Tag: Mortgage Shopping

Life After Bankruptcy: Yes, You Can Get a Mortgage!

It’s possible to put your credit back on track and qualify for a mortgage, even after bankruptcy.

Sometimes bad financial situations happen to good people and bankruptcy is the only way out. But it’s not all doom and gloom! It’s possible to put your credit back on track and qualify for a mortgage, even after bankruptcy.

Here’s how:

• Find the right lender. Unlike mainstream lenders, non-conforming lenders will usually provide financing after a bankruptcy, if you can demonstrate that you’re now a good credit risk and have sufficient income. I can help you with that.

• Wait a couple of years. Most lenders won’t approve a mortgage until two years after bankruptcy.

• Have a good reason. If bankruptcy was due to factors beyond your control, you’re more likely to get a mortgage. Reasons such as poor money management and excessive debt aren’t looked at favorably.

• Save a down payment. Most lenders will consider a 10% down payment (your own funds, not borrowed or a gift), or even 5% in some instances. However, the higher your down payment, the lower your interest rate will be.

• Re-establish good credit. Get a copy of your credit report from Equifax, Experian or Trans-Union, and work on building a recent record of on-time payments on major bank or credit cards. Missing a payment at this stage could lead lenders to decline you. By rebuilding your creditworthiness, you can raise your credit score, which will lower the rate you’ll end up paying.

• Work to keep your rate low. Most lenders charge a higher rate for previous bankruptcies, and some charge extra fees. You can keep your rate as low as possible by waiting for two years after discharge, re-establishing good credit, raising your credit score, saving your own down payment, maintaining good debt servicing ratios, and demonstrating a long term history of job stability.

• Don’t do it alone. As your mortgage professional, I can coach you on how to improve your credit score over time and help you source an affordable mortgage despite bruised credit. If you—or someone you know—would like a free, no obligation consultation, call me today!

Anatomy of a Mortgage

In exchange for getting this very large loan, the person then agrees to put the house up as collateral against the loan

Introduction

Mortgages were the original home loan agreement. In many ways, the mortgage changed the real estate market completely and turned it on its head in a very good way. Before the advent of the mortgage, the only way for people to go out and get what they wanted in terms of property was to pay for it outright. Since very few people possessed the means back then to pay for property outright, the ownership rights were only there for pretty much the upper middle class. From the middle class downwards, most were excluded from home ownership. Mortgages changed all of that, and to understand how profound a mortgage is, it is important to take a close look at exactly what a mortgage entails.

Agreement

The agreement for a mortgage is one that is the main point of everything else that follows. Under the agreement of a typical mortgage, the person has the ability to borrow money from a lender in order to pay for a house or a property. The amount of money they can borrow varies, but for a Conventional Mortgage, the maximum you can borrow is 80% of the lower of the appraised value or purchase price of the house. Options for mortgages above 80% are available by paying mortgage insurance, which I will discuss in another blog. In exchange for getting this very large loan, the person then agrees to put the house up as collateral against the loan, so that the bank has some way to save itself in the event that the person is unable to pay the loan back.

Interest Rates

Whenever people think about loans, very likely the first thing that they think about is interest rates. There are a number of different interest rates involved in different loans, but when you compare the vast majority of them to what is available under a mortgage, what you find is that the vast majority of those interest rates don’t really match up. The average mortgage has an interest rate attached to it of between 4% and 5% (depending on the loan to value and credit score) and the vast majority of loans that are available on the marketplace today, even if they happen to be secured loans, really can’t match up.

Repayment Terms

Just like with interest rates, the repayment terms for a number of different mortgages are very impressive when compared to a number of other conventional loans. When you’re talking about unsecured loans (i.e. credit cards), then obviously there’s going to be no comparison, but for the most part you will find that mortgage repayment terms are significantly easier to deal with than with most other loans. This is because (a) the collateral being used is extremely strong and (b) the term lengths are longer, so naturally that makes the monthly payments smaller.

Fees

There are some fees for mortgage payments relating to things like late payments and underpayments, but you will find for the most part that fees are not really that important in the grand scheme of the agreement itself. It is important to be aware of what the fees are, and to make sure to pay your mortgage back on time every month.

Closing Costs

Closing costs for a home mortgage can be significant. With the advent of the new disclosure laws that have taken effect in 2015, all fees must be disclosed by your lender at the beginning of the loan process. These fees include appraisal costs, title fees, recording and lender fees. Make sure you receive a lender disclosure at the very beginning of the process.

 

Adjustable Rate Mortgage Loans – Understanding the Basics

While an ARM has many benefits, there are other considerations to look at.

Adjustable rate mortgages (ARMs), developed when mortgage interest rates were high. It was and in some cases still is, a way to help you finance the purchase of a home with low interest rates. It is an ideal choice for those who expect their income to rise or plan to move in a couple of years. An ARM also increases your risk for higher payments. Fortunately, lenders also offer safeguards to limit some of your risk to excessively high interest rates.

ARM Features

An ARM starts with a low interest rate, up to 3% lower than a fixed rate mortgage. With lower rates, you usually qualify to borrow more than with a fixed rate home loan.

ARMs usually start with a fixed rate period and end with fluctuating yearly interest rates, increasing or decreasing your monthly payment. So a 3/1 ARM means 3 years of fixed rates, with interest rates changing every year after that. Interest rates are based on an index, usually the rate on the T-bill or LIBOR, and the margin the lender adds to the index.

ARM Safeguards

In order to protect borrowers from sky-rocketing monthly payments, mortgage lenders put in place safeguards. For example, a point cap limits how much interest rates can rise monthly and over the life of the loan. There are also floor limits on how low rates can go, protecting the lender.

Many lenders also allow you to convert your ARM to a fixed rate mortgage after a predetermined period.

ARM Considerations

While an ARM has many benefits, there are other considerations to look at. For example, interest rates can rise 5% or more over the course of your home loan. If you plan to stay in your home for several years, a fixed rate may offer lower interest costs in the long term. ARMs are also unpredictable, which makes planning long term financing goals difficult.

Before you apply for an ARM, make sure you are comfortable with the level of risk involved. However, if you expect your income to rise in the future or to move in the next few years, then you may be saving yourself a lot of money in interest payments with an ARM.

Basic Mortgage Terms You Should Know When Buying a House

Understanding these terms will allow you to avoid many of the pitfalls that exist in the real estate market

Educating yourself on the various mortgage terms you will run into will help you make better decisions when deciding which home you want to purchase. When you sign a mortgage contract, your home is used for collateral and it is your responsibility to make sure your payments are made on time each month.

The first term you should know is principal. The principal is basically defined as the amount of money you borrow for your home. Before the principal is provided you will need to make a down payment. A down payment is the percentage you will put towards the principal. The amount of the down payment will often depend on the cost of the home. Once you pay off the principal, the home is yours.

The next term you will need to know is interest. Interest is a percentage that you are charged to borrow a certain amount of money. Along with the interest rate, lenders may also charge you points. A point is a portion of the total funds financed. The principal and interest makes up the majority of your monthly payments, and this is a method that is called amortization. Amortization is the method by which your loan is reduced over a given period of time. Your payments for the first few years will cover the interest, while payments made later will be applied towards the principal.

A portion of your mortgage payments can be placed in an escrow account in order to go towards insurance, taxes, or other expenses. The next term you will hear a lot is taxes. Taxes are the amount of money that you have to pay to your state or government. When it comes to your home, these are known as property taxes. These taxes are used to build roads, schools, and other public projects. All homeowners must pay property taxes.

Insurance is another important term that you will hear in the real estate community. You will not be allowed to close on your mortgage if you don’t have insurance for your home. Home insurance covers your home against floods, fire, theft, or other problems. Unless you can afford to repair your home if it is damaged, it is usually a good idea to get insurance for your home. If your home is located within a zone that is known for having floods, federal laws may require you to have flood insurance.

If the down payment you put towards your home is less than 20% of the total value, you will often be charged additional premiums on your insurance by the lender. This is done to protect you in the event that you default on your loans and fail to make payments. Without this, many people would not be able to afford a house.

These are the basic terms you will need to know before your purchase a home. Understanding these terms will allow you to avoid many of the pitfalls that exist in the real estate market. You want an interest rate that is low, and you should always try to get a fixed interest rate if possible. This will allow you to focus your income on making payments towards the principal, and this will help you pay off the loan faster. A mortgage is an important part of your financial picture, and you want to make sure you pick a home that you can afford. If you fail to make your payments, you may lose your house.

7 Tips for Establishing Credit for Home Equity & Mortgage Loans

Your credit score will always be a key ingredient for low interest rates when qualifying for a mortgage or home equity loan.

According to Experian, a credit score is a number lenders use to help them decide: “If I give this person a loan or credit card, how likely is it I will get paid back on time?” The information from your credit reports is used to create your credit score. Your credit score will always be a key ingredient for low interest rates when qualifying for a mortgage or home equity loan.

Before applying for a mortgage or home equity loan, get your free credit report from each of the three major credit reporting agencies (CRAs): Experian, Equifax, TransUnion. Under federal law, you are entitled to one every year. Order online at annualcreditreport.com, or call 1-877-322-8228. Check to make sure someone else’s information isn’t mixed into your report. If so, contact the CRA immediately and have them delete it.

Then, follow these tips to help you establish credit and build your credit score:

1. Establish checking and savings accounts and maintain them responsibly.

2. Piggyback on someone else’s good credit by being added to a credit card as an “authorized” (joint) user.

3. Get someone to co-sign a loan for you (e.g., financing a car, or other secured loan) and make your payments on time.

3. Apply for student loans and make your payments on time.

4. Apply for a credit card or a secured card. Make sure the issuer reports to all three CRAs, otherwise the card won’t help you build your credit.

6. Apply for one gas card and one department store card to add to your credit mix.

7. Use your credit cards regularly, but wisely. Make all payments on time because the two most important factors in your score are whether you pay your bills on time and how much of your available credit you actually use.

Establishing and maintaining good credit will make buying a home a lot easier for you. You’ll be able to get a good fixed rate loan instead of having to settle for a variable rate subprime loan. It will also help for times you may need a home equity line of credit for home improvements or a home equity loan for debt consolidation, including paying off student loans.

Choosing a Mortgage That Fits Your Lifestyle

Choosing the right kind of mortgage based on your life style could not only make it easier for you to repay the loan but also save you thousands of dollars.

There are many different types of mortgages with a plethora of features and fees. Choosing the right kind of mortgage based on your life style could not only make it easier for you to repay the loan but also save you thousands of dollars.

First, make an honest assessment of your financial position. Do you have a stable job? If you are in business, does it yield you a regular profit? Calculate your gross income. If you have a very low income that deters you from saving anything then you would do well to opt for a low down payment mortgage. If your income is good enough to have allowed saving for the down payment it’s better that you make a 20% or more down payment. The less you owe the better.

Are you sure that you can repay your loan after a sudden loss of employment? On the other hand, if you as a couple are repaying together, what if your spouse loses their job, can you still manage it? A longer amortization period (30 years) would mean that you pay a smaller amount monthly, which would be lighter on your monthly budget. Also, remember that you pay a higher interest and a larger amount overall with mortgages that are spread over longer periods. A shorter (15 year) amortization period would mean that you pay a larger monthly installment, but a lower interest rate and therefore, a smaller price for the house.

Choosing between a fixed rate loan and one with an adjustable rate is always a gamble. If the fixed rates are low now, it’s better to go for that option. The choice between an Adjustable Rate Mortgage (ARM) and a Fixed Rate Mortgage (FRM) is based on the wider economic outlook, whereas the choice of mortgage is more dependent on your financial situation.

Mobility is another factor that has to be actively considered when deciding about your mortgage. Will your job require you to move away from your current place of residence to another? Do you see yourself out of a house in 4-5 years? Alternatively, you do not intend to move out of the town/city where you live, for the rest of your life.

A short stay may not work in favor of buying a house altogether, unless rent prices in the area where you live are higher and real estate prices are appreciating faster. If you plan to sell the house in 5 years and move out, then opt for mortgages where the interest rate is lower in the first few years of the mortgage. ARM mortgage loans are also suitable for short home owning periods. The rate with ARMs is very low during the first few years. Definitely, the monthly payment will be less than the rent you would have paid. Those considering a move to a larger house after a few years can also consider these mortgages.

Assuming that you have thought well about the kind of property you have decided to buy, make sure that you are entering into a debt with complete understanding of all the pros and cons. And lots of luck on your move!

9 ways to save for a down payment on a house

…if you can discipline yourself to regularly set aside funds until you have a down payment, you’ll probably have no trouble making your mortgage payments.

Saving a down payment can be a challenge. But think of it this way, if you can discipline yourself to regularly set aside funds until you have a down payment, you’ll probably have no trouble making your mortgage payments.

Here’s how to get started:

1. Set a goal. Research the housing market, decide what you can afford
2. Determine the required down payment and set that amount as your goal.
3. Open a savings account specifically for your down payment.
4. Keep a budget, make sure it includes monthly payments to your down payment
account, and eliminate unnecessary purchases.
5. Live below your means. Eat at home, put off expensive vacations, and take public transit.
6. Consider getting a part-time job and deposit your earnings in your down payment account.
7. Direct all unexpected revenue to your down payment, including raises, bonuses, tax refunds and inheritances.
8. Pay off debt. It’ll take extra funds at first, but over the long term, your interest savings can bump up your down payment.
9. Set your sights lower. If saving is taking too long, consider a cheaper home. Once you’re in the market and building equity, you can always move up.

Follow these guidelines and before you know it, you’ll be enjoying a home of your own.

Lots of luck!

3 Terms Every Mortgage Shopper Should Know

There are three terms that every mortgage shopper should know to better understand what he or she is getting into.

Shopping for a mortgage can be a very confusing experience, particularly if you are unfamiliar with the process. There is a lot of paperwork to sign, documents to read and procedures to be followed. You’d think you were applying to go to Harvard or Yale, except they don’t require that much paperwork for you to be admitted!

There are three terms that every mortgage shopper should know to better understand what he or she is getting into. Going into a mortgage knowing just a few facts will help you immensely in understanding what type of commitment you are getting into.

The first term you should understand is, amazingly, the word “term.” Term refers to the length of the mortgage you are taking out – or the amount of time you are making payments.

Many mortgages run the gauntlet of between ten and thirty years. The longer the mortgage, typically the lower your monthly payment will be (and the more interest you will pay over the life of the loan). There is a trade off here. Although it makes sense to go for the shortest term you can comfortably afford, the reason why 30 year mortgages are by far the most popular is, because of the reduced monthly payment. If a month comes along and things are tight, you won’t be expected to make the higher monthly payment. At the same time, you can always make extra payments to principal any time to reduce the remaining term of your loan.

Next, understand the interest rate on your mortgage and how it is calculated. The interest rate refers to the amount of interest charges you will pay for the money you are borrowing expressed as a decimal – such as 4.25%. Is it fixed or adjustable? In other words, will it be the same throughout the life of the loan, or does it change at specified periods in time? Most home buyers should try and steer clear of adjustable rate mortgages even though they can look better up front. They can often reset to higher interest rates and come back to bite you if you aren’t ready for a jump in your monthly payments!

Finally, understand what closing costs are and how they are going to affect your purchase price. On a purchase money mortgage, you are going to be responsible for coming up with closing costs out of your own pocket. Closing costs consists of things such as appraisals done on the house, attorney fees, title fees, recording fees, etc. Be a smart and savvy consumer, if you see a fee that you don’t understand or doesn’t seem right – speak up! With the new mortgage disclosure laws just enacted in 2015, you will have a chance to review all your closing costs well before you close your loan. I always make sure to go over all these costs with my clients.

Understanding these three terms can help make you a more informed home buyer and help you find the mortgage that is right for you.