Number 1 – Start with a Plan

One of the worst feelings in the world is being caught off guard and unprepared. Your plan needs to start with a review of your financial well being. Contact your mortgage planner and have them walk you through credit or income issues. Better credit will mean more options for structuring a mortgage plan for you. Nothing will hinder your financial plan faster than paying too much in interest for your home. If you review your credit months ahead of time, you will be able to fix any issues that may exist.

Number 2 – Keep Your Credit Cards Balances Low

Too often I see people get excited about the possibility of buying a home, so they start to furniture shop as well. Nearly every furniture store offers 0% interest for some amazing time frame, and most of the time they’ll succeed in pulling you right in. Now you have this new debt which can lower your score, or better yet, make it impossible to get a loan. Wait until you have the new home and then add the furniture. Ask your mortgage planner before you make any big purchases. No need to “keep up with the Jones’” as it will cost you in the end. For three months leading up to submitting your home loan application through the time it takes to close on the new loan, keep your credit card balances as close to zero as possible. This will increase your credit score and give you the best shot at the lowest rate available.

Number 3 – Do Not Change Banks

There are always advertisements noting the benefits of switching from one bank to another. Though some of these perks surpass what your current bank is offering, do not move anything until you have closed on your new home loan. If you make changes, the paper trail you will have to gather will make you want to hurt someone. Underwriters, by nature, are looking for something you have done wrong, so keeping all accounts as they are will keep them off your back. If you have no choice but to change banks, keep a copy of every withdrawal and deposit. Try not to make cash deposits that are impossible to track, such as cash gifts from friends or family or cash used to purchase something from you. If you’re pulling money out of one account and placing it into another, be sure to deposit the exact amount withdrawn. You will need to provide copies of everything so try not to create extra work for yourself.

Number 4 – Constant Work Habits

A constant or steady work history is exactly what lenders want to see. If you change your employment while house hunting, make sure you are increasing pay or responsibility and try to stay in the same line of work. Making a change that is not consistent with your current line of work or that doesn’t improve your situation with increased responsibility or pay can make things more difficult in the underwriting stage. Being completely open about any job changes to your Mortgage Planner will be extremely helpful. Having this information upfront will enable both of you to be able to come up with a plan that is fitting to present to the underwriter.

Number 5 – Plan Early

Life is much easier if we slow down and plan. Start with your Mortgage Planner instead of a Real Estate Agent. Agents are great for house finding and working the contracts, but you don’t want to fall in love with a home before your financial house is in order. You owe it to yourself to go slow down in the beginning. Your agent will appreciate you for taking the time to “clean house” before getting them involved. This will help you know exactly what you can afford before your eyes stretch your pocket book. Most of your friends will do it the other way around, kicking themselves through the whole process while getting frustrated with their Realtor and Loan Officer and finding that they envy the ease and rapidity of your home purchasing experience.

NAHB’s Effort on Preserving the Mortgage Interest Deduction

As you have heard, the National Commission on Fiscal Responsibility and Reform has released its final report recommending a number of significant changes to federal spending, entitlements and the tax code. This report will serve as a starting point for congressional discussions on tax reform next year, and therefore, the recommendations it contains should be taken very seriously.

The overall proposal would eliminate nearly every tax break, with the revenue from this being used to lower marginal tax rates and reduce the deficit. However, the plan does recommend retaining a few targeted provisions to promote jobs, home ownership, health care, charity, and savings.

While the lower marginal tax rates may look appealing, the devil is in the details. The proposal shows that taxes would increase across the board for all Americans at all income levels; in fact, the highest percentage increase would fall on those in the lower-income range.

The plan would convert the mortgage interest deduction into a 12% non-refundable tax credit available to all taxpayers, not just those who itemize. The current $1 million mortgage cap would be lowered to $500,000. No deduction/credit would be permitted for second homes, home equity or state and local taxes. Further, the capital gains exclusion on the first $500,000 of gain on a home sale, as well as the Low Income Housing Tax Credit, would be eliminated.

New Website a Key Resource to Engage Consumers and Media
NAHB has launched a new website at www.SaveMyMortgageInterestDeduction.com that provides NAHB members and consumers with up-to-date information on the threat to the mortgage deduction and engages the public in defense of this cornerstone of American housing policy. The site debunks the myths about the deduction and contains fact sheets, frequently asked questions, press releases, media stories, statistics, reports, and more. Most importantly, SaveMyMortgageInterestDeduction.com tells visitors how to stay informed and make sure their opinions are heard on this crucial issue by connecting to NAHB’s Facebook and Twitter social networking communities and our Eye on Housing blog.

I strongly encourage you, your family, friends and business associates to visit the website, join in the discussion on Facebook.com/SaveMyMID and Twitter.com/SaveMyMID, and spread the word about what this proposal would mean to consumers, communities, and the overall housing industry.

Going Forward
We anticipate that debate on this issue will begin in earnest when the new Congress convenes in January, and at that time we will be reaching out to you, our members, for your help in our grassroots efforts to defend the mortgage interest deduction and respond to the other housing-related proposals in this report.

Of course, the impact of the proposals in the commission’s report extends far beyond the mortgage interest deduction and the consumer. Everyone in our industry – remodelers, multifamily builders, large builders, small builders, green builders, our associates, and everyone in between – has a tremendous stake in what Congress decides going forward. While the focus of our new website is on the mortgage interest deduction (a topic that clearly resonates with consumers), rest assured that the thrust of our advocacy agenda in Congress will, and does, encompass the preservation of all of the key housing incentives in our nation’s tax code.

A Final Note
I realize that other coalitions and organizations have contacted you regarding their websites and advocacy efforts related to the mortgage interest deduction. You should know that, since this issue first appeared in the news, NAHB has been highly engaged on Capitol Hill and in the media, and has proactively developed cutting edge research and polling data to ensure that all of our members’ interests are fully represented as the debate unfolds.

Once again, we find our industry in a fight that will require every member of the NAHB federation to unite with a common voice and common purpose. I know I can count on you to stand shoulder-to-shoulder with your fellow NAHB members to stop this attack on the American Dream.

Should you have questions regarding the commission’s report or the above communication, please feel free to send them to publicaffairs@nahb.org and our staff will respond as quickly as possible.

Thank you,
Bob Jones
2010 NAHB Chairman of the Board

While looking for help with your current debt burdens, you will soon discover that there are three main types of debt relief: credit card balance transfers, credit management or counseling agencies, and debt consolidation loans.

Debt relief consolidation is offered by credit card companies via a balance transfer agreement. They will offer a lower rate than what you currently have on any other credit cards if you transfer the balances of those high rate cards to a new account. This looks appealing at first because it shows significant monthly savings; however, those low rates that they dangle in front of you may only be temporary. Be sure to read the fine print. Often called a “teaser rate” or a “promotional rate”, those terms won’t look so good later down the road when you are surprised by the higher rates implemented after the promotion ends.

Another option are the credit management or counseling agencies. They can offer you debt relief consolidation by making alternative arrangements with your creditors to pay off your existing debt. The credit counseling agent will cut a deal with lenders to minimize your monthly payments, minimize your interest rate and often the total amount owed. In this situation you will make one monthly payment to the credit counseling agent who then will pay out the individual payments to each creditor. If you decide that a credit counseling agent is the correct route for you, be aware that most agencies have a fee for their service. Depending on the agency, this fee is paid by either the consumer or the lender the terms are being negotiated with. There are some counseling agents that make their money by threatening your current creditors with your impending bankruptcy. This practice is called a “cram down.” The current creditor gives the agency a new payoff based off of the threat that you will go bankrupt if they do not give you a lower payoff and payment and then the agency adds their fees to this new payoff. Make sure you look into the practices of the counseling agency you choose before you sign the dotted line asking them to represent you.

With a debt consolidation loan, the lender pays off several of your consumer debts and creates a brand new loan for you that will allow for smaller monthly payments than the original monthly payments. Use caution when using a loan as debt relief consolidation, be knowledgeable about the terms of the loan otherwise you may not be getting the type of help that you seek. Many lenders will mainly focus on the monthly payment amount and not the total picture of the payback balance. If they are offering a lower payment, make sure the new loan program is appropriate for you and then focus on the interest rate. If you focus on the interest rate first you can easily go into the wrong program. This lower payment is achieved by drawing out the length of pay back; if you work with a mortgage planner, you will be able shorten the life of the outstanding debt in most case quite significantly.

Though no one thrills at finding themselves in a financially difficult situation, don’t let your debt concerns interfere with your emotional or physical health. Save yourself weeks or months of stress and search for the right debt relief consolidation for your situation by using one of these three common methods and find the relief that you deserve.

That being said, demand for a home can drive the price up, and when do most people move? During the late spring and the summer months you will have greater competition for homes on the market.

One of the biggest contributions to the best time to buy a new home is what the interest rates are at the time you need to buy. When monthly payments are less, sometimes drastically less, many additional buyers enter the market in search of a new home.

There are economic situations overall that gives an idea of when is the best time to buy. Inflation and cost of living will affect interest rates, as well as the direction of other buyers. It is wise to buy a house as inflation is starting to happen, or when inflation is low, if possible. Right now many people are too afraid to commit to a home purchase due to financial worries, like potential for a loss of employment or unsure if house prices will go down further. On the other hand, if inflation is starting to top out or hitting all time highs, it is better to wait before you buy.

Another major indicator is employment; you must work with individuals that understand the local employment markets. Employment is very much specific to the area you will be looking to buy in. While national employment numbers will affect the interest rates, the local employment situation will affect the price of homes. Do you want to buy when the employment number is reporting good news or bad news? Usually, you will want to buy when the employment data that is coming out is leaning more towards a stabilization period after a big direction to the negative. Also, if unemployment is still rising you should hold off for awhile yet; but if it as stabilized and interest rates are steady you need to look to pull the trigger.

You hear this all the time; it is a buyer’s or seller’s market, what does that mean? A real estate agent will be knowledgeable on what the market is like in the location you will be looking to buy in. A seller’s market means that homes are selling very quickly because the demand for real estate is high; usually the seller receives multiple offers on their home above asking price. This transfers the power to the seller, which is usually not a good time to buy. Conversely, in a buyer’s market homes for sale sit on the market longer. As the buyer you have the upper hand since you theoretically have more homes to choose from and can potentially negotiate a lower price. If a bank is involved in the process as part of a short sale or foreclosure purchase, the price can be negotiated in either a buyer’s or seller’s market. When shopping for a home, it is better to wait for a buyer’s market if possible, although the “if possible” is the hard part. Large buyer’s markets only come around every so often, and it is usually after a large down-turn in the economy. If you are a buyer and a seller at the same time, remember you will not be able to get max dollar for your sale and low ball the home you are looking to buy. Meaning if you are in a buyer’s market and rates are low, it makes more sense to discount your existing home and buy the new one, rather than keep the asking price higher than you will ever get for it.

Buying a foreclosure can be a great way to save money, if you are willing to wait to find one that fits your needs. Currently, there are many foreclosures on the market so it leads me to the conclusion that there will be one out there for you. This is not a process to use any random realtor for though (make sure you are doing some research on who is good in your area), but with some leg work and planning, it is a great way to get a good deal.

Seasons can also determine how many homes for sale are on the market. Many people like to sell their home during the spring, when the flowers are starting to pop up again and the weather becomes warmer. Moving during the spring time is much easier than dealing with winter’s unpleasant elements. Also, many people like to plan their move with spring vacations or the end of their children’s school year. Looking at homes for sale in the spring means there will be more to choose from; however, it also might mean your real estate agent will be busier. Moving companies are also aware that demand during the spring months is the highest, so they will charge more. Contrarily, most people prefer not to move during the holidays, so there will be fewer homes on the market. There are also less people looking to buy, so a buyer might find a good deal if a seller is motivated to sell.

Convenience is another important factor in determining the right time to purchase a home. As a buyer recognize that families with children like to buy near the end of the school year or during the summer months to avoid changing school districts in the middle of the school year, which is usually difficult for kids. If a new job is causing the move, sometimes it is inevitable. If you are looking to sell your house as well as buy another you might need to make the sale contingent on selling your home, unless you can afford to pay two mortgage payments.

Knowing the best time to buy will mean getting the most out of your investment and removing hassles from the process. Naturally, there are forces that mean moving is inevitable. A real estate agent can help prepare and inform you of when the best time to buy is that also fits into the your lifestyle and financial needs. Remember as a buyer you do not pay a realtor for their service out of your pocket, so do not hesitate to ask for their help.

Three credit bureaus are monitoring your every move, and delivering what can best be described as a report card of how you handle your finances as an adult. Of course, we’re talking about credit scores…that little 3-digit number that many don’t think about, but can have a profound affect on your disposable income.

Your credit scores affect everything in your life. Not only your interest rates, but where you live, how much you pay for insurance, and even whether you get that great job or promotion. It takes years to build great credit, and literally days to destroy it. But that’s not the problem.

70% of all Credit Reports Contain Errors

That’s the problem. Why would companies whose sole function is to monitor and report credit ratings be so lackadaisical with their reporting? Because they make more money that way.

Credit Bureaus Profit from Errors

Imagine this. You take pretty good care of your credit, you pay your bills on time and have a respectable 660 credit score; which would probably be a 720 if your name wasn’t misspelled twice and your bank hadn’t erroneously reported that late payment on your credit card. Still, 660 is pretty good, so you don’t say anything.

Now it’s time to buy a car. You head down to the local dealership and pick out a beauty, then head off to get financing. The car dealer looks at your credit, and pays the credit bureaus for doing so, then sends your file to 5 different lenders to secure financing. No big deal, it doesn’t effect your credit score because it’s a single transaction.

However, each of those lenders also orders your credit report and pay the credit bureaus as well. So in this single transaction, the credit bureaus received payment for your 660 credit score 6 times. What you didn’t realize is that if your credit score had been 720, as it should have been, the car dealer would have had automatic financing for you at a variety of lenders without having to run any additional credit reports.

That’s Why They Make Mistakes

If you could make a simple clerical error and boost your income 500%, would you? Don’t lie. The credit bureaus feel the same way, it’s a pretty good deal if you can get it. That’s why they make it so hard to correct errors on your credit report, and they force most people to give up because it’s too time consuming or they don’t understand the process.

That’s Why We’re Here

We’ve partnered with our friends over at Credit Rating University to provide some solutions. When you are looking to repair your credit rating, you have two main options; do it yourself or hire a professional. Let’s see which is best for you…click here to begin!

In the money game, you want to build excitement and momentum through a series of small victories; this happens by paying off the smallest debt first and then applying the payment savings to the next smallest debt.  Now many will say in the game another strategy is to pay off the highest interest rate first, I have run the numbers on hundreds of cases and the debt free moment is almost the same in either case.  Sadly, there is one thing that will happen if you tackle the higher interest rate first, most often you will quit playing the game.  If you do not see your debt load decreasing you will not stay excited and focused.  Once the game is started and the ball is rolling the force becomes very powerful against the debt and builds future wealth.

Now some people are discouraged right now because they are upside down in their homes, let me show you how it still works for people who are upside down.  The mortgage shown in the illustration below is for a home worth $165,000, but has an existing loan of $200,000.

Playing the Game:

Step 1 – Write down all your debt(s)

Step 2 – Organize your debts from the smallest to the highest balance

Step 3 – Make a list of any extra resources you have to generate some cash such as having a yard sale, converting credit card miles to cash…use the extra money you generate as part of your first payment to the smallest balance.

Step 4 – Begin to apply the payments to the debt
If we use the numbers above and project out, in 4 years the remaining debt is $172,438, which is part of the remaining balance on the mortgage.  If we project out 11 years 7 months we are debt free.  So we turned the current upside down home, into a home that is owned free and clear without adding additional money each month from your current debt load.

Now you will have $2,460 in monthly cash flow that you were used to spending, there is no need to buy a bunch of toys and blow that money each month.  What if you saved the money at a 5% grow rate for the remaining 18 years of a 30 year plan?  $849,499.55 would be the amount that you would add to your retirement.

There is no need to hang your head if you are in debt and are upside down in your home, if you have a job and can continue to make the payments.  I can show you there is light at the end of the tunnel, email me anytime dan@affinitymortgage.com

Home ownership means a lot to Americans as a whole, fear should not be a driving factor in our decision making.  Now it will have an impact on what we do, but we need to use facts to help us make conservative decisions, in order to minimize mistakes and thus limit our fears.  I also realize that the financial aspects of purchasing a home today is a big concern, but later in this post I will show how we can use financing to your advantage.  My challenge is any advice I give because I am in the real estate community will have a tendency to be immediately dismissed as self-serving.  Keep reading and see if you agree with me or not.

For that very reason, I would like to start with introducing you to three articles from three different groups not involved in selling of real estate (click the blue links below to find out more):

Citigroup – Josh Levin, CFA

“When we examine the relationships between mortgage payments and income and mortgage payments and rent, we see that these relationships have also reverted back to or below equilibrium points. In some cases, particularly when mortgage payments are compared to the cost of renting, home prices actually appear cheap.”

JP Morgan – CHRISTINE RICCIARDI

“JPMorgan analysts said ‘the continuation of falling rental vacancies and rising rental demand will make home buying increasingly attractive’, especially as rental prices increase.”

Business School professors Eli Beracha and Ken H. Johnson

“Fundamental drivers now appear to be in place that favors home ownership over renting in the near term future…

The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting…

Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”

Now let’s only use these quotes to open the discussion, now how about we transition the conversation to actually numbers to expand the idea.  Below I have illustrated a classic buy now versus a wait and see example.  All assumptions are described for us, but let me point out the basics again.  You want to buy a $100,000 home now, but you think the market will go down an additional 5% in the next few months.  Which means the home will now cost $95,000. If you could time the low, that would be great. In the back of your mind or your crystal ball, you need to find the answer to where will interest rates be later when you are ready to close.  The assumption is that rate will not stay this low, so I have illustrated what happens if the rate does climb.  A simple 1% increase in interest rates makes your payment $32 higher, even if the price did drop 5%.  Second illustration shows, no price drop, but rates do go up causing a $60 higher payment.  And the last illustration shows rates get worse and price actually increases by $5,000.

Above is the numbers for the analytically minded among those reading, the graph below is for the visual learners.  If you buy now and take the lower rate for the next 5 years, you will have paid an additional $1,200 to principal over the rate increasing and price remaining the same.  In all cases buying now, wins!  Now there is a possibility, it is not probably, that rates will go lower and homes will also go down in value.

In Summary

Do research looking at trends, house values will bottom.  No one knows when or if that has already happened.  What we do understand is that trends repeat.  As unemployment number decrease in our local markets, house values will raise, as will the interest rates.  The major reason for this is that if more people are working, more people will have money to spend. As that supply increases, inflation will occur.  When inflation rises rates will increase.  We are seeing a small increase in inflation now, but it could change quickly.  I would not wait to buy your home on sale, but pay more for it each month.

One of the first steps you must take is to organize your bills and bank statements. Not having a crystal clear picture of what is coming in and what is going out is a recipe for disaster, even if your spouse was always responsible for such tasks. Start by putting all of you expenses into clearly labeled folders, either in hard copy form in a standard filing cabinet or by inputting all of your information into a computer program like Quickbooks or Excel. Family law attorneys typically advise to make copies of everything related to financial issues; once you and your partner split up the bills will no longer be a joint effort, so it’s critical to acknowledge the financial components.

Make sure you locate and identify all of your important records, such as your birth certificate, passport, social security information and any end of life plans you have. Your retirement plans and tax returns should also be carefully filed away where you know how to access them. It’s not a bad idea, if you haven’t been involved in the tax filing process, to familiarize yourself with your last few years of tax returns; just in case the IRS has any questions for you in the future.

If you don’t already do so, make sure you start to track your daily and monthly spending habits. Once all of the finances and asset issues are settled, you will need to be able to assess your personal budget and create a savings plan. Having a clear picture of your spending habits will make this task much easier, and make sure you are writing down what you actually spend as opposed to what you believe you are spending. Many people are a little shocked when they complete this work, and sometimes even find a way to fund their savings plan by cutting back here and there. It is important, though, to continue to have fun and live your life. Try to treat yourself to something special every week, even if it is nothing expensive or extravagant; don’t forget that you are still working through a very difficult situation.

While tracking your spending you will also identify how much your essential costs are, including your housing expenses, utilities and food. If your budget starts to get tight, tracking your spending will also help identify areas that you can cut down or eliminate spending all together. Always try to pay cash for nonessential items, it can be all too easy to use a credit card for “comfort purchases;” but you need to be careful not to take on too much new debt.

This is a great time to make a plan to eliminate debt. Once you’ve targeted areas that you can reduce spending and increase your disposable income, a great place to use those savings is to reduce credit card debt. If you’re carrying credit card debt, reducing what you owe not only will save you thousands of dollars in interest over the course of time, but also reduce some of your stress. The best income is disposable income.

Tackle your savings plan as soon as possible. Most financial experts recommend having 6 months of livings expenses reserved in a separate bank account. Doing so will protect you from unforeseen financial problems, and remove quite a bit of stress from your life. If you are currently, or have been, living paycheck to paycheck break this pattern as soon as you can. Divorce is a difficult time, regardless of the circumstances, but there is also no better time to break unhealthy patterns in your personal, private and financial life.

By taking these steps and putting together a healthy financial picture, you can use the trauma of divorce to build a happy and secure new life for yourself.

For example, Mr. Jones decides to purchase a house which costs $200,000. He pays 5% ($10,000) down payment and takes out a $190,000 ($200,000-$10,000) mortgage. Investors require mortgage insurance for mortgage loans which exceed 80% of the property’s sale price or appraise value. Due to the fact that he has limited equity, Mr. Jones will be required to pay for mortgage insurance that protects the lender against his default. The lender then requires the mortgage insurer to provide insurance coverage at, for example, 20% of the $190,000, or $38,000, leaving the lender with an exposure of $152,000.

Like with any insurance the insurer will charge a premium for its coverage, in the case of mortgage insurance it may be paid by either the borrower or the lender. If the borrower defaults and the property has to be sold at a loss, the insurer will cover the first $38,000 of losses. Any additional loss is eaten by the investor. Mortgage Insurance coverages offered by mortgage insurers can vary from 20% to 50% and higher.

To obtain public mortgage insurance from the Federal Housing Administration, Mr. Jones must pay a mortgage insurance premium (MIP) equal to 1.00 percent (this amount can be paid upfront or financed into the loan) of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well and varies from .85% to .90%.

On September 7^th 2010, the Federal Housing Administration made yet another change to Mortgage Insurance Premiums. It should be considered a change for the worse, the monthly premiums of .85% to .90% used to be .50% to .55%. Now they try to offset that higher monthly rate by lowering the upfront premium from 2.25% to 1.0%. I will not complain about that piece being cheaper at all.

Let’s put some math to this well, a $150,000 loan amount would yield a MIP/FF of $1,500 versus $3,000. The monthly mortgage premium would be $68.75 with the current premium but increased to $ 112.50 with the new premium as it is implemented. So, how do you view the benefits of these changes? Well I believe that banks and companies need to make money, but to raise rates right now may not be the best time. People in the industry are trying to entice people to buy the existing homes and refinance those who can still afford their home, but raising the cost to do so will not make that easy. Yes I am stretching my head too! If there is excess inventory, meaning it is a buyer’s market and interest rates are historically low, why slow that down by raising one of the major costs? This increase is not a reason not to buy, as much as it is annoying.

We need to look at the reason FHA has to keep changing the mortgage insurance requirements, the easy answer would be Federal agency have a hard time leaving well enough alone. That answer is way too easy, so let’s go deeper.

Many say that the stabilization of the FHA is paramount to enable new home buyers to purchase homes with a low down payment. Providing the FHA with a few months of receiving the previous higher 2.25% up-front MIP, allowed the cash flow for the agency to increase substantially. The new decrease of the MIP to 1% will decrease the cash flow, but prove to make the agency way more money in the long run, as the monthly premium is almost double. The FHA is banking on home owners to stay put and own a home for a long while, or hold their new loan for an extended time. Due to the fact that rates are so low this is a safe bet.

Here’s the problem though, there is a reserve requirement for FHA, meaning they have to keep so much of the insurance money that comes in from lending as liquid assets or a reserve. This requirement is set by Congress and is now at a 2% minimum. Well they raised the upfront to 2.25% to get back above the reserve requirement and avoid taxpayer help. So why are they now charging more each month. Sit down for this part; FHA is part of HUD (Dept of Housing and Urban Development) and because of this every dollar that FHA makes goes to the balance sheet of HUD. Then HUD right now is giving about .21 out of every $1.00 back to FHA to fund its current programs. So what does HUD do with the rest of the money? Well they have programs to, fight homelessness, rebuild communities and revitalize cities.

Right now during a tough economic time it does not seem like a good idea for FHA to raise premiums on those that can still pay and use it to help rebuild distressed communities. It seems like a better idea to let FHA keep maybe 20% more of their money and allow that many more current homeowners to qualify to either buy up some existing homes inventory or refinance their current home loan, allowing for more money each month to buy additional goods and services. Then after that dust has settled and the recession is really done, use the money that is in excess to rebuild the run down communities.

Let me end with answering one of the questions I get at least a couple times a week, “How do you get out of paying the monthly premium?” Homeowners can remove mortgage insurance when the home loan is 78% or less than the home value. Since it will be tougher to remove the mortgage insurance due to a slower economic upturn, the FHA will be banking on the money for quite some time, further increasing their cash position, and enabling their programs to be offered to many more home buyers.

If FHA continues to be part of HUD, it will have fluctuation in the mortgage insurance they charge; whenever HUD has a new project they need to fund the premiums will be going up. I would strongly suggest that you write your Congressman and tell them to consider moving FHA outside of HUD.

Find out more info on FHA and their recent changes at www.hud.gov. If you have questions and do not wish to wait on recorded lines, remember that this local Mortgage Planner will have the answers as well.

Why? It has everything to do with what is called the velocity of money. Many are concerned that government keeps pumping money into the system, well nothing happens until that money is spent or lent – or the money passes from one hand to another or one business to another. The speed at which this money passes between parties is called the velocity of money. The faster it changes hand the higher the velocity.

As you know the job market still very sluggish, consumers aren’t spending as much money these days, and businesses are still reluctant to spend money to make investments in their business. One of those investments is increasing the labor force, or bringing in additional workers. The present velocity is at very low levels, this is causing inflation to remain low (below the target of that the Fed has of 1% – 2%) and this is part of what is causing home loan rates to remain low. Rates are tied to Mortgage Bonds and inflation is acts like the archenemy of Bonds, so low inflation is good for Bonds and rates. However, should velocity increase, which is bad for rates, it can lead to a mild hint of inflation and cause home loan rates to become worse very quickly.

Obviously we want better economic news in the near future pointing to a recovery, I am just telling you to remember that there’s an inverse relationship between good economic news and Bonds (home loan rates). Weak economic news normally causes money to flow out of Stocks and into Bonds, which helps Bonds and home loan rates improve. This is why interest rates are as low as they are right now. Strong economic news, on the other hand, normally has the opposite result.

You have heard this before, but currently home loan rates are at a historically low levels and this situation won’t last forever. That means now is an ideal time to purchase a home or refinance before the velocity of money – and rates – change. This is such a fluid time right now, if you or anyone you know would like to learn more about the current economic situation feel free to contact me.