Tuesday, March 30th, 2010 at
6:35 am
Whether you’re in the market to purchase your first home, or simply refinancing your existing home loan, bad credit can cause some troubling headaches throughout the entire lending process. Have no fear, for modern day brings with it sub-prime lenders that specialize in bad credit mortgages, assisting those who suffer from a blemish or two on their credit reports, a bankruptcy, foreclosure, auto repossession, or anything else that could easily hinder a conventional loan from a traditional lender.
One key factor in bad credit mortgages is the down payment you provide or the amount of equity you have in your home. This is referred to as the LTV or Loan to Value ratio- how much your home is worth compared to the amount financed. The lower the ratio (loan amount), the lower your interest rate, fees and monthly payment will be. The higher the loan amount, the higher your interest rate, fees and monthly payment will be. This is because you are considered a risk, so a large loan will cost you more than the average consumer.
PMI (Private Mortgage Insurance) is another factor in a bad credit mortgage, especially for those who have a higher LTV (as explained above). This insurance differs from your hazard insurance, as that’s bought from an insurance agent to protect your assets in case of fire, break in, etc. PMI protects the investors in your home incase you default on your loan payments and the house is sold at auction. PMI will cover any gap between what the home resold for and your mortgage balance, therefore protecting the investors.
Sometimes, in order to get you a lower rate on your mortgage, a sub-prime lender may offer you a “points” option. Points are typically equal to 1% of your financed amount, and are considered “prepayments of interest” that will reduce your interest rate. Sub-prime lenders may charge you upwards of 5 points or more to get you into a better loan program. More often than not, you can roll the points (and the closing costs) right into your home loan so you don’t have to bring money to the closing.
Typical mortgage rates can be as much as 3% higher for borrowers with bad credit than those with sparkling credit for obvious reasons, so you shouldn’t get too shaken up about the rates and fees. A bad credit mortgage should be considered a “temporary fix” to allow you to get caught up on some bills while ironing out your credit. You’ve worked hard for your house; it’s more than just walls, a floor, a roof and some furniture- it’s your home! Allowing it to work for you simply proves the valuable resource that homeownership is.
By: John Cassidy
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Sunday, November 8th, 2009 at
12:36 pm
Applying for a mortgage usually means you will get a blizzard of paperwork to sign.
Many of these papers are “disclosures”. These are often mandated.
Important disclosures include:
credit score information disclosure
good faith estimate
equal credit opportunity act disclosure
The credit score information disclosure lets you know what your credit scores are. These are typically ratings given to you by the three different credit bureaus. This can be the basis for understanding your credit and starting the process of working on your credit if there are issues.
Good Faith Estimate
A good faith estimate is an estimate of a range of closing costs involved in getting the loan, including:
lender
broker
escrow company
title company
hazard insurance company
appraiser
government fees
taxes
other fees
It is important to remember that these costs are just estimates. They can change. It is an “estimate” of mortgage costs, not a guarantee.
The equal credit disclosure is an anti-discrimination disclosure.
There are numerous other disclosures, but the ones of interest to most potential borrowers are the good faith estimate and the credit disclosures. These are the ones with the potential to have a direct impact on people’s financial results.
Other disclosures include authorization to check credit, verify employment status, assets, income documentation, and other pertinent information.
By: Ben Afzal
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Thursday, July 30th, 2009 at
1:28 am
Basics
Your debt to income ratio is a basic measure that mortgage lenders use. It involves:
Total monthly debt loadTotal pretax incomeOverall ability to payTotal Monthly Debt Load Your total monthly debt load that a lender will analyze includes: Credit cardsStudent loansCar paymentsDepartment store cardsOther monthly debt paymentsYour mortgage paymentThis is the sum total of your usual monthly debt payments. In some cases a lender may ignore a debt totally. This is the case, for example, if you have a $500 a month car payment but there are only two more months left on the loan. The lender may choose to ignore this $500 per month debt load because they know if will go away shortly.
Lenders should be able to figure out the monthly debt balances and when they expire from your credit report, although you should also disclose relevant items to them in your mortgage application.
Lenders will also factor in the expense of the new mortgage your are applying for. This includes the mortgage payment, property taxes, home owner association dues, hazard insurance, and any other property related expenses.
Total Pretax Income The lender will add up all your pretax income, which may include:
Base salarySales commissionsBonusesOvertimeRental incomeInterest incomeOther incomeAll of this income is added together to figure out your pretax income. They may take an average of your past year’s monthly earnings. Temporary jobs or seasonal work may not be added into this total because it is not considered regular work or income.
Total Overall Ability To Pay The lender will compare the borrower’s total overall monthly debt load with their monthly pretax income.
If a borrower’s pretax income is $10,000 and their monthly debt payments are $4,000 then the borrower has a debt/income ratio of 40%. This is acceptable to many lenders.
New Opportunities Many lenders will now allow a total debt burden of as much as 55% of the borrower’s income.
This allows more people to be able to buy a property. Lenders may compensate themselves for the additional risk of this type of loan with a higher than normal interest rate.
By: Ben Afzal
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