(Financial Meltdown Continued)
Credit Score:
In the ‘old’ days while your credit score was important and what was on your credit report was reviewed, a good explanation “Cry Letter” might be acceptable to explain away any deficiencies on your report. This is no longer the case; credit reports are even more important and are looked at very closely. First, secure a copy of your current credit report; you are allowed a copy of your credit report free each year. You can go to the following site to receive your free credit report: https://www.annualcreditreport.com/cra/index.jsp.
Go over your report line by line. If something is incorrect, you need to dispute the item with the credit bureau. If the report says you were late with a payment and you were not or it was lost in the mail or mailed to the wrong location; call that creditor and see if they will correct the mistake. Look and see if former addresses are correct as well as any variation of your name. Check to see if paid off judgments and lawsuits are being correctly reported as paid, not only by the creditor but at the local courthouse as well. Finally, if you do not agree with something on your credit report, write a letter to the credit bureau and ask them to have it placed on your credit report. Your credit report is your key to credit in the future, make sure it is correct and check on it every six months.
Finances:
It seems obvious but those loaning money want to make sure they will be paid back. You can make yourself look a whole lot better by doing some, if not all, of the following:
- Have money in a savings account; even if it is only one month’s mortgage payment. (shows you have money in the event of an emergency)
- If you use credit cards, keep the balances under 50% of the available credit line. (will improve your credit score)
- Have an IRA and/or 401k (another source of money in the event of an emergency)
- Do not apply for or take out any credit cards, auto loans, or other financial debt ninety days prior to applying for a mortgage loan. (Helps keep debt ratios in line as well as your prospective Lender wondering why all this activity)
- Have a written explanation for all recent credit requests and credit inquires on your credit report.
- If you were late on any type of payment and there was a legitimate explanation; put it in writing.
In other words, be prepared when you fill out your mortgage loan application (known as a 1003 form). Not all loan officers ask the right questions, you need to take the control of the application process and if there was a problem in the past address it up front with the written explanation above.
Your Home:
While it is difficult to raise the value of your home for appraisal purposes. In the event you are refinancing, there are several do’s and don’ts.
First, do your homework in advance of the loan application:
- Check and see what your home is worth:
- Ask your local realtor what your home is worth.
- Ask your realtor for comparable home sales in the area.
- Go online and see what homes have sold in your immediate area.
- Make sure that your home is in good condition and repair:
- Clean up the grounds around your home. First impressions do make a difference. Clean up any debris around your home and make sure gutters and downspouts are hung properly.
- Clean up the interior so that when the appraiser walks through your home and takes pictures, it shows well. That means picking up the dirty laundry, putting things away in the closets, and making sure that nothing stands out that might catch the appraisers eye.
- If you put on a recent addition, recently remodeled the basement or added any square footage to the home, have the plans and details available for the appraiser.
- If you know of a very recent home sale similar to your home make a note of it and give it to your appraiser.
Your Job:
Your lender will want to insure themselves that you have and/or have had steady employment in the same line of work. Have the following information available when you fill out your mortgage loan application (1003).
- A detailed list of your employers for the last 5 years including the dates of employment with each employer as well as their address and phone number. If you changed jobs list exactly what you did with each employer.
- Make sure you tell the loan officer if you are an hourly employee, commissioned, and/or salaried. Also, advise of any bonuses and allowances. Bonuses need to be detailed and may require a confirmation letter.
- If you receive overtime on a regular basis, you will need a letter confirming this fact along with any details..
Lots of Variables:
There are going to be more turndowns than ever before in the mortgage industry. However, there are options and you listen and determine exactly why you were turned down. Some turndowns cannot be overcome except with time; others can be addressed and as soon as corrected you can reapply. The key is don’t give up hope and more importantly don’t believe everything that your loan officer or individual taking your application tells you. While the financial meltdown has curtailed many lending programs, many more are taking their place. Check local non-profit groups offering free counseling services for homeowners; use the internet to look for other Lenders that may be offering what you need, or ask your local bank manager to sit down with you and go over your loan application or credit report.
The financial meltdown has shaken the mortgage industry to its core. Future borrowers must be prepared if they want to obtain the best possible rate and terms. For those homeowners that have some credit blemishes it is even more important that they are prepared to counter obstacles that will be thrown into their path. However, by doing your homework in advance, reviewing your credit report, doing some simple financial planning, showing your home in the best possible circumstances, and taking control of the loan process, you can secure that mortgage loan.
(Michael Behrens has over 20 years of experience in the mortgage, real estate, and banking industry. He is currently doing consulting work in these industries.)
Next, HOT Topic,... A
mortgage refinance can be a lot more than a lower rate or payment.
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The FHA has stepped in and made it easier than ever to get an FHA loan. For the 1st time in history the FHA has made “Rapid Refi” a reality.
People with adjustable rates and downright bad loans are falling into foreclosure at a record pace and the FHA has come to the rescue. If you’re credit or career has been damaged by the recession an FHA mortgage refinance may be your best option no matter who you are.
Click here to learn more about FHA Mortgage Refinance Loans |
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The FED is on your side, rates are at a 37 year low and mortgage market conditions are excellent for qualified borrowers. A “mortgage refi” REALLY can do a lot more than improve your cash flow with a lower payment.
A mortgage “refinance” is a change in the terms of an existing mortgage loan. The terms of a loan include the mortgage rate, the length or “term” of the loan and whether it is fixed or adjustable rate mortgage. There are also other issues in the transaction that affect the basic terms like “cash out”, points and fees.
Together all these pieces can be aligned to achieve different goals. The key is knowing your goals and getting the right loan for you and your situation.
The benefits of a
mortgage refinance
- to reduce monthly payments during challenging financial times with an “interest only” loan where only the interest is paid each period.
- A mortgage refinance can be used to reduce interest rates and costs by moving to a lower rate
- To consolidate high interest debts like credit cards, pay a lower interest rate and gain the tax advantages of a mortgage loan
- To put more equity in a property and pay off the mortgage sooner by taking a shorter mortgage term (30 to 15 year)
- To extend the repayment time, (15 years to as much as 40 years) and lowering the monthly mortgage payment to make it easier to pay off other debt
- To reduce risk by going from an adjustable mortgage rate to a fixed mortgage rate
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