What is a Construction Mortgage?

Posted by Credit Financing Guru on 17th June 2010

In order to save money and design the home of their dreams, many people choose to build their home from the ground up. When building a home, one has to consider how they will finance the big project. One loan option many people choose is the Construction Mortgage.

A Construction Mortgage is a loan that is used to finance the building of a home. The money is normally given to the borrower in set amounts as each stage of the construction process is completed. Most construction mortgages involve paying the interest only during the construction period with full repayment required after the owner obtains a certificate of occupancy.

Before a lender approves a construction mortgage, they have to know all that will be involved in building the home. This includes the blueprint, materials, labor, other costs associated with the construction, and the time it will take to completely build the home. Construction mortgages are normally variable-rate loans which are priced at according to the prime rate. The home builder, lender, and contractor will set the schedule for withdrawal of funds for each stage of the construction process. Interest is applied on the amount of money withdrawn. Having the money released before each stage is complete is often seen as economically beneficial and helps prevent future funding problems.

Many homeowners will often choose to acquire a construction-to-permanent financing plan where the construction loan is switched to a mortgage loan after the certificate of occupancy is given out. You can often get a higher construction loan rate and then get a better mortgage rate when you switch to traditional mortgage financing. It is important to remember that with a variable rate, repayments can fluctuate each month. Generally, construction mortgage rates are quoted on a prime plus basis.

Like a traditional mortgage, how much you can borrow will depend on your financial status such as your credit rating and income. Lending can often range from 75 – 95 percent of the building cost. Some lenders provide a separate loan for the land. Funding for building costs is released when the home building plan has been approved. The best benefit of a construction mortgage is that it is usually cheaper than getting a mortgage for an existing home. The cost of building your own home is much less than buying a new house. As well, new self-built homes are worth more the day the home is finished so it makes for a good investment. When considering a construction mortgage, it is important to comparison shop from a number of different lenders. Many experts recommend consulting with a construction mortgage specialist.

From the size of the rooms and where the rooms are located, building your own home provides you with many more choices than if you were going to buy an existing home. A construction mortgage may be the perfect solution if you are looking to build your dream home at a much less expensive cost. When considering this type of mortgage, it is important to understand how it works, the cost to build, and the repayment terms and conditions. With the right knowledge, it will not be long before you will be living in your dream home.

Obtaining the best mortgage rates can be an important competitive advantage in the housing market. Another important factor to consider is finding the best GIC rates, which may help you in securing a stronger purchase or sale of your home.

Construction Mortgage FAQ:

Question: Can I ask for more money on a home construction/mortgage loan?
I recently built a house and asked for a $140,000 construction loan. I was approved for more than that and only took $140,000. I’ve gone over budget but the house is complete. I put in about $10,000 from my pocket. Is it possible to ask for more money from my lender? I was hoping to finish the house and with left over money pay off a personal loan I have which I took out to buy the acreage I built my house on. The interest rate on the personal loan is about 5.2-5.5 percent, don’t recall the exact number. Would it be wise to ask the lender for more money to pay off the personal loan and pay myself back what I put in from my own pocket. It won’t hurt me to pay my mortgage monthly, but will hurt to pay $10,000 out of my own pocket all at once and not get it back. Any suggestions on what I can do?

Answer: Especially in these times if an appraisal and your income will support the additional debt, your lender will probably go along with it with conditions. If they don’t, there are lots of programs out there that will.

It is very important with all of the housing inventory out there for your lender to have a home with a certificate of occupancy and a completed product. A work in progress is a bad thing for them if they take it back. That is a big incentive to work with you to complete the house.

I was exactly in the same position in terms of having access to more than I thought I needed when I started and then having cost over runs. The bank did an appraisal. There was plenty of equity so they restructured (not refinanced, fewer fees) the loan and we all moved forward.

Just call your loan officer and ask. They may want you to do it when you go from construction to permanent financing. It is in any event in your mutual best interest to have a completed house and you should preserve your own cash reserves.

Question: No comparable sales within the last year, can I go further back?
I am currently disputing an appraisal done at closing on my home construction/mortgage loan that has put me in a bind. The appraisal was super low compared to what it cost to make the house and buy the acreage I made it on. I was given a rebuttal form by the bank financing the loan, only they asked me to find comparable sales. I haven’t found any within the past few months, people mostly build around these parts and not buy. They did not want me to put new construction, but rather sales. Since the nearest sales go months maybe even 2 years back, does this entitle me to put them down as comparables? I am not going to put forclosed homes as comparables because that’s what the appraisal company did to me and got me in this mess. They put homes that are half the size of mine and foreclosed as comparables. If I go a year or two back, there are houses that match mine in square footage and surrounding acreage that are in the price range that it took to build mine and buy the acreage.

Answer: No, you can’t go back 2 years, you would be lucky to go back 6 months.

You have to include foreclosures, they effect the value of property, you can’t disclaimed them, otherwise the appraisal would be incorrect.

Anything more then 6 months old has no bearing on today’s market. You can use smaller properties too, it is not a big deal, as you figure out the value per square foot, not per property.

All appraisals are under construction costs, while property value has gone done, labor and materials has not.

Question: Can I move a construction loan from a mortgage broker to another lender?
I am building a house & it is 85% done. My mortgage broker is withholding money from me to finish my house. He avoids my calls & when I do get a hold of him, he tells me he has no money to give me. Can I go to another lender & take this loan away from him?

Answer: Yes, you could refinance the whole deal with another lender. There are lenders that only deal with construction loans. You just need to find one in your area.

Question: What do you call a loan that covers land and then construction of a building later on under the same mortgage?
I’ve heard of a loan that is given for land and then later on can be extended to cover construction of a building under the same mortgae but I can’t remember what it’s called?

Answer: Sounds like one of the newer ‘One time close’ loans. Usually you have to get a loan for the construction, which you are allowed to use to purchase the land. Once the home is built, you are required to refinance the construction loan with a long term permanent loan. That is why they are called construction to perm loans. Now however, a lot of banks are offering ‘one time close’ loans. You simply have one loan that covers the construction and the permanent financing so you don’t have to close, and pay closing costs, twice. Ask around at your local banks for ‘one time close’ loans and shop around for the lowest rate and terms.

Question: Construction Loan to Mortgage?
I currently have a construction loan on the house that I live in but we can’t qualify for a mortgage. Our bank keeps extending the loan even though the house is completed and we’ve lived in it for over a year. How long can the bank continue to do this? Are there federal regulations that the bank has to follow in this situation or is it at their discretion?

Answer: They are not required to continue to extend it and I am amazed that they are doing that. If you qualified for the construction loan you should qualify for a regular mortgage unless something major has changed. Have you tried for an FHA loan? 620 credit, 2 years income & 3.5% down.

Question: I have a credit score of 676 will I have a problem getting a construction loan or new mortgage loan?

Answer: Construction loans are very difficult these days. Mortgage? Depends on how much you have down payment, debt ratios, etc. If you have 20% down plus closing costs saved up, no debt, you should be able to find a mortgage despite the tight markets these days.

Question: Where is the best place to get a construction loan (mortgage) for a new motel? I have the land already Zoned at approx. $950,0000.

Answer: I would put it out on the Internet. I know its not the same as a home loan but there sure seems to be a lot of money out there. The problem I see is that you will have to be able too prove its a winning proposition

Question: What are the ins and outs of getting a construction loan to build a home?
My husband and I are 1st time homebuyers. We have been preapproved for a house loan, but are not having luck finding what we want. We have toyed with the idea of building our own. What are the differences between getting a preapproved loan and buying a already built house and going through getting a construction loan? Do you have to put money up front for a construction loan? Do you make mortgage payments while the house is being built, or do you wait until the house is completed? Is there a time frame that the house must be built within? If we were preapproved for a certain amount with a homebuyers loan, would we likely be preapproved for the same amount for a construction loan? What other differences should I know about? Since we are first time homebuyers we do not have much collateral (we do have some savings, but not a ton), would that affect our ability to get a construction loan?

Answer: No, you are not automatically approved for a construction loan, it’s a different animal. To get a construction loan you need to already own the property and have a lot of equity.

The “ins” are that the bank loans you a large amount of money for a short term to build your house. The “outs” are that you have to replace the construction loan with long term permanent financing once the home is built and you don’t know what the rate will be when that happens so you are under the gun to finish as soon as possible.

Building is risking and not for 1st timers unless you have lots of cash to gamble. If you want to try it, buy an older house at a good price, fix it up and sell it. Then you will know what you are in for.

Categories: Mortgage Financing
6Jun

Factors and Variables Influencing Mortgage Finance

Posted by Credit Financing Guru on 8th June 2010

Properties are secured under mortgage to oblige the borrower to make a predetermined succession of loan payments. A borrower can obtain mortgage finance to from a financial institution like banks. Components like loan size, loan maturity, interest rate and loan payment method differs significantly from one creditor to another.

Mortgaged properties levy restrictions on the use or disposal of the property like selling the property before closing outstanding debt payment. In countries where the demand for home ownership is colossal, robust domestic markets have developed. Economies of USA and UK heavily depend on mortgage finance.

In the USA, borrowers obtain the mortgage finance by submitting a Loan application in conjunction with documents related to borrower’s credit or financial history to the bank underwriter. Alternatively, borrower’s can submit the same documents to a mortgage broker, who then assess the information and provides the borrower with best possible options of financing the mortgaged property. Often, unsuspected borrowers fall prey to unscrupulous money- lenders or brokers en-cash on the borrower’s plight and work the situation to their advantage, while eliminating the mortgage responsibility on the property and force the property owners into foreclosures.

Lenders take into account key factors that influence their decisions regarding lending to a borrower. These factors include credit report, outstanding credit, credit card accounts, down payment, income, interest rates, available funds and debt to income ratio. In addition, supply & demand, interest rates, demographics and economic growth relatively influence the mortgage industry.

Mortgage loans are available to borrowers at Fixed and Adjustable interest rates.

Regardless of national interest rate change, fixed interest rates remain unchanged. Used as part of an introductory offer, usually they are replaced by higher fixed rate or variable rates upon successful completion of six months of the loan duration. The alternative to change a fixed interest rate is through refinancing – getting a lower fixed rate or variable rate on the new loan agreement. Fixed interest rate provides a security against elevating national rates, borrowers are an advantage of paying a comparatively lower are, if locked for a lower fixed rate than the current national rate. It makes budgeting easier, if succession of loan payments is unequivocal. However, the disadvantage lies when the national rates have pulled down, borrowers end up paying a higher interest on their mortgage loan.

Variable rates in contrast fluctuate in response to changes in national rates. It is directly proportional to the national rates, hence when national rates pick up; variable rates increase and when they decline so do the variable rates. It’s the most common type of interest rate used for small loans and credit cards. With variable rates prediction of lump sum payment is difficult, it could increase up to several times than the payment that could have been made in matter of few months. However, monthly payments remain fixed and the final payment may be a different amount due to the fluctuating interest that has been accrued over the loan.

Fixed and variable interest rates are popular when dealing with mortgage finance, though there are other types of loans like balloon loans and government backed loans that offer both types of interest as well.

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Mortgage Finance FAQ:

Question: If I just refinanced my home mortgage, can I finance a new investment property soon after?
I just refinanced my home last month and got a much lower rate and payment. Of course, this means my mortgage was paid off and a new loan was initiated. Does this affect my credit in a way that would hamper me being approved for a mortgage on a new investment property?

Answer: Yes it could. Basically the bank is going to review your credit with the house that you just bought taken into consideration. The banks may ask you for a bigger % as a down payment because it is considered an investment property. If you have everything lined up and your debt to income ratio is where it needs to be then you should be fine in buying another home. If you don’t have the $ for your down payment or if your past your ratio then the bank will see that your too much of a risk to lend for a second home.

Question: Is it possible to get the mortgage company to finance the remaining balance of the sale price?
I would like to know if I sell my house for less than I owe ,would my mortgage company accept that I payoff the remaining balance over the years,without hurting my credit? I have 80/20 mortgage.

Answer: You can not sell a property until the mortgages against it are settled, that’s how the loan is secured & trying to do so can constitute fraud. In today’s economy however, settling a mortgage for less than what is owed, or a “Short Sale” is entirely possible. Talk to your lender and see what they are willing to do; if you’ve never been late on payments, etc. then they should be more than willing to work with you. As far as paying off the remaining balance over the years, not likely to happen. Banks generally to do not loan without collateral, especially with the foreclosure rate as high as it is.

Question: Does anyone know of any mortgage companies that will finance someone with a low credit score?
I keep looking but I can only find sites or companies who seem like they might be a scam.

Answer: Be careful of scams. You need to stay away from anything online since the scams are rampant. You don’t want to give any of these sites your personal information. You could easily have your id stolen years down the road – when they figure you’ll have better credit. Or they will charge you upfront then turn you down, keeping the fee.

Visit every single bank and credit union in your area. No fee for this. If they are turning you down then everyone else will. Stay away from the big banks as they are not lending as much.

Question: Question about an owner finance mortgage.?
Let’s say that you owner finance your home. At the time of closing, the house is deeded into your name, listing you as the owner.

You later find out that the person you are owner financing this through actually has his own mortgage on the house. Basically, you are paying your mortgage to him, who is paying his mortgage to a lender.

This doesn’t sound legal to me. Does anyone know the laws regarding this?

Answer: Wow. Your Title Search, Title Insurance and the closing agent would have picked this up. So, I am guessing you skipped those protections? The seller is committing mortgage fraud. You can sue him, but you don’t own the house, his mortgage company will probably end up with it. You need a lawyer with real estate experience. Call a local Title/Abstract Company and ask for a couple references to lawyers. The seller’s mortgage would have been paid off at Closing had you gone through a proper closing.

Question: My father died and left me the house, and their is a mortgage on the house should I get in financed in my name?

Answer: It is more important to make sure the title deed is in your name. If you would have to go through probate to make sure the property is placed in your name then you should do this as soon as possible, even if their is only one heir and that being you.

Even if there is a will, the will would have to be probated. If there is some type of trust then you might be in a different situation. If there is a trust you might avoid probate.

Some states do not require probate if the entire estate is less than a certain amount. You would have to find out the probate laws in your state and if there is a limit on going through probate. A probate attorney would be able to assist you in telling if you would have to go through probate.

Normally you would be required to transfer the mortgage to your name through an assumption of the with current mortgage company or refinance the entire mortgage by paying off the current mortgage.

Now saying that I have not known a single mortgage that has ever foreclosed on a property as long as the monthly mortgage is being paid on time.

Question: Do you think a family with an income of $95,000 could finance a mortgage for a house worth $2,400,000?

Answer: Not unless you had a HUGE down payment. Your income wouldn’t be enough to make the payments with 20% down.

Question: Which type of lending institution is better for a home mortgage; a mortgage company or traditional bank?
I’m not a first time home buyer. What are the pros and cons of using bank financing versus mortgage company financing to find the most competitive interest rates? This is for a home purchase, not refinance and my credit is excellent.

Answer: In terms of competitive rates, your bank is limited to the loans that are in the bank, as opposed to a mortgage company who will have thousands of options to fund your loan.

The pro’s of a local bank are the personal contact and you can build a relationship with them, which will encourage repeat business and you will then be able to get better rates from them

As an investor I want to keep my funding as local as possible, find the banks that have very few branches and the want to give me business, as opposed to national banks or brokers that I am only a number too.

Question: How can I report a seller financed mortgage to a credit bureau?

Answer: The seller would have to be a subscriber to the credit bureaus. This costs money, and so, unless you are paying the monthly fee, I doubt they would do this on their own.

Now, if you are doing a rent to own type of deal, what you can do is have the seller keep records or you can of how you paid your rent. You can show this to the lender when you go to get a mortgage on the place.

Categories: Mortgage Financing
6Jun

Mortgage Lenders Are Easier Than Ever to Find

Posted by Credit Financing Guru on 25th February 2010

If you are in the market for a new home, or perhaps looking to refinance, you will need to know a thing or two about what to look for in a mortgage. You have a lot of options when you select a mortgage, and there are many mortgage lenders to choose from.

Deciding what type of loan you would like is the first step for you. There are many types of loans to choose from, and it is a critical step. Selecting the wrong mortgage might put you in an awkward financial situation down the road, so it is best to find out what you need from the beginning.

The oldest type of mortgage on the market is the fixed rate mortgage. Fixed rate mortgages are for a particular period of time, say 10 years, or 30 years. The length of the loan varies, and you have many to choose from. With a fixed rate mortgage, the interest rate will not change for the entire length of the loan. That can be great if you get the loan when rates are very low, but if rates drop after you take out the loan, you might want to refinance to get a better interest rate.

Another type of mortgage is the adjustable rate mortgage, also called an ARM. Adjustable rate mortgages do just what the name implies, they fluctuate with the market. With an ARM, the rate will change from time to time as the interest rates change. It could go up, or it could go down, depending on what the prime interest rate happens to be.

Other types of mortgages are designed for specific home buyers. FHA loans are great if you are buying your first home. FHA loans are backed by the government, so lenders are more likely to give you the funding you need. If you are a veteran, you can also apply for a VA loan. It is a great deal for veterans, because a VA loan does not require the borrower to have a down payment like other loans do. There are other types of loans on the market too, so do your research to determine what is best for you.

If you find the loan you want, but the interest rate is not quite as good as you want it to be, you can change it. Lenders will allow you to pay what they call points. You can pay some extra money on the front end to actually reduce the amount of the interest rate. Points are a percentage of the loan amount, so the larger the loan, the more it will cost to buy down the interest rate.

Mortgage lenders come in a variety of forms these days. You can get a loan at your local bank or credit union, if you choose to go a traditional route. You can also apply for a mortgage online. Online mortgage brokers often have the best rates because they are selling loans at a high volume. Most only mortgage brokers sell for several different lenders, so you will have many loans to compare.

Mortgage lenders are easier to find than ever before. With technology today, you can apply for a loan in the comfort of your home.

When you’re deciding to buy a house, some of the factors that you have to take into account are mortgage rates. As mortgage rates are important for home-buyers, GIC rates are important for investors. If you’re interested in a customized financial plan, remember to visit us.

Mortgage Lenders FAQ:

Question: Will mortgage lenders perform a credit check to add me to an already existing mortage?
My brother and girlfriend have just split up and they can’t sell the house due to the fee and the value of the house is much less than they originally paid for it. He wants to add me to the mortgage and take his girlfriend off (she consents) but will they perform a credit check? My credit is not brilliant, but will be able to afford my half of the mortgage as I earn more than my brother’s girlfriend.

Answer: The mortgage company is never going to take his girlfriend off the note. She can sign a quick claim deed, transferring ownership to you, or anyone she wants, but she will never get permission to be taken off. It’s just not done. Not even in divorces. For you to get involved, financially is a moot point. If you want to help out, just have the girl friend add you to the deed, and start making payments, or helping. The only way to change anything is to refinance the mortgage.

Question: Do all mortgage lenders look at the middle of your 3 credit scores?
I’ve heard there are some “niche programs” that will look at either your highest score or the average of the 3. My middle score is 5 below what it needs to be and all that’s standing between us and this beautiful home my husband and I found is that score!

Answer: Most use FICO and not the agencies’ scores. There is no averaging there.

Question: What is the best way to find a mortgage company without letting them pull my credit history?
I don’t have anything to hide, I just don’t want a bunch of lenders pulling it and hurting my score. Also, is the Better Business Bureau a good way to evaluate smaller, local mortgage lenders?

Answer: Get recommendations from people you trust. If you are honest with a loan officer from a local Mortgage Broker, he or she will be able to predict pretty accurately from experience what your credit score is going to be. Just remember, a good loan officer is worth their weight in gold.

BBB is a non-profit organization that you pay to become a member of. They do not make laws, nor do they investigate anything.

Question: I’m 33 and my Husband is 41, is it to late to get a mortgage?
We have lived in our housing association house for 4 years however we are now debt free which means we feel we could afford to buy a house. Our ideal option is part buy/part rent scheme. We seem to fit most of the criteria for this type of housing but my main concern is our age. Would mortgage lenders even consider us?

Answer: On shared ownership you still need a deposit of at least 10% of the part of the house you will own. If you can get a property where you own the minimum share of 25% of a property then this will mean a smaller deposit but you would still need to raise this nevertheless. All mortgages whether shared ownership or for buying a property outright will require you to have 10% deposit at the very minimum.

Your age would not be an issue, most lenders will allow you to go to retirement age, some a little longer. Given your husbands age you would be looking at a maximum mortgage term of about 24 years.

Question: Can I refinance with a reputable lender following a loan modification?
I am anxious to leave the current lender that my mortgage is with and am working on bringing my credit up.

Answer: Yes, unless the modification had a provision saying that you had to make up any shortfall. Most lenders would not require that. They just want their money.

Question: Can someone obtain a mortgage through a bank or a lender for investment properties using an LLC?

Answer: If purchasing investment real estate, ALWAYS purchase it under an LLC and yes obtain a commercial loan for the property.

Question: Looking for bad credit lenders?
Does anyone know of any good lenders for people with poor credit? I’d like to be able to get a mortgage of up to $50,000.

Answer: If you live in the United States, look into an FHA loan. If you have been in the service, a VA loan is another possibility. Minimum down payment will be 3.5%, higher if your credit is poor but should not be over 10%. It is difficult for people with poor credit to get conventional bank financing and even if you did manage to find a lender such as a finance company who would be willing to take a chance, your interest rate would be astronomical.

Question: I’m on the deed but not on the mortgage and my ex wife left the country.
She is the borrower. What can I do to keep the house? Now that I’m in the last stages of modifications can the lender let me change the mortgage to my name and keep the house? What are my options?

Answer: Is she gone for good; in which case you better get a lawyer because you can’t modify her mortgage. Temporary; A POA should allow you to continue to work on her modification.

Otherwise, you’re talking about paying off the mortgage and re-fi in your name. Some companies may require you to get your wife’s name off the deed first.

Categories: Mortgage Financing
2Feb

Home Mortgage Financing With Bad Credit

Posted by Credit Financing Guru on 31st January 2010

Are you interested in getting home financing with poor credit? Given the recent housing slump that has occurred, a lot of different lenders have made the lending criteria stricter. It is important that you do your homework any time you are going to be applying for a home loan with bad credit.

In order to get your loan approved you will need to make sure you have a down payment for your loan. Most lenders require a down payment from the majority of borrowers. Unless your credit rating is extremely good, there is a good chance that you will have to provide a large enough credit rating to the different borrowers that are available.

People who are interested in getting a loan application approved should consider getting a cosigner for their loan. The benefits that cosigners offer are the ability to diversify the risk that creditors face. If you default on your loan payments then the lenders can go after your cosigner to cover the payments you missed. Most lenders use direct family members as cosigners for their loans.

Anyone who is interested in getting a loan secured needs to make sure that they take steps to pay off high interest debts. Lenders don’t want to lender to you have you have a large amount of outstanding debts that are available. For this reason it is important that you reduce a lot of your high interest debts before applying.

If you are looking to get home financing with poor credit it is important that you do your research. Saving up for a down payment and finding the right lender are probably the two most important aspects of the loan process. A comprehensive search online for different home lenders will ensure that you find one that can work for you.

If you are looking to get a Poor Credit Mortgage approved you will need to do your homework. A comprehensive search for the different Home Finance Creditors will ensure that you get your loan approved.

Mortgage Financing FAQ:

Question: When is a good time to consider re-financing your mortgage?

Answer: 1. When you can get a fixed mortgage with a lower interest rate than the one you have.
2. Calculate the monthly savings with the new mortgage.
3. Determine the total cost of the refinancing.
4. Calculate how long you would have to keep the mortgage in order to recoup the refinancing expense.
5. Go with the new mortgage if you plan to be in the home long enough to break even.

Question: My Mortgage Insurance was financed with the home and does not appear on 1098, can I still deduct it?

Answer: You can deduct it but you may need proof of payment by the IRS. Contact your lender or provider and get documentation. If you paid it, deduct it.

Question: Are there any 100% financing mortgages left?
Is there any way to get 100% financing for a house today? I know in the past they had the 80%/20% mortgages to obtain 100%. I also know about 3.5% FHA which seems like a decent option.

Answer: No there pretty much aren’t because house values are still declining all across the country so if you financed 100%, you would be underwater in one month.

Question: How do I get out of a mortgage or owner finance with a mortgage?
I am not hurting financially and not going to foreclose, but want to move closer to my work. I have a mortgage but if I sell I won’t get over what is owed or maybe break even. I really would like to make enough to get at least a decent down payment for the new location. It is an older home in need of repairs but a lot of square footage and in town. Someone suggested Owner finance, do mortgage companies allow this, is it feasible to rent considering my mortgage payment and renters insurance prices, and don’t mention maintenance repairs for rental? I’ve never sold a home before but want to know all my options.

Answer: Owner financing is not a real option since you would have to pay off the original mortgage to legally mortgage the house to another party and even then it is a big risk to you. Renting is your best bet, but like you mentioned that idea accompanies a bunch of other issues (repairs) and while you wouldn’t need to pay renters insurance (renters pay that) your homeowners insurance would increase since the property is no longer owner occupied. It really comes down to priorities. How important is moving closer to work? The only way you can get a reliable value to your house is to have it appraised. Realtors providing comparative market analyzes might work, but so often they tend to over inflate the price in hopes of getting the listing because they “think” the property is worth more, when in fact their opinion doesn’t matter, only a buyer’s opinion matters.

Question: Anyone other than FHA offer High DTI Ratios for mortgage loans?
Recently I was pre-approved with a FHA loan with a high DTI between 50-55%, but the guidelines have recently changed and now my pre-approval is gone. I’m curious if anyone knows of any other methods of financing that would have a similar DTI as the FHA loan that recently changed?

Answer: FHA doesn’t have any minimum credit score requirements or debt ratio requirements. Where these requirements come from is the lender making the FHA loan. I currently have lenders that will go to 55% debt ratio with a 660 min. middle credit score. These are known in the industry as credit overlays.

The big 4 put out their loan guidelines, and its up the individual lenders to determine their credit overlays, which are loan guidelines that are requirements beyond the investors guidelines. The big 4 I refer to are FHA, Fannie Mae, Freddie Mac, and VA, this is the modern day source of virtually all “A” grade loans on the market.

Question: Mortgage increase or give up RRSP contributions?
I’m studying finance right now and we have a question that deals with a person who can either increase the size and length of amortization of their mortgage, or decrease/give up their RRSP contributions. I have no idea which is better as I have neither at the moment.

Answer: Giving up their RRSP contributions now would often (but not always) be to their detriment, dependent upon their age and length of time that they will be working. The reason for this is they will miss out on the compounding of the RRSP contributions. The only reason that I can think of to increase the size and length of the amortization of their mortgage is to enhance the existing house in some way, but keep their payments the same.

Personally my choice has been to only go with a shorter term mortgage and lower rate. I’m 2 years into a 15 year mortgage @ 4.625%. And if you look at any amount of mortgage borrowed, that will always show up with the very first payment paying more in principle than in interest. I prefer to minimize interest paid, and the term of the mortgage. While keeping retirement contributions the same, or more.

Question: Why aren’t lenders willing to modify mortgage loans?
I have friends who bought a home in 2006 for $275,000. They obtained conventional financing with 10% down and were making their mortgage payments. The subsequent real estate meltdown from zero-down-pay-what-you-want loans destroyed the value of their property. Their lender refused to even discuss loan modification. They walked away figuring their credit would recover faster than the real estate market. Their old house is now on the market for $95,000. They would have been happy with a mortgage at DOUBLE that valuation with no interruption in revenue or foreclosure costs to the lender. It makes no sense to me. Any insider input?

Answer: Lenders WILL modify their borrowers mortgages. The trick to the situation here is for them to declare a Hardship, and go late on a payment, then the lender will see that they are indeed at risk of losing money on an investment they made (Loaning to your friends for the home). I have yet to come across a lender that would rather foreclose the modify. You / They need to talk with a professional modification company that is backed by an attorney that specializes in this, it’s absolutely free to speak with one. If they determine that you are a candidate for a modification based on the hardship, and their household financial situation, they will want to retain their services.

Question: What are the consequences of having a lien on your mortgage? Will this hurt you financially?
My mom gave me $20,000 to purchase my home. This home she lives in free (I do not have her pay anything). My husband and her do not get a long. She now wants me to take a lien out in her name for what she gave me so that if anything happens to me she can get her money back. But I don’t feel I owe her as long as she lives with me rent free. I told her I would look into it. Just curious on what this will do to my credit and finance.

Answer: It will not have any effect on your credit. The only time it will come into play is, when you sell the home she will be paid back her $20,000 from the proceeds of the sale. It is very much like having a second mortgage on your home.

Categories: Mortgage Financing
1Jan

How to Determine Which Mortgage Type is Right For You

Posted by Credit Financing Guru on 22nd October 2009

The following are the most important factors involved in selecting a mortgage that is truly suitable for you:

1. Check Your Financial Position – To get a mortgage one must check the current financial position and weaknesses one has. These strengths and weaknesses include:

• The monthly income earned by you which gives you the ability to pay the mortgage payment
• The savings collected by you. This will help you making down payments and covering the closing costs at the time of refinancing. Once must also keep cash in hand for emergencies.
• The way you manage the loans and credit cards and your all financial documents is a crucial matter.

2. Your Savings – The amount of your savings relative to the money earned by you is checked. One must add the savings money, mutual funds, and gifts in the form of money and see the final value derived which can be used for the down payment. If the savings you have are less than 25% of the money you earned then it is considered as deficit.

However, if the savings amount is more than 25% of the income but lesser than 75% of the money earned then it is considered as enough. Hence 5% of your money can be used for purchasing the house.

If the amount of your savings is more than 75% of the money earned then you are capable to make a down payment of nearly 20% of the cost of the house.

3. Debt In Relation To Income – One can manage the credits by checking the ratio of the payment of debts to the income. The debt payments include student loan payments, payments for car, installment loans, alimony charges, interest rates and any other obligations. However, these do not involve rent or bills and the payment for the mortgage of the house sold or purchased by you.

4. How Long You Wish To Keep The Home- This is an important issue because if you plan to move within three to five years then an adjustable rate mortgage is a better option. The rate of interest and the payment is lower during the first few years. Hence this helps you save money. However if you plan to keep the home for 15 years or more then a fixed rate mortgage is a better option.

To learn about the various types of mortgage loan programs available visit mortgage loan details.

Mortgage Financing FAQ:

Question: I have excellent credit (800) and need a mortgage.
I’m looking to buy a rental property. The problem is that at the time I’m not employed. I actually have enough money to put 30% down and enough money in the bank to pay mortgage on the house for 10 years. I will also have my sister who works co-sign the loan but her credit is around 600. Will getting a good loan be a problem? Or will it be sub prime?

Answer: Without verifiable income, you won’t get a loan no matter what your credit score. Lenders want to see that you have the cash flow to pay the loan note. Investing in real estate while unemployed is questionable.

Question: Should we pay for a property in all cash or put a large down payment and get a small mortgage?
My wife and I are looking at purchasing a town home or smaller home in the area of Tracy, CA. We are looking at homes in the 180 to 200k range. We can afford to pay cash in this price range, but we will only have about 50k in savings leftover if we do this. We don’t qualify for a low interest loan because we recently started a new business and don’t have a solid track record yet. We could qualify for a high interest FHA at about 9%. My thoughts are to pay all in cash, but my wife thinks we should do mostly in cash and get a small loan. I like the idea of having no mortgage, hence less overhead each month, and we’re not throwing away lots of money interest each month. My wife however doesn’t like the idea of having too little money leftover after we buy the home, just in case something happens. So, do you think we should pay all in cash or pay mostly in cash and get a loan for about 50k or so, and why do you feel that way?

Answer: Pay cash for the house. You will avoid the application, loan origination and reconveyance and credit-pull fees, which could add up to almost 2%-4% of the loan amount.

Then, after you have moved in for a few months, apply for a HELOC from your bank. Since you have 100% equity in the home, you will get the HELOC. And the HELOC is usually free in application, and you pay interest only on the amount you take out. If you don’t use the money, you don’t pay any interest whatsoever.

This, to me, is the best way to go about this.

Question: How to write a mortgage for owner financing?
Can a title company write a mortgage (the paper contract that says the buyer owes the lender etc. and gets recorded as a lien)? Or does it require a real estate lawyer to write one? Or can you write it yourself and then get a real estate lawyer to approve it? If you write it yourself, is there boilerplate text for it available on the internet?

Answer: Call a title company in town. They may have a format you can use. If not better go to an attorney. This is too important to mess up.

Question: Is it a wise choice to go for seller financing if I can’t get a mortgage?
Also does a real estate agent help you with this process and are there still closing costs invloved?

Answer: Seller financing can work, but there are some things to watch out for:

If you can’t get a regular loan, can you make the payments on the seller financed loan? Most of them will “balloon” or come due within 2 to 5 years, so will you be able to get regular financing by then if you can’t get it now?

Is the seller charging more than market value for the house, or charging a much higher than normal interest rate?

Does the seller own the house free and clear? They may not have the right to offer you seller financing if there is any existing loan. Most mortgages have a “due on sale” clause, which means that if the title is transferred to you, the seller’s mortgage can become immediately payable. If there is an existing loan and the seller “wraps” that one with your loan, how do you know that his or her mortgage is getting paid?

Yes, an experienced real estate agent should be able to help you with this and write up the contract so you understand the terms of the note. Also do get title insurance so you don’t have problems in the future. Yes, there are still costs involved – title fees, inspection, but not near as many as if you got a regular mortgage loan.

Question: I am about to buy a home with an inground pool that is 12 years old in fair condition.
The type of mortgage loan I am getting is 100% financing (USDA), but will not finance the value the pool brings to the home on the appraisal. Does anybody have any idea what kind of value, if any, does an inground pool bring to the value of a home on an appraisal?

Answer: Usually it is no value, they are not investments, but amenities and have no value at all, even a negative values as your insurance for the house will be so high that many people can not afford to buy the house because they can’t afford the insurance premiums.

Question: Where can I find a contract for a change in mortgage payment?
We purchased an owner financed house, so we pay our mortgage payment directly to the sellers. We have damage to the roof and they are going to deduct $200 from each payment for a year. We want something in writing so they can’t ever come back and say we owe them more money or say that we didn’t pay our full payment. I was trying to find a form or example contract that I could follow to write this up.

Answer: If you purchased the house,then your name must be on the title deed why are the people you are paying deducting $200.00 per month for damage to the roof? This is your responsibility.

If the person you are paying is deducting money from your payment, I have come to the conclusion that you must be purchasing your home on a land contract or a lease with an option to buy sometimes called a rent to own.

You do not need a particular document, you simply need a piece of paper where you may write down what you want to say. After this has been written you and the owner need to sign this document. Once signed by the both of you this document becomes legal and enforceable in any court in the United States.

Write on this piece of paper that says owner and buyer agree that $200.00 will be deducted from each mortgage payment for 12 months beginning on (What ever month) and continuing until (What ever month).

For any legal and tax matters you should contact your attorney or tax consultant.

Question: Bought house with owner financing, can I get the first time homebuyer tax credit?
I just purchased my first home and it is through owner financing. I put $10,000 down and am making payments to the owner for ten years. We have a contract through a lawyer. Can I get the first time homebuyers credit just like someone would purchasing a home with a mortgage loan?? What kind of papers do I need to claim the credit? What does the IRS need?

Answer: ONLY if you took title NOW, and are on a recorded deed. Many times with owner financing, you have to pay for some time, then get other financing and buy them out. So depends on the type of owner-financing you have. Who is on the title, the seller/owner or you? You will need a copy of the deed, closing papers.

It is likely there will be some new home buyer’s tax credit next year or an extension of this one. You can restructure your deal to qualify if you don’t currently. However, as seller, I wouldn’t give you deed yet.

Question: How to get a mortgage after a foreclosure?
Foreclosed on in 08, been renting for a year now, how do I find financing for another home?

Answer: Unlikely unless you are specially qualified (VA…FHA). You won’t qualify for another mortgage for at least three years after your past foreclosure, and that is assuming that all credit information since then has been flawless.

Categories: Mortgage Financing
10Oct

No Money Down Mortgage Loans – How to Buy a House with No Money Down

Posted by Credit Financing Guru on 22nd October 2009

Fortunately, homebuyers do not need a large cash reserve in order to purchase their dream house. Before mortgage lenders begun offering different types of loan programs, those interested in buying a house would have to save money for a down payment. This made it impracticable for many people to purchase starter homes. However, buying a home with no money down has become a common trend. Here are few tips to help you locate a zero down home loan.

Types of Zero Down Home Loans

In addition to loans that make it promising for homebuyers to purchase with zero down, there are also home loans that pay for all closing fees. Thus, homebuyers are not obligated to pay out-of-pocket cash. This is ideal for young couples or those with little cash on hand.

Zero down home loans are commonly termed 100% mortgage financing. Traditionally, homebuyers would need about 20 percent of the home price to qualify for a mortgage. Because of rising home prices and moderate incomes, it has become difficult for normal hardworking individuals to build a large savings.

There is also the option of buying private mortgage insurance. However, if you want to avoid monthly PMI premiums, 100% financing is a better alternative. 100% mortgage financing consist of buying a new home with two mortgages. A first mortgage finances 80% of the home price, and a second mortgage finances the remaining 20%.

Other Ways to Finance Mortgage with Zero Down

Zero down mortgage loans are available to people with good and bad credit. Although these loans alleviate down payments, homebuyers are responsible for paying closing fees. Closing fees vary. Typical fees are about 3% – 5% of the loan amount. If homebuyers are unable to get their hands on the cash, they may opt for a 103% mortgage financing loan. These loans also offer 100% financing, plus addition money to pay closing costs.

Finding a Lender for a Zero Down Home Loan

Try using one of ABC Loan Guide’s Recommended Zero Down Home Loan Lenders.

Various lenders offer zero down home loans. When shopping for a mortgage you have two options: choosing a subprime lender or a prime lender. Credit scores below 640 rarely get approved by prime lenders. Nonetheless, subprime lenders offer mortgage loans to individuals with credit scores as low as 500. View our recommended lenders for Mortgage Financing. Also, view our recommended sources for Home Loans For People With Poor Credit.

Mortgage Loans FAQ:

Question: Would you borrow money for house down payment?
I essentially lost my down payment for a new house when I took a hit selling my old house. So, I have no money to put down on a house and will either have to go VA or FHA. Both will essentially cost me an additional 3% which will be added to the loan balance. I have a somewhat intrusive relative that will loan me the down payment of $40K to avoid the mortgage insurance or VA funding fee (Both around $7K). Is it bad to borrow money from relatives like this? Any experience with it or thoughts on it?

Answer: When you apply for a mortgage, you have to state where the downpayment came from (savings, gift, borrow, etc). If you borrow the entire down payment, that means you are financing 100% of the house and most lenders won’t go for that anymore.

Question: Am I at default under mortgage contract if I cant come up with sufficient down payment funds within 30 days?
The contract stated that if buyer cannot obtain loan with 30 days contract is considered null and void and earnest money deposit is returned to seller, doesn’t not having sufficient funds for downpayment meet those guidelines?

Answer: You need approval from the lender – the down payment is part of the loan agreement and the due date is usually the loan origination date. However, some in fact many loans, require that the funds must have been in your account for a certain period of time and if so – you could be in real trouble if you do not have them in hand at this point in time.

Verification of the source of the down payment money is required in all but FHA loans and nearly all require the funds to have been in hand for 3-6 months.

Question: Which mortgage loan is better: FHA or Rural Development’s Guaranteed Home loan?
My husband and I are buying a builders spec home in Lafayette, IN for $115,000. The home is in a new community that qualifies for USDA loans. We have been pre-approved for a FHA mortgage through Bank of America & a local mortgage broker. FHA was the mortgage we were planning on taking until we found this house. Now we are torn between the two and are unsure on which one would benefit us now & in the long run.

Our objective – To use the least amount of money up front as possible, and maintain a total housing payment of less than $780 a month. (Interest rates quoted range from 5.125% to 5.5% & Taxes = $600yr & Home Ins. = $595yr)

Answer: According to your objective it would be the Rural Housing USDA. This program is a 100% LTV (loan to value), no MI with rates usually comparable to FHA.

Now with that being said your the loan fee is charged to you at the beginning of the loan. Your loan amount will have an add on of 2% giving you an actual LTV of 102%. The seller can pay closing fees up to 6%.

This program carries some strict guidelines. You have an income max, also back end debt ratio max of 42%. Other than the current turn time for approval (which is now two weeks) it is a great program for those who don’t have the down payment or which to hold on to their down payment.

Question: Need to sell my house but I’m upside down- anyone taken out a loan to pay off negative equity?
My husband took a new job and we need to sell our house. We are about $20K upside down. We don’t have this money in our pocket to bring to closing when we sell. Our community is flooded with rental homes, so renting is not a great plan cause we can’t afford to rent a home in our new town and pay our mortgage on our current home if we can’t find a renter or if the renter rents for only a year and then we can’t find anyone to rent after that. Has anyone had any experience with taking out a personal loan to pay off the negative equity before selling or maybe even paid it off with a credit card with a low interest rate?

Answer: Avoid the short sale if at all possible. It hurts your credit. Work out a deal with your lender to arrange a personal loan for the 20k difference.

Question: Should I tell the bank the reason for getting loan?
I want to borrow money from the bank to buy a small condo, a mortgage company will not finance such a small amount, will the bank turn me down if I tell them its for a home? Am I better off telling them its for a car loan? I have excellent credit so I have a good chance but just don’t want to be turned down because they don’t like how it will be spent.

Answer: Yes. So long as you have good credit and qualify for the loan (prove that you can afford to make your payments), a real estate loan is the least expensive loan. Credit unions often offer low rates, but also check with banks.

Question: What are loan options for a low money down mortgage?
I found a duplex I’m interested in buying. The place costs $79,000. I can put down 5% of that but that’s all I have to put down. Is it possible to roll closing costs up into the loan? I keep hearing about FHA loans but are there any other loan options that allow you to put a low down payment of 3.5% to 5%?

Answer: FHA is the only loan option now with an official “low-down” of 3.5%. You will also need closing costs in cash, plus reserves of at least 3-6 months. However, we are finding that property deals with less than 20% down are developing “last-minute hitches” at a rather alarming rate, and these deals are not getting funded by the closing date even though they were supposedly “approved.”

If you only have $4000 cash, you only have about a third of what you need to do FHA (if it goes through), and only a fifth of what it really takes to get the deal done.

Question: How do I refinance my home loan/mortgage?
My mother used a “VA” loan to pay for our home. The interest rate is above 6% and she is looking to refinance to a lower rate. Now I watch many (money) shows but seeing that I don’t own a home, I never payed attention. Can you give me a run-down of how to go about refinancing a home loan and some possible tips?

Answer: If she has a VA loan then have her call the company that holds her mortgage, see if she can get a lower rate with a new loan. They may offer some type of VA streamline refinance so it will be fast and easy and a lower rate for her.

Question: Mortgage Loan problem .. U/W?
Finally my home purchase entered in to escrow and and loan is in underwriting, but unfortunately lender bank sent an email asking explanation for mortgage tax write off that I made last year.

Going to the short history, I took loan and bought an apartment in INDIA in early 2008, off course spent some money from my pocket towards down payment, repairs and the payments until it was rented. When I was filing taxes for 2008, my tax agent suggested me to write of tax on that money, so I did write of on payment that I was made before it was rented. Now lender bank looked in to my last year tax transcripts and asking for explanation about the mortgage write off on my taxes last year.

Can some one please shed some light on how to come out of the situation? Is this a big mistake to write of the mortgage on other countries? Did my other properties helps me to get this loan approval?

Answer: We are all experiencing the effects of several years of borrower fraud (among other causes) so underwriters are being extra cautious these days. All they are trying to do is reconcile what you said you owed to various other creditors to other documents.

Did you include that other mortgage on your application? If not, and they saw that deduction on your tax return, that would raise a red flag.

If you fully disclosed everything you owed, then you have done all you can in giving them a letter of explanation. If your credit is good and your income is verified and enough to cover your debts (including the new house), then there shouldn’t be a problem just because you have some different things that other people don’t usually have.

You should be okay.

Categories: Mortgage Financing
10Oct

Different Mortgage Types Match Your Finance Needs

Posted by Credit Financing Guru on 22nd October 2009

If you are thinking about making a real estate purchase, you may find the financing options quite confusing. Before you can proceed, you have to know your terms, and understand what your options are.

There are two variables to consider – mortgage type, and interest rates. These are the most important considerations when deciding on real estate, so it is essential that you have a basic understanding of what they are. Your two main options are repayment and interest-only types, and under those are more specific kinds.

Repayment Mortgages

This type of financing operates like a simple loan. Every month, you make a payment and the money goes to both the capital (the actual home itself) and the interest. The loan lasts a certain period of time, and if you make all of your payments according to schedule, you will have both the interest and capital paid off at the end of that term.

Interest-Only Mortgages

With this type of payment option, you are making your payments to the lender for the interest only. These loans have other options for paying off the capital in a lump sum. These have their benefits, but they are only good for those who can definitely make those payments according to schedule. If you do not keep up your payments, you risk losing the loan.

You will be saving the money for the capital in a savings plan of some sort, like a pension plan, ISA or endowment. At a certain time, that saved money will be used to pay for the mortgage, and the interest will already have been paid off.

- Endowment Mortgages.

With this type of financing, you are paying money into a life insurance plan. Those funds will eventually be used for the house. At the end of the term, this money will go to the house. The advantage is that you are not only saving for your mortgage, but also getting life insurance. If you die during the payment period, the loan will still be paid off so your family doesn’t have to worry. You also might end up with extra cash left over after it’s paid off.

- ISA Mortgages. With an ISA, your monthly payments are being split two ways. One part is used to pay the interest on the principle (or original amount you borrowed), and the other goes into an ISA plan, which is invested. Part of the ISA plan will be simple savings, and the rest will go into stocks and other investments. This is an excellent way to pay off your loan like a repayment mortgage, but save lots of money on taxes.

- Pension Mortgages. You pay money into a pension that will be used to pay for the house when you retire. This option is usually only available to those who are self-employed. You are basically saving for both your home and retirement, so you have to make sure that there will be enough when you retire for the house and to take care of you throughout the rest of your life. With this type, you pay almost no tax on your house, and end up saving all that extra money.

Once you’ve decided which payment plan is best for you, you will have to choose an interest rate. Whether you need a fixed interest rate, variable rate or capped rate will depend on your lender and your own personal needs. Having advanced knowledge about your options will let you select the plan best suited to you and your future.

Knowing which of the different mortgage types suits you helps with financing your home. The terms can often be complicated, so awareness of your financing and payment options can only make things easier. Get the information you need from a New Orleans Realtor. http://www.thelatourteam.com

Mortgage Financing FAQ:

Question: Can you apply for both a conventional and FHA mortgage at the same time?
We are purchasing a new home and the builder is upset we are applying for a FHA Mortgage. The contract was written that we would go conventional, however, FHA is a lower monthly payment, lower interest rate. They are telling me that I need to get a commitment for both types of mortgages – can I do that?

Answer: The question might be, “Would you even want to do that?” And, “Will the lender do it?”

Sadly, there are those in the real estate business these days who feel that more work AND time are required to process FHA mortgages. Some also falsely believe that the borrower who can qualify and obtain a conventional mortgage loan is a “better” applicant for the mortgage. For them, “better” applicants mean a higher likelihood that everything will go okay and they will sell the house and get their commission check or fee. The “commission” is what it all boils down to.

I am equally amazed that this builder cannot see that requiring you and the lender to do double work could cause a delay in closing the loan. More is likely to go wrong just because the buyer has 2 files being processed. Is the home being built or is it already standing? And what about the fees to lock in the interest rate for 2 loans if your lender requires you to pay a lock fee? I can imagine that if you want 2 loans processed, and the lender agrees, expect to pay for it in some way.

It will boil down to how much you want this house and how desperate the builder is (if at all). AND what happens on the lender side will be crucial. If you decide to go along with this scenario, then you certainly would want a lender who does both FHA and conventional. Along with a mortgage person who has no problem doing double duty in crunch time.

Question: I am late on my mortgage and 4 credit cards…?
I would like to seek legal advice but do not know what type of attorney can help me with this. I am looking to possibly lower my current mortgage amount, down to what my home is currently valued at. Also, I’d like to make amends with the credit card companies that I owe so that I can get back on track. Any suggestions?

Answer: You really don’t need a lawyer. You just need to call the mortgage compant and see if you’re late enough for them to lower your mortgage or interest rate; it may take a few days for them to respond since everyone’s asking the same thing.

The same with the credit cards: you can call and ask if they’ll take 50 cents on the dollar, or what they’ll do to reinstate your account. Just call these guys. It’s not like a few years ago–now they are more willing to work with you.

Question: Which mortgage should I get ?
My parents took half of the value of their property (they were mortgage free) so that I could buy my first house. They had Interest only for 2 years, which is now coming to an end. So I own my property outright, but I obviously have to repay them! The trouble is I’m so confused about the different types of mortgages that are available, what do I need if I own the property outright? I need to take around 68k out of my property to pay them back, my house is probably only worth approx 75k at the moment (we still have a little work to do on it).

I’m sure I want a fixed rate mortgage but I’m not classed as a first time buyer, or remortgage or buy to let or anything else! Is equity release the only way ?

Answer: You really need to speak to an independent mortgage adviser who will ask you various other questions (incomes etc), and then explain your options. You need to raise a remortgage on an ‘unencumbered property’.
Based on your figures you will need a 90% mortgage, which is almost impossible in the current market.
You will probably have to pay your parents interest only payments until the market picks up.
By the way ‘Equity Release’ is the term normally given to roll up interest mortgages for the over 55′s.

Question: Hope for Homeowners mortgage help?
I went through 6 months of working with Chase bank to modify my mortgage under the Hope for Homeowners program, which I qualify for. I finally get a letter from them saying that the investor objects, so my loan will not be altered. Are there any other possibilities in this type of situation? At this point, if nothing is done, my home will go into forclosure in the next year.

Answer: You could try calling 888 995 HOPE to see if there are any other programs out there to help you. Some options, ask lender to accept deed in lieu of for closure, if no, then ask if you can short sale the propriety. You could talk with Realtors in the area to see if there are any investors who might be interested in buying your home. Maybe you could take in a renter for awhile, until you can get on your feet. If you plan to let the house go back to the bank, at least you would have some additional income from the renter with which to use in finding a place to rent once you do have to move. Last resort file bankruptcy.

Question: What type of mortgage FHA or Conventional? Looking to put down 20%.?
My wife and I have found a condo in NYC that we are close to making an offer on. We have 20% to put down and have already been pre-approved. Which loan type is better, FHA or Conventional? We will be going through the options with our lender, but I would like to get some 3rd party feedback here beforehand. We are first time buyers, so any help much appreciated.

Answer: If you have 20% down conventional is always better- no mortgage insurance required and slightly lower rates & costs. FHA insured loans are primarily for people who can’t afford the insurance for their conventional loan. And since you’re a first time home buyer and have no “hardships” established with a previous home, I think you’ll end up with a conventional loan.

Question: I have a question regarding private mortgage loans?
This might be a really dumb question but it’s legit. This is about investing by doing private mortgage loans. I was wondering when you are doing a private mortgage loan and your charging… lets say 10% interest on a $50,000 loan… does that mean your charging 10% interest a month or does that mean a year? If you can give me any kind of feedback about this type of investing.

Answer: That normally means you are charging 10% per year. Mortgage rates are normally quoted as annual rates. It’s all good until a bankruptcy judge writes down the debtor’s debt and you eat the difference.

Question: Fha mortgage tradeline question?
I need 2 more tradelines to obtain a mortgage. Do instant approval prepaid type cards that report to all the credit bureaus count as a tradeline?

Answer: Yes they do, you can also add alternative trade lines to your credit report.

Question: Anyone familiar with financing a home mortgage with “premium pricing”?
I will be closing on a new home in November. Because I will pay off the entire mortgage within 19 months of closing, one mortgage company suggested that we finance the mortgage with “premium pricing” in order to minimize closing costs, etc. I just wondered if this option is available today given the current interest rates and is this a good approach for me to take.

Answer: You will have to compare the numbers, but the “premium” is designed to make the lender money even though you plan to pay the loan off quickly and he won’t make any interest income after you do.

According to one web article, lenders generally do not make money on a loan until the second year, which is right when you want to pay of the loan.

Categories: Mortgage Financing
10Oct

What Happens to Your Mortgage Credit Score If You Default and Can’t Pay Your Mortgage?

Posted by Credit Financing Guru on 22nd October 2009

Losing your home is a scary thought, but for many people in the current economy, it’s an unfortunate reality. It’s not just people that are irresponsible with their finances that are foreclosing, it’s also the ones that have savings and budget plans. Unemployment is high, and it’s getting tougher for everyone to pay their bills. If foreclosure happens to you, your first thoughts are about how to recover, and to do that, you can start by looking at how your mortgage credit score will be affected.

Your mortgage credit score determines whether or not you’ll be approved for a home loan, and it doesn’t matter if you’re applying for your very first home or even a fourth home. It’s going to come into play every time. You should be aware that practically the moment you foreclose, your score will drop, and on average, it will drop at least 250 points. Even if you start with excellent credit, that’s enough to put you into the “bad credit” category.

With that said, you won’t be able to qualify for a new home right away, so you may need to consider other options like an apartment until you can build your score up again. A foreclosure will stay on your credit report for 7 years, but it is possible to rebuild your score in the meantime. You won’t be able to achieve perfect credit, but the more time that passes, the higher your score can go.

After at least 2-4 years, if you’ve been able to successfully manage all of the other bills and credit accounts that affect your mortgage credit score, you can get yourself back in the position to apply for a new home. You just may have to accept a higher interest rate than you had to on your previous home. As you build your score back up, remain focused on improving all the factors that are under your control. As long as you do that, time can only help you.

Check your mortgage credit rating and see how it compares to the national average. Know where you stand.

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Mortgage Credit Score FAQ:

Question: Can you get a mortgage with a credit score of 602 and previous bankruptcy?
I filed bankruptcy last year and now rebuilding my credit with one credit card. I found out that my credit score is now 602, can I get a mortgage now?

Answer: You’ll probably need to wait another 1 to 2 years of on-time payments before anyone will take you on. Even the FHA, which is the most lax and doesn’t look at scores, has a 2 to 3 year wait policy after bankruptcy.

Question: Is there any way to get pre-approval for home mortgage without affecting credit score?
A mortgage broker said there is a way to get pre-approval without affecting your credit score at all …should I trust him?

Answer: The FICO formula allows multiple inquiries from mortgage lenders within a 30 day period to count as a single inquiry for the purposes of computing your FICO score. The inquiry WILL effect your score, but not enough to make any difference. (one or two points) The PRIMARY impact of a mortgage on your score is when you actually get the loan. This does not happen until the closing on the home.

Question: What Credit Score is need to Mortgage and buy a Foreclosed home?
And how much would monthly payments be approximately, if the home costs about $55,000?

Answer: It depends on who is selling the mortgage and how much interest you are willing to pay, and how much of a down payment you have. Also if you are eligible for FHA and that first-time buyer discount.

Question: Is it possible to get a mortgage loan with a credit score of 600?
Credit unions, banks, anything?

Answer: Most likely, not. Gotta get that up about another 20 points for an FHA loan, which has the lowest requirements as far as credit score goes.

Question: Can a married homemaker use her credit score instead of her husband’s when applying for a mortgage loan?
My husband and I are interested in purchasing our first home. The problem is his credit score is only 602. Mine is around 700 but I don’t have a job as I stay home with my children. Will the lender even consider my credit score when making a decision as to whether or not they will lend us money, or will they just look at my husband’s since he is the one with the job?

Answer: It depends on the lenders policy. For certain credit products (like mortgages) a lender will allow the “primary” applicant be the one with the better credit score but still allowing you to qualify the family income. I would advise that you ask for or research a few lender’s policies, but at times this can be difficult because many of them will still qualify you but at a less than ideal interest rate while downplaying the effect your husband’s credit score had on the decision. While probably not your favorite thing to hear, maybe you should evaluate why your husbands score is so low and see if it’s easily repaired or, more importantly, its a sign of potential distress for him and your family by taking out this loan. While far from perfect, keep in mind that credit scoring is used by lenders as an indicator of potential default and although we often don’t want to admit it to ourselves, it may be that waiting to take out this mortgage is the best thing to do until his credit score is repaired.

Question: Credit score 560 can I get a mortgage?
My credit score is 560 want to buy a 99000.00 home. Taxes around 3000, my income is 56000.00, will increase to 92000.00 in increaments over the next two years.

Answer: Not a chance. Work on improving your credit before worrying about buying a house.

Question: How does a mortgage broker calculate your credit score?

Answer: Mortgage brokers do not calculate credit scores. Credit reporting bureaus do that based on a proprietary formula or based on the Fair Issac Company model (FICO). There are three main credit reporting agencies in the US, Experian, Equifax and Trans Union.

The two items with the most weight in a credit score are on-time payments (~35% of the score) and the amount of credit used to credit available (also ~35% of the score). They also look at age of credit, mix of credit, etc.

Major negatives are missed payments, judgments, defaults, foreclosures and bankruptcy.

Question: Do Mortgage Lenders judge based on Credit Score alone or do they take in other considerations?
The reason I ask, is that I have a credit score of 566, which I know is bad, but I have no debt except for $118.00 a month in student loans. I have been renting for the past 3 years and I am tired of jumping from Apartment -to- Apartment. I have cleaned up my credit (completely removing 19 past due medical accounts that were never billed to my insurance), yet my credit score did not take the jump I thought it would (increased only 50 points). What are my chances of obtaining a First Time Mortgage or should I even try?

Answer: They look at income and expenses as well, but those don’t go far to offset a bad score.

Take some time to repair your score. Home prices aren’t going anywhere in a hurry so you shouldn’t feel rushed to get a “deal”. Live below your means, stash up a lot of cash so you can make a 20% down payment plus closing costs, and have an emergency cash reserve. And pay everything on time. Get one credit card if you can, use it sparingly (only for things you could pay cash for if you had to) and make those payments as agreed. All this will go toward boosting your score.

Categories: Mortgage Financing
10Oct