Even though you may qualify for a large loan that does not mean that you want to take that amount.  There are factors that mortgage lenders do not consider about your lifestyle and money choices that you need to think about when considering how much you want to pay into your monthly housing payment.  Here are some things you should always consider when taking out a mortgage loan:

•    How much can you really afford?  If you are approved for a $400,000 loan do you really want to purchase a $400,000 home?  Along with that large price tag comes large tax bills, maintenance, and depending on the area you are in, it may take a while for you to sell a high priced home in the case you choose to resell the house.
•    What type of lifestyle do you enjoy?  Many people are house poor because they allowed themselves to get carried away and take a large loan amount that they can barely afford.  Now they better like the home they purchased because they are not going to be going out much because they are spending all their extra money on their home.  If you enjoy eating out, vacationing, shopping, or other luxuries that are costly make sure you consider these expenses when you are budgeting how much you can afford for your monthly mortgage payment.
•    Do you have any expensive hobbies?  If you like to go boating, skiing, sky diving, or any other costly extra curricular activities you should consider these as expenses when you are tabulating how much of a mortgage payment you can afford.  The more pricey the hobbies you have are, the less money you should spend on your home unless you are willing to give them up.
•    How secure is your job, and do you work in a field where jobs are readily available?  If you are not sure about what your employment status will be in the future, you should consider taking out a mortgage that will be affordable even if you have to take a lower paying job.  This will also allow you to save up some rainy day money in case you are unemployed for any period of time.
•    How much do you need to save for the future?  Consider how much a month you would like to put away for savings, retirement, and other long term goals.  Figure your monthly budget without this money when you are considering how much to spend on your mortgage payment.
•    Do you have a large family or expect to start a family?  Children are extremely expensive at all ages.  Once you have children you may want to begin college funds, take out larger amounts on your life insurance policies, or other family related expenses that you may not have right now.  Consider future expenses when you are budgeting for your monthly mortgage payment.
•    Think of any future expenses.  Are you going to get insurance for your mortgage in case something happens to you like death or disability?  Are you planning to get a new car payment soon, and with that how much will your car insurance increase?  You should always keep in mind possible expenses in the future in order to really be prepared for your financial circumstances and know how much home you can afford.

These suggestions include:

•    A normal sale.  You can list your home for sale by owner or have a real estate agent sell it for you.  There are fees involved with a real estate agent, but the home could see faster this way.

•    A short sale (also known as a pre-foreclosure sale) is when you sell your home for less than what you owe.  If the real estate market declined in your area or you borrowed so much in equity on your home and now it is worth less that what you owe on it, then your lender may be willing to take less than what you owe.  You must have been trying to sell your home with no offers, be behind on payments and unable to catch up or make current payments, and an appraisal shows that your home is worth less that the loan payoff.

•    You can give back the house to the lender.  The lender may allow you to be clear of your mortgage loan debt if you give up your rights to the home and turn over the deed in full to the lender.

•    Mortgage assumption. This is when a buyer takes over the mortgage and assumes payment.  This buyer will now own the home and you will no longer be responsible for mortgage payments.

All of these are the ways in which the FHA suggests that people who need to sell their home do so in order to avoid foreclosure.  It may be difficult to sell, but if there is no other choice it is better to make arrangements so that foreclosure can be avoided and your credit can be preserved for the future.

Some of the ways in which you can make up back mortgage payments include:

•    Forbearance- this is when your lender is willing to let you have a little time off from payments in order to get caught up financially.  This is usually a good option if you lost a job and need time to start working at another place where you will have to wait for your first paycheck while catching up on other bills as well.  Once you get back on track you can make your back payments or make a payment plan to bring your loan current.

•    Payment plan- this is when your lender allows you to pay a little extra each month until the missed payments are paid.  You have to set this up directly with the lender.

•    Reinstatement- this is when you agree to pay back the entire amount that you own at a specific time.  This works well if you are able to make your current payments, and are expecting a lump sum of money in the near future like a commission bonus from work or a large tax return.

•    Insurance- if you have insurance on the loan that covers you in the case of loss of employment, illness, or death, then make a claim.

•    The FHA has a partial claim service.  This allows borrowers to take a one time loan without interest that will repay their missed mortgage payments.  This loan will not have to be repaid for years, and that gives the borrower time to save the money and increase their work wages over time so that they can afford to pay back the loan.

•    Change the terms of the loan.  Sometimes lenders are willing to lower interest rates, or extend the time of the loan in order to give the borrower the extra money they need to afford their monthly payment.

All of these are ways in which a borrower can keep their home, get out of default, avoid foreclosure, and repay their back mortgage payments.  For more information on the FHA and help avoiding foreclosure talk to us.

The new system, which will begin on January 1, 2008, will determine the borrower’s premium based on his or her credit profile. This will allow for borrowers with better credit to pay a lower percentage. Borrowers with poor credit will have to pay a slightly higher amount. This system has been in place in the private loan market since the mid-‘90s. The main reason for this change is to attract borrowers with fair credit who would have chosen sub-prime loans over FHA because of the lower mortgage insurance. This change, along with other proposed changes to the FHA, are all part of the push to make FHA loans relevant in the 21st century.

FHASecure is a new refinance option that is being offered to borrowers who have a good credit history and were making on-time payments before their adjustable-rate mortgages reset. The program has stringent underwriting guidelines and borrowers will have to pay a mortgage insurance premium, which are both safeguards for the borrower, lender, and taxpayers. More obvious benefits to the program include the FHA’s trusted foreclosure prevention assistance and the absence of prepayment penalties.

According to a statement released by HUD, homeowners must meet the following five criteria to be eligible for FHASecure:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2009;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

In addition to the introduction of FHASecure, it was also announced that risk-based premiums will be implemented beginning on January 1, 2008.

Alt-A loans are typically subject to manual underwriting, which may make the process take as long, if not longer, than securing a traditional loan. However, one of the benefits of manual underwriting is the increased flexibility provided to the borrower. Another point about Alt-A loans is that their interest rates are usually slightly higher than traditionally documented loan. This amount is usually less than one percentage point higher than a conventionally documented loan. That being said, many individuals applying for an Alt-A may not qualify for conventional loans because of their unique situations.

There are a number of subtle variations among different Alt-A loans, making it important for borrowers to get all the facts before making any commitments.

Here’s the first sentence of this Harold Brubaker story on the Federal Housing Administration’s resurgence given the continuing subprime crisis:

As the mortgage industry goes through a wrenching retrenchment, government-backed loans for first-time homebuyers and borrowers with credit problems are coming back into favor.

Increasingly, new homeowners and shoppers and existing mortgage holders are turning to the government-backed loans of the FHA for help in securing a home or easing financial burdens. The FHA fell out of favor over the past decade as loose loan providers offered prospective homebuyers of all stripes financing without proof of income or financing restrictions. Now, the housing market and the country’s economic market as a whole is suffering the consequences of widespread failure and foreclosure stemming from the subprime market.

Suddenly, the FHA is back in the spotlight.

Homeowners holding subprime mortgages and those at risk of losing their homes to default or foreclosure are turning to the FHA for help in refinancing and, perhaps, saving their homes.

Federal lawmakers are working on legislation that would overhaul and modernize the agency, making it easier to provide relief to needy homeowners. The FHA expects to refinance about 120,000 loans this year, although administration officials have said repeatedly that they could refinance twice that amount if some of the guidelines and regulations eased. An overhaul may do just that.

Among the options being discussed in Congress is eliminating or reducing the required 3% down payment, raising the size of the loans FHA can insure to as much as $417,000 from $362,790, and being able to charge insurance premiums based on a borrower’s risk instead of a one-size-fits-all rate, according to the Wall Street Journal, which also recently wrote about the subprime crisis in a story titled, “How the FHA Could Help Borrowers.”

We’ve been telling you about all of this for weeks, because we want to help borrowers, too. If you need help refinancing your current mortgage or simply have questions about what’s best for you and your family, contact the lending and refinance experts at Mortgage Loan Place today.

The ideal candidate for an FHA refinance is an individual who already has an FHA home loan. Homeowners may choose to do this to switch from an adjustable rate to a fixed rate mortgage, to cash in on the equity the house has accrued or to consolidate multiple debts. One refinance option that is only available to those who already have an FHA loan is a streamline refinance. There is not a cash-out option available with a streamline refinance, but there are other great benefits. Streamline refinancing allows for less documentation and underwriting, reducing refinancing costs. There are still costs involved, but borrowers can pay them up front or accept a slightly higher interest rate to cover costs. A streamline refinance must lower monthly interest payments and loan principal.

For those who do not already have an FHA insured mortgage (and those who do) there are regular refinancing possibilities. Borrowers can opt for a cash-out or non-cash-out refinance, among other choices. Because of FHA loan limits this is usually only an option for people with relatively low loan amounts. However, if pending legislation is passed FHA loan limits could be raised significantly, making FHA refinancing an option for millions of Americans.

Congress in 1995 expanded a small pilot program of the Federal Housing Administration nationwide, bringing Energy Efficient Mortgages to a wider audience. The FHA, which is not a lending agency but insures mortgages, insured more than 26,000 Energy Efficient Mortgages in 2003, according to data from the U.S. Department of Housing and Urban Development.

The backbone of the EEM program is the idea that a reduction in a homeowner’s utility costs — by enacting changes that maximize energy efficiency — allows a homeowner to pay a higher mortgage to cover the costs of the energy improvements as well as the mortgage itself.

The FHA offers insurance for these specialized mortgages for a homeowner to buy or refinance a home and incorporate the cost of energy-efficient improvements. As the homeowner, you don’t have to qualify for the extra funds and no down payment is required.

EEMs offer homeowners who otherwise might not be able to afford it a chance to revamp their homes, save costs by adopting energy-efficient practices and help cut down on pollution. Yet, they’re still relatively foreign to most homeowners.

“Although EEMs have been available in some states since 1980, they have been little understood or marketed,” according to HUD. “With EEMs, borrowers do not need to get a separate, costly loan for energy improvements when buying an existing home.”

Here’s an overview of the requirements homeowners need to be considered eligible for an Energy Efficient Mortgage:

The borrower is eligible for maximum FHA-backed loan, using standard underwriting procedures. The borrower must make a 3-percent cash investment in the property based on the sales price. Closing costs are not included in the 3- percent calculation but may be used to satisfy the requirement. Any upfront mortgage insurance premium can be financed as part of the mortgage.

Eligible properties are one- to four-unit current and new construction.

The cost of the energy-efficient improvements that may be eligible for financing into the mortgage is the greater of 5 percent of the property’s value (not to exceed $8,000), or $4,000.

To be eligible for inclusion in this mortgage, the energy-efficient improvements must be cost effective, meaning that the total cost of the improvements is less than the total present value of the energy saved over the useful life of the energy improvement.

The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating report conducted by a home energy rating system or energy consultant. The cost of the energy rating may be financed as part of the cost-effective energy package.

The energy improvements are installed after the loan closes.

The maximum mortgage amount for a single-family unit depends on its location and it is adjusted annually.

There are three basic types of EEMs, so determining which one is best suited for your needs may require the help of an expert. Along with the FHA-backed loans for energy efficiency, the Veterans Administration also backs EEMs for qualified military personnel, reservists and veterans.

The mortgages are becoming more known and more popular as homeowners continue to look for meaningful ways to address rising fuel and energy costs. Take some time to evaluate your budget and whether the long-term cost savings associated with energy efficiency is something that’s right for you and your family.