Home Loan And Bad Credit: Effects Of Bankruptcy

While the gestation period after filing or being declared bankrupt is seven years, the bankruptcy listing will remain on your credit report for at least 10 years. In certain states it stays as long as 12 years. Ideally consumers should wait for a minimum of four years prior to applying for a conforming loan (loan with a major financial institution), however the FHA stipulates a period of 2 years from the date you come out of the bankruptcy period. You may be able to qualify for a home loan with as little as a 3.5 percent down payment. In certain cases clients prefer to go to hard money lenders and could end up having to put down as much as 20-30 percent down payment, with rigid loan terms that in most instances are not favorable.

Tips:  Qualification For A Home  Loan With Bad Credit

Once you have emerged from bankruptcy, it may be beneficial to obtain a credit card from a major financial institution. Keep in mind that you will have to make the repayments on it in full every month to keep improving your credit score.

In addition you also:

• Must stay current with all your repayments.
• Do not fall behind on bill payments.
• Ensure that you have steady employment and are earning a steady salary or wage.
• Demonstrate a regular savings pattern and aim to save at least a 10 percent down payment.
• Shopping around can also be another alternative for someone seeking finance. If you have poor or bad credit history, sometimes mortgage brokers will tell you that they can’t help you. Don’t lose heart. There are numerous mortgage brokers out there who will be able to help. There are mortgage brokers who have based their practice around the fact that they work with consumers who have a bad credit history.

If none of the above mentioned alternatives seem appealing you may want to consider vendor financing. It is not always available however, in some instances can be very appealing. In vendor financing you are obtaining a home  loan from the seller. This usually means that you do not have to go through a qualification process; in addition you receive extremely flexible terms and conditions. Another major plus about vendor financing is the interest rates is comparatively much lower.

In spite of vendor financing, it is always beneficial to keep checking with your financial institution if you can refinance back to them.

Tips For Self Employed Home Loans

1. Documentation: As a self-employed individual collect as much documentation as you can in order to substantiate your income. This could include things such as bank statements, income tax returns for the previous years, statement of accounts etc. Make sure that these documents give a true and correct image of your financial situation and clearly exhibit your ability to make the repayments on the mortgage loan.
2. Save: In the case of self employed individuals, this is more important than it would be for someone who is a payroll employee. Try and save as much as possible for your home loan. Cut corners and pinch if necessary. Self employed borrowers should try and save as much as 20 percent as a down payment on their properties. Banks need to be able to see that you have shown sufficient commitment towards attaining the property and consequently keeping it. The larger the down payment the smoother is the processing of your home loan application.
3. Restructure: It is always beneficial as a self-employed individual to re-structure your business. Speak to your lawyer or accountant and ask them about your options of restructuring your business. The idea here is to structure your business in such a way that you are able to write out a paycheck to yourself and appear to be an employee of the organization. This could be by way of converting your company into either a corporation or a private company etc. As far as restructuring is concerned it is best to seek legal advice on the matter.
4. Credit Score: It is in your best interest to try and increase your credit score as much as possible before applying for a home mortgage loan. If you have a credit card or a personal loan, take active steps to pay it out as soon as possible. The same should be applied to any hire purchase agreements or lease to buy options. If you have a major credit card, pay down the balance in full each month. These steps will ensure that your credit score receives a big boost.
5. Track Record: Prior to approaching your lender for finance document a track record of being self employed. This could include documentation which proves length of being self-employed, documentation proving level of income and also the fact that you have been sufficiently long in the same industry. These factors cumulatively help prove your self-employed track record and consequently make your case stronger.

In certain cases self-employed borrowers also prefer to apply for non-traditional forms of home loan finance. This could include vendor financing, or leasing with the option to buy. Depending upon your circumstances make sure that you have completely considered all your options prior to settling.

Documents Required To Obtain A Full Doc Loan

When applying for a full doc home loan you will require some of the below mentioned documentation:

1. If you are the employee of an organization, the bank or the financial institution will need to see your pay slips to confirm your declared level of income. Pay slips also help the assessing officer confirm the length of your employment by using what is known as the “year to date” figures on the pay slips.
2. If you are self employed the bank will want to see your tax returns in combination with your W2s for the last 2 years. In certain cases even if you are employed by someone else the bank may ask for your W2s.
3. Your credit officer may want to see the last 6 months worth of statements of your bank account to order to see a savings pattern and also to discover any undisclosed debts by looking at the payment going out of the account. If you have credit cards, the approvals officer will also require seeing the statements for that to ensure that you have no been over the limit or have not been in arrears etc.
4. If you are applying for a refinance, you will also be required to provide your home loan statements for anywhere between 6 and 12 months to ensure that you have been making your repayments on time.
5. The bank will usually order an appraisal on the value of your home and will wait for the valuation to come in.
6. The bank/ financial institution will also need to see the contract that you have entered into for the purchase of the house and in case of a refinance the bank usually does a title search.
7. In addition to this if you are applying for state or federal grants, such as, the first home buyers tax concession etc, you will need to complete all the paper work and supporting documentation for the same and submit it.

Consumers may like to keep in mind that for some consumers who have credit scores of 700 and above you may not require a lot of the documentation that is usually asked for.

Advantages Of Applying For A Full Documentation Loan

• The biggest advantage of applying for a full doc home loan is the fact that the interest rate applicable on your loan will be much lower than that of a lo or a no doc loan.
• Mortgage insurance on a full doc loan will kick only when the mortgage loan is above the 80 percent mark on as far as the loan to value ratio is concerned. In case of lo doc loan it usually is applicable beyond the 60 percent mark. This means that full doc home loan applicants can apply for larger loans without having to worry about the implication of mortgage insurance.
• Most full doc customers who have their documents in order experience swift processing times and usually get their loans approved rather quickly.

Hence consumers who are looking to apply for a home loan may want to consider applying for a full doc loan.

It has been discussed at great lengths that the current real estate market is a buyers market. However, we also know that we have experienced the mother of all credit contractions in the recent past. While there are a plethora of purchase options open to qualified buyers, the questions remains how many of us are actually going to qualify for that much needed home finance in order to be able to close that home deal.  Prior to even considering the purchase of a home loan it is absolutely necessary that you choose the right mortgage loan and check whether you qualify for a loan to begin with. Getting yourself a pre-approved loan or checking your pre-qualification status can go a long way to save you heartache and disappointment in the future.  When looking at whether you qualify for a loan it is important to under stand what your home loan officer is looking for. Listed below are some things that you can be rest assured would be a focal point during a pre-qualification process.

Mortgage Home Loan Qualification

Willingness To Pay

If we were to describe this in a couple of words, they would be “credit score”. As credit contracts lenders lay a lot of emphasis on your credit score. You willingness to repay is rather evident from your credit score.  Home loan lenders usually demand “A” rated credit scores. These are credit scores, which are 620 and higher.  In certain cases if your credit score is exceptional, for instance if you have a credit of 700 plus, in such circumstances you may not even need to produce half the documentation that would normally be required.

Positives On Your FICO Score

Listed below are some of the points that reflect positively on your credit score and consequently ease the pre-qualification process:

• One major plus is not having any repayments, which are older than 30 days in the span of the last 12 months on your credit report.
• If you have credit cards and/or lines of credit and have only used a part of it, while the other remains untouched, this too adds points to your credit score and would also impress the assessing officer.
• Another major point booster is having debt obligations/loans paid off either on time or early.
• In addition to the above if you have been paying down your credit cads or line of credit in full each month, this too looks very impressive during the qualification process.

Negatives On Your FICO Score

Here are a few things that would really prove to be a setback to your FICO score.

• Late payments during the last 30 days.
• Loans, which have a charge off, listed next to them.
• If you have been maxing out your credit cads or lines of credit, be rest assured that it has lessened your credit score.
• Not having a credit file. If you feel that you are uncomfortable with borrowing and as a result of that you do not have a credit card and no record of a credit, history, you would have taken away any information for your credit officer to base a decision on. It is vital to have a credit  file.

Capacity

If there are ticks against all the above, the last thing your lender is going to check is your ability to make the repayments on your home. This would include checking your payslips and if you are self-employed your tax returns. You need to clearly exhibit the capacity to make the repayments on your home loan while being able to lead a normal life.

These are some of the things that your lender will check to make sure that you qualify for one of the many types of home mortgage products.

At some point in time very individual wants to own a property. Not everyone is fortunate enough to get an inheritance and not have to worry about mortgages altogether. Most of us, if we want a house, we have to consider getting a home loan. Under such circumstances, most of us feel that no matter what a mortgage is a mortgage and that they all serve the same purpose. This however is a misconception. In today’s business world no two people are alike and hence nether are mortgage products. Based on your needs and circumstance you should consider various types of mortgage lenders and get a mortgage to suit your requirements. Some such examples are listed below:

Choosing The Best Mortgage Deal

Buying A Life-Time Investment

If you are looking to by a house and are hoping to keep it for the entirety of your life span and maybe leave it to your kids someday, then in that case you should consider getting yourself a fixed rate mortgage. These mortgages have rates that can be fixed for the life span of the loan, even as much as 30 years. These are ideal for people who have bought a house with the intention to hold on to it.

Seasonal Or Fluctuating Income Earners

Ideally Adjustable Rate Mortgages (ARM’S) are the way to go in this case. Experts consider these to be pretty risky products. These are the right mortgage for individuals who have fluctuating levels of income. During dry months consumers can make smaller repayments, which only cover the interest component or not even that and can catch up during months where the income is greater. You must remember that if you are consistently making small repayment, in the future you may experience that you payments have risen by a fair bit.

Self-Employed

If you are a self employed individual and want to get the best mortgage, you may want to get either a low-doc or a no-doc loan. While the interest on these loans is considerably higher, self-employed individuals prefer them owing to the fact that it saves them the hassle of having to obtain and produce financial like payslips or W2’s etc.

Active Serviceman Or Veteran

If you are an active service man or a retired veteran, then it is the best idea to get yourself a VHA loan. These loans allow qualified military personnel to get loans for amount as much as $417,000., with absolutely no down payment. In certain other states of the country the amount goes up to about $625,000.

Recent Graduate With Great Income Potential

If you have recently graduated with a fancy degree and are starting to find your feet in the job world, it would make sense to get a loan which is a one year Adjustable Rate Mortgage. Make sure that you get a loan where the interest is capped and not the payments. If your payments are capped it would mean that even as your repayments are regular, your interest rate is fluctuating and that would keep pushing up the amount you owe the bank. It is very essential to make sure that you have capped the interest. With a one year ARM you may feel the pinch initially but eventually your rising income will be able to see you through.

References:

1. Which mortgage is best for you? – MSN Money
2. What mortgage is right for me? – Mortgage Reference Library

As more and more properties flood the market, the more the real estate market becomes a buyer’s market. The property market has not been this receptive to buyers in a long time. However, the numbers of foreclosures in the market are making banks contract their credit policy even more. Here is a catch 22 of sorts. While the market tends to be favoring buyers, the banks are making obtaining credit that much more difficult. Don’t lose heart, because home loans are still available. Consumers do need to keep in mind, that having a stable job or great credit alone will not suffice to secure you credit. It has to be a combination of these two vital elements and several other factors for banks to consider you an exceptional applicant. While trying to secure the best home loan it is essential that you keep a few things in mind. You do not want to end up with having secured a home loan and not knowing how to make your repayments because you made a judgment error. Here are a few tips to help you secure the correct home loan.

Getting The Best Home Mortgage Loans

1. Know Your Limits: It is essential that you know your spending capacity. Getting a home loan which is beyond your means, or one with an extremely high interest rate, will simply mean that eventually the financial burden will catch up with you and you will find yourself delinquent and in a position where you are short selling or being foreclosed upon. Calculate your income and expenditure each week or month to know exactly how much you can spend on home loan repayments.
2. Shop Around: Do not settle for the first mortgage lender whose office you walk into. You may have banked with an institution for several years, but that however does not mean that they have the best products on the market or products that suit your needs. Look around for to get the best home loan deals. If you are of the opinion that you may be a little lost, seek help. Talk to a mortgage broker to get an explanation; however do not be pushed into making a decision or settling on a lender. The decision is your and you should be comfortable while settling on a lender.
3. Terms Of The Home Loan: Before settling on the rate of the home mortgage loan it is always advisable to select the terms. Terms would include things like the length of the loan, whether you would like a 15-30 year loan or in some cases even a 50 year loan. Next whether your home loan is going to be a fixed rate mortgage where the interest rate on the loan remains the same throughout the life of the loan or an adjustable rate mortgage. With ARM’s the rate is locked in for a period of 1-7 years.
4. Get Your Estimates Right: Once you have gone through the process of selecting our product, lender, terms and interest rate, make sure you get a fai idea of consequent and relevant outgoings. These would include expenses such as closing costs. Closing costs could include stamp duty, set up fees and other ancillary charges. Also make sure you get your estimates of monthly repayments as far accurate as possible. Unless you have this down you could soon find that your repayments are more than you estimated and this could eat into your finances very quickly.

Once you have done this, make sure that you have locked you home loan rate in 30 to 45 prior to the closing out of the agreement. This is necessary as rates are constantly changing. These are some simple yet effective steps to consider when getting a home loan.

References:

1. Seven Tips to Choosing The Right Loan – Side Road

When it comes down to getting a mortgage for your home there are several ways to do it. However, what is important is to understand which type of lender or avenue of finance is best suited to your needs. Some of the options when you talk about home finance range from the traditional banks and large financial institutions to your credit unions and building societies. More non-traditional channels include non-conforming lenders and private channels. Listed below are the various forms of financing and their descriptions.

Portfolio Lending Home Mortgage Lenders

This is you more traditional form of mortgage lending. Banks and large financial institutions are considered portfolio mortgage  lenders owing to the fact that they are lending you their own money without having to worry about the fact that these new loans have now got to be sold as soon as possible on the secondary market. As a result of this, these large financial institutions are not at the mercy of FannieMae or FredieMac. However, if these institutions do offer government backed lending products they too are involving themselves in mortgage banking. As a side note, if your loan has been with a financial institution for over a year and you have been making your repayments on time and have no late charges, then in that case your loan is what is known as a “seasoned” loan and the institution can sell it on the secondary market to raise further funds to increase it’s own portfolio. In this even the financial institution goes from being you lender to your servicer.

Direct Mortgages Lenders

Direct lenders are the lenders who fund their own originated loans. It might be fair to say that this is similar to a portfolio lender. However, this is not always the case. Unlike portfolio lenders, who fund their own loans through their own funds and have to be very large banks or financial institutions, direct lenders can be either large or very small. Unlike portfolio lenders who use their own money, direct lenders use their reserve lines of credit to fund the same. One way to be able to tell the difference between the two used to be the fact in whose name the loan papers were drawn. However, nowadays even the smallest lender can have the loan done in their name.

Home Mortgage Lenders: Correspondents

This type of lending usually has 2 parties to it. The originator is the person who generates the loan, much like a mortgage broker, and a sponsor, is the party to whom the originator bundles up the loans and sells to. The sponsor in turn sells the loans to a mortage banker like FannieMae or Freddie Mac. Correspondents as a rule work with institutions which have a very strong wholesale mortgage department.

Banks & Credit Unions As Mortgage Lenders

Banks usually fall under the category of a portfolio lender owing to their size and scale of operations and in addition they use their own funds for the funding of loans. However in certain cases banks which use warehouse lines of credit could be more direct lenders in their way of operation. Credit unions on the other hand usually operate as correspondents owing to the fact that they on sell their loan bundle to sponsor institutes. In some cases very large credit unions could assume the position of a portfolio lender.

It is essential that consumers understand they type of lender they are dealing with to understand the inner workings of their mortgages.

References:

1. Types of Mortgage Lenders – Mortgage X
2. Types of mortgage lenders – Real Estate ABC

Mortgage Liability

An asset is any item or investment that either brings you a regular return or grows in value so that when you do sell, you will reap a profit from the sale. If you have purchased your home through a loan, then the mortgage is actually a liability and the property, which you do not own until the loan is paid off, is the bank’s asset. In this case, your house is definitely not an asset. However at some point through the period of your mortgage, selling your home will derive you a sufficient sale price to pay off the outstanding loan amount while gaining a profit in your hand after settling your home loan. At this point, your home is essentially an asset.

Free Hold Property

A free hold property is when you have complete ownership of your house after paying off your home loan. It is usually seen as the house being your asset once this has been achieved. However, according to some financial gurus, your house is still a liability. Since you have to pay property taxes, home insurance and maintenance costs for your house, it is still draining money from you, without any return on investment. Many will argue that a home is essential and renting would mean losing money as well with no return for the money spent. So how can a free hold property be a liability in comparison to other options for housing you and your family?

House is not a Financial Asset

By the principles of money management taught by certain financial gurus, your house may not be an asset in this context. However in terms of financial stability of the average person and family security, your house should be seen as your greatest asset. Even if you house costs you money every month, the fact that those four walls is in your hands, houses your family and can be retained for decades on should translate into an asset. Not all home owners can run a business from their home so as to generate an income through a portion of their house or use their home as a tax write off for business purposes. Your house, once paid off, is the single greatest asset, both in financial and sentimental terms that you will ever possess. If you are able to work from home or derive an income from a home based business then your house puts money in your hand and in the context of certain money management principles, it is once again an asset.

Deciding whether your home is an asset or not should not hinder your decision to purchase a property especially if you are losing money through property rental. Do not let these ‘experts’ in the field of money management confuse you. At the end of the day, even if you are losing money to the bank in terms of interest, the return of seeing your family happy and safe in a house, without the risk of eviction, is a sufficient return to most home owners, even if not in monetary terms.

Mortgage Repayments & Interest vs House Value

When you borrow from a bank or other financial institution in order to finance your home, your monthly repayments are calculated according to the amount that has to be covered, capital amount plus accumulated interest, within the repayment period, usually 30 years. Essentially the first 5 years of repayments only pays the equivalent of the interest amount and therefore you will find that after approximately 5 years of paying your home loan, you still owe the original amount borrowed. The years prior to this, you were simply paying off the equivalent of the interest accumulated throughout the repayment period. In some cases, your first 7 to 8 years of repayments would only cover the interest meaning it will take you even longer to reach a point where it is viable to sell your home at the approximate amount for which you purchased it initially.

House Price vs Mortgage Amount

When selling your home, especially if you are debt ridden and looking for a quick house  sale to put cash in your hand immediately, then the settlement value of your mortgage loan has to be taken into account. By settling your mortgage early, the amount to be paid is substantially lower than the total amount outstanding since the interest will be deducted from the remaining repayment period. However some financial institutions may add a penalty fee for settling your mortgage loan very early as they will be losing on the potential income that they would have derived from your mortgage repayments over the entire period. This has to be factored into your final selling price, irrespective of the valuation price or market related pricing. Your property may be valued at less than the outstanding settlement value which has occurred in recent times when property prices dropped. Furthermore the competitive property market at this time means that your valuation price may not be in line with the average selling price of similar properties.

Ownership of Mortgaged Property

Due to these considerations, your financial institution may not allow you to sell your home at the price that you feel is sufficient. Remember that your property is not yours and ownership rests with the financial institution that provided the mortgage until you completely pay off the loan amount. Therefore you may be unable to make decisions about selling your home at a price that you wish. Alternatively, you may be allowed to sell your home at a price that you choose but you will find that after settling the bank, you are left with very little cash in your hand, which may be insufficient to even fund your next move to another property. Essentially you lose on the years of repayments that you have made thus far, leaving you without cash or a home.

Before considering a house sale or even before you get a valuation price, it is important to first speak to the institution that has provided the mortgage to find out the exact costs and amounts due in settling your mortgage earlier. Even if you opt for a quick sale through professional buying agencies, you may find that the reduced purchase price will play against you in the long run and you will have little choice but to continue with your mortgage repayments and live within your home, even if you are in a tough financial position.