When home prices are stable or falling, home buyers often mischaracterized their downpayment on a home, calling it their “cushion” against falling home prices.

Nothing could be farther from the truth.

Nobody wants to owe money when they sell their home. In fact, when asked, most people will answer that they just want to “break even” on their sale.

So, if that person later sells their home for $30,000 less than they paid for it plus the cost of improvements, $30,000 is their loss. If their initial downpayment happened to be $30,000 and they walk away from the closing table “even”, it doesn’t change the fact the home owner lost $30,000 on the sale.

The downpayment is not a cushion — it’s an investment. And in the face of falling prices, it can be a simple game of Pay Now, or Pay Later.

If it feels like mortgage approvals are harder to come by than in years past, that’s because it is.

And we’re not just talking about sub-prime mortgages for which the market has nearly vanished in just 12 months.

According to a story on Marketwatch, mortgage guidelines are more challenging for everyone to meet.

The Federal Reserve conducts a quarterly survey of senior bank lending officials and in its most recent survey, nearly half of the banks said that their respective underwriting process have tightened, forcing borrowers to “jump over a higher bar” in order to get approved.

As a home buyer and/or homeowner, you can’t do much about the banks, or the mortgage markets. But, you can make strides to make your personal application stronger and that process starts with your credit score.

If you’re planning to make a move within the next 12 months, it’s never too soon to get a credit consultation from a trusted mortgage loan officer or other financial professional. Yes, banks are now demanding more strength in income and in assets, but without sound credit history, you may be shut out entirely.

The mortgage approval process will likely get more difficult before it begins to get easier. Therefore, take proper steps to review and repair your credit (if necessary) well in advance of needing a home loan. Time heals credit blemishes and you may find that it’s the difference maker in getting a lender’s mortgage approval.

Source
Unprecendented tightening in lending standards
Marketwatch
Rex Nutting
November 5, 2007. 3:06 P.M. ET

With gas prices up 37% nationally since this time last year, Americans have grown accustomed to driving a little bit further just to find a “gas bargain”.

But, is it worth it?

Based on today’s national average gas price of $3.00 and assuming a 15-gallon fill-up and a 20 miles-per-gallon vehicle, a car owner would need to see 1 cent savings per gallon at the pump for each extra mile driven in search of better gas prices.

Broken down:

If gas costs $3.00 per gallon and the car gets 20 miles per gallon, it costs 15 cents/mile to drive the car.

If the car fills up with 15 gallons, a one-penny savings per gallon would yield 15 cents in savings.

15 cents is the same amount of money it cost to drive the extra mile to the “cheaper” gas.

This isn’t an absolute, of course. The one-penny-per-mile rule varies according to several factors:

1. The gas mileage of your vehicle: The worse your car’s gas efficiency, the fewer miles you should drive to find less expensive gas.
2. The savings at the pump: The greater the savings at the pump, the more miles you should drive to fill-up at that gas station
3. How much fuel you plan to buy: The larger your car’s gas tank, the farther you should drive for savings.

The best way to save money on gasoline is to curb automobile usage and follow good driving practices. Then, trying using gasbuddy.com to find inexpensive fueling options in your area, listed by zip code.

Interesting fact of the day, from MSN Money:

55.5% of “wealthy” Americans have mortgages on their primary homes vs. 44.6% of the overall population.

This doesn’t mean that the wealthy are more indebted than the rest of us, but it may mean that the wealthy are maximizing the tax deductions that the IRS makes available to every homeowner in the country.

Unlike every other type of consumer debt, interest paid on most home loans is tax-deductible and is deducted from the homeowner’s annual income. For this reason, a homeowner’s “bottom line” interest cost is much, much less than his note rate.

If you are in the 28% tax , for example, and your note rate is 6.00%, your “bottom line” interest rate is 4.32% after factoring in the tax deductibility of your interest payments.

Check with your CPA for exact math, of course, but you can see how mortgage debt may fit into a professionally-managed financial plan that features annual returns higher than 4.32%.

Wealthy or not, every homeowner should consider the impact of losing tax deductions before paying off their mortgage.

If the wealthy are doing it and they have a team of advisors surrounding them, maybe there’s something to it for everybody else.

Source
5 lessons the rich can teach you
Liz Pulliam Weston
MSN Money

The Fed lowered the Fed Funds Rate by 0.250% yesterday. The widely-expected rate decrease was well-received by stock markets to the detriment of mortgage bonds. Mortgage rates climbed higher yesterday afternoon as demand for mortgage bonds waned.

This further illustrates that the Federal Reserve does not control mortgage rates. The FFR fell; mortgage rates rose.

Because it is tied to the Fed Funds Rate, Prime Rate fell by 0.250% yesterday, too. Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month’s statements.

In the statement above — as explained by The Wall Street Journal — the Fed expresses concern about the housing slump while noting that the economy seems to be finding a balance. This means that future rate cuts are less likely.

Source
Parsing the Fed Statement
The Wall Street Journal Online
October 31, 2007
http://online.wsj.com/mdcapp/public/page/2_3024-info_fedparse_shell.html