News Channel Mortgage

There is no doubt that having a bad credit history or a bankruptcy on your record can greatly affect your ability to get a mortgage, and the down payment and interest rate requirements of that mortgage loan.  With some shopping around, however, it is possible for even the most credit challenged among us to live the American dream with a home of their own.

The effect a bankruptcy has on your credit varies according to how long ago the bankruptcy was discharged.  For instance, a bankruptcy which was discharged less than one year ago means that the borrower will qualify for a D loan.  These D loans generally require a down payment of 30%, and high interest rates as well.

Those who can wait a year after the bankruptcy filing to apply for a mortgage can qualify for a B or C loan instead.  These loans feature lower down payment and interest rate requirements than the D loan.

Regardless of your bankruptcy status, any mortgage lender will want to see a reliable payment history, including payments on rent, loans and credit cards.  Those lenders who have sufficient cash reserves, generally enough for six to twelve months, are generally considered a lower credit risk and may therefore qualify for lower interest rates and down payment requirements.

It is important to shop around for a quality sub-prime lenders, since not all lenders are the same.  Some lenders may be able to qualify you for a B loan, while others will require you to take out a C loan.  The only way to be sure what type of loan you qualify for is to shop around and request quotes from several different lenders.

These days home buyers have a number of choices, including applying over the phone or online.  Most online sites will be able to provide a fairly accurate quote based on the information provided by the potential borrower.  In addition there are a number of free mortgage broker sites where potential borrowers can obtain quotes from several different lenders.

Sub-prime mortgages can be very important to those who have a bankruptcy lurking in their past, and although the down payment requirements and interest rates can be higher than for traditional loans, sub-prime mortgages can be a good way for borrowers to rebuild their damaged credit and build up a steady payment history.

There are a number of steps all home buyers should take before shopping for a sub-prime home mortgage loan.  Perhaps the most important step is to make sure that all accounts which were involved in the bankruptcy have been closed.  Even if you are sure this has been done, it is important to check.  All consumes can request a copy of their credit report from the credit reporting agencies, and this is a good thing to do no matter what type of mortgage loan you are seeking.

If you spot a mistake in your credit report, notify the credit reporting agency at once, and follow up to make sure the error has been corrected.  It may also be a good idea to ask that a letter explaining the circumstances of your bankruptcy be added to your credit record.  Some lenders will look at your account more favorably if the bankruptcy was brought on by circumstances beyond your control, such as an illness or the loss of a job.

After you have obtained the sub-prime mortgage for which you are qualified, the most important thing is to continue to rebuild your credit history by making on time payments.  After a few years of making regular payments on your sub-prime mortgage, you may be able to qualify for a traditional mortgage loan with lower interest rates.

Even though sub-prime mortgages come with higher down payment requirements and higher interest rates, they are a great way for borrowers who have suffered a financial setback to get back on their feet.  Buying a home is a great investment, and using a sub-prime mortgage for a short time is a small price to pay for the security owning a home provides to you and your family.

It is important for every consumer to keep on top of his or her credit report and credit score.  The information contained in your credit report is of vital importance to your financial well being, and it will determine the interest rate you get on your home mortgage loan, as well as the interest rates and terms on a number of other loan products.

There is no doubt that having bad information in that credit report will greatly impact your ability to qualify for the mortgage you need, and furthermore it will greatly influence things like how large a down payment you will be required to make and how high an interest rate you will be charged.  When you look at those ads for super low mortgage rates, it is important to remember that those interest rates are typically reserved for those with the best credit histories and the highest credit scores.

All is not lost, however, if you have a couple of missed payments or even a bankruptcy in your past.  While such negative events certainly complicate the mortgage application and approval process, people with bad credit can, and do, get mortgage loans every day.  The key is to make yourself a knowledgeable consumer, and to do plenty of shopping around.

Shopping around is even more important when you have negative events in your credit history.  There is no doubt that a bad credit history complicates the loan process, and this makes shopping around much more important than for those with perfect credit. 

That is because not all bad credit mortgage lenders are the same.  While one potential mortgage lender may require a 30% down payment and a very high interest rate, the next bad credit mortgage lender may be able to offer more favorable down payment terms and interest rates.  If you do not shop around you may never know just what types of mortgage loans are available for those with less than perfect credit.

Unlike other forms of loans, a home equity loan can be an especially risky loan because of what’s at stake. Although it allows one to borrow a substantial amount of money, usually around 80% of the market value on the home (subtracting whatever is currently owed on the home), you must keep in mind that the most valuable and precious asset available, your very home, is at risk if payments are not kept up. However, for those willing to take the risk there are many upsides as well to this form of lending. We are here to help you balance the advantages and disadvantages of a home equity loan. These are the facts that you need to know.

The Facts

A home equity loan, essentially, is just a second mortgage, and like the first mortgage, the security is in the form of your home. A home equity loan can come in two forms, the first being the term or closed-end loan. Basically, you can receive a lump sum of cash upfront from your lender that must be paid off over a fixed period of time at a fixed interest rate. Your payments will be the same each month. Once you've received the lump sum, you are not entitled to additional funds. This loan, which is very similar to a first mortgage, enables you to know in advance exactly what your payments will be.

Before even considering a home equity loan, one of the first things you should look into are the fees associated with your loan. Home equity loans can be very tricky. You should be smart and look at the fine print to make sure you are not going to be hit with any hidden fees or guidelines that will only end up hurting you dearly in the end. Don’t be afraid to confront your lender with questions regarding your loan. In fact, fees and rates associated can even dropped or lowered by your lender, you just have to be firm and not give in right away. Keep in mind that home equity loans are an extremely competitive market and you should shop around and haggle with lenders to try to get the best possible deal you can involving the least amount of fees. Types of fees can include upfront fees, closing costs, annual fees, etc.

The other form is best defined by its initials, HELOC (Home Equity Line of Credit). The lender decides in advance how much you can draw out in a given period of time. During that period, you can tap into your pre-approved line of credit whenever it is needed. That means you only pay for the money that you actually borrow, a plus for most who are not sure exactly how much money they will require or have ongoing projects. As you pay back your loan, your credit can be used over and over. For example, say you have a $35,000 line of credit. You borrow $15,000 and then several months later pay back $5,000, meaning there is now $25,000 still available.

In summation, the term loan is generally best suited for those who need cash for a one time project. In contrast, the HELOC, or line of credit, can be the best choice for those who have continuous projects.

Home Equity Loans: Positives

Obviously the biggest plus with a home equity loan is the sheer amount of money that can be borrowed. Used wisely, a home equity loan can be a prime choice for getting through tough times. As long as you pay attention to the fine print and take the necessary time to make sure the deal is right for you, a home equity loan should be a pleasant ordeal. Here are some notable positives with this kind of loan:

·        Nothing is set in stone until you sign the contract. Rates are flexible, the market is competitive, and only too many lenders are willing to offer you “great” deals. Due to this and the fact that rates are at an all time low, now is a prime time to get a home equity loan if you are interested in one. When the house is the collateral, the lender has very little to worry about. For this reason, interest rates are generally quite low and can be found in either fixed or adjustable forms.

·        The money! Home equity loans can provide you with a large amount of money, and we all know that there are those times that we just need it. Up to 80% of the market value on your home minus whatever you owe on the house can be borrowed in a home equity loan, good for those rough times.

·        Save on taxes. Interest that you pay on your home equity loan can be used as a tax write-off to help save you money.

Negatives

Whilst the positives seem attractive, there are also many negatives that go along with a home equity loan. Any interested in this form of a loan should closely evaluate these negatives first and foremost.

·        Obviously the most glaring issue is that the security on the loan is your home; if you are unable to keep up with the payments then you could very easily lose it. Young homeowners are not advised to pursue a home equity loan in particular. Those without substantial savings, plenty of disposable income, and a secure job are also advised to look elsewhere.

·        Bad lenders. Always, always read the fine print or have a lawyer read it over for you to make sure you stay safe. Hidden fees and terms can be written into the deal and it is best to take the necessary time to make sure that the deal offered is right for you.

·        As usual, fees are always a big issue. Home equity loans do carry many different forms of fees on top of the standard rate, and although they can be lowered when drawing up the terms of the loan, it is important to understand the fees and be ready to handle them when they arise.

·        The money. Money is both a positive and negative aspect of any home equity loan because of this fact: those who don’t have money want money, and those who have money want more. Keep that in mind. Will you really be happy with how much you will be getting out of it? How confident are you that you are not going to overspend what you borrowed and get yourself further into debt?

So, when it comes time to make the decision on whether or not a home equity loan is right for you, be sure to examine all of the positives and negatives associated with this type of loan. Just make sure it is the right choice for you. It can be both a very good thing as well as a very destructive thing.

Refinancing is an option offered by many lenders. Feel free to use your second mortgage in order to refinance your first one. Obviously this could also lead to worse problems down the road if you aren’t careful.

With the cost of living increasing and the size of take home pay decreasing, saving money is on the minds of many people.  Debt is becoming a constant fact of life.  Take charge of your finances now and make some serious changes that result in some serious relief from debt.

The saying, “reduce, reuse, and recycle,” is not just for reducing trash.  It can be used to reduce your debt too! 

Reduce the amount of money you spend.  Even if you only cut back one daily newspaper, one cup of premium coffee, one fast food lunch, and one DVD rental a week, you will have saved quite a bit of money.

Reuse things that you already own.  Once you start brown bagging your lunch, you can actually invest in a reusable vinyl lunch bag. 

Recycle items that you or a family member own rather than buying new.  Swap books, exchange gloves and hats when you tire of them, or share evening attire such as, shawls and purses.

Whatever you decide to do, do it faithfully.  A few ways to help reduce your debt are listed below. 

Quick ways to lower your expenses:

• Eliminate the extra features on your telephone service.  You probably don’t use them on a daily basis anyway.
• Do away with premium channels for television viewing; or reduce the number of channels that you currently have.  Now is a good time to start reading again or to start the exercise regimen that will get you back in shape.
• Stay away from the malls.  Temptation won’t hit if you aren’t there to see it.
• Purchase no frills brands in the supermarket.
• Pay more than the minimum amount due on at least one credit card bill each month.
• Check that you are receiving the proper discount on your insurance for safety features such as: security alarms or air bags.
• Raise the deductible on your homeowner’s insurance policy.
• Raise the deductible on your car insurance policy.
• Do without the daily newspaper for a while.
• Brown bag your lunch.
• Have coffee at home rather than on the run.
• Synchronize small errands so that you do all of your driving while you are already out.
• If you don’t need it, and you can’t pay cash, don’t buy it.
• Write a letter instead of making that long-distance phone call.

Long-term ways to lower your expenses

• Change your incandescent light bulbs to fluorescent. 
• Set up automatic payment from your checking account for utilities, cable, etc. to save on the cost of postage.
• Clip coupons and use them at the supermarket.
• Rent videos, DVD’s, and CD’s from the library at no charge.
• Wait until something goes on sale before you buy it.
• Use the proper water temperature setting for your laundry.
• Lower the room temperature setting in the winter by 2 degrees while you are awake and five degrees during the night while you are sleeping.
• Share a babysitter with a neighbor.
• Share certain things with a neighbor or family member such as: power tools, snow blowers, paint sprayers, deck washers, etc.
• Take used items that you no longer want to a consignment shop rather than throwing them away.
• Check into better interest rates at different banks.
• Purchase your checks through a mail in service rather than at the bank.
• Turn off the lights when you are going to be out of the room for longer than five minutes.
• Empty all unnecessary items from the car to save on fuel.
• Purchase your produce from a farmer’s market instead of the supermarket.

There are many more ways that you can save money.  The trick is to start somewhere and to continue looking for new ways to reduce your spending.  Use the money you save to further reduce your debt by paying off credit cards.  Start paying off the credit card with the highest interest rate first, even a few extra dollars will eventually make a difference.

For all too many workers, taking a loan against the balance of a 401(k) or 403(b) account seems like a good deal.  After all, you reason, the money you pay back, including the interest, goes right back into your account.  Before you succumb to the 401(k) or 403(b) loan temptation, however, it pays to take a long hard look at just how bad a deal it actually is.

There are a number of important reasons why borrowing money from a 401(k) or 403(b) plan is the worst deal in town.  The reasons to leave the 401(k) or 403(b) plan intact and seek a loan elsewhere are many, and they include:

Ø      Double Taxation – Putting money away in a 401(k) or 403(b) program is a great way to shield the income from current taxes while allowing it to grow tax free until withdrawal.  Along with the Roth IRA, the 401(k) or 403(b) is the best way to save for retirement.  If you invade that nest egg prematurely, you will be pulling out those pretax dollars.  To make matters worse, the money you use to repay the loan will already have been taxed.  When you do eventually withdraw the 401(k) or 403(b) money in retirement, you will get hit with taxes again – a double tax hit.

Ø      What if You Lose Your Job – If you get laid off, or leave your employer to take a better offer elsewhere, you may have to repay the entire balance of the 401(k) or 403(b) loan in just a few months.  Even worse, if you do not have the money to repay, the balance of the loan will then be treated as a withdrawal, making it subject to a 10% early withdrawal penalty.  This treatment will also mean the money is fully taxable.

Ø      Reduced Returns – The whole idea behind the 401(k) or 403(b) program is to harness the power of time to grow your nest egg. If you break that nest egg prematurely, your returns, and your retirement, will suffer.

The bottom line is that borrowing money from a 401(k) or 403(b) program should be a last resort, not the first place you go looking for easy money.  A 401(k) or 403(b) loan can seem like a good deal at first glance, but on closer examination it is anything but.

Three simple steps take you from the beginning to the end of applying for a mortgage loan- research, pre-qualify, and apply.  As you tackle each step, you will discover how easy the process actually is.   

The first thing that you need to do is research the types of loans available and the interest rates and terms available.  Once you have selected the loan and terms that make the best financial sense for you, you are ready to select your lender.

When you arrive at the lender’s office, it is time for pre-qualification.  Pre-qualification is a simple process.  The pre-qualification process is a time to collect all of the necessary income and debt obligations that you have on a monthly basis.  This will determine your feasibility as a safe loan risk. 

It is best to bring along some documentation with you to this initial visit.  In particular, specific documents should be provided to verify your financial status. 

You should bring the following documents with you:

ü      Pay stubs for the last four weeks

ü      Employment history for the last two years, including pertinent information such as employer’s name, address, and phone number

ü      W-2 forms for the last two years

ü      Proof of additional monthly income, such as bonuses or commissions

ü      List of monthly expenses, including but not limited to loans, credit card debt, or alimony and child support payments

If the following forms of documentation apply to you, they should be brought along as well:

ü      Divorce decree

ü      Social security award letter

ü      Disability letter

ü      Copies of pension checks

ü      Copies of retirement monies

ü      Copies of alimony or child support checks received

Additionally, if the applicant is self-employed, the following paperwork should be provided:

ü      Federal tax returns for the last two years

ü      Profit statements for the last month

ü      Loss statements for the last month

ü      Balance sheets for the last month

Co-applicants will be required to provide similar documentation, and so, it should be brought to the initial meeting.  You should also bring the proper form of payment.  Bringing all of these items to the initial meeting will speed the process along.

Once you have been pre-approved, the next step is to complete the application itself.  The mortgage consultant can help you with this step, essentially guiding you along.  If you have any questions at this point, you should have them answered in detail now.  The final step is to wait until all of your paperwork has been reviewed.  The final decision should not take longer than a few days. 

A mortgage (loan) makes home ownership possible for most of us. Without our mortgage, well…we’d just be renters. When we buy a home, we buy security. It doesn’t matter whether this is our first mortgage or only one of several; each time we take ownership of our home, we take greater control of our life.

What makes home ownership the most desirable of all debt? Everyone must live somewhere. With a traditional, fixed interest rate mortgage, we reduce our debt with each payment, increase our equity or our “assets,” and have a viable tax deduction.

What is a mortgage? A mortgage is a loan made to you by a mortgage lender, for the purchase of a piece of property. The lender holds the title to the property until the loan is repaid in full. If you cannot make your mortgage payment, the lender has the right to sell your home to pay-off your loan.

Why is a credit score so important? Credit scores begin at the low level of 300 and range to a high of 800. Higher is definitely better. From the viewpoint of the lender, your three-digit credit score represents the risk level the lender absorbs by making the loan to you. The lower your credit score, the higher the risk to the lender and the higher your interest rate will be. Conversely, the higher your credit score, the lower your interest rate. A higher credit score will enable the purchase of a home, an automobile, a lake house – anything you need a loan for – to be purchased at a lesser rate of interest.

How do you know you will qualify for a mortgage? A home buyer can choose to be pre-approved for a home loan. The pre-approval process assesses your credit report and your debt-to-income ratio, along with other pertinent considerations such as employment. Pre-approval offers great peace of mind for both the buyer and a seller. Pre-approval gives the buyer an advantage over competing buyers who are not pre-approved, as the seller knows the pre-approved buyer will not be turned down for a loan, and the buyer is confident that no embarrassing details will come up with the real estate agent or seller.

Pre-approval will advise how much money you can borrow – providing a “top-of-the-range” price that you will not want to exceed. You will know your total monthly payment as well as all closing costs, based on the highest loan amount available to you.

Pre-approval is not the same as being “pre-qualified”. Pre-approval is a more in-depth process and is generally considered to be better than pre-qualification.

What is “escrow”? Some states close by “clearing escrow” and some have a “closing.” Escrow requires both buyer and seller to deposit monies and/or documents with an impartial third party, such as a title company or bank. Funds or documents are released to buyer and seller when all requirements have been met.

What are closing costs? Closing costs are due, upfront, before all documents are signed and completed. There are two cost categories: the down payment and the closing costs.

·        The down payment: This is the money you invest in your home -- your equity. Your loan amount is the money needed to buy the home, less your down payment. The more money you “pay down,” the less your monthly payments will be. Down payments can be very little…maybe 5 percent or less, or as much as you want to pay.

·        The closing costs: This is the total of all fees due other than the down payment. These costs can include property taxes, homeowner’s insurance, fees for appraisals, surveys, electrical, mechanical, plumbing and pest inspections, and attorney and realtor fees, if applicable. Private mortgage insurance (PMI) is a part of closing costs if your down payment is less than 20 percent of the value of your property. The lender will have loan origination and processing fees, and you may choose to buy discount points.

What documents are needed for mortgage-approval? While this may vary from lender to lender, the most common are: a sales contract signed by all parties, proofs of monies available for escrow or closing, a list of current and past residences (two year period) with contact information for landlords, W-2 forms for the past two years and a recent pay stub showing year-to-date earned income,

balances on all loans, credit cards – all debts owed with account numbers, and account numbers for bank accounts, savings accounts, stocks and bond, etc.

What are “points” or “discount points”? A point is one percent of the amount of the loan. A discount point on a $100,000.00 loan costs $1,000.00 at the time of escrow or closing. When a buyer purchases a point, it reduces the amount of interest due over the life of the loan, which reduces the amount of your monthly payment. The upfront cost of the discount point(s) is tax deductible.

What is Private Mortgage Insurance (PMI)? The lender requires Private Mortgage Insurance when a buyer pays less than 20 percent down on the property. This insurance reimburses the lender if the buyer defaults on the loan. If the real estate market “drops” for a short while or if the property has fallen into a state of disrepair, the lender may not be able to fully recover the amount of the loan. The PMI insurance steps-in and secures the debt. The PMI insurance is a part of each monthly payment. When the buyer achieves a 20 percent equity or ownership in the property, the PMI insurance is dropped from the payment.

Why is homeowner’s insurance important? First, the lender requires the property to be sufficiently insured – you cannot close the loan or escrow, without it. Your insurance company will be required to show proof of coverage to the mortgage lender. Second, depending on the type of coverage, property insurance replaces your home in the event of specified disasters.

What determines property taxes? Property taxes differ from city to city and neighborhood to neighborhood. Property taxes are included in each monthly payment, so it is wise to discuss and compare specific “neighborhoods” with your real estate agent or get the information from your City Hall. 

What determines the interest rate? Generally, lenders begin with the current prime rate set by the U. S. Federal Reserve. The lender considers your credit report and overall credit worthiness, and adds to the set prime rate, but a reputable lender will always be competitive in the marketplace. Depending on your credit history, your interest rate may be better or worse than your neighbors.

What is included in a monthly mortgage payment? A traditional fixed-rate, monthly mortgage payment consists of the:

• Principal payment - the amount of the loan after the down payment.
• Interest payment - the money the lender charges you for the loan.
• Taxes - usually property taxes and, perhaps, Private Mortgage Insurance.

What is an amortization schedule? At loan closing, you should receive an amortization schedule showing every payment, by month and year, through the end of your loan. A thirty-year loan will have 360 payments shown, detailing each monthly payment by the amount paid toward the principal (your equity) and the amount paid to interest, taxes and insurance.

What types of mortgages are available to the home buyer? Among the most popular are the:

• Fixed Rate Mortgage (FRM): Considered the “traditional” mortgage, it is repaid over a period of thirty years with a “fixed” rate of interest. The interest rate is “locked-in” (cannot be raised and will not be lowered) for the life of the loan. The same concept can be applied to fifteen-year loans or any other period approved by the lender.

• Interest Only Loan: This loan is actually an “option” that is considered a part of or, attached to, a mortgage. The buyer pays interest-only each month for a specified period of time, usually seven years or less. After the specified period, payments increase dramatically for the life of the loan.

• Adjustable Rate Mortgage (ARM): An adjustable rate mortgage is set for a specific term, maybe 30 years, but will typically have a lower rate of interest than the current fixed rate mortgage. This lower interest rate is for an initial period of time. An example is a three-year ARM, also known as a 3/1 ARM, with a fixed rate for the first three years, then adjusting each year thereafter. The adjustment can be based on several indexes, such as U.S. Treasury Bills and Certificates of Deposit, and will likely “cap” or limit the interest rate you can be charged over the length of the loan. An ARM can be a 1/1, a 5/1, etc., depending on the lender.

• Balloon Mortgage: This mortgage offers a lower rate of interest for up to seven years or so, amortized at the lower interest rate. At the end of the specified time period, the total amount of the loan is due in one large “balloon” payment.

• Reverse Mortgage: This mortgage is usually available only to a person who owns full equity in a home and is 62 years old, or older. A lender “buys” the property from the homeowner but allows the homeowner to continue living in the home. The homeowner may receive payment in several ways: a single lump sum, as a credit line or as a monthly payment deposited into the homeowners bank account. If you move or when you die, ownership reverts to the lender, and is not a part of your estate.

There are several mortgage calculators available online for you to use, that can make it easy to determine your monthly payment. If you want to figure it out on your own you can use the following equation:

                                                      Monthly Interest (in decimal form)

Monthly Payment = Principal  * -------------------------------------------

                                                     1 – (1+ Monthly Interest) - # of Months

If you are not a math whiz, I would suggest doing the math on a mortgage calculator online. It ca make the whole process a lot easier, and can allow you to change variables such as loan term and interest rate rather easily, and see what the difference may be.

The wording used when talking about mortgages can make getting a mortgage a confusing and frustrating process. Here are a few of the most common mortgage terms, and what they mean to help you with your mortgage search, as well as a formula to help you determine what your future mortgage payment may be.

Adjustable Rate – An adjustable rate is an interest rate that is going to change periodically as the index changes. The amount you make in payments will go up or down depending on your current interest rate.

Amortization- A method of paying off your mortgage in which a portion of you payment each month goes toward the principal balance the other toward the interest you owe. At first, the majority of your payments go toward the interest on your loan, toward the end of your loan term the majority of each payment goes toward paying the principal.

Annual Percentage Rate (APR)- The yearly cost of having being granted a line of credit for your mortgage expressed as a percentage.

FHALoan- A special type of loan that is backed by the Federal housing Authority. Should the borrower default on the loan the bank is guaranteed to get their money for the home by the federal government.

Grace period- the amount of time that your mortgage payment can be late, without incurring a late charge or a negative report on your credit report.

Index- The number which future interest rates is based on. Usually a percentage.

Interest Rate- The charge, or cost of being granted a line of credit to purchase your home.

Jumbo Loans- Large mortgage Loans that exceed a certain amount. Currently that amount is $203,150.

Lock In- A commitment you receive from a lender for a specified period of time regarding your interest rate. Should you “lock in” a rate of 5%, then that interest rate will not increase or decrease during the specified time period.

Payment- What you are expected to pay on your mortgage each month.

Prepayment Penalty- A fee that is charged should you pay off your loan before it hits its maturity date.

Principal- The total amount of your loan, before interest.

VALoan- A home Loan much like a FHA home loan where the Veterans Administration insures that the loan will be paid should you default on it.

Variable Rate- An interest rate that will change periodically depending on the index.

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