Common Mortgage Misconceptions That Could Cost You Money

Homeowners have some common mortgage misconceptions that can cost them thousands of dollars. Learn what they are and the real facts.

The real estate site Zillow recently did a survey of 1,000 homeowners and prospective homeowners that determined many are confused by the mortgage process. Here are the biggest areas of confusion and the real facts. Knowing them could save you a bundle when you buy a home or refinance.

31% of buyers don't think it's possible to get a home for less than 5% down.

There are several ways a homeowner can purchase a home with less than 5% down. FHA Loans, VA Loans, USDA Loans all allow homeowners to buy a home with 0- 3.5% down. These programs cover millions of individuals. Comprehensive information can be found at the article Buying A House with Less Than a 20% Downpayment.

34% of homebuyers don't know what the term APR means.

APR, which stands for annual percentage rate is the interest rate as well as all the other costs that go into a mortgage, including any points, closing costs, origination and underwriting fees, and any other costs. These costs are bundled into the APR metric. So, while the interest rate of one mortgage might be lower than the other, if the APR is higher, you'll most likely be paying more over the life of the mortgage, including larger upfront fees.

24% of buyers believe they can get the best mortgage rate from where they currently have their savings or checking accounts.

While your current bank is a place to start, other banks or lenders may significantly undercut these rates. Be sure to shop around. Check the mortgage rate tables on BestCashCow or other sites to get a feel for a good rate. Talk to other lenders.

26% of buyers believe that once they are pre-approved, they are obligated to get a mortgage with that lender.

This is not true. A pre-approval from a lender does not require you to use them for the actual mortgage. Usually, the homeowner wants to see that you can get a mortgage and the pre-approval serves that purpose. Once your offer has been accepted, shop around and find the best rate. Not doing so could cost you thousands.

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Payments to 4.2 Million Borrowers Covered by Foreclosure Agreement to Begin April 12

Payments to 4.2 million borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010 are scheduled to begin on April 12.

Payments to 4.2 million borrowers are scheduled to begin on April 12 following an agreement reached by the Office of the Comptroller of the Currency and the Federal Reserve Board with 13 mortgage servicers.

The agreement, which was reached earlier this year, provides $3.6 billion in cash payments to borrowers whose homes were in any stage of the foreclosure process in 2009 or 2010 and whose mortgages were serviced by one of the following companies, their affiliates, or subsidiaries: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.

The payments will range from $300 to $125,000. For borrowers whose mortgages were serviced by 11 of the 13 servicers--all servicers but Goldman Sachs and Morgan Stanley--checks will be sent in several waves beginning with 1.4 million checks on April 12. The final wave is expected in mid-July 2013. More than 90 percent of the total payments to borrowers at those 11 servicers are expected to have been sent by the end of April. Information about payments to borrowers whose mortgages were serviced by Goldman Sachs and Morgan Stanley will be announced in the near future.

In most cases, borrowers will receive a letter with an enclosed check sent by the Paying Agent--Rust Consulting, Inc. Some borrowers may receive letters from Rust requesting additional information needed to process their payments. Previously, Rust sent postcards to the 4.2 million borrowers notifying them of their eligibility to receive payment under the agreement.

Rust is sending all payments and correspondence regarding the foreclosure agreement at the direction of the OCC and the Federal Reserve.

Borrowers can call Rust at 1-888-952-9105 to update their contact information or to verify that they are covered by the agreement. Information provided to Rust will only be used for purposes related to the agreement. Borrowers should beware of scams and anyone asking them to call a different number or to pay a fee to receive payment under the agreement.

Accepting a payment will not prevent borrowers from taking any action they may wish to pursue related to their foreclosure. Servicers are not permitted to ask borrowers to sign a waiver of any legal claims they may have against their servicer in connection with accepting payment.

In determining the payment amounts, borrowers were categorized according to the stage of their foreclosure process and the type of possible servicer error. Regulators then determined amounts for each category using the financial remediation matrix published in June 2012 as a guide, incorporating input from various consumer groups. Regulators have published the payment amounts and number of people in each category on their web sites at www.occ.gov/independentforeclosurereview and www.federalreserve.gov/consumerinfo/independent-foreclosure-review-payment-agreement.htm.

While the agreement ended the Independent Foreclosure Review for the 13 companies identified above, the review continues for OneWest, Everbank, and GMAC Mortgage.

Regulators continue to monitor the servicers' actions to correct the unsafe and unsound mortgage servicing and foreclosure practices required by other parts of regulators' enforcement actions, which remain in effect.

Regulators have issued guidance to the servicers under foreclosure-related enforcement actions directing a review before foreclosure sales for all pending foreclosures. These reviews help prevent avoidable foreclosures by ensuring foreclosure-prevention alternatives are considered and foreclosure standards are met. Regulators encourage borrowers needing foreclosure prevention assistance to work directly with their servicer or to contact the Homeowner's HOPE Hotline at 888-995-HOPE (4673) (or at www.makinghomeaffordable.gov) to be put in touch with a U.S. Department of Housing and Urban Development-approved nonprofit organization that can provide free assistance.

Can You Still Afford a FHA Mortgage?

Getting a FHA mortgage was once the most affordable way for first-time mortgage borrowers to buy a home. But is that quickly changing?

A FHA loan is insured by the federal government and it is the most popular mortgage for homebuyers who do not have a lot of cash to put towards a down payment.Individuals can can qualify for a FHA loan with only 3.5% down, making home ownership a possibility for millions of people who could never save up the 5%, 20% or larger down payment required with traditional loans.

But FHA loans are beginning to become less affordable because of underwriting changes and a series of fee increases in recent months. Here are some of the changes you can expect with FHA loans in the upcoming months.

April 1, 2013: The annual mortgage insurance premiums are going to increase by a tenth of a percentage point. This may not seem like a lot, but on couple of hundred thousand dollar loan it becomes significant. This will also be the third increase on these premiums since 2011 and the costs are passed on to borrowers.

June 3, 2013: The FHA will require manual underwriting for borrowers who have a debt-to-income ratio of at least 43% in their household along with a credit score below 620. There will also be a required down payment of 5% for FHA-based loans that exceed $625,500 in some of the areas with higher costs, such as Washington, D.C., California and other expensive locations.

Another change going into effect on June 3 is that the FHA will no longer cancel mortgage insurance premium charges for balances that are less than 78% of the original loan amount. This essentially means that borrowers who have a FHA mortgage will pay insurance premiums throughout the term of the loan. With traditional mortgages, borrowers can have their insurance premium payments cancelled once their loan amount is 78% of the original loan amount.

According to an article in the LA Times, there are many critics of the new fees and changes taking place with FHA mortgages. Dennis C. Smith, a co-owner of Stratis Financial Corp. in Huntington Beach, wonders if the FHA “is putting itself out of business with the moves they’ve made in the past couple of years.” Steve Stamets with Apex Home Loans in Rockville, MD, says the new fees and changes are “just a money grab” that will drive first-time home buyers away from FHA mortgages. He says that many creditworthy buyers are already paying more for a FHA mortgage than with a conventional mortgage just because they can’t come up with a sizable down payment for a home.

According to top officials with the FHA, however, the agency’s priority isn’t about increasing its market share. The main priority of the FHA is to protect its insurance fund and cut its losses. Whether or not the new changes are going to help make that happen remains to be seen.

If you are in the market for a FHA loan, make sure your broker or loan officer crunches the numbers for you to compare the costs. Without the option to cancel your mortgage insurance premium payments and paying the increasing fees, you could be better off choosing one of the privately insured conventional mortgage alternatives instead.

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