New mortgage lending policies are now being developed to classify mortgages and set the standards on who qualifies.  While the intent is to develop rules “in the spirit” of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, what essentially happens is it becomes even more difficult for regular people to qualify for a home loan.  From Real Trends,

However, the lower default rates, moving from QM to QRM come at a cost—the number of potential borrowers who would be excluded from the market. This is where real estate professionals and their customers really get whacked.

Items of concern include the elimination of 8.55 million qualified loans of the 19 million analyzed.   Also excluded are minorities and low income buyers, “Even at a 3% down payment, 25% of low-income buyers would be excluded, and at 10% down payment, 50% would be excluded.”

Scary stuff coming around the bend.  Looks like a lot of houses will sit empty.

We have been very optimistic on this site before when it comes to the housing recovery.  Each time we have been disappointed!  However an article from DS News reports that with banks loosening credit standards, the housing crisis could end in 2012.  From DS News,

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”  In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

This is good news and action that we hope sticks around for a while. Meanwhile home prices continue to drop according to the latest statistics from Case-Shiller.

Analysts were expecting a year-over-year drop in the range of 3.2 to 3.4 percent, holding constant with the annual declines reported for October of -3.2 percent for the 10-city composite and -3.4 percent for the 20-city measurement.

Eighteen cities’ annual returns were in negative territory in November. Detroit and Washington, D.C. were the only exceptions. At -11.8 percent, Atlanta continued to post the lowest annual results.

Realtors from around the country are reporting there is life in the housing market. That’s some good news!

I have a feeling the only way my kids will be able to afford a house when they’re older (because money runs through their fingers like melted buttah) will be if it’s financed by Mom and Dad.  Unfortunately, who knows if this Mom & Dad will be able to help like that. Heck, my daughters will be lucky if I can afford to buy them a $2000 dress when they eventually get married!

However, some parents are paying mortgages for their kids.  Loan Shak presents you an info gallery by CNN Money,

“Most important, we provided the bulk of his down payment as a gift,” said Curtis, who works as a water quality inspector. “Because of our help, he qualified for the best interest rate, and his principal was substantially lower, both of which in turn made his monthly payments affordable.”

Mitch has a good job for a 27-year-old; he’s an engineer at FLIR Systems, a maker of night vision and infrared equipment. Still, he simply hasn’t had enough time to build up his savings. Without the $25,000 his parents came up with, he probably couldn’t have afforded the modest three-bedroom house he bought in suburban Portland.

Wow.  A $25,000 gift. Kudos to the parents who CAN do that!

The only thing I’ve ever managed to pay off is a car or three.  The idea of making the final payment on a home loan is just … heavenly!  To write that very final check on my mortgage payment – well – I admit that I DREAM about the day!  However, it appears that some companies will do whatever it takes to stretch the money owed to them as long as possible.  According to Wakdjunkaga’s Blog (and I hope I spelled that right!),

First, after more than half a decade of handling our payments nearly perfectly — no delays in check-cashing to force late fees, as I had suffered under other institutions — on our penultimate payment, they somehow ignored the amount for which I had made out the check and cashed it for the monthly payment only, without the additional thousand of additional principal. A mistake? The probability of driving up our final payment by a couple of bucks a day made the coincidence of this “error” seem overly convenient to me. So I called the company (with three motives in mind — to complain about their deliberate error and get it corrected; to verify the final payment procedure and, after the “error” correction to determine the appropriate timing of our payoff; and to investigate our acquisition of the funds in our [currently rather hefty] escrow account).

That he spent forever getting through the voicemail barricades is another good reason to get mad! Ouch! Congratulations nevertheless, Mr. Burrow!

When my husband and I were first married, we struggled to find a way to save.  We had to put back then what people generally have to save today – about 20 percent of the the purchase price toward a down payment.  After cutting expenses until nothing else could be cut and still not getting anywhere, the solution came to me.  I had to get a second job.  Earnings from it would be used solely toward saving for our down payment.

Sometimes it’s just old fashioned true grit.  Get in there.  Earn the money.  Save it.

Our old friend Miranda Marquit says the same thing,

Many of us have a goal to pay down debt and to increase the amount of money that we save. The only issue that seems to get in the way is a lack of resources. What happens is you don’t feel like you have enough money to pay down your debt faster or improve your savings rate? When it comes right down to it, there is only so much cutting you can do. There are only so many money leaks you can plug as look for a way to improve your financial situation.

The solution is to increase your income.

It may not be fun.  It may not be easy.  But sometimes getting that part time job is what you need. If you do carry the dream of owning your own home and you weren’t born rich, then buckling down and working hard may be your own way to realize it.

Photo by Satish Krishnamurthy.

We’ve heard a lot about mortgage fraud after the last several years, yet it is still a problem even with stricter guidelines.  Mortgage lender Karen Burket-Bank of Medford, Oregon shares a story about one borrower who went from a salaried employee to self-employed – and that tripped up their loan,

Just weeks before the close of escrow date on the purchase, it was learned that this borrower had gone from being a salaried wage earner, to now being self employed.  You may ask yourself, “So, what’s the big deal?  If there’s still a job, why can’t the bank still lend the money?”  The answer to that may not be as simple as one would think.

In this case, the client remained in the same line of work.  So simple, right?  Actually, no.  The typical rule of thumb when lending to a self employed individual is that the lender will want to evaluate two years worth of tax returns in order to determine income eligibility.  So in the above case, because this client just recently put themselves on a self employed status, of course, there aren’t tax returns available to determine what newly self employed earnings even exist.

It is far easier – in my opinion – to get a loan as a regular employee.  However, being self-employed does not negate your eligibility to get a home loan.  Just be careful in not committing mortgage fraud – even unknowingly.

Where mortgage companies have severely tightened their lending standards, there remains some options for families who seek to own a home without a lot of money down and without extremely high credit.  The USDA rural home loans are still available, but there are some catches, according to Beginning Farmers.com,

To be eligible, families’ housing must be inadequate based on the family’s size. The USDA does not allow loans to purchase oversized homes, and will determine a reasonably-sized home per the family’s size. Borrowers must be able to afford the mortgage payments each month.

There may also be restrictions on where qualified houses are located.  For example, it is doubtful someone could qualify for a rural loan and live in a downtown district of a city of any size.  Contact your local lender to learn more!

Photo by sultry via flickr creative commons.

Guest Article by Contributed by Debt Community Member, Debt Consolidation Florida

There are two principal types of loans which you can take out for the purpose of debt consolidation by using your home as collateral.

• By going for cash-out refinancing – If you want to opt for cash-out refinancing, you’d have to take out a refinance loan that is higher than your outstanding mortgage balance and replace the existing home loan with the new one. You pay off all your unsecured bills (such as, credit card bills, store card bills, etc.) with the extra amount. In this way, you actually replace all your existing unsecured bill payments along with your existing mortgage into a single monthly payment. However, before taking out such a home loan, calculate how much you need to pay in order to get rid of your unsecured bills, all at once. It will help you take out a cash-out refinance loan which will help you pay off all your debts. In this way, you can pay off your bills without having to get help from a debt consolidation company.

• By taking out a home equity loan – A home equity loan can also help you consolidate your unsecured debt. It is a type of second mortgage which you can obtain by pledging your home equity. So, you need to have sufficient equity in your home to borrow a significant amount by using it as collateral. The property serves as the security for the amount you borrow. By taking out a home equity loan, you pay off your unsecured bills and in turn, convert your unsecured balances into a secured loan. So, you need to make a single monthly payment towards paying off your home equity loan. Moreover, the interest rate on a home equity loan is much less than that on your credit card bills.

Whenever you replace your unsecured debts with a secured one, make sure you plan a budget and make your single monthly payments on time, so that you can pay off the home loan within the stipulated time period. This is because the lender can foreclose your property if you’re delinquent on your monthly payments. So, before taking out such loans, analyze your financial condition and to be sure you’d be able to pay back the loan on time. If required, take help of a financial adviser to know which debt consolidation option will be best suitable to you.

For more information, contact Mr. Parker at kenneth.parkar83 (at) gmail (dot) com.

A friend is currently going through the loan modification process on his home loan.  He was nearly devastated when he discovered that his credit score had dropped a full 100 points.  However, it’s not the modification that hurts your credit score – it’s the late payments.

Often the reduced payments in the “trial modification” periods go to an escrow account rather than to your actual house payment.  Therefore your “late” payments may have a crushing impact on your credit score.  You can negotiate the impact on your credit score, though.  Before you dive in to a home loan modification, negotiate this in advance with your lender.

According to Correct Your Credit Scores and Get Better Credit Scores,

Try to stay current on your loan.  Even though many companies are advising people that they have to be delinquent to get a loan modification, try to keep making your payments on time.  Then be diligent and consistent with contacting your loan servicing company regularly to request an appointment with someone in their loan modification department.  Tell them you are trying very hard to avoid getting behind, that you are experiencing financial difficulties, and you want their assistance in modifying your loan before it is too late.

Getting a loan modification can be a huge help for people struggling to make ends meet, however be forewarned that it could have a detrimental impact on your credit score that could take years to fix.

New tiny houses – the two bedroom models – can be built for just over $50,000.  Or if you’re talking a 30-year mortgage at today’s rates … $250 p/month for a house payment. Sounds tempting, doesn’t it?  Here’s a house that was built for about $10,000!

“I sold my big house and got rid of most of my stuff, limiting myself to about 300 things — that was everything from heels and a toothbrush, to a couple of dinner plates and a two-ton jack. I then bought a set of plans from Tumbleweed. Four months later I had my tiny dream house.”

Some caveats.

1.  It’s hard to limit yourself to just 300 items when you’re used to living in a McMansion.
2.  Many lenders won’t bend over backwards on loans for $10,000 to $60,000.  They make more money on the $120,000 and up loans so will do just what they need to do. Don’t expect any concessions on closing costs.

But for $250 p/month (or less!) – and if you’re not claustrophobic – this could be ideal in today’s economic climate.

Photo by Tumbleweed Tiny House Company.