Archive for March, 2010

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Home Loan Modification Myths – Modifying loans under Obama's "Making Affordable homes plan '

March 31st, 2010

Home loan modification has recently become a hot topic in many American households. Though it was always possible to renegotiate the terms of a loan and have them adjusted by your lender, the process wasn’t commonly performed until the recent mortgage meltdown. Though modifications are becoming a lot more common now, there are still a lot of home loan modification myths surrounding the subject.

With the passage of the President’s new Making Home Affordable (MHA) plan, lenders now have a consistent set of steps to follow in the case of home loan modification. From March 4, 2009 until December 31, 2012 homeowners will be able to use the $75 billion Homeowner Stability Initiative to obtain home loan modifications.

Participating lenders are paid out monetary incentives for adjusting your loan, and those incentives often make a modified loan much more profitable than foreclosure or other alternatives. In this way, the MHA plan works to get 4 to 5 million Americans out of financial trouble and save their homes.

Surprisingly, though, there are a lot of misunderstandings and myths about the MHA plan. Many people mistakenly believe that the government is forcing lenders to participate in the plan. That is completely untrue. The MHA plan provides a consistent set of procedures for modifying loans and provides lenders with incentives to arrive at workable modifications, but it does not coerce lenders to do so.

The lender is advised to calculate whether the modified loan would be more profitable than foreclosure, and then to choose the more profitable option. The thing is, foreclosure is an awfully expensive, time-consuming, unprofitable affair for lenders anyway. Combined with the incentive payments provided under the MHA plan, lenders almost always decide that modification is a better alternative to foreclosure.

A second big misconception is that the Homeowner Stability Initiative money will be aiding speculators and house flippers. That is also completely untrue. To take advantage of loan modification under the MHA act, you must be the owner and the occupant of the home in question. Your home address is determined by a credit check. No vacant or condemned homes are allowed to participate in MHA loan modifications. Second homes and investment properties are also ineligible.

Of course there will be lots of home loan modification myths out there during this period of financial turmoil. MHA's new plan is new, and people are still learning how it works. Just educated and make sure to get a loan modification Facts plan under MHA.

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How FICO Can Determine Your Home Loan Approval

March 31st, 2010

If you have tried to apply for a mortgage loan, you probably have come across the term called FICO. Even if you have not heard of it, rest assure it is used every time you look to secure a mortgage loan. It can determine whether or not your loan application is approved and also the interest rate you pay.

So what is FICO?

FICO are sometimes referred as credit scores. It is a computerized software model developed by Fair Issac Corporation (FICO) to determine credit scores.

Think of it as your personal financial score card, only that it is rated by a lending institution or company.

They will assign you a credit score based on an analysis of your credit history. It is then entered into a computer. Most major credit reporting companies such as Equifax and Trans Union uses the FICO model. Mortgage lenders then use your credit score to determine whether or not your loan is approved and the interest rate you pay.

You should note that not all credit reporting companies uses the same software so your FICO score may vary at each of them.

So what are the factors in determining your FICO score?

There are many factors used to determine your credit score. Examples are amount owed, types of credit and your payment history. I will try to break down the factors by percentage but do note this is just an estimate since not all credit companies rate the factors the same percentage.

1. Payment History

As much as 35% of your FICO score is determined by your payment history. Your records such as late payment of credit cards or previous loans and the length of time overdue will adversely affect your credit score.

2. Debt To Income Ratio

This accounts for 30%. How much you owe versus your income level can determine your FICO score in this area. Obviously, the more you owe and the less income you have, the lesser chance of your mortgage loan being approved.

3. Length of history

This accounts for 15%. Mortgage companies will check how long your accounts have been open and the amount of activity. So the longer and better your credit history, the better chance of scoring high in this area.

Other factors in determining your FICO score include the number and types of accounts you have, credit card balances, number of credit cards you have etc.

As you can see above, the best way to improve your FICO score is to practice proper financial management. Make sure to pay your credit card bills and loans on time and keep your credit card balances low. It does take time of course.

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Loan Modification With Washington Mutual – NOW WHAT?

March 31st, 2010

Well, another lender bit the dust this week and it was banking giant Washington Mutual. Saddled with billions of dollars in bad mortgage debt, WAMU was snapped up by J P Morgan Chase for $1.9 billion dollars. Depositors were assured that the takeover would have no impact on their money or accounts, but what about homeowners looking for a loan modification out of their bad home loans?

The assumption is that J P Morgan will have to write down about $31 billion in bad mortgage debt. That means there is great incentive for J P Morgan to offer solutions to homeowners with delinquent WAMU home loans to turn those bad debts into performing assets. Simply put, this could be great news for distressed WAMU borrowers who apply now for a loan modification to cure their default and to get a long term modification with an affordable monthly mortgage payment.

If you have a WAMU loan that is not affordable and you are facing foreclosure, don’t wait, start the loan modification application as soon as possible. This could be a window of opportunity to get your bad loan modified into a low, fixed rate loan with an affordable payment. The government is encouraging J P Morgan to get this mess cleaned up ASAP, and you could be in the right place at the right time with your WAMU loan.

Get started with your loan modification by learning all you can about the loan modification process. Find out what the lender will need to see in order to approve your loan modification application. There are some good reference sources that you can get online that will help you to prepare and submit your loan modification application so you have a better chance of approval. It takes some upfront knowledge and preparation, but this is your opportunity to modify your toxic, bad loan into one that features a low fixed rate, longer term and even a lower principle balance. Sounds like that would be worth your time and effort, right?

One excellent source of loan modification information is The Complete Loan Modification Guide handbook. This is an easy to read and easy to follow handbook that will show you the 7 Steps to a Successful Loan Modification. You will also be provided with the necessary forms along with detailed instructions on how to complete them properly. The Complete Loan Modification Guide handbook also provides you with invaluable negotiating tips, hardship letter advice, and contact phone numbers. You can save hours of frustration and stress by following the steps outlined in The Complete Loan Modification Guide handbook. Give yourself the fighting chance you deserve-get informed and get going to save your home!

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Pay Off Home Loans Early

March 31st, 2010

‘Psst! Want an investment that pays up to 80 times as much as cash in some bank accounts but is absolutely safe and totally secure? And what about a 100 per cent guaranteed return that can be higher than financial watchdogs allow any investment company to use for forecasting future profits?’

Sounds like a snake-oil salesman scam, doesn’t it? But if your first reaction is, ‘You’ve got to be kidding’, then you’re wrong. Paying off mortgage loans with spare cash offers an unbeatable combination of high returns and super safety.

To see what we mean, take a look at the following mathematics. In this particular example, we’ve used interest-only figures for simplicity, although anyone with a repayment (capital and interest) loan will also make big gains. And, again for simplicity, we’ve assumed that the interest sums are calculated just one a year. That said, here’s the scenario:

Someone with a standard mortgage and with £100,000 outstanding at 6 per cent pays £60 a year, or £5 a month, in interest for each £1,000 borrowed. On the £100,000, that works out to £6,000 a year or £500 a month.

Now suppose that the homebuyer pays back £1,000. The new interest amount is £5,940 a year or £495 a month.

Compare the £60 a year saved with what the £1,000 would’ve earned in a bank or building society. The £1,000 could’ve earned as little as £1 at 0.10 per cent. And even at a much more generous 3 per cent, it would only make £30 – half the savings from mortgage repayment.

But you’ve forgotten income tax on the savings interest,’ you rightly say.

Ah, but the money you save by diverting cash to your mortgage account is tax-free. It must be grossed up (have the tax added back in) to give a fair contrast. Basic-rate taxpayers must earn the equivalent of 7.5 per cent from a normal investment to do as well. And top-rate taxpayers need a super-safe 10 per cent investment return from their cash to do as well.

After a payment is made, it reduces this year’s interest as well as that for every single year until the mortgage is redeemed. If interest rates go up, you’ll save even more. But if they fall, you’ll keep on saving and be able to afford to pay down your mortgage even more.

Some flexible or bank-account-linked mortgages let you borrow back overpayments so you can have your cake of lower payments with the knowledge that you can still eat it later if you need to. Alternatively, you can re-mortgage to a new home loan to raise money from your property if you need it.

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Tips in Getting A Home Loan Rate Quote Quickly

March 31st, 2010

With the advancement of technology, the internet has opened up a wide variety of options for the borrower. If you too are on the lookout for a good discounted home loan deal, then look no further than the Internet.

Lender websites

One of the first things you need to do is to research a little on the financial institution websites. You can get detailed information about the company, its financial standing, the current rates etc. You can even ask for a no obligation quote instantly online. Usually most financial institutions have an online system that provides you with a quote immediately. All you need to do is supply some basic information after which the system evaluates your financial situation and credit history and provides a quote on the home loan.

Online calculator

Most websites of financial institutions will have an online calculator that allows you to instantly get details on your mortgage rate. You need to enter some specific details into the calculator such as the duration of the loan as well as the method through which you wish to repay the loan. In this way you will get the details of the home loan almost immediately. Through this method, you can instantly get the free quote online. You don’t need to pay anything you get to compare rates and quotes online almost simultaneously.

Negotiation

One of the best things about getting home loan rates and quotes online is that it allows you to have more control over your finances in the long term. Since you get to know beforehand about the costs and expenses involved, you are in a much better position to negotiate with your prospective financial lending company. Instead of not knowing anything about prevailing rates and going for the first deal that comes your way, having a fair idea on prevailing rates will allow you to bargain with the lender and arrive at a good deal in the process.

Not the final figure

While getting an instant online home loan quote can certainly help in the negotiation and bargaining process, it is not the final figure. It is merely an estimate of the expenses you will need to incur in the long term. Therefore no quote mentioned online is a binding contract. It is merely an approximate cost of the loan in total provided by the bank. Therefore it should only serve as a guide on the expenses while choosing a loan.

Final negotiations

Once you have arrived at an approximate quote for all the lenders, you can select the lender that is providing the best possible deal. However, the ultimate costs finally will be determined once you personally meet the mortgage consultant. The consultant will take into account several aspects such as your credit history, credit score, repayment patterns, stability of your job as well as current prevailing assets. These factors will all play a crucial role in deciding the feasibility as well as final rate you get on the home loan. The consultant can then work out the best possible rate for you.

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