Tag Archive for 'refinance'

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.

HUD Feels Your Pain--And Does Something About It

Shopping for a refinance mortgage in 2010? You can lose the Advil--comparing mortgage quotes won't be causing any headaches after January 1st, 2010. The new forms are easy to understand, and all the important stuff is right up front. In 2010, you won't have to wade through piles of disclosures, looking for evil fine print. And it won't matter whether the lender chooses to call a fee "administration," "underwriting," "extra silly charges" or "garbage," you get a bottom line figure that lets you cut to the chase and compare loans easily from one lender to the next.

Regulation X Gits Rid of Hidden Boogers

Changes to Regulation X means no more "gotchas" when you finalize your home loan--no surprise fees, no amazing interest rate increases, no "mis-underestimated" mortgage costs. It standardizes the way every lender discloses its loan charges and interest rates, so shopping your next new home loan or mortgage refinance should be almost fun. This is actually a good thing for lenders, too--the honest ones (the majority) won't be at a disadvantage to the few sneaky ones that routinely low-ball their loan offers.

(Drum Roll Please......) Introducing the New Good Faith Estimate (GFE) and Settlement (HUD-1) Forms

The highlights:
?? All lenders have to disclose their fees the same way.
?? Loan feature information (penalties, adjustments, negative amortization, etc.) is on the forms, front and center.
?? Total lender fees are shown as a single amount so you can make comparisons between lenders easily.
?? The GFE must reconcile to the HUD-1 within certain tolerances, so estimates must be fact not fantasy.

The Settlement Service Provider List--Buyer Beware!

Lenders have to furnish a list of service providers like title companies to you--choose any provider you like; they don't have to be on the list. If you do select a provider from the list, the fees are guaranteed to stay within 10% of the estimate. If you choose a provider not on the list, that protection goes away. But this is important: the providers on the list are the not necessarily the lowest-priced--unless you compare title and escrow services, you could pay more than you need to. And one bank in America provides a "list" but only has its own title company on it--definitely shop around in that case!

Mortgage Rates and Fees: Disclosures Up the Yin-Yang!

On your final closing documents, the lender's charges must be what was disclosed on your GFE--even if the charges were mistakenly underestimated. And any time there is a legally-defined "changed circumstance," the lender must update and re-disclose its fees and terms within three business days. What is a "changed circumstance?"

• War, disaster, or "act of God";
• Changes to information provided by you (if for example you switched jobs);
• Different loan amount or appraised value of the property (which affects the loan-to-value);
• Locking your rate or a rate lock expiration;
• A change in the deal requested by you--for example, switching from a fixed to an adjustable mortgage.

A Little Tolerance

Some charges like origination fees, discount points, and transfer taxes cannot change at all. Others, if the provider is on the lender's list, have a tolerance of up to10%. Changes beyond that 10% threshold must be paid by the lender, not you. Check out the new forms. I think you and borrowers everywhere will approve.

A new study by First American CoreLogic predicted that refinancing will result in $2.3 billion in savings for those who refinanced during the first six months of 2009. According to the study, the median individual monthly savings was $120, 10.5% less than the previous mortgage payment. The total benefit over the next five years to homeowners who refinanced in 2009 should grow to $11.5 billion. Should you join these people and save some money?

Time to Refinance? Check These Five Signs

1. You Stinky Credit Got Less Stinky
   If you have a sub-prime, bad credit, or Alt-A mortgage, and your credit is now good enough to qualify for an FHA or conventional mortgage, you could decrease your interest rate by several percentage points. Have you made your monthly payments on time for the last 12 months? Can you document sufficient income? Has at least two years passed since a bankruptcy or three since a foreclosure? Then you really should refinance if possible.
2. Your Mortgage Is Huge
   If you took out a jumbo mortgage about two years ago, you may be able to refinance into a conventional or FHA home loan now and save a lot. Temporary government-mandated increases to loan amounts under FHA, Fannie Mae, and Freddie Mac guidelines may mean that you can qualify for better interest rates if live in a higher cost area. Check Fannie Mae's "jumbo-conforming" mortgage limits and FHA high-cost limts to see if you can't get a better deal.
3. Your Mortgage Has Hit the Terrible Twos
   If your home loan is two or more years old, chances are you could get a lower interest rate. Average 30-year fixed-rate mortgage rates in 2007 were more than 6%; they are less than 5% today. Get several interest rate quotes and use a mortgage calculator to see if your monthly savings could make up the costs of refinancing within a few years.
4. Your ARM Needs Fixing
   If you have an adjustable rate mortgage (ARM), you are probably doing a happy dance these days because short-term interest rates are very low. However, all good things must come to an end, and if you plan on keeping your home and your mortgage for many years, expect interest rates to rise. You may want to take advantage of today's low rates and fix your mortgage.
5. 2010 Looks Scary
   Everyone knows it's easier to get a mortgage or any kind of loan when you don't need one. So if you think you may need a lower payment or some extra cash next year, sooner is better than later. FHA allows cash-out refinancing to 85% of the home's value and refinancing to 96.5%.

The No-Brainer Refinance Decision

Check out a no-cost refinance. If the rate is better than what you're paying now, the decision to refinance is easy (free money!). Even the commitment-phobic can relax--there is no breakeven period because there are no costs.

Yes, rates are low. And if you are paying over 6% on your mortgage, you should probably look into refinancing and saving some money. However, not everyone who could benefit from refinancing will be able to do so. Here are three reasons you may not be able to refinance--and what you can do about them.

I. Your Mortgage Is a Stated Income Loan
Many people chose stated income mortgages in the past, for many reasons. Some had businesses that were making a lot more money than they had done in the past--and conventional underwriting would not allow them to count all of that income. Others had businesses with very long cycles, like property developers--a lot of money goes out for a long time before the profits come in, and normal underwriting isn't equipped to deal with it properly. Some people have income that is hard to prove--ever try to get canceled support checks from an uncooperative ex? Finally, some were just "optimistic" about their income and, um, "exaggerated" it to get a bigger house--and a big payment that they're stuck with now.

But whatever your reasons for taking out a stated income mortgage, you won't be able to refinance with one. For now, those programs are rare-to-non-existent. What can you do? If you get support income, make copies of every check when you get it, and deposit it separately from any other funds. If you have business income, keep very careful records, and in time your financial statements should reflect your cash flows. Make sure that your tax returns show all of your income. And you can always amend your previous returns too. Even to get a loan modification, you have to prove your income--start bringing your finances in line now.

II. Your Property Value Has Tanked
You bought your home with a solid down payment, and expected its value to grow over time. But so far, its value has dropped instead, and your down payment went into a black hole somewhere. You don't have enough equity to refinance, and it's frustrating--you could save a lot of money if you could just get the interest rate down.

Have you tried playing the HARP? The Home Affordable Refinance Program was designed to help people with your problem get a refinance. If your current mortgage is with Fannie Mae or Freddie Mac (click HERE to see if it is) and the property is a one to four unit home and is your primary residence, you can refinance up to 125% of its current value. And if you didn't need mortgage insurance when you bought your home, you won't need it now. If you currently have mortgage insurance, you need the same coverage that you currently have. The challenge is that MI companies are reluctant to write these policies; you will have to get your current policy holder to rewrite it.

III. Your Credit Is a Mess (and Underwriters Are Pickier!)
You were able to get your loan approved before (barely) but since then you may have lost a job, had a medical crisis, or your credit lines were cut just when you needed extra cash for an emergency. Anyway, your credit score is at a lowly 600, just when lenders have raised their minimums to 700. You can't qualify for a better loan right now. Except maybe you can. FHA lenders are still making loans--to 96.5% of your home's value (85% for cash out refinancing). You'll have to prove that you have enough income, and any financial difficulties need to have been put behind you, but a 600 credit score won't stop you from getting an FHA refinance. Check to see if your loan amount falls within FHA loan limits in your area.

If you can't refinance now and are barely hanging onto your home, modification may be the answer. Even if you don't qualify under the Home Affordable Modification Program (HAMP), your lender may work with you to keep you out of foreclosure. Call your lender and plan to hang in there for some time. Here are the rules that some lenders use when determining if they are going to help you out.

1. You have to prove your income and declare your assets. Just like qualifying for a home loan, you have to qualify for a modification. If your mortgage payment isn't more than 31% of your gross income, you won't get a modification. If you have any assets like investment accounts, or even retirement money, you'll have to use them to keep up with your mortgage payments before you'll get help from your lender.
2. If you have equity in your home, you are less likely to get a modification. If a lender can recoup its money by foreclosing, it will probably choose to do so. But if you have equity, perhaps selling or refinancing is a viable option.
3. You have to have enough income to make a modified payment. If you are unemployed or underemployed, and dropping your interest rate to 2%, stretching out your loan term to 40 years, and even reducing the principal to no less than the proprty is worth won't get your payment down to 31% of your gross income, the lender is likely to cut its losses and foreclose.

For those who can't refinance and can't get a modification, credit counseling or bankruptcy are options. If you could make your housing payments but not your other payments, and they aren't tax debt, child support, or things like government-backed student loans, you might be able to get yourself out of trouble with a Chapter 7 or 13 filing. Check with a reputable attorney or credit counseling service to find out.

Experts say that rates on 30-year fixed rate mortgages have gotten as low as they will go and have begun rising. In fact, the spread between the 10-year treasury rate and the 30-year mortgage, which is typically 1.7% if you don't pay any points, has increased to about 2%. But 15 year mortgage rates ...

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 ...