Things About Foreclosure That All Home Owners Should Know About
Foreclosure means basically that you were unable to pay your monthly mortgage payments so the mortgage company decides to repossess your home. It is just like with a vehicle or anything else where you are bound by some form of a contract or agreement, if you do not hold up on your part of the deal somebody will come and take your car from you or your furniture. Most people have probably experienced a time in their life where they found they were going to have to put off paying one or more payments within the month because of one thing or another coming up unexpectedly. If you ever feel like foreclosure could be just right around the corner for you, then you should most definitely make all attempts to contact your mortgage company and let them know what is going on with you and that there is a possibility that your mortgage payment will not be made on time.
Usually if you are honest with them and not trying to avoid them, they will generally allow you the opportunity to explain your situation upon deciding what needs to be done in order to get your account current. Things that are unfortunate do happen sometimes throughout life and it is normally whenever we least expect it, but as I mentioned, if you do suspect that something could prevent you from getting your payments in on time, be sure that you take the time out to call your mortgage company, just to let them know what is happening with you and when they could possibly expect your payment. Foreclosure is a very terrifying word for many individuals and many times the reason that it is so terrifying is because most people are just simply not aware of the fact that most of the times, something can be done to prevent this from happening to you. Losing your home that you have called home for so long now is something very tragic and can cause many people to feel as though their lives are literally falling to pieces.
Do not let this put you into any sort of deep slum because no matter what happens, you are strong enough to get through almost anything that life has in store for you, including this. There are many things that you can do to try and fight this type of action against you and typically if you atleast give it a real good try, things will just seem to work out for you. Not always but most of the time it is possible for anybody to tell their side of the story, no matter what it may be, and have the mortgage company change their minds about serving you with any foreclosure notice. If you do lose your home to foreclosure, it is very unfortunate and will definitely have a negative affect on your credit rating for many years to come. You will have to put it in your head that you are tough enough to rebuild or move on and get your finances back in order, the way that they should be, so that you are never faced with having to deal with this type of situation again.
Under 25’s ‘Choose Buying First Property Instead Of Going To University’
A rising number of young people are forgoing higher education in a bid to get on to the property ladder, according to a new set of figures. The Next Generation of Homeowners Report by Lloyds TSB indicates that one in ten of those aged 18 to 24 are sacrificing going to university in a bid to save up money for their first home. Findings from the financial services company also revealed that one in five 22 to 24-year-olds are actively redirecting contributions that were intended a pension scheme towards making the first down payment for a home.
Meanwhile, some one in six respondents were also reported to be juggling two jobs so as to help build a housing deposit and meet secured loan costs in the future. Just over half (55 per cent) of young people believed that to be able to afford their first property they would need to earn at least 30,000 pounds a year. Research also revealed that a third of under-25s believe that university tuition fees should be reduced to help them purchase a home, which could see them handle post-graduation debts with greater ease and in turn allow them to become more able to meet deposit and home loan costs.
Alison Burns, mortgage sales director for Lloyds TSB, said: “The fact people are willing to forgo their education highlights the importance of homeownership to the younger generation.” However, Ms Burns claimed that such “extreme measures may not always be necessary”, pointing out that a significant number of potential first-time buyers hold misconceptions about the property market.
Some 65 per cent of those surveyed by Lloyds TSB claimed to believe that putting down a ten per cent deposit is an “essential requirement” to get approval for a mortgage, but she iterated that “this is not the case”.
Although the study indicated that the majority of lenders will consider applicants who have some “low-level” credit problems such as outstanding student Loans, more than half of respondents think that they must be debt-free to meet secured and home loan requirements.
Meanwhile, some further two in five were reported to wrongly believe that they need three years of continuous employment to qualify for a mortgage. The director also claimed that first-time buyers should look to seek out advice “before making a decision that could affect their long-term future”.
Overall, purchasing a home was ranked as the top aim that consumers aged 18 to 24 wish to achieve before they are 30 - accounting for some 75 per cent of respondents’ votes. Goals such as getting married and travelling the world were favoured by 64 and 44 per cent respectively of under-25s.
Earlier this month, Vince Cable, shadow chancellor for the Liberal Democrats, claimed that young people are taking out Secured Loans at levels which are “ludicrous and dangerous” in an attempt to buy their first home. He added that if the Bank of England opts to increase interest rates in the future many homeowners will not be able to meet mortgage costs, pointing out that the level of property repossessions over the past two years is “soaring”.
Mortgages for the Self-Employed
When you are applying for a mortgage, usually the lender will focus on your financial history over the past 2 years. For employees, that means 2 years of personal income tax returns, as well as W-2s and paycheck stubs. If you are self-employed, that changes the usual process a little. For one thing, you probably won’t be able to provide W-2s or paycheck stubs.
Many lenders specialize in working with borrowers who are self-employed. It’s worth your time to shop around for a lender you’re comfortable with, who has done this type of loan before. Be aware that it may take a little longer and involve a bit more paperwork, but mortgages for self-employed people are approved every day.
By the way, you may be surprised to find that you fall into this category. If you are employed by a business that you own 25% or more of, you’re considered self-employed. If you own a construction company equally with your 4 siblings, you own 20% so you’re not considered self-employed. If you own the same company equally with 2 siblings, you own 33% so you’re considered self-employed.
The lender will be concerned with your financial stability, and the financial health of your business. After all, in this situation, if your business fails, you are likely to default on your mortgage, as well. So, the lender will be checking two sets of documents - your personal financial records, as well as your business records.
You’ll need to supply your personal income tax returns for the past two years. If your company is incorporated, you’ll also need to supply two years of income tax returns for the business. The lender will often also request a current balance sheet for the business, as well as a current profit and loss statement.
If your credit is good and you don’t have any other major loans, the lender may simply work with the first two pages of your personal tax returns for the past 2 years. In this case, your financial history is strong enough that they aren’t concerned about the business. However, this is the exception.
The documentation you’ll need to furnish, and the way it’s viewed by the lender, depends on the structure of your business:
- Sole Proprietor
- Corporation
- Partnership
Sole Proprietor
As a sole proprietor of a business, you own the whole thing. Your business income and expenses will appear on Schedule C of your personal income taxes. Your taxable income (or net income) is considered your total revenue (or total income) minus expenses.
Corporation
If your business is set up as a corporation, it’s separate from your personal income. The lender will need to see your corporate tax returns for the past two years, as well as your personal tax returns.
Partnership
If your company is a partnership, the lender may ask for two years of tax returns from the business. On the other hand, if your credit score is high and your current loans low, again, they may simply work with your personal tax returns.
The amount of documentation necessary can be greatly reduced for those with strong credit scores. Many self employed borrowers, due to their excellent credit, have the ability to state their income, provide limited documentation (3 to 6 months bank statements) or even provide no documentation. As these reduced documentation types add additional risk to the lender, they typically have slightly higher interest rates than full documentation loans.
Is Bridging Finance For You?
By definition, Bridging Finance or Bridging Loan is a short-term loan used to purchase commercial property. This is something that can come in very handy, depending on your particular situation. There are two main points that you need to consider before you opt for a Bridging Finance package, your needs and the state of the property market.
One of the major benefits of Bridging Finance is that it will allow you to close on a property and purchase a new property before you sell your existing one. You will need to evaluate your current situation to determine if your needs justify taking on this type of finance. Will you lose the new property if you can’t offer a deposit? Would you be eligible for a discount on the purchase price if you can come up with the cash fast?
What are the existing market conditions in regard to the sale of your existing property? Is it going to be possible to sell your existing property in the time frame set out in your finance package? Most Bridging Finance typically runs for one year and will need to be paid in full at the end of the term unless it is possible to convert it into a Commercial Loan. You will also need to be aware that the interest rates will be higher on a Bridging Finance package.
If the market is slow and you do not have an urgent need for the new property, it may not be in the best interest of your business to take on this type of loan. On the other hand if the property market conditions are good, you can be out from under a Bridging Loan fast. However, it is still something that will need to make sense for your business.
If you feel taking on this type of loan is the right thing to do, you will be far better off going through a specialist Commercial Lender.
They will shorten the entire process as a specialist will know the market and they can quickly make a judgment on the best loan for you, based on your particular circumstances. Be sure to check that the loan can be converted into a conventional Commercial Finance package. You will also want to check on the type of interest rate and the costs you will entail if you do have to convert.
Most Commercial Lenders will be willing to extend the terms of your Bridging Finance package. Let’s say, for example, you have a buyer and you are waiting for the sale to close. Bridging Finance in general is much more flexible and accommodating than you might expect in this respect.
Paying back your Bridging Loan at the end of the loan term more often than not depends on your ability to sell your existing property. If it does not sell in the required time, you will be paying the existing loan on your current property, your new property and the newly converted Bridge Finance as well.
If you believe this may be a possibility be sure to take a package that can be converted to a Commercial Loan if the need arises. Otherwise you may have to come up with the full Loan sum at the end of the finance term.
Saving Money With Biweekly Payment Plans
Someone told me he was saving lots of money because he switched his mortgage payment schedule to biweekly. He said it was a really great plan and that his mortgage would be paid, in full; several years ahead of his monthly payment schedule and that it would save him over $70,000!
I told him I thought it was a great deal and then asked him how much it cost to convert to the biweekly plan. He said, “Nothing!” and then proudly stated, “and there is only a $19 charge added on to each payment!” Ouch! I didn’t want to go into this more deeply, so, I just smiled, said “so long” and moved on.
Here’s the problem. Since I know his house is almost brand new; I figure he has 28 years left on his mortgage. The $19 charge he’s paying every month to covert to the biweekly plan is costing him: 26 (payments per year), times 28 (years left to pay), times $19 (per payment). This adds up to a total cost of $13,832 for something he could have done for free!
Most lenders, especially the high profile ones, don’t charge this much for a biweekly mortgage conversion. More commonly, there is an upfront charge of anywhere from $800 to $1,300. Often times these high profile lenders do the biweekly conversion in conjunction with a refinance.
When you go the refinance to a biweekly plan route, you usually only pay points and not a conversion fee per se, even though the payment plan you end up will be a biweekly one. If you pay 2 points for a $200,000 refinance, for instance, the cost is $4,000.
With a refinance, usually you would be taking cash out of your equity, so if you don’t need to do this and your new biweekly mortgage would have the same interest rate as your old mortgage, as you will see later, you would just be wasting money.
The instance where this type of refinance to a biweekly plan would work is in a situation where you did want to take cash out of your equity and you were changing from a high interest rate mortgage, like 9% to a nice low one, like 5%. That would change everything.
Let’s see how good of a deal this would be. You are paying off; let’s say an $180,000 mortgage. The interest rate is 9% and the full term of the mortgage is 30 years. On this mortgage the total interest and principal payment due is $1,448.32 each month.
Now, you are able to refinance to a $200,000 mortgage at 5%. Here, your new monthly cost is $1,073.64 monthly or $536.82, which is half the monthly payment, paid every 2 weeks or, biweekly. If you’ve paid your old mortgage for 6 years you would have paid about $10,000 off of that mortgage. This means your old principle was $170,000 ($180,000 - $10,000). So, the refinance puts $30,000, minus the 2-point charge, in your pocket as well as lowering your monthly payment by $375 a month. Not bad even if you are paying $4,000 in points.
Yeah! But what about the fact you’ve got to pay a mortgage for an extra 6 years? Well, here’s where they will try to sell you the biweekly plan. If you pay $536.82 biweekly instead of $1,073.64 monthly, the mortgage will be paid in 25 years and 3 months, not too much longer than 24 years. However, what they are not so upfront about is that with a biweekly mortgage plan, you pay more toward your principle each month.
There are 26 two-week periods in a year. So, 26 biweekly payments equal 13 yearly payments. This works out to the same as paying 1 and 1/12th payments each month. Of course, paying this extra fraction of a payment every month, is the real secret to how biweekly plans work. The plain and simple fact is; if you pay 1/12th of a monthly payment extra every month, you will pay off your mortgage in the same number of payments it would take to pay off the mortgage with the biweekly plan.
The refinance, itself, would still be a propitious move but, personally, I’d opt for the monthly plan if I were doing it. I’d rather be liable for as low a monthly payment as possible. I still could pay extra each month and pay this mortgage in 25 years, or a lot sooner if I chose to. However, maybe a few years down the road interest rates would be high.
If so, I’d be making more money by taking the extra money that would have been going toward the biweekly payment plan and putting it in a savings account, or better yet, a hot Mutual Fund.
So don’t be caught off guard if approached by a salesperson who is intent upon converting your mortgage to a biweekly plan. While a refinance can be beneficial in many circumstances, a biweekly plan never is because you can just as easily make larger than required payments without one.
Which is Worse, a Higher Interest Rate or More Points?
Saving a lot of money on a mortgage isn’t all that complicated. Get a lower interest rate and save. Get a higher interest rate and pay more. So, shopping around for the best interest rate can be very beneficial to your bottom line.
Have you ever wondered where a point enters into the equation? Though it can be very confusing, don’t overlook the number of points you pay on your mortgage. Even a lower interest rate mortgage can go from being a great deal to a bad one because of points. Let’s see if we can un-muddy the waters where points are involved and give you an edge when you are shopping for a mortgage.
First of all, what is a point? A point is 1%, period. If you were receiving a $200,000 mortgage on your home that called for a 1-point payment at closing, you would be paying 1% of $200,000 or $2,000.
More commonly, a mortgage writer will charge you 2 or 2 1/2-points. With a 2 1/2-point charge, a $200,000 mortgage will cost you, 2 1/2% of $200,000 or $5,000.
You may wonder what happens at your closing. Does that $5,000 come right out of your pocket and go directly into the lender’s pocket? Not exactly: in the case of a refinance, the $5,000 is taken out of the cash back you would receive at closing, but when purchasing a property, the $5,000 is added on to your mortgage principle amount. In other words, that $200,000 mortgage at 2 1/2-points becomes a $205,000 mortgage.
Now, let’s suppose you were offered this $200,000 mortgage with 2 1/2-points charged at a 6% interest rate and the loan was for 30 years. At the same time, another lender offered you a $200,000 mortgage at 7% for 30 years but this mortgage was a 0-points mortgage. Which is the better deal for you?
With the 0-point mortgage, $200,000 at 7% over 30 years, your monthly payment would be $1,330.60. To pay the entire mortgage off making monthly payments for 30 years would cost you $479,016.00.
The 2 1/2-point mortgage, which amounts to a $205,000 mortgage at 6% over 30 years would only require a $1,229.08 monthly payment. To pay this mortgage in full by making monthly payments for 30 years would end up costing you $442,468.80.
As you can easily see, if you were looking for a mortgage for the long haul, the 2 1/2-point, 6% mortgage would be the way to go. Your required payment would be less by a little over $100.00 each month and after the entire mortgage was paid 30 years later, you would have saved $36,547.20.
So, it looks like a no-brainer, you should go with the lower interest rate mortgage every time. Right? Well, not every time. What if you intended to sell this property very soon for a quick profit, a technique known as flipping?
If you only owned the property for a few months and only made a total of 2 payments on it, you would not have paid off any principle to speak of. So, with the profit you made from selling your property, by taking the 2 1/2-point mortgage, you would be paying off the $205,000 at closing.
You wouldn’t have to pay the extra $5,000 if you had taken the no-point mortgage and so at closing, you would be paying $200,000. Hence, more profit for you!
If you were in the business of buying fixer-uppers and living in them while renovating them, you probably would be selling the property in less than 3 years. Sometimes you wouldn’t need to hold the property for anywhere near 3 years. In a case like this, the 7% 0-point mortgage would be the more cost effective mortgage for you.
If you sold the property in 3 years exactly, neither mortgage would be a clear-cut money saver. At closing, you would owe $3,518.41 more on the 6% 2 1/2-point mortgage but you would have paid about $3,600 less in monthly payments because, as you’ll remember, the 7% no-point mortgage has a monthly payment that is about $100.00 higher.
What might swing the advantage to the 7% mortgage in this case, is that the interest portion of your monthly payments are tax deductible. So, since the 7% mortgage requires more interest be paid, you would have a somewhat larger tax deduction.
The logical conclusion is, if you are getting a mortgage that you are sure you will only need for a short time, try to get a 0-point mortgage. If you are going to have the mortgage for a long time, the lower interest rate is definitely the way to go.
The break-even point between 0-point and 2 1/2-point mortgages used to be at about 5 years. Now, in this lower interest rate environment, it is more like 3 years.
If you are intending to keep a mortgage for 3 to 5 years, the only way you would know for certain which would be the better choice would be to know how long you will need the mortgage for and then look at the proposed mortgages’ amortization tables.
There is one last word of caution. If you have decided that you will only need the mortgage for a short time and therefore intend to take the 0-point mortgage, make sure you will have no problem paying the higher monthly payment on time. Paying a $50.00 monthly late charge every month will throw all the calculations off as well as risk your good credit rating.
Also, be very sure you are getting a mortgage that doesn’t have a pre-payment penalty. A pre-payment penalty would mess up the whole deal altogether.
Difference Between A Cash Out Mortgage And A Home Equity Loan?
When you need the cash out of the equity of your home you may wonder which one is better for you - a cash out mortgage or a home equity loan. The truth is that both have their advantages - but probably one will be better for your situation than the other. This will mean that you need to know a little about each in order to make up your mind. Here are some differences between the two.
A cash out mortgage will involve refinancing your first mortgage. This could be a great way to go, especially if you can get interest rates on the refinance that are at least one percent (two percent is to be preferred) lower than your present mortgage rates. So not only could you get the equity you want, but also you will save thousands of dollars by getting better interest rates, too.
You get the equity you want in a lump sum when your cash out mortgage is approved. All you need to do is to refinance for the amount of the mortgage that is still outstanding, and add the amount of cash you want from your equity. You will want to watch and make sure that you do not refinance for an amount equal to 80% of the value of your house - that includes the equity, as well. The reason for this is simple, you want to make sure that 20% of the value of your home is left intact so that you do not need to pay the Private Mortgage Insurance. This could add thousands of dollars each year to your payments.
You can enjoy further savings if you decide to shorten the term length, too. If you make the remainder of the refinanced loan to be about 5 years less than what you have now, you could literally save tens of thousands of dollars more over the life of the mortgage.
A home equity loan is another way to get to the cash in your equity that you want. A home equity loan is a second mortgage, and you may be able to get it as either an adjustable rate mortgage or a fixed rate mortgage. While it obviously does not require you to refinance your first mortgage, it will give you a new monthly payment - and the cash you want. As a second mortgage, there will also be closing costs and other fees - with the possible exception of going through your present lender.
The interest rate will be higher than on a first mortgage, when you get a home equity loan. The interest rate, as well as the amount you can borrow, will depend mostly on your credit rating, and your ability to repay the loan. Make sure your credit report is accurate before you apply. If there are inaccuracies on the report it can hurt you and give you higher interest rates than you might have otherwise, or even cause your home equity loan to be rejected.
Before you agree to either a home equity loan or a cash out mortgage, you will want to shop around to find the best deal. It will take some time to do it right - but you are the one who will benefit from the savings. Check the various features, such as the interest rate, the fees, and the terms of repayment - including the monthly payments.
The choice is now yours. It can basically be summed up as - do you want to refinance your existing mortgage, or get a second mortgage? Both have their benefits, but only you can decide which one will work best for you.
Sub Prime Mortgages: Baseless Commitments
“Waiter, I’ll have a sub-prime steak; make it medium-rare”. Order with those words and your waiter will check you for two heads. If you eat meat, you want the prime-cuts. In fact, no one wants sub-par unless you’re playing golf.
So what motivates mortgage loan officers toward sub-prime lenders? Money of course! Typical capital formula: the greater the risk the greater the return.
Mortgage lenders weigh risk, return, and value. They risk loaning money that may or may not get repaid. They risk loaning money at a rate that falls well below fluctuating interest rates over 30 years. They risk loaning money on real estate properties that lose value.
High risk loans recommend high rewards. Commissions are issued and the home buyer or refinance candidate gets or keeps their home.
Suspicious lending practices put the buyer at risk. The loan document may bury the facts. “Just sign here. You can move into your new house next Monday.” No reason to heed “truth-in-lending”; get the sale, “seal the deal” because the borrower pays no matter what.
Predatory lending practices bring further harm to families hoping to fulfill their dream of home ownership. Families with poor credit histories suffer further economic and social stigma. Maybe they should know better, but who will tell them?
According to “Inside Mortgage Finance”, sub-prime mortgage originations have increased 10 fold since 1997. During 2006 & 2007, 25% of all mortgage originations were sub-prime.
Subprime usually means that a loan is approved for borrowers with “tarnished credit profiles”.
As you know from “Have you checked your credit score” advertisements, FICO (credit scoring system developed by Fair Isaac & Co.)scores guide loan officers when assessing a borrowers creditworthiness. Like the Scholastic Aptitude Test, the higher the score, the better (850 tops; 300 not so good). Subprime loans are approved for borrowers with FICO scores at or below 600.
Families lacking financial resources wanting a home are easily enticed by the sub prime lender. It all starts with a phone call by savvy telemarketers promising loan approvals on a $400,000 house in East Flatbush (Brooklyn, NY) to a bus driver. A non-profit organization study indicates that just about 50% of the loans in East Flatbush are sub-prime.
Karl Dorismund said, “From the beginning they (the lender) tell me the mortgage will be $2,000 or 2,100 a month. Can you believe how much it is? $2,900!”
Mr. Dorismund signed a high-interest mortgage with no-money down. In my town, 10% to 20% is necessary before a loan is approved.
Cathy Mickens, an advisor to first time home buyers says, “On any one block, we might see…three or four for sale signs….we didn’t see this last year at this time.”
A study by a New York non-profit reveals that the loan patterns for poor and minority neighborhoods. has the highest concentration of sub-prime loans with the highest level of defaults. Borrowers bailout.
Sub prime lenders don’t like moral solutions. It is immoral to entice borrowers with light burdens at first only to break their backs later. It’s all in the small print, and the details seldom are mentioned to the sub prime borrower.
Subprime lenders made $587 billion in new mortgages in 2004, up from $390 billion in 2003, according to National Mortgage News.
Mortgage marketing by sub prime lenders reminds capital markets that the less-educated city dweller gets trapped by socio-ecocnomic limitations. Less fortunate people need helping hands. This does not mean setting them up for failure; this means creating opportunity.
Habitat For Humanity affiliates provide volunteer labor, money and building materials to construct “decent houses” for the sub prime borrower. Homeowner’s make a small downpayment, and must pay a reasonable mortgage. “Habitat houses are sold to partner families at no profit and financed with affordable loans.”
Every Habitat For Humanity home-owner is a sub-prime borrower. In fact, many would not qualify for loans from a bank or mortgage company.
* Habitat for Humanity works to eliminate substandard housing
* Habitat works to provide homes for families living in sub-standard apartments.
* Habitat has provided homes for more than 1 million people in 3,000 communities
Habitat for Humanity (and organizations like it) offers a key to one family at a time. Your donation to Habitat for Humanity gives hope to qualified and committed sub prime borrowers.
Have An Adjustable Rate Mortgage - Need To Remortgage In A Hurry?
Most people are probably aware that interest rates have been on an upward trend. For those who have fixed rate mortgages it does not really matter. But if you have an adjustable rate mortgage, then you may already have seen an increase in your payments. Because these can go considerably higher, it may be a good time to consider getting a remortgage. Here are some tips on how to do it.
Adjustable rate mortgages are definitely the way to go when it comes to getting lower payments - at least it was the way. The problem with this is that they are only good for a limited time. While your payments are fixed at the start, you can’t beat it. When it goes to the adjustable part, however, with today’s economy, it can become a real nightmare.
Getting a remortgage is about the only solution you have. The quicker that you get it - the better off you will be. If the economy changes for the better in the future, you can always remortgage again.
Ideally, the best time to remortgage is when mortgage rates are more than at least 1% less than what you have now. It is possible, though, that you just need to get a new fixed rate mortgage before you lose the house. If so, then act immediately. One way that you can drop your payment amount with a fixed rate mortgage, is to increase the overall time period of the mortgage. Although it will lower the payments, it will increase the amount you actually will pay in the long run - but it will be cheaper than adjustable rate if rates don’t get better. Consider remortgaging again later.
The next thing you need to do is to go online and get some quotes. This is easy to do and you can get more than one quote from a single Web site. But you still need to go to more than one, though, and get several quotes. Then carefully compare them, and see which one will work for you. You should know however, that a fixed rate mortgage is typically higher than an adjustable rate mortgage. That is probably why you went with an adjustable rate - so you could get a bigger house.
After looking at the quotes you receive, you will know two things - if a fixed rate remortgage is within your budget, and secondly, if you will be staying in that house. While that may sound a little drastic, you already are probably experiencing what is happening with interest rates. You have already seen the bills.
If you believe that the new payments sound good to you, you need to sit down and decide if you can make those payments for at least three years. This is how long it will take to recover the costs that will be involved in the remortgage process - closing costs all over again. So, if there is a possibility that you may not want to stay that long, it is not for you.
Finally, determine how much equity you have in the house now. With it, you may be able to get some debt consolidation, which may make getting a remortgage even more worth it.
What Can You Do In Advance To Get A Better Mortgage Rate?
When it comes time for you to think about getting a mortgage, you should know that there are some things that you can do to help yourself get a better deal. In most cases, they can be performed over a few months, but will prove their worth in savings over the term of your new mortgage. Here are some of those things.
1. Look Over Your Credit Scores
You need to get a copy of your credit report from the big three (Equifax, Experian, and TransUnion) and look them over for wrong entries. It is not uncommon for items to be mistakenly reported on a credit report. It will only take, however, one item to adversely effect your credit score. Bring it up to where it should be by trying to correct anything that is not where it needs to be.
2. Raise Your Credit Levels
If you find that your credit really is not at the level where you feel it could be, take some time (if you can wait) and raise it. This can be done through credit cards that report to the credit bureaus, taking out short-term loans and paying them off on time and quickly.
This could be a key factor in getting a mortgage worth having. The interest rate that you will be able to get is largely based on your credit scores. Generally all three scores (or more) will be averaged and that is the figure that the lender will base the calculations on.
3. Reduce Your Total Indebtedness
It is always a good idea to reduce your indebtedness before applying for a mortgage. While you can have indebtedness, and even bad credit, you get the best rates when your indebtedness is about 28% of your income or lower. Having more than this will limit the size of your mortgage possibly more than you want. While it may be possible to get a different kind of mortgage, such as an ARM, it may not be the best in the long run - depending on what kind.
Reducing your debt will prove your ability to pay. You can pay off some credit cards and other small debts by consolidating them with 0% APR interest credit cards for their introductory offer, but you really don’t want to close all of those credit cards. Leaving one or two open, perhaps even with small balances, could be more helpful to your credit rating than closing them all down.
4. Get A Larger Down Payment Ready
This will help you tremendously by reducing the overall amount that you need to borrow. The more that you can put down means that you are less of a risk to the lender. They will trust you more and give you a lower interest rate. Your goal should be somewhere in the vicinity of about 20%, if possible.
Another way to save when you actually start shopping around for your mortgage is to compare a number of mortgage quotes. Look for the best deal after you understand the terms and your various options. Even if you do all of the above to help get the best rate, you could lose it simply by signing on to the wrong deal - so be careful.
The Best Way To Get A Low Rate Mortgage
If you are in the market to purchase a new home or you are looking to refinance your existing mortgage to consolidate debt, then you need to read what we learned about shopping for a mortgage.
There are thousands of companies to choose from when it comes to obtaining a new mortgage, but how do you figure out which one to work with and if you are going to get a good deal for your situation. What we learned is that through a little bit of research on the internet and leveraging technology the process of shopping for a mortgage really is not that difficult.
First, you need to asses your situation, write down your goals, they will be different if you are purchasing your first home, exploring a purchase of a vacation property or trying to refinance and consolidate your credit card debt. The next step is to interview a few lenders to find out if they offer programs that meet your goals and if you qualify.
This process can be a bit overwhelming as all of the lenders will probably try to sell you on why they are the best ones to deal with. In our search for a mortgage refinance we stumbled upon a variety of comparison mortgage sites.
There are a number of these types of websites where you fill out a form and receive offers from lenders. The internet has made the process of comparison shopping much easier than what was available ten years ago. When we visited these site they provided us with some great tips on how to compare loan offers, a few of which we can share here:
* When you are comparing mortgage rates, it is very important that you receive the offers within the same time period as mortgage rates can change daily.
* Comparing mortgage quotes is not only about trying to find the lowest possible mortgage rates, you also need to review the lender closing fees, specific loan program and any early payment penalties that may exist.
* Shopping for a mortgage for a second home or investment property may change the loan terms that a lender is able to offer you, so make sure you disclose the property type and loan purpose up front so you avoid any last minute surprises.
* Not all lenders will use the same criteria for underwriting your mortgage. All lenders will look at your credit history, the property loan to value, your debt to income ratios, assets, etc. However, not all lenders will give equal weight as to how they qualify you for underwriting. This is why it is very critical to obtain more than one mortgage quote.
* The larger your loan size, the more flexibility most lenders will offer you. This is a real simple explanation. the larger your loan is, the more money it makes for a lender and they generally will try to work with you to either offer a better deal or be more flexible with you situation.
The number one lesson we learned is that if you want to get the best deal on a new mortgage, then you definitively need to compare mortgage quotes from more than one lender. We ended up choosing a lender that offered a competitive rate and reasonable closing costs, the entire process took less than one month.
A $310,000 Mortgage With a $999 Monthly Payment!
A friend of mine called to inform me he had gotten some great news in the mail. He received a letter from a lender in California informing him they would give him a $310,000 mortgage and his monthly payment would only be $999! “Think of the house I could buy,” he told me excitedly! “I know I could qualify to make a monthly payment for twice as much and if I sell my house which has a $200,000 equity and we use it for a down payment, I could get a million dollar house! Wow! What am I waiting for?”
His figures were only slightly off. If he had a $200,000 down payment and he could lock in a $1,998 monthly payment on a $620,000 borrowed amount, he could afford a property priced at $820,000. However, since I was suspicious of the kind of mortgage he was talking about, I told him to bring his letter to me and we could figure out exactly what he could qualify for. Instead, he invited me to his house. I thought it was a good idea because he has a billiard table and it might be some consolation to him, that as I was putting his dream of living in a mansion on hold, he would be annihilating me at 8-ball.
I came to his house prepared. I found out that a $310,000 mortgage for 30 years with a $999 monthly payment is a 1% interest mortgage. Then, when I read the proposal he had received, it was as I had expected. What this letter was offering was a negative amortization mortgage.
I had to read some very small print but after I did, here’s what I found out. Once you close on the $310,000 mortgage, you have up to three years in which they will accept a minimum monthly payment of only $999. During these three years, regardless of what you’re paying, the mortgage is a 7% mortgage.
In order to amortize normally, or be paid off normally, a $310,000 mortgage at 7% for 30 years requires a monthly payment of $2,062.44. This $2,062.44 includes interest and principal. In the early stages of a negative amortization mortgage, no principal is paid. The entire payment goes toward paying the interest on the loan. The interest due on the first payment of this loan is $1,808.33. Since the payment will be $999, $809.33 ($1,808.33-$999) will be added to the principal. Since this mortgage will have a principal that is increasing instead of decreasing, it is what is known as a negative amortization mortgage.
With the terms of this mortgage, it would accumulate $32,316.76 more debt over 3 years, which when added to the $310,000 original mortgage, totals $342,316.76 principal owed. When the negative amortization period of the mortgage ends, the mortgage becomes a regular mortgage. In this case, that happens after 3 years. Then, there is 27 years left to pay the $342,316.76 owed at 7 %. This would take a monthly payment of $2,354.51. A far cry from $999 a month!
Remember, all these numbers were for a $310,000 mortgage; my friend was looking to apply for twice that much because he feels he could make a $1,998 monthly payment. Instead, after 3 years his payment would be $4,709.02!
There are many different variations of negative amortization mortgages, but this example gives you an idea of how they work. Lately, it seems that the most fashionable type of negative amortization mortgage uses a 40-year term. Sometimes the small payments are allowed for up to 5 years and the principal is allowed to increase up to 25% more than its original value.
The idea behind negative amortization mortgages is just to get more people to qualify for a large mortgage, even though when the negative amortization period of the mortgage ends, they may not be able to make the much higher payments.
Of course, in a perfect market, the property’s value will increase more than the amount the negative amortization mortgage will add to the principal owed. So, in this perfect market, one would gain equity in the property. Then, he could sell the property at a profit. If a negative amortization mortgage had not been available, he would not have been able to qualify for a large enough loan to purchase the property, and so, would not have been able to make a profit from it. This, however, is what I call dynamite speculation. Dynamite speculation is speculation that may blow-up in your face.
I would never recommend taking the risk a negative amortization mortgage presents to a borrower. He may not be able to make the large monthly obligation he will eventually have, and if the price of his property doesn’t skyrocket, he wouldn’t be able to sell his property at a profit. So he would be risking foreclosure.
As I was being creamed for the seventh game of 8-ball in a row, my friend came to the realization that a negative amortization mortgage was not right for him, and maybe, not right for anybody. He further realized that a few hours ago, he was all ready to buy a new house when he previously had not been giving any consideration to doing so. Therein lies the power of an advertisement for a negative amortization mortgage.
In the classic movie, “Smokey and The Bandit,” Sheriff Buford T. Justice strolls up to a young man who was about to strip parts from an abandoned vehicle. He told the young hoodlum to turn around and put his hands on the car. Then the lawman gave the young man a good boot in the pants and warned him, “That was an attention getter!” When you see an advertisement for a mortgage which offers a large loan with a very small monthly payment required, that too is an attention getter. So beware, that mortgage, after it gets your attention, might just turn around, and like Sheriff Justice, give you a real good kick in the pants.
How To Get A Cheap Remortgage And Save Thousands
The definition of a cheap remortgage is different for the lender and the buyer. Lenders see a cheap remortgage as one where they lose money. Home buyers see a cheap remortgage as one where they save money.
It all comes down to where interests lie. It is obvious the lenders interests lies with making money off the loan while the home owners interests lie with saving as much as possible on the loan.
A cheap remortgage is possible. Actually the whole concept of a remortgage is to get a better and cheaper deal then with the original mortgage. The goal is to secure a lower interest rate and get reduced or waived fees. A remortgage is primarily just a way for the home owner to get a better deal.
Lenders do not necessarily want to hand out cheap remortgage. The reason is that the lender is making their money from the interest accruing on the loan. They want to keep the rates higher because they earn more money that way.
However, they understand that home owners are looking for lower rates. In the end their best interest in keeping the customer happy because that will help to ensure the customer stays with them as their lending source.
To get a cheap remortgage a home owner should first discuss their options with the current lender. Once they find out what they will offer it is time to start shopping around. After finding different options the home owner can go back to their lender and try to negotiate.
As mentioned, it is in the lenders best interest to try and keep the customer, so they will be likely to be willing to negotiate upon their rates based upon the quote form other lenders.
A cheap remortgage is going to based up a few factors. It is going to be dependent upon the interest rate and the amount financed. The amount financed could be different due to the equity in the home. Additionally, the term will be shorter so the overall cost will be lower then the original loan anyway.
A cheap remortgage is a money saver for the home owner. It is a way to earn back a little of the money spent on the home purchase.
A cheap remortgage takes some work, but it can be negotiated in the home owners best interest if they know how to play their cards right. The trick is getting their lender to give them a good rate in order to keep them as a customer.
It is all about negotiating which is a skill a home owner has to learn before ever starting the remortgage process. They have to be able to ask for a deal and then back up their request with proof from other lenders that shows their lender they can get a better deal elsewhere.
A cheap remortgage is ideal for a home owner. Saving money on such a big purchase is always a good idea. It also help to free up finances for other options, like home improvements, which also help the home owner, get more for their money.
