So, how do so many people mess it up so badly? Simply put, people lie (either to themselves or about themselves) when filling out a loan application.

We’ll look at examples from customers who applied for owner builder construction loans, but the principles of filling out a home loan application will apply equally well to anyone who wants a loan to buy or refinance a home.

Owner builder construction loans are for individuals who wish to build their own house without having to hire a general contractor. Therefore, they manage the sub-contractors themselves and oversee the project.

However, an owner builder loan application is no different from a standard purchase loan or refinance loan application. Almost every bank across the country will use a form known as a Uniform Residential Loan Application, also known as a 1003.

On this 4 or 5 page form, you simply fill in information about your financial situation. On the first page, you’ll cover simple info about the property as well as information about your address, phone, social security number, etc.

The second page will cover your work history and income. The third page will cover your assets and your monthly debts. All in all, the process is not difficult. In fact, anyone, whether you are an owner builder or someone looking to refinance an existing home, can fill it out without too much difficulty.

Therefore, the mistakes that are seen on owner builder loan applications be due to reasons other than misunderstandings. Indeed, almost every mistake occurs when an owner builder decides to embellish his qualifications or thinks it’s unimportant to be as accurate as possible.

You may be asking yourself why it’s such a big deal. Why should you care if you round off your numbers on the application? After all, it’s just a pre-approval. The bank will collect all of the real paperwork later on.

Here’s an example from a recent owner builder loan. A loan applicant decided the pre-approval was not worth his time to provide detailed information about his financial situation. He rounded up his income and failed to mention the child support payments that he is obligated to make each month.

In the case of this owner builder, the application was pre-approved quickly and easily. Why wouldn’t it be? On paper, everything looked great. But, when the bank started collecting the official income documentation and discovered the child support payments being deducted from the pay stubs, the borrower no longer qualified for the loan.

Not a big deal, right? Wrong. This owner builder had already put money down on a piece of land that he wanted to buy as well as purchased blueprints for his new home he wanted to build. Imagine the frustration and anger he caused himself when he found he was no longer qualified for the loan and he lost the money he wasted on blueprints.

Even though this is an example from owner builder construction, it still applies to anyone filling out a Uniform Residential Loan Application. Imagine you are buying a home and make a large earnest money deposit on the house you want based on getting pre-approved from your bank. Now imagine that your pre-approval is based on inaccurate information that you told the bank. In fact, imagine that you also wasted money out of your pocket for the home inspection and the appraisal.

So, what can you do? Whether you are looking for an owner builder construction loan or any other type of mortgage: tell the truth.

Do not think that embellishing your financial picture will help. It will only hurt you in the long run when the lender discovers the errors. You are better off getting an accurate pre-approval based on accurate information.

And, if you are unsure about your exact income numbers or your exact amount of assets, then estimate conservatively. That way, if your income or assets turn out to be higher than you estimated, you will still be approved and qualified for the loan program you are counting on. It works for owner builder construction loans. It works for refinances. It works for home purchases. It works.

In fact, one great piece of advice is to supply copies of your W2 forms, your pay stubs, and your asset statements when getting your pre-approval. Many customers, not just owner builder customers, don’t want to take the time to do this, because it’s a hassle. But, your loan officer can use these documents to ensure the pre-approval is based on accurate calculations. Besides, you are going to have to submit these documents for underwriting anyway.

For example, a recent owner builder borrower took the time to submit his pay stubs when he applied for his construction loan. A big portion of his income came from bonus pay. It turned out that he could only get credit for the average of his bonus pay over the last two years, in addition to his full base salary. Therefore, his gross income was calculated slightly lower for the loan that he thought it would have been.

In this case, the owner builder fortunately still qualified for the construction loan. However, you can see how miscalculating income can lead your pre-approval to be inaccurate. Therefore, don’t take any chances. Submit your documentation paperwork when you fill out the application.

So, if you are thinking of applying anytime soon for a mortgage for a home purchase or a simple refinance, then take a lesson from the world of owner builder construction loans. Do not discount the importance of providing accurate information about your financial situation on the Uniform Residential Loan Application. The pre-approval is a quick and easy process, but it’s also a very important one. Owner builder construction loans are no different in this respect.

Chris Esposito specializes in owner builder loans, helping people act as their own general contractor to build their homes. Visit Owner Builder 101 for more information about owner builder planning and financing. Go to OwnerBuilder101.com, or call (877) 876-3688.

Here are 5 pieces of information to demand of your mortgage broker before signing anything:

1) Yield Spread Premium – This is what the broker gets paid for marking up the rate of the loan above wholesale. The more of a markup, the more they get paid. It’s the same concept as a car salesman being paid more based on how much more he’s able to convince his customer to pay above sticker, only the salesmen is your broker, and the desk manager is the lender. It’s fair for the broker to make money, but negotiate this figure to make sure you don’t get ripped off.

2) Current Wholesale Rates and Par Pricing – When a borrower asks “What are today’s rates?” the broker hears “What rate would you like to sell me today?” When you’re asking about rate, make sure to be more specific. “What’s today’s wholesale rate for a 5 year fixed at par pricing?” It’s critical to mention par pricing, as that’s the actual wholesale rate before any broker markup.

3) Mortgage Loan Disclosure Statement – It’s all very well to accept what your being told at face value, but as my father always said, “a verbal contract isn’t worth the paper it’s printed on.” Brokers are eager to offer a GFE (Good Faith Estimate), but it leaves out valuable information such as YSP. You’re entitled to an MLDS, so make sure you get one.

4) Origination Fee – On the MLDS, make sure to look at the origination fee. Despite anything your broker tells you, this money goes directly to the broker’s coffers, and is entirely separate from the YSP. Your broker’s goal is to make a point in front and one in back. That’s ridiculous. A point total is fair, in whatever ratio you and the broker negotiate.

5) No Fees/No Closing Costs – Nothing else in life is free, why would this be? Do you think the appraiser and underwriter are going to work pro-bono? Between the title, escrow, notary and various other services you’ll require, the total cost will end up around $3000. Obviously, companies that offer “No Fees” make their money elsewhere. Elsewhere would be the YSP. Sure it looks good from the front, but the broker’s making a killing on the back.

Understanding these 5 key items will help you protect yourself from being taken advantage of. Be aware in advance; most brokers won’t like being asked these questions, but what’s more important, their friendship, or your financial wellbeing?

Rate1st.com provides a safe, simple, and efficient way for borrowers to compare rates from hundreds of lenders without compromising their personal or credit information. For more information on home mortgage loans please visit Rate1st at Rate1st.com.

July 31, 2008
30-yr 6.52 15-yr 6.07 5-yr ARM 6.07 1-yr ARM 5.27

July 24, 2008
30-yr 6.63 15-yr 6.18 5-yr ARM 6.16 1-yr ARM 5.49

July 17, 2008
30-yr 6.26 15-yr 5.78 5-yr ARM 5.80 1-yr ARM 5.10

July 10, 2008
30-yr 6.37 15-yr 5.91 5-yr ARM 5.82 1-yr ARM 5.17

July 3, 2008
30-yr 6.35 15-yr 5.92 5-yr ARM 5.78 1-yr ARM 5.17

Ok so mortgage interest rates tell part of the story. But how does this translate into a mortgage payment. Using our free mortgage calculator lets translate the mortgage interest rates over the last few weeks into a mortgage payment for a 200k loan.

July 31th, 2008
30-yr $1266.76
15-yr $1695.28
5-yr ARM $1208.11
1-yr ARM $1106.88

July 24th, 2008
30-yr $1281.28
15-yr $1707.22
5-yr ARM $1219.75
1-yr ARM $1134.32

July 17th, 2008
30-yr $1232.73
15-yr $1664.03
5-yr ARM $1173.5
1-yr ARM $1085.89

So it looks like for now rates are still relatively high. The only mortgage product that remains relatively low is the 1 year mortgage rate. Comparing it to the 30 Year mortgage rate at 6.52 the 1 Year mortgage rate comes in at 5.27. For a 200k mortgage the mortgage payment with a 30 Year loan would be 1266.76. For a 1 Year Arm the mortgage payment would be 1106.88 or about 12.6% less. While I usually avoid Arm’s that is a pretty substantial different. The only problem with 1 Year Arm’s is that their is no guarantee mortgage rates will be less in one year. And with all the volatility in the mortgage markets right now they could be somewhat higher. Looking forward its hard to tell what mortgage rates are going to do over the next month. The FED’s refusal to lower rates would tend to push mortgage interest rates up but since mortgage rates rose so much over the last two weeks we can only hope that for the time being banks are satisfied with the current rates.

Ki works in Austin Texas as a realtor. His website provides information on mortgage interest rates along with a free mortgage calculator. Their is also graphs that show historical mortgage interest rates

A reverse mortgage is sometimes called a “lifetime mortgage” and is a special home loan that is designed to give you money when you need it: when you are older. The reverse mortgage is not really a loan, but rather a way for a lending institution to pay you money for your home while you still own it.

To qualify for a reverse mortgage you must be 62 years or older in the United States and your home must have some equity or value above the value you paid for it. Mobile homes and other special dwellings may not qualify, but most stationary homes are eligible. Before completing the reverse mortgage transaction you will have to speak to the Department of Housing and Urban Development (HUD) to make sure that all the terms and details of the reverse mortgage are clear.

The amount of money you can take out of your home is based on the appraised value of your home as well as your age. The older you are the more money you are allowed to take out of your home’s value. There are some up front costs which are often high, but the interest rates are usually much lower than a standard home loan. The loan ends when you pass away or you move out of your home.

The money from a reverse mortgage can be used to supplement income or pay bills, but if you plan to be in your home for a few years you could also use that money to improve your home. Certain home improvements like an upgraded kitchen or bathrooms could actually increase the value of your home so that when if you sell it you can actually buy back the reverse mortgage from the bank as well as have some extra profit left over that you didn’t have before the improvements.

By selling your home and taking that extra value you are actually getting paid for putting the money into a home improvement and your home’s value initially paid for the improvements themselves. It’s a win-win situation for you as long as your home value increases with the improvements you put into your house.

Visit the Home Improvement Financing Site for more tips and tricks fpr applying and receiving low interest home improvement loans.

The hope is that these regulations will put the current mortgage lending industry in a more stable and profitable situation in the long-run. Currently, the extension of credit to homebuyers that are incapable of fulfilling their end of the deal harm the lending company, the homebuyer and the real estate market in general.

Currently, many consumer groups are claiming that mortgage regulations are too lax with a variety of loopholes. These loopholes make it too easy to allow reckless lending, which in turn causes more and more instability in the real estate market. However, industry specialists and mortgage lenders argue that these more stringent proposals will become a larger burden on current and future lenders and will reduce the amount of credit they can extend.

In essence, a restriction on the amount of credit available is exactly what the Federal Reserve is analyzing the need for. After all, the number of homebuyers who gained credit through unsteady means has put the real estate market in its current unbalanced slump.

Analysts are interested to see which way the Federal Reserve heads. More than 2,500 comments had been submitted on proposals that had prompted a review of the current mortgage lending situation. However, any revisions on the mortgage lending industry now will not help current homeowners who have already fallen behind on their mortgage payments and trying to avoid foreclosure. However, the idea is that with revised mortgage restrictions, they can prevent the current real estate crisis from occurring again in the near future. In particular, the aim is to prevent the real estate crisis on subprime mortgages.

The hope is to have responsible mortgage lending and home purchases to encourage stable lending and a stronger economy overall. However, the Federal Reserve wants to restrict mortgage availability with credit lenders while simultaneously offering plenty of credit to stable qualifiers.

There are four new rules for lending that the Federal Reserve will consider, including some of the following

Preventing lenders from engaging in a practice that will make loans difficult to afford
Limiting prepayment penalties
Requiring lenders to establish an escrow account for taxes and insurance of the property
Verifying income and assets for all potential lending candidates

These rules would make mortgage lending more stable across the board, although lenders state that these restrictions would make future lending more difficult. In addition, the regulations would disallow banks that pay brokers for steering homeowners into higher-priced loans, rather than the more appropriate loans they can afford.

The brokers would also be unable to coerce appraisers into stating the home value for less than it currently is for the mortgage lending process. Unfortunately, these practices all contributed to the current demise of our real estate market situation.

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