You Can Still Become a Homeowner Despite the Housing Market Crash

There’s no doubt that the housing market crash has changed the mortgage lending industry. Today’s prospective homebuyers are finding a very different world than those of just a few years ago. You can no longer purchase a house with a zero down payment. On top of that, lenders are requiring higher credit scores, and higher cash reserves. And if you do score that loan, you’ll be paying higher mortgage insurance and higher fees to Fannie Mae and Freddie Mac. As a result, mortgage loans are at an all-time low.

Sounds bleak, doesn’t it? The truth of the matter is that you can make the housing market crash work for you. The key is to maintain good financial standing and to be prepared when you ask for that loan.

Consider the key elements to obtaining approval on your mortgage loan: capacity, credit, collateral and capital. You’ll need to have all these bases covered to ensure that your loan is approved.

Getting Your Loan Approved
Capacity involves your monthly income and expenditures. A lender will look at how much money you make, your monthly obligations — such as auto and student loans and credit card payments, and whether your income to expenditures will allow you to make the monthly mortgage payment. While looking at these things, your lender will also look at whether your income is consistent as well as how long you’ve been at your current job. The lender will also request paystubs, W2 forms, tax returns and employment contracts.

Your credit history is an important part of the mortgage loan process. Credit history is based on your credit score; your payment history and missed payments; bankruptcies, garnishments and other public records; and your credit report. If you’ve missed payments on another loan or have been late paying bills, then you’ll need to rectify this situation before applying for a mortgage loan. If you’ve filed bankruptcy, you’ll need to wait two years until you’ll qualify for a mortgage loan. And if garnishments, child support, alimony, or another judgment against you reduces your monthly income to an amount that the lender suspects will make it impossible to make your mortgage payment, you’ll be denied the loan.

As for your credit score, you can order it for a nominal charge from any of the three credit reporting agencies, Experian, Transunion or Equifax. You can visit http://www.annualcreditreport.com to get your credit report from all three agencies for no charge once a year. At the links you will follow to get your credit report, you can order your credit score. You can order it from all three, and it might vary by a few points among the three agencies, but you can also just order it from one agency.

Your credit score is based on your payment history, your credit history, any new credit obtained, amounts owed on loans and credit cards, and the types of credit you have. To prepare for buying a house, cancel any credit cards you don’t use, and request a letter of account closure from the creditor to ensure the account is actually closed. You’ll also want to pay down credit cards and loans as much as feasible, and don’t apply for any new credit cards or loans within a few months of applying for your mortgage loan.

As for your payment history, you’ll need a solid record of on-time payments with no missed or late payments. Your credit reports from Experian, Transunion and Equifax will contain a list of all your current accounts and a month-by-month payment history. If you’re unsure as to whether you had missed or late payments, you should definitely check your credit report before the lender does. If there are errors on your credit report, resolve these with the all three reporting agencies before you apply for your mortgage loan. If you resolve the issue with only one agency, the other two will still have the problems on their records — and your credit report.

The third factor in obtaining approval for a mortgage loan is collateral. This is determined by the property’s value and condition. Before the loan is approved, an appraiser will visit the property and determine its value. If the property is worth more than the mortgage loan, that’s good. If the property is worth less than the mortgage loan, your loan won’t be approved, and you’ll have to either walk away from the house or renegotiate the price with the seller.

The final factor in obtaining a mortgage loan is capital. How much do you have in cash and liquid assets (stocks, bonds, CDs, retirement accounts)? You’ll need to have enough cash for the down payment and closing costs. Be prepared to provide copies of all your account statements to prove to the lender your cash and liquid assets.

When Mortgage Loans Are Denied
Mortgage loans are denied for a variety of reasons, many of which I’ve already discussed. You can also ensure that your loan will be declined if you increase your credit card debt before the loan is approved. Don’t go out and charge new furniture and all the things you’ll need to set up house on your credit cards while you’re waiting for your loan to be approved. These charges will show up on your credit report. Likewise, don’t take out any other loans during this period. The new car will just have to wait.

Switching jobs while going through the process of buying a house is a very bad idea. In today’s economic times, this is sometimes out of your control if you’re the victim of layoff or downsizing. In these cases, it might be a better idea to hold off on buying a house until you find a new job and recover financially from any period of unemployment. If you are searching for a job and plan to leave your current job voluntarily, wait until after your closing date.

Another way to assure that your mortgage loan will be denied is to keep pertinent information secret during the application process. Make sure that you answer all of the lender’s questions, and answer them honestly.

As you’re considering buying a home, keep this information handy. And remember, take good care of your credit now and always.

Popular Mortgage Myths Debunked

When you’re preparing to apply for a mortgage loan, it seems everyone around becomes a lending expert. There are a lot of mortgage myths floating around out there. This month, I identify some of those myths and debunk them so you can make an informed decision for yourself.

Myth: Even people with good credit are having a hard time getting loans.
Fact: Although certain loan programs have been eliminated, any borrower with good credit, a stable income, and the cash necessary for the down payment and closing can obtain a mortgage loan.

Myth: Applying with more than one mortgage lender will damage your credit.
Fact: You can apply with multiple mortgage lenders; the key is to do so within the same 45-day period. Multiple inquiries within 45 days count as one inquiry.

Myth: You need to put at least 20 percent of the cost of the house down to buy a house.
Fact: The Veterans Administration (VA) and the U.S. Department of Agriculture (USDA) offer zero down for borrowers who qualify. The Federal Housing Administration (FHA) offers loans for 3.5 percent down, and conventional loans are available for 5 to 10 percent down. Loans with less than 20 percent down require mortgage insurance, so if you can put down 20 percent, you’ll avoid this added expense.

Myth: FHA loans are only for first-time buyers.
Fact: FHA loans are available to all homebuyers who meet the minimum credit score requirements and maximum loan size ($271,050 in Nebraska). To qualify for an FHA loan, you must have a good credit history for at least the past two years, your income must be consistently increasing, you must have a steady employment record (two years or longer with the same employer), and the mortgage payment must be 30 percent or less of your gross income.

Myth: I can’t refinance because my house declined in value.
Fact: Mortgage programs are now available that allow an appraisal waiver in many cases to those who qualify. These guidelines were changed to allow homeowners who have paid their mortgage on time to take advantage of the current low interest rates.

Myth: A 15- or 30-year fixed-rate mortgage is the best way to go.
Fact: If you’re like some people and you’re buying a house you want to grow old in, then a 15- or 30-year fixed-rate, long-term mortgage is the best option. However, the average person stays in a house nine years. If you know you’re buying a starter house that you’re going to sell, say, in nine years, then an adjustable rate mortgage (ARM) might be the way to go. You’ll hear a lot of warnings about ARMs, and some of them are true. However, an ARM can be a good choice if you look for one with a fixed introductory rate for three, five, seven or 10 years — the amount of time you plan on staying in the house. Then, sell the house before the interest rate increases.

Myth: You should pay off your mortgage as quickly as possible.
Fact: It’s best just to accept that you have a mortgage and sleep well at night. For some people, however, they don’t like such a huge financial obligation hanging over their heads, so they try to pay off their mortgage as quickly as possible. But before you go putting your annual bonus into the principal owed on your home, take a step back and think like financial expert: Your mortgage loan interest rate is probably around 5 percent, give or take a couple points, while your credit card interest rates are likely much higher than that. If you want to make the best use of your money, pay down debt on high-interest accounts rather than on your mortgage.

Myth: You can’t get a mortgage if you have black marks on your credit.
Fact: If you have excellent credit, you’re going to have an easier time obtaining a mortgage loan and getting a low interest rate than if your credit has blemishes. However, even if you have marks on your credit, you can obtain a mortgage loan. You’re just going to pay a bit more interest on it. If you have perfect credit and a credit score above 740, then you qualify for the best available interest rates. For scores below 740, interest rates are increasingly higher as the score approaches 620. FHA loans are more forgiving on credit scores and are a better option for many buyers with marks on their credit. If you have a bankruptcy or foreclosure on your credit history, you may have to wait before obtaining a mortgage loan depending on how much time has passed since the bankruptcy or foreclosure.

Myth: If one lender turns you down, they all will.
Fact: Not necessarily. Different lenders offer different types of loans and have different requirements for credit scores and debt ratios. Some lenders only accept borrowers with the very best credit and highest credit scores. The best thing to do is to find out your credit score and do some footwork with a couple different lenders to determine the one for you.

Myth: If you refinance, your loan term is extended by 30 years.
Fact: Many homeowners don’t refinance because they don’t want to make another 30-year commitment or because they want to pay off their home before retirement. If you refinance, however, you can still achieve a lower monthly mortgage payment and amortize your payments so you’re right on schedule with your current loan. In some cases, you may be able to refinance to a 20- or 25-year loan for about the same payment you have now.

Sources
1. Ryan Shoemaker, CMPS®, The Private Mortgage Group, Omaha.
2. “6 Mortgage Myths That Can Cost You Money,” by Holden Lewis, Bankrate.com.

Buy a House, Get Free Money

If you’re sitting in your apartment listening to the upstairs neighbors blast their music and thinking about how nice it would be to have your own house, then don’t wait. Now is the time to buy. First, the market is indeed a buyer’s market, even though Omaha hasn’t suffered from the housing downturn as much as other cities. Most importantly, however, first-time homebuyers have less than two months to qualify for the federal housing tax credit of up to $8,000.

To many, it sounds too good to be true: Under the American Recovery and Reinvestment Act of 2009, the government will give you a tax credit — which translates to cash — of 10 percent of the cost of the house, up to $8,000. Just for buying your first house. It’s true, though, and it’s too good of a deal to pass up. But you only have until Nov. 30 to qualify for the tax credit, and this means your closing must be no later than Nov. 30.

Who Qualifies?
To qualify for the tax credit, you must be a first-time homebuyer. For the program, the IRS defines a first-time homebuyer as someone who has never owned a home or who has not owned a home for three years prior to purchasing a home during the program.

The tax credit applies to single taxpayers with incomes up to $75,000 or married couples with income up to $150,000. As I said before, the tax credit is equal to 10 percent of the purchase price of the home, up to $8,000, and unlike previous programs like the one in 2008, homebuyers do not repay the tax credit amount. This is not a loan; it’s a fantastic incentive.

To qualify for the tax credit, you must purchase the house — and this means close on it — before December 1. That’s why now is the time to act. By the time you obtain preapproval for a mortgage loan, look at houses, go through the inspection process and close, November 30 will be here in no time. Considering that closing takes 30 to 45 days, you must start the mortgage loan process no later than Oct. 30, earlier to be on the safe side. You haven’t a day to waste.

Why Is it Called a ‘Tax Credit’?
As a tax credit, you can apply the $8,000 to taxes you owe the IRS. However, it’s what’s called a “refundable tax credit,” which means that if no or less money is owed to the IRS, then the full amount is paid to you.

In short, here’s what the IRS is saying:

Say you owe $7,000 in taxes for the year, and your withholdings from your paychecks equal $7,000. During the year, you buy a house for $92,000. You qualify for the full $8,000 tax credit and you don’t owe the IRS taxes, so the IRS will send you a check for $8,000.

Now say you owe $7,000 in taxes for the year, and your withholdings from your paychecks equal $8,000 (you overpaid by $1,000). During the year, you buy a house for $92,000. You qualify for the full $8,000 housing tax credit, so the IRS will send you a check for $8,000 and another check for the $1,000 you overpaid in taxes.

In the third scenario, say you owe $7,000 in taxes for the year, and your withholdings from your paychecks equal $5,000 (you underpaid by $2,000). During the year, you buy a house for $92,000. You qualify for the full $8,000 housing tax credit, but you owe the IRS $2,000. The IRS will send you a check for $6,000 and you are square for the year.

Why Take Advantage of the Tax Credit?
If you’re considering home ownership, then you’ve probably run through the list of benefits of owning your own home: Mortgage payments go toward the purchase of your house rather than a landlord’s pocket, you can paint and decorate the way you really want, you have much more privacy, you never have to move again, you have a home that is truly yours.

And the federal housing tax credit is one more benefit you can get if you buy now. You might never again find a time when someone is going to give you $8,000 to buy a house. With this tax credit, first-time homebuyers can start out in their new homes with money in the bank. You can use the money to paint and decorate, or you can fix minor problems noted in the inspection report. You could also use the tax credit to purchase instant equity in your new home by putting, say, half in the bank and half toward your mortgage principal.

Moreover, you don’t have to worry about sinking all your money into a down payment and then having nothing left in the bank. Even if you do use all your savings on the down payment, you’ll have $8,000 in the bank when you receive your tax credit. Furthermore, if you don’t have money for a down payment, family members might be more likely to lend you the money knowing you can repay them as soon as you receive the tax credit.

What Types of Homes Qualify?
Any home that will be used as a principal residence qualifies for this tax credit, including single-family detached homes, townhomes, condos, manufactured (mobile) homes and even houseboats. You cannot, however, qualify for the tax credit if you purchase a home from a family member (parents, grandparents, children) or a spouse.

How Do I File the Tax Credit?
In order to file your federal housing tax credit, you or your tax professional must complete IRS Form 5405. For around $40 you can have a tax professional complete the form for you.

And here’s another great thing about the tax credit: You can file it as an amendment to your 2008 taxes, or you can file it with your 2009 taxes. For some homebuyers, one is not more beneficial than the other. For others, filing it for one year versus the other might be more beneficial. If you aren’t sure, ask your tax professional.

If you file the tax credit an amendment to your 2008 taxes, you can file it immediately after the purchase of your home, putting that money in your pocket sooner. Typically the IRS sends tax credit checks within eight to 12 weeks of receiving the paperwork. It really is that easy.

If you’re smart about buying a house, you have plenty of time to find and buy your first home before Nov. 30. With prices low, you’re sure to find a house within your budget, and the tax credit sweetens the deal, ensuring that you have a nice nest egg to start out with in your new home.

Going Green

If your carbon footprint looks like Bigfoot’s footprint, then you might want to consider some ways you can green up your lifestyle. According to “Saving Energy: It Starts at Home” in the March 2009 issue of National Geographic, most of us could easily reduce our “energy diets” by more than 25 percent. Going green not only benefits Mother Earth; it also benefits your pocketbook during these times of economic stress.

Consider this: The average American household produces more than 150 lbs. of carbon dioxide (CO₂) every day. That’s more than twice the amount produced by Europeans, and more than five times the global average. Peter Miller, the author of the article in National Geographic, wanted to reduce his carbon footprint, so he consulted Tim Flannery, author of The Weather Makers: How Man Is Changing the Climate and What It Means for Life on Earth. Flannery contends that to prevent earth-altering ice cap melting, we need to reduce our CO₂ emissions by 80 percent.

So Miller decided to see whether he and his wife could reduce their carbon footprint by 80 percent. They tracked their CO₂ emissions for one month, July 2008, as though they were counting calories for a diet, and they converted daily activities into pounds of CO₂. They determined ways they could reduce — driving less, watching less TV, turning up the air conditioner, turning down the hot water heater, and using a push reel lawn mower rather than a gas-guzzling model. They checked their utility meters and car odometers daily and recorded the readings. They also learned some surprising facts; for example, one gallon of gasoline adds 19.6 lbs. of CO₂ to the atmosphere, a kilowatt-hour of electricity adds 1.5 lbs. of CO₂ and a cubic foot of natural gas adds 12 lbs. of CO₂.

By August 1, the Millers had decreased their electricity use by 70 percent and their natural gas use by 40 percent compared to the previous July, and they’d reduced their driving to about half the national average. In all, they reduced their CO₂ emissions to an average of 70.5 lbs. a day — less than half the national average. Although they didn’t reach their target, that’s an enormous reduction for one month and on par with European usage.

You don’t have to take on a huge challenge like the Millers did to reduce your carbon footprint and save energy. You can do it many small, easy ways that will add up, both for Mother Earth and your pocketbook.

Fix leaky plumbing. That leaky bathroom faucet is costing you more than annoyance. Check all faucets — sinks, tubs, showers, toilets — for leaks and repair them. Better yet, replace them with water-saving models.

Install a programmable thermostat. This allows you to turn the heat down and the cool air up during the workday when you’re not home and at night.

Add insulation. Heat escapes through the attic and around doors and windows. Add extra insulation to your attic — you can rent a blower at Lowe’s or Home Depot and blow the insulation into the attic for an easy task — and add weather stripping and/or caulk around your windows and doors.

Reduce paper products. Sign up to receive your monthly bills online (and pay them online). Also, eliminate paper towels and napkins by using rags and cloth napkins. Old t-shirts, socks and towels make great rags that you won’t feel bad about throwing away when they get gross.

Start composting. A compost pile in a back corner of your yard is great transforming for food waste into nutrient-rich soil for your lawn and gardens. You can purchase worms at a bait shop or online to speed the composting process.

Use reusable items. From water bottles to razors, you can find a myriad of reusable products that will reduce waste.

Park your car. Try to drive less and walk, ride a bike, carpool or use public transportation more often.

Use water-based paints in and on your house. Use water-based latex paint rather than oil- or solvent-based paints.

Plant drought-tolerant landscaping. Plenty of plants and flowers are tolerant of hot, dry conditions and require less watering, saving you time and money.

Invest in quality. Ever heard the saying, “I’m too poor to buy cheap things?” When you buy something of good quality, you don’t have to replace or upgrade it nearly as often as you do items of poor quality. This goes for furniture, appliances, computers, electronics, clothing, shoes, homes — pretty much everything.

Use compact fluorescent lights (CFLs). CFLs can save you up to $30 over the lifetime of the bulb, and they pay for themselves in about six months. They use 75 percent less energy than incandescent bulbs, and they last about 10 times longer. If you want to avoid harsh fluorescent light, choose CFLs that say “soft white” on the package. You can even purchase dimmable CFLs now. NOTE: Because CFLs contain mercury, follow the package instructions for proper disposal.

Recycle. Recycle paper, cans and plastic bottles by placing them in your recycle bin for pickup on trash day. Collect glass bottles and take them to a recycling center regularly. You can also recycle in other ways. For example, if that sofa is in good condition or your old PC still works (albeit slowly), donate it to a local charity.

Start your Going Green project today!

Beautify Your Home With Do-It-Yourself Landscape Design

Landscape design is an easy way to beautify your home, add curb appeal and increase the value of your home. By landscaping your yard, you can add color and shape to your home’s exterior, and you will enjoy vibrant colors and fragrances. If you plan carefully, your yard can have color during your area’s entire growing season. Plus, gardening is a great workout with instant gratification: a stunning yard.

No matter how big or small your yard is, you can add one or more flowering gardens, beds and borders. If you have a small yard and no children who need play space, you might consider turning your entire back yard into a charming English or modern Oriental garden. If your yard is large or you need space for a swing set and other children’s toys, stick to small gardens, beds and borders.

If, like most of us, you’re not a horticulturist, you can visit your local bookstore or library and find an enormous variety of books about landscape design and flower gardening. The Flower Gardener’s Bible by Lewis and Nancy Hill is an excellent book (especially for beginner gardeners) that provides a wealth of information about bulbs, rhizomes, perennials, annuals, herbs and flowering shrubs, as well as landscape design plans for all areas of the yard. It also covers garden pests and maintenance, and it contains a seasonal checklist of garden tasks.

The book’s landscape design section offers plans for a path garden, foundation gardens, a child’s garden, rock gardens, hillside gardens, shade gardens, seashore gardens, a water garden and many more. One of the most valuable parts of this book is the full-color flower directory, which allows you to learn about hundreds of plants and determine which will do well in your yard and zone.

Guidelines for Gardening
There are definitely some guidelines that you should follow when designing your home’s landscape. I’ll discuss some of the key guidelines and tips so you can avoid landscaping pitfalls.

Plan, plan, plan. Many beginning gardeners make the mistake of picking out pretty plants and shrubs, then just starting to dig up the yard without planning. The first thing you should do is sketch out your yard and the area where you plan to plant a garden. You can define this area using landscaping blocks, old bricks, railroad ties or a natural marker, such as a tree.

The next step is to determine your planting zone and the type of sunlight that shines on your garden area. If the area receives eight hours or more of sunlight, then it’s a sunny area. If it receives four hours of sunlight and four hours of shade, then it’s a part sun/part shade area. If it receives fewer than four hours of sunlight, then it’s a part shade to shady area. Make sure you select plants according to the sunlight they will receive. For example, hostas and lily-of-the-valley prefer shady areas and lilies and snapdragons prefer sunny spots.

Be sure to plan so that your plants won’t intrude on walkways and paths or cover your house numbers.

Get creative. No one said a garden path, border or garden itself must have straight lines. Add curves to your gardens and paths to create visual interest. Your garden should reveal a part of your personality. Get inspired and make your garden your own work of art.

Choose a theme. Whether you like the colorful wildness of a traditional English garden or the modern simplicity of an Oriental garden, your plants will look more cohesive if you have a theme. From rock gardens to water gardens, from monochromatic to complementary colors, choose a theme and stick with it.

Plant so that something is always blooming during the growing season. In most zones, different plants bloom at different times of the growing season, and a beautiful garden always has at least a few things blooming at the same time. You want to plant your garden so that it blooms in waves from early spring until the first frost, and some plants will carry over to the next wave. To achieve this, be sure to become familiar with each plant’s bloom time.

Fill in with annuals. In cooler zones, the rule is to plant annuals after Mother’s Day, as they are not frost-tolerant. Annuals bloom throughout the current growing season — from spring to late summer or fall — and then die. They are robust bloomers, and they grow quickly. For this reason, annuals are perfect for a variety of uses in the garden.

Plant them in containers and hang them from shepherd’s hooks to add color and life at a higher level in your garden, or plant several large containers of annuals to border your deck or patio. One of the best uses for annuals is to fill in holes in a newly planted perennial garden. In this way, you will eliminate large gaps and have color throughout the growing season. You can find annuals that thrive in shade, such as impatiens, as well as those that prefer sunny areas, like marigolds. Make sure you deadhead your annuals, throughout the growing season to keep them blooming, but allow them to go to seed just before the first frost. Then you can collect the seeds and plant them next spring.

Be wary of invasive plants. Trumpet vines, strawberries, chameleon flower and honeysuckle vine are all beautiful plants. However, they are also very aggressive growers and can become invasive if not controlled properly. Invasive plants are best left out of the garden, but if you can’t resist their beauty, plant them in containers to control them.

Keep your plants neat. Weeding, deadheading and dividing are the chores of the gardener. Weeds can choke your beautiful plants and prevent them from growing to their full potential. Furthermore, allowed to become overgrown, weeds can kill your plants. A couple of landscaping elements can help you control weeds.

Black landscape fabric is the thing to use when you’re in the planning stages of your garden. Cover the area you plan to plant with landscape fabric, and it will prevent weeds and grass from growing in the area until you plant. In fact, you can leave the landscape fabric on the ground and just cut holes in it so you can plant your flowers, and this will prevent weeds in the garden area. Once you’ve planted, cover the area around the plants with mulch. Mulch is available in a range of colors to suit your home and your taste, and it greatly diminishes the amount of weeds you will have dig up. You can also use rock in lieu of mulch to control weeds and add a great look to your garden.

Deadheading is just what it sounds like — removing the dead flower heads from your plants. Many perennials will bloom bigger and longer if you deadhead them. Some rose bushes can rebloom if you remove the dead rosehips. And annuals will bloom denser and longer if you remove the dead flowers. At the end of the growing season, leave the dead heads on your annuals and perennials such as columbine; they will go to seed and you can collect the seeds to plant next year.

Dividing is a task you should do whenever your perennials, bulbs or rhizomes become thick and unruly. Most perennials require dividing every few years. The great thing about dividing is that the plants you dig up to thin out thick areas are ready for planting in another area, or you can give them to friends and neighbors for their gardens. When you plant a garden, you will have an everlasting supply of plants.

Maintain your trees and shrubs. From rose bushes to birch trees, shrubs and trees require pruning and trimming to keep them healthy, full and out of the way of walkways.

Know the work involved in fountains and water gardens. Water gardens and fountains are gorgeous additions to your yard and garden, but it’s important to understand that they require maintenance and cleaning, or you’ll end up with a mating ground for mosquitoes and bugs.

Avoid or remove ugly landscaping elements. Red lava rock, white quartz rock, chicken wire, shoddy trellises and other unattractive elements detract from the beauty of your garden and its flowers. Don’t use them. If any of these things already exists in your garden, get rid of them.

Happy landscaping!