Not too long ago, I bought my first home. It was very exciting. And we were quite happy that we were able to get the home mortgage loan that we wanted (boring 30-year fixed with a great interest rate), and that we did it in the middle of the subprime mortgage crash. We had a little extra hoop jumping because banks were tightening their lending standards, but it was worth it, and we ultimately passed muster.

First time homebuyers have plenty of questions, and there are plenty of pitfalls. However, if you do your homework beforehand, you can get a first mortgage that works for you — and one that you will be able to make payments on for years to come. Thrifty Scot offers some great “dos” and “don’ts” for first time homebuyers:

Things you should DO as first time homebuyers

The Thrifty Scot points out that you should get good financial advice first. And this is true. You should figure out if you can afford a home, and what wort of monthly payment you can afford. Remember that a monthly payment includes taxes and interest, as well as insurance and other costs that add on to the purchase price.

Other things that you should do include:

• Know what you want. This goes for the type of home mortgage loan you are looking for as well as the house.
• Get pre-qualified or pre-approved so that you have a better idea of what you will actually be able to buy.
• Pay down some of your debt to boost your debt-to-income ratio

DON’Ts for first time homebuyers

One of the main don’ts the Thrifty Scot lists is to avoid over-stretching yourself financially. In light of recent subprime events, this is excellent advice. You do not want to be in a position where you are “house poor” — too much of your income going to home payments. Choose a house you can afford, and one that won’t take more than 1/4 (1/3 at the absolute top) of your take-home income.

Other things to avoid:

• Don’t go with the first quote you receive. Get your credit score and income information, and talk to a few lenders who can give you a rough idea of what is possible for you.
• Avoid adjustable rate mortgages. Get a fixed rate. Under no circumstance should you get an interest-only loan in this economic climate.
• Don’t rush. Don’t be afraid to take the time you need to make sure that this is really what you want to do.

Tags: home loan, first time homebuyers, home mortgage loan, first mortgage,
second mortgage, mortgage blog, interest only loan

Throughout this past year, and especially since last summer, the rate of new home mortgage loan borrowers has gone down. Fewer people are applying for mortgages, and even fewer are being approved, what with tighter lending standards by the mortgage industry. And, despite current measures to try and fix the credit crunch that the housing market crash sent us into, things like a predatory lending bill, Fed rate cuts and liquidity injections aren’t working.

Now, of course, the burst housing bubble is expected to have a ripple effect through the economy. The Christian Science Monitor explains some of the consequences that are coming, due to the burst housing bubble:

The bursting of the housing bubble also represents a period of lost wealth, even for people who keep their homes. Some $1 trillion or more is being marked down from household balance sheets, and that has ripple effects on consumer spending.

Retiree homeowners also face a squeeze, as lost housing value erodes their nest eggs.

More broadly, America’s access to home equity loans and “cash out” mortgage refinancings is dwindling alongside property values.

So, even home equity loans, the second mortgage, are faltering. With home values dropping, borrowers find that their homes have less equity, and those that do have home equity loans may be surprised that they now owe more than the home is worth. All of this leads one to consider what might be done, as far as changing the fundamentals of how our society views debt, in order to stem the rising tide of financial instability.

Tags: home equity loans, home equity, home mortgage loan, burst housing bubble,
second mortgage, Fed rate cuts, predatory lending bill

Yesterday’s Fed rate cut is sparking a degree of debate amongst analysts. Inman News reports on what the Fed says its main concern is:

An intensification of the housing correction and increased strains in financial markets prompted the Federal Reserve to lower key short-term interest rates today, the third consecutive meeting since September it has taken such steps.

However, some feel that the move was too conservative, focusing too much on inflation concerns and neglecting to do what is necessary to kick start the economy to a point that the credit crisis is surmounted.

A Fed rate cut affects a variety of people on different levels, and some will be more affected than others by the rate cut. Most likely to be affected are those with a home equity line of credit. Someone looking for a first mortgage may be surprised to realize that the mortgage rate is unlikely to drop. Why? Because first mortgage rates are influenced by 10-Year Treasury Notes, and those saw a surge yesterday on the Fed rate cut news.

What is more likely to help first time mortgage loan borrowers is the Fed’s plan to inject liquidity into the financial market. (Of course, Treasuries are down on this news, erasing yesterday’s gains.) MarketWatch reports on this new effort, designed to help the credit crisis:

The Federal Reserve, as part of a coordinated plan with global central banks, said on Wednesday they were taking steps to inject up to $40 billion in reserves into the money markets to try to ease the credit crunch currently roiling the financial system.

Between the mortgage bailout plan, the Fed rate cut and increased cash liquidity, something should be moving in the economy soon. But all this is still only a temporary fix. The way business is done hasn’t been changed.

Tags: Fed rate cut, home equity loan, mortgage loan, second mortgage,
cash liquidity plan, credit crisis, inflation