Are you currently in the market for a new home loan, debt consolidation, home equity or refinancing. Are you purchasing a new home now, or plan to? Then you need to know all the aspects in getting your mortgage. You will learn the meaning of debt to income ratio, choosing the best mortgage, what you should know before applying and what the best size home is for your budget.
Owning a home is the American Dream and you can make sure it isn't a daunting and overwhelming experience. Debt to income ratios gives financial institutions a budget guideline on how much you can borrow. This keeps your loan payments manageable based on your income. You can improve your debt to income ratio by jointly applying with your spouse and including their income.
It is an excellent idea to be pre-approved for a loan before you go house hunting. This way you have an idea on how much you can afford to spend on your new home.
What about points? If you are looking for a low interest rate mortgage paying points is a good idea. There are also some tax benefits to this as well. The benefits of paying points towards your mortgage is reducing your monthly payments. The pitfall to paying points is you will be required to come up with a small percentage of your mortgage upfront. When you speak to your financial institution they will be able to run the figures to determine if paying points is right for you.
Loans for first time home buyers allows you to purchase a house more easily. However, just because it is your first home doesn’t mean you should apply for a first time home loan. As you can safely assume, people who have never owned a home are good candidates. Most loans have a limit on the value of the home you’re buying. You probably couldn't get a first time home loan to purchase the more expensive homes in the neighborhood you had in mind. You’ll be limited to properties considered as starter homes at a lower price. To qualify for first time home loans, the house you plan to purchase must be your primary residence. Also, the home you buy will probably have to meet some conditional requirements such as safety issues i.e. lead paint, structurally sound etc.
While buying a home, you will probably incur appraisal and closing costs. Although paying nothing on your closing costs up front sounds tempting, these fees maybe rolled into your mortgage. Look at your mortgage in it's entirety and compare how much you will spend in the long run. It may be cheaper to pay the closing costs upfront. Appraisal fees are necessary as this helps the lender determine the value of the home compared to others within the neighborhood you are purchasing.
So when would you choose to apply for a second mortgage. A second mortgage is just that. In case you cannot make your payments, your mortgage is primary and would be paid first before your second mortgage. Second mortgages are a good idea if you need funds for home improvements, debt consolidation, money for college, etc.
It is unwise to secure a second mortgage just to simply have this money, remember, you are securing this loan against your home. Make sure you use a second mortgage for exactly what it is intended for. As I mentioned above, a second mortgage is paid after your primary mortgage. Because of this, the rates may be higher than your mortgage. Home equity Loans are used for the same purpose. Since you are borrowing against your home on these loans, make payments to this debt your priority.
Debt consolidation programs are good for a couple of reasons. You can consolidate several different loans into one payment making it easier on your budget. You’ll only pay one payment per month. You’ll pay out less every month leaving you extra cash for other things. You have to remember though, debt consolidation loans can help you, but also hurt you as well.
You still have to pay back your debt, although the payments are consolidated, some people have a tendency to dig themselves deeper into the debt hole. You will have to pay higher interests on these loans. While managing your cash flow every month, it would be wise to put some money you are saving with your debt consolidation loan towards the principle. These loans are intended to help you with your debt, not eliminate it. Using this type of loan wisely will help you save on your monthly payments if you are responsible with your budget and pay towards the principle with the extra cash you're freeing up every month.
The Federal Trade Commission encourages consumers to be careful of lending scams, especially those that target homeowners with low-incomes, the elderly and minorities. The FTC recommends you be aware of exploitative lenders who practice in equity stripping, loan flipping, the "home improvement" loan, credit insurance, escrow taxes & insurance and hidden loan terms. The FTC advises monitoring your CREDIT REPORT activity ON ALL 3 BUREAUS. Order your 3-bureau report from CreditReporting.com today. The rise of Identity Theft and inaccurate information on your credit report may affect the loan you are considering.
Equity Stripping - You built up equity in your home. A lender tells you that you could get a loan. You know your income is not enough for the monthly payments. The lender encourages you to "pad" your income on your application form to help get the loan approved. This lender may be out to steal the equity you have built up in your home. The lender doesn't care if you can make your monthly payments. As soon as you don't, the lender will foreclose-taking your home and stripping you of the equity you have spent years building. If you take out a loan & don't have enough income to make the payments, you are being set up. You probably will lose your home.
Hidden Loan Terms: The Balloon Payment - You've fallen behind on your mortgage & face foreclosure. A lender offers to save you from foreclosure by refinancing your mortgage and lowering your monthly payments. Look carefully at the loan terms. The payments may be lower because the lender is offering a loan on which you repay only the interest each month. At the end of the loan term, the principal-that is, the entire amount that you borrowed-is due in one lump sum called a balloon payment. If you can't make the balloon payment or refinance, you face foreclosure & the loss of your home.
Loan Flipping - You've had your mortgage for years, but you could use some extra money. A lender calls to talk about refinancing, & using the availability of extra cash as bait. The Lender claims it's time the equity in your home started "working" for you. You agree to refinance. After you make a few payments, the lender calls to offer you a bigger loan for, say, a vacation. If you accept, the lender refinances your original loan & then lends you additional money. In this practice-often called "flipping"-the lender charges you high points & fees each time you refinance & may increase your interest rate as well. If the loan has a prepayment penalty, you'll have to pay that penalty each time you take out a new loan.
You now have some extra money and a lot more debt, stretched out over a longer time. The extra cash you receive may be less than the additional costs & fees you were charged for the refinancing. And what's worse, you are now paying interest on those extra fees charged in each refinancing. Long story short? With each refinancing, you've increased your debt & probably are paying a very high price for some extra cash. After a while, if you get in over your head & can't pay, you could lose your home.
The "Home Improvement" Loan - A contractor calls & offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You tell him you're interested, but can't afford it. He tells you it's no problem-he can arrange financing through a lender he knows. You agree to the project, & the contractor begins work. At some point after the contractor begins, you are asked to sign a lot of papers.
The papers may be blank or the lender may rush you to sign before you have time to read what you've been given. The contractor threatens to leave the work on your house unfinished if you don't sign. You sign the papers. Only later, you realize that the papers you signed are a home equity loan. The interest rate, points & fees seem very high. To make matters worse, the work on your home isn't done right or hasn't been completed & the contractor, who may have been paid by the lender, has little interest in completing the work to your satisfaction.
Credit Insurance Packing - You've agreed to a mortgage on terms you think you can afford. At closing, the lender gives you papers to sign that include charges for credit insurance or other "benefits" that you did not ask for & don't want. The lender hopes you don't notice & that you just sign the loan papers. The lender doesn't explain exactly how much extra money this will cost you each month on your loan.
If you do notice, you're afraid that if you ask questions or object, you might not get the loan. The lender may tell you that this insurance comes with the loan, making you think that it comes at no additional cost. Or, if you object, the lender may even tell you that if you want the loan without the insurance, the loan papers will have to be rewritten, that it could take several days & that the manager may reconsider the loan altogether. If you agree to buy the insurance, you really are paying extra for the loan by buying a product you may not want or need.
Mortgage Servicing Abuses - After you get a mortgage, you receive a letter from your lender saying that your monthly payments will be higher than you expected. The lender says that your payments include escrow for taxes & insurance even though you arranged to pay those items yourself with the lender's okay. Later, a message from the lender says you are being charged late fees. But you know your payments were on time. Or, you may receive a message saying that you failed to maintain required property insurance & the lender is buying more costly insurance at your expense.
Other charges that you don't understand-like legal fees-are added to the amount you owe, increasing your monthly payments or the amount you owe at the end of the loan term. The lender doesn't provide you with an accurate or complete account of these charges. You ask for a payoff statement to refinance with another lender & receive a statement that's inaccurate or incomplete. The lender's actions make it almost impossible to determine how much you've paid or how much you owe. You may pay more than you owe.
Signing Over Your Deed - If you are having trouble paying your mortgage & the lender has threatened to foreclose, you may feel desperate. Another "lender" may contact you with an offer to help you find new financing. Before he can help you, he asks you to deed your property to him, claiming that it's a temporary measure to prevent foreclosure.
The promised refinancing that would let you save your home never comes through. Once the lender has the deed to your property, he starts to treat it as his own. He may borrow against it (for his benefit, not yours) or even sell it to someone else. Because you don't own the home any more, you won't get any money when the property is sold. The lender will treat you as a tenant & your mortgage payments as rent. If your "rent" payments are late, you can be evicted from your home.
Don't:
- Agree to a home equity loan if you don't have enough income to make the monthly payments.
- Sign any document you haven't read or any document that has blank spaces to be filled in after you sign.
- Let anyone pressure you into signing any document.
- Agree to a loan that includes credit insurance or extra products you don't want.
- Let the promise of extra cash or lower monthly payments get in the way of your good judgment about whether the cost you will pay for the loan is really worth it.
- Deed your property to anyone. First consult an
Do:
- Ask specifically if credit insurance is required as a condition of the loan. If it isn't, and a charge is included in your loan and you don't want the insurance, ask that the charge be removed from the loan documents. If you want the added security of credit insurance, shop around for the best rates.
- Keep careful records of what you've paid, including billing statements and canceled checks. Challenge any charge you think is inaccurate.
- Check contractors' references when it is time to have work done in your home. Get more than one estimate.
- Read all items carefully. If you need an explanation of any terms or conditions, talk to someone you can trust, such as a knowledgeable family member or an attorney. Consider all the costs of financing before you agree to a loan.
Where do you go to find the best loan for you?
For more information of deceptive loan practices, visit the Federal Trade Commission's Website at www.ftc.gov
