Eugene C. Kelley asked:




Between these two headlines from April 20, 2010 I could not decide which was more important, so I figured I would use them both.

The first headline is good news for Wells Fargo shareholders who, according to their press release, stand to make forty five cents per share of common stock on 21 billion in revenue. The numbers posted reflect a giant bank which is thriving. In fact, Wells Fargo is doing so well it bought another big troubled bank last year, Wachovia, a purchase helped out by a little bit of TARP money. Things are good at old Wells Fargo.

Unfortunately, this happy prosperity is not shared with many of Wells Fargo’s customers.

The second headline, which will never make the news, is one I made up. It is about a little old lady who was in my office this week. She owns a home worth about $70,000. Five years ago, she took out a loan from Wells Fargo for over $140,000. Five years ago, appraisers for banks like Wells Fargo would say anything to make sure a loan was approved and loan brokers would do anything to get the loan to closing. She was dumb to take such a large loan, and Wells Fargo was dumber to make it.

Her household income, consisting of a small pension, social security and disability for her sick husband, is about $3,100 monthly. Her mortgage payment is $1,600.00.

She is having a hard time paying such a relatively large mortgage and called Wells Fargo to see if the loan could be modified. “Sure…” the nice lady from Wells Fargo said…”All you have to do is pay off all of your credit cards.”

This poor old lady has credit card bills totaling $20,000. She and her husband used them for many years, more so after he got sick and could no longer work. They can’t pay them anymore. Collectors are calling her all day every day. Wells Fargo’s request that the cards be paid in full is nonsensical and hardly worthy of comment, aside from the fact that these large national lenders tell their worried customers things like this every single day.

How does a lawyer advise someone in her position?

Her true situation is this. She’s old enough that if she stopped paying everybody, it would take a long time for her to lose her home. The local courts are presently flooded with foreclosures, each takes a long time to process. The credit card companies will call and write her, and maybe sue in a few years, but she is underwater in every direction, and she has no assets to satisfy any judgment. The biggest price she is paying is personal. She was very distraught, having never missed timely payment of bills her whole life. I could see that the stress of her situation will simply kill her.

That’s not what I told her though.

I told her to take some time and calm down, to ignore the collection calls, to stay as current on the mortgage as she is able, and to refer any lawsuits she might get to me. Now, I could see as I spoke to her that she was dumb to take such a large loan, and Wells Fargo was dumber to make it, but who is paying a higher price, the bank making billions or the little old lady crying in my office?

Ella

Brad Stroh asked:


Qualifying for a Mortgage

Before you buy a home, it is crucial that you weigh how you can afford to pay for it. You don’t want to waste time or money by bidding on a house that you cannot afford or by applying for a loan that is beyond your means to pay month after month and year after year. Figuring out your budget for your home will make it easier to get the right loan and also to know what changes you may need to make to your finances and to you credit profile.

As a standard rule you are advised to buy a house worth no more than 3 times your gross household income. Use this figure if you have some other debts, such as student loans, car payments, or sizable credit card balances. If you have no other debts, you likely can afford a house that costs as much as five times your annual household income.

When potential lenders review your ability to qualify you for a home loan, they are going to pay close attention to your debt-to-income ratio (DTI). To determine your DTI, start by computing your total net monthly income. This includes your monthly wages and any overtime, commissions or bonuses that are guaranteed; plus any pension monies or monies that come from alimony or child support, if applicable. If your income varies month-to-month, calculate your monthly average over the past two years. Don’t forget to include any other monies earned, whether from rentals or any other additional income.

To determine your monthly debt obligations, make sure to include all of your credit card bills, any loans, such as automobile, student, or personal and the amount of the new mortgage payment in the loan that you will apply for. Make sure to include your monthly rent payments if you rent. When you are adding up your credit card obligations, use the minimum required monthly payment. Divide your total monthly debt obligations by your total monthly income. This is your total debt-to-income ratio. The lower your DTI, the better. A high DTI can prevent you from getting the loan. It also can be a warning sign that even a loan that you qualify for could be a serious burden to make each month.

Most lenders traditionally will qualify your for the loan with a DTI of 28% to 44% of your monthly income. In other words, if your monthly income is $4,000, the lender would ordinarily want you to pay no more than $1,760 (.44 x $4,000) toward all your debts. Some sub-prime lenders will allow borrowers to have DTI ratios as high as 55%.

You may have compensating factors that will allow you to qualify for the loan, even with a less than desirable DTI. For instance, f you have an excellent credit record, a lender might allow you to go more deeply into debt. Just how high a DTI you can have and still qualify for the loan will depend on such factors as the amount of your down payment, the interest rate on your new mortgage, your credit history and score, and how much other debt you are carrying.

Bills.com has mortgage calculators that will help you quickly determine monthly payments on different size mortgages so you can learn how much house you can afford. All calculators are not created equal — but all of them are free. You should investigate different scenarios, so you can see how the amount of down payment, the length of the loan term, and the interest rates will affect the size of the monthly payment. (http://www.bills.com/mortgage/)

Before you start shopping for a loan and a home, you need to know some terms you will encounter:

Pre-qualification. Getting pre-qualified for a loan is a good thing, but it is NOT a guarantee that you will actually get the loan. To get pre-qualified, you will speak to a lender and go over the standard questions: your income (and DTI), your credit rating, and the size of your down payment. Prequalifying lets you determine exactly how much you’ll be able to borrow and how much you’ll need for a down payment and closing costs. Still, the lender is not asking to see the proof of your income claims, so any ‘approval’ you receive you can vanish into thin air.

Pre-approval. If you are serious about moving forward, it is recommended to get pre-approved for a specific loan amount. To get pre-approved, the lender will actually verify your credit and income documents, rather than relying on the numbers you provide them about your income and debts.

The documents that you will need to assemble for the lender to get your pre-approval are: Federal Income Tax Returns and W-2 forms for the past two years; the two most recent months’ pay stubs with your name and year-to-date earnings; proof of any other income you claim on your application, such as alimony, pensions or Social Security income; a list of all your creditors that shows the total balances due and the minimum required monthly payments, and proof of all assets, such as savings, stocks and bonds, or any other real estate owned.

Funds to be used for a down payment likely need to be in your account for two months before you can use them, IF they are coming from someone else, like your parents. Just having the funds in your account is NOT enough. Lenders will demand that any funds used to satisfy down payment and closing costs must come from your own resources. Funds must be ‘seasoned’ in your possession for at least two to three months. You can prove the funds are ‘seasoned’ by supplying two to three months of bank statements or documentation demonstrating that funds have been in your possession.

Almost every lender is going to ask to see the credit reports supplied by the three main credit bureaus: Experian, Equifax, and TransUnion. The credit report will show your financial history, showing the different transactions you have made, as well as providing your credit risk score. This score is known as the FICO score, named after Fair, Isaac, & Company, who developed many of the computer scoring models. It can be almost impossible to fully understand why your FICO scores is what it is, but key factors that are weighed in determining your score are: How timely you have paid your bills, how much debt you are carrying, how much of your available credit you are using (the size of the balance compared to the size of the credit line), how many credit cards and loans you have open, how many people have looked at your credit report recently, and if there is any negative information about in the public record area of your report. This area is where a judgment against you would appear as well as items like tax liens filed by the State or Federal Government.

The higher your credit score, the easier it will be for you to qualify for a loan. If you routinely pay your bills late, you will have a lower score, in which case a lender may either reject your loan application altogether or insist on a very large down payment or high interest rate. Because your credit history has such an important effect on the type and amount of mortgage loan you’ll be offered, make sure that you check your report regularly. If you find it necessary to clean up your report, you will want to do so before you apply for a mortgage. Almost every lender is going to ask to see the credit reports supplied by the three main credit bureaus reporting your file: Equifax, Experian, and TransUnion. The credit report will show a history of your financial transactions as well as providing your credit risk score. This score is known as the FICO score, named after Fair, Isaac & Company, who developed many of the computer scoring models. It can be almost impossible to fully understand why your FICO score is what it is, but key factors being weighed in the scoring are: How timely you have paid your bills, how much debt you are carrying, how much of your available credit you are using (the size of the balance compared to the size of the credit line), how many credit cards and loans you have open, how many people have looked at your credit report recently, and if there is any negative information about in the public record area of your report.

At the end of the day, if your mortgage and home fit into a well thought out financial game-plan, home ownership can be one of the most rewarding investments in your portfolio. Be sure to consider all of the issues, and make sure you get the right loan for your needs.



JULES

Rony Walker asked:


You’ve been planning to get a house of your own for a long time now, but getting yourself into a home loan is the last idea on your mind. And, thus, you wait endlessly until you have set aside enough to own it in cash at the same time you live terribly in your crappy apartment. The reluctance to get a home mortgage is understandable. I know how disappointing it is to be asked to pay for mortgage fees that we can hardly afford. But you also have to keep in mind that with the correct home mortgage lender, you two could work out what the excellent preferences for you are. Home loan lending rates differ. Not all of them are sky-high. You just need to know how and where to obtain them.

Before you decide to go out and look for a lender, evaluate your finances first. Know your paying capacity. Deduct your periodic monthly costs from your consolidated monthly household income and you obtain the accurate amount that you may afford for your monthly mortgage. If you have fantastic credit standing, you can most likely be eligible for the lowest mortgage fees there is. However, when you’re in a terrible credit situation, you may benefit from other preferences like a no money down home mortgage or a secured home equity loan. Specific lenders also provide home loans for women with bad credit. It’s ideal to learn the available preferences for you and then seek suggestion from a professional on which one would function best for you.

Moreover, it is a lovely logic to have an approximation of how much you’re going to be paying each month for a particular unit by availing of a free mortgage quote online. Gather as much mortgage quotes and relevant information as you could. Get knowledgeable on the ins and outs of home loan lending. If you’re equipped with the appropriate info, you’re less likely to be conned by mortgage sharks who are merely out to cheat to you. There are numerous of them around, so get me a favor and be wary for them. Or somehow be prepared should they attempt to place you into their trap.

Mortgage standards vary from state to state. may process a loan application differently from a Florida mortgage lender. Hence, skim on home loan laws on the state where you’re thinking planning to acquire your home. The federal mortgage rules can be the same, but how every state perform things can vary. This would avoid confusion as wella s conflicts along the way.

So you have analyzed your economics, your credit history has been restored, or at least you’ve analyzed your selections, and you discover you may afford a home loan. You got yourself a mortgage quote or an budget of how much you’ll be paying every month and you’re well-versed on the prevailing interest rates. Thirty-year mortgage rates differ from a fifteen-year mortgage charge or lower. Also, you’ve skim on loan rules of the certain state you have in mind and the types of mortgage loans and you know your choices. So I assume now you are prepared to look for a lender. Again, be forceful. This is your future you’re dealing with.



RUSS

Mark asked:


household income is around 130k. we have a mortgage loan of 280,000. our HELOC interest rates is the PRIME RATE plus 3/8ths.
we got this home equity line of credit with Countrywide Financial. Our mortgage is with JP Morgan Chase. I’m wondering if I could have done better on the HELOC by going straight to JP Morgan Chase for the HELOC and possibly might have avoided the $500 closing fee? Is this a bad deal I have with Countrywide? Do others know if Countrywide is competitive. I should have compared more before I got the loan. Does Countrywide loan to risky customers and therefore expect a higher interest rate from all its customers?

JORDAN