As a real estate buyer, are you waiting for your lender or mortgage broker to tell you whether you’re capable of obtaining a mortgage? If so, you should know that you can calculate how much you can afford to borrow on your own.

Knowledge is power, and knowing “how much I can borrow” now is important not only in the home buying process, but the information can help you avoid default and foreclosure later on.

How Much Can I Borrow for a Home?

Consider the following when you investigate taking out a mortgage:

1. Down Payment: You need to understand whether you can afford to take out the amount you plan to borrow. Before you take out a loan, you need to find out whether you can afford to make the down payment. Most lenders in today’s market require borrowers to make down payments of approximately 20% of a home’s purchase price. Federal Housing Administration (FHA) lenders may offer more flexible terms as it relates to down payment requirements – if you apply for an FHA loan, then you should expect a down payment of at least 3.5% of the home’s sale price. However, you need to meet the eligibility criteria to get an FHA loan.

2. Calculate your monthly income: When you plan to take out a mortgage to buy a home, take an honest look at your income. Your monthly salary, in conjunction with your monthly expenses (don’t forget about annual expenses like car insurance), are the starting points to determine your total monthly income. You need to include your monthly salary, money you get from investments and other sources of income. Try to analyze your budget to understand the amount you owe – deduct total debt expenses from your monthly salary to get your total monthly income figure.

3. Evaluate your credit score: You can analyze your credit score in order to know whether you can get the loan on favorable terms. If your credit report is blemished, then you may not be able to take out the loan, or, at a desirable low interest rate. Investigate and correct any incorrect entries on your credit report, and start early, working through the credit bureaus to correct misinformation on a credit report can take significant lead time.

4. Lower your debt to income ratio: Consider lowering your debt to income ratio in order to get the loan on affordable terms. It is easier to decide how much you can afford when you’re aware of the total amount you owe and your income. If your debt exceeds your income, then you can decide whether you can afford to borrow money.

How to Avoid Debt & Mortgage Debt Relief

Keep the above mentioned points in mind when you need to decide the amount you can afford to borrow when attempting to buy your new home. With an understanding of your income situation, and efforts to correct any misinformation on a credit report, you can have your eyes wide open going into a mortgage in knowing how much you can afford as well as avoiding default due borrowing more than you can afford.

When it comes to purchasing a home in Austin, Boston, or anywhere else in the country, buyers have two primary loan sources to select from: a mortgage broker or a bank. Since both options have pros and cons to consider, it is important to learn more about each one in order to determine which option is your best choice. To that end, here is a look at the pros and cons of mortgage brokers vs. bank loans.

Pros and Cons of Working with a Mortgage Broker

When working with a mortgage broker, you are working with someone who purchases loans from a variety of different mortgage lenders before selling them to another mortgage banker for a profit. Since mortgage brokers work with a variety of different lenders, they can often offer better rates to their clients than the typical bank. On the other hand, mortgage brokers do work on a commission and regularly charge extra fees that are not included with bank loans.

Perhaps the biggest benefit to working with a mortgage broker is that a mortgage broker can often get a loan for those who may otherwise have difficulty getting one. As such, working with a mortgage broker is a good option if you meet one of these criteria:

• You are self-employed
• You have less-than-perfect credit
• You recently started a new job
• You are carrying a high debt load

If none of these sound familiar, it may be in your best interest to obtain a loan through a bank.

Pros and Cons of Getting a Bank Loan

When obtaining a loan through a bank, you are typically getting a loan from a bank that is lending out its own money. The bank makes a profit as it collects the loan fees and interest from the customer. It is important to note, however, that your lender may change to a different bank over time. This is because most banks package their loans in bundles of $1,000,000 or more and then sell them to a secondary market in order to make a commission.

While there is a chance that your bank will sell your loan to the secondary market, obtaining a bank loan is generally a safe and easy bet for those in need of a mortgage loan. In general, bank loans are less costly upfront than loans obtained from a mortgage banker because there are not as many add-on fees. Furthermore, because banks do such a large amount of business, they are capable of cuttings costs and passing those savings on to their customers.

For those with bad credit, obtaining a bank loan may be difficult. This is because banks only give loans to those with good credit, a steady income and demonstrated job stability. While this is a downside for those with poor credit, the careful screening process helps banks keep the costs low for those with good credit. In addition, because bank loan officers usually do not receive a commission, they generally do not try to push customers to purchase expensive add-ons. Mortgage brokers, on the other hand, make more money if they are able to convince you to include additional items on your loan.

A mortgage is oftentimes the biggest debt that a person faces in life, with the largest part of the mortgage due to the interest that is on the mortgage. Every homeowner would gladly be rid of the mortgage interest, but since that is how lending institutions make their money, it’s a necessary evil. If given the opportunity, homeowners would love the opportunity to reduce the amount of interest paid, with the key to reducing mortgage debt lying in reducing the amount of interest that they pay on their mortgage. By paying off a mortgage before the life of the loan has expired no matter if we are talking months or even years in advance, all of the interest that they would have had to pay during that time will not have to be paid. Also, the interest that will be paid off early will be at a reduced rate because they are reducing the total amount that the interest is applied to at a much faster rate. Now the trick that comes into play is finding out a way to pay off the mortgage early. For the typical homebuyer who is on a tight household budget, the mere idea of paying off a loan early is a joke. No need to laugh about it though, and as humorous as it may seem to be on a tight budget and at the same time paying off a mortgage loan earlier, it can be done. Yes, you can pay down on a mortgage loan in order to pay it off early without having to cause a strain financially and there are services which can assist a homeowner with a mortgage loan to help them find avenues in which to pay off their mortgage at a faster rate. Here are just a few examples of how a mortgage can be paid off early.

One simple way to pay off a mortgage early is by putting a portion of a mortgage payment aside automatically from each paycheck into an interest baring savings account. In doing so, the money is out of sight and out of mind, no need to worry about how it’s going to be done, because if you don’t even see it then you won’t be tempted to spend it. If one sets aside approximately half of their mortgage payment every other week, it will end up in a savings that is equivalent to an extra payment every year. Setting aside slightly more than half will cause an even greater savings, causing the mortgage loan to be paid off at an even a faster rate. Depending upon the length of your mortgage term and when a savings plan was implemented, months or even years will literally be peeled off of your mortgage loan. All that has to be done is to pay whatever is put aside each time a mortgage comes due which in all actuality will cause a homeowner to end up with a few payments that are significantly more than the minimum monthly mortgage payment.

Don’t like the idea of having to track how much is being saved over the course of a year? Then one may want to use income tax returns to help you make up the difference. For many people, the amount that they receive in their tax returns is significantly more than their mortgage payment. While many count on monies received back from the United State Government on their taxes to pay off other debts, or to make purchases, it is better to use at least part of that money especially if the money that is to be received back is quite significant. By using part of your tax return money to pay down a mortgage loan, it can be the equivalent of an extra mortgage payment once per year which can significantly reduce how much one owes. If you can afford to contribute more than just the amount of one payment or if you use this in conjunction with the savings plan mentioned above you can pay off your mortgage even faster. Now how great would that be?

Now back to the interest baring savings account. If you have a high-interest savings account, you can use that interest to help you pay off your mortgage ahead of time. Once or twice per year, pull out money from your savings that’s equivalent to part of the interest that you’ve accrued and add it in with your mortgage payment. Provided that you have a high enough savings balance you should be able to make a significant impact on your mortgage debt by doing this. Over the course of the year the amount that you add to your mortgage payments could potentially equal an entire extra payment or more. Should you worry that you can’t keep yourself motivated to keep making these extra payments, you might consider using a bi-weekly mortgage service. These services automatically withdraw one half of your mortgage payment from your checking account every two weeks, and then make your payment for you when it comes due. The system works similar to the paycheck savings plan mentioned above, but since you have an outside company doing the work for you all that you have to do is make sure that you have the money in your account to cover the withdrawals. Though the services do charge fees to cover their costs, the amount that you save in interest payments will be significantly more than what you pay to the service – some lenders even provide these types of flexible payment plans at no extra charge, check with your lender for options.

In an attempt to prevent a recurrence of the lax mortgage lending culture of years past, there is now a push among government agencies and officials for regulations that would require a down payment of at least 20% for lower risk classified loans.

The Federal Reserve, along with the FDIC and the Office of the Comptroller of the Currency, is on board with a proposal that will require home buyers to make a down payment of 20% of a home’s sales price in order to be categorized as a qualified residential mortgage borrower. Another proposal would demand that a borrower keep a 75% loan-to-value ratio for refinances and 70% for cash out refinances where a borrower is granted a larger loan.

The proposals must be signed off on by six federal agencies, including the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency, as well as the Exchange Commission, Department of Housing and Urban Development, and the Federal Housing Finance Agency. Once the proposal has been passed by all agencies, it will be released to the public for review.

The proposals being considered are ultimately aimed at improving home financing standards, subjecting non-qualified residential mortgages to strict risk retention rules, which will force banks to maintain five percent of the value of a mortgage on their books. The rule is meant to force lenders into a vested interest in their lending decisions, instead of leaving them free to lend to unqualified individuals and then package those loans into securities that are sold to third-party investors.

More American’s today are in dire straits when it comes to their mortgages, are either facing foreclosure, are in foreclosure or are having difficulty in making their mortgage loan payments in a timely manner. Because of the mortgage crisis and issues that arose around the mortgage crisis, many homeowners have had no place to turn. Mortgage lenders were typically not lenient with borrowers or showed much empathy as they were in deep water themselves. Therefore provisions for loan modifications were put into practice by The Making Home Affordable Program which was created and established by the Financial Stability Act in 2009. Part of The Making Home Affordable Program was created and called the Home Affordable Modification Program which assisted those struggling financially that were on the brink of foreclosure. Today, over one-hundred ten renowned lenders have teamed up with The Making Home Affordable Program and work with potential applicants deciding if they qualify for the loan modification program.

So what is a loan modification? A loan modification simply means that the mortgage loan is modified outside the original terms of the contract been the mortgagor and the mortgagee. Loan modifications offer different types of modifications to include: changes in the terms of the loan, reducing the principal amount of the loan, lower monthly mortgage payments or interest rate, lengthening the terms of the loan, and reduce penalties. The loan modification program does not discriminate based on the status of the mortgage therefore at the time a borrower applies for a loan modification, mortgagees can be either current with their mortgage payments, late, in default and even in foreclosure.

Who qualifies for the Home Affordable Modification Program? There are several prerequisites and eligibility requirements for those who seek to modify their mortgage loan through the Home Affordable Modification Program: loans must have originated on or before January 1st of 2009, first lien loans on owner occupied residences must have an unpaid principal balance of $729,750, all potential borrowers must document their income and sign an affidavit of financial hardship, property owner verification will be verified, and modifications can only be done once until December 31st of 2012.

The Making Home Affordable Program is a compliant and legitimate program offered through the U.S. Goverment; however there are warnings and scams to take heed to. After the crash of the mortgage crisis, many mortgage companies created separate divisions calling them ‘mortgage foreclosure rescue services’ which promised borrowers that they would work on their behalf (for quite a fee, no less) to beg and plea with their lender to modify the loan. Many desperate borrows have fallen for this trap, as the Home Affordable Modification Program would never operate as such. Borrowers must be aware of the several modification scams that are ravaging throughout the country, and borrowers must beware. It’s imperative to remember that scammers offer false promises and often tell the borrower to stop making mortgage payments to their lender as they will become the liaison between the mortgagor and mortgagee. In addition scammers ask for fees upfront requesting that they be wired or mailed overnight and only accept payment through a cashier’s check or money order.

The U.S. Government hosts a number of resources at no charge offering homeowners the tools that they need to get for more information on loan modifications through The Making Home Affordable Program. HUD.gov and HUG.org are excellent sites to obtain the information with HUD approved counselors available by phone as well to answer any questions.

Education on the home loan modification process is truly the key when researching options. With the vast amount of resources provided to borrowers through their lenders and The Making Home Affordable Program, many have been able to keep their homes by modifying their mortgage loans, saving them from foreclosure.

As foreclosure rates continue to climb, reports of fraud schemes aimed at homeowners facing foreclosure are increasing. Authorities are warning homeowners to be aware of some of the new scams being played out upon unwary victims during some of their most vulnerable times. Taking advantage of a desperate situation, scammers appear concerned and helpful however their ultimate goal is to steal the home’s equity.  These “Rescue Scammers” all operate differently and methods vary, but generally most of the scams fit into 3 categories:

Sale-Leaseback Schemes – The scammer presents themselves as a savvy investor with a desire to help families in need.  The scammer offers to buy the house, bring the mortgage up to date, and let the homeowner rent back the house indefinitely with the intention of buying back the home. Preying upon a family’s basic desire to remain within their house, these “investors” convince homeowners to sell the homes far below what the home is worth. The home is never rented back to the family; it is usually flipped with the investor vanishing.

Charging High Fees For Little or No Service– In this situation a scammer will pose as a legitimate foreclosure consultant, oftentimes as a mortgage or financial broker. Exploiting the complexity of a foreclosure or refinancing, the scammer operates off of the assumption that the average homeowner is hesitant to handle mortgage matters themselves for fear of making a mistake or by simply assuming they wouldn’t understand it. The scammer locks the homeowner into a yearly contract and charges exorbitant fees for services the homeowner could have easily done himself or herself. You can avoid this by following a very simple rule: Legitimate foreclosure consultants do not seek you out, you have to go to them. If they are contacting you there may be reason for suspicion.

Stealing The Home – Undoubtedly every homeowner’s worst nightmare, but it happens, and oftentimes to otherwise wary and intelligent people who let their guard down during desperate situations. In these schemes, the foreclosure scammer gets the homeowner to surrender ownership of the home usually through outright deceit and trickery. In many reported cases, the homeowner believed that they were signing new mortgage loan documents, when in fact they signed over their homes. In some cases of flagrant criminality, scammers simply forged the homeowner’s signature on documents, counting on the fact that the average homeowner does not pay enough attention to their foreclosure proceedings, and will notice only when it is too late.

The companies and individuals who scam people are experts in gaining trust. They are often smooth talkers, keenly aware of a homeowner’s desperation. They will either call you, send a mail item or e-mail, or may actually come to the house in person.  If you are having financial difficulties, or are about to go into foreclosure, make sure you deal solely with your lender as soon as the problems start. Lenders would prefer that you stay within your home and will work with you, as well as recommending the proper and certified consulting you may need.

One thing that will be of benefit to you is having a reputable Realtor working with you and advising you while you are working with your lender for a solution. Though they are not legal counsel, they are often very experienced with foreclosure proceedings. If you trust your Realtor (and you should, otherwise don’t work with them!) they can be an invaluable source of information and informal advice.  An experienced Realtor knows the process and will help you find the right solution.

About the Author: Let Taft Street Realty be your professional guide to Hudson Valley real estate. Check their website to view all Ulster County community listings, including real estate in Stone Ridge NY.

Selecting a lender may seem like a daunting task, but it is an undertaking that should not be taken lightly. There is a lot more to selecting the right lender than acquiring the lowest interest rate or the lowest mortgage payment.

So how is one to choose the best lender? A good place to start when beginning your search for the perfect lender is to ask around. A few of the best resources are your professional real estate agent, friends, or co-workers who have recently purchased a home through financing. Contact the lenders who are recommended, choose the lenders that have good reputations, excellent track records, display a high level of competency and are always in communication with you, the borrower. Do your homework, research and review their terms of service, and look and see if that lender has a program that meets your needs and has a track record of actually bringing funds to the table on time so that transactions close.

Once you find a lender that fits your criteria, the next step is in understanding why it is important to select the best lender. Well for one, by getting pre-approval for a home mortgage by a reputable lender, your offer becomes more attractive to the seller. If for example, you as the borrower were to choose an inept or “shady” lender then both the listing agent and the seller may be concerned with your financial resources and situation.  In addition, choosing a lender that is not dependable or experienced can cause major issues in regards to closing, i.e. funds were not received in time for closing after the lender assured all parties involved that the funds would be received in a timely manner, dramatically higher closing costs at closing not disclosed prior to the borrower on the ‘Good Faith Estimate’, lender does not return calls especially when it is the day of closing, lender changing the terms of the loan and not notifying the borrower until the day of closing. These are all frightening examples of how imperative it is to get all the facts when selecting the best lender.

Understand the difference between a mortgage lender and a mortgage broker. Mortgage lenders work for a bank or other financial lending institutions, are employees of these institutions who work to sell and process mortgage loans. As a borrower, the lender will take your application and will work to find the loan that meets your requirements. Once approved, the lender will take you from the purchase of your home through the closing process.  Mortgage brokers are more like free agents. They are paid a fee to work towards the real estate transaction and work with hundreds of lenders, finding homebuyers and determining the best mortgage for them based on their credit situation. Mortgage brokers can usually find mortgage loans for any type of credit.

Does it make a difference? Know the differences. If a borrower is looking to purchase out-of-state, then a local mortgage broker may assist in finding a lender in another part of the country. A local mortgage lender may not, particularly if it is a small bank that does not have a local branch in the part of the country a borrower is looking to purchase in.  Mortgage brokers can also find a lender that will make a loan when a local bank has turned down a loan.

Remember that knowledge is power. By doing your homework in selecting the perfect lender, and understanding your choices and options whether it be with a mortgage lender or mortgage broker, you will find a true professional, one that provides the level of service that you expect, who treats you as a valued customer, and can bring funds to the closing table.

What is an FHA Loan?

Before delving into the Pros and Cons of going FHA, it is imperative to understand fully what the FHA is. The FHA was created in the early 1930’s during the Great Depression by the National Housing Act of 1934. During the depression, foreclosures and defaults spiked tremendously therefore it was designed primarily to increase home production and reduce unemployment, and is in charge of numerous programs to promote home ownership. The FHA does not make loans; FHA loans are insured loans made by private lenders obtained with the help of the FHA and are backed by the United States Government. FHA insured loans allow lower income Americans to borrow money that they otherwise would have to purchase a home. With a small down payment, buyers can purchase a home. Although FHA loans make it easier for people to qualify for a mortgage, they’re not for everybody.

The Pros of Going with FHA Financing

Typically almost anybody can get an FHA loan and makes home ownership a reality to many buyers, especially in today’s economy. Here’s why:

• Credit does not have to be stellar
• Flexible income guidelines
• No prepayment penalties
• Allow to purchase with a small down payment as small as 3.5%, when other lenders require higher down payments
• Up to 6% Seller Assistance
• Some programs offer no down payment
• Low closing costs
• May be assumable
• Leniency during financial hardship
• Fixed rate payments for 15 or 30 years
• Loans that cover fixer-upper purchases to include all repair/remodel costs
• Help for Seniors with reverse mortgage option
• Programs available for refinancing

The Cons of Going with FHA Financing
There are a few disadvantages to FHA loans, however:

• Credit must be established
• They are conservative loans; lower loan amounts which means you borrow less
• Strict mortgage insurance guidelines-have to pay private mortgage insurance called PMI
• Are designed for the longer-term home buyer and don’t have the variety that non-FHA loans have
• No down payment loans require borrows to have excellent credit and larger incomes
• Appraisal guidelines may be stringent
• Because FHA is backed by the US Government, it may take longer to process the loan as opposed to conventional mortgages

The bottom line is this: if you are looking for a mortgage with a low or no down payment or if your credit is not up-to-par then an FHA loan is most likely the way to go. If you have exceptional credit and a larger down payment, then a conforming loan would not be your best option. Whatever the case may be and most importantly, educate yourself to find out the best program that will suit you. After all, buying a home is the largest and most significant purchase you will make in your lifetime.