Tag Archive for 'bad credit mortgage'

A new mortgage law in Georgia offers extra protections to people with bad credit looking for home loans. In the past, some bad credit lenders in Georgia were able to make loans to people who could not afford to repay them, and they were able to overcharge for these loans too. Senate Bill #57 has been passed and sent on to the Georgia State House of Representatives for approval. Here are two important protections the bill as written would provide:

First, the new bill will not allow people to borrow more than they can repay. If your debt-to-income ratio is over 50%, that is, more than 50% of your gross income would be needed for your mortgage, property taxes, homeowners insurance, HOA dues, credit card bills, student loans, car loan payments, and other consumer debt, you will not be able to get a loan in Georgia. While consumer groups felt that the ratio should be lower, Rep. Jay Powell said that too much restriction would cramp the already-subdued Georgia housing market. Currently, there are 90,000 foreclosure properties there that need to be moved before the real estate market can recover.

In addition, the bill addresses the payment of yield spread premiums (YSPs). YSPs are paid to mortgage brokers by wholesale lenders for finding borrowers willing to pay higher than market interest rates. In most cases, the borrowers understand what they are doing and choose this option -- in exchange for taking on a higher interest rate, they get a mortgage with reduced or zero loan fees. The YSP is used to offset some or all of the costs of getting a mortgage. However, a less savory practice involves brokers who charge the borrowers full fees while collecting a YSP from the lender and pocketing it themselves. The borrowers get a higher interest rate but don't receive the offset in loan fees. This will no longer be allowed in Georgia if this bill passes as written. YSPs will not be collected unless used to offset borrower costs.

How Does this Affect You if You Don't Live in Georgia? Keep Reading -- It Does!

You don't need your state Senators and Representatives to do for you what you can do yourself. If your mortgage broker gets a YSP there is no reason he or she should ever get to pocket it. It's disclosed on your Good Faith Estimate (GFE) when you apply for a mortgage (or provide certain information to lenders if you're just shopping). It's also disclosed on your settlement statement when you close on your home loan. Don't sign your loan documents if there is a YSP and it isn't credited toward your loan costs. For example, if there is a 1-point YSP, there should also be a 1-point credit, perhaps offsetting your loan origination charge.

Shopping for your mortgage is the best way of making sure you aren't being taken advantage of. For example, if one lender charges you no points or fees, and another charges you origination and other fees for the same interest rate, chances are there is a YSP that isn't being passed on to you.

Direct lenders don't have YSPs but they may still over-charge. You won't see a YSP on a statement from a direct lender, and many (but not all!) of them have policies against loan agents making extra commissions (called overages) by charging higher mortgage rates. But some loan officers do get extra commissions by getting borrowers to pay more than the going rate. The answer? Again, shop for your mortgage and compare several deals. Ideally, you'd shop with at least one direct lender and one broker.

Avoid taking a loan you can't afford. Responsible bad credit mortgage lenders don't make loans that can't be repaid. But ultimately YOU are the one responsible for anything you sign. Your GFE will tell you if your loan payment or mortgage balance can increase over time and how high it can go. Make sure this amount, plus all your other bills, won't exceed 50% of your pre-tax monthly income. Keep in mind that you know your situation better than a lender. If you know retirement or college is around the corner, figure in the income reduction or increase in expenses when determining if a payment is truly affordable to you.

Times are tough, and if you had bad credit when you got your mortgage, you might still have bad credit and be unable to refinance. However, if your mortgage is causing you some hardship and you are in danger of defaulting, contact your mortgage lender about a loan modification.

Check out Making Home Affordable

If your mortgage payment (including principal, interest, taxes, insurance, and HOA dues if applicable) exceeds 31% of your gross monthly income, you may qualify. The HAMP Web page gives a lot more details. You'll also need to know if your bad credit mortgage lender is participating in HAMP. You can find that out HERE.

Even if your lender is not a HAMP participant, or you don't meet the program guidelines, you may be able to score a loan mod anyway. Better for the lender to modify your mortgage than to see the income stream dry up.

Lender May Meet You HAFA Way

An alternative to a HAMP modification is the new HAFA (Home Affordable Foreclosure Alternative) short sale program, which rolls out in April. That provides a formalized and streamlined procedure and timeline for short sales and takes the uncertainty out of the process. Should you wish to sell your property, you'll know up front what price the lender is willing to accept and your buyer can have a lot more confidence that the deal will go through.

Finally, try an FHA or bad credit mortgage lender. You have nothing to lose by filling out the form on this site, and you may find a company willing to get you a better interest rate than you have now.

The surest way to clean up bad credit is to pay your bills on time for six to twelve months; at that point your scores should have improved substantially and with another six to twelve months you could even have good credit. But for many people, paying on time is not simple. If you have a checking account with electronic banking and a debit card, you can simply pay your bills automatically, or online in seconds, or call and pay with your debit card, or even use the snail mail and send in a check.

But for those without a checking account, paying bills on time is a greater challenge. Say you get your paycheck on the first and it's Friday; your mortgage is due on the 5th. So on Monday you go to the bank your employer uses (and the branch might be on the other side of town -- there goes your lunch hour), you cash your check and buy a bunch of money orders to pay your bills (or you head to a convenience store because the money orders cost a lot less there), you make another stop to buy stamps, then you pull everything together and mail in your payments. A simple task like paying a few bills can take hours -- and if you get sick, have a family emergency, or work a double shift, you may end up paying late despite your best intentions.

"Second chance" checking accounts help those who are listed in Chex Systems or Telecheck. If you have been denied a checking account because of bounced checks in your past, you may be able to join decent society again with a second chance checking account. Second chance checking accounts are offered by banks and credit unions. They may require a substantial deposit, and there will likely be monthly maintenance fees. Look for an account that will convert to a regular checking account if you don't bounce any checks for a certain length of time. Some of these even come with financial management counseling to help you improve your payment history.

Second chance checking accounts can help give you a fresh start and improve your credit rating. By making bill paying easier, you improve your likelihood of paying on time. Start yourself on an upward trend -- get a checking account, improve your payment history, qualify for lower interest rates, pay off debt, get a better mortgage, save money.

It's no secret--mortgage underwriting guidelines have become stricter, and home loan refinancing has become much harder to come by. For those who don't have little halos hanging over their heads, getting approved for a mortgage refinance may be a pipe dream. Ironically, one of the exceptions to this rule is bad credit refinancing. So these days, bad is good.

How is this possible? Well, lenders have figured out they aren't going to get their money back in the event of a foreclosure most of the time--borrowers simply don't have the equity or the resources to make good on their loans, and lenders stand to lose a great deal when borrowers are upside down on their mortgages and unable to make payments. This goes double for borrowers with bad credit, who are even more likely to end up in default because their interest rates and payments are higher.

So your bad credit mortgage lender may be willing to refinance you to a lower interest rate to avoid taking a loss later. Even if you don't meet the criteria for a mortgage modification through the Making Home Affordable plan, your lender may be willing to refinance you to a better loan now to avoid problems later. And if your credit has improved since you took out a sub-prime mortgage, you may be considered a higher subprime grade or even eligible for an FHA refinance.

You could increase your chances of a favorable decision by getting into a credit counseling program, creating a budget, and demonstrating a commitment to paying off debt without filing for bankruptcy protection.

Right now, people with bad credit actually have some leverage with their lenders--yep, they are scared of you! This is because they have taken serious losses on bad debts that cannot be collected. So they may be more than willing to help you if it ensures that the money they have loaned out will be repaid, even if it means they have to refinance you at a lower interest rate. And over the life of the loan, refinancing even at a lower rate may allow lenders to collect more interest over a longer period of time, making it a win/win situation.

You can't browse the Internet or pick up a newspaper without someone telling you that if you don't want to be a financial idiot and end up homeless and stealing from bag ladies you need to pay your mortgage off as soon as possible. Because you will pay less interest over the life of the loan, retire your mortgage early, and beautiful supermodels or hunky movie stars will throw themselves at you. And to a certain extent, that's true (not about the models, silly). But you do pay less interest over the life of the loan and you may feel more financially secure with no mortgage.

But what about now? Who is better off in a shaky economy? One newly-unemployed homeowner put every extra cent into prepaying her mortgage. But in an emergency, the only way to get that money back is to borrow against her home equity. And guess what? Her bank isn't exactly bending over backwards to lend her money while she's out of work--in other words, banks are notorious for only being willing to lend to those who don't actually need the cash. The other homeowner put his money into a savings account instead, and when he lost his job he was able to pay his bills until he got a new one. He didn't end up with bad credit or the Foreclosure Police breathing down his neck. And he didn't need his lender's permission to take care of business.

The one legitimate reason for paying down a mortgage early is to get rid of a really expensive sub-prime or bad credit home loan. If you are paying 12% on your home loan, and can reduce that balance enough to qualify for a 6% refinance, it probably makes sense for you to do so.

And for those who can't shake the image of the hunks and supermodels, those who really want to pay their mortgage off early, here's a plan:

1. Build up an emergency fund first--depending on how secure your job and health are, it should be three to nine months of expenses.
2. Pay off high interest debt like credit cards. Those cost you a lot more than your mortgage and are not tax deductible.
3. Open a savings account for your house. Put money in whenever you can, and look for safe accounts with the best interest rates. This way you have access to your money if you need it. And you can earn interest too.
4. Pay off that sucker when you have enough savings to retire your mortgage and are financially secure. Then congratulate yourself!

Some creative types may try to sell you an early payoff service. Don't bite. Many of them simply have you pay your mortgage every two weeks instead of once a month. By making half a mortgage payment every two weeks, you make an extra mortgage payment every year--not exactly rocket science. And it's crazy--companies like that can charge hundreds of dollars to enroll in their programs. Plus up to $40 for each payment!

To add injury to insult, these clowns don't send in the extra payments as you make them. They hang onto your money (and your interest) until the end of the month. And it may not even be safe--what if the company makes your payment late and trashes your credit?! What if it goes belly up? It happens--just say no to creeps getting their hands on your money.

You can pay your mortgage down the same way without the help of a dubious firm--simply transfer half a mortgage payment every two weeks into a checking account (preferably interest-bearing), then pay your mortgage from that account once a month. The balance of that account will grow until you have saved anough to pay off your mortgage. Or you can add a little extra to every payment and request that it be credited towardyour principal balance. Then you will be smartly managing your money and your mortgage.

If you have bad credit, just hope you don't live in California, Florida, Arizona, Michigan, or Nevada. Major lenders are piling on the poor people who own homes in these states, requiring higher credit scores and charging more to lend in these designated "distressed" areas. On Monday, one of the largest American banks is ...

On October 1st, new rules for sub-prime mortgages and bad credit home loans finally took effect--only about fifteen years overdue, but better late than never, right? Now, lenders making loans designated "high-priced," which covers most mortgages to people with bad credit, must: Determine your ability to repay the loan and must ...