Do you have past due balances that have been neglected? If they are showing up on your credit report and you want to purchase a home, make sure you bring them up to current status whenever possible. Your payment history is the largest factor in determining your credit score.

        Do you have outstanding debt that you can afford to pay off right now? Try to get these accounts down to a zero balance, or at least a lower balance. If your cash on hand doesn’t allow you to do this, try to distribute the debt amongst other open credit cards. You can also consider opening a new line of credit and transferring part of the balance off a card that is close to being “maxed out.” If you can get the resulting balances below 50% of the available credit, you’re on the road to improving your credit score considerably in most cases. For the best impact on your score, keep your balances below 30% of the available credit limit.

        Do not close existing credit card accounts, even if you don’t want to deal with the company any more… Believe it or not, the credit history is a good thing to have!

        When married couples keep separate credit card accounts, some or all of the balances can be transferred to one spouse’s list of accounts. This gives the other spouse an opportunity to increase their credit score and designate him or herself as the sole borrower on the mortgage loan. Ownership of the home can remain in both names!    

        See if your credit provider will increase your available lines of credit. This can, in turn, reduce the overall debt ratio, but only do this if your credit card company can do that without a hard credit inquiry. 

        Do you have past dues and charge-offs within the last two years? Pay them off now, if you can! Past dues older than two years will have little to no impact on your credit score if they are paid, but can possibly bring the score down, which is something we don’t want to do... Focus on that 2-year time frame.

        Do you see errors in your report? Request the credit bureau delete any outstanding debt that is incorrectly charged to you, or things that should have been removed that you have already paid. They have an obligation to reconcile this within 30 days. If you see items on your report that are less than two years old and you have the money to pay it off now, mark the back of your payment check with the following notation: “Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record.” If necessary, you can use this cancelled check as proof of the transaction in the event the outstanding debt is not removed promptly and interferes with the closing of your loan.

For more information about credit scoring and how you can improve your credit score, request my Free Credit Scoring Guide.

If you are ready to get started, give me a call to apply over the phone, or apply online now.

Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.

Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.

The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!

However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.

In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, requiring little or no down payment. These types of programs require less than 3 percent of the loan amount as down payment. In addition, piggyback or combo loans use two loans to for up to 100% financing without mortgage insurance.

Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home” is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.

To learn more about buying your first home and other tips and strategies for first time home buyers, register for access to my free first time home buyer reports. For additional information on the home buying process request my Free Home Buyers Handbook.

Ready to get started? Call me to begin the application proccess or apply online.

Option ARMs are unlike any other loan available today. An Option ARM is more than just a loan; it is a custom tailored financial management tool that can be used to consolidate high interest debt, lower monthly payments, or build wealth. This creates a unique and powerful home financing solution. An Option ARM puts you in control of your finances by offer up to four different payment options each month.

Although many people feel that ARMs are risky, more than 60% of loans originated today are some type of ARM. Fixed rate loans do provide insurance against rising rates. However, that insurance can be very costly. Fed Chairman, Alan Greenspan recently commented that the ?insurance? paid on fixed rate loans is far too high. He also mentioned that most borrowers in the last 10 years would have benefited by having some type of ARM and paid thousands of dollars in unnecessary interest.

Option ARMs provide several benefits for the homeowner. Here are some of them:

• Up to 4 payment options.
• Creates cash flow for other needs.
• Increases buying power.
• Stability of a fixed rate mortgage with the flexibility of an ARM.

Option ARM Optional Features
Here are a few of the additional options that some Option ARMs have available:

• LTVs up to 100% - May require two loans
• 100% Gift - Down payment can be a 100% gift from a family member
• 1-5 Year Fixed Payment - Minimum Payment is fixed for 3-5 Years
• 1-5 Year Fixed Rate - Fully Indexed Rate is fixed for 3-5 Years
• 40 Year Amortization Term - Lower qualifying payments
• Flexible Documentation - Low Doc, Stated Income, No Ratio, No Doc
• Equity Driven Underwriting - Credit Score not considered
• Fixed Rate Conversion - Convert your loan to a 30 Year Fixed
• Bi-Weekly Payments - Pays the loan off faster with an extra payment

It\'s all about the options!
Payment Options! The key feature for an Option ARM is the multiple payment options. Option ARMs put YOU in control of your mortgage. Depending on the loan, your monthly statement will have two to four payment options each month. The payment options include:

1. A Minimum Payment
This is the lowest payment option based on the initial start rate. Use this payment in case of emergency or to create the most monthly cash flow. However, this payment can create deferred interest, which adds the unpaid interest to your loan balance. This payment typically changes annually or until the loan is recast.

2. An Interest Only Payment
If you wish to avoid accumulating deferred interest, you should make this payment. This payment typically will not be available if the Minimum Payment exceeds the Interest Only Payment. NOTE: This does not reduce your principal.

3. A 30 Year Amortized Payment
This payment includes both principal and interest, paying off your loan as scheduled.

4. A 15 Year Amortized Payment
Make this payment every month to pay off your loan in 15 years, saving thousands of dollars in interest. (Not available in some cases)

These options provide the flexibility to make the payment that is best for your financial situation each month. If you need extra cash for the holidays or an emergency, make one of the lower payments to freeing up hundreds of dollars in extra cash. Or use the additional cash flow to fund your retirement, children?s college fund, or other investment. By taking control of your mortgage, your home becomes a financial tool instead of a liability.

Rates, Indexes and Margins
Option ARMs are more complex than other loans; however, once you understand how these loans work, you will see why they are such a powerful financing tool. Option ARMs have

Currently, Minimum Payment rates are typically 1%-1.95%, however they can be as high as 4.95% depending on the specific loan and your situation.

Fully indexed rates are typically 1%-2% lower than a current 30 year fixed rate.

Here are some payment comparisons for a $300,000 loan with a rate of 5%/5.17% for the Option ARM and 6.%/6.10 for the 30 year fixed.

As you can see, the Minimum payment can create a significant amount of cash flow each month. In this case, the Minimum Payment would save nearly $700 a month verses a typical 30 Year Fixed Rate Payment.

Negative Amortization
Negative Amortization or Deferred Interest occurs when the minimum payment is less than the interest due for that month. The unpaid interest is added to the balance of the loan. With the examples above, the deferred interest would be $149 a month or less than $2,000 per year. Deferred Interest can be avoided by making a payment that is equal to or higher than the Interest Only payment.

Caps and Recast
Option ARMs have several features that protect your payment, interest rate, and loan balance from getting out of control and insuring that the loan is paid off in the original term.

Payment Cap
The payment cap is the rate at which your Minimum Payment can increase. This is typically 7.5%. For instance, a $1,000 Minimum Payment would increase to $1,075 in the second year.

Life Cap
This is maximum interest rate you can be charged. This limits how high your interest rate can increase.

Recasting
When a lender recasts your loan, they amortize your loan so that it will be paid off in the original term. This usually results in an increase in payments so that the loan is paid off in time. Typically the lender will recast the loan every 5 years or when the loan balance reaches 110%-125% of the original loan balance.

Purchasing with an Option ARM
While Option ARMs are most often used for refinancing, Option ARMs can be an excellent choice for homebuyers with a 10%-20% down payment. The low fully indexed rate allows you to qualify for a higher loan amount than you may have qualified for with a 30 year fixed rate loan. In addition, the additional payment options make purchasing a home with an Option ARM that much easier.

Debt Consolidation and the Same-Payment Refinance
The average American carries $22,000 in credit card debt. An Option ARM is frequently used to consolidate high interest debts and your mortgage for one low rate and payment.

However, by utilizing a same-payment refinance, you pay off all of the obligations much sooner than with the typical refinance. With a same-payment refinance, you make a payment on the new loan that equals the total payments you were making on the original loan and other obligations. For instance, let?s say you currently pay $2,500 a month for your mortgage and 4 credit cards. Now let?s say you consolidate your mortgage and the 4 credit cards and end up with a payment of $1,500. Instead of putting that $1,000 a month in your pocket, make a $2,500 a month payment on your mortgage. Doing so would have the mortgage, including the 4 credit cards paid off in 12 years! This would save several thousand dollars in interest on both the mortgage and credit cards. This is just another way you can use your mortgage to take control of your finances and become debt-free faster.

Option ARMs and Investors
The risk of any loan is not in the rate, the risk is in the lack of financial security. Creating cash flow creates financial security. Often, homeowners will take the difference between the Fully Indexed Payment and the Minimum Payment and use it to make regular monthly payments into higher yield investments such as stocks, mutual funds, IRAs, or 401Ks. Using this strategy can create tremendous wealth and allow you to be debt free much faster. Option ARMs are also popular for real estate investors who wish to create more cash flow on rental properties.

Is an Option ARM right for you?
Determining whether an Option ARM is right for you is something that you should discuss with your loan consultant. However, here are some important points you should discuss with your loan consultant:

• How long do you plan to be in the home?
• Are you self-employed or paid on commission?
• Is your work seasonal? (builders, farmers, union workers)
• Which payment do you expect to make on a regular basis?
• If you make the Minimum Payment, what will you do with the additional cash flow?
• How old do you plan be when you retire?
• Do you expect to have your home paid off when you retire? If not, when?
• Do you have a 401(K), IRA, or other retirement account?
• Are you putting the maximum amount into your retirement each year?
• Do you have a college fund set up for your children?

Message from the author and Two Special Offers!
My name is Paul Marshall. I am a Real Estate Loan Consultant with Clarion Mortgage Capital. I specialize in Option ARMs and other niche loans. I hope you have found this report informative and educating. My goal is to build lifetime relationships with my clients by educating them on the loan process and how to use their home as a debt-management and wealth building tool.

To see if you qualify for an Option ARM or to discuss whether the Option ARM is the right loan for you, pick up the phone and give me a call at 925-497-6227 or www.careloans.com="" liase-index.htm="" ??="">email me .

If you contact me today and mention this offer, I will pay, up to $350, for your appraisal when your loan closes with me.

Apply online and receive an additional credit of $50, when your loan closes with me.

Buying a home involves serious concerns that can have a long-term impact on you legally, financially and emotionally. By educating yourself and learning from the mistakes of others you avoid setting yourself up for disappointment or even worst, finding yourself living in the wrong house. I have listed some of the most common, and potentially dangerous and expensive, mistakes made by first time homebuyers.

Running before walking .
This is easy to do once the decision to buy a home has been made. It means rushing off to look at homes, surfing the web or calling on advertisements before doing some up-front preparation. If you find a home you like before you are prepared to buy it, you may very well lose the home and certainly be disappointed. Make sure you are ready to buy before you start looking for homes.

Over-buying the first time .
Being \"house rich and cash poor\" is an uncomfortable existence. Having a large, beautiful home with little or no furniture can feel empty and cold. Living a life where almost every dime of your earnings goes to the support of your house will wear you down quickly and is a frequent cause of family stress. Even though your mortgage professional says you can qualify for more, pushing yourself to a limit you are uncomfortable with can leave you highly exposed when the in the case of a job loss, illness, or other family or financial crisis. Leave yourself some breathing room!

Finding out too late that you have no representation .
This can be a real nasty surprise when you assume that the Agent with whom you are working with represents you when they actually represent--and owe complete allegiance to--the seller. How does this happen? By rushing out to look at homes, whether in person or on the Internet, and contacting the Agent who has the house listed or advertised. This is the Seller?s Agent or Listing Agent. Although they can legally represent you, there is an inherent conflict of interest. The Listing Agent owes his/her allegiance to the Seller.

Trying to represent yourself .
Another pitfall occurs when you try to represent yourself in the purchase of a home, thinking that you will save money. Having an Agent, a Buyer?s Agent or Selling Agent, to represent you is highly recommended. Having a Buyer?s Agent represent you doesn?t cost you anything or raise the price of the home. Since the Seller has already agreed to pay their Agent a commission, who will split that commission with any Agent who brings a buyer. Without representation and the use of a Comparative Market Analysis, how do you determine a realistic selling price for a property?

Not getting mortgage pre-approved .
In the past it may have been you could get away with a pre-qualification. However, pre-approvals have almost become a necessary part of the home buying process. While a pre-qualification will give you an idea of what type and amount of loan you can qualify for, it guarantees nothing. A pre-approval requires actually submitting your loan to a lender. The pre-approval guarantees that you can obtain financing up to a certain amount. This give you leverage when making an offer, since the purchase contract does not need to contain a loan contingency and the seller knows that the loan won?t fall through. In addition, many Agents will not show you properties or accept offers if you are not pre-approved.

Waiting for the \"perfect\" home .
Many first time homebuyers make the mistake of looking for the perfect home. They feel that if they look around long enough, they can find a home that has a full 100% of their needs and wants. With the thousands of variables available in housing, including location, style, size, amenities and condition, this is almost always an unrealistic goal. There are two potential problems with this strategy: First, these buyers pass by homes that meet 90% or more of their requirements only to eventually give up (often purchasing homes with less of their requirements because they are worn out!) Second, while they are waiting for the \"perfect\" home, housing market prices (and often mortgage rates) continue to rise, adding expense to their purchase. Instead, it makes sense to determine the most important of your needs and the most desired of your wants and selecting a home that meets the majority of them.

Shortcutting the inspection process. This can involve skipping a whole house inspection completely in order to save the relatively small amount of money involved or it may involve using a friend or relative with limited experience to conduct the inspection. In either case you run the risk of not exposing potentially expensive--or even hazardous--defects in the property. Protect yourself and invest in the $200 to $500 for a professional inspection. It will be well worth it.

For more information about credit scoring and how you can improve your credit score, request my Free Home Buyers Guide.

Ready to get started?

If you contact me today and mention this offer, I will pay, up to $350, for your appraisal when your loan closes with me.

Apply online and receive an additional credit of $50, when your loan closes with me.

June 10, 2002, Revised March 1, 2004

"I am involved in a domestic partner relationship and we are considering purchasing a home together. Her parents are giving us the down payment. What things do we need to know when speaking to a lawyer about the arrangement?"

Congratulations for dealing with this question now. Most unmarried couples purchasing a house together do it blindly. When they split, issues that should have been foreseen but weren't may prevent a clean and amicable separation.

My mailbox is clogged with letters about such issues. In trying to answer them, I sometimes feel like Dear Abby instead of the Mortgage Professor. Shifting the focus to prevention is a welcome change.

Here are the major issues to resolve with your partner before you buy. Then see a lawyer.

Should Split Mean Sale? There is much to be said for an agreement that the house must be sold if either partner aborts the relationship. This avoids the thorny issues, discussed below, that can arise when one partner stays with the house.

If a split leads to sale, the only issue is how the proceeds are to be divided. Equal shares may or may not be equitable. In your case, your partner is paying the down payment and deserves a larger share of the proceeds. In other cases, one of the partners may be responsible for a larger share of current expenses than the other.

One approach is to divide the net proceeds by each partner?s contribution to the equity in the house when it is sold. Suppose, for example, that the partners pay $100,000 for a house, take a mortgage of $80,000, pay $20,000 down plus $3000 in settlement costs, and sell it after 5 years when the loan balance is $74,000. Total contributions of the partners to equity in the house at the time of sale consist of $23,000 in cash at purchase, plus $6,000 in reducing the loan balance. If one partner contributed 60% of the cash and paid 40% of the expenses, that partner?s share of net proceeds would be [.6(23,000) + .4(6,000)]/ 29,000, or 56%.

In some cases, this rule would not be fair. For example, one of the partners might unilaterally work on improving the house, which would call for a higher share. The point is that the partners ought to agree at the outset on the terms of the split. If they can't agree, they should reconsider whether they really want to cohabit.

When One Partner Stays: Most of the problems I encounter arise when one of the partners remains in the house. The terms of settlement are more complex than if the house is sold. There is no sale price, so the partners must agree on an appraisal procedure and on who will pay for it. They should also agree on whether a real estate sales commission should be deducted from the valuation used in the settlement. If they wait until the event, this is invariably contentious.

Another problem arises if the partner remaining in the house doesn't have the money to pay off the partner who is leaving. The more equity they have in the house, the more cash the resident partner needs to raise. A home equity loan is not possible unless both partners become responsible, which is the last thing the departing partner wants.

Much the largest problem, however, is the departing partner?s continuing responsibility for the first mortgage. Many departing partners believe that they are off the hook because the partner remaining in the house has agreed to assume full responsibility for the mortgage. They (and evidently their lawyers) overlook the fact that the lender was not a partner to their agreement. Departing partners who remain liable for their mortgages often are unable to get new mortgages on their own.

Lenders have no incentive to remove one partner from the note. Some can be induced to do it if the partner remaining with the house has a perfect payment record and can document that they are solely responsible for the payments. But in the best situation this takes time, perhaps a year. If the lender refuses, the only way to get the departing partner off the note is for the remaining partner to refinance in her own name.

If I were drafting an agreement for a loved one, not knowing whether they were more likely to be the remaining or the departing partner, it would grant the remaining partner 14 months to make the settlement payment, and to remove the departing partner from the note. Otherwise, the house must be sold and the mortgage paid off.

"I bought a house 5 years ago with a buddy who split shortly thereafter, and I haven't heard from him since. I have paid all the expenses, including the mortgage. Now, I would like to sell but I can't without his signature. What can I do?"

According to Bob Bruss, this is a common problem among co-owners who cannot agree if and when to sell. The answer, he says, is a "partition lawsuit" where the owner who wants to sell sues the one who doesn't. Bob says that unless the court finds some compelling reason not to sell, which happens very seldom, it will order the sale and the proceeds split between the co-owners.

Copyright Jack Guttentag 2004.
Jack Guttentag, The Mortgage Professor, has been kind enough to allow me to post some of his answers to common questions regarding mortgages and home loan financing. For more information, visit www.mtgprofessor.com.