Understanding Your Credit Score

Your credit score is one of the biggest determining factors in your ability to get a quality loan, and it is far more complex than just a three-digit number.

Yahoo! Personal Finance recently wrote an in-depth piece about understanding the intricacies of your credit score and what it means.

According to the article, “consumer research conducted by the Consumer Federation of America and VantageScore Solutions shows that many Americans don’t really understand their credit scores.”

The lower your credit score, the higher interest you will pay on loans and any line of credit. Understanding the basics of credit scores can help you achieve your goals, including home ownership.

Click here to view the article and learn more about credit scores.

How to Get Finances Back on Track After Being Unemployed

If you are back in the workforce after a layoff, you might be wondering how to address financial issues.

For many re-employed people, a new paycheck might not solve all money problems. According to a survey by CareerBuilder, among workers who were laid off in 2010 and found new jobs, 61 percent took pay cuts.

With money tight, pay attention to urgent expenses first.

Attend to maintenance on your home and car. If you put off medical care for yourself and your family, that should be attended to. Advisors for Money magazine say it’s important to get the basics back on track.

The next priority is paying off credit card debt you have accumulated, paying more on the card with the highest interest rate first. Big credit card debt can harm your credit rating.

Paying off a home-equity line of credit is less urgent. The interest is tax deductible. Since the debt is secured, it won’t affect your credit score very much.

Since you have probably used all or most of your cash reserves, it’s important to rebuild them at the same time. If you have $500 a month in discretionary money, advisors recommend that you put $300 toward debt and $200 toward savings.

Next comes your retirement fund. Even if you can only manage a very small amount, contribute to your new company’s 401k plan right away.

If you don’t have enough cash to save and pay down debt, plus put a small sum into your retirement plan, it might be wise to refinance your mortgage. Especially if you have significant home equity, it will be easier to do now that you are employed.

Once you have met these goals, you will have more money to put into living life instead of playing catch-up.

This Week's Market Commentary.

This week brings us the release of seven relevant economic reports for the bond market to digest. We are also heading into corporate earnings season, which could lead to fluctuations in the stock markets.

If earnings come in lighter than estimates, the stock markets may fall, leading to an influx of funds into bonds. But if earnings and forecasts are strong, the major stock indexes may rally, pulling funds from bonds and leading to higher mortgage rates.

There is no relevant economic news scheduled for release tomorrow. The first report of the week comes Tuesday morning but it is the least important one. February’s Goods and Service Trade Balance will be posted early Tuesday morning. This data gives us the size of the U.S. trade deficit, but unless it varies greatly from forecasts, it likely will not cause much movement in mortgage rates. Current forecasts show a $45.7 billion trade deficit.

The first important report will be posted early Wednesday morning when the Commerce Department will release March’s Retail Sales data. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up two-thirds of the U.S. economy. Forecasts are calling for a 0.5% increase in sales last month. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise. However, a weaker than expected reading could push bond prices higher and mortgage rates lower Wednesday.

The Federal Reserve will post its Fed Beige Book report at 2:00 PM ET Wednesday. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable for bonds and mortgage pricing.

The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as investing firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon.

Thursday’s important data comes when the Labor Department will post March’s Producer Price Index (PPI) at 8:30 AM ET. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments, leading to higher mortgage rates. A slight increase, or better yet a decline in prices, would be good news for the bond market and mortgage rates. Current forecasts are calling for a 1.0% increase in the overall reading and a 0.2% rise in the core data.

The remaining three economic reports will all be posted Friday morning. This first will be March’s Consumer Price Index (CPI). This index is one of the most important pieces of data we see each month. It is similar to Thursday’s PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. As with the PPI, there are two readings in the index that traders watch. Analysts are expecting to see a 0.5% increase in the overall readings and a 0.2% rise in the core reading. If we see larger increases, we could get higher mortgage rates Friday.

March’s Industrial Production data will be posted at 9:15 AM ET Friday. It gives us a measurement of output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.6%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing.

The final release of the week is the University of Michigan’s Index of Consumer Sentiment at 9:55 AM ET Friday. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March’s 67.5 reading. Current forecasts are calling for a reading of approximately 66.0.

Overall, look for the most movement in rates the middle part of the week. The Retail Sales and CPI reports are the biggest names on the agenda. Either of them can cause significant movement in the markets and mortgage rates, so either Wednesday or Friday will probably be the most active day of the week. Look for the stock markets to influence bond trading and mortgage rates the first part of the week, but we can expect to see the most movement in rates the latter part.

Lower Loan Limits Coming October 2011

At the beginning of the mortgage meltdown a couple of years ago, Congress enacted emergency legislation raising the limits on High Balance Conforming Loans.

These loans are designated “conforming,” meaning lower interest rates and typically a slightly easier transaction to get approved and closed when compared to Jumbo (or non-conforming) financing. The High Balance variety is only available in designated high cost areas, like the San Francisco Bay Area.

Currently the “temporary” limit on these loans is $729,750. This means that if you put 20% down on a $900,000 home, you can get a conforming loan in the amount of $720,000. Effective October 1, 2011 the emergency legislation expires and is not expected to be extended. This lowers this High Balance Conforming Loan to $625,500.

So, what does that mean to you? If you buy the same $900,000 home and put 20% down, your loan will now be considered a Jumbo loan. Rates on Jumbo loans are typically 1-1.5% higher, so if today you could get that loan for, say, 5% your payment would be $3865.12. The same loan amount using the Jumbo rates would be 6-6.5%, bringing your payment to $4550.89. Over 30 years, that totals over $246,000! The other option would be to put a larger down payment on the property, to the tune of nearly $100,000.

The important thing to note is that if you are looking for a loan to purchase a home, or refinance the one you already have, now is the time to move forward. The limit will remain at the higher point until the first of October, giving home buyers the spring and summer seasons to purchase a property before the high limits are gone.

To find out what the current loan limit is in your area, you can access the Fannie Mae website to see a county-by-county spreadsheet.

According to Alan Russell, a local mortgage professional, “The higher limits have really helped people get into homes here in the Bay Area. Once those limits reduce, there will be fewer options for those trying to get into the real estate market. I’ve been talking to all my buyers and giving them fair warning that the time to move is definitely now.”

The "Mom Cave"

It’s new, it’s fun, and it’s strictly personal!

Now that the “man cave” has become an established custom in homes, women have taken the cue to establish a spot of their own. Forget men’s huge TVs, theater chairs and eating spots, where they do manly, messy, sporting things. A woman’s personal place is entirely different.

Whether it was formerly a guest room, a place next to the family room in the basement, or any unused space, the “mom cave” is generally filled with personal mementos and comfort items. It’s a room they can call their own.

Many women, not just moms, are taking over a space in their homes and turning it into a haven where they can relax and pursue personal interests. Decorators are applauding the trend.

Here’s what’s needed to create the cave: A place to sit, storage space, an area to do what they want to do, such as scrapbooking, and space for occasional visitors. The walls can be decorated with old or new photographs in fun frames, and bright wall colors or fancy wallpaper served as a background.

New York designer Elaine Griffin embraces the concept and recently partnered with Homegoods in Manhattan to show the new decor and space suggestions. She says the mom cave is where a woman, who nurtures everyone else, goes to nurture herself.

Griffin loves color. She says mom caves should be fun, feminine and highly personalized. They should include a reading place, probably with a nice throw on the arm of a chair, or a chaise lounge, a bookcase painted in a bright color, a fancy area rug, and maybe boxes of brightly-colored file folders and lamp shades that reflect a woman’s tastes.

If they don’t have a whole room, Griffin suggests taking over a spot, such as under a stair landing, for a sanctuary using narrow console tables, a rug and armchairs. Or part of the family room or dining room could be captured for their own.

Last Chance: 3.5 Percent Down

Mortgage industry changes: Low rates and terms may soon be history

You are going to be hearing a lot about restructuring the mortgage industry in the next months and years.

But the bottom line for home buyers is buy now and get financing in place by as early as May. The great terms of recent years will soon be gone, and probably gone forever.

Experts say you will probably never again see down payments in the 5 percent range (even now becoming harder to find) or 30-year fixed rates under 5 percent.

The median down payment in nine major U.S. cities rose to 22 percent late last year. This was the highest requirement since 1997 on properties purchased through conventional mortgages, according to a Wall Street Journal report.

In many areas, however, a down payment of only 10 percent of the mortgage amount could be available for people with high credit scores.

The lowest down payments are still offered by the Federal Housing Administration, FHA. They will finance a home with a 3.5 percent down payment.

But a recent Obama Administration white paper on the mortgage industry hints that this very low down payment might change as the federal footprint in the mortgage market shrinks.

According to CNN Money, Congress will be considering raising FHA down payment requirements, approving higher insurance fees for FHA mortgages, and changing rules for ‘qualified’ mortgages. This could mean higher interest rates for consumers and higher down payments, perhaps up to 30 percent.

With its low down payment requirements, low interest rates, and lower credit score requirements, FHA now has a 30 percent market share in the mortgage arena but plans are to reduce its activity to just 10 percent.

Administration officials say the planned process could take some time, but it might include phasing out federal backing of Fannie Mae and Freddie Mac. Since the mortgage crisis began, the government has bailed out the federally backed entities to the tune of $150 billion.

Life Without Fannie and Freddie?

What would happen if loan giants Freddie Mac and Fannie Mae were shut down? A recent New York Times article explains that if the government eventually shuts down these companies, the 30-year fixed-rate mortgage loan could be a thing of the past.

Homeownership as we know it could change drastically, with the fixed-rate loans at risk for extra fees and high rate increases for those in urban and rural areas.

“Lenders could charge fees for popular features now taken for granted, like the ability to “lock in” an interest rate weeks or months before taking out a loan,” according to the article.

Fannie Mae and Freddie Mac carry 90% of new mortgage loans post-recession as many lenders can’t afford to make loans that aren’t government insured. The 30-year loan has been the popular option since it was introduced in 1954 by an act of Congress, and most have been issued only with government support.

Read more about the possible outcome of Fannie Mae and Freddie Mac being shut down and what would mean for mortgage rates here.