Mortgage Qualification Problems – Not Enough Income
Qualifying for a mortgage can be a stressful affair. A common problem that can occur is not having enough income to qualify for the loan amount. If you have this problem, here are a few possible solutions.
Mortgage Creativity
You find the house of your dreams and need to get a home loan. You have great credit, almost no debt and have been employed for five years with the same company. You apply for a loan and are stunned when you are turned down. The reason? The lender says you have insufficient yearly income to justify the loan amount.
What the lender is really telling you is it doesn’t think you can afford the monthly payments for the mortgage. Before you go ballistic, you should sit down and seriously review your financial situation. Getting a home loan is fine and all, but not if you are unable to make the monthly payments. Try to be realistic in your evaluation. It will save you many sleepless nights. But, what if you can afford the payment?
The first creative solution you may want to consider is an increase in the amount of the down payment. By increasing your down payment, you will reduce the amount to be borrowed which can make all the difference in qualifying. If you can bump the down payment up to 25% of the total value of the property, many lenders will relax the qualification requirements.
A second creative solution involves alternative loan sources. Initially, good old mom and dad may be able to help you out. In fact, this is one of the traditional down payment funding sources for most first time homebuyers.
A less known alternative, however, is your 401k retirement account. Under federal law, you can borrow up to 50% of your 401k balance. The repayments have to be made in five years, so analyze how this option will impact your finances. If you can pull it off, you will be in the advantageous situation of paying yourself interest instead of a bank.
Regardless of the approach you take, insufficient income need not be the end of your home buying prospects. Get creative and you can find a solution.
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Mortgage Shopping Tips
When shopping for a mortgage loan, every lender will have different rates, fees and points for each loan program. When shopping for a mortgage loan, it is important to understand the three components of a Rate and Fee Quote: (1) Premium Rates (2) Lender Fees and (3) Discount Points.
A Premium Rate offer is any interest rate above the market rate (referred to as the “Par Rate”). While the Par Rate changes constantly during the day, most lenders will commit to a specific Par Rate early in the day. If the Par Rate is 6.00%, the lender will only earn revenue if they offer you a rate above Par (for example, 6.25%).
Lender fees are charged for services performed directly by the lender, which may include Processing Fees, Underwriting Fees, Origination Fees, etc. These fees are charged to offset the cost of processing, closing, and funding your mortgage loan.
Discount Points often represent the largest fees associated with your mortgage loan as one point equals 1% of your loan amount. If you are applying for a loan amount of $350,000 and pay 2 Discount Points, the Discount Point Fee would be $7,000. Borrowers may use Discount Points to obtain rates below the Par Rate. For example, if the Par Rate is 6.00%, a 5.75% rate would indicate that the Borrower will have to pay Discount Points.
<b>Factors to Consider</b>
Every lender provides multiple combinations of Rates, Fees, and Points across a variety of different programs. All of these choices can become overwhelming when trying to decide between different programs, rates, and fee packages. To limit the possibilities, it is often helpful to answer a few key questions:
<ul>
<li>How long do you expect to have this loan? Consider the probability of relocation, moving, or refinancing when determining your timeframe. Think in terms of 5 and 10 years.
<li>Do you have the available cash to pay additional fees now to lower the interest charges later? Be sure that paying upfront fees is the best use of your money. For example, paying higher fees or points for a lower rate may not be a good use of cash while carrying high credit card balances.
</li>
</ul>
If you expect to have the mortgage a long time, paying points to reduce the rate makes economic sense because you are going to enjoy the lower rate for a long time. If your time horizon is short, avoid points and pay the higher rate because you won’t be paying it for long.
If you plan to have your loan for 5 years, paying 1 Discount Point on a $350,000 loan will cost you $3,500 upfront while saving you $88 a month. After 40 months of savings, you have recovered your upfront cost and will benefit from the lower rate. If you stay in the loan for 10 years, you will have created an additional $7,060 in interest savings over the life of your loan. Just like interest, points are 100% tax deductible in the year you pay them.
The second factor is your opportunity cost. What could you do with the money if you didn’t use it to pay points? Even if you expect to be in your house a long time, there could be other uses for your money that take precedence over the long-run savings from a lower interest rate. A useful way to pull these factors together is to look at the payment of points as an investment that yields a return that rises the longer you stay in your house.
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The way to Pay Off Your Mortgage Faster
February 18, 2010 by admin
Filed under Mortgage Rates
There is a Way To Pay off Your Mortgage faster using these simple tips and tactics.
Are you terrified at the idea of paying your mortgage for 30 years? Get rid of the home equity loan fast.
Finance doesn’t have to be this expensive.
The cornerstone is to eliminate it fast. Home loans have a purpose: To assist you purchase a house. Once you possess the home, it’s time to take away the mortgage. Here’s how:
1. The weekly/monthly rule.
If your home loan repayments are monthly, request if you can change them to weekly. The bank will likely modify your weekly payment to represent the exact monthly payment. To pay the bank’s revised payment will eliminate the advantage.
Instead, do this: Consider the last monthly payment and divide it by 4. Make the end result your completely new weekly payment. It is likely to be more than the bank’s figure and this will help do away with the home loan faster.
2. Significant interest savings are made by paying larger payments, so, just like the weekly monthly rule remember what you could add to your payment without causing adversity. Combine that amount to your payment and make the payment come out of your account or from your pay automatically, so you don’t have to do anything to make sure it is keep occurring.
3. Resolution to put any windfall money (like a tax refund for example) into your home loan and always do this.
4. Build a windfall by having a garage or yard sale and get rid of unwanted stuff, and pay the proceeds off your home loan.
5. If you have 2 incomes in your household, is it feasible to live to tell the tale one and pay the other entirely off the loan?
6. Make the most of balanced out accounts etc.One final thing, evaluate the payments every 6 months and take a look at if you can increase them. The sooner the loan is finished, the sooner that entire payment is owned by you!If you stick to all of these plans, your home loan should begin to drop much much more faster than the structured rate. You’re on your way to paying off the mortgage.
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Offset Mortgages. A dream for well off homeowners.
Offset mortgages represent one of the biggest mortgage innovations seen in recent years. Six years ago there was hardly an offset mortgage to be seen. Now they and the current account mortgage, to which they are closely related, account for £10 out of every £100 of new lending. <br><br>
What’s more, one of the UK ‘s large lenders believes that 25% of existing mortgage holders would be better off with an offset mortgage. So if you’re in the market for a mortgage you need to know what they’re all about. Otherwise you could be missing out. <br><br>
<strong>Firstly, how does an offset mortgage work? </strong><br><br>
The basic idea is that besides borrowing money from the mortgage lender, you also run savings or deposit accounts with them. Then you are charged interest not simply on what you have borrowed but on what you have borrowed less the balance in your savings and deposit accounts. So, if you had an offset mortgage of £100,000 and had £20,000 in their savings account you would only be charged interest on the difference, £80,000. In these circumstances, no interest is paid on your savings – the interest is offset. <br><br>
<strong>It doesn’t sound like a ground breaking idea – where’s the benefit? </strong><br><br>
Quite simple. Whilst the full benefit of your savings is reflected in a lower interest charge on your mortgage account, legally you have not received any interest. If you have not received interest you can’t be charged tax on the interest. Step away Mr Taxman! <br><br>
This means that offset mortgages are especially attractive for higher rate taxpayers who would otherwise pay-away 40% of the interest they receive in tax. <br><br>
Consider some figures. If you had a £100,000 mortgage paying a competitive rate of 4.69% plus £20,000 on deposit, how would the figures work out? Well over a typical 25 year mortgage, without offset you would pay £85,351 in interest but with offset you would pay just £41,998 – that’s a saving of £43,353. What’s more you would repay the mortgage five years and eight months early. That’s because the monthly repayments are based on the full mortgage debt before offsetting is taken into account so borrowers are effectively overpaying their debt each month. <br><br>
And doesn’t Mr Taxman look sorry! In theory, a standard tax payer saved £9,538 in tax and a higher rate taxpayer a whopping £17,341 in tax. <br><br>
Flexibility can also be a major advantage. You can typically pay off capital without penalty, underpay and take payment holidays so long as you’ve made sufficient overpayments throughout the years.<br><br>
<strong>Too good to be true – where’s the catch? </strong><br><br>
Historically borrowers have had to pay a higher interest rate for the benefit of an offset mortgage. But the good news is that with banks and building societies fighting for a bigger share of the offset market, offset interest rates are falling. <br><br>
This means that you need to look carefully to ensure that the apparent tax savings you could make are not eliminated by the slightly higher interest charge. Quite honestly this is not an easy calculation so it’s best left to your professional mortgage adviser. <br><br>
But as a guide, a standard taxpayer needs around £20,000 in savings behind a £100,000 mortgage to make the offset deal better value than a traditional mortgage. For a higher rate taxpayer the savings requirement drops to around £10,000. (These figures are based on a typical 4.69% fixed offset rate, compared with a typical 4.49% rate for a tracker.) These figures will change as interest rates vary and, in all probability, as the cost differential between an offset and a traditional mortgage closes. <br><br>
<strong>Not all Offset Mortgages are the same! </strong><br><br>
As you would expect, with the offset lenders fighting for your business lots have added bell and whistles to the basic concept. Free property valuations and free legal work are relatively common. Then some banks will include your current account in the offset calculation, some lenders enable two nominated savings accounts to be offset, some will even agree an additional borrowing facility with a cheque book that can be used at any time. <br><br>
On the interest rate front you’re bound to be offered a low starting rate fixed for six or twelve months. You might also be offered a tracker which is below the Bank of England base rate for six months and which only rises above after six months or a tracker which exactly tracks base rate plus a tiny premium for a few years. There are lots of variations. <br><br>
The interest rate can also depend on what percentage of the house valuation you want to borrow. For example, one lender is currently offering 5.6% if you are borrowing less than 50% rising to 6.45% for up to 99%. <br><br>
Like so many things, whilst the basic concept is simple, it then gets complicated! This clearly underlines the need to talk things through with an independent mortgage adviser. It’s their job to ensure you get the right type of mortgage and the best deal. <br><br>
If you have savings, there’s a big chance they’ll recommend an offset mortgage.<br><br>
*Indicative figures correct as at November 2005
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Michael Challiner has 15 years experience in financial services marketing at senior level.
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Pay Off Mortgage Or Invest
February 14, 2010 by admin
Filed under Mortgage Rates
The question comes along, normally in retirement, of whether an individual should pay off their mortgage or invest. The reply to this question not merely applies to financial considerations, but to emotional ones as well.
There is certainly an element of pride that accompanies owning your home free and clear. You have spent years attempting to arrive at the point where it is possible to finish up with your mortgage.
There is a great amount of emotional baggage bound to reaching that goal. But what if financial considerations propose that the time is not optimal to pay off your mortgage?
As a way to analyse if working your mortgage is a financially sound decision, you need to calculate the after tax value of your mortgage. In order to perform this, you need to multiply your mortgage interest rate by your marginal tax rate. For example, 6 x 35% = 2.1%. To buy the after tax cost of your mortgage, subtract that number (2.1%) from your interest.
In the case of our example, the reply is 3.9%. If the after tax basis on the investment in your portfolio is expected to be beyond the after tax cost of your mortgage, you should preserve paying your mortgage.
The scale to which you accomplish an after tax investment return over your after tax mortgage hinges upon the risk quotient of your investment strategy. Your investment strategy should have the potential to discuss the after tax cost of your mortgage. If it did not, why would you include the investment risk?
Low priced mortgage debt does have the possibility for higher returns to investors, but it involves risk. Fortunately, many householders have refinanced to rates at historical lows and for people who didn’t, the opportunity still exists to get a 30-year rate under 6%, and a 15-year rate even below that.
If you are considering paying off your mortgage, you will have to have to consider the liquid funds you will employ to do so. It does not add up, from a tax perspective; to use funds from tax deferred savings such as an IRA.
Instead, you will need to use liquid funds from other assets.In the end, the decision to pay off your mortgage or not is a compounding of perspectives as a homeowner, an investor, and somebody who has worked long and hard making the mortgage repayments every month.
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How Would You Want to Pay Off a 30 Year Mortgage in 10 Years Or Less?
February 10, 2010 by admin
Filed under Mortgage Rates
How Would You Like to Pay Off a 30 Year Mortgage in 10 Years Or Less?
Many people would like to pay off their mortgage early. But finding enough money to pay back your mortgage seems to be one of the most tough things on the planet.
Probably the major reason why is because most people do not figure out the methods to pay off their mortgage fast and save interest.
There are actually some proven means to eliminate your mortgage and plan to be debt free. Read these 5 steps to discover how to pay back a 30 year mortgage in less than 10 years.
1. Quit charging your credit cards!One of the first effective way to paying off your mortgage is to quit charging up your credit cards. It’s difficult to lower your debt by constantly adding to it. Leave your credit cards at home the the next occasion you go shopping or better yet – cut them up!
2. Use cash when you go shopping.You have to live within your ability. Start finding methods to cut back on expenses and reduce your financial burden. Again, we need to cease creating more debt and making the issue worse. You will want to begin finding a steady amount every month that you can use to paying off your debt. To Illustrate, if you could take your lunch to work a few days 7 days in place of eating out, you could put away over $100 a month. Would not that be worth it to not have a house payment?Take a close look at what you really don’t need to buy and apply your savings to paying off debt. Uncover ways that you might reduce costs on dining out, clothes,and household expenses.
3. Figure up exactly how much you could save monthly on these expenses and apply your savings to paying off debt.It is a process that could take a little while, but it’s well worth it. You may find ways you could save money this seven days, and find an additional one next seven days.
4. Apply the money you saved towards reducing your debt.Start with your credit cards It’s best to concentrate on eliminating any balance of one card at a time and when you are done, move to the next credit card.Once your credit cards are paid off, then start working to eliminate your car payments. By this moment, you should have a decent amount of extra money every month since you are utilizing the money that you were spending on credit card payments to eliminate the car payment.
5. After paying off your cars, then start on your mortgage.At this point you will grab the money that you were wasting on credit card payments and car payments to compensate your mortgage.If you go on following this process, you should have your mortgage paid off in about 5 – 10 years. Now, how would it feel to go to your mailbox and not have a big house payment waiting for you each month?
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Online Mortgage Quote – Tips On Getting A Mortgage Quote Online
Getting your mortgage loan on the internet has many advantages and benefits, although, it is not a good choice for all homebuyers. Online mortgage loans are both quick and convenient. The application process can be completed in the privacy of your home, at your leisure.
Applying for a mortgage online takes much less time to receive a reply when you apply. You can receive and compare the rates of numerous lenders almost instantly. Online shoppers are able to receive estimates on closing or settlement costs at the same time they apply for the loan rates. When applying for a loan in person, lenders are not required to provide a “good faith estimate” until 72 hours after receiving the loan application. The amount of time you will save from not having to contact lenders by phone or email makes online mortgage loans very attractive to applicants.
Save Money by Applying Online
The process of completing an online mortgage loan application is less costly for the lender. When an application is filed online, the customer does not need to visit the lenders office or meet with an agent to fill out forms. When the cost of business is reduced, the lender is then able to give the customer a better rate. By applying online, customers are often given a discount on interest rates, loan origination fees, and closing costs. In general, customers who apply online tend to have more knowledge of the loan process and often have a good credit history. The less likely you are to be considered a risk, the more likely you are to be approved by the lender. There is also a great deal of competition among online lenders. In order to be successful, lenders must be able to offer rates that are competitive.
Applying Online is Safe
Many people are cautious about applying for an online mortgage loan because they fear their credit information may be stolen. However, your chances of becoming a victim of identity theft are just as great when you apply for a loan in person. The vast majority of online lenders use encrypted transmission to send your loan information. After you complete the application, the text is changed to a secure code, which makes it difficult for others to obtain your personal information.
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Seven Steps to Pay Off Your Mortgage
February 6, 2010 by admin
Filed under Mortgage Rates
7 Steps to Pay Off Your Mortgage
Many individuals wish that they didn’t have a house payment every month. But it can be challenging to find means to pay off your mortgage. Why?
The majority of people don’t understand the steps to settle your mortgage early. The’re successful little-known methods to pay back your mortgage at a fast rate. Read these 7 steps to find out the best method to settle your mortgage faster.
1. Avoid creating new debt!The initial step to having to leave debt is to finish digging the hole deeper. Cut up your charge cards! Or in any case leave them at home the next time you buy groceries.
2. Use cash for almost everything.If you can’t pay cash, then write a check or use a debit card. Again, we need to quit creating more debt and making the trouble worse.
3. Look for methods to reduce your financial obligations in your monthly expenses.Everyone has money that they actually do not need to be spending or they just ;blow; each and every month. Uncover ways that you can lower your costs on each day expenses, primarily on unnecessary, appearances, and conveniences. Perhaps you can cook a meal at home rather than eating out on many nights. Are there ways that you might reduce costs on clothes and other items? Really think this one through, as this is the money that will permit you to become debt-free and eventually buy whatever you want with cash!
4. Make a decision on the amount you could lay aside on monthly expenses. Utilize this money to pay off debt.
5. Focus on removing your charge card bills first.It’s best to center on working one credit card at an occasion and then deal with it to the next one. Get started in paying extra on the card that has the lowest balance and get it dealt with early. By doing this, you can see success and are more inclined to stay on your plan.
6. As soon as your credit cards are paid back, take your former installment and pay off your car payments.
At this point, you should have several hundred dollars coming in each and every month as you have payed off all of your credit cards and your car payments. Now take the money that you were wasting on these matters and let’s start paying down your house!
7. Right after your car payments are payed off, then paying down your mortgage.You will soon have a sizeable amount of cash now coming in each month by applying the money that you employed to pay on credit cards and car payments to your mortgage.You should expect that you have your home paid in 5 to 10 years. Wouldn’t it be fantastic to be debt-free and not have a big mortgage payment each and every month?
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What is a Bad Credit Mortgage?
February 2, 2010 by admin
Filed under Bad Credit
Title:
What is a Bad Credit Mortgage?
Word Count:
412
Summary:
Bad credit mortgages – also known as adverse credit mortgages – are mortgages for people who have experienced financial difficulty in the past and who may now find it difficult to get a mortgage and other credit.
Keywords:
bad credit mortgages
Article Body:
Things such as County Court Judgements (CCJ’s) or a poor credit history can scupper the chances of you getting a personal mortgage because mortgage companies deem you a high risk.
If you are self-employed, and even have a pristine credit history, you may find it just as difficult to get a mortgage due to your circumstances, which is unfair.
However, there are more and more specialist mortgage companies that are sympathetic and able to offer bad credit mortgages to people – as well as mortgages for the self employed.
Many of these companies do not charge excessively high interest rates as they have done in the past, meaning that you should be able to get a mortgage and pay a fairly realistic interest rate.
Apart from the obvious benefit of taking out a mortgage for whatever purpose you need it for, having a mortgage can actually improve your credit scoring – making it easier for you to borrow money and get credit in the future! However, you will need to make your monthly repayments on time, and this will help improve your credit score over time.
Of course, when choosing a bad credit mortgage, do shop around. While there are understanding lenders out there willing to provide a mortgage without charging you the Earth, there are still, sadly, some unscrupulous mortgage companies.
Do your homework – get several quotes; check out the interest rate and any financial penalties you would be liable for should you pay the mortgage off early. And make sure you are fully happy with the amount you are repaying.
How the web can help you if you are looking for a bad credit mortgage
If you have a poor credit history, finding a mortgage specifically for people with bad credit can be difficult. And even if you do find a mortgage, how do you know that it is the right one for you?
Using the internet can help. There is tons of information on there relating to bad credit mortgages such as free guides, as well as access to providers of bad credit mortgages.
Going online also allows you to compare multiple providers so that you can look at all the product features and benefits to decide whether it is right for you.
There are also websites that accept online mortgage applications and there are hundreds that offer free and immediate online quotes. This means that you can see how much you can really afford to pay out for a mortgage.
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