SOME PLANNING TIPS FOR 2008

The beginning of a new year is usually the time when resolutions are made, some want to get rid of bad habits, some want to make more money, others want to buy a new car or home. What they really want to do is change some aspects of their lives. We have compiled some tips that may help you in accomplishing this transformation.

1. Check your credit.
The annual free credit report that each individual is entitled to must be the first step. Go on line to www.myfreecreditreport.com and get that annual check up in order to get the status of your credit health. This is an important step because credit is the currency that lenders accept. It will determine the cost of all your non cash transactions in the new year. If you notice any discrepancies, investigate and correct them immediately. It is better than having a lender tell you that he will not grant you credit due to unsatisfactory rating.

2. Check the terms your mortgage.
Even if you have a fixed rate mortgage, checking your current interest rate may prove beneficial since current rates may be lower than the one you have: refinancing may save you money.
If you have an ARM that will be resetting within the next twelve months, this is a must. Over two million ARM will reset in 2008. Look at a document called the "NOTE" for the terms of your loan. It tells you when the mortgage will change and by how much: for example a 3/2/5 ARM is a long that is fixed for 3 years, can go up 2 percent as much as 5 percent but the adjustment will not exceed 5 percent. In this case, if your current rate is 6%, it could be at least 8 to 11 percent when your rate adjusts!
Compare the new rate to current market rates, if your new rate is higher, it is time to begin preparations for a refinance.

3. Preparing for your refinance.
Gone are all the so called "affordability programs" such as low documentation, no income verification and "pay option". You will need to fully disclose your income and your assets: paycheck stubs, bank and brokerage statements, pensions and annuities.
Check the value of your home and your outstanding mortgage balance. Your equity is the difference between what your home is worth and what you owe on it. The higher the equity, the better your chances of refinancing. If you owe more than the property is worth, you will not be able to refinance. If your income does not support the payment on the loan you want to take or your credit scores do not meet the lender's requirements, refinancing will not occur. Knowing this information ahead will save you time and money.

4. Shop for the best terms.
Lending is still a very competitive industry and since the number of qualified applicants is down, lenders will offer some very attractive terms: my suggestion is that you get three rates scenarios from the same lender or from three different lenders. Keep in mind that the number of inquiries affects your credit score. You can avoid those inquiries by having your own free annual credit report ready so you can tell the lender what your scores are.

5. Know the characteristics of mortgage programs.
Fixed rates: the principal and interest payments remain constant during the life of the mortgage. The most common terms are 30, 20 and 15 years but you can get 25, 10 or any length that fits your budget. Notice that the shorter the term, the higher the payment. In terms of overall cost, the shorter terms loans cost less than the longer ones!
Your loan is paid in full at the end of the term selected.
Adjustable Rate Mortgages (ARM) rates: these are rates that are fixed for 1, 3, 5, 7 or 10 years: the payment is usually based om a 30 years repayment schedule. The rate changes at the end of the term according to contractual terms included in your "NOTE". There is a balance left at the end of the term and you have the option of refinancing or accepting the new rate.
Balloon Mortgages: the rate is fixed during the term of the balloon but you MUST pay off the remaining balance in one lump sum. The options are that you refinance or come up with the cash to settle.

6. Consider the market environment.
The current real estate market is considered stagnant or declining in terms of equity: with the number of properties available for sale and few buyers, lenders are zeroing on property values. A study by the Federal reserve of Boston found that a great number of foreclosures are due to properties having lost equity. Keep this in mind when you are contemplating a refinancing: the outcome may be due to your home not appraising high enough to warrant the risk.

Market forces determine the availability of credit and your purchase or refinancing transaction depends on what lenders perceive as acceptable risk. A good preparation is key to your success.
Free mortgage analysis for buyers and those considering a refinancing is available at www.mortgageapp.blogspot.com or by simply selecting the "Free Mortgage Analysis" option below.
Send your comments to jpallaa@gmail.com