Tag Archive for 'bad credit'

If you have bad credit, mortgage lenders are hard to come by these days. But that doesn't mean you have no hope of getting a better deal on your home loan. If you have a bad credit mortgage, mortgage rates may be much lower than the rate on your current mortgage. As long as you have some home equity, you may be able to improve your situation.

First, complete the form on this site to see where you stand. You won't be required to provide personal information, and you will be able to see what kind of bad credit refinance may be available to you. You may even qualify for an FHA refinance and much lower mortgage rates.

Second, call your current mortgage lender. See if your lender might be able to offer you a better deal to keep your business. The cost of refinancing this way may be lower; a lender that keeps your loan in-house (has not sold it to another firm) may be able to streamline your application with no appraisal.

Third, see if you qualify for a mortgage modification. If your credit isn't good enough to get a refinance, and your house payment (principal, interest, taxes, and insurance) is more than 31% of your gross (before tax) income, you may qualify to get your mortgage interest rate reduced for free. Try the HOPE LoanPort for faster decisions. Lenders that are members of the HOPE NOW coalition work through the LoanPort to render faster help to qualifying homeowners. The self-assessment on the site can help you see if you might qualify for a mortgage modification and keep your home out of foreclosure.

If you're an older homeowner with bad credit and a lot of home equity, you are probably being bombarded with junk mail, phone calls, and email solicitations from salespeople trying to get you to refinance your mortgage. Be very careful dealing with these people--they may be practicing a predatory lending technique called equity stripping. They'll be doing the stripping, but it's you who ends up naked.

Look Out for Strippers

Equity stripping involves refinancing with ridiculous fees and costs that the homeowner may not be aware of. Here's how it works. Say, you have a bad credit mortgage and are paying an interest rate of 12%. It was a $200,000 loan, but you only owe $100,000 on it and your home has appreciated and is now worth $400,000. Some guy you don't know comes banging on your door and claims that he can get you an 8% interest rate. Your payment drops by about $2,200 a month! Sounds pretty good, doesn't it? You can't wait to sign on the dotted line.

What a Lower Rate Costs if You Have Bad Credit

But there's a catch. You only owed $100,000 on your mortgage. The new loan is for $125,000, and a lot of that payment reduction comes from starting your loan over for another 30 years. And $25,000 in loan fees on a $100,000 loan is criminally high. All you notice is the lower payment--you don't see how much it's costing you to get it. There have been documented cases of seniors refinancing several times in just a few years, over and over until they have no home equity left, can't afford the payments, and end up in foreclosure.

The Solution? Take Mortgage Financing into Your Own Hands

According to a study by AARP, seniors who respond to solicitations rather than contacting lenders themselves are more likely to end up with bad deals. Those who rely on a mortgage broker to find the "best loan" for them are also less likely to end up with a satisfactory mortgage experience. You should therefore shred and toss that junk mail, delete the emails (c'mon, they're probably coming from the same folks who claim they can help you lose 10 pounds in 2 days), and screen your phone calls. Look for lenders on your own terms--it's easy to do online, even if you have bad credit.

Try a Reverse Mortgage: Bad Credit Okay

If you have enough home equity to attract the equity strippers, you should really consider a reverse mortgage. Find a lender approved by HUD to fund Home Equity Conversion Mortgages (HECMs). The fees on these loans are limited by HUD. You will see a reverse mortgage counselor to determine if a reverse home loan is a good solution for you. Best of all, people with bad credit don't pay any more than people with good credit. Because you don't repay the mortgage until you die, sell the property, or move out, your income and credit history are irrelevant.

You are a smart shopper. Whether it's for a bad credit mortgage, an FHA loan, or a debt consolidation home equity loan, you know what to do--get online or on the phone, touch base with several lenders, and get your disclosures quickly. Once you have decided which lender you like best, it's time to apply for your mortgage. But what about that rate quote? Is it guaranteed? What are your rights when it comes to mortgage interest rate quotes?

Recent mandated changes to the Good Faith Estimate (GFE) disclosure make it easier to discern what your mortgage interest rate is and what the costs of getting that rate are. Now, you can see at a glance if your rate is locked or not--the disclosure should tell you right at the top how long the quoted rate is guaranteed. If you have not locked your rate there should be no date on the form. Interest rates are driven by financial markets and move almost like stock prices--often changing several times a day!

Once you have locked your interest rate, you should get another GFE showing what your interest rate is and how long it is guaranteed. The new GFE should also reflect any changes in the pricing of your mortgage. Recent mortgage reforms force the lender to give an accurate estimate--no baiting and switching--and differences exceeding tolerances defined by law between the last disclosure that you receive and the actual costs become the lender's responsibility. When it comes to locking, though, you still don't have an absolute guarantee. Remember:

* Your loan is not locked until you are explicitly told it is and you get it in writing. Do not assume that your rate is locked just because you called someone and left a message to lock in your rate.

* Once you lock, the clock starts. Locks can range from 7 days to six months or more, with longer locks being more expensive. If you don't close on time, or "blow the lock," you could end up with a higher rate or having to pay a fee to extend your lock. So make sure that you do your part and quickly provide everything the lender needs to close your loan.

* Sometimes you might blow a lock and it's not your fault--the seller took too long to return an addendum, the real estate agent neglected to order tests or inspections, or the lender sat on your file too long. Don't hesitate to ask whoever caused the delay to foot the bill for an extension.

* Not everyone chooses to lock their rates. If your closing is a while out, perhaps if you are buying a house under construction or the seller wants a long escrow, it may be impracticable and expensive to lock your rate. You save the fees on a rate lock (which can range from an eighth of a point to one point or even more) if you elect to float your rate. In addition, if rates drop, you benefit by not being locked in. That said, if a higher rate would jeopardize your loan approval you probably want to play it safe by locking.

When should you lock your rate? In most cases, if the rate is acceptable to you you probably want to lock it in and then get your documentation in on time to close.

On January 1, 2010, would-be borrowers will get a rude awakening from FHA. The agency's streamline refinance will no longer be the easy transaction it is today. Today, the biggest advantage of FHA streamline refinances is that they don't require an appraisal or credit qualifying. So even if your home's value has tanked and you have bad credit, you have been able to refinance easily into a better FHA loan. That opportunity is about to go away.

Until recently, FHA's objective always was to help its homeowners lower payments any time. Because FHA insured the mortgage it didn't care if your credit imploded or if your home's neighborhood was blighted with foreclosures and fraternity houses. By helping homeowners to lower their monthly mortgage payments, the FHA was also lowering its overall credit risk.

That's about to change.

Starting January 1st of next year, FHA will start to turn down streamline refinance applications on the basis of employment, income, assets, and appraised value. You can be sure a lot of today's FHA borrowers will be wishing they acted sooner. So here's the deal: If you've got an FHA mortgage--just for fits and giggles--check available streamline refinance rates against what you're currently paying. If you can save money, pull the trigger on a refi ASAP--those with bad credit may not get the opportunity again soon.

Those of you waiting to take the step from renting to home ownership may want to step it up. First, unless Congress extends the deadline, that first-time home buyer credit is going away the end of November. Of course those on the sidelines face challenges--often bad credit, a little short on income, insufficient down payment, or lack of time on the job. But you don't know until you try, right? With a good loan agent, even a decline from a lender can be a useful tool. Here's how to make the most of that information.

Applicants for mortgages get declined for a few reasons. Bad credit, too little reserves, or insufficient income are the biggies. But just knowing that you have been declined for a home loan isn't enough. A good loan officer should be able to tell you EXACTLY what caused the rejection of your loan application, what you can do to get approved, and how long (approximately) it will take.

For example, you may have been declined because of your debt to income ratios. Your ratios reflect your ability to pay your loan--even good credit doesn't help if you can't realistically make the mortgage payment. So you either have to make more money, spend less money, find a co-borrower, or buy a cheaper house. The first two options involve budgeting. if you aren't comfortable with a budgeting process, call one of many reputable counselors and get help with this--as they say, if you fail to plan, plan to fail. Probably the easiest way to influence your ratios is to spend less money. Ask your loan officer what your ratios are and what they would have to be to get approved. Then take a look at your debts. Often, a lender won't count a debt against you if you are within 10 months of paying it off. Look at your budget. Can you throw more money at a debt with a high payment to make it go away? This helps you in two ways. First, it gets you used to paying more each month and spending less, which is useful if your new mortgage payment will be higher than what you're spending on housing now. Second, it makes you more qualified to buy a home.

If bad credit is the main reason for your application getting bounced, only time can cure that. Your credit rating reflects your willingness to pay. How much time depends on the severity of your credit errors. Your loan agent should be able to help you with that too; good ones understand underwriting guidelines very well. A foreclosure, for example, takes a minimum of three years to put behind you credit wise. Use that time to develop better habits, like paying on time and avoid over-using credit. It can be useful to ask your credit card companies to freeze (not close) your accounts to keep you from using them while you work at paying them off.

If you have bad credit but make plenty of money, and you find a deal on a house that's just too good to let go, you are in a better position to buy. Bad credit lenders are still in business (although there are fewer of them) and if it looks like you can afford their high rates they will often finance you. Be careful about prepayment penalties and start working on your credit so that you can refinance to a better loan as soon as possible.

Those with insufficient assets face a similar challenge to those with too little income. Budget for savings and watch your accounts grow. Even having enough for two months' of expenses (this is called reserves) makes a big difference on your loan application. Those who are self-employed or on commission need more--at least 3 to 6 months' of expenses to look good. Lenders have learned that even people who don't have bad credit can't pay when they lose their jobs. You can't get blood from a turnip. So, while your credit rating shows your willingnesss to pay, and your income reflects your ability to pay, your assets or reserves demonstrate that you will be able to pay even if you have a financial setback.

A good loan agent can help you plan for the day your application will be accepted. Keep this person's contact information and return the favor by taking your business there when you are ready to buy.

All the buzz these days is about the homeowner rescue programs--Making Home Affordable and it's babies Home Affordable Refinance Plan (HARP) and Home Affordable Modification Plan (HAMP). But eligibility for these programs requires that the property be a primary residence. What about investors? Is there any help for them? Investors seem largely left out of the ...

Until the recent mortgage crisis, it wasn't all that important to document your income for lenders if everything else was in order--good credit, assets, and a demonstrated capacity to handle large amounts of debt successfully. Stated income loans had a purpose, and it wasn't to allow pathological liars to buy bigger houses. They were created ...