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Understand Your Credit Report Before Applying For a Home Loan

Applying for a new home loan can be worrisome, and daunting. If you have bad credit, applying for a new mortgage doesn't have to be stressful. Start easing your mind by getting a better understanding of your credit report and what potential lenders will consider for a bad credit mortgage.

Applying for a home loan requires submitting a credit application to a lender or mortgage broker. This means that they will be running your credit report to determine whether you qualify for a loan program and at what terms. Lenders will be reviewing your report to determine your payment history to include your total debt, late payments, bankruptcies, collection accounts, etc. If you have bad credit, it is highly likely that you have some or all of these on your report. Gaining a solid understanding of your credit report can help you understand what you can do to make sure you qualify for your bad credit home loan.

The ID Section: this lists your identifying info to include name, SSN, and date of birth.

Credit History Section: this is the most important part of the credit report. It tells potential lenders about your current and past accounts. This section will include company names, account numbers, balances, activity, terms, and more. Lenders will be looking at credit limits, balances, past due amounts, and whether accounts are open or closed.

  • Collection Accounts Section: tells lenders what accounts you have in collections.
  • Courthouse Records Section: refers to public records of your financial records such as bankruptcy, liens or judgments.
  • Additional Information: usually lists former addresses and past employers.
  • Inquiry Section: tells potential lenders who has looked at your credit report in the past 24 hours.

By carefully reviewing your credit report prior to applying for a bad credit mortgage, you won’t be confronted with last minute surprises. You may find that there are mistakes on your report that can make a big difference on whether you qualify for your bad credit home loan.

By Gabriel Traverso
Mortgage Credit Problems Columnist

You Can Get a Home Loan with Bad Credit - Find Out How

If you have bad credit, then you know how hard it is to get a loan of any type. Getting a home loan with bad credit is at the top of the list of loans that are difficult and tedious to secure. If you have bad credit, then lending companies see you as a risk and desperate compared with those having good credit. Lending companies will take advantage of your desperation and your bad credit by offering you high interest loans and a limited choice of repayment plans. In the long run, this can lead you to worse credit and possibly foreclosure if you cannot make your mortgage payments.

Despite the advantage mortgage lenders seem to have, there are ways to circumvent the lending practices aimed at those with bad credit. One possible solution is to provide collateral. Collateral is essentially property that the loan is held against. With collateral, you can secure the mortgage at a lower interest rate and better loan terms than without it. The downside of securing the loan with collateral is that if you miss payments, not only will your new home enter foreclosure, but you will lose the property you put up as collateral.

So you don't have property to put up as collateral for your mortgage? Well, this is often the case. There is another option for those without property to secure a mortgage. This option is research. Researching a home loan is an important part of getting a mortgage with bad credit. Researching home loan options will provide you with the best options available to you for a home loan.

Your first step in doing research for a home loan with bad credit is on the internet. The internet is a great way to start because most lending companies are online and will do free quotes. With your research, make sure you fill out as many free quotes as possible. This will increase your opportunities for a home loan with terms you can live with. While many will overlook these free quotes, you should not.

After receiving your free quotes, make sure you compare the options each lender is offering. You need to be able to live with the terms of the loan in the present and in the future. Don't be afraid to look up loan terms you are not familiar with. Again, the internet is a good place to begin your search. Understanding the loan terms is important to understanding their effect on your credit and your future financial situation.

by Robert Livingston

The Adjustable-Rate Mortgage: The Right Bad Credit Home Loan?

If you're exploring your bad credit home loan options and want to see what else is out there besides the traditional 30-year fixed-rate mortgage, try taking a look at an adjustable-rate mortgage.

The Advantages of the Adjustable-Rate Mortgage

An adjustable-rate mortgage, or ARM, offers many advantages to today's homeowners-- particularly for those looking for a bad credit home loan that will give them some time to get back on track. A bad credit ARM starts out with a lower introductory interest rate that typically gives you two to three years to improve your credit and refinance out (more recently these loans have become harder and may have stricter guidelines than in the past).

Unlike conventional loans for A-rated borrowers, the margin and interest rate caps are less important because the idea is to unload a bad credit loan before they ever come into play. If you can't do it, don't get an ARM for your bad credit mortgage. You need to be concentrating on fixing your finances, not opening yourself up to more problems with an unaffordable loan.

The Typical Bad Credit ARM

A couple of options offered by subprime lenders are 5/25 mortgages and 5/1 ARMs. With these loans you get a lower introductory rate for the first five years (it will be higher than the rate on a 2/28 or 3/27 but may be a safer option if you don't think you can turn your credit around in 3 years). On a 5/1, once your initial rate expires your interest rate can adjust annually. You don't generally want to be paying on a 5/1 subprime mortgage once the initial fixed period is up.

Not to be confused with a 5/1 ARM, the 5/25 loan generally offers a lower rate than the 5/1, but after the first 5 years there is a difference. There may be a balloon payment required, or your rate may be extended for 25 years at terms set by the lender. Understand the differences between these loans before selecting either one of them.

Is an ARM a Good Bad Credit Mortgage?

An ARM can be a great solution for borrowers who have a reasonable time frame for paying off the loan by refinancing or selling. Plan to get your finances in order to achieve this. Then make a back up plan in case the first one doesn't work. The number of subprime foreclosures today is evidence that depending on luck to pay your mortgage can cause you to lose your home. Your bottom line should be that if you can't get out of a subprime mortgage and into a conventional or FHA loan within five years you should probably consider putting off home ownership and get some financial counseling.

By Gabriel Traverso
Mortgage Credit Problems Columnist

Spotting tax foreclosure property in USA






By: mike praado

Secured Homeowner Loans: Home Equity Fills Financial Vacuity

Most of us live in a home. A home bestows us with its benevolent nature of abode. And yes, it gives its financial patronage at a time when you are in adversity also. Those who get unable to manage their personal finances get down to Secured Homeowner Loans. These loans are secured in as they are obtained through your security and for that your home guarantees.

A homeowner loan is a loan that uses the equity in a home as collateral to secure the loan. Equity is the amount of money a home is worth that exceeds the amount owed on the home. Collateral is something that the lender takes ownership of and can sell to get their money if a borrower defaults on a loan.

Usually, the first step of getting these loans is to get an appraisal for the home you place. An appraisal tells you and the lender how much the home is worth. Subsequently, the outstanding mortgage is subtracted and the remaining amount is the equity the homeowner has in the home. This amount is used to decide the amount of the loan. A home owner can borrower up to the amount, but does not have to borrower the full amount.

Though amount sanctioned to the homeowners varies person to person and of course lender to lender respectively. Despite all that, by and large you are able to secure an amount that varies somewhere from £3,000 to £75, 000. You get its benefits for a period that goes up to 25 years.

Lenders charge APR (annual percentage rate) on the amount you borrow. It depends upon the equity you have in your home. Though, these loans provisions cost cheaper to other loan provisions since you do pledging placing for loan.

Various lending institutions offer secured homeowner loans. You can apply for these loans through online or offline. However, online processing is simple and convenient. You can make a deal from anywhere in any point of time. Further, it makes you loan processing fast and you get your money provisions well in time.

by George Bell

Understanding Secured Bad Credit Loans

Chances are very good, if you're reading this, that you've already determined you'll need to use your residence as security in obtaining a bad credit mortgage or refinancing package to alleviate debt or stave off foreclosure. Its' not a comfortable position to be in, but it's certainly not a dire one. Securing a poor credit loan is not necessarily something to fear.

Obviously, having security to back up a loan or mortgage refinancing package almost always allows you to borrow more, and often to obtain more favorable interest rates. Plus, secured loans enable lenders and borrowers to negotiate for longer repayment schedules. Bad credit debt consolidation loans can definitely help you repair your credit score over time.

Why Not Take Unsecured Poor Credit Home Loans?

The stigma associated with securing a loan with an existing property has practically disappeared these days. Truthfully, it's going to be difficult to obtain an unsecured loan if you have bad credit. If anything, you may have to obtain costly Private Mortgage Insurance (PMI).

It may be scary to think that bad credit loan institutions might seize your home if you can't repay. But if you're truly going to get out of your bind, you'll hopefully commit to:

  • Borrowing only the amount you can reasonably repay given your economic capabilities
  • Repaying on time to restore your credit and, hopefully, renegotiate for a lower interest rate after paying down a significant amount on the principle
  • Accepting a realistic bad credit mortgage repayment schedule that affords you long-term peace of mind without gobbling up monthly income.

Finally, realize that even with an unsecured loan there's no guarantee that your lender won’t look toward your wages or property if you fail to make your payments. Your first good step should be in contacting a range of lenders and finding out what can work for you in a secured bad credit loan.

By Gabby Hyman
Mortgage Credit Problems Columnist

Understand Your Credit Report Before You Apply

When you apply for a bad credit mortgage you could be making the best move in your life, or you could be making a mistake you'll regret for years to come. After all, buying a new home is bound to be one of the biggest events in your life. So how do you know if you're doing the right thing? Your first step is to check your credit report.

Your Bad Credit Documented

Banks and mortgage brokers use your credit report, among other things, to evaluate whether or not they will offer you a loan. Your credit report shows the history of debts you've had, your payment history, even places you've lived. Any credit cards you've had and car loans you've taken out will be documented. However, sometimes mistakes are made. There is also the threat of identity theft. Before you apply for a home loan, make sure that everything on your credit report is accurate -- especially if you've been told you have bad credit.

What Lenders Consider

There are a few key areas lenders will be looking at on your credit report. In a bad credit home loan situation this is where you need to protect yourself. Make sure the following accurately reflect your history:

  • Your payment history: are there late payments listed?
  • How many accounts you have and what kind: are all the accounts listed yours?
  • Late payment history: late payments will be posted. Are they correct?
  • Collections accounts: are any accounts you've paid off showing here?

Just because you're stuck with bad credit (for the time being) doesn't mean you need to get stuck with a bad loan. When you apply for a bad credit mortgage you want to make sure that you present the best picture possible. Check your credit report for any inaccuracies before you apply. You may find a few discrepancies that are fixable and end up improving your credit.

By Gabriel Traverso
Mortgage Credit Problems Columnist

Tips for Saving Thousands on Your Home Loan

Taking a mortgage loan is probably the most significant financial decision in a family life as it will affect the family finance for many years to come. Saving as much money as possible when requesting a home loan will contribute to the family financial freedom and will reduce the mortgage payment effects on the family finance.

Interest Rate

The interest rate will determine how much money over the original amount you will have to pay over the life of the loan.

Along with fees and insurance costs, the interests are the price you pay for borrowing the money. As regards the lender, the interests represent their profit.

As with any loan term, the interest rate is negotiable. You need to request loan quotes from several lenders and compare them. Do not hesitate to contact a lender, tell them that you have received a better offer and ask if they can improve theirs. The idea of loosing a deal to another lender might convince them to offer you a lower interest rate.

Down Payments

Probably the best way to save money on a about mortgage loan, is to request only the amount you strictly need. If you can save enough money for an important down payment, not only you will have to pay less money on interests (interests are calculated as a percentage over the principal), but you will also prove that you are capable of making considerable savings and thus the lender will offer you lower interest rates and a much better deal.


Instead of making regular monthly payments, you can save a lot of money by paying every two weeks. Even if you only pay a bit more, every time you pay, the principal is reduced and so is the amount of money you will have to pay on interests. Moreover, the sooner you pay of your debt, the lesser you pay on interests.

Obviously, to make payments every two weeks you need to have an important and steady income. However, if you dont, you can always make additional payments every time you have an unexpected income. Just make sure the payment goes to the principal and not to the interests only, otherwise, it would be completely pointless. Also, check before making additional payments that your loan terms do not include prepayment penalty fees.

What If I already have a Mortgage Loan?

If you are currently paying your mortgage installments and your outstanding mortgage loan terms are not as good as current lender offers, you can always refinance your home loan. You will then take a loan with better terms and use the money to cancel the previous loan.

You need to be sure that the interest rate charged for the refinance home loan is lower than your previous mortgage, but you also need to check that the overall costs of the transaction are lower than the amount of money you will be saving over the life of the loan.

There are many ways of saving money on your home loan, just take your time to analyze what your options are and do not rush in to the first offer you receive. Compare rates, fees and other terms and once you have all the information you need you will be able to make a conscious and well informed decision.

by Mary Wise

Homeownership Can Boost Your Approval Rate

Regardless of the loan type you are applying for, you can get a boost on your approval rate if you are a homeowner. Homeowners have better chances of getting approved for home loans, home equity loans but also for unsecured personal loans, student loans, car loans, business loans and many other loan types.

The reasons for this can be explained analyzing the effects that homeownership has on the loan terms and requirements for approval. There is a variable that is greatly modified by homeownership which has important incidences on all loan terms and requirements: the risk of default for the lender in the financial transaction.

Risk Of Default And Approval

The approval process is ruled by the lenders fear of default: The higher the risk of default, the lower the chances of getting approved. In the event of default, the lender is actually loosing his investment because there are little chances of recovering the money unless the lender has sufficient assets to compensate for the loses.

The risk of default and approval are thus, greatly related. If the applicant can provide any aid to reduce the risk of default, the lender will be significantly more comfortable at lending the money that the borrower needs. Thus, it is important to know which modifiers can reduce the risk of default and boost the chances of getting approved.

Consequences of Homeownership

Along these modifiers we can analyze various options: collateral, simple homeownership, down payments and a co-signer. Collateral provides the best form of guarantee as it is a particular asset that is used for security of a loan and the lender can take legal action of repossession in the event that the borrower defaults on the loan.

A down payment is useful for certain secured loans that already have collateral but the risk of default is still high. Then, the borrower offers a certain amount of money that has already been set aside by him, so as to reduce the amount of money needed to purchase the home or the car and thus, leaving the property with a higher amount of equity left. The property guaranteeing the loan is then worth more than the debt it is guaranteeing.

A co-signer is obliged to repay the loan along with the main applicant and thus provides an additional guarantee for repayment. This is also associated with homeownership. If both the applicant and the co-signer are homeowners, chances of getting approved are greater as the lender has additional properties to obtain repayment from in the event of default.

Finally, we have reached the modifier that can provide a great risk reduction without too many hassles. Simple homeownership provides a reduction on the risk involved in any financial transaction regardless if the property or properties are used as collateral for the loan. This is due to the fact that all of the applicantâ€™s assets guarantee in a way the repayment of the loan. All the assets legally guarantee any debt that the owner may have and thatâ€™s the reason why a co-signer who is also a homeowner provides an additional guarantee and lowers the risk even more: He does not only provide an additional income but also, an additional real estate guarantee or guarantees.

by Amanda Hash

Differences in Home Equity Mortgage Loans

If you have a bad credit card habit, need to pay for an education, or finance medical treatment, you may be considering a home equity loan. These loans come in two forms and one may be better suited to your situation than the other.

Home equity loans are collateralized by your home, with terms ranging from 5 to 30 years, and are generally tax deductible if you itemize your deductions on a Schedule A. There are two main types of home equity mortgage loans--fixed rate loans and lines of credit. Each works differently and is appropriate for different situations.

Fixed Rate Loans

A fixed rate loan delivers a lump sum to you, which you repay with monthly installments for a set number of years. The interest rate and the payment remain constant over the life of the loan. The rate on a fixed home equity is generally higher than that of a first mortgage but usually lower than credit cards or other consumer financing. A fixed rate home equity loan or second mortgage offers you the advantage of stability--you know exactly what your payment and interest rate will be each month. If you need a large sum to pay off lots of debt, finance a home improvement effort, or pay for an emergency medical procedure, the fixed rate mortgage is probably your best bet.

Home Equity Lines of Credit (HELOCs)

A HELOC is a revolving line of credit similar to a credit card. You are approved for a credit limit, and can use as much or as little of that as you need. Your payment is determined by the interest rate, which can change, and the amount borrowed. The HELOC must be paid in full at the end of its term. HELOCs can be broken into two phases, a drawing phase, when you tap into your credit, and a repayment phase, when you have to make payments but aren't allowed to increase your balance. HELOCs can be great hedges against emergencies--you can prevent bad credit and financial problems later by getting approved for a HELOC when things are going well. If you have wildly fluctuating income, having a HELOC in place could help you avert a financial or credit crisis. Home equity mortgage loans can be great tools to bail you out of financial trouble or bad credit problems, or as a backup source of funds to help you prevent a financial crisis. It makes sense to investigate them even before you need them.

By Gina Pogol
Mortgage Credit Problems Columnist

Cheap Secured Loans - How To Borrow Funds At Desired Rate

If you are a homeowner, then surely a loan can be accessed not only with ease but at low cost as well. However, your homeowner status only will not ensure you such a loan. Cheap secured loans are accessible only when you approach to a lender well prepared with the knowledge of its different aspects. Through these loans you can meet expenses with low cost.

These loans provide funds at cheap rate of interest which is lower than the normal rate on secured loans. But, usually only good credit history people can have access to cheap rate on secured loans. So there should not be any credit faults mentioned against your name. So first take a copy of your credit report and correct any inaccuracies in it before you apply for the loan.

However, do not be disheartened if you could not make timely payments on some occasions. A borrower with slightly blemished credit history can also get Cheap Secured Loans. But on condition that the borrowed amount is below the value of property against which the loan is being taken. This way the lenders feel safer and they are willing to cut the rate.

Most importantly, you should look for Annual Percentage Rate on the loan which includes the lenders' additional charges as well. Those lenders whose extra charges are less, they are most likely to be cheaper for your circumstances.

Furthermore, comparison of different lenders is a must in taking cheap secured loans. You will come across host of lenders on internet. Generally all the online lenders provide loans at lower interest rates as compared to banks and financial institutions. You should take rate quotes of online lenders first. Then compare them extensively to find out which lender offers loans at further lower rates. You are likely to sign a suitable deal this way.

by Simon Peyton

Understanding Secured Bad Credit Loans



Why Not Take Unsecured Poor Credit Home Loans?



Borrowing only the amount you can reasonably repay given your economic capabilities




By Gabby Hyman
Mortgage Credit Problems Columnist

Refinancing Your Home Loan: Is Now the Right Time?

You should only refinance if you can get lowered interest rates, lower monthly payments and better terms in your mortgage. If all these are favorable, then getting a home loan may be a sound financial decision.

What does it really mean when you refinance your home loan? Why would you want to refinance? Well, there are quite a number of reasons why home owners resort to refinancing. Unfortunately, knowing whether to refinancing a home loan is a sound financial decision or not remains a difficult crossroads to take.

Refinancing simply means applying for a new mortgage to get some extra money to seal in all your other debts. It can be financially favorable as there are a number of mortgage loans that are given at better interest rates. If you get a better deal, you may be able to pay off your loan much sooner and would have to pay back a much lower amount. However, refinancing may also work the other way around and you may end up paying higher than your initial mortgage. Because of this, you should carefully choose the right time to refinance,

Before making a decision to refinance, consider the following factors:

What are the terms of your existing mortgage? If you are already on the 20th year of your 30-year mortgage, you will only add on to your financial burden if you decide to refinance. You will have to extend for a few more years and this may not be worth it.

What is the interest rate you will get if you refinance your home loan? If it is at least 2% lower with reasonable points, refinancing may be favorable. You can easily know the going interest rate in your mortgage paperwork, or you can consult your lender about this before making your final decision.

How much monthly payment do you need to pay with a new home loan? Mortgage refinancing may lower the monthly payment you need to pay. This proves to be a great opportunity to get some extra savings. However, this is usually at the expense of extending your home loan back to its original tenure. Consider though that you can use the extra savings you have to pay off your principal little by little, so it might not be such a bad idea after all.

When deciding whether you should refinance your loan or not, you can simply take a look at your current interest rate, monthly payments and the remaining period that you have to pay for your mortgage. Compare all these to the monthly payments as well as the required payoff if you get a new home loan. If you think that the benefits of refinancing definitely outweigh the process cost, then refinancing should be right for you.

You can also easily evaluate whether a new home loan makes sense financially (quantitatively) at this time by listing down all the current monthly payment you need to pay, the amount that is left on your loan, along with the total payments you still need to pay for. Do the math and compare this to how much you are bound to pay monthly and for the whole mortgage if you refinance your home loan. Consider fees and escrow costs in the latter as well.

by Alan Lim

The Impact of Bad Credit on Getting a Home Loan

Having bad credit does not mean you can't get a home loan. Nor does it mean you'll get "ripped off" or taken advantage of. It does, however, mean that you have to compare mortgage quotes more carefully.

Bad Credit? Mortgage Lenders Still Want to Work With You

If you have bad credit you might end up paying a few percentage points higher than someone with perfect credit. You might not be able to get 100% financing or roll your closing costs into the home loan--options some good credit borrowers have available to them--but you should still be able to find a mortgage lender to work with you.

Mortgage News: Current Events

The recent trouble in the subprime or bad credit mortgage business really boils down to impractical lending practices. As home prices rose dramatically and the excitement grew to a frenzy, many lenders wrote loans that were neither in their best interests nor the homeowners. Now the buzz is about the rising foreclosure rate. These events do not mean that you won't be able to get a home loan because you have bad credit--but you might have to provide such details as proof of income.

The Real Estate Industry Wants To Help

The National Association of Realtors is America's largest trade organization and with the strength of more than 1.3 million members is pushing hard for FHA reform to help consumers achieve the goal of home ownership. They're advocating for the needs of everyone, not just those with perfect credit.

Don't let your bad credit hold you back. It's a buyer's market out there and this is a great time to be shopping for a new home. Spend some time comparing mortgage offers and you should find that you can get the home you want despite your bad credit.

By Gabriel Traverso
Mortgage Credit Problems Columnist

Using Home Equity to Finance Summer Projects

Summertime is right around the corner. And with the right amount of cash on hand we can take full advantage of travel and vacations; complete a long list of to-do projects around the house, or pay for all those amenities, gadgets, and toys that make summer more enjoyable.

But playing in the sun and surf usually shrinks our income rather than plumping it up, so the season always presents us with a challenging contradiction: Do we sacrifice our summer pleasures or wipe out our savings? Rather than succumb to the urge to depend on credit card debt to finance the fun and play now but pay later, it may be a better strategy to tap into the equity that is still hibernating within your home. That way you can have your cake and eat it too, by increasing your cash flow without necessarily putting your budget or savings at risk.

For some consumers, taking out a home equity loan or doing a mortgage refinance will actually increase their net savings. For example, if you are caught in an expensive interest-only or adjustable rate mortgage you can bail out by refinancing into a safer and less expensive 30-year fixed rate mortgage. Those who are getting walloped by credit card interest can take out a less expensive home equity loan as a good way to consolidate and pay off those double-digit credit card rates.

Just calculate the average of the rates you’re paying now and compare that to available home equity or refinance rates to determine your savings. If you are paying 16 percent in credit card interest and can qualify for an 8 percent equity loan, for example, you’ll automatically save 8 percent. And if you have an adjustable rate mortgage about to reset, you can refinance to a fixed rate in time to avoid the spike in your monthly installments. You’ll pay some closing costs to refinance, but you can also calculate your savings rate on those by dividing your costs by the amount you’ll save each month. For instance, if you can save $100 a month by refinancing and the closing costs to do so are $1,500, it will take you 15 months to break even. Each month after that you’ll gain net savings of $100. Stay in your home for 10 more years and you’ll save about $12,000.

To generate cash through home equity for kitchen upgrades, tuition, a new car, or a European vacation – in other words, for whatever expenses you foresee – you have at least three choices:

Cash-Out Refinance

The "cash-out" refinance is a great option for those homeowners who have lots of home equity. If you owe $150,000 on your mortgage but your property is worth $350,000, for example, you can pay off the existing $150,000 by refinancing. But a cash-out refinance means you borrow more than $150,000, using the surplus for whatever you want.

Borrow $250,000, for instance, and you’ll walk away with an extra $100,000. Your monthly payments will increase, but the benefits may justify the added expense – especially if you invest the money your borrow wisely or refinance into a better mortgage in the process (such as switching from an ARM or negative amortization loan into a 30-year fixed rate mortgage).

Home Equity Loan (or 2nd Mortgage)

Home equity loans or 2nd mortgages typically carry higher interest rates than first mortgages, but have little or no closing fees. And while refinancing can take a month or more to finalize, applications for home equity loans are simple and loans can usually be funded within a week or two. These are a good choice if you have major expenses – such as opening a business, renovating your home, or buying a vacation property – and you want to stretch repayment over a period of several years.

Home Equity Line of Credit (HELOC)

The HELOC is an open-ended mortgage that behaves much like a credit card. You borrow what you want, when you want it, and if you only pay interest on the amount you borrow. Typically there are no fees to open a HELOC, and if you choose not to use it you won’t be charged any interest. Use it and then pay it back and your credit limit goes back up so you can borrow it again if you want to. HELOC loans, like credit cards, are convenient for short-term financing of smaller purchases. But the interest you pay on your HELOC will likely be considerably less than typical credit card interest rates.

By: Jeff Hammerberg

Your Home Equity Mortgage Loan Could Use a Fix

If you have a home equity line of credit or home equity loan with an adjustable rate, consider fixing your rate and payment while rates are still low.

Many borrowers have home equity lines of credit (HELOCs) to consolidate debt and avoid bad credit. Others took out second mortgages to pay for medical emergencies, home improvements, or other large purchases. While using debt secured by your home is often the cheapest financing available, and far superior to credit card debt, you should keep an eye on your interest rate.

What Rate Do You Pay For Your Home Equity Line of Credit? Most HELOCs carry rates based on the prime rate and may change every month. If you have bad credit, the rate on your home equity loan could be several points higher than the prime rate, and you have little protection against rate and payment increases.

Can This Problem Be Fixed? Check your loan documents. Some HELOCs and ARM second mortgages allow you to fix your interest rate at one or more times during the life of the loan. If your loan features this option, consider exercising it before rates go up.

Other Options for Fixing a Bad Credit Home Equity Loan include wrapping the line of credit or second mortgage into a new first mortgage, or refinancing your ARM home equity loan or HELOC with a fixed rate second mortgage. Replacing your existing first and second mortgage with a new first mortgage makes sense if you can get a better rate and terms than you have now.

Check Your Documents. Home Equity lines often carry a penalty of about $500 if you pay them off within three years of the origination date. Terms for a bad credit home equity loan may be more restrictive than that. Check your loan documents before applying for a home equity refinance to avoid expensive surprises. If you have a penalty, check with your current lender. Some are willing to waive the penalty if you refinance through them.

By Gina Pogol
Mortgage Credit Problems Columnist

Home Equity and Bad Credit: The Right Loan for the Right Reason

There are 5 common reasons for taking a home equity mortgage loan. If you have bad credit, it may make sense to finance debt with a home equity loan. Or not. Borrowers with poor credit must be extremely careful to take a home equity loan for the right reasons. Here are common reasons for refinancing and the pros and cons of each.

Reason #1: Debt Consolidation

Rates on credit cards for those with bad credit can be higher than 25% and fees can be even more. There may be many advantages to debt consolidation with a home equity loan, including lower payments and interest rates, and tax advantages. Remember that if you can't make the payments you could lose your home in foreclosure proceedings. Credit counseling or bankruptcy might be a better option if you don't have the income to make the payment on a home equity loan.

Reason #2: Renovation Expense

If your credit is bad but your income is good it could make financial sense to renovate (especially if you need to sell a home in a bad market) and a home equity loan could be a lowest cost way to go. If you could be financially derailed by unexpected problems (for instance you don't have health insurance) think twice before taking on debt secured by your home.

Reason #3: Educational Expenses

Investing in your family's future and financing its education expenses can pay off in the long run. If you have bad credit, it may be easier and cheaper to get a secured home equity loan than an unsecured student loan from a finance company. And there may be tax advantages as well. There are many sources of financial aid available. Try scholarships and grants first before attaching debt to your house.

Reason #4: Car Purchase

If you have bad credit and can make the payments, an equity line might get you a better rate than an auto finance company. With a bad credit history you must be careful with purchases on credit; make sure that you aren't taking a 30 year loan to buy a car you'll have for 5 years.

Reason #5: Second Home Purchase

Taking a home equity loan can be a sensible way of getting a down payment for a second home or investment property. You have a better chance of being approved for your purchase, and of getting a lower rate, if you come up with a substantial down payment. If you don't make your payments you could lose two homes instead of just one.

If you have bad credit there can be many good reasons to take out a home equity mortgage loan. It's crucial that you look honestly at your situation and take the right loan for the right reason.

By Gina Pogol
Mortgage Credit Problems Columnist

Home Equity Loans: Tax Deductible or Not?

"Consult your tax advisor." That little disclaimer shows up in nearly every ad for a mortgage lending product. But who actually does that? Here are the reasons why home equity interest expense is sometimes tax deductible, and sometimes not, and why you might try consulting that tax guy after all.

Borrowers with bad credit are always being told to consolidate their debt with home equity financing. And this can be a great solution for many reasons--lowering payments, improving rates, affording home improvement, paying for emergencies, etc. And one benefit almost always mentioned is the tax deductibility of the interest.

Home Equity Interest: Is it on Your Schedule?

Your Schedule A, that is. That's where you put your mortgage interest if you itemize your deductions. If you are a borrower with bad credit, a low income, or a less expensive home, government data suggests that you are less likely to deduct your interest than a high income borrower with a million dollar mortgage. Taxpayers who have smaller mortgages and therefore pay less interest, or those who have a higher standard deduction, such as a head of household, may not reap the benefit of deducting interest. A home equity loan might still make sense, but deducting the interest is not a consideration.

How High is Too High for Home Equity Deduction?

The IRS restricts the deductibility of interest on a home equity loan to a loan amount of $100,000. This limit applies whether the $100,000 is a single loan against your main home, or the total of a combination of loans against your first and second homes.

But Wait, There's Less....

The $100,000 limit on your home equity mortgage deduction may not apply to you. If the total amount of loans against your home is greater than the home's value, you only get to deduct interest on loan balances that don't exceed the total value of your home. For example, Homeowner A has a house worth $200,000, and a $160,000 mortgage against it. If he was to get approved for and take a $100,000 second mortgage, the total mortgages against the property would be $260,000. Only the interest on the first $200,000 is deductible. The interest on the excess $60,000 is not.

But Wait, There's More......

If you are using the home equity loan for home improvement, take the above and throw it out the window. You will probably get to deduct the mortgage interest.

Now that you're thoroughly confused, you can see why most lenders ask you to "consult your tax advisor."

By Gina Pogol
Mortgage Credit Problems Columnist

Buying Your First Home - Tips For First Time Buyers

The interest rates are at their lowest for more than 30 years. Lenders who want to secure your mortgage over a long term are keen to win your custom and offer particularly good deals for first time buyers. Sellers too are always keen to secure a deal with a first time buyer because your purchase does not depend on anyone else and therefore the likelihood of the sale going through is very high. If you set up an agreement in principle With a mortgage lender before you start viewing properties you are in effect a cash buyer and are in an excellent bargaining position.

The first step to buying your first property is to know how much you can borrow. Lenders usually agree to three times the first income or if you are buying as part of a couple, three times the first income plus the second income, or two and half times the joint income. However it is sometimes possible to borrow four or five times your salary. You can approach lenders yourself or you can enlist help from a financial adviser. This is usually a free service to you and by using someone who is experienced you may find the process less stressful.

When you know how much you can borrow be sure you can afford the mortgage repayments, the costs involved in buying a property and the costs of running a property.

Costs you will need to budget for when buying your first property include a deposit (normally 10% payable when the contracts are exchanged), stamp duty (1% if the property is between £125,001-£250,000; below this figure there is no stamp duty), a valuation fee to your lender (variable depending on what type of valuation you choose), your legal fees including local searches and disbursements (around £500) and moving costs (variable depending on whether you use a removal company or are able to move yourself). Once you are in your new home you are likely to need some funds for furnishings and decoration.

You will also need to consider the costs of owning a home. These vary according to your home and area. Common bills are council tax, maintenance, buildings and contents insurance, amenities (to include electric, gas, water and telephone). If the property is a flat or apartment then there may be service charges. Also insurances such as accident, sickness, life are available though not obligatory.

By Susy Copus
Published: 7/15/2006

Buying New Homes Vs. Buying Existing Homes

According to Lawrence Yun, senior economist for the National Association of Realtors (NAR), the 2007 market puts buyers of homes at an "overwhelming advantage". However, the NAR is also predicting that 2008 sales will increase due to a slow down in new home construction that is helping to balance out the market place. For those who are considering buying in this current real estate climate, the decision of whether to invest in newly built homes, or existing ones, can be pretty confusing. With fewer brand new homes available on the market, maybe you’ll get a better deal on a slightly older house. But how can you make an informed decision? The basic factors you want to keep in mind for the homes you consider are upkeep, neighborhood, structure, and cost.

Upkeep of Homes on the Market

Many first time homeowners assume that a new house requires less maintenance. While that should be the case, the reality is that the craftsmanship of the homes can have more impact than their age. A solidly built 10-year-old home may not have the same issues as a shoddily made, cookie-cutter home in new community. How can you tell? Find a good inspector to look at any homes you consider. Wood fixtures, appliances and overall structural integrity need to pass muster before you make any serious offers.

Neighborhood of Homes on the Market

Older homes often surpass new construction in desirability if you want to live in an historic or popular area. If you are in love with a certain part of town, or committed to sending your children to a specific school district, new home construction may not be an option. Also, if you really love a specific architectural style, you might find you are better able to afford older homes in that style than to locate or have a newer one built. You may also find that you can afford a newer and bigger home, but in a less desirable area of town. You will need to weigh your priorities. This leads to the look and design of homes in general.

Structure of Homes on the Market

For buyers at the middle or lower end of the house buying spectrum, the trend for new home construction tends to lean towards deed restricted communities, small lots, and "cookie-cutter" style homes. There are some benefits here for first time homebuyers who wouldn’t otherwise be able to afford a new house. The down sides are that deed restricted communities place significant limits on what you can do to your property. Some tend to have very little space between homes. And appreciation of your home will be impacted by how well your neighbors maintain their property. Of course, you may also find this in buying an existing home in one of those communities. You will need to decide how important an established community or large yard is to your life. Just as you will need to evaluate the physical and aesthetic structure of the homes you consider.

Cost of Homes on the Market

Your final determination will be cost. You may be able to find almost new, or slightly older homes, in great shape. Or you may save $20,000 on an older home and get stuck replacing the roof the next year. Your best bet is to get a good home inspection, evaluate the quality of other homes in the area, and weigh your options and priorities. As with most aspects of evaluating homes for sale, your decision is personal and completely based on your needs and desires.

By John Harris
Published: 7/26/2007

Buying A Home With No Money Down

Buying a home with no money down has become easier than ever. Unfortunately, it has also become more necessary than ever, thanks to ever-falling savings rates. With that in mind I would like to respectfully suggest that if you need to buy your home with no money down, you may have a more general problem with your finances that needs to be worked on. In any case, there are times when it makes sense to have a lower or non-existent down payment, so let's look at four ways to accomplish this.

1. Have the seller finance part of the deal. For example, if you can get a mortgage loan for 90% of the purchase price, and the seller lets you make payments on a second mortgage note for the other 10%, you have a no money down deal - especially if the seller pays closing costs. Some sellers will be willing to do this if you pay full price or close to it. The lenders on the first mortgage may not agree to this, though, so ask them.

2. Get the seller to finance it all. Sellers need at least some cash, so how can they provide all the financing and still get cash? By creating two notes and selling one. Let's look at an example.

Suppose the seller is asking $220,000 for his home. He expects to get about $210,000 for it, and he needs at least $150,000 in cash to pay off his $130,000 mortgage and have a little left over. You offer him $240,000 for the home, in the form of two mortgage notes. The first is for $200,000 and the second for $40,000. As part of the deal, you have arranged for a "note buyer" to buy the first from him for $170,000. Now he has $170,000 at closing, plus you are making payments to him on the other $40,000, meaning he got the $210,000 he expected out of the sale. Of course, you had to overpay for the home due to the steep discounting ($30,000) on the sale of the first note, and you will have payments on both. In other words, there are only certain times when this technique will make sense. (Certainly it would if you could rent a property for more than the two payments and other expenses added up to.)

3. Borrow the down payment on your credit cards. This is either a great way to get into more financial trouble or, if you handle it right, a good way to stop renting. If you can get a $95,000 loan on a $100,000 condo, for example, you only need $5,000 for the down payment. Why not get a cash advance on a credit card when there is a low-interest deal?

Since you can't "borrow" for a down payment according to many lender's rules, get the advance a few months earlier for a "vacation." Take a taxi downtown for your vacation and leave the rest of the money in your checking account until it is time to buy a home. A lender can't read your mind to know what your intent was, so this is legal, but is it unethical? First, I would like to remind you that lenders encourage you to take out unsecured loans for vacations and depreciating assets like cars and boats, while saying you shouldn't borrow for a down payment on a home that will likely go up in value. That may be unethical. Playing by the rules and repaying everything you owe is not unethical.

Just be sure that you have a plan to quickly repay the credit card balance. For example, if you commit to using $2,000 of your tax refund to repay the balance, and otherwise paying $150 on it each month, you should have it paid in less than 2 years. If you can't do that, you are probably just creating more problems for yourself using this strategy.

4. Get a 100% first mortgage loan. There are still some lenders doing these (it is mid-2007 as I write this), and if the seller will pay closing costs, you won't need much cash at all. The catch? You will probably pay higher interest rates for these loans.

By Steven Gillman
Published: 10/15/2007

Buying A Home With Bad Credit

The worst thing about buying a home with bad credit isn't that it is that difficult. It is the fees and interest rates you'll have to pay for your home mortgage loan. Use the following techniques to repair that credit and so lower the rates you'll pay. If you can't take the time to do that, see part two for some other options.

Buying A Home With Bad Credit - Part One

If you have the time to do it, you can fix that bad credit, at least a little. This will not only make it easier to find a lender, but also get you a lower rate. Pay 2% less on that mortgage loan interest rate and you'll save more than $70,000 in interest over the years (based on a 30-year $140,000 loan). Here are some ways to fix that bad credit report.

First, see what's on it. To get access for free online, try a search for "free credit report." If you are denied credit based on a report from a local credit reporting agency, you can request a free credit report from that agency within 30 days. How do you fix what you see on the report?

If there is anything to dispute in the report, write a letter to the agency. Explain exactly what is incorrect, and they must investigate. Send copies of canceled checks or any other documentation by certified mail.

The agency has to (by law) contact the source of the disputed information. If they don't receive confirmation of the debt within 14 days, they have to delete the item, and send you an updated report. You can also demand that they send a corrected report to all creditors who received your credit report in the previous six months. This won't be done automatically, so be sure to demand it.

If the item is under $500, or over a year old, creditors often won't bother to respond. Thus, "fixing" a credit report is possible even if it is correct to begin with. You also have the right to dispute the item again after 30 days.

Longer-term, there are other things you can do to fix your bad credit. Stop charging things on credit cards. Don't have more than five credit cards. Keep balances to less than half the limits on the cards, even if this means transferring debt from one card to another. Stop making your credit score worse, and time alone will help (many items will be removed after seven years).

Buying A Home With Bad Credit - Part Two

Buying a home with bad credit doesn't mean you have to accept the high interest rates and fees of sub-prime lenders. You can buy a house in other ways. Here are some of them.

- Seller financing. Some sellers are willing to provide the financing for you to buy their home. Whether in the form of a "contract for sale" or an owner-carried mortgage, you may be able to make payments to the seller instead of the bank - and with no lending fees and lower interest.

- Lease option. If down payment is an issue, look for sellers willing to lease their house to you with an option to buy. Be sure that a portion of the lease payment applies towards the down payment for the home, and that you have enough time to prepare for the purchase. If, for example, only $200 of the rent applies towards the down payment, after two years you'll have just a $4,800 credit. Will that be enough? Will two years be enough time to correct your credit and save any additional money you'll need?

- Get creative. There are many creative ways to buy a home. In one case I know of, the landlord was anxious to move, so the buyer offered him full price and a decent interest rate for him to carry the financing, but with very little down. They closed in the first days of the month, so the small down payment came from the rents that were credited to the buyer. He moved into one of the units the following month.

- Reconsider your "bad credit." Limited income or a new job isn't the same as a bad credit score. Most banks won't even look at the income from your new business, for example, making it seem impossible for new business owners to get a loan. However, these days, banks really look at your credit score. If it is decent, you can get "no doc loans," which require no documentation of income.

By Steven Gillman
Published: 11/12/2006

Buy A Home - 4 Different Reasons

1. Appreciation

The first reason to buy a property is the ability to participate in the increasing value of your home. When you rent, you don’t have the ability to participate in the increase in value of the property you are renting.

2. Interest payment deduction

For many people there is also the tax deduction that comes from their interest payments. This can lead to significant tax savings. Check with your tax adviser on this.

3. Tax free selling

Selling your home can also have tax benefits. There may be exemptions from $250,000 to $500,000 in capital gains for your primary residence. This can also lead to significant tax savings. Check with your tax adviser on this.

4. Personal quality of life

Owning your own property can give you peace of mind and the pride of ownership.

By Ben Afzal
Published: 7/11/2006

Five useful Tips in Buying a House


1. Determine your rights

When you are ready to buy your own house, be sure you understand your rights as a homebuyer. Knowing the process of buying a house prevents you from getting scammed. You can personally do your home work or seek for a knowledgeable person like a real estate agent or a broker. Make sure that the agent you hire is licensed and have a wide knowledge regarding the area.

2. Make sure you can afford it

Your budget is really a big deal in buying your own house. What you want is different from what you need, so be practical. You don’t really need a big house if you’re just one person that travels everyday, right? Make sure that you make the best for your money. Seek help or ask for suggestions especially for those who have knowledge in real estate prices. If you can’t stay for at least a year, buying a house is inappropriate for you. You may save a whole lot more of money if you sell it urgently.

3. Make sure it fits your lifestyle

Make your house a home. Be sure it really fits your way of life and you are comfortable with it. A good example of this is if you’re working in an office, a good place to find is near or in the vicinity of your office. If you love nature, a good place to find is outside the city with clean air, near parks, has a mountain view or near at the beach. Your personality really matters in finding a good house. Make sure to look at its suburbs first and try to gather some information about the area and its surroundings. Try also to consider the kind of neighbors you will have.

4. Consider your future plan

If you’re newly married, you might to consider how many kids you want to have. You can assume the number of rooms or the home space you need. If you can afford a house that is near to a good school, it is better. School districts are more important to home buyers, therefore, it will increase your property values.

5. Be organized

It is very important to make your document files organized and safe. Because it will prove that you own the house. It will help you a lot especially when it comes in paying your house payments (taxes and amortization).

By Ester Rebecca del Fierro
Published: 7/18/2006

Hunting for the best home equity loan

If you are a first time borrower of a home equity loan it is imperative that you have a checklist of essential questions that you need to ask each and every lender. The answers to these questions will provide a valuable reference to base your comparisons on.

• What’s the interest rate? Knowing this is crucial. The interest rate will determine the monthly payment you will need to make. You also need to know if the interest rate is of a fixed or adjustable nature. Fixed rate implies that the monthly payments will remain constant, while an adjustable rate implies that rates will fluctuate depending on market conditions.

• In adjustable rate, when will rates change? If your interest rate on the home equity loan is of the adjustable variety, you need to know three things: when the rate is going to change (that is under what conditions), how frequently will the rate change and what’s the average percentage by which the adjustable rate will change.

• What is the Annual Percentage Rate or APR? The APR on the home equity loan will determine the yearly payment you will need to make towards this.

• How much do I need to pay in points? Usually points are closely related to the interest rate on a home equity loan. The higher the payment in terms of points, the lower is the interest rate.

• What are the applicable fees? There are various types of fees included in a home equity loan such as appraisal fee, broker fee, document preparation fee, funding or lender fee, application or loan processing fee, underwriting or origination fee, etc. Knowing the applicable fees can help you know what to expect in the monthly statements of the home equity loan. Plus it will also help manage and plan your finances better.

• What’s the duration of payment? The time period within which you need to pay off your home equity loan will determine to a large extent the state of your current finances. Having a longer duration means that you can space out the installments better and thus save more.

• Is there a balloon payment? Many times a home equity loan will require you to only make payment towards the interest every month. Then at the end of the loan payment duration, the entire principal amount will need to be paid by you in full. This is also known as balloon payment and can significantly eat into your expenses when it comes. To avoid this, it’s best to ask the home equity loan lender if such a condition exists. This will allow you to be prepared for a financial crisis later on.

By Alan Lim
Published: 12/5/2007

Why a home equity loan could be your answer to debt consolidation

Consolidation is now a possibility

With rising default rates and delinquencies, most people today are finding it increasingly difficult to manage their finances. From existing loans to credit cards to even medical expenses – the average cost of living seems to have skyrocketed in all quarters. That’s where a home equity loan can come to the rescue. Every month the prospect of having to pay multiple bills of varying amounts can be a huge difficulty. Not only is it difficult to keep track of all these bills and expenses, the cumulative costs can work out to be very high. With a home equity loan you can pay just a single bill every month. This will help you plan finances and get you more organized as well.

Reduced interest rates

Most of the time existing credit card debts, loan outstanding amounts and other liabilities can involve huge interest rates and high expenses. A home equity loan can actually provide a reduced interest rate. The best thing is you get the entire loan amount in a lump sum. This helps you pay for any expenses towards your liabilities. You also get some extra cash at hand.

Tax savings

A home equity loan has a tremendous benefit in that it provides for significant tax benefits. You get to deduct your interest amount if you have a home equity loan. This is if the home equity loan is being used for purposes like education, consolidation of debts or even for the improvement of the home etc. You can consult with a tax advisor to check the possibilities.

Customized loan

The best thing about a home equity loan is that you get to choose the type that suits your unique requirements. You can choose a home equity loan with a fixed or adjustable interest rate. The fixed rate will entail a designated monthly payment that does not vary with time. The adjustable rate will vary depending on market conditions. You can also have the option of getting an adjustable rate home equity loan with a rate cap that has been established beforehand.

Free up cash

With a reduced interest rate and longer payment period, a home equity loan can offer significant advantages. For example for starters, it frees up extra cash – so that you can utilize this amount for any home improvement modifications – like maybe doing up the kitchen, or getting new furniture etc. Suddenly getting a home equity loan seems rewarding because now you not only get to pay off all your debts, you also actually get some cash at hand to use for other important things!

By Alan Lim
Published: 12/5/2007

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