If your mortgage has a pre-payment penalty and you default, you are still responsible to pay the early payoff fees!

There is a clause in every mortgage called an acceleration clause. This gives the lender the right to foreclosure on the mortgage. When a borrower is late on the payments, the lender is allowed to accelerate the due date of the debt to the present and gives the debtor notice of default demanding the full loan balance be paid at once. Thus foreclose and take away the house.

A pre payment penalty is when a borrower must pay a fee for early repayment of part or the entire mortgage amount due. Perhaps, the borrower agrees to pay the lender an additional 3% of the outstanding principle if they pay it off within the first three years. Most people assume this will never happen or are simply given no choice but to agree. Many loans in the sub-prime category offered loans only with prepayment penalties. It made these high risk/high interest rate loans even more profitable to the investors. The borrowers were typically backed into this type of loan and assumed they would deal with it when the time came.

If you have an FHA mortgage or are using one to purchase a home, you are still allowed to obtain secondary financing. This second mortgage can be in the form of a line of credit (HELOC) or fixed rate mortgage. It can also be from any lender as long as it fits the criteria laid out below. Like the Fannie/Freddie conventional mortgages, there have become strict criteria for approval. Below are some of the general guidelines:

• Borrower's income must be sufficient to qualify for the combined total of payments on both the FHA and non-FHA mortgages (ratio guidelines have tightened, so this might be harder than before)
• Payments on 2nd mortgage must be monthly, with all payments being substantially the same amount (in other words- you can’t pay at the end or once a year)
• Second mortgage may not have a balloon due sooner than in ten years (you cannot be required to pay it back before 10 years)

Mr. and Mrs. Smith made more money in 2009 than they did in 2008 and they could not use that income to qualify for a mortgage. The bank could not verify it with the IRS so they would not use it. The loan was reviewed based on 2008 income and they were rejected! Not fair?  Of course not- learn why this happened.

Verifying income for mortgage approvals has become much more exact these days. Most banks will require proof of the last two years income received. Salaried borrowers will have to produce paystubs, W-2’s and sometimes tax returns. Self-employed borrowers will have to provide their last two years personal tax returns and often the business returns as well. Often, a person who received commissions and bonuses as part of their salary will also have to provide personal tax returns. If you are you are going to be applying for a mortgage and think you need to produce your returns get them done now! But….

For those of us that are moving up in the world, down in the world or simply taking to the road, an alternative abode (to a center hall colonial) can be a manufactured home. Simply put a double-wide trailer without the wheels on. We have all driven past those developments in rural areas known as trailers parks. For those of you that have lived there and love it, you know there is some stigma attached. However, with the economic times the way they are, more and more people are looking at true double-wides as their permanent residences.

The double wide- as it is known can be traced back to the gypsies in Romania who lived in “travel trailers”. It was sort of a buggy/caravan containing their possessions and sleeping quarters. They became popular in Britain and America as transportation for those with wanderlust in the early 1900’s. In the 1920’s they became popular as cheap accommodations for people to occupy for a week, a month or even to live permanently. In Britain they are still called caravans and here in the States they are called trailers.

In our country, trailers used as homes, are regulated by the U.S. Department of Housing and Urban Development (HUD) and their construction as well as financing are regulated and controlled. This is a good thing whereas in other countries there is no regulation whatsoever. Even so, in some countries living in a trailer, no matter how beautiful, for more than three months is prohibited.

However beautiful and why one chooses to occupy a trailer as a residence, let it be known that it is very difficult to obtain permanent financing.

A long time client of mine is self employed and lives in a coop in Manhattan. She wanted to refinance her existing loan from a 6.75% interest rate down to 5%. This would have saved her over $300 a month. Isn’t that fabulous! Because business has been off the past two years and the lender requires stable or increasing income, she was just shy of what she needed to qualify for the loan and the bank denied her. Even though her loan was only 25% of the value of her home, she was lowering her monthly payment by almost $350 a month, she had over 750 FICO scores and she was not taking any cash out, the bank denied the loan. No exceptions- how can this be!

Not only are appraised values dropping and credit scores requirements higher, the banks are steadfast on expense to income ratios. A ratio is calculated on monthly expenses v. gross monthly income. FNMA (and the lenders that work with them) now requires a back-end (all housing and other expenses combined) ratio of no higher than 45% on all refinances even if the monthly payment can be much lower than before. My client’s ratio was a bit higher (48.6%) and I had to give her the bad news- embarrassed to say.

I get many great questions on my blog, and love to post the one's with universally useful answers. On Saturday, I received this email from one of my readers that covered two great areas. 1. why is the FICO score on consumer-pulled credit reports lower than the score actually obtained from mortgage lenders? 2. What is the deal with the Good Faith Estimate and closing costs?

Will 2010 be a better year for real estate? Not likely say some, yes we see a turn around say others. Who is right and why. What needs to happen to make a change? Jobs, stock market, stability, hope...or all of the above. So, they ask me....When is this mortgage nightmare going to end? When will the mortgage money begin to flow again?

Two events need to happen here.

1. New mortgage loans being issued to borrowers need to show a clean history of performance. The less delinquencies we have for mortgages taken out in 2009 and 2010 the more likely there will be stability moving forward. This means that the market must witness a good 12-24 months of good payment history for current and new homeowners. Thus, lender guidelines will continue to be tight, including the FHA (thought to be the free ride). The restrictive guidelines are helping to get quality loans but hindering any great movement in the housing market.

2. The secondary mortgage market needs to witness better quality mortgage pools, offering a comfort level to go out and buy them. When the mortgage pools reach a better quality ("A" credit borrowers with good payment history), these pools become worth something on the Street. Investors will return to purchasing these pools and so the money will move. When Wall Street and the Global Market begin to buy mortgages, the money will flow again.

Unfortunately, all borrowers are suffering through this process now. At every level of credit quality, borrowers are being put through the ringer. Those that qualify will get loans, those that don't will have to wait. The housing market and real estate industries are suffering and contributing to the economic downturn. There are many schools of thought out there. However, talk talk talk- we just need to get through it and move forward a little smarter. What do they say? No pain....

I recently met Linda Rey, of Rey Insurance, at a small networking event in Westchester, New York. There was lots of small talk (and wine) but I did mention to her that I was reviewing my insurance plan and was not happy with what I was being told by my insurance broker or another person I had spoken to. The problem was that they were willing to tweak, but were cutting out what I needed rather what I did not need. I was also not comfortable with the explanations I was getting. Linda volunteered to review the proposals from the other agents as a favor and did such a great job tweaking and explaining that I gave it to her. Sometimes, you get business simply by taking the time to be nice!

Let’s face it, insurance is a waste of money- until you need it! Then you wish you had the best and someone to explain it to you. With growing costs and concerns on health care, I thought now would be a good time to get the skinny on the service. What better way than to interview my NEW insurance agent, Linda Rey of Rey Insurance.

Q. What exactly is homeowner’s insurance and what kind of protection do you get other than if your house burns down?

A. In the interest of time, Homeowners Insurance provides financial protection not only from physical damage to your property in the event of a fire, theft or vandalism, but also if there is water damage from a pipe bursting or sewer backup (under separate endorsement). There could be some windstorm coverage but could be subject to a separate deductible (depending on the carrier). There is liability coverage should someone injure themselves while on your premises, needs medical attention and/or sues you for personal injury. I can tell you what it doesn’t cover. Flood, Earthquake, Mudslide, wear and tear are not covered under a standard homeowners policy. Flood is available under a separate policy. Wear & Tear is not covered. This is part of the responsibility of being a homeowner and caring for the condition of the house to prevent damage to the property. One should always refer to their policy if they have questions and discuss those questions with their agent.

A huge change in the real estate market has been caused by the changes in the appraisal process and home valuation. More often than not, appraisals are coming in lower than the sale prices, which cause enormous friction between buyers and sellers. This can result in lower sale prices, deals falling apart and a basic stagnation of the market. Since the control has shifting to only the banks ordering appraisal, many good appraisers are out of work. Those that want to continue to eat must stay in the good graces of the lenders. Now, getting a good appraisal depends on having a really good (knowledgeable and experienced) appraiser. Today, I am happy to have a conversation with Vicki Brennan of  VBrennan Appraisals. If you have any additional comments or questions feel free to contact Vicki below.

Q. Describe what an appraisal is and what it means to the homebuyer?

A.An appraisal is, by definition, "an opinion of value." The appraiser's opinion of value is important to the homebuyer because the lender will determine the loan amount for a purchase based on the LTV calculated by using the LOWER of the appraised value or the purchase price. It will also indicate if the buyer is paying the right price.