Chitownproperty

FTC.gov: Deter. Detect. Defend. Avoid ID Theft

Identity theft is a serious threat to your credit history, affecting your ability to secure financing for a new home. Unfortunately, this type of crime has only gotten easier online. The Federal Trade Commission has an excellent website to help consumers protect themselves against identity theft, with steps you take to protect your personal information, how to determine if your identity has been stolen, and what to do in the unfortunate event that your identity has been compromised.

The good news is that mortgage rates are way down: 5.67% for a 30-year fixed loan this week. But the bad news is that the people who need to refinance the most–i.e. people who are trying to escape the leaping interest rates of their ARM–are the least likely to be able to do it, says Les Christie of CNN/Money.

Because the credit market has tightened, lenders are less likely to give money to people with little or no equity in their homes–bad news for someone who’s suffered a decline in their home’s value, or put very little money down with the purchase. And, of course, good credit matters now more than ever. So unfortunately, the only way to lowering your mortgage payments now is the old fashioned way, by paying down your loan and shoring up your credit.

Since both the sales and mortgage markets have tightened at the same time, buyers can now take advantage of different incentives offered by developers. Some developers eager to sell new units are offering buy-downs, or paying to lower a buyer’s interest rate by a few points, to entice buyers who may be having trouble securing a better rate. As Marilyn Kennedy Melia writes in the Tribune, buyers are also finding other incentives like payments for closing costs, taxes and assessments. But despite these juicy perks, buyers should still investigate the developer’s financial stability and track record before signing on the bottom line.

With the current environment of stagnant or even falling home prices, coupled with a tightening of the mortgage market, buying a home can seem like a risky proposition right now. But it carries the same risk it always has, provided you are realistic about what you can afford, says a marketing professor in this week’s Tribune. “We tend to over-react [to news],” [Univ. of California, San Diego professor On Amir] observed. “Which in this environment means that we will over-concentrate on the financial aspects of home buying and maybe not enough on what type of home we really want.” Read more on how to assess how much risk you can afford in a mortgage.

Once seen as a relatively easy way for buyers to stretch their resources and purchase homes they wouldn’t normally have been able to afford with a conventional mortgage, adjustable rate mortgages have quickly fallen out of favor. A general tightening of the credit market and jitters about home values have caused increasing numbers of buyers to opt for safer, 30-year fixed mortgages. As of last week, interest rates began to reflect this new demand for fixed rate loans, with 30-year loans averaging 6.41 percent, and ARMs at 6.51.

This week CNN/Money examines common moves people take to make financial gains from their homes, like prepaying a mortgage, taking out a home equity loan, renovating, and getting an adjustable rate mortgage. Depending on your financial situation, any of these options can be good or bad. Read more and take advantage of their handy calculators to see if any of these moves make sense for you.

If you’ve considered refinancing your home, you may have heard the advice that you should base your decision on a fairly simple equation: if the upfront costs of refinancing your mortage are less than the potential savings on monthly payments, you should refinance. But this article in the Tribune says that calculation is too simple, because a very small change in rates could meet that standard. A homeowner who refinances too quickly, say when rates drop by a fraction of a point, could miss out on more savings if rates fall further. An economist at the Federal Reserve Bank of Chicago says homeowners should wait until they can refinance at an interest rate at least one point lower than their current rate, and even lower for smaller loans.

Do you ever get sick of those credit card and refinancing offers you get in the mail? Do you ever wonder how you get on so many mailing lists? Credit bureaus, the very companies charged with rating your ability to get a home loan, also sell your personal information to other lenders and credit card companies, triggering a deluge of offers every time you apply for any line of credit. Unfortunately, there is no law to protect against this, but you can opt out of receiving credit offers by visiting the Opt Out Prescreen website and filling out a request. You can either opt out for five years by applying online, or permanently by mail.

You may have read about the problems in the “subprime” mortgage market recently. Subprime mortgages are loans given to traditionally underqualified applicants, often with extremely low interest rates that skyrocket after a brief introductory period. Many buyers who took out such loans during the recent real estate boom are now in foreclosure, as they can no longer afford to pay their mortgages after the rates adjusted.

Many of these people who could not get a mortgage through conventional means could have avoided this problem by securing loans through the Federal Housing Authority. The FHA can back loans for underqualified buyers, increasing the likelihood of their getting a loan through a standard lender. But unfortunately, the FHA rules have fallen behind today’s market. They still require large downpayments, even though many lenders are willing to accept less money down, and the loan limits are not high enough for many urban markets. Consequently, people turned to riskier subprime lenders, and are now suffering. The U.S. House of Representatives passed The Expanding the American Homeownership Act to help modernize FHA rules, but the bill is currently stuck in committee in the Senate.

The FHA Research Center has more on this problem, as well as information on how to get an FHA loan.

The credit market is tightening up as home prices fall and lenders worry about the ability of borrowers to repay loans. To make sure you can still qualify for a loan at a good rate, CNN/Money offers some tips for shaping up your credit profile:

• Pay down any balances on credit cards, or better yet, pay them off.
• If you don’t already, make your payments on time.
• Resist new credit offers, like that enticing new store charge card that gets you 20 percent off your first purchase.
• Fix errors on your credit report.
• If you can’t fix your credit score in time, look for alternative loans, like those backed by the Federal Housing Administration.

Some homeowners are beginning to feel squeezed by payments on their variable rate home equity lines, especially after two years of interest rate increases by the Fed. Traditionally, they had two options: refinance their first mortgage and take out another credit line to pay the first, or sit tight and try to make the payments as best they can. But now, though they aren’t publicizing the fact, most lenders will convert a variable rate line of credit to a fixed loan. The new fixed rate loan may or may not guarantee lower rates and payments instantly, but it can give borrowers greater certainty about their montly costs.

Today’s Tribune features an editorial about the mindset of locking yourself into a 50-year mortgage. That’s right: 50 years, i.e. 600 payments. As the article points out, for the average homebuyer, that means you’d pay it off just in time to shop for a retirement home.

The point of the piece isn’t that you need to plan ahead 50 years, but that if the only way you can afford to buy a home is to spread the payments out over a half-century, then maybe you should think twice. It’s part of a growing sentiment that creative mortgage vehicles, whether exotic interest-only adjustable rate loans or lifetime committments like this one, are a big part of the reason that the housing market is at a crossroads. Many people have convinced themselves that they must buy a home at all costs, even when they can’t really afford it, and find themselves in financial straights later if they property’s value doesn’t appreciate rapidly enough. Remember, the feeling of comfort from a new home doesn’t just come from its physical qualities, it also comes from the financial security of a good investment.

This may seem like common sense, but home buyers should think hard about financing their purchase with no money down. If you plan to live in the home for a long time, you can outlast any short-term plateaus or drops in home values, limiting your exposure to mortgage default. But as this article in the Tribune explains, you may encounter circumstances that force you to move. At the very least, if you must finanace a home at 100%, have a contingency plan in case you’re forced to sell early.

Now that interest rates are getting back up to higher–albeit traditionally normal–levels, the easiest option for reducing your mortgage costs, refinancing, is no longer on the table because market rates are most likely higher than the loan’s. But you can still save thousands on your mortgage by retooling your home equity line of credit, getting rid of fees like PMI, and knowing when to pay down your principal. Read more at CNNMoney to see how.

Some home buyers might forget that they can also turn to relatives to help them finance their purchase. At a time when interest rates from banks are rising, borrowing money from a family member can be a less expensive option since they will charge a much lower rate, if at all. Buyers typically borrow enough money to be able to make a 20 percent downpayment, and their relatives often loan this money at a 1.5 to 2 percent discount from market rates. But there are a number of rules for mixing personal relations with business, as this Tribune article outlines.