Common Misconceptions about Mortgages
Due to the complexities of the mortgage industry, an average individual is unaware of several basic facts regarding mortgages and the procedures involved in procuring them. This places potential borrowers at a disadvantage while trying to secure financing for buying a home. Here are some prevalent erroneous beliefs regarding mortgages.
The necessityf of a Large Down Payment
Most people believe that a sizeable down payment is essential for taking out a mortgage for buying a home. Though a down payment of 20% could procure a deal with attractive terms and eliminate private mortgage insurance (PMI) payments, a lower deposit could help you secure a mortgage, as well.
Mortgages sanctioned by the Federal Housing Administration (FHA) are available for a down payment as low as 3.5%. Eligible borrowers from military services can take out VA loans without a down payment and rural residents can apply for USDA loans with 100% financing too.
A borrower with a high monthly income can take out a home equity loan along with a conventional primary mortgage for a down payment less than 20%. This arrangement called a combined loan to value mortgage eliminates PMI payments, altogether.
Pre-Approval Ensures Commitment
Most borrowers feel obliged to take out a mortgage from a lender after seeking a pre-approval letter. A pre-approval simply establishes the approximate amount a lender may extend for the mortgage. The document does not obligate you to get a mortgage from the lender issuing the estimate. At the same time, it does not assure you of securing a package from the lender. The lender may decline your final loan request for a variety of reasons.
Your Bank Offers the Best Deal
While banks try to entice their customers with attractive terms on mortgages, the available terms might not be best you could attain. It is advisable to check with a number of lenders. You could go to a mortgage broker to get a comprehensive idea of all packages available. A broker could reveal a product not available at your local bank.
Interest Rate Indicates the Mortgage Cost
It is vital to pay attention to the annual percentage rate (APR). This factor indicates the true cost of the mortgage expressed as a yearly rate and takes into account the various elements of the closing costs. A lender may offer a low interest but make up for it by charging high closing fees. Decide on a product by studying the APR.
Closing Costs of a Mortgage
The lender makes available a comprehensive list of closing costs in the Good Faith Estimate. Most mortgage experts advise a potential homebuyer to get estimates from at least three lenders to ensure that the items listed are legitimate and the costs are reasonable. Here is a list of the items you may expect to pay at closing.
Origination and Discount Points
Lenders charge origination points for processing a mortgage loan application. One origination point is equivalent to 1% of the principal amount. Discount points imply the extra money you can pay at mortgage closing to avail of discounts on the interest rate. Like the origination point, one discount point is equal to 1% of the loan. The lender reduces your interest rate on the loan by 0.125% for every discount point.
The lender requires an independent appraisal of the home you want to buy before granting your mortgage. The appraisal determines the market worth of the home. Appraisal fees listed in the closing costs vary between $100 and $400, depending upon the worth of the property.
Credit Report Fees
Lenders view the credit report of a borrower to assess the loan amount and the interest rates. The reports are available with the major credit bureaus like Equifax, Experian, and TransUnion. These bureaus charge around $50 for each viewing. The lenders include these costs in the Good Faith Estimate.
If a borrower does not pay 20% for the down payment of the property, the lender will impose private mortgage insurance (PMI) payments for the borrower. In addition, the lender requires the borrower to pay homeowners insurance and property taxes. The lender may arrange for escrow services for paying these items. The services are available at a separate charge listed in the closing costs.
The lender can ask for a survey of the property you want to buy to determine its legitimate boundaries. The survey fees can be as high as $350.
Your lender will engage in a detailed title search to look at the records concerning the home. These include court records, deeds, name indices, and other documents. The lender does this to ensure that the current owner is indeed the legal proprietor and that there are no liens on the property like unpaid property taxes. In addition, the lender will require you to purchase title insurance at closing, which affords protection against tax and mortgage liens.
Why Do Mortgage Rates Have to Rise?
Well, they don’t have to. We cannot know the future. New and unknowable information creates the future for us, and even though we are told that certain things are going to happen, we don’t know for sure that they will until they do.
Let me give you an example. Most people are sure that rates will rise this year. But if you asked them to bet their $1,000,000 retirement account double or nothing on it, they wouldn’t do it. So are they really sure? They must not be or they would make that bet and double their money.
Yet we can make prudent decisions based on what we do know.
We know that the price of Mortgage Backed Securities determines interest rates.
We know that when the prices on MBS rise, rates go down.
We know that there have traditionally been two main buyers of Mortgage Backed Securities – Wall Street Investors and other countries (China mostly).
We know that in the past when the Stock Market is struggling, market timers on Wall Street have an appetite for Bonds and MBS.
We know that in December last year the US Government, through the Federal Reserve, began buying them too as way to drive the prices up and bring the rates down. They became a third buyer of MBS.
We know that this worked – over the last year, rates have been very low.
We know that the US now owns more than 1 trillion dollars in these debt instruments, and we know what they have been saying about that.
They’ve said that they will continue to buy but slow down that effort.
They’ve also said that over time they will want to get rid of them. That means that they will flip from being a buyer to being a seller.
So right now, the MBS market has three buyers that all have a hefty appetite. The prices are very high and rates are low reflecting this reality.
Soon, we will likely lose one buyer altogether as the Fed stops buying.
And when the Stock Market heats up, the emotional public will make investments there again rather than in the MBS side of things. Who knows when that will happen?
China threatens, but so far has not made any substantive changes in their buying patterns.
The US will likely become a “seller” rather than a buyer.
So the long story short – the current demand for these MBS could turn into an over-supply and falling prices, causing the rates to rise.
That said, I think as consumers, we ought to make decisions based on what we know now. Rates are very low today. 5.25% is available with no points and no origination fees if your home’s value is higher than what you owe and not much worse than that if the value is less than what you owe.
Mortgage processing is bearable again too. If this works for you, then you should take action now rather than waiting.
Any day now, high demand could flip to extra supply, and rates would rise if that happened.
Oh, and pay off your credit cards and car notes too. You will want to have extra cash around if that happens. And those who do will have very good investment opportunities available to them.
How To Get A Mortgage With Bad Credit
Getting a mortgage loan if you have bad credit score can be an uphill task that can literally shatter your dreams of owning a home. After house hunting with the hope of finding a reasonably priced house, your credit card rating may become a major stumbling block in the pursuit of buying a home.
However, the fact that you have a bad credit score or have gone through a foreclosure does not mean that your dreams should go up in flames. You can still get a mortgage even with bad credit. Below are some of the methods you can employ to get out of the woods and get a mortgage.
Check your credit score
This is the first major step when applying for a mortgage when you have bad credit. This involves checking your credit score rating with reputable credit report bureaus to ascertain your exact credit rating.
This is important because when applying for a mortgage with bad credit, your loan interest will be based upon your rating. It is therefore imperative to have an idea of how low or high your exact rating is.
Check for mistakes
Any mistakes arising from the credit score can negatively impact on this process. To be on the safer side, you need to check your credit card report and verify that all the information provided is accurate. If there are any inaccuracies, you need to contest them as they may drive down your score.
Review your finances and create a lean budget
In order to succeed, you need to prove to your lenders that you do not only have a stable job and source of income but also that you have your loan repayment budgeted on the same. This will definitely give your lenders the impression that you are ready and capable of repaying the mortgage loan.
Try and make at least 20% down payment
If possible, it is important to make a down payment of not less than 20% of the total mortgage value. It is arguably one of the best and easiest ways of getting a mortgage if you have a bad credit score rating.
By offering to make an upfront payment, you are sending the signal that you are a serious buyer and you mean business and are prepared to take the responsibility of loan repayment. By making a down payment, you pose less of a risk to your lenders, and they will be more willing to finance the mortgage.
Get your mortgage loan signed by a good co-signer
By working with a co-signer that enjoys good credit rating, you stand high chances of getting a loan with a reputable financial institution that offers reasonable interest rates. This is much easier as compared to struggling to secure the same by yourself. Should you default on payment, then your co-signer will be held liable in making the loan payments.
Get adjustable-rate mortgage
In sharp contrast to fixed rates that normally have much higher rates and discount points, adjustable rates will give you a breathing space if you have a bad credit rating. By getting a mortgage on an adjustable rate basis, you are able to keep your mortgage payments to low and manageable points.
The Reality of Bad Credit and Real Estate
Many people have had financial problems in recent years and there is often a lasting effect on their credit status if during the problems they defaulted on payments of any kind; loans, credit cards or mortgages.
A credit score is a barometer on which lenders have based their decisions on whether to approve borrowing or not. The only options in recent years for those with poor credit scores have been bad credit loans which are charged at a higher rate than the norm.
There are ways to improve a credit score and that is by successfully making payments on time for such things as bad credit loans but it can be slow going. That is particularly frustrating for those seeking a mortgage because the high cost of rental is usually making renting more expensive than buying.
The financial crisis has made many mortgage providers extremely cautious after the drop in values resulted in negative equity and the rise in unemployment led to repossessions.
If you are looking for a mortgage and have bad credit it is worth checking that there are no errors on your credit report; every little help.
Problems will stay on the report for seven years though as time passes old information will have less impact while every prompt payment will be positive.
Those prompt repayments from ordinary bad credit loans are an indication of your trying and that can be part of the case you prepare for mortgage approval. If you are struggling to get a standard mortgage why not seek out a landlord willing to do a lease that includes the option to buy? That is one alternative.
Another might be going to lenders who will charge a higher rate than normal, effectively bad credit loans, but will approve your application. You might even find someone who is struggling to sell real estate who is amenable to letting you buy direct; the seller effectively becomes the mortgage provider until the payments are finished.
These are a few ideas on which you can do some research but of course, you will need proper legal advice and representation to prepare and agree on any deal along these lines.
Once you have done your research there are decisions to be made. If you are confident of your ability to make the repayments promptly then the only impediment is your credit score. It is worth deciding whether the offer of a mortgage which is above the normal interest rate is worth taking.
Your credit score will improve gradually and you may be able to negotiate a more competitive remortgage in the future. That is worthwhile if the costs of remortgaging are acceptable.
Bad credit loans and mortgages come under this general description, are helping people get their finances back on track. Your case will become stronger as time goes by and that is a very important factor in any decision you make.
The traditional banks are unlikely to sympathetic to any approaches in the near future to any applications coming from anyone with any blemishes on their credit score.
That does not mean that there are not plenty of other alternatives and research on the Internet will soon reveal what is on offer. It is important that any bad credit loans or mortgages are only negotiated with reputable lenders.
You should be very cautious if you are asked for any money in advance; that can be the sign of a loan shark that can thrive when people are desperate.
Research and a considered decision are important. If you make out a convincing and confident case then there is every chance of a successful application.
Adverse Credit Unsecured Loans During Financial Crisis
Financial crisis can occur any time and then, additional funds are required to meet those financial challenges. People generally depend on unsecured loans for those situations. Those with good credit score do not face any problem in taking out a loan.
However, those who face the problem of bad credit score and bad credit history often find it difficult to take out an unsecured loan. Adverse credit unsecured loans are designed for those people who face the problem of bad credit history.
There are several banks and other lending organizations which provide unsecured adverse credit loans to these troubled consumers. The best thing about these unsecured loans for adverse credit is that they do not require any credit checks.
This means that these loans are easy to take out and they do not require too much documentation. These loans are quickly approved and disbursed so that the consumers can quickly access the money and use the same in case of financial emergencies.
Higher Interest Rates Incurred to Adverse Credit Unsecured Loans
The unsecured loans for adverse credit attract higher interest rates compared to the ordinary loans which are meant for people with perfect credit history.
The lenders charge higher interest rates because of the fact that they are taking the risk of lending money to those consumers who have a record of defaulting. Since the creditors are taking the risk, they will look for some kind of security and this security comes in the form of higher interest rates.
Adverse Credit Unsecured Loans Lenders
The unsecured loans for adverse credit are offered by several lenders and this leads to a competitive market where the consumers with poor credit ratings can enjoy cheap unsecured loans in the category of adverse credit unsecured loans. The competition forces the creditors to offered lowered interest rates along with flexible terms and conditions.
The consumers, on the other hand, can also have such unsecured adverse credit loans tailored as per their requirements if they fulfill the criteria laid down by the creditors.
For example, if the consumers have a steady income and if they have a good employment history, the creditors may consider changing the terms and conditions as well as they can reduce the interest rates.
With today’s uncertain economic status it is very important that people stay within their means when taking on debt. It is not advisable for people to be holding on to many outlets of debt i.e. mortgage, credit cards, a line of credits, personal loans, remortgages etc.
This is a recipe of disaster if you are. Job security obviously is the main concern here, if your in an area that may suffer further layoffs or drastic change, you need to protect yourself. If you have poor credit consider a loan consolidation utilizing an adverse credit loan.
This will provide you with an easy to manage credit plan. You may be paying a percent or two higher than before but overall you have one easy to manage payment per installment.
Three Quick Cash Solutions If You Have Bad Credit
These days “bad credit” can mean a lot of things. Once upon a time you only had “bad credit” if you had defaulted on loans or declared bankruptcy. But in the last decade, normal Americans have come to rely more and more on consumer credit.
Even as the tough economy and housing slump have locked many people into seemingly unwinnable situations. These days, you can have a bad credit rating simply because you have to too much debt for your income ratio – even if you make all your payments.
So what if you have an emergency or unexpected expense and need money quickly? Luckily there are still options available to you. Here are three ways to get cash quick.
1. Installment loan
Installment loans are also known as “signature loans” because all they require is your signature – no collateral. Typically they are aimed at people who have bad credit or no previous credit history, and a small signature loan is easy to approve.
The loan is then repaid in regular installments on a fixed schedule. Typically, an installment loan will give you some time – six months or a year – before you have to start making payments.
2. Title loans
Title loans are an easy way to get a quick injection of cash for emergency expenses. A title loan is secured against the title of a vehicle – in other words, you use your car as collateral. Most can be approved rapidly and only require proof of ownership of the vehicle, with no regard to credit history.
Although you are putting your car title down as security, you can typically keep the car and keep using it normally throughout the term of the loan. The rates can be good, but title loans are riskier than installment loans because you could lose your title if you default on your payments.
3. Lower interest credit cards
Credit cards are universally viewed with suspicion – and there’s a reason for that. But not every credit card is created the same. While most credit cards are run through the same big financial companies, local credit unions and small banks often negotiate special deals for their members. Talk to your credit union or bank and see if they can help you out with low interest, low limit credit card.
Which of these methods is best? All have their advantages, but signature loans often offer the easiest, least risky form of financial help. Are there other ideas besides those above? Leave us a comment and let us know.