Is There A Home Mortgage After Bankruptcy
Bankruptcy has become an epidemic that is affecting many families. Between the years 2002 and 2003 there were an estimated 1.6 million families in the United States that filed for bankruptcy. This is a rise of 150,000 across the nation. Changes in bankruptcy laws have done nothing to slow down the epidemic as bankruptcies in 2008 will be well over one million. So how do you qualify for a mortgage after bankruptcy
If you have filed for bankruptcy then you are all too familiar with the difficulties you encounter afterwards when you try to gain credit approval in order to qualify for a mortgage. When you file for bankruptcy it remains a part of your credit history and will show up on your credit report for a period of 10 years. Many lenders are not willing to take a chance on a person who was bankrupt because of the high risk and damaged credit. As well, obtaining a competitive interest rate is often next to impossible. However there are lenders who specialize in the field of bad credit and loans for those who were bankrupt.
The good news in all of this is that qualifying for a home loan after you have gone through bankruptcy is sometimes easier to accomplish than is applying for other types of loan that require installments. There are lenders who offer high Loan-to-Value programs to those individuals who do not qualify for the traditional loans extended to those with good credit.
If a few months have passed since your bankruptcy ended then it may be the time to start shopping for a mortgage. Find mortgage brokers that help with bad credit. It is important that you are very thorough in your search for the right mortgage broker. Remember that your situation is unique and your past credit problems will play an integral role in the mortgage you are able to qualify for. With that said, do not allow yourself to become discouraged. Be patient but refuse to give up!
When you do find a mortgage broker who seems like he or she could be a good fit for you and one who understands your financial situation, make sure that you bring a copy of your bankruptcy discharge papers with you. The mortgage broker will need to verify that you have been discharged before further steps towards a mortgage can be taken.
Before you think about looking for a mortgage, after you have finished with bankruptcy you need to begin re-establishing your credit to reflect the good. One method of doing this is to obtain a secured credit card. What this means is that you establish your own credit limit by providing the funds that you will use as credit. Use the credit but make sure that you pay the balance in full every month. This helps put you back on the path of a responsible credit user.
Another important thing you must do following your bankruptcy is request a copy of your credit report. Look it over carefully to ensure that all of the negatives against you in the report are accurate and reported properly. Please note that some of your creditors may not have noted their accounts when your bankruptcy was put through and these accounts could still show up as open and uncomplimentary to you. This needs to be fixed without delay!
When you are accepted for a mortgage after bankruptcy it is imperative that you do not make any late payments. This also holds true for your secured credit card or any type of credit you might have. Late payments will work against you in terms of getting a mortgage so don’t let it happen!
There are mortgage lenders around who are proficient at providing bankruptcy buyouts in order to make sure that all payments are made to trustees as per the bankruptcy agreement. These kinds of loans take the form of short-term loans that allow you to start down the road of rebuilding credit and get you walking down a more secure financial path. One example of this is a FHA loan. This type of loan can work to buy out a bankruptcy that is a Chapter 13, as long as it as been opened for a period of 12 months. All payments must be made on time and the rest of your credit must be favorable to qualify you.
Lower Mortgage Rates By Raising Credit Scores
Credit card management can become complicated the more that you have. Securing the lowest mortgage rates depends on proper credit card management. Keeping track of each can prove to be a daunting task because the balances are all different. You can sometimes take the balance from one card and place it onto another credit card. You may be looking to have your limit raised on one card while you are paying off another, or closing one account all together.
In order to keep your credit cards at a manageable place, keep all balances to less than 50% of what your credit limit has been set at. If you go beyond this then you could run into problems paying back the money and also this could adversely affect your credit score. To improve your credit score further if you pay off a credit card and decide to not use it again then keep it open as the zero balance on a current account looks good on your credit report.
If you have a number of credit cards you might want to downsize. It is better to keep the cards with the lowest interest rates and the ones that have the longest histories. Remember that many things play a role in regards to your credit score including the balances you carry, your payment history and how long you have been a cardholder.
If you would like your balance to be on par with your credit limit ratio within the acceptable 50% mark then you can ask the credit card company if they would be willing to raises your credit limit. This can have a positive impact on your credit score but does not mean that you should start charging up a storm with the extra credit you have been extended. Common sense and smart money savvy are very important here.
One way that you can decrease your utilization ratio is by reducing your balance. You can also do the same thing by increasing your balance. If you have an excellent record of paying your card on time then having your balance increased should be something that the creditor is willing to accommodate.
In order to increase your credit score, you should use your credit card on a regular basis but then pay it off in full every month. This establishes a good payment record which is what you want.
In order to maximize your credit score, having anywhere from two to four credit cards in your possession should suffice. Make sure the balances of each are 20 to 39% of what your maximum ideal is.
Be responsible with your credit cards. Don’t use your credit card for any frivolous purchases but instead save for emergencies. You wouldn’t want to use your card for a night on the town only to encounter a family emergency and have no credit left to help you cope with the emergency!
Speak to your mortgage consultant in order to figure out the most appropriate ways for you to bring your credit score up. You can improve your score by paying your credit card bill on time every month, paying more than the minimum, paying off the card as soon as possible and not constantly applying for new cards. While most creditors do not report late payments to the credit bureaus until the payment has been in default for 30 days, you may then end up with a late fee. If you have a history of late payments this can serve to damage your credit score even more.
One thing that you might want to do is to get a hold of the free annual credit report offered at Annual Credit Report and from there begin to improve your credit score. Be aware that this is the only FTC approved credit reporting site.
If you don’t know the interest rates on your credit cards then find out right away. Every six months or thereabouts give your credit card company a call to inquire about getting a lower interest rate. This can save you money on a monthly basis.
The most open accounts you should have to benefit your credit score is five. This includes not only credit cards but also personal loans, student loans, car loans, etc.
To manage your credit cards to the best of your ability, you should pay them off as quickly as possible. You can always refinance your mortgage and then take the money and use it to pay off a loan if you like.
FICO Scores and (LTV) Loan-to-Value
The FICO score you have is used by most lenders (whether they be subprime or conforming) in order to figure out what your loan-to-value ratio (LTV) is when you wish to borrow money to buy a home. There are some lenders that will consider higher loan-to-values but most go by the standard. If you are looking for 100 percent financing then you need to have a credit score of 580.
In some cases a lender will use a credit score to determine how high the loan-to-value will be. Yet others will take an average of three credit scores. This varies from lender to lender. In the case of two people such as a married couple who are looking to take out a mortgage, the lender will add up three credit scores for both people and then will take an average from these scores. This helps to determine what the loan-to-value ratio will be. This works well if the financial and credit situation is different for each person. One person’s poor credit can be balanced out with the other’s good credit. This also works for income level as well.
While most mortgage lenders will use the middle score of the three, some are a little more forgiving and are willing to use the highest of these scores. Speak to a variety of mortgage lenders to find the one that best suits your needs and your spouse’s.
Another important element of what goes into your LTV is documentation. The more you can submit in terms of documentation the better it is. For example, a Full Doc includes W-2s, pay stubs, bank and/or brokerage statements, and your tax returns if you run your own business. Be aware that a Full Doc loan makes it possible for a higher loan-to-value as opposed to a Stated Doc loan.
If your credit is not stellar then you may find that you will encounter some problems. However do not allow yourself to become despondent. There are some non-conforming mortgage lenders who permit loans which equal approximately 95 percent of the value of a home.
The criteria may be stiffer than for those with very good credit and if you fall into this group then your closing costs would be higher and so would your note rate. There are very seldom any pre-payment penalties on non-conforming loans.
Many mortgage lenders have guidelines that look at credit scores in terms of 20 point intervals. If this scenario exists for you then you might want to have a talk with your mortgage lender- if your credit score is a few mere points off for an even 20 point interval then find out if your allowable LTV could be made higher if you were to make even a small improvement in your credit score. If you are a long way off from an even 20 point interval then you needs to find ways to bring up your score. Start by carefully combing over your credit report for any errors.
Bi-Weekly Mortgage Programs
Imagine paying your mortgage once every two weeks to pay it down quicker. Better yet, imagine a more desirable scenario- your mortgage is being paid bi-weekly by a company that has advertised a special service for mortgage reduction or a savings program.
Is there such a thing as a company that will pay your home loan bi-weekly in a manner that will help you and give you a more advantageous financial picture?
The straight up answer to this is no. There is no fairy godmother to wave her magic wand, nor is there a magic potion. If you are paying a mortgage then you have to pay it. It is as simple as that. There are no exceptions. If a company professes to be willing to make bi-weekly payments on your home loan for you they are not telling you the whole truth.
Let us take a closer look at what these companies are actually doing instead. The company will deduct money from your bank account on a bi-weekly basis. They will then take this money and put it into an account that is the one from which your mortgage payments come from. Your mortgage payments will then be withdrawn by your financial institution once a month. Instead of the standard 24 deductions in a calendar year, the so-called “mortgage reduction service” will deduct the money 26 times.
What happens with the money that is deducted two more times a year? The company then takes that money and makes another mortgage payment. To put it another way, as a homeowner you then will made 13 payments on your home annually instead of 12.
The worst part about these services is that while they claim to save you money, they are charging you exorbitant fees for the supposed help they are providing to you. Their claim that they will save you money in the long term and that you will pay your mortgage off faster is supposed to make you forget that in the short term you are paying out plenty of your hard earned money to them. In truth they are not helping you at all.
These services try to tell consumers that the only way to make an extra home loan payment in the course of a year is to go through them. This is completely false. If you wish to do this you can make appropriate arrangements with your financial institution. One method of doing this is as follows- Set up automatic withdrawals for your mortgage payments on a monthly basis and ask that an extra 1/12 payment be added to the principal of the loan monthly. By the time a year has passed you will see that you have made the extra payment without the need to look to any type of reduction service or program.
There are other ways that you can make an extra mortgage payment. For example if you have a sizable tax return on its way to you then use this money to lower the principal of your mortgage. This can make a great deal of difference in how long it will take you to pay off your mortgage.
Even if your tax return funds are only enough to make one extra payment annually, if you do this year after year you can knock a 30 year mortgage down to approximately 23 years! This can also save you a lot of money in interest charges.
When you see ads proclaiming to help you reduce your mortgage because of a special service or program, run the other way! Look to more responsible and cost saving ways of bringing down the amount you are paying on your mortgage. Do not let yourself be fooled! Be smart and wise about your money. Learn how you can save money on your home mortgage without costing you money.
Home Equity Loans To Make Home Improvements
If you have built up equity in your home and want to make some much needed improvements to your home then a home equity loan is one way to do it. There are two forms of home equity loans- a one time loan and a line of credit.
A one time loan means that the borrower will receive a lump sum of money and then must repay the loan in equal monthly payments. On the other hand, a line of credit for a home equity loan works very much like a credit card. When you need money from the line of credit you take it out and if you so choose you can pay the interest on the balance and not the principal right away.
Most people decide to apply for home equity loans because they want to build an addition onto their home or they want to renovate but you can also apply for such a loan for an abundance of other reasons. If you wish to start a small business, buy a new vehicle, travel, consolidate your debts or even just have money put away for a future purpose, a home equity loan can be a good way to do this.
The reason you wish to apply for a home equity loan can dictate the kind of loan that you best qualify for. A home equity loan or home equity line of credit can be an effective way to get the work done that you need. However if the renovations you plan to do are very big and very expensive you might want to consider a rehab loan. A rehab loan will create a base for your home equity loan at the “as completed” value attached to your property. Some rehab loans allow the borrower to do the renovations themselves whereas others stipulate that a licensed contractor must be hired to complete the work.
It is important to make improvements in your home that will add value to it. Some improvements may give the home a better aesthetic look but really play no role in the value of the home. To find this out ahead of time talk with a local appraiser and/or a mortgage broker.
Most home equity loans that are used to make home improvements or pay off mounting debts can be deducted on your taxes. This is very good news when you are contemplating remodeling your kitchen or bathroom or putting in a hot tub in the basement! Remember that although you are using the equity in your home, you are also doing things that will increase its overall value.
A home equity line of credit will allow you to take the money out as you require it and not all at once. In this way you pay the interest on smaller amounts in smaller increments.
Getting Cash From Refinancing A Home Mortgage
If you have an adequate amount of equity in your home then the majority of loan programs will allow you to get cash back when you make the decision to refinance. If for example, you have a Fannie Mae conforming loan then the rate will be increased a little bit if you decide to borrow what works out to be more than 70 percent of what your home is worth.
There are some good points and some bad points to using money obtained through equity and refinancing of your home. The good points are that the cash can allow you to pay down or pay off other debts, it can give you more money with which to invest and it can make it possible for you to do the home renovations that you have been wanting to do for a long time. As well, having more cash at your disposal can provide you with a greater sense of peace and security. Often times the interest on the second mortgage is tax deductible.
The biggest downfall of this financial transaction however is that when you refinance your home you use up all of the equity that you have built up in it. So as far as equity is concerned, you end up with a much lesser amount. For some people this is enough of a reason to choose not to refinance their home.
Be aware of course that your home does not really belong to you until you have paid it off. In other words, refinancing your home is analogous to taking out a loan based on the equity in the home. It is comparable to using a secured credit card whereby the bank holds a portion of your money already.
If you decide to refinance your home, bear in mind that there is a three day rescission period. That is why it is important to plan ahead. If you need the money by a certain date then make an appointment to sit down with a mortgage professional at least a week to two weeks in advance.
When refinancing day arrives, be honest with the mortgage specialist about what your intention for the money is and where your financial future is going to take you. Show that you are level headed, responsible and have direction. The needs you have for the money might be better accommodated with another financial option. For example, if you want to consolidate some debts or make improvements to your home then you might be better off applying for a home equity loan instead. Or in some instances, if you have ongoing financial needs you might want to look at getting a home equity line of credit.
If your lender understands where you are coming from, he or she is in a better position to help you make the right decision regarding your money. Cash-out refinances are loans that either pay off debts or take money out of closing. For example, a rate term refinance is one in which the borrower receives $2000 or the lesser of two percent.
You are entitled to more cash when you refinance your primary residence then when you refinance a second home or investment property that you own. The reason for this is because investment properties carry a higher degree of risk to lenders.
A cash-out refinance loan is an excellent method of paying off high interest credit cards. You can also decrease your monthly expenses this way and the interest from the mortgage will be tax deductible.
If you decide to borrow more than 80 percent of your home’s value then you will be expected to pay private mortgage insurance (PMI). The higher your loan to value (LTV) is, the more you will notice your rate climbing. This is what happens when you go with a cash-out refinance loan.
If you choose to go the route of a cash-out refinance it may be in your best interest to do so as a first and then second mortgage. Another option is to just go for the second mortgage. Yet another option is to choose a home equity line of credit (HELOC). If you do the latter you will avoid both PMI as well as a rate increase to your first mortgage.
Be very careful with how you spend the money you get out of the loan. Do not squander the equity that you have built up in your home for years. In the most extreme of cases, if you end up in debt again and cannot pay, the bank can foreclose on your home.
Work closely with the mortgage professional to find a financial solution that is most fitting to your circumstances. Together you can find a way to pay off your debts and still retain ownership of the home you love.
What Is Annual Percentage Rate (APR) For Home Mortgages
The annual percentage rate (APR) is the cost of a loan and is calculated by using a standard formula. This yields an interest rate that includes all fees related to the loan, including the mortgage insurance, points, interests, etc.
It is important to know that the amount of money you pay monthly is not affected by the APR. Monthly payments are determined by the term of your loan and the interest rate.
However you must take the APR into consideration when you are contemplating any given home loan. A loan that boasts a low interest rate but has a high APR is not a good bet. Always talk with a qualified mortgage specialist at your financial institution for sage advice.
The APR will be different for loans that are of different durations. For example, a 20 year fixed rate loan will have a different annual percentage rate than will a 30 year loan that also has a fixed rate.
In order to compare the costs from one loan to another it is wise to consult the Good Faith Estimate (GFE). The APR is important but it is only one of many important aspects of a home loan.
When you compare the APR from one financial institution to another, make sure that they are on a level playing field. In other words compare loan programs that are the same, as opposed to completely different. Remember though that the APR will be different depending on the amount of money you wish to borrow. A loan for $250,000 will have a lower APR than will a loan for $100,000 even thought it has the same interest rate. Keep in mind as well that an adjustable rate mortgage loan has an APR that is aware that the loan is indexed and as such that it does not change from its beginning value.
Other Important Aspects of the APR
What else is the APR? It is also the “cost of credit to the borrower in relation to the amount borrowed.” This is always calculated as an annual rate. This is a necessity as stipulated by the Federal Truth in Lending Act, Regulation Z.
A number of items are used to effectively calculate the APR. These include private mortgage insurance (PMI), origination and discount points and prepaid interest. This also takes into consideration any lending fees such as processing, credit reports and underwriting. As well, application fees, administrative fees and tax service fees are a part of this.
Be aware that not all mortgage lenders use the same fees which which to calculate the true cost of a mortgage. APR is a useful tool but be forewarned about the different ways it may be used.
The Federal Truth in Lending Act is a disclosure form that by law must be given to all individuals looking to apply for a mortgage loan. When rates are advertised, the APR MUST be disclosed. All of the bank fees that a lender could charge are here which is why it works well for the purposes of comparison. The true cost of a mortgage loan when you get down to the nitty gritty is what the APR constitutes. The APR helps to keep lenders honest because upfront costs and fees cannot be disguised behind interest rates that are advertised as low.
To use an example from the real world- if you visit one lender and are offered a loan with an interest rate of 6.25 percent with one discount point and another lender offers you a loan with an interest rate of 6.5 percent and zero points then how do you decide which one is the better deal of the two?
Whichever loan has the lowest APR would be the most suitable choice. Bear in mind however that this does not take into account other aspects of the prospective borrower’s financial situation such as his job stability, how much money he has in reserves and how longs he plans to reside in the home he wishes to purchase.
Be aware that the APR is not the same as a note rate. When you have a credit card the APR is often the exact same as the interest rate. However when you take out a mortgage, the APR will be higher than the interest rates you pay due to closing costs.
Compare Mortgage Rates , The Basics
You do your homework when it comes to buying a car or taking a trip so it makes sense that you would do the same when you are looking to buy a home. It is essential that you compare rates from one financial institution to another to ensure that you are getting the best mortgage package that you can.
When you compare loan rates make sure that you compare interest rates for the same day. Do not compare loan rates for two companies on Monday and two other ones on Wednesday. The reason for this is because interest rates go up and down and are subject to change from one day to the next. Interest rates sometimes change as often as different times throughout a given day.
Compare Loan Rates of the Same Kind
When you compare loan rates compare those that are the same as opposed to different. Do not look at a fixed mortgage rate at one bank and an adjustable rate at another. This defeats your purpose and will do nothing but confuse you. Compare loan rates of products that are the same, such as the rate for a 30 year fixed mortgage or the rate for a 20 year adjustable rate mortgage.
As you compare loan rates, make sure that you compare a selection of lenders at the same interest rate and with the same lock-in period (which is generally 30, 45 or 60 days). The interest rates and points you can be offered will vary from lender to lender. Most lenders will also allow you to choose the lock-in period that is best for you. This is why it is essential to compare loan rates from one lender to another.
Lending Fees
Take the total that you are quoted for lending fees and add it to the points and all of the other fees connected to the home loan. Not all lenders use the same names for all of the applicable fees. For that reason, when you compare loan rates it is essential that you carefully review the total sum of every fee.
What are the fees that are attached to every mortgage? Before you attempt to compare loan rates you have to understand what you are comparing. The fees can include:
· Appraisal fee
· Processing and underwriting fee
· Mortgage insurance premium
· Application fee
· Fee for a credit report
· Tax service fee
· Commitment
· Wire transfer fee
· Any other applicable fee unique to the transaction
Any number of fees can be a part of a mortgage package so it makes sense to compare loan rates in every way that you can. This will help you secure the best deal and save you money in the process!
Compare Rate Quotes Among Various Lenders
If you do not relish the thought of speaking to a selection of lenders in order to find the best mortgage possible then you are not alone. It is important to compare rate quotes among lenders because it is an integral aspect of shopping for a home loan. When you compare rate quotes from one company to another, bear in mind that a mortgage does not just include interest rates but other important aspects, such as a quoted rate, points and finally, closing costs.
Points
To compare rate quotes you must understand what points are. Points are a fee that is paid up-front to the mortgage lender when closing takes place. Points are paid in order to either lower or to increase the interest rate on the mortgage. Every point you have is equivalent to one percent of the total amount of the loan. There is some room for negotiation when it comes to interest rate and point combinations. When you compare rate quotes make sure you compare these important products that are part of the overall mortgage.
Closing Costs
The closing costs you must pay involve a number of different things. These include the title and escrow charges, fees related to the loan in general, transfer charges and government recording. The closing costs you pay can be into the hundreds or thousands. Not all lenders charge the same fees so when you compare rate quotes, remember to look at the differences amongst the offers you are given.
Loan Related Fees
All lenders have loan related fees such as the amount they charge for your home loan to be processed and approved as well as everything that is involved in setting up their clients’ mortgage loan. There is no standard fee that all lenders charge. For this reason, when you compare rate quotes you must cover all of the elements of how much you will actually be paying.
When you compare loan quotes from a variety of lenders you must look at all of the relevant features of the loan. This includes but is not limited to:
· The maximum LTV
· Mortgage insurance payments
· Qualifying ratios
· Requirements for credit and cash reserves
As well, when you compare loan quotes find out about prepayment penalties, the option for a rate reduction and whether or not you can convert your mortgage from an adjustable rate to a fixed rate in the future. Another important point when you compare rate quotes is to compare the lock-in period for your interest rate and points. Most lenders have lock-ins of 30, 45 or 60 days but for some they are shorter, such as 15 days. Compare rate quotes and shop around.
Save Time Save Money, A Pre Approved Home Mortgage
The prospect of the purchase of a home can be an exciting one and a dream come true, but it also carries its share of challenges. Before you start house hunting you should seek pre-approval of a mortgage from your financial institution.
Pre-approval before purchase means that you will be looking for houses in your price range and not above. This also means that you will not waste your time if you presently do not qualify for a mortgage. The purchase of a residence is a huge deal after all and a very big investment.
Being pre-approved for a mortgage to purchase a house means that the lender has carefully looked over all of your financial information including your income, job stability and credit history and has given you a quote for the maximum amount of funds that the financial institution is willing to lend you.
Advantages of Pre-Approval
· You have a number to work with so you can narrow your focus for houses in specific purchase range.
· Rising interest rates are not generally a concern after you have received pre-approval for a purchase because the lender can lock the current interest rate in for a period of 60 to 90 days.
· You have an advantage or an edge when it comes to making an offer to purchase a home because the seller is made aware of the fact that you have been pre-approved and therefore are serious about the offer you extend.
· When you apply for a mortgage to purchase a dwelling, you save time and energy as much of the paperwork has already been gathered together when pre-approval took place.
You do not have to go to the bank you have been dealing with for the past 10 years in order to be pre-approved for a home loan. Just as is the case with other types of purchases, the mortgage business is a competitive one so you should look at a variety of different financial institutions to find a mortgage rate that will work for you. Do not be afraid to bargain when it comes to finding a mortgage to purchase a home.
While you may be able to bargain for a more flexible mortgage and a low interest rate to purchase a house easier with a financial institution that knows you well, there is no reason why you cannot look at other banks, credit unions and/or talk to a qualified mortgage broker in your area. In order to purchase you must put all of the effort you have into finding the mortgage that will fit your financial needs.