest by at least 1 percent you likely will break even on the refinancing costs within two years thanks to the interest you'll save.

First, figure out how much you can save over time with an online refinancing calculator. The next step is to find the lowest-cost refinancing option. Start with your current lender, but don't hesitate to shop around for rates.

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If you want help, don't hesitate to contact a HUD housing counselor through the makinghomeaffordable.gov website. A counselor can help you pull together the documents you'll need to refinance and can even contact your mortgage company on your behalf if you prefer. The counselor can also help you develop a budget to be sure you'll be able to afford your new mortgage. There is no charge to work with a HUD-approved counseling agency.

So don't delay: Start your refinance now and take advantage of the historically low mortgage rates.






 

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]]>refinanceAol Real Estate Contributor2010-12-09T13:43:00 00:00Good Credit Alone Isn't Always Enough to Get a Mortgagehttp://realestate.aol.com/blog/2010/12/09/good-credit-alone-isnt-always-enough-to-get-a-mortgage/http://realestate.aol.com/blog/2010/12/09/good-credit-alone-isnt-always-enough-to-get-a-mortgage/http://realestate.aol.com/blog/2010/12/09/good-credit-alone-isnt-always-enough-to-get-a-mortgage/#commentsFiled under:

Bills have been paid on time without ever paying a late fee. Check. No outstanding credit card debt. Check. A two-income family with investment income. Check. It sounds like this couple will pass the smell test for a mortgage without any problem. And that's a problem, says Todd Huettner, a mortgage broker based in Denver. "You have to have good credit to get a loan, but having good credit won't get you a loan," he

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Bills have been paid on time without ever paying a late fee. Check. No outstanding credit card debt. Check. A two-income family with investment income. Check.

It sounds like this couple will pass the smell test for a mortgage without any problem. And that's a problem, says Todd Huettner, a mortgage broker based in Denver. "You have to have good credit to get a loan, but having good credit won't get you a loan," he says.

In other words, it's not enough these days to have a credit rating above 740 to refinance to buy a home. "Now, it's just a starting point," he says. "You have to have really good credit. But it's not a done deal if you do."

Huettner and other mortgage brokers say that they are spending a lot of time explaining to clients what else they need to have in order to prove to lenders that they are credit-worthy.

Steven Slotnick, a mortgage broker at Prospect Mortgage, based in Maplewood, N.J., says that the most difficult part of his job right now is obtaining the documentation that is required to verify a client's income and assets. "I am now asking borrowers for two years of complete tax returns," he says. "If someone comes in with a good credit score, that's wonderful. They will get a better rate on their loan. But they still need to qualify. And in order to do that, I need to fully document their income, and scrutinize their assets."

Slotnick and Huettner have both run into situations where they found, while going through tax returns of clients with stellar credit, issues that create problems on the loan application. While the key, both say, is to have good documentation, there are some instances where a loan won't be approved -- at least not at the rate the client would like -- until some issues are resolved.

One of the biggest problems Slotnick faces is getting full documentation of assets. The issue is an especially big one for clients who are independent contractors. "If someone works in a cash business, and makes large cash deposits, we will need to look at those receipts. We need to know where the money came from, and what account it went into. The better records you keep, the better chance you have of getting a mortgage loan approved."

In the case of a couple that was using cash they received as wedding gifts, he made sure the marriage certificate was part of the application, to prove where the cash came from.

"It used to be, the lender verified your employment by looking at a W-2, looked at your credit score, and your assets," says Huettner. "If the numbers were good, you got a loan. Now lenders are going by the rules. They are not just verifying that you are employed, they are looking at your tax returns to look at your income."

One couple that Huettner worked with had both recently changed employment status within the past year, when both became independent contractors. "They had perfect credit, a ton of assets, but, in the eyes of a lender, they were a risk, because their income was now considered inconsistent. I told them to wait at least a year to apply."

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Scrutinizing a tax return might reveal that you have a second home, which you use as a rental property. If you have written off expenses related to that property, a perfectly legal practice, it could lower your income. And suddenly, you are making less than you thought you made, at least on paper. But that is the paper that counts.

"Pulling tax returns is opening a Pandora's Box," says Huettner. "But if you know this upfront, you might be able to work out problems." The key, however, is to have all the documentation at the ready.

"I don't take applications anymore, I take documentation. I ask for pay stubs, W-2s, asset statements. I need to know what on there, and then we will build the application together. If your lender is not asking for tax returns and bank statements, that's a big red flag. It's not fun, but it's a huge requirement."

"We are all asking the same questions," said Slotnick. "It's not so much that it's difficult to get a mortgage, but it is definitely more cumbersome."

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00Fast Credit Score Fixes to Get the Best Mortgage Rateshttp://realestate.aol.com/blog/2010/12/09/fast-credit-score-fixes-to-get-the-best-mortgage-rates/http://realestate.aol.com/blog/2010/12/09/fast-credit-score-fixes-to-get-the-best-mortgage-rates/http://realestate.aol.com/blog/2010/12/09/fast-credit-score-fixes-to-get-the-best-mortgage-rates/#commentsFiled under:

With homes at near-bottom prices and mortgage rates at historic lows, a lot of consumers are jockeying to get into the homeowners market or to refinance their standing loan. But there's one catch: Getting approved for today's best mortgage products relies mostly on your credit score. In addition, mortgage lenders are digging deeper than ever into homebuyers' credit reports, studying not only credit-card spending habits but ordinary bill-paying consistency and debt-to-income ratios. Here's how to

Photo courtesy of Bill Ronan


It's Critical to Know Your Credit Score

Get It Now: See Your 2010 Credit Score
With homes at near-bottom prices and mortgage rates at historic lows, a lot of consumers are jockeying to get into the homeowners market or to refinance their standing loan. But there's one catch: Getting approved for today's best mortgage products relies mostly on your credit score. In addition, mortgage lenders are digging deeper than ever into homebuyers' credit reports, studying not only credit-card spending habits but ordinary bill-paying consistency and debt-to-income ratios. Here's how to quickly and efficiently address the credit issues mortgage lenders care about most.

Typically, a credit score of 720 or above is the bar for qualifying for the best mortgage rates. Many borrowers with lower scores may think there's nothing they can do to improve their situation, especially in the short-term, but that's a myth. While there's no quick-fix magic to erase glaring blemishes, a borrower -- even with high levels of debt and a history of delinquent payments -- can start improving his or her score in immediate and dramatic ways.

First, it's important to understand that a credit report is a snapshot of your creditworthiness at the one particular moment mortgage lenders pull the report. Scores can fluctuate a lot because most lenders update the credit bureaus on a monthly basis. But the amount the scores change is a little more complicated and depends on a series of factors, from your amount of available credit to paying your bills on time to the length of your credit history. As when being photographed for a portrait, you want to look your best when lenders take a picture of your credit profile while still conveying an accurate record.

To help you see a bounce in your score and land a step closer to obtaining an affordable home mortgage, AOL Real Estate talked to some financial experts to find out some fast ways for consumers to address a less-than-desirable credit score and to start seeing results:

Tip No. 1: Pull your credit score

Before shopping for a home, you need to know your exact credit score and determine whether any wrong information has affected it. According to Joel Ohman, a certified financial planner, around one-third of consumers have errors on their credit report and simply by pulling it, you can rectify those mistakes. Ohman says depending on the flub, this could cause your score to spring 25 to 50 points.

You should see this adjustment reflected in your credit score before you apply for a home loan. Cunningham advises allowing at least 3 months time to check your credit report before applying for a mortgage. This allows for the time it takes to deal with the credit bureau, provide documentation, and then to see your score updated. Consider subscribing to an online credit-score monitoring service for at least six months before you start applying for mortgages. This will give you a crystal-clear sense of how different actions affect your score and how quickly your repair efforts register. One big surprise: Large credit-card balances can hurt your credit score temporarily, even if you pay them off on time.

Tip No. 2: Pay down your debt

Before you take on a mortgage, you need to show lenders you can manage credit responsibly. About 30 percent of your credit score is based on your available credit, which can be figured by taking the total of your credit card balances divided by your total credit card limits. As you start paying down your debt and continue to do so over time, you are going to see your credit scores bounce.

But if you are saving up for a bigger down payment or to do a cash-in refinance, you may not have the spare dollars to completely wash away your liabilities. If this is the case, then try to get as close as possible to the recommended level. Typically experts suggest consumers use 20 percent or less of their available credit.

Tip No. 3: Target credit accounts that matter most to lenders.

Lenders are scrutinizing credit reports more carefully than ever, so it's important to target the accounts they'll be most concerned about. Major credit cards are by far the most important. But be sure not to forget about store credit cards, even those you rarely use. It's easy to forget to pay a bill on a card you only use once in a while, but mortgage lenders will expect them to be up-to-date before moving forward. Also, expect payments for doctor's fees, utility bills, and home equity lines of credit to be scrutinized, as well.

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Tip No. 4: Piggy-back on good credit -- married couples can start anew when buying a home.

Another strategy to enhance your scores is to utilize the good credit of a significant other, a relative, or a very good friend, says Cunningham. Get added to a credit card as a joint account holder, and as payments continue to be made on time, your credit scores will increase. For example, if a husband with good credit adds his wife to his account, his history will be imported into her credit file and in effect, raise her score.

Cunningham says another way is to use a secure credit card, a credit line that requires a cash collateral deposit. This means you put a $1,000 in cash down for a credit card and then you can charge up to exactly that amount on the card. The purpose is to have the issuing lender reward you for using the card and report back to the credit agencies. Just confirm before arranging for the secure card that your lender is going to report your payment history to the credit bureau.

Tip No. 5: Attempt to increase your existing credit limits, but don't open new accounts.

Most mortgage brokers say you should stay financially static during the application process and avoid starting an new credit lines. But your score can actually benefit from increasing your credit limits, part of the equation that determines your percentage of available credit. If you have been a responsible owner of a credit card, you may consider asking the issuer if they will raise your credit card limit.

However, this should not be confused with opening new credit cards and lines of credit, which could have an adverse effect on your credit. "Someone opening five or six credit cards at one time may have a budget problem," says Ohman. "In the short term, it could be seen as a negative."

Opening up credit -- such as applying for multiple credit cards, a car lease, store cards-- around the time you apply for a home loan can compromise your position as a borrower.

Tip No. 5: Don't continue to pay bills late -- especially your mortgage payment.

Forgo the defeatist mentality, because starting to pay your bills on time can start to correct your dismal credit score. About 35 percent of your credit score is based on whether you pay your bills on time. You just have to meet the minimum by the due date.

For those who are already homeowners, paying bills on time also includes your current mortgage payment. Scott Gamm, founder of a money management website, says that bankruptcies and foreclosures can cause your credit score to drop 150 to 200 points and that this discrepancy will be a fixture on your credit report for the next seven to ten years.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00Second Credit Checks for Home Buyers: Be Preparedhttp://realestate.aol.com/blog/2010/12/09/second-credit-checks-for-home-buyers-be-prepared-02/http://realestate.aol.com/blog/2010/12/09/second-credit-checks-for-home-buyers-be-prepared-02/http://realestate.aol.com/blog/2010/12/09/second-credit-checks-for-home-buyers-be-prepared-02/#commentsFiled under:

In today's real estate climate, getting a pre-approval on a loan doesn't mean you can kick back and go on a shopping spree to furnish your soon-to-be dream house. With stricter regulations mandating a further credit probe before borrowers close their mortgage, real estate experts are advising prospective home shoppers to keep their financial situation static until the deal is finalized. Starting June 1, Fannie Mae has a new rule going into effect which requires


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In today's real estate climate, getting a pre-approval on a loan doesn't mean you can kick back and go on a shopping spree to furnish your soon-to-be dream house. With stricter regulations mandating a further credit probe before borrowers close their mortgage, real estate experts are advising prospective home shoppers to keep their financial situation static until the deal is finalized.

Starting June 1, Fannie Mae has a new rule going into effect which requires the lender to check for additional lines of credit, such as a new credit card or a car lease, that a borrower may have obtained that have not been reflected on the credit report over the course of the loan process.

According to Keith Stewart, a mortgage broker with Northpoint Lending Group, Inc., the directive enforces more accountability on the part of the lender, but it isn't an entirely new mode of operation. "When I pull the credit for my clients, I tell them we are going to get approved on a financial snapshot," says Stewart. "We don't want to change that until we close."

In light of the new regulation, we talked to a pool of mortgage brokers, who shared tips on dodging mortgage closing debacles and streamlining the process.

Tip No. 1: Get the house before the car

Across the board, mortgage brokers say that opening new lines of credit is the easiest thing to trigger the lender's attention, especially with the news of Fannie Mae's mandate. For example, this means opening up a store card at Lowe's to get a head start on buying some new appliances or paint or leasing a car to have something shiny to park in your new garage.

New credit obligations, such as as credit cards, increases a borrower's debt-to-income ratio (the amount of debt including mortgages, car loans, student loans, credit cards versus overall income). Fannie Mae sets the maximum for the debt-to-income threshold at 45 percent of a borrower's gross monthly income. Breaking this cap --even after pre-approval--would result in a defunct loan.

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New credit cards, in-store credit cards, student loans and car leases are other forms of credit that drive up a borrower's debt ratio.

Grant Stern, president of Morningside Mortgage Corporation in Miami, Fla., believes car loans are "the No. 1 culprit" in lenders turning down a prospective buyer's home loan. "We always tell people as mortgage brokers, 'Get the house first, then they will give you the car," he says.

Tip No. 2: Don't switch professions (or tax brackets)

Brokers say its not earth-shattering to change jobs in the same field, especially if you are making more money at the new place of employment, but it's complicated when a professional is moving job classifications, for instance, from employed to self-employed, or from a salaried-position to a commission job. "Moving from an employee to a contract basis is a dagger," says Stern, as two years of federal tax returns need to be included with a loan application. "[In this case], it could take three years to get approved for a mortgage."

As another precaution given the nation's high unemployment rate, Stewart says it's becoming routine for lenders to get a verbal confirmation of a borrower's employment status on the day of the closing.

Tip No. 3: Try not to move around big sums of money -- even deposits

One broker says keeping your financial situation unchanged is not only refraining from withdrawing large sums of money, but also avoiding making big deposits of money in any of your bank accounts from pre-approval to day of closing. To qualify for a mortgage, one of the requirements is proof of all assets, including checking, savings, stocks or bonds, and if this is checked at any future point, the borrower may need to provide records of the fund's origins.

"That's what tight lending is these days -- providing documentation," says Jay Sondhi, a mortgage consultant in San Francisco. "What they are concerned about is that a large deposit may be borrowed money."

Though more money in your bank account is not going to sabotage your qualifications for a loan, complying with documentation requirements and time delays may make a closing a mortgage a bigger hassle.

Tip No. 4: Monitor the balance of your credit cards

Though the credit score formula is deemed an enigma by many, the balance that's riding on your credit cards plays
a big part in determining your credit score. Higher scores result in borrowers being able to secure better interest rates.

For example, during the loan process, if a borrower's credit report is pulled again, a lower score may be caused from higher levels of debt reported by the credit bureaus. The consequence of a lower score may cause the borrower may either lose their interest rate or have to pay a price adjustment to keep it, yet another bump in the road.

With tight lending policies and stricter, more spelled-out regulations in the post-boom era, getting a mortgage has become increasingly confusing for the consumer. But keeping your finances transparent and steady will help simplify the process.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00Second Credit Checks for Home Buyers: Be Preparedhttp://realestate.aol.com/blog/2010/12/09/second-credit-checks-for-home-buyers-be-prepared/http://realestate.aol.com/blog/2010/12/09/second-credit-checks-for-home-buyers-be-prepared/http://realestate.aol.com/blog/2010/12/09/second-credit-checks-for-home-buyers-be-prepared/#commentsFiled under:

In today's real estate climate, getting a pre-approval on a loan doesn't mean you can kick back and go on a shopping spree to furnish your soon-to-be dream house. With stricter regulations mandating a further credit probe before borrowers close their mortgage, real estate experts are advising prospective home shoppers to keep their financial situation static until the deal is finalized. Starting June 1, Fannie Mae has a new rule going into effect which requires


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In today's real estate climate, getting a pre-approval on a loan doesn't mean you can kick back and go on a shopping spree to furnish your soon-to-be dream house. With stricter regulations mandating a further credit probe before borrowers close their mortgage, real estate experts are advising prospective home shoppers to keep their financial situation static until the deal is finalized.

Starting June 1, Fannie Mae has a new rule going into effect which requires the lender to check for additional lines of credit, such as a new credit card or a car lease, that a borrower may have obtained that have not been reflected on the credit report over the course of the loan process.

According to Keith Stewart, a mortgage broker with Northpoint Lending Group, Inc., the directive enforces more accountability on the part of the lender, but it isn't an entirely new mode of operation. "When I pull the credit for my clients, I tell them we are going to get approved on a financial snapshot," says Stewart. "We don't want to change that until we close."

In light of the new regulation, we talked to a pool of mortgage brokers, who shared tips on dodging mortgage closing debacles and streamlining the process.

Tip No. 1: Get the house before the car

Across the board, mortgage brokers say that opening new lines of credit is the easiest thing to trigger the lender's attention, especially with the news of Fannie Mae's mandate. For example, this means opening up a store card at Lowe's to get a head start on buying some new appliances or paint or leasing a car to have something shiny to park in your new garage.

New credit obligations, such as as credit cards, increases a borrower's debt-to-income ratio (the amount of debt including mortgages, car loans, student loans, credit cards versus overall income). Fannie Mae sets the maximum for the debt-to-income threshold at 45 percent of a borrower's gross monthly income. Breaking this cap --even after pre-approval--would result in a defunct loan.

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New credit cards, in-store credit cards, student loans and car leases are other forms of credit that drive up a borrower's debt ratio.

Grant Stern, president of Morningside Mortgage Corporation in Miami, Fla., believes car loans are "the No. 1 culprit" in lenders turning down a prospective buyer's home loan. "We always tell people as mortgage brokers, 'Get the house first, then they will give you the car," he says.

Tip No. 2: Don't switch professions (or tax brackets)

Brokers say its not earth-shattering to change jobs in the same field, especially if you are making more money at the new place of employment, but it's complicated when a professional is moving job classifications, for instance, from employed to self-employed, or from a salaried-position to a commission job. "Moving from an employee to a contract basis is a dagger," says Stern, as two years of federal tax returns need to be included with a loan application. "[In this case], it could take three years to get approved for a mortgage."

As another precaution given the nation's high unemployment rate, Stewart says it's becoming routine for lenders to get a verbal confirmation of a borrower's employment status on the day of the closing.

Tip No. 3: Try not to move around big sums of money -- even deposits

One broker says keeping your financial situation unchanged is not only refraining from withdrawing large sums of money, but also avoiding making big deposits of money in any of your bank accounts from pre-approval to day of closing. To qualify for a mortgage, one of the requirements is proof of all assets, including checking, savings, stocks or bonds, and if this is checked at any future point, the borrower may need to provide records of the fund's origins.

"That's what tight lending is these days -- providing documentation," says Jay Sondhi, a mortgage consultant in San Francisco. "What they are concerned about is that a large deposit may be borrowed money."

Though more money in your bank account is not going to sabotage your qualifications for a loan, complying with documentation requirements and time delays may make a closing a mortgage a bigger hassle.

Tip No. 4: Monitor the balance of your credit cards

Though the credit score formula is deemed an enigma by many, the balance that's riding on your credit cards plays
a big part in determining your credit score. Higher scores result in borrowers being able to secure better interest rates.

For example, during the loan process, if a borrower's credit report is pulled again, a lower score may be caused from higher levels of debt reported by the credit bureaus. The consequence of a lower score may cause the borrower may either lose their interest rate or have to pay a price adjustment to keep it, yet another bump in the road.

With tight lending policies and stricter, more spelled-out regulations in the post-boom era, getting a mortgage has become increasingly confusing for the consumer. But keeping your finances transparent and steady will help simplify the process.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00Cash-Out Refinancing: Sign of the Times?http://realestate.aol.com/blog/2010/12/09/cash-out-refinancing-sign-of-the-times/http://realestate.aol.com/blog/2010/12/09/cash-out-refinancing-sign-of-the-times/http://realestate.aol.com/blog/2010/12/09/cash-out-refinancing-sign-of-the-times/#commentsFiled under:

Gone are the days when homeowners used their houses and apartments like ATM machines, pulling out equity to pay for vacations and other treats. Nowadays, people are more likely to put money into their homes when they refinance--moving themselves towards a debt-free future. Of the borrowers who refinanced home loans in the first quarter of 2010, 18 percent--nearly 1 in 5--took out new loans that were smaller than their original financing, often writing big checks
Gone are the days when homeowners used their houses and apartments like ATM machines, pulling out equity to pay for vacations and other treats. Nowadays, people are more likely to put money into their homes when they refinance--moving themselves towards a debt-free future.

Of the borrowers who refinanced home loans in the first quarter of 2010, 18 percent--nearly 1 in 5--took out new loans that were smaller than their original financing, often writing big checks to pay off the difference and cut the amount they owe to the banks. All told, three-quarters of borrowers who refinanced kept their loan balance largely unchanged or reduced their loan balance outstanding as a result of the refinance, according to Freddie Mac's latest quarterly Refinance Report.

The share of people who refinanced and took money out, replacing their old home loan with a new loan that was at least 5 percent bigger than their old loan, fell to 28 percent. That the lowest since Freddie Mac started keeping track in 1985.

So has the world changed or have we changed? It would certainly be nice to think that borrowers had gotten smarter and were voluntary choosing to lighten their load of debt. But that's not it....

"The main causes of the decline in cash-out refinance were reduced home prices and tighter underwriting standards for loan-to-value ratios," said Frank Nothaft, chief economist and vice president for Freddie Mac.

Home prices dropped so much in the real estate crash that about a quarter of all borrowers now have home mortgages that are larger than the value of the home, according to First American Core Logic. The value of nearly everyone else's home has also dropped sharply - the Case Shiller Price Index has fallen more 30 percent from its peak in 2006.

At the same time, lenders are much less eager to offer home loans that cover more than the standard 80 percent of the value of a home. Back in the housing boom, mortgage loans were made at an average of 88 percent of the value of homes in 2006, suggesting a 12 percent down payment, according to recent coverage in Reuters.

The combination is forcing many borrowers who refinance their home loans to take out smaller mortgages.

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But thanks to low interest rates, the incentive to refinance is still strong for many borrowers. Half of the borrowers who refinanced in the first quarter cut more than 0.9 percentage points off their interest rate, according to Freddie Mac. That's largely because interest rates, despite months of predictions that they must rise, have stayed close to 5 percent throughout the first quarter, inching upwards only to fall back down.

That happened again last week, when a financial crisis in Greece frightened skittish investors away from short-term investments and into long-term bonds, pushing average interest rates for 30-year home loans back down to 5.0 percent in the week ending May 6. That's down from 5.1 percent, where the rate had stayed for the last three weeks, according to Freddie Mac's Primary Mortgage Market Survey. Rates will probably creep back up to that level as the crisis resolves itself, according to the experts polled by Bankrate.com's extremely helpful Mortgage Rate Trend Index.

But rates won't rise much further--interest rates are expected to stay relatively low all year, averaging 5.3 percent in the second quarter, and rising to an average 5.7 percent in the fourth quarter. Rates won't get to an average 6.0 percent till the second quarter of 2011, according to Northaft.



 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00Caution: That Loan Modification Can Hurt Your Credithttp://realestate.aol.com/blog/2010/12/09/caution-that-loan-modification-can-hurt-your-credit/http://realestate.aol.com/blog/2010/12/09/caution-that-loan-modification-can-hurt-your-credit/http://realestate.aol.com/blog/2010/12/09/caution-that-loan-modification-can-hurt-your-credit/#commentsFiled under:

A homeowner was dumbfounded to discover that his near-perfect credit score of 750 fell more than 100 points after joining a trial mortgage assistance program. And it happened despite never having fallen behind in his mortgage and even though he made the trial's payments on time. It's a dilemma facing many homeowners seeking loan modifications, says CNNMoney. In this case it happened to a Chicago-area municipal employee who simply sought assistance after his work hours

A homeowner was dumbfounded to discover that his near-perfect credit score of 750 fell more than 100 points after joining a trial mortgage assistance program. And it happened despite never having fallen behind in his mortgage and even though he made the trial's payments on time.

It's a dilemma facing many homeowners seeking loan modifications, says CNNMoney. In this case it happened to a Chicago-area municipal employee who simply sought assistance after his work hours were cut.

"The ones with the most severe impact will be those with good credit of 700 or above," says Lynnette Khalfani-Cox, author of Perfect Credit: 7 Steps to a Great Credit Rating.


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The reason the people with good credit scores take more of a hit is that they have farther to fall. "Those people do more damage to their credit ratings because higher scores are more sensitive to the slightest mistakes. If your score is already 550, you might lose 50 points, whereas the person with 720 might lose 150 points," Khalfani-Cox told HousingWatch.

Falling credit scores are an issue facing many homeowners seeking loan modifications. Some are led by loan officers to believe that entering a program will not lower a credit score. Don't believe them.

Khalfani-Cox says most banks will say that they notify the bureaus that you are in a loan modification program. This is basically the same as saying you're not paying as originally agreed and it marks a status change to your credit profile. "Even status changes can hurt your credit rating," Khalfani-Cox says.

But no worries, you can start to overcome the setback in six to nine months.

Most people accepted into a loan modification program are there because they have already missed payments -- in some programs you're told that you can't even qualify unless you're in arrears 90 days or more. (See our piece on what happened to a WaMu client who was told this).

Of course in such cases your credit has already dropped because credit bureaus have been notified of the delinquency. Whether or not you missed payments to get into a trial, acceptance into a loan mod will trim your credit score by 50 to 100 points -- a big impact given that the range from worst to great is from 300 to 850.

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Think of it this way: If you can't pay the minimum amount on your credit cards each month, but you pay something, the bank still penalizes you by way of finance charges and reporting you to the credit bureaus as delinquent on full minimum payments.

It's no different with a loan mod.

Here's how entering a loan modification program hurts your score: Industry guidelines call for loan-servicing companies to report your status to the credit bureaus as either current in your payments or by citing the number of days you are delinquent. In addition, your account will also be flagged with a code when you are in a partial-payment plan. The code can affect credit scores all by itself under the FICO system.

Just getting approved for a loan modification requires a credit check. Although the credit hit can be disheartening, experts say it beats the ding you might encounter if your home went into foreclosure.

I know those words don't soothe the ears of homeowners who say they had near-perfect credit prior to asking for assistance, but stop your whining. Help doesn't come without setbacks, and this one is easily fixed.

Seriously delinquent borrowers, may improve their status once they start making payments again, according to the Mortgage Bankers Association. Even though most negatives stay on your report for 7 years, their impact lessens over time, says Steven Katz, senior director of consumer education for TransUnion, one of the three credit reporting agencies. Six to nine months of handling your credit obligations in a responsible manner can have a big impact on how a lender views your creditworthiness.

Here's how, suggests Katz:
  • - Pay bills on time every month, even if you can only pay the minimum amount due.
  • - Keep applications for new credit to a minimum, particularly over a short period.
  • - Keep credit card balances at less than 35 percent of their limit.
  • - Check your three credit reports frequently (at a site like truecredit.com or zendough.com) to ensure that they accurately reflect the credit you've earned.

 

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]]>creditAol Real Estate Contributor2010-12-09T13:43:00 00:00Looking for New Home Equity? Local Banks Have Best Dealshttp://realestate.aol.com/blog/2010/12/09/looking-for-new-home-equity-local-banks-have-best-deals/http://realestate.aol.com/blog/2010/12/09/looking-for-new-home-equity-local-banks-have-best-deals/http://realestate.aol.com/blog/2010/12/09/looking-for-new-home-equity-local-banks-have-best-deals/#commentsFiled under:

They're baaack! Home equity lines of credit, or HELOCs--an early casualty of the housing bust--are growing in popularity again as cheap rates lure homeowners looking for funds to pay for student loans and home renovations, among other needs. The key difference this time around is that many are turning to local lenders instead of the big banks. Over the past two years, many banks made headlines by freezing HELOCs or lowering their amounts as home
They're baaack! Home equity lines of credit, or HELOCs--an early casualty of the housing bust--are growing in popularity again as cheap rates lure homeowners looking for funds to pay for student loans and home renovations, among other needs.

The key difference this time around is that many are turning to local lenders instead of the big banks.

Over the past two years, many banks made headlines by freezing HELOCs or lowering their amounts as home values plummeted. At the same time, tightened lending standards meant fewer people qualified for home equity lines than before. Many larger banks discontinued their HELOC programs completely.


Michael Destefan of River Edge, N.J., told The Star-Ledger that a big bank revoked his HELOC last summer after he refinanced his first mortgage. This year, Destefan, who owns a printing and marketing business called The Print Group, was able to get a new home equity line from Lakeland Bank, a small lender in Oak Ridge, N.J. The small business owner plans to use the funds to purchase printed items from China, including coffee mugs and tote bags. "We do promotional printing that appears in stores," Destefan said. "And sometimes these orders that we send to China require $50,000 up front. Customers won't pay for a product they won't see for a month, so we have to be able to wire China the money the next day, and now I have the flexibility to do that."

"I'm not surprised that you see some people moving those types of accounts to community banks, just because of the fallout that's occurred with what the larger banks did," Steve Bridges, executive director of legislative and regulatory affairs for the Community Bankers Association of Georgia (CBA), tells HousingWatch.com. "The community banks can give them more personalized service than a big bank." Bridges adds that local banks are less likely to freeze HELOCs based solely on an a

In February, a nonprofit group called A New Way Forward put up a web site urging HELOC borrowers and other financial customers to "break up" with their current banks and seek out local banks and credit unions to handle their credit requests. "It's time we stopped funding corrupt politics and end our abusive relationships with the four big banks," the site boldly proclaims.

There is some evidence to support this assessment. Earlier this year, a federal judge in San Francisco refused to dismiss a class action suit that accuses Chase Manhattan Bank of suspending borrowers' home equity lines based on an "inaccurate and mysterious formula" for determining home values. The lead plaintiff, Mary Yakas, filed the suit after her HELOC was suspended in late 2008 based on the assessment of Chase's Automated Valuation Model (AVM) that her home's declining value no longer supported her credit line, rather than on the opinion of a licensed appraiser.

CBA's Steve Bridges says that local banks are less likely than larger banks to freeze HELOCs or cancel them based solely on an automated value formula showing declining home values in their area. In addition, a local bank might offer borrowers in good standing some workable options. "I would doubt that in most instances a community bank would come in and just close a home equity account [in good standing]," he says. "They might instead inform the customer that they need to drop the collateral value, say, from $60,000 to $40,000."

Of course, there's no guarantee that a local bank will behave more ethically or have better rates. But the chances of a HELOC applicant getting more personalized service and an accurate property appraisal are more likely when the lending institution has roots in the community.

 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00Credit Score 101: Pump up your numberhttp://realestate.aol.com/blog/2010/12/09/credit-score-101-pump-up-your-number/http://realestate.aol.com/blog/2010/12/09/credit-score-101-pump-up-your-number/http://realestate.aol.com/blog/2010/12/09/credit-score-101-pump-up-your-number/#comments While interest rates remain near historic lows -- 30-year fixed mortgages have averaged 6 percent or below for the past few years -- qualifying to actually get those rates is

 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00Home Equity Borrowing Still a Pretty Good Dealhttp://realestate.aol.com/blog/2010/12/09/home-equity-borrowing-still-a-pretty-good-deal-02/http://realestate.aol.com/blog/2010/12/09/home-equity-borrowing-still-a-pretty-good-deal-02/http://realestate.aol.com/blog/2010/12/09/home-equity-borrowing-still-a-pretty-good-deal-02/#commentsFiled under:

Not long ago, homes worked like giant credit cards. Home Equity Lines of Credit (HELOCs) helped borrowers cash in on the equity in the homes. Dan Wolfrum of Peoria, Ariz., bought his home at a foreclosure auction in 1991 for $51,000. At the time, the four-bedroom, two bath house on a peaceful cul-de-sac in the Phoenix area seemed like a no-brainer. As the value of his home skyrocketed in the decade that followed, Wolfrum observed


Not long ago, homes worked like giant credit cards. Home Equity Lines of Credit (HELOCs) helped borrowers cash in on the equity in the homes.

Dan Wolfrum of Peoria, Ariz., bought his home at a foreclosure auction in 1991 for $51,000. At the time, the four-bedroom, two bath house on a peaceful cul-de-sac in the Phoenix area seemed like a no-brainer.

As the value of his home skyrocketed in the decade that followed, Wolfrum observed fellow homeowners in his neighborhood take out home equity loans to finance swimming pools, SUVs and summer vacations. In the late 1990s, after divorcing and remarrying, the meat distributor salesman finally took the plunge and applied for his own home equity loan to pay for home renovations and a new car. A few more refinances and one loan consolidation later, Wolfrum owes $170,000 on his mortgage.

With foreclosures and short sales rampant in the Phoenix area, Wolfrum's house is now worth less than what he owes. His income in decline and retirement getting nearer, Wolfrum is now working with mortgage experts to lower his payments.

Wolfrum's now-familiar tale might lead one to conclude that home equity loans and home equity lines of credit (HELOCs) are at the top of the current list of homeowner no-nos. But that conclusion would be dead wrong.

Certainly banks have tightened their lending standards, due to declining housing markets nationwide. According to Equifax, the volume of new HELOCs created in November 2009 was $4.9 billion, less than a quarter of the amount created two years earlier, in November 2007. But rates remain at historic lows, around 5 percent for revolving credit HELOCs and just under 9 percent for fixed-rate home equity loans, according to Bankrate.com. Good luck finding credit cards with rates below those.

If you plan to brave the waters of home equity borrowing, here are a few current guidelines:

1. The first key to success is to use home equity borrowing in a sensible, educated way. A good general rule is to reserve it only for something that could be considered an investment, such as education or home improvements. Avoid quickly depreciating purchases such as cars, vacations, and big-screen TVs.

2. Do some serious comparison shopping before signing up with any particular bank or lending institution. These days, many major lenders aren't doing home equity deals, even with consumers with good credit. But some smaller, regional and online banks are. The trick is to find them and find the ones with the best rates. Ask around at local banks and do some searching on the Internet, as well. As always, an excellent credit score helps--over 740 is best.

3. Don't use your house as a piggy bank. A good example of this is not using home equity to pay down credit card debt. This is an easy way to fall into deeper debt without addressing the underlying problem--mainly, that you're spending too much to begin with. Even home improvements and tuition payments can drain your home dry if the spending limits aren't kept in check.

4. Finally, be careful to limit the size of your home equity loan. Avoid combined mortgage and home equity borrowing that leaves a cushion of less than 20 percent equity. If you owe more than 80 percent, you'll pay higher interest rates and eliminate a vital source of emergency funds. Besides, if housing prices continue to decline, you could find yourself "underwater," just like Dan Wolfrum.

Another issue to be watchful of is the increased difficulty homeowners with second mortgages are having in modifying their loans, though President Obama's recent bailout initiative regarding five states that have seen housing values drop more than 20 percent, may easy some of that pain.




 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00You Can Still Get a Home Equity Line of Credithttp://realestate.aol.com/blog/2010/12/09/you-can-still-get-a-home-equity-line-of-credit/http://realestate.aol.com/blog/2010/12/09/you-can-still-get-a-home-equity-line-of-credit/http://realestate.aol.com/blog/2010/12/09/you-can-still-get-a-home-equity-line-of-credit/#commentsFiled under:

Not long ago, homes worked like giant credit cards. Home Equity Lines of Credit (HELOCs) helped borrowers cash in on the equity in the homes. You can still get a HELOC today, though the business is much smaller, with home prices down about 40 percent from their peak and banks tightening their lending standards. The volume of new HELOCs created in November was just $4.9 billion. That's less a quarter of the HELOCs created two
Not long ago, homes worked like giant credit cards. Home Equity Lines of Credit (HELOCs) helped borrowers cash in on the equity in the homes.

You can still get a HELOC today, though the business is much smaller, with home prices down about 40 percent from their peak and banks tightening their lending standards.

The volume of new HELOCs created in November was just $4.9 billion. That's less a quarter of the HELOCs created two years before, in November 2007, according to a recent report from credit tracker Equifax.

So banks are still creating billions of dollars in new HELOCs every month for borrowers who use them for purposes from an alternative to automobile financing to a credit line for small business.

HELOC interest rates now hover around 5 percent. That's down from over 7 percent two years ago and is much better than the rates offered by many credit cards, according to Bankrate.com.

The new HELOCs are also smaller, averaging $80,724 in November 2009. That's down from $80,724 two year before, according to Equifax. Banks also require strong credit to get a HELOC. Only borrowers with credit scores 820 and higher qualified for HELOCs over $100,000 in 2009. A credit score over 800 was needed to get a line over $80,000, compared to just 700 back in 2007.

The places where borrowers use HELOCs has also changed with falling property values. Borrowers Pennsylvania made up 8 percent of the market for new HELOCs in 2009, putting a state largely ignored by housing boom on par with the real estate gold rush state of Florida, which also had 8 percent of the HELOC market in 2009, and ahead of California, which had 7 percent.

Common sense should also limit the size of a credit line.

"Since many economists believe home prices have further to fall, don't borrow the maximum you can," said Amanda Gengler, writer for Money Magazine in a PBS interview.

 

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]]>Aol Real Estate Contributor2010-12-09T13:43:00 00:00