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Is a 40-Year Mortgage a Viable Option for You?

The 40-year mortgage is becoming more and more common in the housing industry. Is a 40-year mortgage right for you?

In the mortgage industry, the 40-year mortgage is a relatively new concept. Most mortgages do not go past 30 years and the 40-year option has only been available as a niche product for certain home buyers. However, they are becoming more and more mainstream as home buyers are looking for more affordable options when making the leap into buying a house.

With a 40-year mortgage, the borrower pays a lower mortgage payment each month than they would if they took out a 30-year mortgage. That’s one of the appeals of the longer mortgage option. However, it does have its disadvantages, too. Since the loan is spread out over an extra 10 years, the borrower will pay much more by the end of the loan term in interest and other charges.

Another problem with 40-year mortgages is that you are likely going to pay higher mortgages rates with this option. We already know that mortgage rates are starting to go back up for 30-year fixed loans, but you can expect to pay an extra quarter of a point or more when you choose a 40-year mortgage over a 30-year mortgage.

One of the reasons 40-year mortgages are not as popular is because the lenders are unable to sell those types of loans to investors through Fannie Mae, Freddie Mac and other government-sponsored enterprises. The mortgages stay on the books for too long and the money gets tied up longer than investors like.

Before agreeing to a 40-year mortgage, there is one question you should ask yourself: Is this home more than I can afford? If the only way you can afford the home you want to purchase is by taking out a 40-year mortgage on it, it may be wise to search for a less expensive home that you can afford with payments spread out over a 30-year period. Many financial gurus like Dave Ramsey and others suggest that you only buy a home you can afford on a 15-year fixed rate mortgage.

This is not to say that you should never go with a 40-year mortgage. However, you should always way all of your options before making your final decision on any type of mortgage. Have you considered an interest-only mortgage? Or have you looked at the adjustable rate mortgages that are available? Often these types of mortgages offer a lower interest rate that can help bring your monthly payments down to a more affordable range as well. Be sure to do your homework before making a 40-year commitment that will take you into your retirement years.

FAQs about the First-Time Home Buyer Tax Credit

There are many questions about the first-time homebuyer's tax credit. With it set to expire in just a couple short weeks, we'd like to answer some of those questions so you can take advantage of it while it is still available.

The tax credit for first-time homebuyers is one of the ways the Obama administration has tried to jumpstart the economy and the housing industry. With all of the troubles that mortgage companies and homeowners have had in recent years, this may be one way to help people achieve the dream of owning their own home when they couldn't afford it before. Here are some frequently asked questions about the tax credit so you can understand it better.

When does the tax credit for first-time homebuyers expire?
The tax credit expires on April 30, 2010. However, the good news is that you only have to have a signed contract by April 30 to show that you are buying a home in order to be eligible. You actually have to have closed the deal and completed the purchase by June 30 of this year to quality for the credit.

Who can qualify for this $8,000 tax credit?
The first-time home buyer's credit is open to any person or family purchasing a home for the first time. The home can be either new or resale to qualify but the purchase must take place between January 1, 2009 and April 30, 2010. However, if you are claimed as a dependent on someone else's tax returns, you will not be eligible for this tax credit.

How is a first-time homebuyer defined?
First-time homebuyers are defined as buyers who have not owned a home as their principal residence for at least three years before the home's purchase. For married couples who want to qualify for the credit, both parties must fit into this category in order to be considered a first-time buyer.

How much of a tax credit will I get if I qualify?
The tax credit is equivalent to 10 percent of the purchase price for the home. The maximum credit, however, is $8,000. Therefore, if you purchase a home that costs $70,000, your tax credit will be $7,000. Consequently, if you purchase a home for $100,000, you will only receive an $8,000 tax credit.

How much money can I make before becoming ineligible for the tax credit?
This is a confusing part of the tax credit law so you may have to read this a few times to get it straight. For individuals purchasing a home, the income maximum is $125,000 for the full tax credit. For married couples, the income limit is $225,000 if the couple files jointly.

Now, if you make more than those figures, you may still be eligible for some amount of the tax credit. The cutoff is a margin of $20,000. That means that if you make more than $145,000 as an individual or $245,000 as a married couple, you are ineligible. With incomes between $125,000 and $145,000 for individuals or $225,000 and $245,000 for married couples, you will receive a percentage of the tax credit which will be calculated based on your income.

These are just a few things you should know about the first-time homebuyer's tax credit. It can be confusing, but it's pretty much free money so you won't want to miss out on that!

Four Tips to Save for a Down Payment

A look at savings strategies to build up funds for your home purchase down payment.

The first financial challenge when you're thinking about buying a home is how to come up with the down payment. These days, it's rare to get a mortgage without contributing some of your own cash. And if you're trying to buy a home that was foreclosed or through a short sale -- where the purchase price is below the amount owed on the house -- a larger down payment can speed up the process. A low credit score, however, may drive up the size of the required down payment.
Here are some tips to save up your down payment.
1. Decide how much house you can afford.
The first step is to set your savings goal. Research home prices and determine how much you can afford. Calculators can be found on most bank websites and on the FHA site at www.fha.gov.
The median price of existing homes in the U.S. is $165,100, according to the National Association of Realtors. A 5 percent down payment for a home that price would be $8,255. A 20 percent down payment would be $33,020. If you're able to save 20 percent, lenders will not require you to purchase Private Mortgage Insurance, which will reduce your monthly expenses.
2. Set up a savings plan.
You'll also need to create a savings plan and set a deadline for reaching your goal. One method is to find the difference between your current housing costs and your projected monthly mortgage payment, and put that much away each month.
This system has the advantage of allowing you to decide if you really earn enough to afford the home you want. 'In some cases, if a homeowner is paying a low rent, doubling that payment can be quite a shock.
Open a separate savings account for your down payment to minimize the temptation to tap the money for other needs. Also setting up automatic transfers to your new account will lessen the chance you'll spend the money elsewhere.
3. Pare back expenses and raise cash.
Review your spending habits and determine where you can find extra cash. If you're determined to buy a house as soon as possible, try tightening your budget. Start by putting away the credit cards. Then cut out cable TV, switch to a less expensive cell phone plan and reexamine other aspects of your spending until you've pared back to just necessities. Use coupons at the grocery store and stay away from the mall. Hold a garage sale or sell unused items online. There are dozens of books and blogs you can turn to for frugal living advice that can help accelerate your savings.
4. You may qualify for assistance.
If you're hoping to take advantage of the down market but haven't got that much saved, you may be able to find help through various programs.
There are FHA-backed programs in every state. Most are aimed at low- and moderate-income, first-time homebuyers and usually require recipients to make some contribution. Visit the agency's website at www.fha.gov to learn if you qualify for a program in your area.
The Veterans Administration and the Agriculture Department are among other government agencies that offer down payment assistance.

Drop in Mortgage Rates Grab Attention

After steadily increasing for the last few weeks, mortgage rates have experienced a slight drop.

For the first time in five weeks, mortgage rates have gone down rather than increase. The drop in mortgage rates is a surprise to many who thought there would be no stopping the increase once the federal government removed its backing of securities this month.

But we are not out of the woods yet. I’m not trying to be a “doom and gloom” messenger because I want the housing market to be better than it is now as I search for a home for my family. But one thing that may be keeping the mortgage rates from increasing by leaps and bounds is the first-time homebuyer’s tax credit, which is scheduled to end at the end of April. Once that goes away, we will see what happens to the mortgage rates. I join with everyone else in hoping they stay low.

The mortgage rates may have also dropped since last week because we are entering the spring months, which tend to be the best time period for selling homes. During the week ending on April 15, the average rate for a 30-year fixed mortgage was at 5.07 percent. That was a .14 percent decrease from the previous week, which was the highest it has been in eight months. However, that number is up from the 4.82 interest rate that occurred about a year ago and it is definitely an increase over the historic low of 4.71 percent just a few months ago in December of 2009.

According to Frank Nothaft, the vice president and chief economist for Freddie Mac, the current mortgage rates are back to the same place they were just two weeks ago after increasing for four straight weeks. The current rates are still at record lows which is an encouragement to today’s potential home buyer.

According to Freddie Mac, the rate on 15-year fixed rate mortgages is also down. The latest figures show that a 15-year fixed mortgage can be obtained for an average interest rate of about 4.40 percent, which is a drop from the 4.52 percent the week before. Mortgage rates for a one-year adjustable mortgage have also fallen from 4.14 percent to 4.13 percent and a 5/1 ARM with a five-year fixed rate now stands at 4.08 percent rather than the 4.25 percent from the previous week’s standings.

All of this is good news for home buyers who thought the rates were going to increase without end. The housing market and mortgage rates fluctuate so you never know what is going to happen and you can never predict the timing of lower rates. The best thing to do is to be a conscientious buyer and make the most informed decision that you can when purchasing a home.

My Mortgage Is in Default. What Now?

Are you finding yourself in mortgage trouble? You're not alone. Here are some things you can do to help remedy the situation.

Many homeowners are finding themselves in financial troubles these days. With layoffs, rising mortgage rates and economic trouble all around, making ends meet can sometimes be a problem. As a result, millions of Americans are defaulting on their mortgage loans. You may even be one of them. If you have missed more than one payment on your mortgage loan, here are some things you can do to help rectify the situation.

Contact Your Mortgage Lender
Your lender is much more likely to work with you and your financial situation if you contact them as soon as you know there will be a problem. If you get a letter from your lender about your defaulted mortgage loan, it may be too late to do much about it. But if you call and talk to them as soon as you know you will be late on a payment or miss a payment, they will know that you are not just forgetting about your obligation and they can set up a payment plan to help bring your current over the next few months.

Ask Your Lender about HAMP
HAMP is the government program which is designed to help troubled homeowners refinance their mortgages when they default. HAMP stands for Home Affordable Modification Program. Some of the qualifications require the homeowner to prove their financial hardship, have a mortgage payment that is more than a third of their gross income, have a mortgage loan that began before January 1 of 2009 and have a balance of less than $729,750. If you qualify, you will likely be approved for a three-month trial modification of your loan.

Consider a Short Sale
Thousands of troubled homeowners are doing short sales with the home loans they have defaulted on. A short sale means that the bank that loaned the money for the mortgage agrees to take less than what you actually owe and then forgives the difference. However, depending on how this is reported on your credit report, your credit score could be damaged if the bank marks the item as “Paid Satisfactory” rather than “Paid in Full.” Find out how they will list it before deciding on this option.

Declare Bankruptcy
Although it is much more difficult to claim bankruptcy and rid yourself of your debts than it used to be, this may be a way to stop any foreclosure proceedings and help you start making payments again. If you have other creditors that you have been paying, you may be able to wipe those debts out so you can once again make your mortgage payments. Consider the ramifications of bankruptcy, though, before going through with this option.

There are many things you can do to help your situation if you are going to default on your home loan or if you have already defaulted. The worst thing you can do, however, is ignore it and hope it goes away. That never happens and you will just dig yourself deeper and deeper into debt by using that route.

Is the New Obama Plan Simply Prolonging the Pain?

There are many criticisms of the Obama administration's plans to fix the housing market. Here is an overview of one of those criticisms that was published in the New York Post.

A recent article in the New York Post suggests that President Obama’s mortgage rescue plan is simply prolonging the pain for the mortgage industry and the homeowners who find themselves in financial troubles. The author of the article – Stephen Meister – also claims that the administration’s plan to boost the housing market sticks the taxpayers with billions of dollars that will inevitably be lost. That’s on top of the billions of dollars that have already been lost in the mortgage industry.

Meister explains that the housing market has to find its own “bottom” and letting the federal government step in with this new plan to delay foreclosures is only going to make things worse. He says that the previous efforts to do this have failed and the current efforts are not going to be any better.

The first effort by the administration included a plan to allow delinquent homeowners to modify their home loans with the bank that issued the loan. This was designed to halt the number of foreclosures that were happening at an alarming rate. Unfortunately, holders of second mortgages made this plan difficult and something else was needed. As such, the administration paid them to move along. First-time homebuyers with low income were also given an $8,000 tax credit to help motivate them to buy a home and stimulate the sales in the housing industry. The administration also offered incentives to banks and qualified buyers to do “short sales,” which means that a home is sold and the bank agrees to take less money for it than what is owed.

But Meister says all of those plans have failed. Only about 15 percent of the four million home loan modifications have actually happened. He also says that billions of taxpayer dollars have been doled out to first-time homebuyers even though those people would have purchased homes anyways. Also, the foreclosures have still piled up. The only difference the plan made was that those homeowners who have been foreclosed upon have received a few extra months in their home. All of this and home prices remain stagnant because of the saturation of foreclosed homes on the market.

While we find ourselves in the same position as when these plans started, the federal government has pumped more than a trillion dollars into the housing market. As a result, the mortgage rates came down significantly for awhile, but that did not stimulate home sales. The upper markets are still waiting for the housing bottom which has not arrived yet and many overextended homeowners still cannot refinance their homes.

The new plan offers government subsidies for homeowners with mortgage balances of up to $729,750. The plan will pay banks who reduce those principal balances to 97.5 percent of the actual home while offering more affordable payments to the homeowner. The affordable payments will be based on the individual’s income and should be no more than 31 percent of what they make. The administration plans to pay these “forgiving” banks between 10 and 21 cents for each dollar of principal that is forgiven.

Do you think this plan might actually work? Or is this just another bad attempt that will end up doing more harm than good?

Today's Huge Surprise: Banks Don't Want To Forgive Mortgages

Banks give back money?? Surely you jest!

It may not come as a surprise to you that banks aren't really being very receptive to the idea of forgiving some of the debts of underwater mortgage holders.

In fact, this might well have come straight from the pages of "Duh! Magazine: A Journal For Dullards (this month's cover story: The Sun--It's Hot There!)". Of course, the banksters are all making lovely noises about how "unfair" it would be to those mortgage holders who've been regularly paying off the gigantic protection racke--uhh...I mean, BEING RESPONSIBLE and paying on time. Such a move "could be harmful to consumers, investors and future mortgage market conditions" (David Lowman, JP Morgan Chase, JPM) and "could raise issues of fairness" (Sanjiv Das, Citigroup, C).

Of course, if you were to ask Das why he simply doesn't forgive a chunk of EVERYBODY'S principal, which would raise no issues of fairness at all, he'd probably choke on his own tongue.

Because what neither Das nor Lowman will spill the beans on is that, chances are, most of those homeowners are delinquent on early, interest-heavy payments rather than later, principal-heavy payments, so if principal were forgiven, it'd cost the banksters whopping interest payments. Since the housing boom started about ten years or so ago, give or take, it's reasonable to assert most homeowners weren't far into those mortgages in the first place.

So color me really not surprised that the banks aren't keen on the idea of just "forgiving" some principal, even if it would be a huge help to a lot of people.