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Mortgage borrowers looking to cut down on monthly payments may find that making a single, upfront purchase of mortgage insurance is a good way to achieve this goal. Going this route, you won't have to pay every month for private mortgage insurance, or PMI. 
 This sort of arrangement is available on a conventional mortgage loan that requires private mortgage insurance, if you have less than 20 percent to put down for a down payment. It is not available with government programs such as FHA-insured loans, VA or USDA loans. Now that FHA insurance premiums have gone up, conventional loans look more attractive to many borrowers, making the single-payment PMI a more viable approach. 
 According to Christian Durland, a senior mortgage adviser with Envoy Mortgage in Centennial, Colo., "Eight times out of 10, if you run a proper analysis, the single-premium mortgage insurance always comes out as the less expensive option as long as you are going to be in the home for three or more years." 
 On a $200,000 mortgage with a 10 percent down payment, private mortgage insurance typically costs about $81.67 a month. With single-payment mortgage insurance, the borrower instead would pay an upfront premium of 1.37 percent, or $2,740. The total monthly payments would exceed the upfront premium two months shy of three years, for a break-even period of 34 months. 
 Paying for mortgage insurance upfront helps to reduce the debt-to-income ratio (the percentage of monthly income that goes toward debt payments). Lower debt-to-income means some borrowers can qualify for bigger loans. "If you are looking at a payment of $243 a month, that's equivalent to upwards of $50,000 in purchase price. Those are big numbers, especially for today's homebuyer," says Scott Sheldon, a senior mortgage loan officer with W.J. Bradley Mortgage Capital in Santa Rosa, Calif. 
 Making a one-time, upfront mortgage insurance payment saves the hassle of refinancing if there is no other rationale, Durland says. For example, if you have enough for a 15 percent down payment, you could put 10 percent or 12 percent down instead, pay for upfront PMI, and not have to watch your home's value to cancel monthly mortgage insurance after your equity exceeds 78 percent. 
 For borrowers who plan to sell their homes or refinance their mortgages within two or three years, a single upfront insurance payment would not offer a cost-saving benefit. 
 The additional upfront cost is another deterrent for a lot of borrowers. Bob Walters, chief economist with Quicken Loans, says, "If you are in mortgage insurance, by definition, you don't have a ton of equity in your home and that payment is likely going to be an issue. So people don't readily have money lying around that they can write a check to make that go away." 
 However, you could apply gift money that you get from family, or a seller concession, toward this expense. 
 If you are looking to go the single-payment insurance route, shop around to find a lender that embraces this PMI option. Not all lenders do. 
 Ask the loan officer to compare costs of monthly mortgage insurance versus single-payment mortgage insurance if you divert some of your down payment money for the latter. For example, how much would you pay for monthly mortgage insurance with a 12 percent down payment, and how much would upfront mortgage insurance cost if you made a 10 percent down payment? What would be the break-even period? 
 A final wrinkle to consider: It is unclear whether PMI will continue to be tax deductible in the future. Under the Tax Relief and Health Care Act of 2006, mortgage insurance premiums are tax deductible for qualifying homeowners. That deduction expires at the end of 2013. Congress could extend the mortgage insurance tax deduction, but lawmakers have had trouble agreeing to anything. 
<hr> 
 Mortgage rates have been little changed the week of Dec. 12 after they had jumped as a result of stronger-than-expected growth in the labor market. 
 The 30-year fixed-rate mortgage was 4.55 percent, the same as last week. 
 The 15-year fixed-rate mortgage fell 2 basis points to 3.6 percent. A basis point is one-hundredth of 1 percentage point. 
 The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, fell 2 basis points to 4.55 percent. 
 The 5/1 adjustable-rate mortgage rose 1 basis point to 3.34 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

reMORTGAGE13

Lower mortgage payment by buying insurance up-front

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Something very unusual happened with mortgage interest rates this week. The interest rate on jumbo mortgages actually fell below the interest rate of the conventional 30-year fixed-rate loan. 
 Mortgage experts were quick to point out that this latest quirk of the housing recovery had never happened before. 
 Conventional mortgages are 15-year and 30-year fixed rate mortgages up to $417,000. According to the latest Freddie Mac Primary Mortgage Market Survey (PMMS), interest rates on the 30-year fixed rate mortgage averaged 4.57 percent. Typically, borrowers pay .07 percent in fees if they have at least 20 percent in cash to put down on their purchase. 
 Jumbo loans are those from $417,001 to around $750,000 (some banks only price jumbo loans to $650,000 and others go higher). Traditionally, borrowers who needed a home loan bigger than a conventional mortgage would pay more for it, sometimes a half percentage or more. 
 So if a conventional 30-year fixed-rate mortgage carried a 4.57 percent interest rate, you could easily expect to pay over 5 percent for a larger jumbo mortgage. (Loans in excess of $1 million are typically priced on an individual basis.) 
 But not now. Mortgage experts say that jumbo loans are now carrying a lower interest rate than conventional, which seems to be unprecedented. No one can remember this happening before. But the real question is why? 
 One theory is the ever so slowly but surely improving economy, which is pushing all interest rates higher. 
 "Mortgage rates edged up this week on signs of a stronger economic recovery. Real GDP was revised upwards to 2.5 percent growth in the second quarter of this year. In addition, residential construction spending rose for a ninth consecutive month in July. Lastly, the manufacturing industry expanded at the fastest pace in August since June 2011," noted Frank Nothaft, vice president and chief economist at Freddie Mac. 
 While interest rates have jumped significantly from the lows, they are still at historic lows. The positive economic news means more home buyers are willing to stretch to buy bigger properties to leverage current interest rates. 
 Twenty years ago, higher interest rates (more than 6 percent) and lower wages meant relatively few people could afford a $650,000 loan on an $800,000 house. Today, a couple earning between $160,000 and $200,000 in annual income, with good credit and a solid down payment, would likely be approved for the loan. 
 With higher demand for jumbo loans, more lenders have jumped back into the mix. The competition from lenders is certainly having an impact; jumbo borrowers are seeing more offerings with reduced fees. The price disparity is even greater with adjustable rate mortgages, those fixed for five to seven years before converting into a one-year ARM. 
 Does the flip-flopping of interest rate norms herald a new era for housing? Or are we just seeing too many borrowers spend more than they should to buy property. It's hard to say. There's an economic theory says that the more you buy of something, the greater the discount you should receive. Here's how that works: If you buy two pairs of shoes, the retailer might offer you a 25 percent discount. But if you buy three pairs, you'll get 33 percent off on your entire purchase. 
 If you apply that to mortgages, it makes sense that a mortgage for $750,000 would be cheaper than one for $417,000 or less. 
 Except that no one can ever remember it happening before. 
 <a href="https://plus.google.com/111979396951783071380/posts" target="_blank">Ilyce R. Glink</a>’s latest book is "Buy, Close, Move In!" If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her website, www.thinkglink.com.

reMORTGAGE16

Jumbo mortgage rate's fall explained by simple economics

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What's the downside of having a vacation home? Having a vacation-home mortgage is one, for starters. 
 If you're considering refinancing a vacation home, make a list of what you want from the transaction before you start shopping. Keep those goals in focus. 
 "The whole value of refinancing is to lower your monthly costs," says Barry Zigas, housing director for the Consumer Federation of America. 
 As for how long it should take you to recoup refi costs, "There's no obvious right answer," Zigas says. "It depends on your personal situation." 
 A potential lender will often request two years of income records, two months' bank statements, your credit reports and an income analysis, says Patti Frank, vice president for Americana Mortgage Group, based in Manhasset, N.Y. 
 Your debt-to-income ratio -- the ratio of your total debts to pretax income -- is an important measurement of affordability. Frank says most lenders don't want borrowers to stretch past a 40 percent debt-to-income ratio. 
 In some cases, a lender will go to 45 percent, says Carl Noriega, president of the Florida Association of Mortgage Professionals. 
 Lenders often want at least two months' worth of payments, taxes and insurance in the bank, says Matt Hackett, underwriting and operations manager for Equity Now, a direct mortgage lender in New York City. They'll want a list of assets, too. 
 If everything runs smoothly, refinancing takes about the same amount of time as a regular mortgage -- about 30 to 45 days, Noriega says. 
 You don't find out how much equity you truly have until the lender's appraisal comes back about halfway through the loan-underwriting process. So when you self-assess equity before loan-shopping, be ruthless. 
 If you study comparable properties, make sure they really are comparable, with similar age, size and composition. Consider recent sale prices only, not asking prices or old sales. And that foreclosure down the street that's just like your place? Count it. 
 If you have more than one mortgage on your vacation home, refinancing gets more complicated. 
 Unless both your mortgages were made simultaneously and used exclusively for buying that home, rolling two mortgages into one when you refinance is often classified as a cash-out refinance, Hackett says. With a cash-out transaction, lenders want to see more equity in the home, Hackett says. 
 Instead of consolidating two loans, you could pay off the second mortgage before refinancing. Or you could refinance only the first mortgage, if the second mortgage lender will allow it, in a process called subordination. 
 Without subordination, a lender won't refinance your first mortgage, Frank says. And not every second-mortgage holder will agree to subordinate, she adds. 
 Late mortgage payment in the past year? "You're going to have a very hard time refinancing," Frank says. 
 If you've had a short sale in the last two or three years, that could hurt you, Noriega says. 
 Lenders want to see that your salary -- not your investments or savings -- will be enough to make the payments, Frank says. 
 If you plan to refinance around the same time as a career change or retirement, you'll have more loan options if you refinance before that salary flow is disrupted, says Michael Moskowitz, president of Equity Now. 
 A logical place to start shopping is the institution that made the initial home loan. 
 Then you should shop around just "like anything else," says Stanley D. Smith, a professor at the University of Central Florida. 
 Talk to real-estate and lending pros where the vacation home is located, he says. They're going to have the best idea of the current local market and property values. Compare that to the options you find where you live year-round, Smith says. 
 When you ask about cost, you deserve a straight answer. Even so-called no-cost refis have fees built into the loan. Ask the potential lender to itemize the fees and explain them all. 
<hr> 
 Mortgage rates are little changed the week of Sept. 12 as investors anxiously await the Federal Reserve's meeting scheduled for next week. 
 The 30-year fixed-rate mortgage fell 1 basis point to 4.71 percent. A basis point is one-hundredth of 1 percentage point. 
 The 15-year fixed-rate mortgage rose 1 basis point to 3.75 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, rose 1 basis point to 4.89 percent. 
 The 5/1 adjustable-rate mortgage was 3.65 percent, the same as last week. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

reVACATION15

Refinancing a vacation home requires sharp focus on goals

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The most popular type of mortgage for buyers with low down payments keeps getting pricier and less appealing as more buyers question whether it's still worth getting an FHA loan. 
 The mortgage insurance premium on loans backed by the Federal Housing Administration has nearly tripled since 2008. A few months ago, the FHA changed its rules to require borrowers to pay for mortgage insurance for the life of the loan. 
 "FHA loans really used to be a first option for homebuyers with a low down payment," says Scott Schang, a branch manager for Broadview Mortgage Katella in Orange, Calif. "Now, I see people doing them because they have to and not because it's their first option." 
 The FHA allows buyers to get a mortgage with a down payment as low as 3.5 percent. The underwriting requirements to qualify for an FHA loan generally are less stringent than for conventional loans. But after the recent change and the numerous fee increases, FHA loans are generally not a borrower's best mortgage option, Schang says. 
 Historically, the purpose of FHA loans was to help low-income buyers afford homes. During the subprime boom from 2003 to 2007, less than 10 percent of the purchase loans being originated each year were backed by the FHA. 
 After the financial crisis of 2008, when mortgage standards tightened, more borrowers and lenders turned to these easier-to-get loans. About 40 percent of purchase loans being originated by the end of 2009 were backed by the FHA, according to the U.S. Department of Housing and Urban Development's latest annual report to Congress. It dropped to about 26 percent at the end of last fiscal year. 
 As demand for FHA loans grew, HUD tried to shore up the FHA's insurance fund through a series of hikes in mortgage insurance premiums. The latest increase was in April. 
 FHA borrowers are charged an annual mortgage insurance premium of up to 1.35 percent of the average outstanding balances of their loans. The fee is added to the borrower's monthly mortgage payment. The FHA also charges a 1.75 percent upfront fee when the borrower gets the loan. 
 A borrower getting a $200,000 loan, after making a 3.5 percent down payment, pays $225 per month in FHA mortgage insurance, plus an upfront fee of $3,500. Say you keep that mortgage for 10 years before you sell or refinance -- that adds up to about $30,000 in mortgage insurance fees. 
 That's substantially more than what a borrower would pay for private mortgage insurance on a conventional loan, which doesn't have an upfront fee. The mortgage insurance premium on a conventional mortgage can be less than half of FHA's insurance, depending on the borrower's credit, according to estimates from mortgage insurance company United Guaranty. 
 "A conventional loan generally is less expensive for borrowers in almost all cases," says Brian Gould, chief operating officer for United Guaranty, a mortgage insurer. 
 Homebuyers normally opt for FHA loans because they don't have enough money saved for the 5 percent minimum down payment that most conventional loans require. But even those homeowners should explore their opportunities, including down payment assistance programs, says Rob Chrane, president of Down Payment Resource. 
 Chrane says there are various programs offered by states' housing finance agencies and city or county agencies that buyers often overlook. They tend to think they make too much money to qualify, when in reality, many of these programs are available to moderate-income families as well, Chrane says. 
 "I can't say everyone would qualify, but by the same token, the income limits for these programs are not just strictly to low-income households," he says. "They can range anywhere from 80 percent of area median income up to 120 percent of median income." 
 And if you find a lender willing to offer conventional loans with less than 5 percent down, mortgage insurance won't be an issue as some mortgage insurance companies are willing to insure loans with as little as 3 percent down. 
 Although there are alternative solutions for borrowers with low down payments, some borrowers are stuck with an FHA loan for a different reason, one that can't be easily fixed. Their debt-to-income ratio, or their monthly debt obligations compared with their income, is too high for a conventional mortgage. In lender lingo, the debt-to-income ratio is known as DTI. 
 "I'd worry less about the down payment and more about the DTI," Schang says. "That seems to be the deciding factor on half of our deals." 
 Conventional mortgages generally require borrowers to have debt-to-income of 45 percent or less, while the FHA allows borrowers to spend up to 56 or 57 percent of their income on their monthly obligations, such as credit card payments, student loans and car loans, he says. 
 "There's a huge difference there," he says. "Somebody who has less money to spend at the end of the month is going to get stuck with FHA because that's their only option."

reFHA24

FHA mortgage loans no longer best option after rule change

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LSMAIN22.WEB

Long Island young adults find independence - but not without difficulty

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Home inspectors and real estate agents often work together, but not always for the best interest of the homebuyer, says Bruce McClure, a Toronto-based licensed home inspector and author of "Buy or Run: I'm a Real Home Inspector Not a TV Celebrity!" 
 Too many home inspectors turn a blind eye to serious issues with a house to help close the deal, said McClure. That leads to unsuspecting homebuyers who have paid good money for a home inspection only to end up with a house of horrors. 
 "Home inspectors are small business people and the majority of us will market our services to Realtors," McClure said. "They know if they go out and blow the sale for the Realtor, the Realtor will not refer them in the future. 
 "People like myself gain a reputation for being deal killers because I work for my client -- the homebuyer. I want to protect their best interest, which means pointing out issues and telling them what's wrong with the house and things that may end up costing them money." 
 A home inspection can make or break a real estate transaction. Buyers often have the right to back out of a contract to buy a house or ask for a lower purchase price if the results of the inspection reveal significant structural problems. 
 In the United States, only 35 states have licensing requirements for home inspectors. 
 The American Society of Home Inspectors estimates that nationally there are 25,000 to 40,000 home inspectors. There is no official number of home inspectors because some states have no licensing requirements and there are multiple volunteer associations that set standards for the industry. 
 "There is no standard inspection format," McClure said. "Many jurisdictions stipulate that the inspector must follow the American Society of Home Inspectors or the Canadian Association of Home and Property Inspectors standards of practice, but do not require the inspector to be a member of either association. 
 "As a result, there's no one making sure these inspectors follow the standards or rules." 
 At one time, the property appraisal industry faced similar criticism for doing a poor job of estimating the value of real estate before the housing bust, largely because appraisers were influenced by Realtors and financial institutions that needed homes to have a certain value to complete a sale. Now property appraisers are guided by different rules meant to avoid any conflicts of interest. 
 Walter Molony, a spokesman for the National Association of Realtors in Washington, D.C., said real estate agents do refer buyers to home inspectors and vice versa. He said real estate agents look for someone with no conflict of interest. The home inspector should provide a written report and welcome the buyers to go along on the inspection to take notes. 
 Molony also said the home inspector should be a member of a professional industry organization. 
 Stephen Gladstone, owner of Stonehollow Fine Home Inspection in Stamford, Conn., and 2004 president of the American Society of Home Inspectors, said he has been in the business for 30 years and he agrees with many of the points raised by McClure. 
 "Like any business, as you get better you see things," he said. "The more experienced inspectors out there will see the items that are important. They will see that house for what it is and that may scare a Realtor." 
 Home inspectors could be liable for failing to point out serious problems in a house, which is why they are required to have errors-and-omissions insurance. McClure said lawsuits against home inspectors are far more common than many people realize. Some of the lawsuits are trivial, others major. 
 "We somehow need to separate the home inspection from the real estate contract and the influence of the Realtor," he said. "Until we do this, government licensing, rules and regulations won't mean anything because at the end of the day, Realtors are in charge."

reINSPECTOR10

Best home inspectors work for buyer -- not real estate agent

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Riding out the life cycle of a mortgage isn't for the faint of heart -- or wallet. It can cost big bucks to buy, maintain, renovate and sell a home. And if you're not careful, your dream house could send you to the poorhouse. 
 Intensifying the sting from those expenses is the still-shaken real estate market, in which property values are slowly recovering from a historic downturn. 
 Even with all those factors in play, owning a house doesn't have to be your undoing, experts say. But the perils of home ownership can get the best of you if you fall prey to any of these five scenarios. 
 As a general rule of real estate, the higher the listing price, the more impressive the home will be. So if you don't want to blow your budget, avoid looking at houses above your price range in the first place, says Patricia Pipkin, a Realtor in Santa Fe, N.M., and a regional vice president for the Chicago-based National Association of Realtors. 
 Buyers need to carefully evaluate their finances before they begin house hunting, and then be honest with their real estate agent about what their income, savings and credit affords them, she says. 
 That also means factoring in supplemental expenses such as taxes, insurance, repairs and homeowners association fees. Insurance and tax alone sometimes exceed the principal and interest of the loan, says Randy Lovitt, president of Century Title Inc., a title company in Metairie, La. "And expect that component of your payment to go up constantly over time. Insurance goes up, and taxes never go down," he says. 
 The housing meltdown called into question the long-held belief that individuals can build wealth through home ownership. Experts say you have to be savvy about the notion of a personal residence as an investment. 
 "A house is certainly part of your portfolio, but it should not be your primary investment," says Jerry Basford, a personal finance professor and associate vice president for business and auxiliary services at the University of Utah. 
 A young professional seeking career advancement might not want to stay put for the five to 10 years it usually takes to see a return on the investment, Basford says. 
 "Many people still believe purchasing a home is the ultimate way to show that you're financially stable. And today, for a lot of young people, that may not be," he says. 
 Real estate professionals such as Pipkin remain optimistic about property investments. Prices are improving in some areas, and mortgage rates have risen, but are still low by historical standards. 
 "If you're going to look at it as a long-term investment, usually things do work out," Pipkin says. 
 Skip out on a few bucks' worth of maintenance, and you might set yourself back thousands in the long run. 
 Failing to replace air conditioning filters regularly could shorten the life span of the AC. Replacing a unit typically runs thousands of dollars, says Claude McGavic, executive director of the National Association of Home Inspectors in Bradenton, Fla. 
 Homeowners also need to be vigilant about warning signs in their homes, McGavic says. When wiring is older, flickering lights can signal an electrical problem that could eventually cause a fire. Or the sudden appearance of tiny specks that resemble granules of pepper around the house can indicate termites. 
 Think twice before hiring a handyman or a brother-in-law to tackle your remodeling project. 
 If you don't employ a licensed contractor and attempt to save a few bucks by relying instead on someone less experienced, you might end up spending far more than what you budgeted. 
 One of the biggest mistakes McGavic sees is that people don't obtain the proper permits for their work. If you fail to obtain a building permit, your repairs could come under scrutiny when you try to sell your home. 
 "If you ever get caught, there's a fine. Plus you have to pay for a permit. Plus, you'd have to pay for a contractor to fix it. That can be expensive," McGavic says.

reAFFORD03

Home buying tips: Don't be trapped by financial pitfalls

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The season for giving is just around the corner, but parents might want to think twice before gifting their home to their offspring now, rather than letting the younger generation wait to inherit the property in the will. 
 "I don't like when parents give away their money to the point it jeopardizes their own safety net and comfort in their own retirement," said James Lange, a certified public accountant, attorney and owner of Lange Financial Group in Pittsburgh. "I often have to talk my clients into hanging on to their own assets." 
 Bill Richardson, a partner at Sisterson &amp; Co., certified public accountants in Pittsburgh, said many parents get the idea they can save on state inheritance taxes by giving away their house while they are alive. But, using Pennsylvania's tax rates as an example, he said that's not always the case. 
 "Let's say someone had a home worth $200,000 and they wanted to give that home away before they die," Richardson said. "They will save 4.5 percent, or $9,000, on Pennsylvania inheritance taxes if they get the house out of their estate by giving it to a child. 
 "You might think on the surface that's a good thing, but it can backfire from an income tax perspective. You very well may save inheritance tax. But the income tax that it could cost your children when they sell could far outweigh the inheritance tax savings." 
 Richardson said if the parents in this example bought the house years ago for $100,000 and gave the house away during their lifetime, the child's cost basis also is $100,000 -- the same as the parents'. If the child sells the house for $200,000, the capital gains tax will be calculated based on $100,000 of appreciation. 
 "If you assume a combined rate of 18 percent (which is a 15 percent federal tax rate and a 3.07 percent Pennsylvania tax rate) on a gain of $100,000, that is $18,000 in taxes," Richardson said. "That's more than double the savings on your inheritance tax by trying to get that asset out of your estate before you die. 
 "You would be better off paying the inheritance tax, letting your child inherit the asset and, when it is sold, the income tax savings would far exceed the inheritance tax cost." 
 Not every situation is the same. The parents could have paid $200,000 for a house that is still worth $200,000. There would be no income tax if the parent or child were to sell it. 
 Yet other things could go wrong, Lange said. 
 What if the child who is a beneficiary of the gift goes through a divorce? What if the child who receives the house dies before the parents? 
 "The main reason parents don't want to give away their house before they die is they might need it," Lange said. "They may need the equity. 
 "Let's assume they end up in a retirement home. If they don't like it there, as long as they have the money, they can move to another facility. As long as you have the money, someone else will take you."

reINHERIT27

Inheritance tax shouldn't compel parents to gift children a home

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New mortgage rules that go into effect the beginning of next year are meant to avoid a repeat of the housing and credit crisis that nearly brought the economy to its knees five years ago. 
 But the regulations also could have the unintended effect of making it more difficult for many working-class families to qualify for mortgage loans offered by major banks. 
 Financial institutions in the business of originating mortgages that they plan to resell on the secondary market to government-sponsored mortgage buyers Fannie Mae and Freddie Mac will have to raise their standards for approving loans. That is likely to have the biggest impact on working-class families, many of whom are struggling with consumer debt and are living paycheck to paycheck. 
 Regulations that go into effect Jan. 1, 2014, prohibit banks from approving mortgages for anyone whose debt-to-income ratio is higher than 43 percent. 
 Banks also will have to limit the fees for originating mortgages to no more than 3 percent of the loan amount, which could discourage many institutions from pursuing loans for lower-priced houses. 
 In the years leading to the historic mortgage meltdown in 2008, lenders too often made home loans to buyers who could not pay them back and ended up in foreclosure. The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010 requires lenders to more closely scrutinize borrowers' financial information to make sure they can afford a loan. 
 Two of the most important new rules created by the Consumer Financial Protection Bureau -- which also was created by Dodd-Frank -- related to housing are the Ability-to-Repay rule and the 3 percent test rule. 
 The Ability-to-Repay rule, also known as the Qualified Mortgage rule, says borrowers' total debt liability -- including housing -- should not exceed 43 percent of income. A Qualified Mortgage is one that would be qualified for resale on the secondary mortgage market. 
 The 3 percent test rule says 3 percent of the mortgage amount is the maximum amount of fees that banks can charge a borrower in order for the home loan to be classified as a Qualified Mortgage that can be resold in the secondary market. 
 Don Frommeyer, president of the National Association of Mortgage Brokers, said the 3 percent rule also will be a problem for mortgage brokers. 
 He said brokers will have a harder time collecting their fee on homes priced below $160,000 because every cost to the customer in the homebuying process goes toward the 3 percent. For a mortgage of $100,000, for example, all origination fees -- including the mortgage broker fee -- would be limited to a total of $3,000. 
 "Loans between $100,000 and $160,000 will be caught in the middle," Frommeyer said. "Until this is all sorted out, we won't know how the 3 percent rule will actually work." 
 The Ability-to-Repay rules will apply to most mortgage loans. However, they exclude certain types of loans such as home equity lines of credit, timeshare plans and reverse mortgages. 
 Ken Benton, senior consumer regulations specialist at the Federal Reserve Bank of Philadelphia, said the new rules do contain several options to make residential mortgage loans available for low- and moderate-income borrowers. 
 Certain types of lenders are exempt from the Ability-to-Repay/Qualified Mortgage rule and can make loans without regard to a borrower's debt-to-income ratio. 
 Those include state and local government housing finance agencies, community development financial institutions, down payment assistance creditors designated by HUD, Community Housing Development Organizations and nonprofit lenders. In addition, community banks that meet certain requirements can offer Qualified Mortgages without a debt-to-income ratio limit. 
 HUD has also proposed a Qualified Mortgage standard for FHA loans that will have no debt-to-income limits. HUD said it was making the proposal in order to remain consistent with the housing department's mission to serve underserved borrowers. 
 "We don't know at this point how banks will adjust their mortgage loans to implement the new rules that will go into effect in January 2014," Benton said. "We are not in a position to speculate on that. There are too many variables and moving parts."

reMORTGAGE19

Mortgage lending rules revision could squeeze working class home buyers

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Divorcing couples should map out their property-division plans carefully and have solid legal representation to navigate mortgage contracts. 
 The question of what will happen to the marital home is one that many divorcing couples face. Indeed, it's one of their top concerns, after worries about the impact of the split on kids and on finances, according to an August survey by the legal site Avvo.com. 
 Here are some tips to help you answer that question if you're going through a divorce: 
 Both parties want to sell: If you're selling the home and there are profits to split, it's a relatively straightforward process. 
 Divorcing couples need to agree to the listing price, a schedule for showing the home and a plan for dividing expenses pending any sale, says Jennifer Brandt, a Philadelphia divorce attorney. 
 Taxes figure into the equation, too. Check on your exposure to capital-gains tax. 
 It gets more challenging if the couple doubts the home can be sold profitably. 
 In this case, selling and taking a loss may be the only option if the divorce is messy and everyone wants to wash their hands of the marriage. 
 If it's an amicable divorce and both parties want to leave and can afford to, rent out the home and be co-landlords. 
 One party wants to keep the home: Try refinancing in the name of the person who wants to stick around. If there's equity in the home, this can be a viable option. 
 "The home will be appraised, and the spouse who keeps the home will pay an 'equalization payment' to the other spouse, which is half of the equity," says Kelly Chang Rickert, a Los Angeles divorce attorney. 
 "If the inhabiting spouse cannot qualify for this loan amount on his or her own and we are dealing with an amicable couple, we could obtain the loan in both spouses' names," says Gloria Shulman, owner of a licensed mortgage brokerage firm in Beverly Hills, Calif. 
 After the divorce, you can usually redo the loan -- as long as you can document 12 months of canceled mortgage checks from an individual account. 
 "The divorced spouse who has moved out of the property can then fall off both loan and title," Shulman says. 
 If you can't agree: Here, things can get messy. If one person wants to keep the home and the other wants to sell, or if both want to stay, the court may have to intervene. 
 Several clients of Jacky Teplitzky, a real estate broker in Manhattan, built interior walls in their homes under court order, to separate the separated couple. 
 That isn't a smart approach to selling a house. In one couple's case, Teplitzky says, "legal fees basically ate their house's profits from the sale."

Business

BZYFIN13

Your Finance: Divorce and the marital home

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The mortgage refinance boom is ending on Long Island as in the nation, a change that will take some wind out of the sails of a modest economic recovery. 
 Since early May, the interest rate on a typical 30-year mortgage rate has risen almost one percentage point, to 4.32 percent, according to mortgage finance giant Freddie Mac. 
 That rise has choked off banks' refinancing business by reducing the money homeowners save by paying off their old mortgage with a new, lower-rate deal. 
 What that means, in turn, is that fewer homeowners have a boost in discretionary income that they might spend on things like home improvements, gasoline, college costs or paying down debt. 
 While it's hard to calculate how much of a boost such refinancing gave to Long Island, it appears considerable. 
 At Bethpage Federal Credit Union, one of the Island's largest mortgage lenders, president and chief executive Kirk Kordeleski estimates that his refinance customers saved a total of about $56 million in interest from 2009 through 2012. 
 Add that to the savings won by refinancing customers of others lenders such as Wells Fargo and Chase, he said, and "a lot of money went into people's pockets to help the Long Island economy during that time." 
 Lower payments 
 Bill consolidation and lower monthly mortgage payments were key drivers of the refinance boom. 
 Dan and Lisa Donoghu,&nbsp; of Fort Salonga, accomplished both when they refinanced in May through Lynx Mortgage Bank LLC in Westbury. Their interest rate went down from about 3.88 percent to 3.5 percent, they lengthened their term from 15 years to 20 and took cash out. 
 "My two boys are in college and my daughter got married in August, so I had some big bills I wanted to take care of," said Dan, 51, a New York City Fire Department deputy chief in Manhattan and a registered nurse at Brookhaven Memorial Hospital Medical Center in Patchogue. 
 The couple -- Lisa is also a nurse -- bought their house in June 2001 with a 30-year mortgage at about 7 percent and had refinanced twice before, Dan said. They got lower rates and shortened the term to 15 years. "After my younger son gets out of college in three years, then we'll have the option of prepaying to get us back to where we're hoping to be -- retiring without a mortgage," he said. 
 Nationally, the Mortgage Bankers Association trade group in Washington says refinancing nationwide fell 18 percent from $388 billion in the fourth quarter of last year to $316 billion in this year's second quarter and is forecast to fall by another 40 percent from the second quarter to the current, third, quarter. 
 The boom was great while it lasted. Irwin Kellner, chief economist for MarketWatch, a financial news website, says refinancing helped keep the recession from being worse by helping spur consumer spending. "Obviously, had the refi boom not been in place, chances are the recession would have been prolonged," he said, "and the recovery been weaker than it is now." 
 Amid the housing market crash and recession that began in late 2007, rates for 30-year loans had dropped to a record low of 3.31 percent in November 2012. In early May this year, before the recent uptick in rates, the rate was 3.35 percent. Those historically low rates fueled the boom in refinancing. 
 Hints about stimulus 
 Interest rates suddenly began rising when the Federal Reserve Board began dropping hints that it would begin to reduce its economic stimulus efforts -- which had been largely in the form of federal bond purchases. 
 While the Fed said on Sept. 18 it would continue buying $85 billion in bonds each month until it sees more signs of lasting improvement in the economy, the focus has now shifted to when that buying will end. 
 Eventually, said Lawrence Yun, chief economist for the National Association of Realtors, the Fed will ease back on its stimulus. And an improving economy suggests higher inflation, which normally leads to higher interest rates. "All forces suggest that mortgage interest rates have to rise going into next year," said Yun. 
 President and chief executive Michael McHugh at Continental Home Loans Inc. of Melville, agrees: "It's not going back anywhere near the three percents." 
 The end of the refinance boom has hit some national banks hard. Wells Fargo, Bank of America and Citigroup have announced a total of about 7,000 layoffs since the start of summer. Representatives for all three said none of their cuts were made on Long Island. 
 Locally, one bank has so far reported that the end of the refinancing boom has put a squeeze on earnings. New York Community Bank, the Westbury company that is the largest bank headquartered on Long Island, cited the downturn as a factor in a 60 percent decline in noninterest mortgage banking income in the quarter ended June 30, compared with a year earlier. Overall, its net income fell 6 percent. President and chief executive Joseph R. Ficalora said he had let go 65 workers because of the decline in refinancing, mostly in Ohio. 
 Jobs may be endangered 
 Marc Stone, a co-owner of privately held MCS Mortgage Bankers Inc., said his company, headquartered in Patchogue, has three other Long Island offices and more in 12 other states, in all employing 145 people. His refinancing business has fallen by 40 percent since June, and he said some of the jobs in other states where the company recently expanded might be endangered. "Refis used to be 40 percent of our business," he said, "so it hurts a lot." 
 Stone worried the rise in interest rates might ultimately reduce home sales. "Higher interest rates and higher home prices are not a good combination," he said. On Thursday, the National Association of Realtors said pending home sales slowed slightly in August -- a sign higher rates are starting to discourage buyers. 
 Some Long Island banks, credit unions and other lenders say they haven't had to lay off any personnel due to the end of the boom. Some said increases in new mortgages for home purchases -- as buyers rush before rates rise further -- and in home equity lines of credit and variable-rate mortgages are making up for much of the decline in refinance business. 
 McHugh of Continental said his refinance business has fallen by 40 percent this summer but lending for home purchases has grown. "So it's more than made up for our refinance losses," he said. 
 Bethpage's Kordeleski said he hasn't had to lay anyone off because his home equity lending business has risen as local real estate prices have recovered somewhat and consumers feel more confident. 
 To be sure, the total dollar value of mortgages in various stages of the approval process at Bethpage declined from $450 million on any given day in May to $150 million this month. His mortgages for home purchases have risen as prospective buyers on the sidelines rushed to lock in mortgages before rates rose further. 
 The bottom line, says Kordeleski, is that his total mortgage business is at about the level it was before the recession. "During the last four years we did record volumes of refinancings," he said. 
 At Teachers Federal Credit Union, president and chief executive Robert Allen said the total dollar value of mortgages seeking approval at his company has dropped by two-thirds. "The refinance business dropped like a rock," he said. "I hope to see the purchase [mortgage] market increase, but I don't see it making up for those kinds of volumes." He said, however, that the credit union has never had a layoff and doesn't envision any as a result of the refinancing decline. 
 Rising rate seen as a plus 
 Not all of the effects of the interest rate rise are bad. John Rizzo, the new chief economist of the Long Island Association, the region's largest business group, argued that rising interest rates are evidence of economic improvement. "The only way interest rates were going to continue to stay that low is if the economy continued to stagnate," he said. 
 Apple Bank for Savings' chief Alan Shamoon also said low interest rates provide a disincentive for consumers to save money and an incentive for individuals and businesses to borrow too much. 
 "I think that artificially low interest rates encourage excessive leveraging, which is a bad thing, by companies, individuals and households," said the chairman, president and chief executive of the privately held bank based in Manhasset. "Higher interest rates will encourage savings. We've had about five years of near-zero interest rates, and savers have been taking it on the chin." 
 Bethpage's Kordeleski said, "We're in a steadily improving economy, and . . . in the long run that increases jobs and the values of homes and improves the fundamental quality of life. But I think that the value the refis gave the marketplace did spur economic activity, and that's going to slow down a little." 
 Maura McDermott&nbsp; contributed to this story 
 CORRECTION: An earlier version of this story misstated the number and location of layoffs by New York Community Bancorp.

BZREFI29

Climbing interest rate slows refinance boom

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One downside to taking out a mortgage on a mansion in the Hamptons is that you usually pay a higher interest rate than if you were buying a less-expensive tract home. 
 Now that isn't necessarily the case anymore. 
 Local and national mortgage experts say that, in a highly unusual situation, the cost of a "jumbo" loan is roughly equal to the cost of a smaller loan -- and in some cases, it can even be lower. 
 The average rate for a 30-year, fixed-rate jumbo loan was 4.71 percent last week, slightly less than the 4.73 percent rate for smaller loans, the Mortgage Bankers Association reported this week. 
 In most of the country, loans of $417,000 or less are considered "conforming" loans, which are typically less expensive than jumbo loans. In high-cost housing markets such as the New York metropolitan area, the limit is higher: $625,500. Conforming loans are those that can be backed by mortgage giants Fannie Mae and Freddie Mac. 
 The fact that large loans have become cheaper than smaller ones has startled some mortgage insiders. 
 "Within the last 30 years it's unprecedented," said Ace Watanasuparp, president of Manhattan-based DE Capital Mortgage, which is affiliated with Wells Fargo. 
 The reasons for the changing rate relationship are varied. Fannie Mae and Freddie Mac have increased the amounts they charge lenders, driving up the cost of conforming loans, mortgage experts say. In addition, rates for such loans have risen as the Federal Reserve prepares to ease off its purchases of mortgage-backed securities. 
 By contrast, jumbo loans are much less likely to be sold to investors, so lenders have more flexibility in setting rates. Plus, lenders use low rates to draw in affluent clients. 
 Two Long Island-based mortgage insiders said they have not seen jumbo loans become cheaper than smaller loans. 
 Michael McHugh, chief executive of Continental Home Loans in Melville, said jumbo loans bear interest rates that are 0.25 to 0.5 percent higher than conforming loans. 
 Bob Moulton, president of Americana Mortgage Group in Manhasset, said rates for conforming and jumbo loans are roughly equal. 
 What is new, said Keith Gumbinger, vice president of mortgage data publisher HSH.com, is that "at the moment there's either no penalty or very little penalty for needing a large mortgage. For the vast majority of history there's always been a penalty."

BZINT06

Jumbo mortgage interest rates now same, or lower, than standard loans

bzINT06

Amy and Ted Wilder lost out in the bidding for several Seattle-area homes during the past six months, even with offers well above the asking price. After May’s sudden spike in mortgage rates, the Microsoft consultants put their search on hold. 
 "We fell in love with a house for about $400,000 and thought we could afford it, and then we discovered it was $300 more a month than what we would have paid in February when we started looking," Amy Wilder, 42, said. "The mortgage rates just pushed&nbsp;it too far." 
 A surge in borrowing costs to a two-year high is starting to cool demand from homebuyers as higher rates combine with surging prices to reduce affordability, according to data released this week. The biggest pinch is being felt in expensive markets&nbsp;such as Seattle and New York, where budgets already were stretched, leading to a more uneven national recovery. 
 Contracts to buy previously owned homes fell 1.3 percent last month, the biggest decline this year, the National Association of Realtors said last week. They slid 6.5 percent in the Northeast and 4.9 percent in the West, the data showed. The&nbsp;figures followed a report last week that July new-home sales plunged 13.4 percent, paced by a 16.1 percent drop in the West. 
 "There is a bigger monthly payment shock in the high-cost areas," said Lawrence Yun, chief economist for the Realtors group. "Higher interest rates may pull demand out." 
 Home-loan applications for purchases have declined 14 percent since the start of May when interest rates surged by the most in two decades, according to the Mortgage Bankers Association, and price appreciation has slowed, albeit from the fastest pace&nbsp;in seven years. 
 The average rate on a 30-year, fixed-rate purchase loan has risen to 4.51 percent from a record-low 3.31 percent in November, according to McLean, Va.-based Freddie Mac, as the Federal Reserve said it’s planning to wean the economy from its&nbsp;record stimulus. 
 That means on a $400,000 conventional mortgage, monthly payments would be about $275 more. Rates on jumbo mortgages, those too big for government programs, have climbed to 4.69 percent from 3.88 percent at the beginning of May. 
 Some jumbo borrowers have stepped back from the market or turned to adjustable-rate mortgages with payments that rise only after five years to keep payments low, according to Brian Koss, executive vice president of Mortgage Network Inc., a Danvers,&nbsp;Mass.-based lender that originates loans primarily in the Northeast. 
 "It means less transactions happening because more deals are not coming together," Koss said. "It slows everything down." 
 Among large metro areas, San Francisco is most at risk from climbing rates, followed by Los Angeles, New York and Boston, Barclays Plc analysts said in a report last month. The cities should still see home prices appreciate, the analysts led by&nbsp;Sandeep Bordia said. 
 With property values nationwide increasing in May at the fastest pace since 2006, a slowdown in the housing market is needed after unsustainable price gains in many areas, Stan Humphries, chief economist at property-data company Zillow Inc., said&nbsp;yesterday on Bloomberg Television. 
 The median price for homes in the Northeast is $271,200 and for the West $287,500, compared with the national median of $213,500. 
 Home prices across the U.S. rose 12.1 percent in June from a year earlier, according to the S&amp;P/Case-Shiller index of 20 cities, with values in San Francisco up 24.5 percent in the period. Prices in Seattle gained 11.9 percent, Boston showed a 6.7&nbsp;percent increase and New York area values were up 3.3 percent, the smallest gain in the index. Still, only six cities showed prices rising faster than the previous month, compared to 10 in May. 
 Higher rates take the "edge off the froth," said Jonathan Miller, president of New York-based appraiser Miller Samuel Inc. "You can’t sustain annual price growth in excess of 12 percent when income is flat, credit is tight and unemployment is&nbsp;elevated," he said. "Those are boom price trends." 
 There’s already been some impact, according to Ellen Haberle, real estate economist for Redfin, a Seattle-based brokerage. 
 "A lot of agents are reporting that buyers were in escrow on a home and then rates went up and they no longer were able to afford the home," she said. 
 Peter McMahon, a Redfin broker in Long Island, N.Y., said many clients stepped back from the market after rates increased "and are planning to buy in the fall when there is less competition." 
 For John and Tess Vlastelicia, higher borrowing costs hurt their chance to buy a new house for their growing family in the Happy Valley suburban near Portland, Ore., where prices in June had already jumped 11.8 percent from a year earlier. 
 They tried to back out of a contract to purchase a four- bedroom property two months ago, after rising mortgage rates added $190 to their monthly payment, according to John Vlastelicia, 36, an environmental scientist. 
 He said the builder, who kept them in the deal by offering them $5,000 towards closing costs, now plans to walk away unless the family can sell their current home by Friday, after it’s lingered on the Portland market since June, listed at $269,900,&nbsp;less than they paid five years ago. 
 "We were caught in a situation where our timing was just terrible," he said. The higher rates threatened "both sides of our deal." 
 A slowdown in the housing recovery has dented homebuilder stocks, which have lost 27 percent since their May high compared with a less than 1 percent loss in the Standard &amp; Poor’s 500 Index. Builders catering to first time buyers have been among the&nbsp;hardest hit with D.R. Horton Inc. down 33 percent and KB Home sliding 34 percent. 
 It’s also encouraged more Americans to lock in rates before they head even higher, with existing sales last month jumping in July to the second-highest level in more than six years. 
 In markets like Seattle, where the Wilders were seeking to buy, rising rates coupled with soaring prices have put homeownership back out of reach. For now, they’re renting a 1,800-square-foot house for $1,900 a month. 
 "We came into the market when we were ready, but it turned out we just missed the good deals," Amy Wilder said. "If prices soften a little bit and interest rates level out, maybe we can try again."

reMORTGAGES31

Mortgage rate increase, however slight, forces buyers to sidelines

Q: How do you make people aware of an unprofessional real estate agent? I want people to be aware of this one agent who cost us a potential sale because of her unprofessional behavior. 
 A: If you’ve had an unpleasant experience with either a listing agent or a buyer’s agent, you should first contact the managing broker or owner of the firm and schedule an appointment to discuss the situation. You should calmly discuss the problem and ask the broker to resolve it for you, either by bringing in the agent so everyone can air their grievance or by speaking directly to the agent on your behalf. 
 If that doesn’t solve the problem and you have a legitimate grievance, you can file complaints with the National Association of Realtors (if the agent is a member) and local and state association of realtors. The governmental department in your state that regulates real estate agents and real estate brokers may allow you to file a complaint against the agent with that office. You can go online to the Better Business Bureau and file a complaint there as well. 
 While it may help you feel better to file a complaint, it’s unlikely that your agent will lose his or her license because of it. I suppose if the behavior was egregious, your state may take some disciplinary action. 
 But before you go down the war path with the agent, it’s worthwhile first trying to talk to the person that supervises that agent in the local office or regional office for that agency and then move up the chain of command to the owner if you do not feel your concern has been addressed property. 
 Lastly, while you say the agent was unprofessional in selling your home, there are times when a seller’s perception of a problem may not rise to a level that can actually be considered a real problem by most real estate professionals. You might want to discuss your situation with an unbiased person in the real estate industry to determine whether a problem is grave enough to merit more of your time on this issue. 
 Ilyce Glink is an award-winning, nationally-syndicated columnist, television reporter, radio <a href="/topics/Talk_Show_%28musician%29">talk show</a> host and bestselling book author. Her syndicated column, Real Estate Matters, appears in more than 100 newspapers and Web sites.

re-glink

Filing a complaint against a real estate agent

After a devastating cycle of bubble and bust, the U.S. housing sector is on the road to recovery. New homes are being built at the fastest rate in years and prices are increasing across the country. Foreclosures are down and&nbsp;the number of “underwater” mortgages has declined by almost 12 percent since the peak at the end of 2011. Even <a href="/topics//Fannie_Mae">Fannie Mae</a> and <a href="/topics//Freddie_Mac">Freddie Mac</a>, the mortgage-finance companies in conservatorship since 2008, are reporting record profits. 
 What’s wrong with this picture? None of this would be possible without massive government support. Today, the government owns or guarantees about 90 percent of new mortgages, up from about 50 percent in the mid-1990s. It isn’t sustainable, let alone&nbsp;fiscally acceptable, for the U.S. to have such a domineering presence in what should be a private-sector function. 
 The housing recovery now under way creates a perfect opportunity to plan for the future of U.S. mortgage markets. Several recent innovations in mortgage finance by economists and academics are worth considering. 
 First, it helps to understand the origins of today’s situation. Before the New Deal, people bought houses by borrowing for a few years at a time. They only paid interest until the loans matured, at which point they would make a large payment or&nbsp;refinance. That worked well enough until house prices collapsed during <a href="/topics//The_Great_Depression">the Great Depression</a>. Lenders refused to refinance, hoping to get paid in full. Many borrowers defaulted; about 10 percent of homes ended up in foreclosure. 
 DOWNWARD SPIRAL 
 To prevent another downward spiral, the U.S. came up with the self-amortizing, long-term, fixed-rate mortgage. It enticed lenders into offering these products by promising to buy mortgages that conformed to certain underwriting standards. That’s&nbsp;where <a href="/topics//Fannie_Mae">Fannie Mae</a> and Freddie <a href="/topics//Mac_Cosmetics">Mac</a> come in: They bundle loans into securities, then sell them to private investors. For a fee, the government absorbs the risk of borrower default. 
 As long as house prices were relatively stable, the new system worked. But once prices soared, only to collapse a few years later, scores of homeowners defaulted. A cascade of foreclosures further depressed prices as more houses were dumped onto the&nbsp;market. Economists say this was responsible for 20 percent to 30 percent of the decline in home prices from 2007 through 2009. It was <a href="/topics//The_Great_Depression">the Great Depression</a> all over again. 
 The biggest challenge going forward is separating the choice to buy a house from the decision to make a leveraged bet on housing prices. Right now, when a borrower puts down $50,000 to buy a $500,000 house, she doubles her equity if the value of the&nbsp;house goes up to $550,000. The lender, however, has no claim to any of that appreciation. Alternatively, if the price declines to $400,000, the borrower is suddenly in the hole. She has a strong incentive to default, leaving the lender in the lurch. 
 Outside the U.S., floating-rate mortgages, where monthly payments rise and fall with the short-term interest rate, help borrowers deal with some of this volatility. Interest rates generally move in line with the health of the economy, so these&nbsp;mortgages are more flexible for both borrowers and investors. This approach effectively allows borrowers to refinance even if they are underwater, yet it does nothing to reduce the risk of default and foreclosure associated with negative equity. 
 The U.S. must figure out a way to better manage these risks if it is to turn housing back over to the private sector. Fortunately, economists have lots of ideas. The common theme is that mortgage principal should be keyed to economic conditions, and&nbsp;monthly payments should rise and fall proportionately. These features ensure that borrowers have a stake in repaying their loans, while also making it easier for them to do so when times get tough. 
 CONTINUOUS WORKOUTS 
 These new mortgages would also damp the swings in spending that come from the wealth effect. Robert Shiller, the Yale University economics professor and co-founder of the widely used Case-Shiller index of home prices, and colleagues have modeled a&nbsp;few versions of a product called a “continuous workout mortgage.” In essence, the Shiller loans would allow borrowers to pay higher interest rates upfront in exchange for the right to lower principal and monthly payments when house prices go down. 
 These loans might be right for some people, but we prefer another idea: Mortgages with principal and monthly payments that move with an index of neighborhood home prices. As prices rose, so would monthly payments. Conversely, if prices fell, monthly&nbsp;payments would, too. These might be more attractive to borrowers since they wouldn’t have to pay higher rates upfront. Instead, they would compensate lenders by passing on the gains from house-price appreciation. 
 Borrowers would still have an incentive to maintain their property because they would keep (or lose) any change in the value of their house relative to the prices of their neighbors’ homes. Investors’ demand for these products would probably be&nbsp;strong, given their demonstrated eagerness to gain exposure to single-family house prices by buying them outright. 
 The government and the private sector have an interest in this sort of financial innovation. Right now, investors have little appetite for mortgages that lack government guarantees, partly because they were badly burned by misrepresentations the last&nbsp;time around. 
 However,&nbsp; if the U.S. ever hopes to reduce Fannie’s and Freddie’s dominance in the marketplace, as its regulator, the <a href="/topics//Federal_Housing_Finance_Agency">Federal Housing Finance Agency</a>, recommends, the country needs to accept that the 30-year fixed loan — a financial product from&nbsp;our grandparents’ generation — has outlived its usefulness. We can create a better housing market by encouraging the development of more resilient mortgages that don’t depend on federal default insurance.

reMORTGAGE10

Mortgage innovation is needed to ward off housing busts

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Student-loan borrowers under 30 are retreating from the housing and auto markets, an analysis of data by the <a href="/topics//Federal_Reserve_Bank_of_New_York">Federal Reserve Bank of New York</a> shows. 
 Those with student debt show higher risk and have lower credit scores compared with those without it, according to the bank’s Liberty Street Economics blog today. 
 Outstanding educational debt is $966 billion, including loans taken out by students and their parents, the bank reported Feb. 28. More people taking loans for college and graduate school are failing to pay off their debt, with almost a third of&nbsp;borrowers in repayment delinquent at the end of last year, according to the Fed. Student loan debt is dragging on the economy, with young people less able to participate in buying homes or cars. 
 “Now, for the first time in at least 10 years, 30-year-olds with no history of student loans are more likely to have home-secured debt than those with a history of student loans,” wrote authors Meta Brown and Sydnee Caldwell. 
 The share of 25-year-olds with student debt has increased to 43 percent last year from 25 percent in 2003. The average student-loan balance among those 25-year-olds with student debt grew by 91 percent over the period, to $20,326 from $10,649. 
 In its report on student loan data, the <a href="/topics//Federal_Reserve_Bank_of_New_York">New York Fed</a> analyzes a sample of data provided by the Equifax Inc. credit bureau.

reDEBT17

Student loan holders less likely to have mortgages, Fed data confirms

Student debt -crop

Buying a house is an attractive proposition in these days of low mortgage interest rates and fallen prices. But if you want to buy a new home, while renting out the old one, you could face a glitch. It might be hard to refinance a house that you're renting out. 
 That's because "things change when you're no longer dealing with a primary residence," warns Ben Chenault Jr., regional manager at <a href="/topics//Fairway">Fairway</a> Independent Mortgage in Birmingham, Ala. 
 "A lot of people want to jump on the great deals, but they still have their current home and don't want to wait for that home to sell," Chenault says. "They think, 'Aha! The rental market is good; I'll just rent it out.' But what if someone stops paying the rent? Are you sunk? If the answer is yes, you probably shouldn't do it." 
 Let's suppose, for the sake of discussion, that you've already done it. Now you own two houses -- one that you occupy, and one that you don't. To cut monthly interest expense, you want to refinance the house you're renting out. It might not be easy. 
 Often, equity is the biggest hurdle in the effort to refinance a house you're renting out. Lenders typically require a cushion of 25 percent or more to refinance a loan secured by a non-owner-occupied house, says Stephen LaDue, a senior loan officer at Prime Lending in Brookfield, Wis. The reason: An owner who has a substantial stake in the property is less likely to default. 
 "If you're upside-down or have a minimal investment, you might walk away," LaDue observes. 
 Some lenders might be flexible about credit scores, income and cash reserves, but that 75 percent maximum loan-to-value ratio is usually a "hard and fast rule," Chenault adds. 
 A second mortgage on the rental house will make refinancing difficult because that lender probably won't agree to remain in the lesser position if the first loan is refinanced. 
 "Whoever has the second mortgage probably won't be willing to work with us," Chenault says. 
 You might assume that rental income can be counted toward the guidelines to refinance a house you're renting out. But Gary Parkes, formerly a mortgage loan officer with Acopia Home Loans in Woodstock, Ga., says lenders tend to be suspicious of rent unless the landlord is a professional property investor. Consequently, lenders typically allow only a portion, if any, of that rent to be relied on to qualify, especially in the case of a new tenancy. 
 Rent is even trickier if the tenant is a family member because the tenancy isn't an arm's-length transaction, LaDue warns. That close relationship between the landlord and renter creates a different set of risk criteria for the lender -- and more documentation requirements for the borrower. 
 Other restrictions apply when you want to refinance a house you're renting out. For instance, most lenders won't allow one borrower to have more than four mortgages on residential properties, according to LaDue. That limit, he explains, exists in part to prevent the misuse of government-insured loans to acquire multiple homes as investment properties. 
 Homeowners who want to move out and rent out might be tempted to sneak around these issues by refinancing before they vacate their current home. That's a sensitive subject because it involves intent and loan fraud. 
 One year of residency is often cited as a guideline to determine intent to occupy. But that's not an absolute rule. 
<hr> 
<h4> MORTGAGE RATES</h4> 
 The 30-year fixed-rate mortgage fell 3 basis the week of March 28, 2013 points to 3.75 percent. A basis point is one-hundredth of 1 percentage point. 
 The 15-year fixed-rate mortgage was 2.97 percent, the same as the previous week. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, fell 3 basis points to 4.1 percent. 
 The 5/1 adjustable-rate mortgage stayed at 2.71 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

reREFINANCE03

Mortgage refinance rules for primary residences are more flexible

For rent -crop

Wouldn't it be great if you could simply refinance your own high-interest mortgage without going through a bank or paying closing costs? 
 In a way, you can, says Keith Gumbinger of HSH.com, a Riverdale, N.J., mortgage research firm. His theory is that you can lower your effective interest rate by prepaying the loan. 
 That strategy might be useful for homeowners who can't refinance or who have a low balance left on their loans and can't find a refi deal that's worth its closing costs. 
 Gumbinger has devised a couple of new calculators that can help homeowners figure out what to do: The PreFi Calculator at hsh.com calculates the effective interest rate that results from paying a fixed extra amount every month; while The LowerRate at the website figures the amount of extra principal to prepay monthly if you want to hit a particular interest rate. 
 Prepaying your mortgage doesn't really lower your interest rate, but it reduces the amount you pay in interest over the life of the loan, so you end up paying the same amount in interest that you would if you had a lower interest rate. 
 Here's an example: Say you have 12 years left to pay off a 30-year fixed-rate mortgage that started out at $250,000 and carries a 6 percent interest rate. You've already paid off $227,355 and only have $62,241 left to pay. 
 With such a small amount left, you'd have a hard time finding a lender willing to write you a refi loan. You'd also have trouble saving enough interest on the refinance to justify the closing costs. 
 But if you paid an extra $200 a month, you'd burn the mortgage two years early and save $10,925 in interest. The total amount of interest you would pay -- $51,318 -- would be equivalent to the interest you would pay if your rate for the remaining 12 years was 5.36 percent. 
 So you're not technically lowering the interest rate, but you are reaping similar savings. The question is: Do you want to do that? Here are some considerations: 
 The strategy fits a narrow category of homeowner. Picture someone who can't refinance an older mortgage, has a high interest rate and wants to get out from under the loan to free up cash for college or retirement. 
 If you can make more money investing than you can save by paying down the mortgage, you're probably better off not paying off the mortgage early. Even a 6 percent mortgage costs only 4.5 percent a year if you're in the 25 percent tax bracket and deduct the interest, says Greg McBride, senior financial analyst at <a href="/topics//Bankrate_Inc">Bankrate</a>.com. The final cost of the loan would be even less after the deduction reduced state income taxes, too. 
 You will lose some financial flexibility. "When you take liquid cash or sell other investments to pay off a mortgage, that money's gone," McBride warns. 
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<li> There may be better things to do with your money. If you've already maxed out contributions to your 401(k), your individual retirement plan, your kids' 529 college savings plan and your emergency fund, and you have no credit card balances, then by all means think about pre-paying your mortgage. But all of those are likely to be higher priorities for that extra $250 a month.</li> 
 
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<li> Having the data helps either way. It's worth using the HSH calculator or a similar prepayment calculator to determine how much you would save by prepaying extra principal every month. Once you get that information, you can compare it to the savings you would see if you refinanced instead.</li> 
 
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 Ultimately, that's what Gumbinger decided to do with his own home loan -- after running all the numbers, of course.

News

BZYFIN31

Your Finance: Cut mortgage rate by prepaying loan

REal LI blog 4.1.13 

More American homeowners will be able to use their properties as cash machines again after real estate equity jumped last year by the most in 65 years. 
 Property owners recaptured $1.6 trillion as home values climbed to the highest levels since 2007. The amount by which the value of the houses exceeds their underlying mortgages rose to $8.2 trillion last year, a gain of 25 percent, according to&nbsp;<a href="/topics//Federal_Reserve">Federal Reserve</a> data. 
 An expanding group of homeowners is able to get cash from their properties as banks show more willingness to make home equity loans with the market’s recovery. Originations for so-called junior, or second, mortgages should rise 10 percent to almost&nbsp;$83 billion this year, from about $75 billion in 2012, said Shaun Richardson, a vice president at Icon Advisory Group, a mortgage analytics firm in <a href="/topics//Greensboro,_NC">Greensboro</a>, <a href="/topics//North_Carolina">North Carolina</a>. About 6 percent of lenders eased equity-mortgage standards at the end of&nbsp;2012, the most in 18 months, according to the Fed. 
 “Lenders are starting to come back into the marketplace,” said Greg McBride, a senior financial analyst at <a href="/topics//Bankrate_Inc">Bankrate Inc.</a> “We’re not going back to the wild, Wild West we saw during the real estate boom, but we are going to see more people spending&nbsp;their equity.” 
 Americans went on a spending spree in the five years before the 2006 peak of the real estate market, tapping about $800 billion of their rising equity to spend on everything from cars and televisions to debt consolidation and <a href="/topics//Higher_Education">college tuition</a>. 
 DECLARED WORTHLESS 
 At the beginning of the financial crisis in 2008, close to $1 trillion of the loans were outstanding at U.S. banks and credit unions, an all-time high, according to the Fed. In the housing crash that followed, banks wrote off, or declared worthless, about $251 billion of home equity loans, according to the <a href="/topics//Federal_Deposit_Insurance_Corp.">Federal Deposit Insurance Corp.</a> 
 The year-old real estate recovery is helping to ease defaults. The volume of equity loans 90 days or more overdue dropped 25 percent in the fourth quarter to $3.2 billion from the prior period, according to the <a href="/topics//FDIC">FDIC</a>. As a result, banks are beginning&nbsp;to view equity lending as a potential source of income, rather than losses, said Stuart Feldstein, president of SMR Research Corp., a consumer-lending research firm in Hackettstown, <a href="/topics//New_Jersey">New Jersey</a>. 
 “This could be the year banks see the home-equity business return to black ink, as long as defaults continue to decline,” Feldstein said. 
 Home-equity mortgages held by banks probably will yield a 0.2 percent return on assets this year, which is the after-tax income on outstanding loans, Feldstein said. Improvements in home prices and credit quality over the next two years should put&nbsp;profit back to the pre-bust level of 1 percent to 1.5 percent return on assets, he said. 
 BANKS RETAIN 
 <a href="/topics//J.P._Morgan_Chase_&amp;_Co.">JPMorgan Chase</a> &amp; Co., <a href="/topics//Bank_of_America">Bank of America Corp.</a>, <a href="/topics//Wells_Fargo">Wells Fargo</a> &amp; Co. and <a href="/topics//Citigroup">Citigroup Inc.</a>, the top four U.S. banks by assets, hold $319.6 billion of the loans, about half of the outstanding balance of $652.6 billion, according to the Federal Deposit&nbsp;Insurance Corp. <a href="/topics//Bank_of_America">Bank of America</a> has the most home-equity loans, at $102.6 billion. 
 Unlike first-lien mortgages, banks retain most of their equity originations on their books. Only about 2 percent are securitized on the secondary market, said Feldstein. There are two kinds of home-equity mortgages: lines of credit, known as Helocs, and closed-end loans borrowed in lump sums. 
 Helocs are adjustable loans tied to the prime rate, the interest charged by banks to their most creditworthy customers, with the addition of a margin predetermined by the lender. The national average prime rate has been 3.25 percent since the end of&nbsp;2008, as measured by Bloomberg. 
 AVERAGE RATES 
 The average rate for a Heloc last week was 5.11 percent, down from 5.22 percent a year ago, according to <a href="/topics//Bankrate_Inc">Bankrate</a>.com, an interest-rate aggregator in North Palm Beach, Florida. That puts the average margin at close to 2 percent. 
 Closed-end loans, sometimes called He-loans, are usually fixed-rate junior mortgages. The average U.S. rate for a closed- end loan was 6.13 percent last week, according to <a href="/topics//Bankrate_Inc">Bankrate</a>. A year ago, the rate was 6.39 percent. Lenders usually require&nbsp;borrowers to retain at least 20 percent equity, meaning the junior mortgages added to the primary loan can’t exceed 80 percent of a home’s value, <a href="/topics//Bankrate_Inc">Bankrate</a>’s McBride said. 
 About $6.5 trillion of residential real estate value evaporated after a wave of mortgage defaults sparked the 2008 financial crisis. The median U.S. home price hit bottom in 2012 after a 33 percent drop, as measured by the National Association of&nbsp;Realtors. In February, the median price was up 12 percent from a year earlier, the trade group said last week. 
 TAKE RISKS 
 “Owners who have been sitting in their homes and watching their equity go up will be more likely to borrow and to spend, and more likely to take risks like looking for another house,” said Craig Focardi, senior research director at CEB TowerGroup.&nbsp;“Having home equity is a financial cushion to the average consumer’s personal balance sheet.” 
 A reviving real estate market added to gross domestic product last year for the first time since 2005, according to the Bureau of Economic Analysis in Washington. The economy probably will grow at a 1.9 percent pace in 2013, the fourth year after the&nbsp;end of the <a href="/topics//Economic_Recession">recession</a>, according to the median forecast of 83 economists surveyed by Bloomberg. 
 HOUSEHOLD SPENDING 
 Still, not everyone is spending. The amount households have in bank deposits, savings bonds, fixed-income mutual-funds and municipal securities increased $500 billion last year, equaling the most since 2007, according to FTN Financial, based on Fed&nbsp;data, while net household debt increased $10 billion, the least since 2005. 
 “You might qualify for a home-equity loan, but still have concerns about the economy or job security,” said Icon Advisory’s Richardson. “Or, you might be in that large group of people who need prices to come back a lot more before they qualify.” 
 Fed policymakers for four years have driven down fixed home-loan rates by purchasing mortgage-backed bonds to stimulate demand. Last week, the central bank said it would continue to buy securities at a pace of $85 billion a month in their third&nbsp;round of so-called quantitative easing. 
 At the end of 2012, the average rate for a 30-year fixed primary mortgage fell to an all-time low of 3.3 percent, according to home-loan financier <a href="/topics//Freddie_Mac">Freddie Mac</a> in McLean, <a href="/topics//Virginia">Virginia</a>. Falling rates helped to boost home sales to 4.7 million last year, a&nbsp;gain of 8.4 percent from 2011. 
 “When we see some more history of home-price stability and improving employment data, there will be more people thinking about using their equity,” said Focardi, of CEB TowerGroup. “Having equity gives a boost to confidence.”

reMORTGAGE26

Rising home values bring back home-equity loans

remortgage26

Question: My lender contacted me with an offer to lower the interest rate on my mortgage. I'm hesitant because the deal just looked too good to be true. My current interest rate is rate 5.6 percent and the new rate they are offering me is 4.125 percent with no closing costs. 
 What questions should I be asking? 
 Answer: Sometimes when a deal seems to be too good to be true, it is. But in your case, this sounds like the real deal. 
 Mortgage lenders are trying to cherry-pick their own clients. Mortgage interest rates are so low (still hovering at historic lows, as we write this) and there is so much chatter about refinancing (in the media and at the water cooler) that the average borrower who normally pays no attention to mortgage interest rates is now considering a refinance. 
 Your lender is thinking that if you refinance with them, then you're not refinancing with someone else. And if you're in good stead, that is, you pay on time, you're a valuable customer. 
 So the lender's calculus goes something like this: What is a low enough interest rate that would entice a current customer to do a refinance but still allows me (the lender) to make a lot of money? The answer is the deal you've been offered. 
 Your current rate is 5.6 percent on a 30-year fixed-rate loan. The lender is offering to lower your interest rate by 1.5 percent, to about 4.1 percent. That's a great reduction and it should save you quite a bit of money. 
 Before you jump at it, you need to ask yourself a few questions so that you understand what you're being offered as it compares to similar loans in the marketplace. 
 First, can you lower the interest rate even more? You're being offered a 1.5 percent drop, but that's on another 30-year loan. If you take this loan, you'll have a lower rate, but it isn't as low as it could be. Thirty-year mortgages are being offered as low as 3.5 percent, and your offer is quite a bit above that. 
 What could lower your interest rate further? Consider cutting the term of the loan. If you drop from a 30-year to a 15-year fixed-rate mortgage, you might be able to get a loan at around 3 percent. That would mean a 2.5 percent drop in the interest rate from where you are today. Because that drop is so steep, you might still pay less each month while shaving years off the loan term. And, that's where the real savings comes in. 
 We often talk about a home-run refinance. To get there, you have to lower the interest rate, lower your monthly payment, shorten the term of the loan and manage your closing costs. It sounds as though you might be just about there. 
 To be sure, you should shop around and see what other lenders will offer you. Then, with that information in hand, you can negotiate from a position of strength, knowing exactly what you've been offered and what is the best deal you can cut for yourself.

reMATTERS25

Lenders offer mortgage deals in an effort to keep customers

Mortgage offer -- cropped

&nbsp; 
 Borrowers who want to get a mortgage insured by the <a href="/topics//Federal_Housing_Administration">Federal Housing Administration</a> should act quickly to avoid changes the agency is making to shore up its faltering insurance fund. 
 The U.S. Department of Housing and Administration announced the changes Jan. 30. 
 Here's the timing: FHA will raise the annual mortgage insurance premium on most loans that have a case number starting April 1 or later. To get a case number before the April 1 deadline and avoid the increase, borrowers should apply with a lender no later than March 25, says Julian Hebron, vice president with <a href="/topics//RPM,_Inc.">RPM</a> Mortgage in San Francisco. 
 On most FHA loans, the annual premium will increase by 0.10 percentage point, or $100 per year for each $100,000 in loan amount. 
 For loans greater than $625,000 with a term longer than 15 years, the increase will be 0.05 percentage point, or $50 per year for each $100,000 in loan amount. 
 The premium itself varies depending on the loan size, term and loan-to-value ratio, but here's an example: 
 For a $500,000, 30-year loan with a loan-to-value ratio greater than 95 percent, the new premium will be 1.35 percent, or $6,750 per year, up from 1.25 percent, or $6,250 per year. On a monthly basis, the premium increase amounts to about $42. 
 For a chart showing premiums increases for various loan types, check out Hebron's blog at tinyurl.com/as4xsqb. These premium increases do not apply if a borrower refinances an existing FHA loan that was endorsed on or before May 31, 2009, into a new FHA loan under the streamline-refinancing program. 
 FHA is not changing the one-time premium borrowers pay up front; it remains at 1.75 percent of the loan amount. 
 In a potentially bigger hit, FHA borrowers will have to continue paying annual mortgage insurance premiums for a longer period of time -- in most cases for the life of the loan. 
 This change will apply to new loans with case numbers starting June 3. To avoid this change, borrowers should try to apply by May 24, Hebron says. 
 In the past, FHA automatically canceled mortgage insurance on most loans when a borrower, anytime after five years, had made enough payments to reduce the balance to 78 percent of the original loan amount. 
 A borrower taking out a 30-year loan with 10 percent down could usually eliminate mortgage insurance after about six years of making normal payments, or after five years if they made extra principal payments, Hebron says. 
 (If the original loan term was 15 years or less, the five-year rule didn't apply; FHA would cancel the insurance when the balance dropped to 78 percent.) 
 In the future, if the borrower starts off with a loan-to-value ratio above 90 percent, FHA will collect the premium for the life of the loan. If the original ratio is between 78 and 90 percent, FHA will cancel the premium if the balance drops below 78 percent of the original loan amount anytime after 11 years.&nbsp;

reFHA10

FHA mortgage premium costs set to rise

Mortgage signing -- cropped

Whether you are a homeowner seeking to refinance, a homebuyer or a renter, expect higher housing costs this winter. 
 Certain mortgage fees are rising, especially for those with small down payments. Luckily for borrowers, low mortgage rates are still around, but they only have one way to go this year, and that's up. 
 This isn't the time to wait for a better deal. It's time to act. 
 It's also time to pay close attention to a number of new mortgage regulations that are being released this year. They will help determine who gets a mortgage in the near future. 
 Expect to see five housing trends this year. 
 Homebuyers with low down payments will pay higher mortgage insurance premiums when they get a <a href="/topics//Federal_Housing_Administration">Federal Housing Administration</a> mortgage. 
 The FHA says it will increase the annual insurance premium that is added to a borrower's monthly mortgage payments by 0.1 percent. It may sound like a small increase, but this hike is on top of numerous insurance premium raises the FHA has implemented since 2008 as part of its ongoing efforts to shore up the FHA's reserves. Industry observers say there's great potential for much higher increases this year. 
 FHA borrowers are charged about 1.25 percent of the total balance of their loans per year. Before the financial crisis of 2008, the charge was about 0.5 percent. 
 Because mortgage rates are extremely low, the added cost might not affect borrowers significantly now. That could change once rates rise, says Janneke Ratcliffe, executive director for the Center for Community Capital at the <a href="/topics//University_of_North_Carolina_at_Chapel_Hill">University of North Carolina at Chapel Hill</a>. 
 Refinancers and homebuyers who have not taken advantage of the historically low rates shouldn't waste time, mortgage professionals say. 
 In many parts of the country, rents will continue to climb as the number of available rental apartments shrinks and demand rises. 
 U.S. apartment vacancies dropped to an 11-year low of 4.5 percent last year's fourth quarter, according to real estate research firm Reis. Foreclosures, still-tight mortgage lending requirements and a weak jobs market are contributing to the surge in demand and rental prices. 
 Now that the election is over and the "fiscal cliff" ordeal has at least partially been put to bed, <a href="/topics//Barack_Obama">President Barack Obama</a>'s administration will likely renew its push to help underwater homeowners. That could create refinancing opportunities for homeowners who have not been helped by earlier refinancing programs. 
 "I do think the administration will return to some of the issues they have previously worked on, in particular refinancing, which I would expect to be highest on their agenda," says Julia Gordon, the <a href="/topics//Center_for_American_Progress">Center for American Progress</a>' director of housing finance and policy. 
 A series of new mortgage and servicing rules is being unveiled early this year. These rules will reshape the mortgage industry and could affect consumers, for better or worse, once they go into effect. 
 The main rule released so far requires lenders to verify that a borrower has the ability to repay the loan when getting a mortgage. The rule was designed to protect borrowers from the types of risky loans that led to the housing crash. 
 Mortgage rates jumped the week of Jan. 31, 2013 as investors moved out of the mortgage and <a href="/topics//United_States_Department_of_the_Treasury">U.S. Treasury</a> bond markets to invest in stocks. The rates usually jump when investors exit bonds to invest in the stock market. 
 The 30-year fixed-rate mortgage rose 11 basis points to 3.77 percent. A basis point is one-hundredth of 1 percentage point. 
 The 15-year fixed-rate mortgage rose 9 basis points to 3.03 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, rose 9 basis points to 4.17 percent. 
 The 5/1 adjustable-rate mortgage rose 7 basis points to 2.78 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter. 
 Reach Polyana da Costa at editors@bankrate.com.&nbsp;

reRATES03

Mortgage rates and rents expected to rise in 2013

Mortgages

Federal regulators for the first time are laying out rules aimed at ensuring that mortgage borrowers can afford to repay the loans they take out. 
 The rules unveiled Thursday by the <a href="/topics//Consumer_Financial_Protection_Bureau">Consumer Financial Protection Bureau</a> impose a range of obligations and restrictions on lenders, including bans on the risky "interest-only" and "no documentation" loans that helped inflate the housing bubble. 
 Lenders will be required to verify and inspect borrowers' financial records. The rules discourage them from saddling borrowers with total debt payments totaling more than 43 percent of the person's annual income. That total includes existing debts like credit cards and student loans. 
 CFPB director <a href="/topics//Richard_Cordray">Richard Cordray</a>, in remarks prepared for an event Thursday, called the rules "the true essence of 'responsible lending.' " The rules, which take effect next year, aim to "make sure that people who work hard to buy their own home can be assured of not only greater consumer protections but also reasonable access to credit," he said. 
 Cordray noted that in years leading up to the 2008 financial crisis, consumers could easily obtain mortgages that they could not afford to repay. In contrast, in subsequent years banks tightened lending, sharply reducing the number or people that could qualify for a home loan. 
 The new rules seek out a middle ground by protecting consumers from bad loans while giving banks the legal assurances they need to increase lending, he said. 
 The mortgage-lending overhaul is a priority for the agency, which was created under the 2010 financial law known as the Dodd-Frank Act. The agency is charged with reducing the risk of a credit bubble by helping to ensure that borrowers are better informed and loans are more likely to be repaid. 
 The agency is charged with writing and enforcing rules that flesh out the law passed by Congress. 
 The rules limit features like teaser rates that adjust upward and large "balloon payments" that must be made at the end of the loan period. 
 The bureau proposed to exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.

BZMORT11

New mortgage-lending rules unveiled

Mortgage

Quick, answer this about your homeowner's policy: Does it cover replacement cost? Do you have "extended limits"? What's the exact dollar amount of your hurricane deductible, and what category storm triggers it? Regarding flood insurance: What's your home's likelihood of flooding, according to the National Flood Insurance Program's floodplain maps? 
If you can't answer these questions, you have work to do. Experts helped Newsday compile this 12-point checklist to help ensure your homeowner's coverage is the best it can be, and also offered advice regarding whether you might want to add flood insurance or even "excess flood insurance" to your home protection strategy: 
1. Don't look just at the "Policy Declarations" page that comes with your annual renewal 
Ask for the actual policy, which was probably sent when you first signed on with the company. You also need the "amendatory endorsements" -- changes since your purchase. "You have to have all three of those to truly understand your coverage," says Sharyn Kay, who worked in insurance for 24 years, runs a blog called Insurance Decoded and has self-published an e-book called "Insurance Claims Decoded: A Homeowner's Guide to Getting a Claim Paid" ($8.97). 
2. Buyer, beware 
Read the fine print closely. "My father used to say, 'The big print giveth, the small print taketh away,' " says asset protection attorney Hillel Presser, president of the Presser Law Firm in Deerfield Beach, Fla. "At the end of the day, insurance companies are for-profit companies. They're not charities." Agents tend to go heavy on the sales pitch and gloss over what's not covered, says Amy Bach, executive director of United Policyholders, a San Francisco-based nonprofit information resource for insurance consumers nationwide. Presser encourages people to buy the best coverage they can afford: "It's pretty good bang for your buck if something happens." 
Gov. <a href="/topics//Andrew_Cuomo">Andrew Cuomo</a> has started a "report card" so you can check how your company performs; go to nyinsure.ny.gov. 
3. Determine your type of coverage -- deluxe, basic or in between 
"A lot of them have fancy names created by the marketing department," Presser says. There can be significant differences, he and Kay warn. One of the biggest is whether it's a "named peril" or an "open peril" or "all risk" policy, Kay says. Named peril policies cover only the perils specifically listed, such as fire, wind and/or theft. Open peril or all risk policies cover any event other than what is specifically excluded. The latter is a better choice, Bach and Kay say. 
4. Be sure to have replacement cost on the dwelling 
This is so you'll be covered for what it costs to rebuild regardless of depreciation. Consider raising your deductible if you need to bring the premium down without sacrificing replacement cost, Bach says. If you raise the deductible from $500 to $1,000, you could save 10 to 25 percent on the premium, says Jeanne Salvatore, consumer spokeswoman for the Insurance Information Institute, a Manhattan nonprofit consumer education organization funded by the insurance industry. 
5. Strongly consider replacement cost coverage (rather than actual cash value) for contents as well 
"If I lifted my house up and dumped it upside down, what would fall out? That's the content coverage," says <a href="/topics//Michael_Barry">Michael Barry</a> of <a href="/topics//Manhasset,_NY">Manhasset</a>, vice president for media relations for the Insurance Information Institute. Replacement covers what it would cost at the time of the disaster to buy new items. Actual cash value only pays for the depreciated market value. For instance, if your couch or TV is 10 years old, you won't get a check to cover brand-new ones; you'll have to pay the difference from your pocket. "That's going to cost you a little bit more, but it's probably cost effective," <a href="/topics//Michael_Barry">Barry</a> says. Renters should also insure their contents, Bach says. "It's very affordable," she says. 
6. Make sure you have "extended" coverage 
This adds 10 percent to 25 percent to the cost of rebuilding after a widespread disaster to account for an inevitable rise in prices due to supply and demand. "With so much work to do, contractors start to bump up the price," Kay says. Cost of materials may also rise. 
7. Opt for "building code" coverage, especially if your house is more than 30 years old 
If you have to rebuild, you'll be required to meet current codes, which could include rewiring, for instance. "I highly recommend it for anybody who has an older house," Kay says. If you don't have the coverage, add it, she says. 
8. Know your hurricane deductible, usually 1 percent to 5 percent of the policy coverage 
For instance, if your house is covered for $500,000 and a hurricane destroys it, you would have to pay the first $25,000 if your deductible is 5 percent. You also should ask what is the "trigger" for the hurricane deductible, which is higher than a deductible for damage caused by lesser storms, <a href="/topics//Michael_Barry">Barry</a> says. It might be a Category 1 storm, but it could be a Category 2 or higher storm as declared by the <a href="/topics//National_Weather_Service">National Weather Service</a>. Sandy wasn't a hurricane when it hit land, so the hurricane deductibles don't apply. Neither Kay nor <a href="/topics//Michael_Barry">Barry</a> are aware of any way to mitigate the hurricane deductible through a supplemental or upgraded policy. But ask whether discounts are available if you make your home more resistant to hurricane damage by adding protection such as hurricane shutters, Bach says. 
9. Check whether your company updates coverage for inflation 
Most include "inflation guard," <a href="/topics//Michael_Barry">Barry</a> says. If your house's market value has plummeted, don't make the mistake of reducing your dwelling protection coverage, <a href="/topics//Michael_Barry">Barry</a> warns. The cost of rebuilding may still be high due to increased cost of materials, he says. You don't want to have a situation in which you only have $300,000 of protection and it costs $350,000 to replace your home, he says. Usually dwelling protection will be lower than market value because you already own the land, he says. 
10. Make sure your policy covers "additional living expenses" 
Most include some provision for renting a replacement home if your house is temporarily uninhabitable, often a pleasant surprise to policyholders who have to file a claim, <a href="/topics//Michael_Barry">Barry</a> says. But it could be stated as 12 months or 24 months or as a specific dollar amount. A policy that designates time instead of dollars is a smarter choice, Kay, Bach and <a href="/topics//Michael_Barry">Barry</a> agree. The exact amount you'll get will be determined at the time of the loss, but should cover renting a comparable property and such expenses as driving your child to school each day if that property is outside of your school district. 
11. Review additional items such as pools and jewelry 
If you've added on to your home, alert your insurance company as well. Consider also a premium for sewage backup, which covers you if water or sewage backs up in your house -- it's usually a small sum in the overall scheme of the policy, Bach says. Realize you need to buy riders for luxury items such as jewelry, collectibles and furs. And you might want to increase your liability coverage for a pool. 
12. Make a videotape or photo album inventory now of all the items in your house 
Write down an accurate description as well as makes and models of items. If you have receipts, include them. You can find free inventory services at knowyourstuff.org or at uphelp.org, searching for home inventory. "It's horrible for people after a loss when they try to recreate their lives. It does cause a lot of stress," Kay says. Document your exterior as well, including the type of siding and roof shingles and keep all the information, along with a copy of your policy, in a safe place other than your home, Bach says. 
COMPARING INSURANCE COMPANIES 
Insurance companies may not give out the actual policy until after you purchase it, which can make it harder to compare fine print, says Amy Bach, executive director of United Policyholders, a San Francisco nonprofit information resource for insurance consumers nationwide. 
She recommends making yourself a checklist or grid of options so you can compare side by side what agents from at least three different companies offer and what each option will cost you. United Policyholders offers consumers a buying tips tool at uphelp.org/library/buyingtips. Don't forget to factor in any discounts for "bundling" policies if other policies, such as your car or life insurance, will be with the same company.

Things to Do

LSMAIN07.WEB

Homeowner's insurance: Checklist to ensure adequate storm coverage

lsINSURjp001-CROPPED

The first piece of post-storm advice after a major weather event like Sandy is always to call your insurance company. But what if your phone isn't working or you don't have Internet service? 
 What if the insurance company isn't answering the phone, or getting to you as fast as you'd like? Or what if water is still pouring in through the roof and you've got more than enough on your hands right now? 
 The major insurers that cover the area affected by Sandy are not reporting any particular trouble connecting with homeowners. State Farm says that as of Tuesday evening it had logged 6,000 homeowners policy claims, and 900 car claims. <a href="/topics//United_Services_Automobile_Association">USAA</a>, which has a high number of active-duty military members who may not be home at the moment, says it has taken in 17,000 claims so far, with the most <a href="/topics//Common_(musician)">common</a> claim being for tree damage. 
 But with millions still without power in the Northeast and hundreds of thousands displaced, it will be a while before all those claims <a href="/topics//Filter_(musician)">filter</a> in, as well as complaints about customer services. The good news is that if you can't communicate right now, that's OK, especially if you had to abandon your property for dry ground. 
 "The insurance company isn't going to hold it against you if you didn't board up the windows, but I'd get there as soon as I could," says Bob Hunter, director of insurance for the <a href="/topics//Consumer_Federation_of_America">Consumer Federation of America</a>. "Don't wait months to file a claim." 
 If you're at home and there's damage that needs to be repaired right away or it will get worse, the insurance company is actually going to be happy if you buy a tarp to cover a roof, or start pumping your basement. "Absolutely do emergency repairs," says State Farm spokeswoman Holly Anderson. 
 Just before you start, take pictures and, if possible, video. Be sure to save your receipts. 
 What if your insurance company has a busy signal? In the areas affected by Sandy, the major insurers -- State Farm, <a href="/topics//Allstate">Allstate</a> Corp, Travelers Companies, Chubb and <a href="/topics//Liberty_Mutual_Group">Liberty Mutual</a> -- say they've staffed offices and are accessible to customers either by phone, Internet or mobile app. 
 If you don't have luck getting through, you can contact most companies via social media. 
 That's what Michelle Leder did after a 75-foot maple fell on her Peekskill home Monday. She called the local police first, who told her to evacuate, then <a href="/topics//Liberty_Mutual_Group">Liberty Mutual</a>, her insurer, on Tuesday to make a preliminary claim. Then she sent the company a message via Twitter to try to speed up the process. 
 The company promptly replied to her tweet with a toll-free phone number and email. 
 The Twitter handles of some big insurers include @libertymutual, @<a href="/topics//Allstate">Allstate</a>, @usaa, @StateFarm, @FiremansFund.

BZYFIN04

Your Finance: Contacting your insurer

liSANDY/tp/jz

Your lender is required by the Federal Real Estate Settlement Procedures Act to provide you with a good faith estimate of the fees due at closing. This document, called the good-faith estimate, or GFE, is supposed to be provided to you within three days of applying for a loan. The requirement is satisfied if the good faith estimate is mailed within three days. 
 Closing fees, also called settlement costs, cover almost every expense associated with your home loan. Because closing costs typically amount to between 3 percent and 5 percent of the sale price, it is best to wait until you receive the good faith estimate before committing to a loan. Smart shoppers obtain good faith estimates from two or more lenders, compare their costs and ask questions about any large discrepancies. 
 Here's a list of some of the fees you'll find listed on your good faith estimate: 
 Discount Property appraisal Credit report Lender's inspection Mortgage insurance application Assumption Mortgage broker fee Tax-related service fee Application Commitment Rate lock Processing Underwriting Wire transfer 
 Abstract or title search Title examination Document preparation Notary Attorney Title insurance Recording City/county tax stamps Transfer tax Survey Pest inspection Condominium application Prepaids for interest, hazard insurance, property taxes, mortgage insurance and flood insurance 
 It's just an estimate 
 The good faith estimate is just that -- an estimate. The lender directly controls some of the fees, and those are the ones to pay the most attention to when you are comparing offers. Some fees are generated by third parties and usually don't vary much from lender to lender. Other expenses are under your control, and there are taxes and government fees that should be the same, regardless of the lender. 
 Lender-controlled fees 
 The fees that the lender controls, and which are most subject to negotiation, are origination, discount, credit reporting, assumption, mortgage broker, tax-related service, application, commitment, rate lock, processing, underwriting and wire transfer. 
 If a fee seems vague or questionable, ask. Some mortgage companies include so-called junk fees that you can eliminate or reduce. 
 Third-party fees 
 There are some fees that cover services that the lender typically shops for. The lender is supposed to pass these fees directly to you without marking them up. These third-party fees include the settlement, closing or service fee; appraisal; abstract or title search; title examination; document preparation; notary; attorney; and title insurance. 
 You don't have a lot of negotiating room on these fees, but if one is much higher or lower than the comparable fee in a competing offer, ask for an explanation. 
 Fees for services that you can shop for 
 There is some overlap here with the third-party fees mentioned above -- specifically, the attorney's fees and settlement, closing and service fees. In some states, the closing is done by attorneys, and in other states, the closing is done at a title office. Either way, you can shop for a less expensive closing-service provider. You also are expected to shop for homeowners insurance instead of taking the lender's estimate as gospel. Non-negotiable stuff 
 Your local and state governments will charge recording fees, tax stamps and transfer taxes. There's not much you can do to negotiate those. 
 Be skeptical 
 Lenders, especially those that are huge and operate nationwide, often have trouble estimating title insurance and government fees. Scrutinize these line items; the lender with the smaller estimate for title insurance or government fees might be inaccurate. National lenders have particular trouble estimating the buyer's cost for title insurance -- not because they estimate the price wrong but because of varying customs regarding who pays what. In one county the seller might customarily pay for title insurance, while in the adjoining county the custom is for the buyer to pay. 
 Remember, you can always negotiate with the sellers to have them split or pay outright some of the closing costs, points or fees. You don't have to follow the customs of your area. 
 Close at end of month 
 Because all mortgage loan payments are due on the first of the month, you can avoid or reduce the prepaid interest due by closing on or near the last day of the month. &nbsp;

re-mortgage

Mortgage basics: The good faith estimate

Two years ago, Brian Simonetti wanted to take advantage of low interest rates to refinance and consolidate his mortgages on a few properties. 
 It took six months for Simonetti, a self-employed accountant from <a href="/topics//Massapequa,_NY">Massapequa</a>, to go through the application process with his bank, where he had been a customer for 10 years. He sent the bank two years' worth of personal tax returns, corporate returns, bank and brokerage statements going back six months and multiple letters and other documents verifying his business background. 
 Because Simonetti is self-employed, he wasn't able to provide the bank with a W-2 or other third-party confirmation of his income, and his application was denied, even though he had enough money on hand to pay back the loan. Simonetti then turned to a <a href="/topics//Long_Beach,_NY">Long Beach</a> mortgage broker, who introduced Simonetti to a reduced-documentation loan. 
 Simonetti says he sent his new bank several pay stubs, and some of the same documentation he'd sent his old bank. The deal closed within two months. 
 "It's more streamlined," Simonetti, 46, says. 
 The reduced-documentation loans are among several niche products offered by smaller lenders. Mortgage experts are quick to point out that they are not the same as the so-called liar loans believed to have helped precipitate the credit crisis, in which home buyers stated their income on a form and got a mortgage without providing proof. 
 "These are post-credit-crisis products," says Guy Cecala, chief executive and publisher of Inside Mortgage Finance, a trade publication based in Bethesda, Md. 
 Cecala explains that the niche loans are made more selectively, mostly by portfolio lenders who keep the loans on their books, instead of securitizing them and selling them off. "They tend to be, in their own ways, pretty strict," Cecala says of lenders. 
 Some lenders can require as much as a 50 percent down payment for these types of low-documentation loans, along with proof that a borrower can cover closing costs and has reserves in the bank, says Igor Noble, owner of Great Northern Mortgage Corp. in New York City, which works with home buyers from <a href="/topics//Long_Island,_NY">Long Island</a>. Interest rates also are higher -- around 4.875 percent for a 30-year fixed mortgage. 
 LOW-DOCUMENTATION LOANS 
 Fred Rossi, president of Riverside Funding Corp., the <a href="/topics//Long_Beach,_NY">Long Beach</a> broker that worked with Simonetti, says low-documentation loans can be good for small-business owners with complicated tax returns. 
 He says underwriters at large banks are not well equipped to do the required analysis of complicated returns. Lenders also take a close look at assets and the ability of the borrower to repay the loan. "It's absolutely not a stated-income product," Rossi says. "It's a reduced-documentation product that doesn't rely on tax returns." 
 Gregory Frank, manager of Guaranteed Rate, a <a href="/topics//Garden_City,_NY">Garden City</a> mortgage company, says there are three main qualifying requirements for low-documentation mortgages: The client must have healthy assets, clean credit and be self-employed or own a business for at least three years, with proof from the state that the business is legitimate. 
 ASSET DEPLETION LOANS 
 Along the same lines of a low-documentation loan are mortgages for people who have substantial liquid assets but not much in the way of income. 
 For something called an asset depletion loan, banks have a formula they use to calculate a monthly income amount based on the amount the borrower has in savings. 
 For example, Frank had a client who purchased a $3 million home and was putting 50 percent down. After closing, she had $7.5 million in savings from her divorce, and that was more than enough to qualify her for the loan. 
 Assets can be used as collateral. In rare circumstances, Frank says he has come across clients who don't want to liquidate a stock, IRA or 401(k) to purchase a home, or they would like to use the collateral in another property in lieu of a down payment. In that case, they take out a pledged asset loan, using the asset as security for a down payment. 
 Banks come up with a formula, lending, for example, $600,000 to someone with $700,000 worth of securities. 
 "It's much riskier for the borrower," Frank says. "If the bank is going to allow you to do this deal, they're going to protect themselves." 
 If the borrower goes into default, the lender can access the borrower's stocks or bonds. While that could be risky in today's market, Noble says lenders would likely take stocks with conservative returns, say 3 to 4 percent, and not something volatile, such as <a href="/topics//Google_Inc.">Google</a> or <a href="/topics//Facebook">Facebook</a> stock. 
 "They're going to probably take stocks that are not aggressive stocks," Noble says. 
 These types of asset-based programs are not for the average person with a stock portfolio or retirement account, says Michael McHugh, president and chief executive of Continental Home Loans in <a href="/topics//Melville,_NY">Melville</a> and president of the Empire State Mortgage Bankers Association. 
 "You're not talking about the average self-employed person," McHugh says. "You're talking about a very high-end borrower." 
 These types of loans also are more commonly provided by a bank that already has been working with a borrower, says Zahra Jafri, president of Lynx Mortgage Bank in <a href="/topics//Westbury,_NY">Westbury</a>. "If you have a private banking relationship, then perhaps they'll just base everything off your assets," Jafri says. "They may look at your income and provide more flexible guidelines." 
 REVERSE MORTGAGES 
 Another trend -- people who use old loans in new ways. 
 Reverse mortgages, for example, are home equity loans that give senior citizens -- people at least 62 years old -- access to money without the burden of monthly payments. The loan is repaid when the borrower sells the house or dies. Noble says some of his older clients have used the government-backed program to buy houses. 
 Someone who is 62 or older and retired likely won't have the monthly income needed to qualify for a regular mortgage. If they have enough for a sizable down payment, seniors who are looking to downsize or move closer to relatives may be able to take advantage of what is called a Home Equity Conversion Mortgage for Purchase to buy a new primary home, using cash to pay the difference between the money from the mortgage and the sale price of the home. Noble had a client who was 85 years old purchase a house in <a href="/topics//Old_Westbury,_NY">Old Westbury</a> this way, putting down $400,000 on the $900,000 property. 
 It's also becoming more common for older people to buy a home this way together with their children or grandchildren, Noble says. 
 Noble says the mortgage insurance on these loans can be very high, but the lenders that offer these reverse mortgages have what are called "saver programs" that allow seniors to borrow less money but with lower closing costs. 
 When the borrower dies, the procedure is the same as when a reverse mortgage is used to refinance a home. The beneficiary can sell the house and pay the lender back or refinance under their name. 
 Recently, some wealthy home buyers have been paying for homes in cash, then taking out a home-equity loan after the purchase. 
 "It's easier to get a mortgage on a home you already own than on one you want to buy," Cecala says.

LSMAIN04.WEB

Reduced documentation and other mortgage loans

lsmain04.web  crp1.3.13

Before agreeing to an insurance settlement that falls short of covering their storm-repair bills, homeowners may want to consider the tale of Warren S. Dank. 
 As Sandy battered <a href="/topics//Long_Island,_NY">Long Island</a>, Dank's backyard generator burst into flames, destroying a shed and melting the vinyl siding off the rear of his <a href="/topics//Syosset,_NY">Syosset</a> home. Days later, he said, a State Farm agent advised him to have a contractor make repairs before the nor'easter hit. The bill: $39,700. 
 Then a State Farm adjuster arrived, looked at damage photos and assessed the repairs. His settlement offer: $29,000, according to documents Dank shared with Newsday. 
 "There was no way I could have gotten the work done for that price," said Dank, 45. 
 A State Farm spokeswoman declined to discuss Dank's case, saying claims are private. The company, she said, is working closely with policyholders to make the process "as smooth as possible." 
 Dank's plight is a reminder that estimating home repair costs is an inexact science. One quote for a job might be $10,000; another could be $15,000. And as Long <a href="/topics//New_York_Islanders">Islanders</a> rebuild from Sandy, they are left dangling between what contractors say a job will cost and what adjusters decide insurers should pay. 
 Before accepting a settlement requiring them to swallow a big chunk of the bill, homeowners should study estimates line by line and ask every question possible to ensure they are getting a fair deal, consumer advocates say. 
 "The squeaky wheel gets paid," said Amy Bach, executive director of United Policyholders, a San Francisco nonprofit that helps homeowners file disaster-related insurance claims. "It is always worth pushing back." 
 The task of calculating settlements for Sandy's estimated $25 billion in claims falls to the legions of adjusters who arrived here from across America in the days after the storm. 
 Some work full time for big insurance companies. Others are independent contractors who migrate seasonally from disaster to disaster: East Coast hurricanes in fall, New England ice storms in winter and Midwest tornadoes come spring. 
 As they walk through homes assessing damages, most adjusters calculate estimates with computer software that -- ideally -- is up to date with the cost of local labor and materials. "If you have an adjuster from Dallas handling claims in <a href="/topics//New_York_(state)">New York</a>, he is not using Dallas prices," said Chris McDowell, president of the National Association of Independent Insurance Adjusters. 
 Consumer advocates, however, said that if adjusters don't override the software's default settings, they may get estimates tailored for tract homes in Middle America. Plus, the programs don't always keep up with cost spikes triggered by rocketing demand for labor and supplies in the wake of a disaster, industry experts said. 
 And there is, of course, another side to the estimates. Mario Mattera, business agent for Plumbers Local Union 200, said some contractors and suppliers are taking advantage of desperate homeowners. "Price gouging is going on like crazy," he said. 
 Dank, a lawyer, said he was livid after comparing State Farm's cost and labor estimates with his contractor bills. So he threatened to sue. The insurer's estimate, for instance, allotted 58 minutes to paint four windows. The amount of paint required: 2 cups, costing $4.16. 
 Artie Cipoletti, treasurer of the <a href="/topics//Long_Island,_NY">Long Island</a> Builders Institute, called the numbers "ridiculous." No job takes less than an hour -- and no one sells paint by the cup, Cipoletti said. 
 After weeks of negotiating, State Farm met with Dank's contractor, then agreed to the full $39,700, minus a deductible, according to an email Dank shared with Newsday. "People need to know their rights," Dank said, "and realize they don't have to just accept a settlement."

BZINSU09

Homeowners can challenge insurers' estimates

bzinsu crop

The housing market may still be struggling, but one relic of the boom years is back: jumbo mortgages, or home loans of more than $625,500 on <a href="/topics//Long_Island,_NY">Long Island</a>. 
 More lenders are making jumbo loans, getting back into the market after shying away during the credit crunch. Combined with historically low interest rates, this has caused the market to thrive, some local lenders and agents say. 
 "I think that the appetite from the lenders now is greater than ever," says Gregory Frank, manager of Guaranteed Rate, a <a href="/topics//Garden_City,_NY">Garden City</a> mortgage company. 
 Generally, for most parts of the country, a loan for more than $417,000 (more than standard mortgages) falls into the jumbo category. In high-cost markets such as <a href="/topics//Long_Island,_NY">Long Island</a>, the baseline rises to $625,500. <a href="/topics//Fannie_Mae">Fannie Mae</a> and <a href="/topics//Freddie_Mac">Freddie Mac</a>, which usually purchase mortgages from lenders, do not buy loans that are higher than these limits. Because lenders can't sell jumbo mortgages to Fannie and Freddie, they assume more risk, and interest rates are higher than rates for home loans that fall under the limits. 
 In the first half of this year, $4.3 billion in new jumbo mortgages were taken out on <a href="/topics//Long_Island,_NY">Long Island</a>, nearly double the $2.4 billion taken out over the same period in 2011, according to data compiled by LPS Applied Analytics, a division of Jacksonville, Fla.-based Lender Processing Services. 
 In the first five months of this year, an average of 4.3 percent of new mortgages in <a href="/topics//Nassau_County,_NY">Nassau</a> County and 5 percent of mortgages in <a href="/topics//Suffolk_County,_NY">Suffolk</a> County were jumbos, according to Santa Ana, Calif.-based CoreLogic. That's up from about 4.1 percent in <a href="/topics//Nassau_County,_NY">Nassau</a> and 4 percent in <a href="/topics//Suffolk_County,_NY">Suffolk</a> for the same period last year. It's a bigger jump from the beginning of 2009, in the wake of the housing and credit crisis, when about 2 percent of mortgages taken out in <a href="/topics//Nassau_County,_NY">Nassau</a> and about 1.2 percent in <a href="/topics//Suffolk_County,_NY">Suffolk</a> were jumbos. 
 Frank says lenders are realizing that jumbo borrowers present less of a risk. Because of stiff requirements, jumbo borrowers put more money down. 
 "With more equity in the property, they're less likely to walk away from it," Frank says. 
 The biggest change is that the difference in rates between jumbo mortgages and lower, so-called conforming mortgages, has shrunk, says Larry Weinstein, a home-lending specialist at Citibank who works with <a href="/topics//Long_Island,_NY">Long Island</a> home buyers. Jumbo loans that were in the 6 percent range in 2005, because banks were lending such high amounts, are now hovering around a historically low 4 fixed mortgage range from 3.5 to 4 percent. 
 "The differences now have contracted so that you can get a $2 million mortgage for under 4 percent," he says. 
 With stock portfolios doing better than they were a few years ago, even wealthy buyers are borrowing money. "A lot of clients, who certainly have the cash to go out and buy a . . . $5 million property with no financing, are taking advantage of the low rates because they feel they can invest their money and do better," he adds. 
 Interest on first and second mortgages is also tax deductible up to $1 million, so buyers can take advantage of that perk as well. 
<h4> STRICTER GUIDELINES</h4> 
 That doesn't mean it's easy money. Lenders are much stricter than they were before the housing bubble burst. Most require a high amount of reserves -- Citibank wants a minimum of six months of housing payments in the bank. They request extensive income documentation, including two months' worth of bank statements and explanations for large deposits, Weinstein says. 
 That's on top of a down payment of at least 20 percent and a credit score of at least 680 for those looking to take out a jumbo loan. 
 "They have to be very well qualified," says Maria Siringo, a broker with <a href="/topics//Woodbury,_NY">Woodbury</a>-based Shawn Elliott Luxury Homes &amp; Estates. "I know that the mortgage companies today are definitely doing their due diligence." 
 Banks also are doing adjustable-rate jumbo mortgages. "You need to feel comfortable that you're going to get rid of that mortgage before the rate adjusts," Weinstein says. "Beyond that, most people go for a 30-year fixed." 
<h4> TRADING UP</h4> 
 While jumbo buyers run the gamut, agents say a good fit is a current homeowner looking to trade up to something bigger. "The one that it works the best for is a person who has sold a house and is moving up, or the first-time buyer that has a lot of assets and good credit," says Fern Karhu, executive vice president of Realty Connect USA in <a href="/topics//Woodbury,_NY">Woodbury</a>. "Credit is critical in this market." 
 Maria Lanzisero, a broker with Signature Premier Properties in Huntington, says many customers taking out jumbo mortgages are buyers moving from houses worth $300,000 to $500,000 to homes in the $800,000-to-$1 million range. "When the housing market started to fall apart . . . you saw a lot of first-time homeowners take advantage," Lanzisero says. "Now we're seeing people moving up. at least a third of my business." 
<h4> WATCH OUT</h4> 
 The loans don't come without challenges. The appraisal process can be especially tricky in the luxury home market, where sales are slow and appraisers struggle to find comparable properties that have recently sold. If the appraisal comes in at less than what the buyer is offering, banks are often not willing to lend -- especially when they're lending a lot of money. 
 Connie Liappas, an agent with Prudential <a href="/topics//Douglas_Elliman">Douglas Elliman</a> Real Estate's <a href="/topics//Manhasset,_NY">Manhasset</a> office, had a deal go sour when a home she listed went into contract for $1.625 million and the bank's appraiser said it was worth $100,000 less. Within a month, the house resold for $1.565 million and was appraised at $1.6 million. 
 "If the bank doesn't feel it's worth it, then it's not going to" lend, she says. 
 It's not unusual for banks to require two or even three appraisals for a jumbo purchase, says Robert Olita, manager of Prudential <a href="/topics//Douglas_Elliman">Douglas Elliman</a>'s&nbsp; <a href="/topics//Locust_Valley,_NY">Locust Valley</a> office. "They are sensitive," Olita says of lenders. 
<h4> DO YOU QUALIFY?</h4> 
 Different lenders have their own guidelines for jumbo borrowers, says Gregory Frank, manager of <a href="/topics//Garden_City,_NY">Garden City</a> mortgage company Guaranteed Rate, but there are some rules of thumb: 
 * A credit score above 680 
 * Three to four months' worth of home payments in a bank account. If a borrower puts 25 percent down on a $1 million home with an interest rate of 4.125 percent, monthly payments would be roughly $3,600, plus property taxes. 
 * A six-figure income. Frank says $192,000 is a good amount for someone borrowing $750,000. 
 * No more than a 40 percent debt-to-income ratio.

LSMAIN28.WEB

Jumbo mortgages are back! Here's a primer

bzmain28.web  9.26.12

Most people simply bite the bullet and pay for room and board when their son or daughter goes off to college. But some are finding they can save money by buying a condo. 
 Several compelling reasons make this a good time to buy if you're facing hefty living costs in a college town. 
 There still are plenty of bargains out there for long-term investors. And while mortgage rates have climbed a bit lately, they'll go even higher if the economy heats up. And property prices would follow, making now a good time to buy real estate in the trough of the market. 
 The other main reason is that demographics are on your side in a college town. Generation Y, or "millennials" born since 1980, are 70 million strong -- the largest generation since the baby boom. They show no signs of avoiding college, even if the overall economy remains sluggish. 
 If you buy a property, you will have the option to rent it or sell it and recoup your equity after your child graduates. Given that the housing market is recovering, you might even make a profit. 
 Here's how the math typically works: 
 Let's say your child goes to the University of <a href="/topics//Michigan">Michigan</a>, one of the country's largest public colleges. The institution lists its undergraduate room and board bill for the 2012-2013 academic year at $9,752. That's in addition to roughly $13,000 for tuition for freshmen -- if you're a <a href="/topics//Michigan">Michigan</a> resident. 
 Using the <a href="/topics//Zillow">Zillow</a> real estate search engine, a two-bedroom, two-bath condo near the <a href="/topics//Ann_Arbor,_MI">Ann Arbor</a> campus lists for $110,000. The original 2003 selling price was $140,000. 
 With excellent credit, you can get a 30-year, fixed-rate mortgage at 3.45 percent with a 20 percent down payment. The monthly bill would be $610, which includes $393 for principal and interest on the mortgage; $159 for taxes and $59 for homeowner's insurance, according to <a href="/topics//Zillow">Zillow</a>. 
 Including the monthly condo fee of $281, you'd be paying $10,692 a year, or roughly $8,000 for nine months. 
 If your kid returns home for the summer or travels elsewhere, you can rent out the space to a summer school student. For further savings, if the place is big enough -- and it's not hard to be when compared with the typical dorm room -- you can defray costs with a roommate. You'd also be able to reap a mortgage-interest deduction and write off the taxes in some instances. 
 Of course, with property, you'll also need to cover ongoing maintenance expenses, utilities and taxes. Most condo fees cover some of that, but it pays to look at the history of the complex. If the condo association needs to raise its assessment to cover overdue or needed repairs -- such as a roof -- you'll get hit with an additional fee. 
 Before you leap, look at the tax history of the unit. Has it been reassessed lately? In depressed housing markets, property taxes should drop, but not always. In the case of the <a href="/topics//Ann_Arbor,_MI">Ann Arbor</a> unit, tax assessments fell about 9 percent last year and 16 percent in 2009. 
 So that's the "room" part of the equation. What about the "board?" Compared with on-campus living, the greatest savings are available if your student is fairly frugal, cooks for him or herself and doesn't buy a meal plan from the college. 
 In the final tally, you need to look at the after-tax costs of ownership for your income bracket and project them over four years. If you're relying solely on the property appreciating for the investment to make sense, it may not work for you. 
 There is another factor: Your student living in a comfortable condo with plenty of room. Sometimes a parental return on investment can't be measured in dollars.

BZYFIN19

Your Finance: Buying a condo can lower college living costs

bzyfin19  cropped

FHA loans are well-known for helping families of modest financial means buy a home. 
 Since the home mortgage crisis, the FHA has tightened up some rules. But for many home buyers, FHA loans are still the most surefire way to finance a purchase. 
 The loan limits for single-family homes range from $417,000 in most parts of the country to as high as $729,750 in high-cost regions such as <a href="/topics/New_York_%28state%29">New York</a> and San Francisco. 
 The higher limits for FHA loans remain at up to $729,750 despite the lowering of the limit for conventional non-jumbo loans last fall. 
 The <a href="/topics/Federal_Housing_Administration">Federal Housing Administration</a>, a division of the Department of Housing and Urban Development, was created 78 years ago to help low- and moderate-income families obtain financing for home ownership. 
 The FHA doesn't actually make home loans. It guarantees repayment to lenders, so they know they won't lose money on the deal. 
 That lets banks or mortgage companies offer competitive mortgage rates on loans that are easier to qualify for than conventional home loans. 
 With an FHA-backed loan you can have: 
 A smaller down payment. Most FHA mortgages require a 3.5 percent down payment&nbsp; -- that's $3,500 for every $100,000 you borrow. If your <a href="/topics/FICO">FICO</a> credit score is below 580, you'll have to come with a 10% down payment. 
 Most non-FHA loans require a down payment of at least 5%, and often as much as 20 percent, of the purchase price. 
 Your down payment can also be a gift from a relative, friend or an organization that provides financial assistance. 
 Borrowers are allowed to work with state and local programs that provide help with down payments, closing costs and low-rate loans. Your lender will be glad to explain how these work. 
 Some of the shadier "down payment assistance programs" of the past were shut down by the Housing and Economic Recovery Act of 2008. These programs were basically shams where builders inflated home prices and "donated" money to organizations that turned around and provided the down payments. 
 "This crackdown in gift funds is directed to non-related parties and stopped builder subsidies and all the funny business of a few years ago," according to Mary Tootikian, a mortgage broker and author of Stunned in America: Sub-Crime Mortgage Crisis. 
 It doesn't prevent mom and dad from contributing to your purchase. "Parents can still gift to children," she says. 
 Many conventional mortgages do not allow that, requiring down payment to come from a borrowers' savings or other assets, such as proceeds from the sale of another home. 
 Surprisingly poor credit. The government allows lenders to establish their own minimum credit score to qualify for an FHA loan, and it's usually quite low, typically between 580 and 620. (Anything below 620 is considered a subprime score.) 
 Borrowers with credit scores between 500 and 580 may qualify if they meet other underwriting standards, but they must make a larger down payment. Borrowers with credit scores under 500 are not eligible for FHA financing. 
 To get a loan, you need two things: a two-year history of on-time bill payments and two years of steady employment. Even with these requirements, exceptions are made. 
 In the past, few things could automatically disqualify you for an FHA loan. If you: 
 1. Declared bankruptcy, you must wait two years from the date of discharge. 2. Lost a home through foreclosure, you must wait three years. 3. Are delinquent on a federal debt, such as a student loan or back taxes. 
 A new rule that was supposed to take effect in April would have disqualified many borrowers with more than $1,000 in unresolved debts that are in dispute or in collections. 
 But the FHA is taking a second look at that requirement and delayed its implementation until July at the earliest. 
 More debt. To obtain most non-FHA loans, borrowers must be spending no more than 36 percent of their pretax income on all debts, including mortgage payments, student loans, credit card bills and auto loans. 
 With an FHA loan, lenders will allow you to spend up to 41 percent of your pretax income on debt. Some lenders will stretch that to 43 percent for borrowers with an excellent payment history. (Use your own discretion on whether you should stretch your budget to spend that much of your pay on debt payments.) 
 Mortgage insurance. The big disadvantage to FHA financing is the mortgage insurance you have to pay up front. It's the price you pay for having the government stand behind your loan. 
 All borrowers, regardless of the term of their loan or the size of the down payment they make, must pay the 1.75 percent upfront mortgage insurance premium at closing. 
 That means that you pay a $1,750 insurance premium on every $100,000. 
 While that can be added to your loan amount, it's still an extra charge. 
 Most borrowers will also have to pay monthly insurance premiums, which are comparable to what you would pay for private mortgage insurance on a non-FHA loan. 
 For a 30-year loan with a down payment of less than 5 percent, your premiums will be 1.25 percent of the outstanding balance each year. If you put more than 5 percent down, your annual premiums will be 1.20 percent. 
 That cost is typically divided into 12 monthly payments and added to your mortgage payment. 
 You'll have to carry this insurance for at least five years on all loans longer than 15-years until the balance on your mortgage is down to 78 percent of the original purchase price (not counting any financed upfront mortgage insurance premiums). 
 On non-FHA loans, private mortgage insurance can usually be dropped after the balance of the loan is down to 80 percent of the purchase price and after a minimum of only one year. 
 Private mortgage insurance also allows you to count appreciation toward obtaining the needed equity. FHA loans do not. 
 Self-employed individuals can apply for FHA loans. If you are a sole proprietor, be prepared to show business financial statements and more documentation than you would need if you were an employee. 
 You can apply for an FHA-backed loan from most banks and mortgage companies.

re-finance

How to tell when an FHA loan is right for you

Paying off your mortgage might sound like an ambitious plan, especially if you have recently refinanced into a 30-year term. But it's still smart for homeowners to give some serious thought as to how they'll pay off their home loan; if not in 2012, then sometime. 
 An early mortgage payoff can net substantial interest savings compared to making scheduled payments for 15 or 30 years. 
 Paying more quickly reduces your housing cost, freeing up that money, says Ronit Rogoszinski, a wealth adviser at Arch Financial Group in Garden City, N.Y. You'll still be responsible for property taxes, homeowners insurance, and home maintenance and repairs. 
 Some might argue for allocating more cash to investments instead of eliminating low-cost debt, says Alfred McIntosh, principal of McIntosh Capital Advisors. But he encourages homeowners near retirement age to be mortgage-free. 
 To pay off your mortgage early: 
 - Add an extra amount, say $50 to $500, to each monthly payment, Rogoszinski says. Don't sacrifice necessities, such as sustenance or medical care. 
 Some homeowners add enough to their monthly payment to make one extra payment each year. McIntosh explains the math: Divide one payment by 12 or multiply one payment by 10 percent, and add that to the amount each month. Make sure the extra money is applied to principal, not interest or your escrow account. 
 One way to make that extra payment less painful is to make payments every two weeks instead of every month. The result is 26 half-payments instead of 12 full payments. McIntosh says biweekly payments can knock approximately six years off a 30-year term. 
 A gift of money, an inheritance, a bonus or an income tax refund creates another chance to put extra money toward your mortgage. This strategy works best if you don't have other, more costly debt. 
 "You really want to pay off the most expensive debt you have as fast as possible," Rogoszinski says. 
 Examples of higher-cost debt include most private student loans, auto loans, department store cards and revolving credit cards. 
 One approach is to invest the lump sum for a return that's higher than your mortgage rate, then use the principal, plus appreciation, dividends and interest to pay off the mortgage when you retire, McIntosh suggests. 
 Refinancing can help you pay off your mortgage sooner, the idea being that a lower payment frees up money that can be applied to additional principal payments. 
 To maximize the <a href="/topics/Benefit_%28designer%29">benefit</a> of refinancing, shorten the term of your loan. For example, if you've paid off 10 years of a 30-year term, refinance with a 15-year mortgage instead of a new 30-year loan. 
 Selling your house might seem like a dramatic way to get rid of a mortgage, but it's certainly effective, leaving you free to buy a more affordable home for cash or become a renter without any housing debt. 
 Whether downsizing makes sense is largely a matter of your needs and personal lifestyle, yet Rogoszinski suggests it's "definitely something to consider." However, don't try to time the housing market by selling high and buying low. That's a strategy more appropriate for professional real estate investors. 
 Homeowners who don't have spare cash on hand might be tempted to tap a retirement account to pay off a mortgage. This idea has gained purchase in recent months, as legislation pending in Congress would waive the early withdrawal penalty if money removed from a retirement account were used to pay a home loan. 
 McIntosh advises caution. 
 "My instinct is not to look at that very favorably, particularly because of how little retirement savings Americans have already," he says. 
 One exception: If you're in danger of foreclosure due to a temporary financial setback, a retirement account might be a resource of last resort.

Pay off mortgage early to save money

iStock House

Homeowners are well aware of the many home-related tax breaks they can claim each filing season. 
 But there also are a lot of added costs that come with purchasing a home. For buyers unable to make a down payment of at least 20 percent of their home's purchase price, one of those costs is private mortgage insurance, or PMI. A PMI policy is coverage that you, the homebuyer, pay for, but it protects your lender in case you default on the loan. 
 Now, however, some PMI payers can use those insurance payments as a tax deduction when they file their returns. 
 This tax deduction was created as part of the Tax Relief and Health Care Act of 2006 and originally applied to private mortgage insurance policies issued in 2007. 
 But because the housing market was slow to recover, lawmakers have extended this tax break. It now is in effect for premiums paid through 2011. 
 The private mortgage insurance deduction can be taken for policies issued by private insurers as well as insurance provided by the <a href="/topics/Federal_Housing_Administration">Federal Housing Administration</a>, the Department of Veterans Affairs and the Department of Agriculture's Rural Housing Service. 
 If you itemize deductions you will find the private mortgage insurance deduction in the "Interest You Paid" section of Schedule A. It is claimed on line 13. 
 What amount of PMI do you claim? You should find the amount in box 4 of the Form 1098 (or the substitute year-end loan information statement) that your lender sent you. 
 While it's easy to claim the PMI deduction, make sure you meet the requirements. 
 First, note when you paid the mortgage insurance. The deduction is allowed only if you took out the mortgage on which you pay PMI on or after Jan. 1, 2007. No PMI premiums are deductible if they were made in connection with a home loan that was made before that date. 
 Any associated PMI premiums on new mortgages issued through 2011 will qualify for the deduction. 
 If you refinanced your home since Jan. 1, 2007, you also qualify for the PMI deduction on that loan. Be careful how you structure your refi. The mortgage insurance deduction applies to refinances up to the original loan amount, but not to any extra cash you might get with the new home loan. 
 You also might be able to deduct private mortgage insurance payments on a second home loan. As with your primary residence, the loan on the second home must have been issued in 2007 or later to be deductible. 
 The additional property also must be for your personal use as a second or vacation home. If you rent it out, then you could end up paying the PMI without any help from the <a href="/topics/Internal_Revenue_Service">Internal Revenue Service</a>, unless you claim tax breaks on the home as rental property. 
 Finally, while there is no statutory limit on the amount of PMI premiums you can deduct, the amount might be reduced based on your income. The deduction disappears completely for most homeowners whose adjusted gross income is $109,000 or $54,500 for married filing separately taxpayers.

re-taxes

Deducting private mortage insurance

TAXES

Reverse mortgages used to be the last recourse of the little old lady: a way for her to get money for household help and stay in her home until she died. 
 But now, baby boomers are sniffing around these backward loans, looking for a way to pay off other debts and provide bridge funding for the early years of retirement. In a reverse mortgage a lender pays money to a homeowner, but the homeowner has no monthly payments. The loan, plus interest, is repaid when the home is sold. 
 Almost half of the people now considering a reverse mortgage are under the age of 70, and 21 percent are ages 62 to 64, according to a new study by the <a href="/topics/MetLife%2C_Inc.">MetLife</a> Mature Market Institute and the National Council on Aging. The average age of borrowers is 73; in 1990 it was 76, according to the Department of Housing and Urban Development. 
 The minimum age to qualify for a reverse mortgage is 62. 
 Is it smart to use a reverse mortgage? Here are some considerations. 
 It can fill gaps. Ken Weingarten, a financial adviser from Lawrenceville, N.J., had one couple in their 60s take out a reverse mortgage so the 67-year-old husband could defer his Social Security <a href="/topics/Benefit_%28designer%29">benefit</a> for three more years. That three-year delay will increase the husband's permanent Social Security <a href="/topics/Benefit_%28designer%29">benefit</a> by about 8 percent a year for each of the three years he defers, which makes it worthwhile. 
 There's another way for a reverse mortgage to fill gaps. A couple who expects to downsize and live off the proceeds of their home sale in retirement can defer their move for a few years by pulling money from a reverse mortgage and paying it back when they sell the house. 
 It still isn't cheap. Closing costs can approach $20,000 or more on some reverse mortgages. And the interest rates run higher than they do for typical mortgages. 
 Because borrowers make no monthly payments, the balance on these loans actually grows as interest is assessed. 
 These are no-recourse loans. That means that you won't owe the lender more than the sales price of the home, even if the loan eventually outstrips that. That wrinkle could theoretically offer a strategic opportunity for young borrowers, but it would be risky. 
 Couples have to be careful. Sometimes a married couple will remove one partner from the home deed so the other can take out a reverse mortgage. That's not a good idea: If the borrowing spouse dies, the remaining spouse may be stuck with a balance due and no affordable way to repay it. 
 There goes the backup plan. Traditionally, reverse mortgages were viewed as last-ditch emergency funds. "People need to understand that if they tap their home equity at a young age, they may not have any left in 10 or 20 years, when they are facing a different kind of financial emergency," says Lori Trawinski, a reverse mortgage expert with <a href="/topics/AARP">AARP</a>.

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Your finances: How useful is a reverse mortgage?

bzyfin25  cropped 3.25.12

No one wants to walk away from a home. 
 But they've become an increasingly bad investment for millions of Americans whose homes are worth less than they owe on their mortgage -- a lot less in many instances. 
 And no wonder. 
 Property values have fallen by more than one-third since 2006, wiping out about half of the $14 trillion in equity we had in our homes. 
 While many experts expected home prices to stabilize last year, they did not. They're continuing to fall in 18 of the 20 cities in the closely watched S&amp;P/Case-Shiller index. 
 Tough choices must be made. 
 Does it make sense to keep pouring money into an asset in which you have no equity and that has little or no chance of generating a positive return for five years? Or 10 years? Or perhaps ever? 
 According to a study by the <a href="/topics/University_of_Chicago">University of Chicago</a>, more than one-third of all foreclosures are now the result of "strategic defaults," where homeowners decide to walk away even if they can afford to keep making the payments. 
 Here are seven reasons to consider a strategic default. 
 The more reasons that apply to you, the stronger the case for walking away from your home and rebuilding your life elsewhere. 
 Reason 1. It will be years before you can expect to have any equity in your home. 
 Equity is the difference between what you owe on your mortgage -- or mortgages, if you have more than one -- and how much your house is worth. 
 At one time, this was a great source of paper wealth for Americans. 
 But property values have fallen so much since the Great Recession that about 11 million borrowers, or one in five homeowners with a mortgage, now owe more than their homes are worth. 
 These underwater homeowners are the only ones that should be considering a strategic default. 
 If you have any equity in your home, there are better solutions than walking away. 
 But the further underwater you are on your loan, the stronger the case for a strategic default. 
 Jon Maddux, chief executive and founder of Youwalkaway.com, a company that helps with strategic defaults, says that becomes an option when you owe at least 15% more than your home is worth. 
 Reason 2. You're very pessimistic about what will happen to home prices in your area over the next five to 10 years. 
 No one can predict what will happen to home prices over the next few years, much less the next decade. 
 But many underwater homeowners will rise back to the surface more quickly than they think once property values bottom out. 
 In many cases, the decision to walk or wait depends on what you think will happen to the price of your home over the next decade. 
 Let's say you owe about 20% more than your home is worth. 
 Even if its value stagnates between now and 2020, just making your mortgage payments will reduce your balance by enough to reach the break-even point by then. 
 If you're optimistic enough to include even a little appreciation in that calculation, say 2% or 3% a year, you can regain positive equity in only three or four years. 
 This home equity calculator can help you predict how long it might take for your home to become a valuable asset again. 
 Reason 3. You can't lower the monthly payments. 
 It's easier to stick it out if you have a cheap mortgage with low payments that consume a relatively small portion of your income. If that's what you have, good for you. 
 Unfortunately, many underwater homeowners are stuck in expensive loans that charge 5 percent or more because they can't refinance to take advantage of this winter's record-low interest rates. 
 That's because banks and mortgage companies routinely require borrowers to have at least 20 percent equity to qualify for a new loan. 
 The federal government has stepped in and is now offering underwater homeowners new low-cost loans through the Home Affordable Refinance Program and <a href="/topics/Federal_Housing_Administration">Federal Housing Administration</a>'s refinancing programs. 
 We like these programs, but whether they will work is still up in the air. The federal government's previous attempts to push banks to help homeowners refinance have largely failed. 
 If your bank will not work with you on either a short sale or a restructuring of the mortgage that will make it an affordable place to live compared to what you'd spend on a rental in your area, and you do not qualify for a refinancing program, then it's time to consider walking away. 
 Reason 4. You're facing major repairs on the house. 
 Monthly payments are just one expense involved in owning a home. 
 Routine maintenance also drains money that you could be putting into other types of savings, such as retirement funds. 
 Springing for big expenses such as a new roof, for example, is like doubling down on your bet that you can wait out the downturn and <a href="/topics/Benefit_%28designer%29">benefit</a> from positive equity some day. 
 Reason 5. You're prepared to deal with having your credit trashed for a few years. 
 According to a study conducted by <a href="/topics/FICO">Fair Isaac</a> Corp., the company that calculates the widely used <a href="/topics/FICO">FICO score</a>, expect your credit score to drop anywhere from 85 to 160 points if you walk away. 
 That's enough to drop most <a href="/topics/FICO">FICO scores</a> into the low 600s, which will make it hard to borrow money for almost anything, such as a car, or open a new credit card, and anyone who is willing to finance you will demand sky-high interest rates. 
 It could even make it harder to get a new job because more employers are checking credit reports as part of the hiring process and a foreclosure is the kind of black mark they're looking for. 
 According to <a href="/topics/FICO">Fair Isaac</a>, it will take two years of on-time payments and keeping other accounts in good standing to start rebuilding your credit to your pre-foreclosure levels, and it will take from three to seven years to make a full recovery (three if your pre-foreclosure score was 680, seven if your previous score was in the 720 to 780 range). 
 Reason 6. Your lender won't go for a short sale. 
 Never walk away without checking with your lender to see if it would be willing to do a short sale. This is where you sell the house for whatever you can and your lender forgives the remaining balance on your loan. 
 The <a href="/topics/Benefit_%28designer%29">benefit</a> over foreclosure is that you leave debt-free, the bank can't come after you for the balance of the loan and you do less damage to your credit. 
 For a short sale with no balance owed, you can expect your <a href="/topics/FICO">FICO score</a> to drop anywhere from 70 to 125 points, though it will still take three to seven years to return to your pre-short sale score. 
 Short sales are more likely to be offered to someone who is facing a crisis that makes the mortgage harder to pay, like illness, <a href="/topics/Unemployment">unemployment</a> or a divorce, than to someone who wants to leave a bad investment behind. 
 But you still need to try. Here's more info on how to do a short sale. 
 Reason 7. Your lender is unlikely to pursue a default judgment against you. 
 In some states, lenders are allowed to sue defaulting homeowners to recoup their losses. 
 Never walk away without consulting with an experienced real estate attorney who knows the local laws and how your lender has acted in the past. 
 Some banks aren't bothering with pursuing default judgments -- they just have too many foreclosures on the books or realize that it's not within their financial interest to go after money from people who most likely don't have it. 
 But you need to know the risk. 
 The last thing you want, four or five years down the road, is to have your former lender haul you into court demanding hundreds of thousands of dollars. 
 You can follow Interest.com on Twitter and Facebook.

7 things consider before a strategic mortgage default

A friend recently asked if it was possible to pay her mortgage with a credit card to earn rewards. 
 I admire her efforts to make the most of her spending, but there's just no way for this to work for most people. 
 You can't pay your mortgage directly with a credit card because lenders won't allow it. 
 And while there is a roundabout way to pay through one third-party online service, transaction fees eat into any rewards most homeowners might earn. 
 "The issue lenders have with paying the mortgage with a credit card is that it is setting the borrower up to increase debt load and compounding interest," says Chad Jampedro, chief operating officer of Brookfield, Wis.-based GSF Mortgage. 
 Mortgage debt has a structured repayment schedule, but credit card debt does not. 
 And that spells trouble. 
 You could make the minimum payment on the credit card, max it out, then find yourself with no way to pay the mortgage -- or your massive credit card debt. 
 A bad idea all around. 
 Indeed, had my friend asked a few years ago about paying a mortgage via credit card, the answer would have been yes. 
 American Express introduced a program in 2007 that allowed IndyMac and American Home Mortgage Corp. customers to charge their mortgage payments to their Amex cards. 
 These borrowers had to opt into the program at the closing table and pay a $395 enrollment fee. 
 But both lenders were casualties of the housing crisis, and the Amex program appears to have vanished along with them. 
 A third-party service called Cardlt also debuted in 2007 to allow consumers to pay their mortgages with plastic. 
 It charged a fee of 2.49% plus $19.95 per transaction. This service, which would have charged you $44.85 to make a $1,000 mortgage payment, has also disappeared. 
 In today’s market, the only options for paying the mortgage with a credit card are balance transfer checks, cash advances and a third-party payment service called ChargeSmart. 
 Using a balance transfer check to pay your mortgage makes no sense. 
 You don’t earn credit card rewards on balance transfers, and even a low-fee balance transfer will almost always cost you at least 3%. 
 Cash advances are an even worse option because of the high interest rate you’ll pay on these transactions. Also, like balance transfers, cash advances don’t earn rewards. 
 That leaves ChargeSmart, a company that allows you to pay all sorts of bills online -- utilities, auto loans, student loans and mortgages -- with your Visa, <a href="/topics/MasterCard">MasterCard</a> or Discover (but not American Express). 
 In exchange for providing this service, ChargeSmart collects either a flat fee or a flat fee plus a percentage of the transaction. 
 ChargeSmart touts earning credit card rewards as one of the primary benefits of using its service and states that your total payment, including fees, will be eligible to receive rewards just like you do on your retail credit card purchases. 
 ChargeSmart lets you make mortgage payments to dozens of lenders. 
 We looked at what the fee would be for each one for a $1,000 mortgage payment. 
 The fees ranged from $14.95 to $39.95, depending on the mortgage lender. The most common fee was $27.85. 
 With the most common fee on a $1,000 mortgage payment, your credit card would need to give you 3% back on the transaction for you to just barely come out ahead. (Of course, the rewards would be larger with a larger mortgage payment.) 
 A handful of credit cards give you the equivalent of 2% back on this type of transaction, but most rewards cards would only give you 1% back. 
 In the end, most consumers would lose $17.85 by making a mortgage payment through ChargeSmart. 
 That's not very rewarding.

No reward for paying your mortgage with a credit card

here's one big reason to love today's mortgage rates. 
 That's right, one. As in one percentage point. 
 Average 15- and 30-year fixed-rate home loans are about a percentage point cheaper today than they were this time last year. 
 Today's average fixed-rate mortgages cost a bit more than 4%. 
 Last February, 30-year mortgage rates surged above 5% before falling throughout the rest of the year and ending 2011 at record lows. 
 Our most recent mortgage rates survey will show you the average price for home loans this week. 
 Then see how much cheaper financing is in your area by searching our extensive database of the best mortgage rates from hundreds of lenders. 
 Depending on your location and credit score, you may be able to beat the average. 
 In most big cities, lenders are offering financing for as little as 3.625% with no points and application fees of less than $2,000. 
 The principal and interest payments on such a home loan would be $456 a month for every $100,000 borrowed. 
 Use our mortgage calculator to see what your payments would be for any fixed-rate loan. 
 Take a chance on an ARM? 
 If these historically cheap mortgage rates don't impress you, there is a way to pay even less: Take out an adjustable-rate mortgage. 
 The average rate on a 5/1 ARM -- those are home loans where the interest rate is fixed for the first five years and then changes once a year after that -- is about 3%. But you can find adjustable-rate mortgages that charge 2.5% or less. 
 Today's average ARMs will save you more than $60 for every $100,000 borrowed compared with the average fixed-rate home loan. Our adjustable-rate mortgage calculator shows you how much you can save. 
 Of course, that discount is only guaranteed for five years. Your initial savings could quickly vanish if your interest rate increases -- which it probably will, given how low mortgage rates are now. 
 Indeed, an ARM isn't right for everyone. 
 "In today's historically low interest rate environment, if the homeowner expects to remain in their home for more than three to five years, an ARM really makes little sense," says Steven A. Wolf, a certified public accountant and executive director of Capstone Advisory Group in <a href="/topics/Washington%2C_D.C.">Washington, D.C.</a> "An ARM makes sense in situations where individuals expect to be in the location on a short-term or temporary basis." 
 If you plan to move in the next few years, the lower interest rate on a 5- or 7-year ARM could save you thousands of dollars in interest payments. But make sure to get an ARM with a term that's fixed for at least as long as you plan to stay in the home. 
 "The obvious risk is that as the rate adjusts, it can go up to a point where it may become unaffordable if the home buyer decides not to move or cannot move," says Matt Perillie, senior loan office at Campbell Mortgage in West Haven, Conn. 
 Greg Meyer, community relations manager with Meriwest Credit Union in San Jose, Calif., says when adjustable loans reset, they can increase by 2% in a year. 
 "That would cause the payment to increase pretty dramatically. I think this is a good argument for a fixed-rate loan," he says. 
 If your ARM increased from 2.88% to 4.88% -- and then to 6.88% -- your monthly principal and interest payment would jump from $415 to $530 to $657 for every $100,000 borrowed. 
 Could you still comfortably afford the payments if this happened? 
 If not, an ARM is a risk you shouldn’t take, especially when you can score mortgage rates for 4% or less that last for the life of your mortgage.

Why you should love the  record-low mortgage rates

If the last few years have taught us anything, it's this: Never buy more house than you can afford. 
 In many instances, that might be less than you've been led to believe, particularly by people whose commissions or fees are based on how much they can talk you into spending. 
 That's nothing against salespeople -- they're only doing their job. But you wouldn't ask a car salesman how much you should spend on a car (we hope!). 
 Before you even start house hunting, make sure you decide -- with no outside pressure -- the maximum amount you will spend on a house. 
 Too many people spend every dime and take out the biggest loan they can get to buy a house, and in no time start losing sleep wondering if they can make their mortgage payments. 
 Follow these 4 smart moves, however, and you'll have little or no trouble paying for your home. 
 Smart Move 1 Spend 30% or less of your gross (pretax) income on housing costs. 
 Add together monthly income -- before taxes and other deductions -- from your job, your spouse's job and part-time or side businesses if applicable. 
 Multiply that number by 30%. The result is the maximum total amount you should spend on monthly housing costs -- including principal and interest on the mortgage, property taxes, condo or association fees and insurance. 
 For years, the U.S. government has defined an affordable home as one that costs less than 30% of your pretax monthly income. Spending less is even better. 
 Liz Weston, author of The 10 Commandments of Money, recommends keeping your housing costs down to 25% or less of your income. 
 For example, if you make $60,000 a year and have no debts, you can afford to spend about $1,500 a month on principal, interest, taxes and insurance without breaking the 30% rule. To keep housing costs down to 25% of your income, as Weston recommends, you'll have to spend $1,250 or less. 
 Nearly 37% of homeowners with a mortgage -- 19 million people -- now spend more than 30% of their income on housing. 
 That's one crowd you don't want to follow. 
 Smart Move 2 Spend no more than 36% of your income on total monthly debt payments. 
 The more non-mortgage debt you have, the less you can afford to spend on a home. 
 Multiply your income from Smart Move 1 by 36%. 
 Plan to spend no more than that result on your total debt payments -- mortgage payments, auto loans, student loans, credit card bills, child support and loans against your 401(k) plan. 
 For example, if you make $60,000 a year but you spend $300 a month on car payments, $125 on credit card bills and $200 on student loans, the 36% rule would limit your monthly housing costs to $1,175. 
 It's easy to put these rules to work. Just <a href="http://www.interest.com/mortgage/calculators/mortgage-calculator/?pid=i_nws">enter your</a><a href="http://www.interest.com/mortgage/calculators/mortgage-calculator/?pid=i_nws"> income and non-mortgage debt payments into our mortgage calculator</a>, and we'll tell you how big of a loan and monthly payment you can afford. 
 Smart Move 3 Choose wisely if you must tap retirement accounts for a down payment. 
 Take the amount you can safely borrow for a home, add however much you've saved for a down payment and that's how much you can spend on a home. 
 Ideally, the money you use for a down payment should be savings you've specifically set aside for a home. 
 But if a lender demands more up-front cash than you expected, an Individual Retirement Account (IRA) or 401(k) may be the only place you can turn for another $10,000, $20,000 or more. 
 If that's the case, tap a Roth IRA or Roth 401(k) plan first. 
 Since contributions to Roth plans are fully taxed before they're made, you can withdraw however much you've put into those accounts at any time without incurring any penalties or additional taxes. 
 If you've held a Roth IRA for at least five years, you can withdraw an additional $10,000 in earnings without paying any penalties or taxes to buy or renovate a first home. 
 The next place you should turn is a traditional IRA, which will allow you to withdraw up to $10,000 for the purchase of a first home without penalty. 
 If you and your spouse each have a traditional IRA, then you can take $10,000 or a total of $20,000 from your two accounts penalty-free. 
 But since contributions to traditional retirement accounts such as this are tax-deductible, you'll have to pay income tax on withdrawals that exceed those limits. 
 Any withdrawals above the limits are subject to income tax and a 10% penalty until you reach 59½ years old. 
 Your employer's traditional 401(k) plan is the last place you should turn for a down payment. 
 It has no special provisions for down payments, and any "hardship withdrawals" are fully taxed and incur a 10% penalty until you turn 59½. 
 The better option is to take out a loan against your 401(k) account. 
 You can usually borrow up to $50,000 or half the value of the account, whichever is less, and take up to five years to pay it back. 
 The interest you're charged, which is generally a couple of percentage points above the prime rate, goes into your retirement account and the monthly payments are deducted from your paycheck. 
 But now you're talking about a new monthly expense that will reduce the amount you can afford to borrow for a home. 
 If this must be a part of your plan, go back to Smart Move 2 and recalculate. 
 Smart Move 4 Move in with a reasonable rainy day fund. 
 When anything goes wrong for people who live paycheck to paycheck, they have nowhere to turn. 
 A job loss, emergency home repair, disaster or health problem could easily keep you from being able to pay your mortgage. Record numbers of homeowners have lost their homes under such circumstances. 
 You can increase your financial security by keeping three- to six-months' income in an easily accessible savings account or other emergency fund. 
 You should also have enough cash on hand to cover home repairs, expected and unexpected. If you have to call a plumber on the weekend, for example, count on spending at least $200. 
 Weston recommends budgeting 1% to 3% of the cost of your home to annual repairs and maintenance. 
 You also need a larger emergency fund if you've chosen homeowners insurance with a higher-than-average deductible. 
 Although higher deductibles can lower your premiums, you must be prepared to cover more out-of-pocket expenses when disaster strikes.

How much can you really afford to spend on a house?

With 2012 ahead and four years since the housing collapse helped push the nation into a severe <a href="/topics/Economic_Recession">recession</a>, it might be time to sort out the&nbsp; lessons from the crisis. Here are changes and trends that will -- real estate experts hope -- revive the housing market and everyone's financial future. 
 1. Buying what we can afford In the go-go years from 2003 to 2008, home buyers typically purchased homes at 20 percent to 30 percent beyond their budget because money was so easy to secure from banks. They also counted on promotions and bonuses, and the belief that their home's value would continuously rise. Now, we know better. It's become more <a href="/topics/Common_%28musician%29">common</a> for buyers to tell their agents how little (rather than how much) they want to spend, even if they can qualify for a bigger mortgage. "They don't want a McMansion anymore -- they want what they can afford," says Pearl Kamer, chief economist for the <a href="/topics/Long_Island%2C_NY">Long Island</a> Association business group. Because qualifying for a mortgage is so much harder today, "in the short run, this is depressing home sales, but in the long run it will create a more stable housing market," Kamer says. 
 Real estate professionals are, perhaps, more sharply aware than anyone of the impact of the housing crisis and <a href="/topics/Economic_Recession">recession</a>. "In 25 years, I've seen the whole gamut: People have gone from being flamboyant about money to being cautious," says Nikki Sturges of Daniel Gale Sotheby's International Realty in Huntington. She notes that not only are people buying smaller homes, but they also want to be clear about heating and electric costs and to be sure they'll have reserves for emergency repairs for refrigerators, ovens and washing machines. 
 2. Creating stronger financial habits The savings rate is the highest it has been since December 1993. People are requesting credit reports and trying to polish up their blemished credit scores. "Homeowners realize they need strong financial habits, not just to qualify for a mortgage, but to survive in a down economy," says Richard Guardino, executive dean of the Wilbur F. <a href="/topics/Breslin_Center">Breslin Center</a> for Real Estate Studies at <a href="/topics/Hofstra_University">Hofstra University</a>. 
 To make sure that people don't borrow beyond their means, most financial institutions have gone back to traditional underwriting standards of lending at 70 percent to 75 percent of loan-to-value ratio, says Michael Vittorio, president and chief executive of First National Bank of <a href="/topics/Long_Island%2C_NY">Long Island</a>. Generally, a <a href="/topics/FICO">FICO score</a> above 680 is necessary, as well as income verification, like tax returns for the past two years, he says. "And you often have to put skin in the game -- come up with more cash to assure the bank that you won't walk away from the loan and hand them back the keys," he says. 
 Vittorio says he is concerned that some banks have gone back to being too liberal in lending, and have a very short term memory of the crisis. But many also agree that the new underwriting standards are a double-edge sword. While they are making buyers more financially responsible so that they can't extend beyond their means, "lenders have become so risk averse that they are paranoid and disqualifying potentially good borrowers," says Ehsan Nikbaht, professor of finance at the Zarb School of Business at <a href="/topics/Hofstra_University">Hofstra University</a>. 
 3. We are more educated and proactive Another lesson is that people finally understand what bought many homeowners to their knees: They got mortgages or refinanced with adjustable rates, and when those rates readjusted -- and went through the roof -- they were in trouble. Buyers want to lock in interest rates now so that there's no question what it will cost them in three years, says Jeffrey Forchelli, a real estate attorney and managing partner at Forchelli, Curto, and Deegan in <a href="/topics/Uniondale%2C_NY">Uniondale</a>. People are afraid of losing their jobs or the ability to get another job, which could mean not being able to afford a mortgage, or if they don't get anticipated raises or bonuses they won't be able to afford increases in an adjustable rate. "They realize that being foreclosed and the misery of ruining their credit is not worth a little bit of a nicer house," he says. 
 Buyers are reading the fine print and scrutinizing their mortgages, appraisals and refinances like never before. "When a client comes in, they seem to have already familiarized themselves with closing costs, points, title charges and appraisals," says Peter Levy, a real estate attorney in <a href="/topics/Jericho%2C_NY">Jericho</a> and past president of the <a href="/topics/Nassau_County%2C_NY">Nassau</a> County Bar Association. They are also more likely to ask, "What will happen to my mortgage obligation if I lose my job in three years or if I get sick?" 
 Levy warns that they'll still be saddled with the mortgage, and advises clients to have the proper insurance coverage for life, health and disability in place. "That's all part of owning a house -- it's not just the monthly mortgage payment," he warns. 
 4. Renting is part of the American dream, too People have come to the realization that everyone doesn't have to own a house -- nor should they want to. Forchelli says that some people may want to be more mobile for job opportunities or free from the financial obligations and other responsibilities that go along with home ownership. "That's nothing to be ashamed of. Renting is a lifestyle choice that we should feel OK about," he says. 
 But the consensus among area real estate and financial experts is that the future of housing on <a href="/topics/Long_Island%2C_NY">Long Island</a> will be tied to the development of affordable rental properties for two key markets: young people looking to build a life on <a href="/topics/Long_Island%2C_NY">Long Island</a>, and empty nesters looking to sell and stay. "Unless that need is met, the long-term economic viability of <a href="/topics/Long_Island%2C_NY">Long Island</a> is suspect," says Michael Watt, president of Long Island Inc., <a href="/topics/Babylon%2C_NY">Babylon</a>- based small business consultants. 
 5. Buying for the long-term There's an old saying that even turkeys fly in hurricanes. The message? When the housing market was booming, there were a lot of builders and buyers that rushed into the real estate market that perhaps shouldn't have, Watt says. They flooded and undermined the whole industry. 
 Watt says he hopes that people will either buy homes to live in as a saving tool or as an investment with the understanding that there's a gamble. He says that today's buyers seem much more committed to their homes, most buying with the expectation that they might need to stay put for at least seven to 10 years before they can break even. "People no longer view a house as a speculative investment with a near-term 'flip' option or ATM to pull out cash equity," Guardino says. 
 6. Financial reform is a silver lining The creation of the Dodd-Frank <a href="/topics/Wall_Street">Wall Street</a> Reform and Consumer Protection Act of 2010 bans many of the practices that created the crisis, says Kathleen Day, a spokeswoman for The Center for Responsible Lending, a <a href="/topics/Washington%2C_D.C.">Washington, D.C.</a>, nonprofit dedicated to eliminating abusive financial practices in banking services. She says that underwriting standards may make it tougher on borrowers, but banks also can't load up mortgages with hidden fees and risks anymore. Among other things, Dodd-Frank created the <a href="/topics/Consumer_Financial_Protection_Bureau">Consumer Financial Protection Bureau</a>, which will oversee and "quickly stamp out the next generation of tricks and traps under the guise of financial innovation," Day says. 
 7. People have more compassion With an unprecedented number of careers derailed and homes lost or threatened, those who've managed to remain relatively unscathed are more grateful than ever before and more painfully aware of the financial circumstances of others. "Record numbers of Long <a href="/topics/New_York_Islanders">Islanders</a> are giving back to the community by volunteering: giving networking advice, providing job leads, teaching computer classes, offering pro-bono legal and financial advice, donating clothing or filling food pantries," says Peggy Jaeger, director of the <a href="/topics/Nassau_County%2C_NY">Nassau</a> County UJA -- Federation of New York's Connect-to-Care Program.

LSMAIN06.WEB

7 lessons from the U.S.  housing crisis

lsmain06.web  cropped 1.5.12

Q: Last summer we refinanced our farm home. Line 103 of the settlement statement indicated that we had settlement charges of about $4,000. A month or so later, we listed the property for sale and it closed at the end of last year. 
 Our question is can we claim the $4,000 on our income tax itemized statement (schedule A) for last year? 
 A: Just about everybody has seen a settlement statement if they have purchased or sold a home during the last thirty years or so. That settlement statement is usually prepared by the closing agent, title company, settlement agent or by the person handling the closing of a residential transaction. 
 The settlement statement goes by the name of HUD-1, closing statement or settlement statement, depending on what state you are in when you close. But the document itself is a standard statement that is the same wherever you go to close on a residential real estate transaction. There might be some exceptions, but most everyone will agree that the form seems quite long and confusing, even after the so called improvements to the form that were in place at the beginning of last year. 
 The amount you referenced from line 103 is the sum of costs from the second page of the settlement statement. You are right to think that you might be able to deduct some of those expenses, but some are definitely not deductible. 
 The second page of the settlement statement will include charges from your lender to give you financing, may include points and fees charged by your lender, fees charged by the closing agent, title company and other parties, may include prepaid interest, as well as fees to record documents and amounts you might need to escrow for real estate <a href="/topics/Income_Taxes">taxes</a> and insurance payments. 
 For practical purposes, you might have already deducted or have the right to deduct some of those fees. If you paid interest at the time of your closing, you might have received a 1099 form from your lender itemizing the interest that was part of that $4,000. You won’t be able to deduct that amount twice. 
 Some of the closing costs from that page of the form are not deductible in any event when you are dealing with a residential transaction. Some of these fees may be related to recording charges, title company fees and the closing fee. If your farm home is handled as a business, you’ll have to talk to your accountant to determine how to handle these expenses. 
 If you paid points to obtain the loan, you would have been entitled to divide the amount you paid by the number of years for your loan and deduct an equal amount each year that you had the loan. But since you have now paid that loan off, you may be entitled to deduct those points on your return for last year. 
 Other costs and expenses may go towards increasing the basis of your home, but not expenses for real estate <a href="/topics/Income_Taxes">taxes</a> and insurance. That is to say, if you spent $3,000 in costs to obtain the loan and the basis on the home was $400,000, your new basis would be $403,000. And when you sell the home you would not owe any tax on the first $403,000 of the sales price. 
 (Keep in mind that current law allows you to exempt the first $250,000 in profit from taxation when you sell your primary residence and you have used that home as your primary residence during the prior two of the last five years. And if you are married, you can keep up to $500,000 in profits tax free if you qualify for the exemption.) 
 For precise information of what you can and can’t deduct, take a look at the booklet put out by the IRS called: Publication 523, “Selling Your Home” and Publication 936, “Home Mortgage Interest Deduction.” You can download these publications at www.IRS.gov.

Which closing costs are tax deductible?

ISTOCK  cropped 3.15.12

When you refinance, you face several different choices that will directly affect how much you pay. There are also several factors over which you have no (or almost no) control that will play directly into the refinancing cost. Here are some facts about refinancing (and financing) mortgages that account for the differences in what people pay: 
-Lowering the interest rate means higher closing costs. If you choose to have a lower interest rate, you can pay "points" (a point is 1 percent of the loan amount) to buy down the interest rate. Points count as part of your closing costs, and, while they're deductible, you have to amortize the cost over the life of the loan when you refinance. If you're buying a home, you can deduct points in the year of purchase. 
-"No Cost" refinancing costs you very little. But you'll get a slightly higher interest rate than what is otherwise being offered to the best customers. 
-Credit history and scores are reflected in price. Today, the best interest rate and lowest closing costs are being offered to those with the highest credit scores (and best credit histories). Lenders will pull credit histories and scores from each of the three credit reporting bureaus, Experian, Equifax, and TransUnion. The middle score is the one that's used to qualify you, and if that middle score isn't above 760 (780 in some cases), you might have higher closing costs. 
-Title insurance costs vary. Title insurance can be the single most expensive line item on the HUD-1 (the government mandated closing statement form used in most residential loan closings), and the cost varies from state to state and even from county to county within some states. Some states have very good title insurance lobbyists, and the costs are higher than in others. 
-Lender costs are a big component of total cost. Sometimes tthe biggest closing costs are processing and underwriting fees, along with those fees charged by the escrow company (title insurance and escrow). 
-Prepaid costs can vary. Depending on the day you close, you'll have to prepay the interest you owe from that day (and including that day) through the end of the month. This gets tacked on to your closing costs. So, if you close on the first of the month, you'll have 30 days of prepaid interest. If you are getting a $420,000 loan, that could be a tidy sum of money. You may also have to prefund your tax and insurance escrow (you'll eventually get a check from your old mortgage company with whatever is left in that escrow account), and that can add to the total closing costs as well. 
Ilyce R. Glink's latest book is "Buy, Close, Move In!" Distrobuted by Tribune Media Services 
Need real estate advice? Send your question to realestate@newsday.com.

What you need to know about refinancing costs

0LB99XLC.JPG

The American dream of owning your own home is still alive on <a href="/topics/Long_Island%2C_NY">Long Island</a>. 
For those venturing into the <a href="/topics/Real_Estate">real estate</a> market for the first time, that big house with the picket fence might have to wait. But thanks to low interest rates and an ample supply of affordable cooperatives and condominiums to choose from, getting your foot in the door might be easier than you think. 
Prices of condos and co-ops can run considerably lower than comparable single-family homes, says Ira Freireich of Best Buyer's Broker Realty in <a href="/topics/Malverne%2C_NY">Malverne</a>. Freireich estimates that condos are priced at about 85 percent to 90 percent and co-ops at 50 to 60 percent of the cost of similarly situated single-family homes. 
In some areas, a buyer can land a studio apartment for as little as $50,000 and start building equity instead of paying rent. 
Barbara Ford of Ford Real Estate in <a href="/topics/Floral_Park%2C_NY">Floral Park</a> says that owning a co-op or condo may be less expensive than renting, depending on your mortgage or loan payment and monthly carrying charges, and applicable tax deductions. 
For example, she says, in <a href="/topics/Floral_Park%2C_NY">Floral Park</a>, one-bedroom apartment rentals run between $1,200 and $1,400. The total cost of typical mortgage and maintenance payments might be about the same, but, Ford says, the "real cost" of owning that unit could be hundreds of dollars less after tax deductions. 
The Mutiple Listing Service of <a href="/topics/Long_Island%2C_NY">Long Island</a>'s latest figures show that in September, the median sales price for residential properties in <a href="/topics/Nassau_County%2C_NY">Nassau</a> County was $423,250, and for <a href="/topics/Suffolk_County%2C_NY">Suffolk</a> it was $340,000. In contrast, the median sales price for condos and town houses was $409,550 for <a href="/topics/Nassau_County%2C_NY">Nassau</a> and $318,500 in <a href="/topics/Suffolk_County%2C_NY">Suffolk</a>, and for co-ops, the median prices were $189,000 in <a href="/topics/Nassau_County%2C_NY">Nassau</a> and $130,000 in <a href="/topics/Suffolk_County%2C_NY">Suffolk</a>. 
Median closing prices were down in every category compared to September 2009. Affordability, as defined by MLSLI's index that factors in median family income and home prices, is also up in every category since last year at this time. 
"Buying a home is a process," Freireich says. "Take the time to investigate and to research and understand what you are purchasing." 
While co-ops won't appreciate as much as single-family homes, they will go up and down with the market, and Freireich feels that prices will not drop over the next five years. 
"The bottom line is that you are buying a place to live in now that will sell later," he says. 
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<h3>Nesconset&nbsp;</h3> 
$339.999 
What:&nbsp;Town house condominium in the Woods at <a href="/topics/Smithtown%2C_NY">Smithtown</a> development 
Where:&nbsp;Jeremy Circle 
Common charges:&nbsp;$350 a month 
Annual taxes:&nbsp;$7,143 
Down payment: &nbsp;No minimum required by the development; down payment determined by lending institution 
The unit:&nbsp;Two bedrooms, two full baths, end unit in the <a href="/topics/Smithtown%2C_NY">Smithtown</a> school district. Amenities include central air-conditioning, skylights, a fireplace, deck, a one-car garage and a private driveway lined in Belgian blocks. The master bedroom has a walk-in cedar closet, and the master bath has a Jacuzzi. The development has a pool, a tennis court and a clubhouse. The home is close to MacArthur Airport and the <a href="/topics/Ronkonkoma%2C_NY">Ronkonkoma</a> <a href="/topics/LIRR">LIRR</a> station. 
Listed with:&nbsp;Michele DeLuca, Leesa Byrnes Realty, 631-589-2000 
<a href="http://newsday.optimumhomes.com/homes/listing/128-2321877/Nesconset-NY-USA/300000-350000-price/128-2321877--80-1079860--2112432-2274334--80-2295419--80-2277548--80-2322948--2112768-2301565-ls/7-t/CodeFeatured,0,,Price_Sales,1-ns">CLICK&nbsp;HERE</a> for more photos and the full listing. 
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<h3><a href="/topics/Lynbrook%2C_NY">Lynbrook</a>&nbsp;</h3> 
$319,000 
What:&nbsp;Co-operative town house 
Where:&nbsp;Atlantic Avenue 
Maintenance charges: $1,164, includes taxes 
Down payment:&nbsp;Development requires a conventional loan, usually with at least 10 percent down 
The unit:&nbsp;Three bedrooms, 2 1/2 baths in the <a href="/topics/Lynbrook%2C_NY">Lynbrook</a> school district. With a private entrance and fenced-in yard, this three-level townhome has the feel of a private house, the listing agent says. Amenities include central air-conditioning, a washer/ dryer, two outdoor and one indoor parking spots, a new eat-in kitchen and an attic. It's within walking distance of the <a href="/topics/Lynbrook%2C_NY">Lynbrook</a> <a href="/topics/LIRR">LIRR</a> station. 
Listed with:&nbsp;Marlene Gross, Edward McNulty Realty Inc., 516-887-3603 
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<h3><a href="/topics/Great_Neck%2C_NY">Great Neck</a>&nbsp;</h3> 
$269,000 
What:&nbsp;Co-operative apartment in the Birchwood Development 
WHhere:&nbsp;Brompton Road 
Maintenance charges: &nbsp;$793 a month, which includes heat, water, taxes, management fee and the interest on the property's underlying mortgage. 
Down payment:&nbsp;20 percent 
The unit:&nbsp;One bedroom, one bathroom with an L-shaped living room that can be converted easily to a second bedroom, the listing agent says. This top- floor apartment in the <a href="/topics/Great_Neck%2C_NY">Great Neck</a> school district has custom closets and a fully renovated kitchen and bath, and is one block from the <a href="/topics/Great_Neck%2C_NY">Great Neck</a> <a href="/topics/LIRR">LIRR</a> station and the nearby library, health clubs and shopping. 
Listed with:&nbsp;Tina Kupferberg, Laffey Fine Homes, The June Shapiro Division, 516-482-1111 
<a href="http://www.mlsli.com/unidetailsredo_test.CFM?MLNum=2287461&amp;typeprop=1&amp;start=3&amp;rpp=10" target="_blank">CLICK&nbsp;HERE</a> for more photos and the full listing. 
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<h3><a href="/topics/Freeport%2C_NY">Freeport</a>&nbsp;</h3> 
$229,000 
What:&nbsp;Condominium in the Main Street Mews lofts development 
Where:&nbsp;South Main Street 
Common charges:&nbsp;$360 a month 
Annual taxes:&nbsp;$5,300 
Down payment:&nbsp;10 percent; owner financing available 
The unit:&nbsp;One bedroom, two baths in the <a href="/topics/Freeport%2C_NY">Freeport</a> School District. This loft-like newly constructed apartment includes 17-foot ceilings, central air-conditioning, a T-1 Internet connection, an intercom and a washer/dryer in the three-story elevator building close to the <a href="/topics/Freeport%2C_NY">Freeport</a> <a href="/topics/LIRR">LIRR</a> station. There's a 1,035-square-foot rooftop deck common area for parties and views of the village. 
Listed with:&nbsp;Stuart <a href="/topics/Bayer">Bayer</a>, Prudential <a href="/topics/Douglas_Elliman">Douglas Elliman</a> Real Estate, 516-621-3555 
<a href="http://newsday.optimumhomes.com/homes/listing/80-2238325/Freeport-NY-USA/225000-250000-price/2112309-2323417--2112347-2321701--2112548-2283925--2112548-2250594--2112522-2320980--2112522-2313213--2112359-2318877--2112636-2312114--1-29534132--2112679-2279061--2112326-2312111--524-2315295--2112476-2199338--178-2336194--80-2238325-ls/18-t/CodeFeatured,0,,Price_Sales,1-ns">CLICK&nbsp;HERE</a> for more photos and the complete listing. 
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<h3><a href="/topics/Middle_Island%2C_NY">Middle Island</a>&nbsp;</h3> 
$215,000 
What:Condominium in the Coventry Manor development 
Where:&nbsp;Crystal Rock Court 
Common charges:&nbsp;$270 a month 
Annual taxes:&nbsp;$4,800 
Down payment:&nbsp;As low as 3.5 percent 
The unit:&nbsp;Two bedrooms, 1½ baths in the <a href="/topics/Longwood%2C_NY">Longwood</a> School District. This home has new ceramic tile and Pergo floors, all new light fixtures, a new washer, a dryer, a den with a brick fireplace and a pull-down storage area. Development amenities include a play- ground, a pool and a tennis court. 
Listed with:&nbsp;Richard Bitzer, Hough &amp; Guidice Realty Associates, 631-345-5600 
<hr> 
<h4>Figuring the down payment&nbsp;</h4> 
So just how much does a first-time buyer need to put down on a condo or co-op? 
Down payments, says Barbara Ford of Ford Real Estate, can vary by community, but start at about 3.5 percent for a condo, she says. For co-ops, the average down payment required is 20 percent, says Ira Freireich of Best Buyer's Broker Realty. "Ten percent is less common, and sometimes no down payment is required," he says. 
If a co-op board asks for less than 20 percent, he says, this may be a sign that the number of owner-occupied units in the cooperative development may be low. Lenders, in turn, could be less inclined to approve a mortgage for the unit. "Know what you are buying into," he says. 
Tina Kupferberg of the June Shapiro Division of Laffey Fine Homes in <a href="/topics/Great_Neck%2C_NY">Great Neck</a> recommends a 20 percent down payment to her clients, even if it's not required ,so that the monthly mortgage amount is lower. Ultimately, she says, "Your mortgage and maintenance fees should never exceed 30 percent of your income." 
For help with that initial down payment, both <a href="/topics/Nassau_County%2C_NY">Nassau</a> and <a href="/topics/Suffolk_County%2C_NY">Suffolk</a> counties offer down payment assistance programs for first-time home buyers who meet certain income requirements. In <a href="/topics/Nassau_County%2C_NY">Nassau</a>, call the <a href="/topics/Long_Island%2C_NY">Long Island</a> Housing Partnership at 516-572-0818; in <a href="/topics/Suffolk_County%2C_NY">Suffolk</a>, call the county's Community Development Agency at 631-853-5705 for more information. 
Educational and counseling opportunities are available to first-time home buyers through the <a href="/topics/Long_Island%2C_NY">Long Island</a> Housing Partnership (lihp.org) and the Community Development Corp. of <a href="/topics/Long_Island%2C_NY">Long Island</a> (cdcli.org). 
<hr> 
<h4>Four things to consider before &nbsp;buying</h4> 
1. FINANCES 
Take stock of your finances. Determine what you can afford, factoring in mortgage and maintenance or association fees. If possible, get preapproved for a loan by your bank. Since approval by a co-op board often takes months, an offer is more likely to be accepted when a shareholder knows you meet the board's income requirements and can obtain a mortgage. 
2. YOUR BROKER 
Find an agent who specializes in co-ops or condos, or someone familiar with the developments in your area. Get referrals or meet brokers at open houses. Your broker should be able to advise you on income and other requirements for the co-op or condo you are interested in and also what to expect in an interview with the board. 
3. THE UNIT 
Decide how much space you need. Will a studio suffice, or will you need more room for the children you plan to have? What are the amenities in the complex? Is there a pool, a clubhouse or exercise room, laundry facilities? Does that matter to you? Is parking included or is a parking space available at an extra charge? What services are included in the carrying charges? 
4. THE RULES 
Before you sign a contract, find out if you are comfortable with the rules of the development. Are they too restrictive, or could you be happy there? Are you able to sublet, are pets allowed, is smoking allowed, are there any age requirements? Read the development's guidelines carefully before making your decision.

Co-ops and condos: More affordable home ownership

More <a href="/topics/Long_Island%2C_NY">Long Island</a>ers faced with mortgages that are more than their homes' worth are turning to an illegal tactic. 
They intentionally default and convince lenders to take less than owed in a "short sale" of the house, then covertly arrange for someone they trust to buy the home back for them at today's lower prices, say attorneys, lenders, <a href="/topics/real_estate">real estate</a> agents and federal officials. Or they wait for foreclosure, then give money to relatives or friends to buy new homes on their behalf. 
It's hard to pull off, hard to catch and risky, but waning home prices have made the combination of "strategic default" and straw purchase tempting. 
Some try because loan modifications, once the big hope of distressed borrowers, have been hard to get. Others want to get even with lenders who they feel unfairly gave them high-cost loans. Or they don't want to pay loans based on inflated, boom-era prices. 
Prearranged deals cheat lenders, industry veterans said, but others call it karma: homeowners using the system, just like lenders did. 
&nbsp; 
Difficult to track 
Lenders, a housing nonprofit, attorneys and <a href="/topics/real_estate">real estate</a> agents in <a href="/topics/Lindenhurst%2C_NY">Lindenhurst</a>, <a href="/topics/Oceanside%2C_NY">Oceanside</a>, <a href="/topics/Bay_Shore%2C_NY">Bay Shore</a> and elsewhere said they know such deals and attempts happen. The U.S. Department of Housing and Urban Development and mortgage giant <a href="/topics/Fannie_Mae">Fannie Mae</a> have new guidelines to foil strategic default schemes. 
At least one <a href="/topics/Long_Island%2C_NY">Long Island</a> lender and several agents say they have noticed an uptick in default-straw-purchase attempts but don't think it's widespread. Because it's illegal, participants don't come forward to talk. 
About one applicant out of the 1,000 applications received each month by Continental Home Loans is caught trying to pull off the scheme, said Mike McHugh, head of the <a href="/topics/Melville%2C_NY">Melville</a>-based lender. In the past, it was one or two per year, he said. 
With fraud, not only the lender is cheated, McHugh said. 
"The bottom line is somebody is being stuck with the loss," he said. "We're all paying for that every day. We're paying for that in the cost of our banking system. We're paying for that in the cost of our loans." 
Steven A. Milner, chief executive of Mortgage Concepts in <a href="/topics/Bohemia%2C_NY">Bohemia</a>, says he believes such maneuvers have increased, and his company has ratcheted up efforts to spot conspirators. "You have to look for a reason not to make a loan," he said. 
In the past year, <a href="/topics/Bay_Shore%2C_NY">Bay Shore</a> <a href="/topics/real_estate">real estate</a> broker Jose Martinez said he's refused to knowingly participate in about 12 deals set up by homeowners. 
"They sit with me and they tell me, 'Look, I'm losing my house. But I got my cousin, who wants to buy it,' " said Martinez, head of Power Team Realty. "I say 'Whoa. Too much information.' I say, 'It's illegal. You cannot do it.' " 
During a drive in <a href="/topics/Bay_Shore%2C_NY">Bay Shore</a>, though, there was no shortage of homes for Martinez to point at - a friend here, a cousin here, a father's grown children, all acting as buyers, he said. 
Martin, who's behind on his mortgage and didn't want his last name used, said he recently asked about eight friends to "buy" his <a href="/topics/Bay_Shore%2C_NY">Bay Shore</a> house. But his friends turned him down, Martin said, so he hired a loan modification firm. 
&nbsp; 
One agent's taleLast summer, <a href="/topics/Oceanside%2C_NY">Oceanside</a> associate broker Patricia Jacobsen visited potential clients in <a href="/topics/Valley_Stream%2C_NY">Valley Stream</a>, only to learn they wanted the home listed briefly, then marked "sold." 
The couple had no problem paying, she said, but the home had lost value. Everything was in the wife's name, Jacobsen said, so the husband, whose last name was different, was to buy the house with help from a friend at a big lender. 
"They were looking to drop like $125,000 off their existing mortgage," said Jacobsen, of Home and Hearth Real Estate. 
When she balked, Jacobsen said, the couple put their lender friend on the phone: "He said, 'You will get your full commission. We have appraisers all lined up to show that the house is not valued at the money.' " 
"I was told this is done . . . on a regular basis . . . He said to me, 'If you are not the person to do this, we'll get somebody who can.' " 
The next week, Jacobsen said, she saw the listing, with another agency, quickly sold. 
At the nonprofit Community Development Corp. of <a href="/topics/Long_Island%2C_NY">Long Island</a> in <a href="/topics/Centereach%2C_NY">Centereach</a>, homeowner services manager Joanie LaFemina said several borrowers told her and the counselors that mortgage brokers, attorneys and agents suggested prearranged sales. 
Some "investors" and foreclosure rescue firms jump on such deals, acting as both <a href="/topics/real_estate">real estate</a> and mortgage brokers so they can keep all fees, she said: "The buyer's already there. They can make quick capital on it." 
Clearly fraud 
Lying on loan papers or deliberately defaulting is fraud, said lenders and federal officials, from prosecutors to HUD officials. When reality differs from what borrowers and sellers say on documents, it can be evidence of fraud, they said. 
Assistant U.S. Attorney Jonathan Green said straw purchases almost always involve fraud. "You can't deceive the bank into believing it's an arm's-length transaction when in fact it's not," said Green, the mortgage fraud task force coordinator at the U.S. attorney's office for the Eastern District, which covers the Island. "When you say that you're the primary resident and you're not, that's a lie." 
&nbsp; 
No questions asked 
Because he knows it is illegal and could endanger his license, Martinez said he has owners sign contract riders acknowledging that selling to a friend or relative "may be considered a fraudulent transaction." 
But his policy is don't ask, don't tell. He said he found out after one closing that a sale of his was a strategic default, and he might unknowingly have been the agent on others: "I don't need to know, and I don't need to ask questions." 
Martinez says he's lived or worked 20-plus years in the <a href="/topics/Bay_Shore%2C_NY">Bay Shore</a> area, where a wave of foreclosures has left little hope - until now. 
With loans they can now pay, he said, working-class owners spruce up homes with new siding, windows and more - face-lifts pulling up property values. 
"They played the housing market and will have more equity in their homes than they ever expected when property values go back up."

BZBAY17

LI home borrowers turning to illegal default schemes

If you let a lien on your home linger, be forewarned: You could face foreclosure, or at the least be delayed from selling or refinancing. Here's what you need to know: 
WHAT EXACTLY IS A LIEN? 
"A lien is a legal recorded claim against your property," says Joseph Laface, chairman of the Real Property Committee of the <a href="/topics/Nassau_County%2C_NY">Nassau</a> County Bar Association. "The claim ties up your property as a way to collect money that you owe." A lien is a red flag that can stop you from selling your home or refinancing without first paying your debt and having the lien removed. 
TYPES OF LIENS 
PROPERTY 
The most common type of lien is the lien on property from a primary mortgage. "Whenever you take out a mortgage to finance a property, the bank automatically has a lien on it," says Laface. In short, if you don't pay your mortgage, the bank will eventually enforce the lien, proceed with foreclosure and seize your property if you don't work out your debt. 
UNIFORM COMMERCIAL CODE 1 LIEN 
It's the standard type of lien placed on co-op owners. Like a home lien, the UCC 1 Lien can lead to foreclosure if you don't pay your mortgage, Laface says. 
HELOC 
Home equity lines of credit and second mortgages also are subject to liens - something Laface says many people don't realize. The same rules apply: If you default, the bank has a right to enforce the lien and foreclose on your home. 
DELINQUENT PROPERTY <a href="/topics/Income_Taxes">TAXES</a> 
are another common reason for a lien. Says Deborah Chadow, a <a href="/topics/Nassau_County%2C_NY">Nassau</a> <a href="/topics/Real_Estate_%28musician%29">real estate</a> attorney: "Homeowners - especially those whose mortgages are paid off - are particularly vulnerable for forgetting or neglecting to pay their <a href="/topics/Real_Estate_%28musician%29">real estate</a> <a href="/topics/Income_Taxes">taxes</a> that are due several times a year." The reason? "For many years, the bank may have been responsible for paying the <a href="/topics/Income_Taxes">taxes</a> because it was required as escrow. But with no monthly mortgage to pay, homeowners can let the taxes slip through the cracks." What happens next? She says your municipality has the right to sell the tax lien to a third party at auction. Then the third party can either enforce the lien or sell it to another person. "First, however," says Chadow, "there would be notifications, and accrued interest and penalties prior to any foreclosure taking place." 
IRS LIENS 
Failed to pay your taxes? The <a href="/topics/Internal_Revenue_Service">Internal Revenue Service</a> can impose a lien on your home for the amount owed, plus interest and penalties. This includes: city, county, federal, estate, income, payroll, sales or school taxes. The IRS can use your home as collateral until you pay your debt. The lien can be paid off at the time of a refinance or upon the sale of your home. 
VENDOR CONTRACT LIENS 
Many homeowners sign agreements with contractors to make payments over time for pricey repairs. Beware. "Unknowingly," warns Laface, "you may also be authorizing your contractor to file a lien on your property if you don't make your payments. Because contractors don't want to wait for their payments from you, they, in turn, sell the lien to a bank that pays them outright." 
MECHANICS LIEN 
Also related to home improvements, a mechanics lien can be leveraged by a contractor - a plumber, gardener or electrician, for example - if you don't pay your bill. "If you think the contractor did a bad job, it's in your best interest to work out an amicable agreement before a lien is put on your property," says Laface. "However, if you do get notices of any actions being taken, take it seriously and don't ignore it. Try to work out a payment plan with the contractor before you end up in court," he says. If not (based on the dollar amount), litigation will be resolved in either Small Claims, District or Supreme Court. Even if your contractor never pursues the lien in court, once a lien is recorded, it can haunt you if you want to sell your home or refinance. 
JUDGMENT LIEN 
If you get sued and you lose the lawsuit, a judgment can be attached to any property you own. Until you satisfy your debt, your home will be tied to the lien. 
CREDIT LIENS 
Your credit card debt can only become a lien if the credit card company goes to court to secure a judgment against you, says Laface. Your best bet is to work out a deal with your credit card company, which often will be willing to negotiate. But what about, say, a husband's business line of credit or loan? "This can only become a lien on your home if you give specific written authorization," says Laface. "For example, if you put your home up as collateral to secure the line of credit or loan, then you could potentially lose your home." Even if you don't default, lines of credit don't have to be renewed and repayment of the used portion will come due - leading many business owners into foreclosure. 
ENVIRONMENTAL CONTROL BOARD VIOLATIONS 
Not cleaning up your <a href="/topics/Garbage_%28band%29">garbage</a> or neglecting to fix a hazard (say, a missing handrail) is another way to get a lien placed on your home. 
TICKETS 
Surprise, outstanding parking and moving violations can land a lien on your home. Although this kind of lien would not likely lead to foreclosure, it can come up on a title search if you want to sell or refinance your property, Chadow says. 
REMOVING LIENS 
Once you pay your debt, it's imperative to receive a "letter of satisfaction" from the bank or person you owed money to. The lien will not be removed from your record until it has been filed and recorded as "satisfied" with the county clerk. Bring your letter of satisfaction with <a href="/topics/The_Section_%28musician%29">the section</a>, block and lot number of your home (found on your most recent tax bill) and make sure your lien is removed. Once that is complete, make sure to send copies as proof to the three major credit reporting agencies. 
PREVENTING LIENS 
The easiest way to prevent a lien on your home is to pay your bills on time. "But if you can't," Chadow says, "especially in this economy, banks and other creditors will be willing to work out debt.'' Don't hesitate to call your bank lender, contractor, credit card company or the IRS and ask for a "workout" before a situation gets out of hand and into the courts.

LSMAINWEB16

Home liens: preventing and removing them

The crippled real estate market should make most everyone's property values take a nose-dive this year. The one silver lining - you might have a shot at lowering your property taxes. 
By now, <a href="/topics/Nassau_County%2C_NY">Nassau</a> County residents should have received a "Tentative Assessment Value" notice in the mail from the county assessor. (<a href="/topics/Suffolk_County%2C_NY">Suffolk</a> residents will receive theirs by May.) Don't trash it: It shows whether the assessor has valued your home at more or less than the last tax year and how much the value has changed. If you think you've been overassessed, you have a right to protest the assessment - which could mean tax dollars in your pocket. 
LI property tax grievance information 
Below are answers to 12 questions commonly asked about filing a grievance. 
1. What is a property tax assessment? Every year the Nassau County Department of Assessment or each individual town assessor's office in Suffolk County determines a value of your property. This serves as the basis for what your property taxes will be in the coming year - in this round, for 2010 and 2011. (The new assessment in Nassau will be based on January 2009 house values and is used to calculate school tax bills issued in October 2010 and general tax bills for January 2011; in Suffolk, the new assessment will reflect property values as of July 1, 2008, for your December 2009 tax bill.) 
You want to make sure that your assessment reflects the fair market value of your house, says John Peguillan, chair of the Assessment Review Commission of Nassau County, an independent organization that hears appeals for reductions in your assessment. 
2. What is fair market value? That's how much the county assessor says your house is worth as of a certain taxable status date. (See No. 9 for deadlines.) 
3. What is the adjusted market value? This is the value of your home that reflects any exemptions and adjustments veterans, senior citizens (65 and older), STAR, persons with disabilities with a limited income or physically disabled as well as adjustments for home improvement and businesses. This adjusted market value is multiplied by the "level of assessment" to help calculate a portion of your property taxes. 
4. What is the level of assessment? This is the percentage of market value at which properties are assessed. (For example, in Nassau for the past five years, the level of assessment has been .25 percent for Class I properties, which include one-, two- and three-family houses and condos of three stories or less.) In Suffolk, the level of assessment varies by town. Last year, the level of assessment in <a href="/topics/Riverhead%2C_NY">Riverhead</a> was 11.09 percent; in <a href="/topics/Huntington%2C_NY">Huntington</a>, it was .75 percent. 
5. How is an assessment calculated? If the fair market value of your house is assessed at $754,800 and the level of assessment is set at .25 percent, your tentative assessed value is equal to $754,800 multiplied by .25 percent, which equals $1,887. This is used to calculate your taxes. 
6. If my assessed value goes down, will I pay less in taxes? "If you think your home is assessed too high, and you successfully prove that the value is less, then your tax bill can go down," says James Donovan, chief executive of Good Grievance, a tax-reduction company in Ronkonoma. Your assessment can't go up; it can only be decreased or remain the same. (But see No. 10 for a caveat.) 
7. How can I learn more about my assessment? In Nassau, the "Tentative 2010/2011 Assessment Roll" is available at the Department of Assessment's fourth floor offices at 240 Old Country Rd. in <a href="/topics/Mineola%2C_NY">Mineola</a>. To review information specific to your property, as well as all others, you can also go to the department's Web site at mynassauproperty.com and follow the link to "Property Search." The department is open from 8 a.m. to 4:45 p.m. Mondays through Fridays if you need help in person. 
Suffolk properties are assessed by each town. For information about your town, go to the Municipal Profiles link at www.orps.state.ny.us (the Office of Real Property Services). Then go to your town assessor's office for details. 
8. I think my assessment is wrong, now what? If you think your assessment is too high, or if you want to challenge your property's tax classification or exemption status, you may file an "Application for Correction of Property Tax Assessment." 
9. What are the deadlines? The grievance period for Nassau is between Jan. 2 and March 2 for the 2010/2011 tax year. To get an application, call the Assessment Review Commission at 516-571-3214 or go to nassaucountyny.gov/arc. 
Each town in Suffolk publishes its Tentative Assessment Roll by May 1. It is then available at the local Town Assessor's office. Residents may start challenging the assessment from May 1 to May 19. On May 19, each town has an assessment hearing. Each appeal is reviewed on a case-by-case basis, and homeowners can attend - only those who appeal will have their assessments reviewed. Keep in mind that in Suffolk the May 19 deadline covers house values as of July 2008. 
10. Should I have my home appraised before I apply? Some tax-grievance professionals suggest not only including house photos, letters or anything else you feel will help your case, but an appraisal. When you file, you must show three comparable sales (or comps) to help determine your property value. "But there are properties selling very low because they are distressed sales [foreclosures, short sales or sales between family members]," says Donovan of Good Grievance, "and those properties can't be used to show that you are overassessed. A licensed appraiser, however, can recognize and eliminate these potential problems before an application is submitted." But beware: An appraisal, which costs about $350, could raise a red flag for changes you may have made to your house that may not be up to code or approved by the town, says Shalom Maidenbaum, founder of Maidenbaum Property Tax Reduction Group, LLC, in <a href="/topics/Cedarhurst%2C_NY">Cedarhurst</a>. This, potentially, could lead to higher taxes, he says. 
11. Can I grieve online? Yes. In Nassau, you can log on to nassaucountyny.gov/arc and click on the AROW link (Assessment Review On the Web) on the left to file your appeal online. According to the Assessment Review Commission, this is the quickest way to appeal. Have on hand your section, block and lot number, which can be found on your tax bill. If you don't know these, you can enter your parcel or address. There is no fee to file online or by mail. 
In Suffolk, the process is more complicated, says Donovan, because there is no online access to property information and because assessing is done separately by each town. The best way to get the process started is to call your local town assessor's office or go to www.orps.state.ny.us.com. 
12. Can I hire someone to file a grievance for me? You don't have to. "It is by no means necessary to have a tax- reduction company file your grievance for you," says Jeanne Nielsen, chair of the Board of Assessors for <a href="/topics/East_Hampton%2C_NY">East Hampton</a>. "The statute is written so that homeowners can file on their own. Most board of assessor's offices are willing to go out of their way to help homeowners apply - they'll make it easy to find the comps and help you with the application process." However, she adds, "Many homeowners are not comfortable with the process. They don't want to do the legwork, don't want to be bothered, or don't want to lose time from work if they want to appear before the assessment review board....For these homeowners, a tax-reduction company may be the best way to go." 
The first step in the process is not as hard to do by yourself - making the reduction request with the Assessment Review Commission in Nassau or with the Board of Assessment Review in Suffolk. But once that is complete, and if your request has been denied, you still are entitled to file an appeal. The State Supreme Court's filing fee is $30. The standard fee for using a tax-reduction company is 50 percent of the tax savings for that year (but only if they successfully reduce your taxes - if they don't get a reduction, the only charge is the court filing fee). 
"I have two concerns," says Maidenbaum. One, he says, is that people who are denied or have their assessment only partially reduced are "lulled" into believing "that's the end of the road." 
When the assessment becomes final, those who haven't settled or signed away their right to appeal can either wait until next year (you can grieve yearly) or are able to go to the Small Claims Assessment Review, which is the housing division of the Supreme Court. "Now, it's the taxpayer versus the county in Supreme Court," says Maidenbaum, "where both sides present evidence and a final decision is made. Thousands of reductions are made after filing appeals" each year. 
Maidenbaum says home assessments on <a href="/topics/Long_Island%2C_NY">Long Island</a> have been reduced aggressively by the Nassau and Suffolk assessor's offices to reflect the market crisis. But his second concern is about the "level of assessment," which he warns is not accurate. 
"Level of assessment is tricky and key to lowering your taxes. I'm concerned that people will look at their adjusted market value and think, 'Oh good, I'm underassessed.' The question should be, 'Am I underassessed enough in comparison to all my neighbors?' And, if the level of assessment was proved to be less, it could lower my taxes," he says. 
&nbsp;

ny-hocov6015412jan30-copy

Real estate crisis may lower your property tax bill

If you are contemplating a divorce, you should know that your home's value could affect your finances for years to come. Before setting foot in a lawyer's office, read about the five most common scenarios that divorcing couples now find themselves in when they can't sell their house - or don't want to - right away. 
Scenario 1 
LIVE AN UPSTAIRS/ DOWNSTAIRS LIFE 
How it works "I call this 'The War of the Roses' option," says Jacqueline Harounian, a matrimonial law attorney at Wisselman, Harounian &amp; Associates in <a href="/topics/Great_Neck">Great Neck</a>, referring to the 1989 movie starring <a href="/topics/Michael_Douglas">Michael Douglas</a> and <a href="/topics/Kathleen_Turner">Kathleen Turner</a>. 
In this scenario, the husband and wife agree to live together either before, during or after the divorce while the house is for sale. "Someone usually lives in a spare bedroom, the basement or on the couch," Harounian says. 
Advice To limit battles, Harounian suggests negotiating a legal agreement on issues such as kitchen use, picking up the kids and grocery shopping. Work out arrangements for home repairs and monthly bills, she adds. Typically, she says, people contribute to household expenses proportionately, based on each spouse's income. If there are children, the parents must negotiate how their expenses will be paid. Child-support payments usually don't begin until parents are living apart. 
Handling the house sale "It's crucial to provide for automatic reductions in the listing price," says Harounian. For example, if a house is worth $600,000, the couple could agree that the listing price will go down $20,000 for every three months the house is not sold. She also advises negotiating on the lowest acceptable selling price, as well as whom the Realtor will be, to avoid arguments later. 
Upside This situation not only gives couples a chance to save money by sharing costs but to see if the housing market improves. It also allows for parents to continue joint care for their children and to ease into living separately. 
Downside "While this option can be a short-term solution for some couples," Harounian cautions, "it's not going to be realistic or safe in cases where there is child abuse, domestic violence, mental illness, drug and alcohol issues, or new paramours." 
The bottom line, says Pia Riverso, a matrimonial law attorney at Rivkind Radler LLC in <a href="/topics/Uniondale">Uniondale</a>, is that some divorcing couples can't afford to move until the house is sold because of <a href="/topics/Unemployment">unemployment</a>, income reduction and the cost of renting. "The 'upstairs/ downstairs' life is one that I increasingly see many of my clients take," says Riverso. "Unfortunately, however, in this housing market, it's a short-term solution that may end up lasting much longer than either side ever imagined - or wanted." 
Scenario 2 
KEEP JOINT OWNERSHIP 
How it works At the height of the housing market, at least one divorcing spouse usually wanted the house sold as soon as possible to make as much a profit as possible, says Riverso. Now divorcing couples say, "Let's hold on to the house and wait out the market," she says. 
This is done, she says, when there is negative equity, which is when the mortgage and home equity loans exceed the value of the house. With negative equity, or an "upside-down mortgage," the homeowner would still have to pay off a portion of the mortgage even after selling the house. 
With joint ownership, the couple gets divorced with only one party residing in the house, usually with the children. The couple agrees to postpone the sale of the house until a mutually agreeable date in the future (when the youngest child goes to college, for instance), or when the house can sell for more than the current mortgage, Riverso says. "Both names, however, remain on the title," she says. 
Handling the house sale "The parties will sometimes agree that once the house is sold, whoever paid the larger share of the expenses to carry the house will receive a larger percentage of the net proceeds," says Riverso. 
Upside Riverso says this is a good option for parties who have the financial ability to wait out the market, as long as they can get along well enough to deal with the issues that arise with owning a property together after a divorce. Other issues that often arise: figuring out who will pay a greater portion of the mortgage, who will be responsible for major and minor repairs, and who will claim the mortgage and tax deductions for the home. 
Downside "Deciding when the right time is to sell the house can be a thorny issue for couples to agree on," says Riverso. "Often, one partner is more anxious to limit his or her losses created by a depressed market and more willing to break the financial and emotional ties. " 
Another downside, warns Riverso, is that joint ownership can affect both partners' credit rating if payments aren't made on time. "A way to minimize this risk," says Riverso, "is to remove one of the parties' names from the mortgage through a refinance - which, in this economy, with lowering interest rates, may be beneficial in itself. I've had many cases where the wife was living in the house, always late with the mortgage payment, and to protect his credit, the husband made a check out to the mortgage company instead of sending his wife maintenance money. The balance, if any, went to the wife. " 
Scenario 3 
BUY ME OUT 
How it works The "buyout" is another possibility to consider: This is when one ex buys out the other ex's interest in the house (either in a lump sum or installment payments); lives in the house; and takes on the loan obligations. "The buyout is usually achieved with a refinance or home- equity loan," says Harounian, "either at the time of the divorce agreement or an agreed-upon future date, such as when the youngest child graduates elementary school. " In cases where the buyout is delayed for several years, the parties continue joint ownership of the house, and, in most cases, both benefit when the value of the house appreciates and is sold, she adds. 
But if a refinance or home equity loan isn't feasible due to the current lending restrictions, the buyout can be accomplished by trading the house for other assets - one spouse keeps the home and, for example, the other keeps the 401(k), stock account, second home or business. "This reduces how much the spouse remaining in the house owes the other," Riverso says. 
Upside This scenario allows one party to take advantage of the reduced equity in the house while saving on the usual expenses of selling a house to a third party (the broker fees and the transfer taxes, for instance), Harounian says. If the buyout is done simultaneously with the divorce, it will almost always be based on its current value. But if the parties agree to defer the buyout, they can have the house reappraised and renegotiate the numbers. "It all depends on how much risk and uncertainty each party wants to take on," says Harounian. 
Downside Both parties remain on the mortgage, which, again, can harm both parties' credit ratings if there is a loan default. "The divorce agreement should have language triggering the sale of the house in the event of a default," says Harounian. 
Getting a couple to agree on a buyout can be tricky. Harounian describes one client who was offered an "excellent" buyout by her husband. But because of the wife's anger, she didn't want her husband to end up with the house. She knew her teenage children would want to spend more time in the house they grew up in than in her small, rented apartment. The negotiations fell apart, and a year later the couple is divorced - but still living in the house. 
Scenario 4 
TAKE IN A BOARDER 
How it works "If it's economically possible, I try as hard as I can to keep a mother in the home with her children," says Robert Mangi, an attorney and chairman of the Matrimonial Law Committee at the <a href="/topics/Nassau_County%2C_NY">Nassau</a> County Bar Association. One way to defray housing costs is to rent out part of the house. Taking in a boarder can bring in $500 to $1,000 or more a month. 
Handling the house sale To keep yourself out of landlord tenant court, make sure you have an agreement that establishes tenancy for a short time. Having a month-to-month agreement, for instance, is important if you want to sell your house. A lease, on the other hand, is usually for a year. 
Upside "Renting space is a way to wait out the market until the house appreciates in value," Mangi says. "Continued home ownership provides tax benefits, and the children have the security of a familiar home and school district. " 
Downside "If you rent to a stranger, you have no way of being sure of their ethics, friends, alcohol use or cleaning habits," Mangi says. "If you want to throw someone out, you could end up with a landlord-tenant dispute. And, disgruntled renters often wreck a place on their way out. " If possible, rent to a relative or a friend, he advises. 
Renting out a portion of a house often requires permits from the town. There also are safety concerns (fire hazards, overcrowding, etc.). And many exes will threaten to reveal an illegal rental to the town after a fight, Mangi adds. 
Scenario 5 
STOP PAYING THE MORTGAGE 
How it works Legal experts agree that foreclosure, like bankruptcy, is a legal option that should be considered as a last resort and only after consultation with a lawyer. "This is an absolute worst-case scenario for divorcing couples who have negative equity in their home or can no longer afford to make payments," says Harounian. In this scenario, the couple stops paying the mortgage and bides time until there is a short sale or a foreclosure. 
Upside Couples often can pay for critical expenses such as food, utilities, medical bills, credit card debt and litigation with the money that normally goes for mortgage and taxes. 
"I had a divorcing couple with a special-needs child who went to a costly private school and needed expensive private therapy," Harounian says. "When the appraisal revealed that the house was worth less than the outstanding mortgage, the parties agreed to not pay the carrying charges on the house, await foreclosure and pay tuition instead. As it turned out, the bank didn't commence foreclosure proceedings, and the couple is trying to work out an arrangement with the bank. " 
Downside "Eventually, if you don't catch up on your mortgage, or modify your loan, you will be evicted," which can take six months or longer, says Nancy Sherman, an attorney in <a href="/topics/Lake_Success%2C_NY">Lake Success</a> specializing in divorce and real estate. "While some people may stop paying their mortgage, they should make sure the homeowner's insurance remains current because the foreclosure process can take a long time. This will protect them in case of a fire, or for liability purposes if someone is injured on their property. " 
If there is an order issued by the court in an ongoing divorce action directing that one party pay the mortgage, failure to comply could lead to imprisonment, a fine or both, she warns. 
And, "for allowing your loan to go into arrears, your credit rating will be affected for seven to 10 years," Sherman says. "This can also interfere with renting an apartment of your choosing in the future, because landlords generally run a credit search."

ny-hocov6057808mar06-copy

Divorce in a tough market

Yes, <a href="/topics/Wall_Street">Wall Street</a> is unpredictable. But now's the time, experts say, to take a deep breath and review the nuts and bolts of your finances to help protect your greatest asset - your home. Here are seven ways. 
1. Maintain your home 
"Even if you don't want to move right now, you should always try to protect your home by maintaining or appreciating its value," says Chari Biton, a sales associate at Coldwell Banker Residential Brokerage's <a href="/topics/Great_Neck%2C_NY">Great Neck</a> office. Biton suggests staying on top of essential repairs, such as roof and gutter maintenance, to avoid costly fixes from leaks, and cleaning and upgrading heat and air-conditioning units. According to Realtor Magazine's 2007 "Cost Versus Value Report," the home-improvement that showed the greatest return at resale is a minor kitchen remodel. Other high-value projects include: siding, a wood deck, and windows - reflecting the importance of curb appeal - and insulation. If you keep up your home, you'll be more likely to be rewarded when you want or need to sell, even in a pinch. 
2. Get mortgage help 
Ask your bank about a loan modification if you're having difficulty making your mortgage payments. "Contact your lender immediately to pursue options before you fall further behind," says Michael Fusco, a spokesman for Chase Bank. To be considered for a loan modification, Chase asks borrowers to provide up-to-date information, including their two most recent bank statements, two most recent pay stubs, most recent federal income tax return, and a hardship letter. 
3. Pay attention to the deed 
"If you are in a position to buy a home during this difficult financial time," says Douglas Spector, attorney and partner at Rothkrug Rothkrug &amp; Spector in <a href="/topics/Great_Neck%2C_NY">Great Neck</a>, "discuss with your lawyer about whose name to put the deed under." First, Spector advises business owners to form an entity such as a corporation or a limited liability company (LLC), as opposed to owning the business directly in their name. This protects owners from personal liability. That means judgment creditors of the business can only come after the assets of your business, and not your personal assets - such as your home. "It may also be wise to put your deed under the name of the spouse who is not the owner of the business to further protect your home," says Spector. "And, if you've owned your home for a long time," advises Spector, "it would be a smart time to revisit your deed and reconsider whose name it's under." Why? Over time people's homes tend to appreciate in value, and similarly over time businesses grow and change. While your potential personal liability may have been minimal when you bought your home, your exposure may increase dramatically over time. Another way to protect your home against future judgments is to ask your lawyer about establishing an irrevocable trust - that means it can't be amended, revoked or changed, regardless of any lawsuits that may be brought against you. 
4. Get life insurance 
If the main breadwinner in your family suddenly died, would you want to have the choice to stay in your current home? "I'm a strong advocate for taking out life insurance based on the same formula that the courts would use in a wrongful-death suit," says Allan Mendels, a chartered insurance underwriter and financial consultant of Mendels &amp; Associates in <a href="/topics/Roslyn%2C_NY">Roslyn</a>. "It's called human life value - and estimates your future earning potential based on your age." For example, if you are under 40, you would take out a life insurance policy 20 times your current earnings; age 40-50: 15 times your current earnings; and age 50-60: 10 times your current earnings. And if you are over 60, it would be one to two times your current net worth. "That might sound like a lot," says Mendels, "but if you want to stay in your home and still send your kids to college, it's right on target." Mendels suggests asking your insurance agent to discuss the pros and cons of term life versus permanent life insurance. 
5. Disability and foreclosure 
Did you know that disability causes nearly 50 percent of all mortgage foreclosures? "Unfortunately a lot of people don't think about disability insurance, which can protect your family and your home in the event of a medical illness or accident to the main breadwinner," says Mendels. Consider a policy that pays even if you return to work but lose income because you can't work to full capacity. "Disability insurance is especially relevant to people who are self-employed, in sales, or professionals who could do some but not all their duties after an illness or accident," he adds. The younger you are when you apply for life or disability insurance, the cheaper it usually is. 
6. Personal guarantees can spell trouble 
If you are creditworthy enough to get a business line of credit from a bank, make sure you don't take more than you can handle, warns Spector. "Most of the time, a personal guarantee will have to be signed - which means that your house will be up for grabs if you default on your business loan and you hold title to your home," he explains. And many people don't realize that personal or business lines of credit don't have to be renewed at the expiration of their term, or may under certain circumstances suddenly be frozen by a bank. That means you would have to repay the used amount, and no longer have access to more credit. So, don't use more than you can realistically afford to pay back - otherwise, you could lose your business and/or your home. 
7. Keep a cash reserve 
To keep paying your monthly mortgage in the event of an emergency, Stuart Pastrich, certified financial planner and managing director of the Compass Financial Group in <a href="/topics/Plainview%2C_NY">Plainview</a>, advises families to have a cash cushion of at least three to six months of monthly expenses - in CDs, money markets, and or saving accounts. " However, in today's times," suggests Pastrich, "you should strive to put away - in safe and secure investments - around one to three years' worth of monthly expenses." Why do you need an emergency fund? For starters: <a href="/topics/Unemployment">unemployment</a>, accidents, illness or a major home repair could put you behind on your mortgage very quickly. Studies show that those without emergency savings are more likely to accumulate debt and enter foreclosure.

ny-hocov5934263nov211

Sheltering your home from financial storms

Buyers have made an offer; the sellers have said yes. Sometimes, that's not enough. 
 John and Mayra Sassano of <a href="/topics/North_Massapequa%2C_NY">North Massapequa</a> still remember the "crushing" blow of losing a home they put a bid on nine years ago. 
 "We spent many months looking at houses throughout <a href="/topics/Nassau_County%2C_NY">Nassau</a>," says John Sassano, 42, a software engineer. "Eventually, we saw a house that we loved. We talked with the <a href="/topics/Real_Estate">real estate</a> agent and worked out an offer based on his suggestions. Plus, we let him know that we could definitely go up, if needed, to secure the house. He called us back and said the house was going into contract to someone else. It was not for much more money - certainly well within the range of where we would have gone, probably even less. We were crushed." 
 Getting outbid is one reason <a href="/topics/Real_Estate">real estate</a> deals fall through, but there are myriad others. Following are the top five, according to <a href="/topics/Long_Island%2C_NY">Long Island</a> agents and attorneys, and how you can make sure they don't happen to you. 
 1. Financing 
 Experts say that financing - either the buyer can't get it or had it and lost it - is the primary reason <a href="/topics/Real_Estate_%28musician%29">real estate</a> deals fall through these days. 
 "Really, what this business is all about is structuring the deal," says Bob Moulton, president of <a href="/topics/Long_Island%2C_NY">Long Island</a>-based Americana Mortgage Group, which has offices in <a href="/topics/Manhasset%2C_NY">Manhasset</a> and <a href="/topics/Southampton%2C_NY">Southampton</a>. "Borrowers don't show enough, they're self-employed or have a fluctuating income or one that's commission-driven, and they can't get a loan." 
 Lior Aldad of <a href="/topics/Roslyn%2C_NY">Roslyn</a>, a <a href="/topics/Manhattan">Manhattan</a> real estate attorney, says buyers should ensure their credit is sufficient to satisfy the lending institution's requirements. "Finding out at the last minute that you have failed to qualify for a mortgage is a sure, and embarrassing, way for a real estate deal to fall through," he says. "Seek pre-approval for your loan, and make sure that your property is appraised at the proper price." Your real estate broker should have data on three similar area properties that sold at a similar price, he said. 
 Additionally, attorney Joseph Milizio, managing partner for Capell Vishnick in <a href="/topics/Lake_Success%2C_NY">Lake Success</a>, says many times buyers will get mortgage commitments contingent upon their selling their current residence, and, when they can't sell, the problems begin. "That can put buyers in a difficult situation with the seller, because even if the buyers cannot sell their home, the seller can turn around and say you have a firm commitment and that you are committed to buying my home at this point," he says. 
 Yael Lazar, a <a href="/topics/Garden_City%2C_NY">Garden City</a> real estate attorney, recommends buyers close on their current home before purchasing a new one: "Trying to time everything perfectly very rarely works out and causes additional stress. It may mean finding temporary housing for a few months, but it is definitely less stressful."2 Paperwork 
 2.&nbsp; Paperwork 
 Even simple real estate transactions are much more complex than people realize; contracts include thousands of words in addenda and riders that are not easily translatable. A misunderstanding of the contract, or a deliberate misrepresentation of the property on the seller's behalf, says Aldad, can cause confusion and collapse of the contract. 
 Mary Ann Horne, vice president and sales manager of Daniel Gale <a href="/topics/Sotheby%27s">Sotheby's</a> International Realty's <a href="/topics/Manhasset%2C_NY">Manhasset</a> office, says buyers and sellers should ensure all permit and mortgage payout paperwork is complete and duly recorded. 
 "Many real estate transactions are plagued by home improvements performed without permits or, in the case that a permit was obtained, it was not properly closed out," she says. "Mortgages and home equity loans may also have been satisfied, but if they were not properly recorded by the bank or filed with the county, a transaction will not be able to close. Sellers may want to run a title check on their property before sitting at the closing table." 
 Buyers need to give mortgage advisers complete and correct information, adds Lazar, or risk being prequalified incorrectly. They also should make sure paperwork doesn't languish. Lazar says if a buyer takes too long to return the contracts and sellers are anxious - and there are multiple offers - sometimes the contract that comes back first signed by a potential buyer gets it. "Is this ethical? No," says Lazar, "but sellers are getting burned. Remember, you don't have a legal contract until the seller signs it. The seller is not obligated until he signs the contract." 
 3. Negotiation 
 When buyers and sellers begin to negotiate the sale of a home, the process can be fraught with sticking points on both sides on any number of issues. "Negotiation isn't only about price," says Moulton. "It's about occupancy dates, down payments, financing, whether you're buying a house 'as is' or 'subject to. ' The buyer and seller need to agree to all the ingredients. " 
 Milizio says that, particularly in the current market, buyers and sellers will agree to a price, but the purchaser may decide that he or she wants to hold off in order to see if the price of the home will come down even further. Once sellers negotiate their lowest price with a buyer, and the buyer walks away, the sellers might be very willing to go to the next potential buyer with that price - or with less of a price. 
 "They're usually disappointed that the first deal didn't go through and they're very motivated to sell," he says. "Often sellers become so disenchanted with buyers who keep asking for more and more that they don't want to deal with those buyers. " 
 Indeed, "too much" negotiation, says Lazar, can tick people off, particularly buyers who are asking for a lot of credits or items to be repaired. "If it's a sellers' market, buyers can't ask for too much. Sellers may find buyers difficult and decide to find a less-picky buyer, or vice versa: Buyer finds a different home if seller is being too difficult."4 Home inspection 
 4. Home inspection 
 Structural issues, major insect infestations or mold, lack of permits and other "surprises" can be deal breakers. "In this market, in particular, where real estate prices have fallen, I often see buyers who negotiate the best possible price with the seller and then do the home inspection and find that things will need to be replaced and repaired," says Milizio. "They go back to the seller and say, 'I'll have to put more money into the home and need to reduce the price,' and the seller already reduced the price to what they think is the maximum deduction they can give. And now the purchaser comes back and wants more. That's often a stumbling block. " 
 Hector Gavilla, a licensed broker associate with Prudential <a href="/topics/Douglas_Elliman">Douglas Elliman</a> in <a href="/topics/Melville%2C_NY">Melville</a>, says the key to avoiding this, for sellers, is to have an inspection done on the home before putting the home on the market. "Having an inspection prior to listing helps the seller make a sound decision and gives them much more time to make necessary repairs," he says.5 Unprepared buyers 
 5. Unprepared buyers 
 Buyers may be unrealistic about what they can afford, may not be ready to buy a home, may start having second thoughts, may squabble with their spouses or may not have done enough research to know what they want. 
 "With such an overabundance of inventory in this market, buyers have so much, sometimes too much, to choose from," says Renee Weinberg, a Prudential <a href="/topics/Douglas_Elliman">Douglas Elliman</a> agent located in <a href="/topics/Long_Beach%2C_NY">Long Beach</a>. "As Realtors, we are finding that indecisiveness because of too many options is delaying the entire negotiating process. " 
 Experts agree that a thorough self-analysis - Am I ready to buy a home? How much can I afford monthly? How much space do I need? What areas of town do I like? - can save time and aggravation throughout the process. "Ensure that you do the proper research when purchasing real estate and that your income is substantial enough to cover all aspects of your investment," says Aldad. "Simply put, the best and only way to enter into a real estate contract is to be prepared. This means securing counsel, doing your homework and ensuring all of your finances are in order."

HOCOV

Why deals fall apart

For those who've waited long enough for the housing market to bottom out and pull the trigger to buy, be prepared: Going from contract to closing is taking longer and, in the process, sometimes threatening to kill the deal. 
"The benchmark used to be 45 to 60 days, but sometimes now it can easily take three to four months to close," says Sabrina Teplin, a broker in the <a href="/topics/Cold_Spring_Harbor">Cold Spring Harbor</a> office of <a href="/topics/PRUDENTIAL">Prudential</a> <a href="/topics/Douglas_Elliman">Douglas Elliman</a> Real Estate. 
Some sales are falling apart because consumer confidence is keeping buyers from making offers and going to contract, says Teplin. Buyers know that the contract price - the price the buyer agrees to pay the seller - is often higher than it should be and can fall during the wait to sign on the dotted line. They also know that getting back a deposit isn't so easy once a contract is signed, she says. 
Why is it taking so long? "Banks are scrutinizing engineer reports, appraisals, the buyer's income, money down, credit scores, bank balances, and debt-to-credit ratios to make their final lending decision," says Jeffrey D'Amico, managing attorney at D'Amico &amp; Associates, P.L.L.C., in <a href="/topics/Mineola%2C_NY">Mineola</a>. "I'm also finding that since the economic downturn last fall, many potential deals don't even make it to contract. And, even those deals that do go to contract where the buyer was preapproved by the bank, [it] doesn't guarantee that they'll receive a mortgage." 
Here's what buyers and sellers need to know in this market about the contract price: 
NEGOTIATE, NEGOTIATE, NEGOTIATE! 
Now's the time for buyers to muscle in for the lowest possible contract price, not only because it's a buyer's market but because it's so difficult to get financing, says Jacqueline Harounian, a partner with Wisselman, Harounian &amp; Associates, P.C., in <a href="/topics/Great_Neck">Great Neck</a>. "I advise using any red flags from the engineer's report as leverage to lower the seller's price or to get other seller's concessions," she says. 
Real estate agents should run a preliminary title search well before a client goes to contract to see if the house has any problems, Teplin says. The agent also should look into public records for the certificate of occupancy history, too, she says. 
"I had the experience as a buyer's agent, with a seller who was more than willing to disclose that she and her husband were getting a divorce but did not want to disclose that the house was in pre-foreclosure," says Teplin. Although this information would have been disclosed eventually, by uncovering it early, Teplin's client had more leverage to negotiate before going to contract. "The house was listed high to compensate for the fact that the seller wanted to satisfy a loan that was out of whack with the home's market value," says Teplin. "The information helped my client at the bargaining table." 
Real estate lawyer <a href="/topics/Bill_Wallace">Bill Wallace</a>, of Favata &amp; <a href="/topics/Bill_Wallace">Wallace</a> in <a href="/topics/Garden_City">Garden City</a>, says a title search also may reveal an IRS lien, bank judgments, unfinished permits for bathrooms, decks, basements, pools, dormers and atrium windows. "All this unfinished business can delay the sale, but it can also help to lower the asking price before going to contract," says Wallace. 
SCRUTINIZE APPRAISALS 
Sellers should be proactive about appraisals before going to contract, says Wallace. "Because there is no legal obligation for a bank to redo an appraisal, I recommend that sellers invest in a pre-sale appraisal," he says. 
An appraisal costs about $250 to $350. "It helps the seller be realistic and price his home to sell from the get-go," Wallace says. And, he says, if the bank appraisal comes in low, the seller can arm the <a href="/topics/Real_Estate">real estate</a> agent and the lawyer with information to make a case to the bank. "If your pre-appraisal raises valid points, the bank will be more likely to take another look," he says. 
Sometimes, the pressure on the seller to lower the purchase price can continue even after the contract is signed. How? "An appraisal that comes in too low will most likely be denied by a bank and can trigger a renegotiation," says Harounian. "The seller must acknowledge the real market value or else risk losing the buyer - a situation that would be painful to many sellers in this market." 
Many sellers then agree on a reduced purchase price to get the loan approved and save the deal. 
ABOUT THOSE MORTGAGE CONTINGENCIES 
"Because buyers aren't coming out of the woodworks," says D'Amico, "sellers and their attorneys have to be realistic about contract prices and to be more lenient about accepting a broader range of mortgage contingencies." 
Mortgage contingencies are conditions that, if not met, give the buyer grounds to cancel the contract and have his down payment refunded. "A standard mortgage contingency in a contract states that if the appraisal doesn't support the mortgage, the buyer can get his deposit back," he says. "But a good buyer's attorney will also negotiate for a deposit return if the loan isn't approved due to a border credit score, loss of a job, disability or death." 
No matter how enticing a seller's price may be, "don't be tempted to agree to an unconditional contract," says Harounian. "Unconditional contracts are simply too risky for the buyer, given how hard it is to get a loan." 
For example, clauses in a contract such as "time of the essence," that allow the seller to keep the down payment if the buyer is unable to close by a certain date (usually 45 to 60 days), are no longer prevalent. "And, a buyer's lawyer who allows such a clause to remain in the contract," says Harounian, "could be negligent in protecting his client, akin to malpractice." 
CAN THE BUYER JUST CHANGE HIS MIND? 
If you're nervous and want out because the market has dipped while you wait for financing, that can be a problem. "Unfortunately, there's no mortgage contingency in a contract for cold feet," says D'Amico, "so you may not get back your deposit, depending on the contract terms." 
That's when your lawyer should negotiate for you, he says. He or she should try to interpret the contract's mortgage contingencies to find justifications for threatening a lawsuit for the return of the deposit. Even if the justification is weak, the lawyer might be able to get back 35 percent to 50 percent. 
For example, a lawyer could show that the buyers applied for the mortgage in good faith and in a timely way, and, if they still haven't received a mortgage, they may have the right to back out of the contract and get back their deposit. 
Or, you could sue for the refund of the contract deposit and potentially tie up the seller's property in litigation, he says. If the contract terms won't tie up the property, then D'Amico says, "it becomes an economic decision on the part of the seller. He has to ask himself, 'Does the cost of litigation justify fighting to keep the deposit?' A $15,000 deposit wouldn't be worth the attorney's fees to litigate, but a $75,000 deposit sure would." Is this legal? Yes, D'Amico says, as long as the lawyer is interpreting the contract in good faith - meaning he or she has a legitimate justification for the suit.

ny-lsmain2912792887may27

Contract and bargaining price wars

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More banks are not only helping homeowners who are delinquent on their mortgage payments, but those who may only be at risk for foreclosure because of lost jobs, reduced hours or commissions, divorce, a death in the family or military service. 
With interest rates falling, some homeowners may think it wise to wait before requesting a loan modification to lower their monthly payments. But <a href="/topics/HSBC">HSBC</a> spokeswoman Kate Durham cautions, "It's never appropriate to do nothing. The earlier you take action, the more options you may have." 
Most banks are putting a moratorium on foreclosures - especially during the holiday season - for eligible borrowers seeking to stay in their homes, as long as they are working in good faith with the bank. 
Many lenders also have hired additional loan counselors so that borrowers can work with the same person throughout the process to improve follow-through and success rates. And some banks are going a step further: For instance, Citi's Office of Home ownership Preservation offers round-the-clock access to loan counselors, and Chase has opened 24 new regional counseling centers. 
Here are five ways they and other lenders might be able to help you lower your monthly mortgage payments: 
1. Increase your loan terms 
One of the most common strategies is to extend the terms of the loan (the amortization period) into a 40-year fixed-rate mortgage. "This reduces the homeowner's monthly payments on the one hand, but creates a balloon payment in 30 to 40 years," says Evan Wagner, media spokesman for IndyMac Federal Bank. "But because many homeowners will have refinanced, sold or passed away in that time, this adjustment helps achieve a lower payment at little risk." 
2. Fix those adjustable rates 
"In 70 percent of the loan modification cases we handle, we can reduce the borrower's payment to an affordable level simply by reducing the interest rate," says Wagner of IndyMac. Qualified borrowers are being offered a fixed interest rate as low as 3 percent for five years that gradually adjusts back up to a permanent fixed rate of 6 to 6.50 percent. The goal is to get homeowners' monthly income payments to be between 31 and 38 percent of their gross monthly income. Each bank varies in its debt ratio (the percentage of gross monthly income that goes each month for your housing expenses). Chase and <a href="/topics/Bank_of_America">Bank of America</a> (now servicing Countrywide Financial Corp.) are seeking to modify interest rates on subprime adjustable rate mortgages. They want to lock in the interest rate to what it was originally for the life of the loan. 
3. Ask for 'principal forbearance' 
"Principal forbearance" is a fancy way of saying: Keep your home today, but pay for a portion of it later. Chase is one of many banks that is sending mailings to people with mortgages offering modification, says Michael Fusco, Chase spokesman. Here's how it works: The bank carves off a portion of the money you owe and puts it aside. You continue making payments, now lowered, on the rest of the loan. However, when you sell or refinance, the bank adds that portion back onto the total amount you must repay. By then, it is hoped that your home value will have increased. Principal forbearance is one way banks try to help make payments affordable. 
4. Some will reduce principal 
<a href="/topics/Bank_of_America">Bank of America</a> is one of many banks that will consider reducing the principal as a modification. Rick Simon, a <a href="/topics/Bank_of_America">Bank of America</a> media spokesman, says that, in order to be eligible for such a reduction, a homeowner must have received an Option ARMS mortgage and is likely to be delinquent in the future due to an unaffordable rate reset. The loan-to-value ratio at the time of the modification is 75 percent or higher. In some cases, the mortgage interest rate can be reduced to as low as 2.5 percent and the loan will be converted into either a fixed-rate mortgage or a 10-year interest-only loan. 
5. Forgive fees 
Citi spokesman Mark Rodgers says many banks will work with distressed borrowers showing goodwill by trying to work out an affordable monthly payment. The bank will waive certain charges related to loan modification - late fees or bank legal fees, for example, to get the person on track with an affordable monthly payment. 
6. Modify or finance? 
A refinance typically refers to getting a completely different loan with a new lender and paying off your old lender. "Modifications are a better option," says <a href="/topics/Great_Neck">Great Neck</a> attorney Douglas M. Spector, a partner in the firm of Rothkrug Rothkrug &amp; Spector, LLP, whose practice involves <a href="/topics/Real_Estate">real estate</a>. And, he adds, they are more commonly used when borrowers are experiencing a hardship in making payments, have fallen behind and are in danger of losing their homes. "Due to plummeting home values, many borrowers don't have enough equity to qualify for a standard refinance," he says. "Modifications often don't require high credit scores or generate fees, and lower home values can actually be helpful." Spector advises borrowers to retain a lawyer to look at documents before signing anything. But having a lawyer is not required by the bank. 
7. What will banks ask for? 
Be prepared to be grilled about your finances. <a href="/topics/HSBC">HSBC</a> advises homeowners to be prepared and informed before they contact their lender by digging out financial statements such as pay stubs, bank statements, tax returns, and W2s. 
Find your monthly bills. This includes mortgage, heating, electric, telephone and other obligations such as gas, food and day care. 
Work out a reasonable budget. This will help you determine realistic monthly payments to present to your lender. 
Calculate your debt ratio. That's the percentage of your gross monthly income that goes each month for your housing expenses. Every lender has set a figure that is acceptable. Most range from 34 percent to 45 percent. 
8. Writing a hardship letter 
'The key to a successful loan modification is a convincing hardship letter," says Susan Gregory, author of the self-published e-book "The Complete Loan Modification Guide" ($62). "It paints a picture of your family's current financial position and is your best opportunity to explain the circumstances," she says. Below, tips for a successful letter: 
Don't be long-winded. Make it one to two pages. 
Describe the hardship and the circumstances that caused it. 
Explain steps taken to correct situation. 
Provide a plan to get back on track. 
Assure the lender that you are a responsible homeowner who just needs a second chance. 
Provide documentation of medical bills, layoffs, cut hours, divorce/death certificates, alimony payments, etc.

ny-hocov5976214dec26

Five ways banks can help you stop a foreclosure

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Called the Home Affordable Refinance Program, this plan would affect an estimated 4 million to 5 million homeowners having trouble securing refinancing. 
You may qualify if . . . 1. The home is your primary residence. 2. You have a <a href="/topics/Fannie_Mae">Fannie Mae</a>- or <a href="/topics/Freddie_Mac">Freddie Mac</a>-backed loan. 3. You haven't been more than 30 days late on your mortgage payment in the last 12 months. 4. The amount you owe on your first mortgage is about the same - or less - than - the current value of the house. The amount owed cannot exceed 105 percent of the current market value. 5. You have a stable income to support the new mortgage payments. 
Who doesn't qualify? 1. No investor-owned properties. 2. Homeowners who are already delinquent -- but they may be eligible for the Home Affordable Modification program. 
What to do if you qualify 1. Gather information such as your recent pay stubs, income tax return, information about any second mortgage and account information on credit cards, student or car loans or other debts. 
2. Call your mortgage servicer or lender to whom you make your mortgage payments and ask about the Home Affordable Refinance program. The details of the programs were just released, so expect it may take some time before they can begin accepting applications. 
3. Called the Home Affordable Modification Program, this plan would affect 3 million to 4 million homeowners at risk of foreclosure. 
You may qualify if . &nbsp;. &nbsp;. 1. The home is your primary residence. 2. You owe $729,750 or less on your first mortgage. 3. You got the mortgage before Jan. 1. 4. You're having trouble paying because of a significant hike in the payment, a reduction in your income or a financial hardship such as medical bills. 5. The mortgage payment is more than 31 percent of your gross monthly income. 6. Bankrupt homeowners may be considered, borrowers in litigation over a mortgage loan don't waive their rights and any foreclosure process will be suspended while borrowers are considered for this and other alternative foreclosure-prevention options. 
Who doesn't qualify 1. No home mortgages larger than $729,750. 2. No investor-owned, vacant or condemned properties. 3. Loans can be modified under the program only once. 
What to do if you qualify 1. Gather information such as your recent pay stubs, income tax return and assets. Also, you will need information about any second mortgage and account information on credit cards, student or car loans, or other debts. A letter describing why your income went down or expenses went up is also required. 
2. Call your mortgage servicer or lender to whom you make your mortgage payments and ask about the Home Affordable Modification program. The details of the programs were just released, so expect it may take some time before they can begin accepting applications.

ny-txtmort0512515967mar05

Steps to take to refinance your mortgage

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