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Mortgage rates » 2008 » August

Bad Credit Loan Mortgage

Credit and Credit Reputation

Credit – everyone has it. It is rising fast in popularity that almost everybody you know, including yourself has credit. Credit, in layman’s term, is using someone else’s money in order for you to make ends meet, or simply to purchase properties that you want. Credit nowadays can get you either anywhere or nowhere at all. The determining factor of your power to get credits from a store, bank or credit card company is how clean your credit reputation is.

Synonymous to credit reputation is credit history. Every time you fill out a credit application, your information is forwarded to a credit bureau that keeps track of your credit accounts which includes the amount you owe, how often or how prompt you pay the amount, and other personal information. This composes your credit history, which consequently, reflects your credit worthiness, or how good or prompt you are in paying your debts.

Bad Credits

Women with a headacheWhen your credit history is being cramped with defaulted payments on previous loans, or when you are simply being a bad creditor, you are then tagged as a person with bad credit. Bad credit is known to the industry as a negative credit rating. Most lenders would try to avoid bad creditors as much as possible, and for this, you can never blame them. Who would want to lend someone with bad credit reputation? What if the debtor would never choose to pay? These are just of the things that bother lenders when it comes to dealing with people who have bad credits.

Anyone can get involved in a bad credit. Missing to pay a loan on time for various reasons like you cannot afford to at the moment will stain your credit history. Your credit report can get flagged by these missed payments thus giving you a hard time when you decide to apply for a new loan.

Bad Credit Loans

Credit score, credit reputation, credit history – they are all the same and it doesn’t really matter how you call it. What matters most is that your credit score will hound you even if you go as far as to the ends of the earth to escape it. There is just no escaping one’s credit past and being a bad creditor would bring about a continual struggle when it comes to getting yourself a loan.

It is only sensible that having a bad credit on your record would require you not to take on any more debt. More debt would increase the chances of worsening your already adverse credit history. But there are some circumstances where you need to loan more money especially when there is an urgent need for you to purchase a house or get a mortgage. And no matter what history your credit is like, you should be able to avail of any mortgage or buy a house that you wish for. Though lenders would most likely shun away from your loan applications, there are some who are willing to get you your new house through bad credit loan mortgage.

Bad Credit Loan Mortgage

Bad credit loan mortgage is made to help people, who have a troubled credit history, secure a property or refinance to pay off other debts. With the increase in the number of people getting knee-deep with debts and giving themselves bad credit history, the popularity and the market for bad credit mortgage loan has also, consequently, increased.

myFICO® is a consumer division of Fair Isaac, the pioneer of credit risk scoring for lenders. They provide informative and useful credit information that helps everybody keep their credit reputation untainted or simply to keep them informed and aware of how the credit industry works. myFICO® insists that, although credit score is a determinant of whether or not you can get loans, it is NOT the only factor.

Most lenders would try to avoid bad creditors as much as possible, but this decision does not solely depend on your credit history. Most lenders check all other information such as the amount of debt that they think you can handle with your income and your employment history. Mortgage specialists insists that if you convince lending companies that you are financially stable as of the moment, they can consider lending you a considerable amount of money.

When planning to settle on a bad credit mortgage loan, Corey Senn tells us to choose to be honest to the lending companies. Do not attempt to hide your bad credit history or tainted credit reputation. Most likely, the lenders have heard your story before. Corey Senn is a senior partner of a California-based lending company that focuses on bad credit loans of all kinds. He also adds that people should be wary of money lenders that put a conspicuously high interest rate of the loan you plan to apply for. There are also some companies that have very strict policies that you might not be very comfortable with.

Carrie Reeder, the owner of the informative site on mortgage loans http://www.abcloanguide.com, advises people with bad credit history or poor credit score to choose carefully before closing a deal with mortgage lenders. Do not jump in at the first approval recklessly. As soon as you get your loan approved, ask your lender if there is a pre-payment penalty. Find out how much it costs and, Reeder says, if the pre-payment penalty costs more than a year’s worth, it is not worth it. Also ask what the interest rates will be, and don’t settle for estimate. Try to lock down exact figures and negotiate a lower interest rate as much as possible.

Bad credit mortgage loans have considerably higher interest rates compared to their standard counterpart, and this is understandably so. To get the most out of your bad credit mortgage loan, do not focus on its high interest rates, Carrie Reeder adds. Instead, focus on how these kinds of loans can help you improve your credit reputation and rating.

Liam Griffon, who has been working in the mortgage field for several years, suggests starting a credit repair while applying for bad credit home loans at the same time. If you pursue repairing your credit history and strengthening your credit reputation with steady progression, your future loans will have more chances of getting approved in case your current loan application fails. When your loan gets denied, you will simply apply for another one in other companies that offer bad credit mortgage loans.

Before settling down on a bad credit mortgage loans, there are several crucial things that you need to remember. Ron Stone who is a mortgage specialist that focuses on helping people with bad credit reputations purchase their dream homes, has formulated helpful steps to buying a home even with an adverse credit and no hard money.

First thing to do, Stone says, is to get a copy of your credit report in the three bureaus. This can easily be done by yourself or have someone professional like a broker do it for you. Study your credit report and make sure that all the information that can be found there are accurate. If you spot any errors, have them corrected through each bureau’s website, or the broker’s credit reporting company. There may be a little charge for every change, but an accurate credit report is sure well worth it.

The next step is to start building a good credit reputation. Don’t let yourself dig a deeper hole in debts. Improving your credit as soon as possible would consequently mean that you will be able to refinance as soon as possible.

Spend a considerable time researching options in your area. Try to find sub prime mortgage loans that you are comfortable with. While shopping for a lender, Brandon Cornett, publisher of Home Buying Institute, warns people to be wary of predatory lenders that are out to take advantage of people with bad credit history. Discuss with your broker your options as well as your credit, your rental history, your employment records, how much mortgage you actually qualify for, etc.

After discussing with your broker several valuable information and things that you need to know, find a realtor that you can trust. Search the market thoroughly and carefully. Be a wise buyer and make sure you let your realtor give you home choices that fit your needs and current credit worries. Consider the mortgage balance, which should be low, and of good value.

Corey Senn, who works in providing quality private California-based bad credit mortgage loans, gives bad creditors an uplifting message – the thing to be reminded most of when dealing with bad credit mortgage loans is that there is nothing you can lose if you play your cards well. Even if you don’t qualify in your first try, at least you would learn strategies that can help you apply for another sometime later.

15 year Mortgage Rate Discussion

Purchasing a house can be a bit daunting for first time buyers. Often times, they are not financially equipped to do so. They still possess a lot debts and liabilities that are draining away their monthly paycheck. And regrettably, quite a few of them do not have much of anything for an egg’s nest let alone to afford a mortgage payment.

Given this situation, they try to engage in ingenious tactics with their mortgages in order to win the pursuit of their dream house. This is the typical scenario in the game called mortgages and home loans under the umbrella of personal finance.

Mortgages may be largely classified into two:

1. Fixed Rate Mortgage (FRM) and Adjustable Rate Mortgage (ARM)

2. Fifteen and Thirty Year Terms

Fixed Rate Mortgage

The FRM, as the name implies, has the characteristic of a constant and stable interest rate throughout the life of the loan. This option gives protection to the borrower in the event of fluctuating rates particularly when the experts predict (or your gut tells you) that an inevitable spike will occur in the coming months. This is a well-adopted alternative for a middle class American family – conventional and concise figures devoid of hidden rate escalations.

From the inception of the loan up to the completion of the obligation, you will know the fixed amount that will be paid during the entirety of the term. An amortization schedule will be provided to guide the borrower on when the payment will be due. (See Table B and C)

With regards to the interest rate that a homeowner will receive, such will be established by looking into variables like credit scores, loan amount to house value ratio, and debt to income ratio. Each lender’s guidelines differ but the average fractions and requirements are: having at least a 580 FICO score, not exceeding 80% loan to value (LTV), and not more than 50% debt to income ratio. Rates oscillate on a daily basis, sometimes even 3 to 4 changes within the same day. Nonetheless, rates are anywhere between 5% – 7%.

Adjustable Rate Mortgage

With the ARM, there is the chance that one’s monthly payment swells or dives depending upon the motion of the rates whether it be upward or downward. This is usually coupled with fixed rate for the initial duration of the term, normally 3 to 7 years. And from there, it will adjust to the current and existing market rate. A borrower will likely see 3/1, 5/1, and 7/1 ARMs. The first number represents the introductory period with fixed rate while the second number corresponds on how often the rates may change each year thereafter. Taking the 3/1 as an example, the interest will be fixed for the initial 3 years and same is subject to change every year from then on.

More often than not, ARM can be very tempting because of the lower interest rate. Take note that the shorter the initial fixed period, the lower the interest rate is. Another attribute that makes ARM enticing is that the risk is mitigated by caps or ceilings. These caps are generally of two types; there is the periodic adjustment cap, which confines the amount that the interest rate can be adjusted between two predetermined periods. And the other is the lifetime cap, which defines the amount that the interest rate cannot exceed under any given situation.

Terms

It is safe to say that most people realize that getting mortgages with adjustable rates and 50 year mortgages are generally not a good idea because attached to these are lofty interest rates and costs that will create further damage in their pocket. One main thing to remember with regards to mortgages is that the quicker you pay such debt, the less interest you’ll have to pay. With this said, a 15 year mortgage rate sounds better than its 30 year counterpart. However, the shorter the term, the higher the monthly payments are.

Now, how will you choose the ideal mortgage term? This will be answered as we go along the discussion. Let’s take this as an example: $300,000.00 is the full amount of the loan and 10 percent has already been paid as down payment.

Table A

Thirty Year Loan

Fifteen Year Loan

$270,000.00 Balance

$270,000.00 Balance

5.63% Interest Rate (Bankrate.com: April 9, 2008)

5.22% Interest Rate (Bankrate.com: April 9, 2008)

$1,555.12 Monthly Payment

$2,166.21 Monthly Payment

$559,843.20 Total Payment After 30 Years

$ 389,917.80Total Payment After 15 Years

$289,843.20 Total Interest Paid

$119,917.8 Total Interest Paid

Interest Savings: 169,925.40

If you want to know how to compute for the monthly payment of your remaining balance, here’s how.

270,000.00 (remaining balance to be paid in the span on 30 years)

x .0563 (annual interest rate for a 30 year loan)

15,201.00 (annual interest amount)

/ 12 (months in a year)

1266.75

Amortization on the first year for a 30 year loan

Table B

Month

Principal

Interest

Total

Remaining Balance

0

270,000.00

1

288.37

1266.75

1555.12

268,444.90

2

289.72

1265.40

1555.12

266,889.80

3

291.08

1264.04

1555.12

265,334.60

4

292.45

1262.67

1555.12

263,779.50

5

293.82

1261.30

1555.12

262,224.40

6

295.20

1259.92

1555.12

260,669.30

7

296.58

1258.54

1555.12

259,114.20

8

297.97

1257.15

1555.12

257,559.00

9

299.37

1255.75

1555.12

256,003.90

10

300.78

1257.34

1555.12

254,445.80

11

302.19

1252.93

1555.12

252,890.70

12

303.61

1251.51

1555.12

251,335.60

Amortization on the first year for a 15 year loan

270,000.00 (remaining balance to be paid in the span on 15 years)

x .0522 (annual interest rate for a 15 year loan)

14,094.00 (annual interest amount)

/ 12 (months in a year)

1174.50

Table C

Month

Principal

Interest

Total

Remaining Balance

0

270,000.00

1

991.71

1174.50

2166.21

267,833.80

2

996.02

1170.19

2166.21

265,667.60

3

1000.36

1165.85

2166.21

263,501.40

4

1004.71

1161.50

2166.21

261,335.20

5

1009.08

1157.13

2166.21

259,169.00

6

1013.47

1152.74

2166.21

257,002.70

7

1017.88

1148.33

2166.21

254,836.50

8

1022.30

1143.91

2166.21

252,670.30

9

1026.75

1139.46

2166.21

250,504.10

10

1031.22

1134.99

2166.21

248,337.90

11

1035.70

1130.51

2166.21

246,171.70

12

1040.21

1126.00

2166.21

244,005.50

In the figures above, one will clearly see the yawning gap between the total payment for a 30 year rate as against the 15 year rate. Also, the additional payment for a 15 year loan may prove its worth in the long run.

Pros and Cons

To reiterate, the goal in game of mortgage is to be able to pay off the loan as quickly as possible without straining your current financial standing – meaning you can comfortably pay the monthly bills and the mortgage. And as stated in the previous paragraphs, the shorter the term, the higher the monthly payments are. And unless you were able to acquire a fixed rate mortgage, you must be certain that you can cope up with the changing interest rates particularly when it swells. The last thing you want is to have to default on it. And if such activity continues, it may even lead to foreclosure.

Often times, frugal individuals choose the 30 year mortgage. However, they fail to see the whole picture. They only see the monthly figures, which is considerably less than the 15 year loan, and not the interest that is coupled with said mortgage. While logic directs that lower interest rates connote lower monthly payments, it appears that certain aspects of the loan have been overlooked. In a span of 30 years, will this be still applicable? If you’re looking to save, then you’re better off with a 15year loan.

You need to ask yourself, will the amount of interest be reasonable after 30 years? How about after 15 years? Here enters the benefit of having a 15 year loan—diminishing the total amount of mortgage cost. As shown in Table A, the interest difference between a 30 year and a 15 year loan amounts to $169,925.40. This only demonstrates the hefty weight of paying a loan with a term of 30 years.

If you opted for a 15 as against a 30 year loan, you will have the benefit of owning your property in half the time due to the fact that you were able to pay off without incurring any default. Another benefit for having a 15 year loan is that even though the term is 15 years, one can still put additional payments if one wishes to do so. If your finances dictate that you can still place a little amount to pay for the mortgage, then by all means go. If you keep this up, you’ll be able to pay off your loan ahead of time. Just make sure that you leave a note saying that the additional be applied in the principal and not the interest.

However, even with these benefits, a 15 year loan also has its downside, which is primarily the higher monthly payment. With this stated, a huge chunk of your monthly paycheck or disposable income will be allotted to mortgage alone. When the inevitable happens or an emergency occurs, one may have no other option but to incur delay or worse default. And everyone knows that failure to pay results to devastating consequences.

A bigger payment may prove to be burdensome for an individual who has not sufficiently prepared oneself for larger payments. Do not force yourself to pay an amount that is clearly beyond your financial means. Unexpected things may transpire. It is better to be financially prepared and take the long term than being barely able to make ends meet with the additional burden coming from a 15 year mortgage.

Generally, with mortgages, the shorter the term, the better. But it is better that you choose a program that matches your financial capacity. Purchase what you can afford with ease, don’t stretch your budget too much to the extent that it puts you in an awkward position or in a financial crisis.

Cheap Mortgage: A Friendly Advice

In law, mortgage basically means temporarily transferring the ownership of a property of a lendee to the lender. This acts as a pledge, that upon the payment of the lendee’s debt, the property will remain at the lender’s ownership. But when the debt is completely paid, the lender shall return the property as agreed upon.

There are a lot of mortgage schemes available in the finance market today. Mortgage options are readily available to suit the needs of different people.

For example: tenants can avail of a Council Right to mortgage. This is a mortgage option which is available for public housing tenants that wish to purchase their own property. This allows them to avail of a certain property at discounted prices. For landowners, the Buy-To-Let scheme is one which enables them to lease their mortgaged property so that they could collect rent and pay for their loan. These are just some of the common types of mortgage schemes out there that one may avail of.

Whichever option you want to choose, you basically need something that you can afford. For first-time buyers looking to purchase their own property, it should be something small enough for you to be able to cope with the terms. A cheap mortgage is what you want.

Cheap mortgage is a mortgage scheme which can be flexible, has low interest rates, and basically cheap. When just starting out, it could be very hard to handle a mortgage plan. A lot of things should be taken into consideration, like the fact that your property is at stake. So, generally, you need a scheme that you can afford. Something that fits your income bracket is a basic rule in finding a good mortgage plan.

The internet is loaded with a lot of helpful contents about cheap mortgage schemes. You can even get the actual mortgage deal itself. Information in the World Wide Web can help you avoid deals (or dealers) that might just scam you. Local papers and printed ads may be old school, but there can be a great deal of information spread on print. If you want to ask people for advice, financial firms can hook you up with finance experts that can help you with the kind of mortgage plan that will suit you.

Your mortgage could be the biggest financial commitment you’re ever going to take. Having said this, you need to have options. Whether you want a mortgage with a fixed rate or a flexible rate, it’s up to you. For example: when you’re looking to buy a house, consider the length of time you want to live in that particular property. If you’re thinking of staying for about over ten years, consider a mortgage that is long-term and has a fixed rate. This way, your payments are more stable. And considering the beckoning economy, you should really opt for a more stable mortgage scheme.

However, a long-term mortgage can cost you in the form of interest expense. Long-term mortgages usually last about 30 years. But if you want to cut down on interests, you may opt for around a 15-year mortgage. Although your monthly dues will be higher, you wouldn’t lose hard earned money on too much interest.

A short-term, flexible-rate mortgage is ideal when you’re considering moving out in a few years or reselling the property. However it is quite risky, as interest rates may vary, but a flexible-rate mortgage allows you to pay less. Again, it depends on your needs, whether you want it long-term or not. But for whatever option you may want to take, examine the risks involved. Some people jump in to a mortgage plan unprepared and lose it all in a few years.

Mortgages are an easy way to purchase a property. Though some firms are in the business of giving their customers the best deals possible, some just can’t help but do otherwise for their own selfish benefit. There are predatory lenders out there that are after your money like a shark. Scams such as these can be easily avoided. Predatory lenders practice a very offensive and unfair system in their mortgage schemes. A single hint of this should cause you to rethink your transaction.

Be a smart consumer. The best way to get the best deals and avoid usurious lenders is by being smart about your choices. Loan fraud and greedy lenders often get the best of homebuyers every year. Here are some more tips for you to get the cheapest mortgage deal.

Do Your Research

Research all the information you need about a certain mortgage scheme. If you’ve seen a deal you might want to take, consult an expert. Someone with a good name in the community can give financial advice that is best for you. Contracts are important. Read it carefully. Examine every detail of the contract to make sure that you’re not signing off your entire lifesavings in a scam. Prospective homebuyers can take part in a homeownership course approved by the Department of Housing and Urban Development to get the best deals out of a lot of choices in the market today.

A image with a foreclosed property.
Consider Foreclosed Property
Foreclosure is sweeping throughout America. This implies that more properties are available for you to choose from. Foreclosed properties can sometimes be the best way to get cheap mortgage. You can find good deals out of foreclosed properties when you know where to look. Consider this only when you’re under a strict budget and you want a property that you can afford and improve it along the way.

Lady image
Pay Early
Pay mortgage early. Suze Orman, is an internationally known financial expert. Her advice is to pay off mortgages early but always keep clear of bank gimmicks. These bank-sponsored schemes sometimes say that paying a smaller weekly amount will cut your expenses rather than by paying a larger monthly fee. But of course, the bank can charge you a certain fee for enrolling in their program and other monthly service fees. Although banks don’t charge a big sum for such a service, the money you pay can still grow in interest if you keep it in your bank account. In addition to paying early, an extra mortgage payment at the end or beginning of a year is also something you might want to do. By simply writing a check for the mortgage early, you spare yourself of any late payment charges in case you forget.
Compare Mortgage Price

Jack Guttentag says the mortgage market is a minefield. And one which is not without it’s own hazards. These hazards can be avoided, of course, especially when you are aware of them.
Mortgage prices are being reset everyday. Look out for changes in the market. Compare prices at the same time as some prices may not match when they are done days apart from each other. Also, some loan providers low-ball mortgage prices just to hook a prospective buyer, they quote prices low enough to entice the customer. Price quotes can be very tricky, so you have to know when to rely on price quotes. Lender fee escalations are also one of the things you should watch out for. Get to know about legal thievery that some loaners are using to make money out of innocent applicants.

Ultimately, getting the best mortgage scheme relies on what you know, what are your needs, and how much you can afford. Getting hold of a good deal is something that requires a hands-on job or really getting in there for all the good information you need. It takes time and a lot of research to get the best out of the mortgage goldmines out there. But as long as it’s within your budget, and as long there are no obvious and outrageous back-charges, it might be OK to sign on the dotted line.

A cheap mortgage is the kind that you can really afford. Since the property market is somewhat unstable these days and it may not seem like the best time to look for a mortgage, you can still find a good one. A cheap mortgage is hard to find but is stable even when the market is not.

FHA Mortgage

Owning a home is considered to be the all important American dream. Friends, co-workers and relatives could have urged a person to buy a home but a first time home buyer may already have the idea of buying a home without actually realizing it. Buying a home though is a major investment that would need careful considerations. Apart from the pride of ownership, buying a home would give the family a significant feeling of permanence and security. Homeowners view their property as the tangible fruit of their labor. Home ownership is perceived as forced savings that would give them retirement security.
Homeownership, as compared to renting, is the better financial option. Rents are considered lost money. On the other hand, through the mortgage payments, the home owner builds the home equity. Home ownership also has tax advantages. The homeowner can deduct the mortgage interest and the annual real estate taxes from the federal and from the estate income taxes.
Homeownership, however, do have several drawbacks. If the work entails you to move to another location, it would be difficult given that you own the home. Mortgage payments are basically higher than rents. These payments plus the cost for necessary home repairs could be a big burden if the family has fallen to hard times due to the loss of employment or due to an illness of the family income earner. This financial trouble could result to foreclosure.
The threat of foreclosure disturbs a lot of homeowners. Home foreclosure is increasing at an alarming rate. In 2006, 0.58% homeowners are facing imminent foreclosures. The foreclosure figure was raised to 1% in the first months of 2007 and on the last quarter of the year, foreclosure filings increased to a frightening rate of 97% as compared to last year’s statistics.
Lawrence Wiggins, Sr. of Cleveland is one of these homeowners troubled with a looming foreclosure. He has taken out a loan from a sub-prime lender a decade ago and is now faced with foreclosure. The amount he owes the subprime lenders have ballooned to more than the actual worth of the house.
In the “Ask the White House” forum, Housing and Development Secretary Alphonso Jackson was asked by Brenda of Brimfield, Ohio what assistance can she expect from the government now that her home is on the verge of foreclosure. Her ARM has escalated from 7.9 to 11.430; the husband who is the sole earner in the family was sick and unable to work for over 3 months. Brenda was advised by HUD Secretary Jackson to avail of FHASecure or FHA backed mortgage loans. FHA was touted to have helped more than 35 million American homeowners since its creation in 1934.
What is Federal Housing Administration mortgage? How can it help people achieve the American dream of owning a home? And most importantly how can an FHA mortgage lessen the probability of foreclosures? FHA is an agency within the Department of Housing and Urban Development (HUD) that promotes homeownership by providing mortgage loan insurance to potential borrowers with low to moderate incomes. To help potential borrowers, FHA has come up with two mortgage programs: the single family package where borrower can buy one to four units of properties and the multi family package where mortgage loans are provided for borrowers planning to buy 5 or more units of properties.
There is a common misconception that the FHA is the one lending the money to would be homeowners. The fact is, FHA mortgage helps Americans who are first time home buyers or those with poor credit history to qualify for home mortgages offered by conventional lending institutions.
If you are a first time home buyer or if you have a low credit score, getting a conventional loan could be a challenge. Banks and other conventional lending institutions would most likely disapprove the loan. Of course you have the subprime lenders as your next option but aside from the higher interest rates, these lenders generally require a 10% down payment. On the other hand, if you have opted and qualified for an FHA mortgage, the loan application will most likely be approved by the commercial mortgage lender as it is insured and guaranteed by the government. If the homeowner failed to pay the loan, FHA will pay the lender.
As mentioned before, it would be a lot easier to qualify for an FHA mortgage as lenders are provided with better security. A low credit score, a chapter 13 bankruptcy and other credit problems would not be a hindrance to the dream of owning a home. Basically, banks, mortgage houses and other conventional lending institutions require a 10 to 20% down payment.
An FHA mortgage however, would need as small as a 3% down payment. What is more ideal is the fact that the down payment can come from a government program or from a family member in the form of a gift. A would-be buyer who has an approved FHA mortgage can also avail of the down payment grants given by non-profit organizations whose aim is to help moderate to low income families to have a home of their own. The borrower only has to show an approved FHA mortgage and the non-profit organization will provide the down payment which the would-be homeowner does not have to pay.
In a lot of cases, an FHA mortgage would have much lower interest rates than those charged by conventional lenders. FHA also sets a limit to the fees that will be charged to the borrower. For instance, the loan origination fee should not be more than 1% of the amount of mortgage. This would mean thousands of savings for the homeowner.
A looming foreclosure is akin to an axe that is about to drop and severe the head. The homeowner may be unable to meet the monthly mortgage payments due to an escalating interest rate or the homeowner is currently going through a financial crisis. The income earner may be laid off from work or unable to work due to an illness…whatever the case may be, these incidents would result to foreclosures. FHA provides foreclosure prevention assistance and programs to help homeowners who are in financially distressed.
FHA mortgages are undoubtedly better alternatives for people who want to realize the American dream of owning a home but are not qualified to avail of conventional financing. Primarily FHA loans are taken to buy a home. An FHA home loan may also be taken for home repairs and renovations. Likewise, the loan can be obtained for energy-efficient home improvements.
In order to qualify for an FHA mortgage, an application must be submitted to the Federal Housing Administration. Although FHA does not put much emphasis on credit scores, credit history will still be evaluated. The borrower will be asked to furnish the agency with a credit report disclosing at least a year of on time rental and mortgage payments. The debt to income ratio is considered to stop homeowners from purchasing a home they can not really afford.
Still, a higher debt to income ratio is set by FHA to favor would-be home buyers. The credit check will give the borrower the chance to explain the causes for having a less than desirable credit history. The validity of the reasons will be considered by FHA before the loan is approved. But even with these pre-qualifying requirements, an FHA mortgage can still be easier to qualify as compared to the more conventional loans.
FHA mortgage just like any other mortgages do have some drawbacks. First off is the costly mortgage insurance. If you have opted for a conventional loan, you need to buy mortgage insurance. The same thing goes with an FHA loan, a mortgage insurance has to be purchased by the borrower. The insurance cost is relatively the same- about .05% of the loaned amount. The insurance cost would be broken into 12 monthly installments and incorporated to the mortgage statement.
With an FHA mortgage however, the borrower will be saddled with additional upfront insurance premium which is 1.5% of the mortgage amount. Although this insurance premium is added to the loan amount and will not be due until the final payment of the mortgage, this additional charge will still be considerable. Moreover, the insurance coverage has to be continued until 22% of the principal amount is paid off. This is not so with conventional loans as mortgage insurance coverage can be dropped off once the homeowner has accumulated a 20% home equity.
Another major drawback of an FHA mortgage is the limit it imposes on the maximum amount a homeowner can borrow. The amount of loan which is considerably lower than that offered by conventional loans would still depend on the location or area. With this loan caps, the borrower may be forced to obtain another loan from subprime lenders to be able to purchase the chosen home.
This drawback however, was resolved when the US Senate approved a legislation that raises the amount of FHA loan limits. From $362.000 the amount was raised to $417,000. Coupled with more lenient underwriting standards, this new FHA loan limit is estimated to help around 200,000 homeowners who are facing the threat of foreclosures.