Avoiding Foreclosure

Making your mortgage payments on time is the best way to avoid foreclosure.  Job loss or health problems can put you in a bad spot financially, and one of the worst case economic disasters for anyone is a foreclosure.  If you are unable to make payments, contact your lender and see if you can renegotiate your loan to something more manageable.  Freddy Mac recently stated that 50% of homeowners who went into foreclosure had never contacted their lender to discuss renegotiation.  They would usually rather have something as apposed to nothing.  You may also consider refinancing with a completely new lender.  Bankruptcy is usually not a good option in dealing with a foreclosure.

Foreclosure

I decided I should take some time to discuss the dreaded foreclosure.  A lender may foreclose on your home if you fail to meet certain conditions associated with your loan, typically non-payment.  The house may then be sold, and the money gained from the sale goes towards the outstanding balance.  In some jurisdictions, the home owner is still responsible for any outstanding debts, and in some they are not.  Check your local legislation to find out which category your location falls under.  In some areas, foreclosure and sale can occur rather rapidly; while in in others it can take months and in some convoluted cases even years.

Types Of Home Loans

It is very important to understand the terms and conditions of each kind of loan, so that you can choose one that best suits your needs.

• Fixed Rate:  Includes a specific loan repayment amount.  This type of loan protects you from any interest rate rises.
• Variable Rate:  Gives you the flexibility of being able to make extra payments if you wish.
• Introductory Rate:  Generally, for the first 12 months your interest rates are discounted.  
• Bridging Loan:  This loan helps you purchase a home if you are currently in the process of selling your current home, but have not yet finalized the transaction.
• Interest Only Loan:  In this type of loan, you are only making monthly payments on the interest.
• Principal & Interest Loan:  You will be paying off the interest and actual principal owed on a monthly basis.

Reverse Mortgages

A reverse mortgage is a special kind of loan insured by the government that converts your equity into cash.  Unlike a traditional mortgage where the homeowner is making payments to the lender, the lender makes payments to you.  You can choose to receive monthly payments or a lump sum, or even a combination of the two.  You are not forced to repay this loan until you sell your house or die.  These loans can be expensive and should be used only as a last resort.

Requirments:

• Must be at least 62 years of age
• Must have a good amount of equity in your home
• Must be the primary resident

Positives:

• No income requirement
• Minimal credit requirements
• Fast cash

Negatives:

• Loans are very expensive, can cost you up to 10% of the value of your home in fees
• Unable to pass home to heirs
• You are still responsible for property taxes and maintenance

Refinancing

Refinancing is essentially taking out a loan to replace the one you currently have, in hopes of getting a better rate.  With the recent economic crisis, refinancing and debt consolidation have become very popular.  There are many reasons to refinance.  The current interest rates are very low, if you entered into your mortgage at a higher interest rate, it would be in your benefit to refinance today.  The penalty for breaking a mortgage contract and signing into another one, is usually not nearly as much as the cost of the higher interest rate.  The first step to take is to talk to a mortgage professional, they can calculate exactly how much refinancing will save you and whether or not it is the right option for you.

Increasing Your Homes Value

Small investments in your home can result in large profits.  Start small, sometimes something as simple as painting
your house can offer a greater return than adding a deck.  Remodeling does not always increase the value of the home by much more than the cost of the remodeling.  Here are a few tips to easily improve your homes appearance and value:

• Make your yard more aesthetically pleasing
• Add a fresh coat of paint to the exterior and interior
• Install new light switches and fixtures
• Wash your windows and have your carpets professionally cleaned
• Pressure wash the driveway and any walkways on the property
• Use higher wattage bulbs to make things seem a little brighter
• Well placed flowers and fruits can make even the most boring house appealing

Home Equity Loans

A home equity loan is essentially borrowing money from a bank against the equity that you have established in your home. Home equity is the difference between the fair market value of your home and the unpaid mortgage balance remaining.  The equity in your home can be used in many ways to increase your standard of living.  You can use this loan to pay down debts, acquire assets, or create additional wealth.


If you have an asset worth $1.5 million, and you still owe $750,000 on this asset, then you have an equity of $750,000, or 50%.  Simple enough right?


What can you do with this equity?  Well, quite simply, you can turn it into cash with a home equity loan!  Most banks require you have an equity of around 25% before taking out this type of loan.  If your house has been appreciating in value, or you have simply been paying off a significant portion of the loan, feel free to take out a home equity loan and treat yourself to a nice vacation!

Three Tips For Getting The Best Mortgage Rate

• Your FICO score -  The difference between a 700 score and a score of 698 can be half a percentage point.

• Debt to Income Ratio -  A bad ratio can take you out of mortgage eligibility all together, and can also effect your rate.

• Make sure your bank has multiple lenders, at least 5. 

As always, make sure to get the best rate by shopping around.

Adjustable Rate Mortgages

ARMs allow you to choose from several payment types each month.  These options include a typical payment of principal and interest, interest only payments, and a minimum payment.  These loans can be very dangerous if you can not afford the increasing monthly payments in the future.

Interest Rate:  The interest rate for these types of mortgages is usually very low at first (1 or 2%), and gradually rises.  After five years there is a recalculation period, which could increase your payments.

Payment Changes:  The minimum monthly payment increases continuously.  Your payments could end up going up drastically, so be very careful.

Purchasing Your First Home

When buying your first home it is important to be well informed on the mortgage process so that you can take advantage of the best rates available. The FDIC offers information on how to find a mortgage or home loan as well as getting the best deal.

If you are looking for a non-traditional home loan, this brochure provided by the FDIC offers information on alternatives.

Before you sign anything, it is paramount to determine if you are dealing with a reputable Mortgage Broker. Do your research and make sure they are properly licensed.

Welcome

This blog is dedicated to giving you the most recent information on Home Mortgages, including reviews of the industries largest mortgage companies as well as tips to save you money! Please check back for updates, as they will be frequent.