Is a 40-Year Mortgage a Viable Option for You?

Is a 40-Year Mortgage a Viable Option for You?

The 40-year mortgage is becoming more and more common in the housing industry. Is a 40-year mortgage right for you?

In the mortgage industry, the 40-year mortgage is a relatively new concept. Most mortgages do not go past 30 years and the 40-year option has only been available as a niche product for certain home buyers. However, they are becoming more and more mainstream as home buyers are looking for more affordable options when making the leap into buying a house.

With a 40-year mortgage, the borrower pays a lower mortgage payment each month than they would if they took out a 30-year mortgage. That’s one of the appeals of the longer mortgage option. However, it does have its disadvantages, too. Since the loan is spread out over an extra 10 years, the borrower will pay much more by the end of the loan term in interest and other charges.

Another problem with 40-year mortgages is that you are likely going to pay higher mortgages rates with this option. We already know that mortgage rates are starting to go back up for 30-year fixed loans, but you can expect to pay an extra quarter of a point or more when you choose a 40-year mortgage over a 30-year mortgage.

One of the reasons 40-year mortgages are not as popular is because the lenders are unable to sell those types of loans to investors through Fannie Mae, Freddie Mac and other government-sponsored enterprises. The mortgages stay on the books for too long and the money gets tied up longer than investors like.

Before agreeing to a 40-year mortgage, there is one question you should ask yourself: Is this home more than I can afford? If the only way you can afford the home you want to purchase is by taking out a 40-year mortgage on it, it may be wise to search for a less expensive home that you can afford with payments spread out over a 30-year period. Many financial gurus like Dave Ramsey and others suggest that you only buy a home you can afford on a 15-year fixed rate mortgage.

This is not to say that you should never go with a 40-year mortgage. However, you should always way all of your options before making your final decision on any type of mortgage. Have you considered an interest-only mortgage? Or have you looked at the adjustable rate mortgages that are available? Often these types of mortgages offer a lower interest rate that can help bring your monthly payments down to a more affordable range as well. Be sure to do your homework before making a 40-year commitment that will take you into your retirement years.

Four Tips to Save for a Down Payment

Four Tips to Save for a Down Payment

A look at savings strategies to build up funds for your home purchase down payment.

The first financial challenge when you're thinking about buying a home is how to come up with the down payment.  These days, it's rare to get a mortgage without contributing some of your own cash. And if you're trying to buy a home that was foreclosed or through a short sale -- where the purchase price is below the amount owed on the house -- a larger down payment can speed up the process.  A low credit score, however, may drive up the size of the required down payment.
Here are some tips to save up your down payment.
1. Decide how much house you can afford.
The first step is to set your savings goal. Research home prices and determine how much you can afford. Calculators can be found on most bank websites and on the FHA site at www.fha.gov.
The median price of existing homes in the U.S. is $165,100, according to the National Association of Realtors.  A 5 percent down payment for a home that price would be $8,255. A 20 percent down payment would be $33,020. If you're able to save 20 percent, lenders will not require you to purchase Private Mortgage Insurance, which will reduce your monthly expenses.
2. Set up a savings plan.
You'll also need to create a savings plan and set a deadline for reaching your goal. One method is to find the difference between your current housing costs and your projected monthly mortgage payment, and put that much away each month.
This system has the advantage of allowing you to decide if you really earn enough to afford the home you want. 'In some cases, if a homeowner is paying a low rent, doubling that payment can be quite a shock.
Open a separate savings account for your down payment to minimize the temptation to tap the money for other needs. Also setting up automatic transfers to your new account will lessen the chance you'll spend the money elsewhere.
3. Pare back expenses and raise cash.
Review your spending habits and determine where you can find extra cash. If you're determined to buy a house as soon as possible, try tightening your budget. Start by putting away the credit cards. Then cut out cable TV, switch to a less expensive cell phone plan and reexamine other aspects of your spending until you've pared back to just necessities. Use coupons at the grocery store and stay away from the mall. Hold a garage sale or sell unused items online. There are dozens of books and blogs you can turn to for frugal living advice that can help accelerate your savings.
4. You may qualify for assistance.
If you're hoping to take advantage of the down market but haven't got that much saved, you may be able to find help through various programs.
There are FHA-backed programs in every state. Most are aimed at low- and moderate-income, first-time homebuyers and usually require recipients to make some contribution. Visit the agency's website at www.fha.gov to learn if you qualify for a program in your area.
The Veterans Administration and the Agriculture Department are among other government agencies that offer down payment assistance.
My Mortgage Is in Default. What Now?

My Mortgage Is in Default. What Now?

Are you finding yourself in mortgage trouble? You're not alone. Here are some things you can do to help remedy the situation.

Many homeowners are finding themselves in financial troubles these days. With layoffs, rising mortgage rates and economic trouble all around, making ends meet can sometimes be a problem. As a result, millions of Americans are defaulting on their mortgage loans. You may even be one of them. If you have missed more than one payment on your mortgage loan, here are some things you can do to help rectify the situation.

Contact Your Mortgage Lender
Your lender is much more likely to work with you and your financial situation if you contact them as soon as you know there will be a problem. If you get a letter from your lender about your defaulted mortgage loan, it may be too late to do much about it. But if you call and talk to them as soon as you know you will be late on a payment or miss a payment, they will know that you are not just forgetting about your obligation and they can set up a payment plan to help bring your current over the next few months.

Ask Your Lender about HAMP
HAMP is the government program which is designed to help troubled homeowners refinance their mortgages when they default. HAMP stands for Home Affordable Modification Program. Some of the qualifications require the homeowner to prove their financial hardship, have a mortgage payment that is more than a third of their gross income, have a mortgage loan that began before January 1 of 2009 and have a balance of less than $729,750. If you qualify, you will likely be approved for a three-month trial modification of your loan.

Consider a Short Sale
Thousands of troubled homeowners are doing short sales with the home loans they have defaulted on. A short sale means that the bank that loaned the money for the mortgage agrees to take less than what you actually owe and then forgives the difference. However, depending on how this is reported on your credit report, your credit score could be damaged if the bank marks the item as “Paid Satisfactory” rather than “Paid in Full.” Find out how they will list it before deciding on this option.

Declare Bankruptcy
Although it is much more difficult to claim bankruptcy and rid yourself of your debts than it used to be, this may be a way to stop any foreclosure proceedings and help you start making payments again. If you have other creditors that you have been paying, you may be able to wipe those debts out so you can once again make your mortgage payments. Consider the ramifications of bankruptcy, though, before going through with this option.

There are many things you can do to help your situation if you are going to default on your home loan or if you have already defaulted. The worst thing you can do, however, is ignore it and hope it goes away. That never happens and you will just dig yourself deeper and deeper into debt by using that route.