Improving Your Purchase Power And Credit

You examine your budget and determine that you cannot afford the home of your dreams because your credit and financial situation isn’t stellar. What’s your next step? Should you keep looking for a lender willing to work with your credit or should you begin to improve your financial picture?

The majority of people want it now. Why do so many individuals seek a mortgage program that will work with their credit situation instead of simply improving the overall picture? While it may be tempting to find a mortgage program that will work with your current financial situation you should stop and think if this is a temporary problem you’re having or if you cannot control you’re spending. If you’re having issues now it’s not likely to change when you become a homeowner.

With a few changes and little extra effort you could be in a completely different state of affairs within a year.

First, you need to analyze your spending habits. Where does your money go on a monthly basis? Consider the following;

1.Stop using credit cards. Credit cards always create financial hardship for most consumers. Often you will overspend with credit cards believing that you will pay for the difference next month. However, that rarely occurs. Additionally, credit card interest is high – too high – and can keep you in debt longer than you think. The best thing you can do is freeze your cards, pay off the debt and keep one for emergency. Go on a cash-only budget. Not only will this force you to live within your means, but you will appreciate your spending more when you are paying with cash.

2.How much car do you really need? Most of us possess a nice car but how often do you need to buy a new vehicle? Without even thinking about it as soon as it’s paid off, many of us run out and upgrade to a newer model. Who needs a new car payment – this will keep you in debt. If you want to save a ton of money monthly, keep up on your vehicle maintenance and keep your old car.

3.How much food do you eat – where and when? Buying out is a trap! How many of us pick up a quick breakfast on the way to work? And if you’re buying lunch every day, brown bag it. The more packaging and preparation that’s involved in making a meal, the more expensive it will be. Prepare a quick estimate of how much you spend each day on food and I’ll bet you can save a significant amount each month.

Your overall goal should be to save money, reduce debt and improve your credit. If you do all three things you will dramatically turn your financial situation around within the first 6 months. Not only will this be reflected within your credit score but your financial picture would be healthier and you’ll have more money for a down payment.

Financing Home Improvements With The FHA PowerSaver Program

Despite the slumping housing market and rising energy bills, the government might help you secure a long-term remodeling loan. Over the past several years the government has taken an interest in steering homeowners in a greener and more energy efficient direction when it comes to residential energy consumption.

The FHA (Federal Housing Administration) is offering the Power Saver Program, a mortgage insurance product to Homeowners desiring to make energy-saving improvements; you can secure up to a 20-year $25,000 loan to make improvements as outlined and approved by the FHA and the DOE (Department of Energy).

Who Qualifies for Mortgage Insurance?

The loan must be secured by an existing first loan. The homeowner's credit score must be a minimum of 660 points in order to be considered a reasonable credit risk. The debt to income ratio must be 45% or less.

It's important to know that the loans themselves are not provided by the government but are simply guaranteed by the FHA, which assumes 90% of any defaulting loan while the commercial lender backs the remaining 10%. The interest rates typically range between 5% and 8%. As of April 21, 2011 there were a total of 18 approved commercial lenders.

What Kind of Home Improvements are Covered?

Since the intent of the Power Saver program is to implement energy-conserving measures, the FDA recommends an energy audit to determine how best to invest the money. Specifically, HUD (Housing and Urban Development) recommends, the installation of insulation, duct sealing, replacement doors and windows, HVAC systems, water heaters, solar panels, and geothermal systems.

Items like insulation and replacement doors are relatively inexpensive investments, with the prices rising from there with energy-efficient replacement windows and geothermal systems getting into some serious money. The upside is that after installation, utility bills will be easier to control and some of these investments are eligible for federal energy tax credits.

Since this is a new program, job layoffs continuing to rise nationally, and the lending community is in such a guarded mode, the number of people that will take advantage of this program is difficult to estimate.

As with all capital-intensive renovation projects, it's critical to reevaluate the home's total replacement cost and update homeowners insurance policy after remodeling.

Defects You May Overlook When Buying A House

You love the house, but conventional wisdom will lead you to identifying defects that you do not want to overlook in your excitement about buying your house. Buying a house is one of the most important personal and financial decisions you'll make.

Your home and its location will help define you and your family and will be the focal point for most of the activities of your lives for years to come.

Here are five strategies to identify defects that could be overlooked in the purchase of a house:

1. First, review the Inspect America Engineering website:

[www.inspectamerica.com]

This site is a wealth of information for you to understand when buying a house. One of the best features of this website is their extensive checklist for home inspections. You can print off all the pages and place in a binder for you to identify house defects.

2. Rely upon the expertise of a qualified licensed professional engineer (P.E) home inspector.

There are businesses out there offering their services for home inspections, but you should hire one with the P.E. certification.

3. Attend the inspection so that you understand all aspects of what to watch for. This is more helpful than reading a report.

4. Be sure to get a full written report from the inspector telling you, in detail, what is wrong, why it's wrong, and what must be done to correct the identified defects. That checklist described in the #1 strategy is just to orient you. You will need an actual report, not a checklist when it comes to having real information to create that total picture of the house's condition.

5. That detailed report from the licensed professional engineer will establish a professional relationship with that engineer so that you can go back to the engineer with further questions, advice, and direction.

Buying a house that you carefully select and have inspected is the best proactive step any homebuyer can take. Identifying defects, especially the hidden ones, can eliminate much of the uncertainty of your future in that house.

In order to help you remain an informed home buyer here is a list of some of the house defects that can be overlooked:

a) structural additions and renovations - that were most likely installed by the previous home owner

b) defective furnace heat exchangers

c) extensive water damage or leaks that can lead to structural damage

d) electrical concerns that do not meet current standards

e) irregularities in the: roof framing, exterior wall framing, interior framing, cracks in the foundation wall

f) proper grading of land around the home - to divert water away from the home to prevent the water from entering the home

There is nothing like peace of mind when it comes to making big decisions about which house to buy.

Avoiding Mortgage Junk Fees

If you look down your long, long list of closing costs at your lender’s office, you probably won’t find one labeled “junk.”

That’s because lenders don’t like to admit that some of the charges they’re passing off as “necessary’ are really “junk”.

Actually, they aren’t junk to the lender because they represent an important stream of profit. But we certainly don’t need those added fees. Junk fees are a good place to negotiate with the lender for a better deal. But the time to negotiate is before you sign the loan application. Once you’ve signed, you’ve sealed your deal for better or worse.

The lender does have legitimate costs that are passed along to you, the borrower, in the form of closing costs and fees; however, by the time you see the fees they’ve been inflated. For example, if the lender has an electronic appraisal done on your property, it might cost him $25, but he’ll charge you $125.

Lenders are required to give you a good faith estimate of your closing costs when you first contact them, but it's not required to be completely accurate! So they often give a lower estimate to get your business, and then increase fees once you have committed. Thankfully, new mortgage legislation has limited the amount by which your fees can change once disclosed.

Inflated costs are just one example of junk fees and costs that get built into your loan without you knowing it. A more egregious example is the charges for made-up things, like “underwriting fees” or “document preparation.”

• A lender will tell you an underwriting fee is the cost that they incur to underwrite your loan. They need someone to go through your whole package to make sure it complies with secondary underwriting requirements.

But an underwriting fee is purely a junk fee because the whole point of applying for the loan is so that it gets underwritten. You’re being charged an extra fee on top of all the other fees to do exactly the same thing.

• Another common junk fee is the cost for document preparation. Basically, computer programs print all the necessary paperwork at the touch of a button. Someone will key in the necessary information. But again, underwriting the loan and preparing the paperwork is within the general scope of, well, getting the loan approved for you.

The problem with junk fees is that they all sound so legitimate. It’s difficult to tell what’s real and what isn’t. As the borrower, you’re entitled to an explanation of each and every charge in a way you can understand. If the lender throws some jargon your way, stop and ask for a detailed explanation.

To avoid the problem of bait and switch, talk to several lenders, and don't just compare interest rates -- compare fees.

Relying on Online Reviews – Consumer Decisions

Can you recall what it was like not having the web? When we picked up the phone to check out a business?

47% of consumers rely on online reviews about products or services on company websites before making a purchase decision. These results highlight the importance for organizations to have up-to-date reviews; but how trustworthy are those reviews?

“Mr. Handyman wasn’t very handy”, “I was impressed by how fast the HVAC Tech responded….”

You may think user reviews are posted by your typical shopper. But consumers beware because you can't believe everything you read.

It's not unusual for those rave user reviews to be written by people who work at the company or who are paid to write the recommendations. In fact, many companies are opting for paid reviews these days – you hire a blogger or content writer to highlight the positives about your business and even exaggerate a little.

However, this form of reviews isn’t legal; a chain of cosmetic surgery clinics was fined $300,000 because its employees published positive reviews and engaged in deceptive commercial practices.

It’s impossible to determine a service’s effectiveness by reading the sales page; along with positive reviews you also have plenty of unworthy negative reviews. How would you really know which one to rely upon?

Several popular consumer review sites have sprung up over the years, some better than others and some controversial for their practices;

1. Angie’s List

2. Yelp

3. Pissed Consumer

All of these websites provide the same basic services however they all have different guidelines in which consumers are able to place a review about the business.

What are some warning signs of suspect reviews and how do you distinguish the good from the bad?

• When there's no mention of personal experience with the item.

• When the reviewer only lists the pros and not the cons.

• What’s the language tone? Is it full of selling and hype? Too good to be true? If so, it’s probably not a good review.

• Is there any actual value in the review? Any meat and potatoes details about the product or service?

• Look for reviews that set out both advantages and disadvantages of the product or service.

Also be on the lookout for sponsorship disclosures. But they can be hard to spot, so look close at the bottom of the page.

Also, compare the reviews to other online reviews. Don’t rely upon one website before making your decision. And how about picking up a phone and asking the businesses a few questions of your own? We do still use telephones, you know?

The bottom line is to be skeptical. Before you buy, check lots of sources.

Qualifying For A Mortgage With Unconventional Income

Not everyone makes money the conventional way. Some people have sporadic sources of income but which sources of income will a lender use to qualify you for a mortgage?

Lenders will review all sources of income, but typically use only sources that are expected to continue on a steady basis.

They will distinguish between sporadic or occasional sources of income, and stable, regularly scheduled income. Borrowers can document supplemental sources of income by providing copies of bank statements showing deposits of amounts claimed, tax returns, and payroll/deposit stubs from employers.

There are special rules that apply to certain types of income, and these exceptions are reviewed case by case;

• Trust Income. If the trust is irrevocable and guarantees a payout for three years after closing, the income may be used. The borrower must provide a copy of the trust agreement and proof of two years of continuous payments.

• Social Security, disability and public assistance. This income must be verified as nontaxable. You’ll be required to provide documentation and tax returns. The borrower must also show proof that these payments are likely to continue.

• Unemployment income. Some lenders will allow this income to be used, if you can show you’re a seasonal worker. You’ll have to show that you have been receiving this type of income for the past two years. Proof is imperative, so you’ll have to show records of payments received.

• Notes receivable. If you hold a note and are collecting interest for a minimum of two years previous and will continue to collect this interest going forward, the interest may be added in as income. This doesn’t include a personal loan where your sister, for example, owes you $10,000 and pays you $100 per month.

• Rental income. You will have to show the lease that the tenant has signed as well as documented proof of the rental income, such as bank statements. Only 75% of rental income can be used towards qualifying a borrower for a mortgage.

The key factor for lenders to determine your income eligible for use in prequalifying you is continuity. Do you have continuous and reliable income that can be used to repay your mortgage? You can also include salary and/or wages from full and part time permanent jobs and employer paid bonuses that are paid on a predictable, periodic basis.

Those borrowers who are qualifying for a mortgage loan should pay special attention to the sources of income you use because it can help you understand how much you can really afford to pay for a home.