A year ago, 30-year fixed-rate financing was the name of the game. Recently, the adjustable-rate mortgage (ARM) made a comeback.

The 5/1 ARM is popular with some homebuyers and homeowners with equity who are refinancing. The attraction of a 5/1 ARM is that it offers a fixed rate for five years that is significantly lower than what is available on 30-year fixed-rate mortgages.

At the end of May, 5/1 ARMs were available from some lenders with interest rates as low as 3.75 percent with no points. Points refer to the loan origination fee: 1 point is equal to 1 percent of the mortgage amount.

The interest rate on a 30-year fixed-rate loan was as low as 4.5 percent with 1 point. Interest rates vary from one location to the next, and not all mortgage products are available in every state.

Last year, high-end buyers paid a premium for jumbo financing, if they could find it at all. At the end of May, some lenders offered 5/1 ARMs for 4.5 percent in amounts up to $1 million to borrowers with a 20 percent cash downpayment, and up to $2 million or more with 25 percent down.

The downside of a 5/1 ARM is that at the end of the fifth year, your mortgage payments could jump significantly. To determine your new interest rate when the five years of fixed-rate financing expires, a margin is added to an index that fluctuates over time to arrive at your ARM rate for the next year. There should be a cap on how high the rate can go each time it adjusts (in this case, annually) after the initial five-year period.

Let’s say the index on your 5/1 ARM is the 1-year constant-maturity Treasury rate (CMT). In April 2010, the CMT was 0.45 percent. If you’re margin is 2.75 percent, and your mortgage converted to an ARM in April 2010, your new interest rate would have been 3.2 percent. However, in April 2006, the CMT was 5.9 percent, which would have given you an interest rate of 8.65 percent and a huge jump in your mortgage payments.

HOUSE HUNTING TIP: Often the initial fixed-rate payments on a 5/1 ARM are interest only. Some 5/1 ARMs start at a rate — called a teaser rate — that is lower than the current index plus the margin. This could result in a significant rate and monthly payment increase at the first adjustment. Make sure your 5/1 ARM doesn’t have a prepayment penalty, so that you have the flexibility to pay down the principal balance at any time without penalty.

One way to protect against a large increase in your mortgage payment when the loan converts from fixed-rate to adjustable is to pay down the principal balance. Each time the interest rate changes, an ARM is recast so that the monthly payments are based on the new principal balance.

Despite the savings possible in the first five years of a 5/1 ARM, low fixed-rate mortgages are the choice of most homebuyers and borrowers who plan to stay put for the long term. In the current volatile housing market, buying for the long haul is a good strategy.

Homeowners who don’t intend to stay long in their home are good candidates for a refinance to a 5/1 ARM. For example, empty-nesters who plan to trade down to a smaller home within the next five years would pay the loan off before it converted to an ARM, with possibly much higher monthly payments.

It’s even possible to get cash back on a 5/1 ARM refinance, or consolidate debt, as long as you have sufficient equity in your home.

THE CLOSING: On a refinance, some lenders will lend up to 80 percent of the appraised value, less loans you already have secured against the property.

Military veterans have long been accustomed to a relatively easy mortgage process. Even borrowers with no down payment or a low credit score were usually granted V.A. loans, in large part because the Department of Veterans Affairs insures a quarter of the loan amount.

But about two years ago, lenders began limiting the conditions under which they would offer these mortgages, and industry executives say that since the start of the year, all the nation’s major lenders have followed suit.

“It’s been a tightening across the board,” said Nathan Long, the chief executive of VAMortgageCenter.com, an online broker of V.A. mortgages.

Lenders will still offer V.A. loans with no down payment, he said, but “if you have a credit score of 610, the best thing to do is work on your credit and try again in a couple of months, because you don’t really have any options.”

Mr. Long says major lenders like Bank of America, Citigroup and JPMorgan Chase, typically will not offer V.A. loans to borrowers with credit scores below 610. Debora Blume, a spokeswoman for Wells Fargo, said the cutoff score for her bank’s V.A.-insured loans was 600.

The tighter credit policies also extend to the Streamline Refinance program, which allows borrowers with V.A. loans to refinance into another V.A. loan with very little paperwork and, until recently, no appraisal.

Mr. Long and V.A. representatives say that lenders are now requiring borrowers to pay for an appraisal, which can cost $300 or more depending on a home’s location. If the new loan amount is more than the value of the home, they will most likely reject the application.

Not surprisingly, V.A. loan volume has fallen so far this year. William White, the acting assistant director for loan policy at Veterans Affairs, said his agency was on pace to insure about 300,000 mortgages this fiscal year, which ends Sept. 30, versus 325,000 in 2009. The nation’s overall loan volume rose about 19 percent during the same period, according to the Mortgage Bankers Association, to $1.92 trillion from $1.62 trillion. (The trade group tracks only total dollar amount.)

Mr. White said he understood why lenders might be restricting the loans, as the V.A. insurance only covers 25 percent of the loan amount. But he added that borrowers of V.A. loans generally had a lower default rate than prime borrowers over all — 2.6 percent versus 3.4 percent, according to the Mortgage Bankers Association — despite the fact that their credit scores were typically lower.

V.A. mortgage borrowers tend to “show some discipline,” Mr. White said, offering one explanation, “and we think they try real hard to make their payments.”

The average credit score for a V.A. borrower last year was just over 700, while the average credit score for all borrowers was 750, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the government-sponsored companies that establish underwriting standards.

Mr. Long noted that V.A. loans remain competitive with other loan products. Borrowers who qualify — they must prove 24 months of continuous active military duty, and cannot have experienced a dishonorable discharge, among other things — can secure rates of 4.75 percent on 30-year fixed-rate loans, he said. That is the case even for borrowers with 620 credit scores, he added. The average rate nationwide for all 30-year fixed-rate loans is around 4.70 percent.

There is a one-time insurance fee that varies according to the size of the loan and the borrower’s credit profile, but the average is about 1.75 percent of the loan amount. On a $200,000 mortgage the cost would be $3,500. About a quarter of applicants — disabled or retired veterans, for instance — qualify for exemptions from that payment.

An audit of refunds to taxpayers claiming the federal homebuyer tax credit concludes that although the IRS has made “significant strides” in detecting erroneous claims, millions of dollars have been paid out to prison inmates and for transactions involving homes purchased before the credit took effect.

The report, by the Treasury Inspector General for Tax Administration (TIGTA), identified 14,132 erroneous credits totaling at least $26.7 million — a tiny sliver of the more than $12.6 billion in refunds paid to date, but a troubling indication that the program remains vulnerable to fraud.

The erroneous refunds included $17.6 million in credits allowed for 2,555 taxpayers who appear to have purchased their homes before the tax credit first took effect in April 2008, and $9.1 million in credits to 1,295 prisoners who were incarcerated at the time they reported purchasing their home.

The report also estimated “tens of millions of dollars” in credits were issued to 10,282 taxpayers who claimed to have purchased homes that were also used by other taxpayers to claim the credit. In one case, as many as 67 taxpayers listed the same home to claim the credit.

“The good news is that the IRS has made significant strides resolving problems associated with this program,” said J. Russell George, the Treasury Inspector General for Tax Administration, in a press release announcing the release of the report.

Unlike a previous audit, no minors were found to have received the credit, he said.

“However, the bad news is that prisoners are allegedly improperly receiving the credit for buying homes while they are incarcerated,” George said.

In addition, the report found that at least 34 IRS employees claimed the credit despite indications that they owned a home within the past three years. This is in addition to the 53 IRS employees identified in a previous TIGTA report issued in August.

In a memo responding to the report, Richard Byrd, commissioner of the IRS Wage and Investment Division, said the IRS “is running a well-rounded compliance program that has helped protect the interest of the nation’s taxpayers” but acknowledged that “more can be done to ensure the accuracy and legitimacy” of claims.

Byrd said that in the process of paying out more than $12.6 billion in tax credits to more than 1.8 million homebuyers through February 2010, the IRS has denied 285,504 claims that lacked adequate documentation.

In addition, the IRS has frozen 112,852 refunds pending civil examination, and conducted 114,418 post-refund and amended return audits. The IRS has also identified 98 potential criminal schemes, opened 155 criminal investigations, and recommended seven prosecutions, Byrd said.

Between August 2008 and November 2009, Congress passed three different versions of the credit, “each of which required the IRS to develop new forms and guidance, reprogram systems, and develop compliance filters. We appreciate that the report recognized many of the steps we have taken to prevent inappropriate claims from being paid.”

“Given the complexity of tax administration and the time constraints the IRS is faced with in implementing legislation, it would be impossible for us to either stop or address every potentially erroneous claim,” Byrd said.

But homes purchased before April 9, 2008, were never eligible for the tax credit, and the TIGTA audit found that the IRS approved some claims on home purchased in 2007 or earlier.

All of those claims were processed before July 2009, when the IRS initiated controls to identify such claims before refunds are issued.

Going forward, the IRS has developed a “Recapture and Repayment” strategy that will use third-party data to identify potential fraud triggers, including the date of a home’s purchase, Byrd said.

Prisons report the status of inmates to the IRS on a voluntary basis, and “without congressional action to require state and federal prisons to report the status of inmates to the IRS, there will be gaps in the data and compliance problems will persist,” Byrd warned.

He said the IRS takes “very seriously” the issue of potentially erroneous claims filed by IRS employees, and “will continue to work closely with TIGTA on their investigative efforts to identify intentional employee noncompliance” with the homebuyer tax credit and other provisions of the tax code.

Ginny, in April I offered $165,000 on a short sale that was listed at $150,000. My offer was for all cash, but we just found out the property was sold in June to someone else for $160,000 — $5,000 lower than my offer! My broker said that banks look at the first in line and try to work with that rather than try to get the best offer or even look at all offers. Is that true?

My offer was third in line, and apparently the bank took a lower offer that came in before mine. Is this really the way it happens with short sales, or should I look for a different broker? — Maryedith B.,  Ashville, NC

Maryedith, I can envision several different scenarios that might have legitimately led to this result. First off, the other buyer might have simply gotten into contract first. Once a seller is in contract with a buyer, they can’t simply cancel the contract with that buyer because they get a higher offer. Some banks require that all offers be submitted by the listing agent so they can select the highest and best offer, no matter when it comes in. Others want only the actual “contract” the seller has signed.

With short sales, there is the additional nuance that once the bank is considering one contract, many experienced short-sale listing agents will not submit any additional offers to the bank unless and until they receive an acceptance from the bank — regardless of whether the bank has requested to see additional offers or not.

Many fear that submitting a new offer essentially presses the restart button on an already interminable short-sale application process. And this is especially so in situations where the new, incoming offers are higher than the one being considered — here’s why.

Short sales take a long, long time. And they are very unpredictable — most of the time, there’s no telling how long it will take before the bank will issue an acceptance, or whether the bank will ever accept the short-sale application at all!

For this reason, buyer’s brokers and listing agents alike understand the reality that most buyers who make offers on short sales continue to look around for other properties, even if their offer was the one accepted by the seller. As a result, oftentimes short-sale buyers make an offer but fail to hang in the transaction for the duration.

So, here’s what happens in a short-sale listing agent’s head. They get an offer for $160,000 that is submitted to the bank for consideration. Then, they receive an offer from you, for $5,000 more. Some listing agents — as backwards as it sounds — would prefer to get the bank to approve the lower sale price, because the approval of your higher offer price ties their hands from ever accepting other offers at a lower sale price than yours in the (quite likely) event that you walk away before the deal can be done.

If you walk away, and the bank has already seen or approved your high price, the listing agent may never again be able to find another buyer to pay that much. And the bank may never accept less than your offer price, once they’ve seen and/or approved it.

Other things could also be at play here that would make your offer less desirable than the prevailing offer. You offered $5,000 more, and were offering cash, but the other offer might also have been all cash — especially at that price point and in that area. Did your offer include a proof of funds — a bank or other account statement documenting that you actually have the cash in hand to do the deal? If it didn’t, and the other offer did, that could cause a seller to select the other offer over yours.

Did your offer contain any contingencies, like appraisal or inspection? If it did, and the other offer didn’t, that could also push the other offer into priority over yours.

Did the listing broker or agent also represent the other buyer? Often, the total sales commissions paid out on the seller’s side go down — and the total commission earned by the listing broker goes up — when the listing agent represents both buyer and seller.

This arrangement — where a seller agrees to pay a 5 percent commission split 50/50 between two agents or 4 percent commission if the listing agent also represents the buyer (the specific numbers are hypothetical) — is called a dual/variable commission structure, and can also result in preferential treatment to a lower offer because the costs are lower to the seller on the transaction that included dual representation.

There’s no way to know for certain — other than asking the listing agent, who may or may not elaborate — exactly why the lower offer was preferred over your higher, cash offer. But I would encourage you not to shoot the messenger!

I don’t know if you’ve heard or read, but short sales are notoriously difficult to buy. Google it, and don’t fire your agent over something that’s totally out of their control. Unless, that is, you have an ongoing trust crisis — even if it’s unwarranted, that’s a good enough reason to get referrals and do whatever it takes to find an agent you do trust.

The homebuying process is difficult enough — for both you and your agent — without you constantly questioning whether your agent’s on the up and up and threatening to ditch her when things don’t go your way.

If you’re trying to buy a short sale or REO, the one thing I can guarantee you is that something — or many things — will not go your way. C’est la vie on today’s real estate market (and that’s not your agent’s fault).

Homeowners who owe so much on their mortgages that they can’t refinance may want to consider bringing some money to the table to take advantage of today’s near record-low interest rates.

That’s what Frank Nothaft did. And he isn’t alone. Millions of people in recent months have become part of a phenomenon known as “cash-in” refinancing.

“It’s picked up dramatically,” says Nothaft, chief economist at mortgage giant Freddie Mac, the government-chartered enterprise that purchases mortgages from lenders.

Typically, people refinance to “cash out” some of the equity they’ve built up in their homes over the years as a result of rising home values and paying down what they borrowed to buy the house. During housing’s heyday, some folks became serial refinancers, turning in their old loans for new ones with almost every downtick in market rates and every new jump in their home’s value.

The bubble burst, of course, and now many homeowners are upside down on their loans. They owe more than the current appraised value of their homes, so at first blush they would seem unable to benefit from mortgage rates that are bouncing somewhere around the 4.75% level for ultra-safe, 30-year fixed-rate mortgages.

Enter the cash-in refi. It’s not a new concept, but it has “picked up dramatically” in the last six to nine months, Nothaft reports, to the point where cash-in refinancing is at its highest level since the mid-1980s when Freddie Mac began tracking the characteristics of refinance transactions.

In last year’s fourth quarter, a third of all borrowers who refinanced lowered their principal balances by putting money into the deal rather than taking it out. The share dropped a bit in the first quarter, but the Freddie Mac economist expects the percentage to “remain elevated” for a number of reasons.

Certainly the chief driver of the cash-in craze is to earn a better return on your money. With savings accounts and other investments yielding little or nothing in profits these days, Nothaft thinks it makes sense to put some of your funds into your home, especially if you can knock a point or two off the mortgage rate.

“You’ll get a much better return on your money by paying down” the amount you owe the bank, he says.

Even though she says she didn’t realize there was a name for them, Amy Tierce, who heads one of the top-producing branches in Fairway Independent Mortgage’s 90-office network, does cash-in refinances “all the time.” And the Needham, Mass., loan officer points out there are other reasons to bring some money to the closing table.

One is to avoid the higher rate charged on high-balance loans. These so-called jumbo mortgages are typically priced about 1 percentage point higher than conventional loans. The cutoff between conventional and jumbo is $417,000 in most places, but as much as $729,750 in high-cost markets.

Tierce recently worked with a couple who wanted to refinance the jumbo loan on their second home in Brookline, Mass. Finding no product that would improve their situation — loans on vacation properties are difficult to find and expensive these days — she suggested that the couple do a cash-out refi on their principal residence and use that money to do a cash-in refi on their second house.

Now they have two loans “at absolute rock-bottom rates,” Tierce says. “They rebalanced their debt, and the result was an overall savings north of $1,200 a month.”

Another reason to consider moving your money into your mortgage is to get out of paying private mortgage insurance or avoiding PMI altogether.

Most lenders require mortgage insurance on loans with a loan-to-value ratio of 80% or more as a way to protect themselves against the possibility that the borrower fails to make his payments as promised. So, if you can get your balance under the 80% threshold, it sometimes makes sense to do so