Your Guide to the USDA Loan Process

When you’re looking for a home loan, the options available can feel overwhelming and sometimes even confusing. Many people aren’t even aware of all of the different options available to them. The USDA is a government department that most people don’t associate with home loans, yet they are just as invested in rural development as they are in the food pyramid. We’re going to take a look at the USDA Loan loan process and FAQs and help guide you through the basics of this lesser-known loan process.

What is a USDA loan?

A USDA loan is a mortgage loan that makes home purchases more affordable for those living in rural areas. The loan is backed by the United States Department of Agriculture. Because of the government backing, lenders can offer a lower interest rate to qualified buyers and waive a down payment.

The USDA loan traces its roots back to the Great Depression when then President, Franklin D. Rosevelt, committed to building up rural America. The initial Executive Order that created the branch known today as USDA Rural Development was signed in 1935.

How does a USDA loan work?

A USDA loan can be acquired by those with the appropriate qualifications for both 15 and 30-year payback schedules. There are no official limits on the mortgage amount. This amount is determined by income and fair market rates in your location.

Some advantages of USDA loans include:

• No down payment required
• Guaranteed fees
• Competitive interest rates

Disadvantages of USDA loans include:

• Location-specific (not all areas qualify)
• Extra red tape and/or waiting times

This is a government-backed loan, so while there are advantages in the lower rates, you do have to meet several factors to qualify and may have to wait a bit longer for processing than conventional loans.

Different types of USDA loans

Guaranteed loan

A guaranteed loan with the USDA is a loan offered by a local lender but is at least partially insured by the USDA if the buyer defaults on the loan. This allows lenders to offer modest loan terms to lower-income individuals that don’t have the best credit scores. To be eligible for this kind of loan, the buyer’s adjusted household income cannot exceed more than 115% of the median income in their desired designated rural location.

Direct loan

A Direct USDA loan is when the USDA funds the borrower directly. They become the lender, rather than a bank. These loans are offered only to qualified low or very-low-income families.

Home improvement loan

These loans are offered to low-income Americans to assist in home renovation or repair. This loan may be combined with grants that don’t need to be repaid.

Applying for a USDA Home Loan

Eligibility and Requirements

To qualify for a USDA guaranteed loan, you must meet the following requirements:

• Be a US citizen or a US non-citizen national or qualified alien
• Demonstrate a willingness to meet credit obligation in a timely manner
• Agree to use your home as your primary residence
• Purchase a home that meets all criteria set by the USDA
• Have an income that qualifies as “low” income or below in your intended purchase area
• Not have been debarred or suspended from participating in other federal programs

To qualify for a USDA direct loan, you must meet the above qualifications PLUS:

• Lack of access to safe, sanitary, and decent housing
• Are unable to secure loans from any other source on reasonable terms that you are able to meet

The USDA loan process

Prequalify with a USDA-approved lender.

The first step in the USDA loan process is to prequalify. Your lender will review your financial history, work history, and credit to decide whether you are qualified for a USDA home loan.

Apply for pre-approval.

Once you’ve been deemed eligible for the loan, you then must apply for pre-approval. Your lender will look over the same documentation as before to determine the mortgage amount they feel comfortable lending to you. Make sure to ask questions and read all documentation.

Find a USDA-approved home.

The next step is to go house hunting in a USDA-designated area to find an affordable home that meets your needs.

Sign purchase agreement.

When you find the house that’s right for you, it’s time for your lender to complete a final review and sign to associate the mortgage with the property.

Go through processing and underwriting.

The loan will be processed at this point, including the final USDA approval of the property. Again, make sure to read all paperwork and ask any questions that you may have about the process.

Close your loan.

This is the point where you sit down to sign all of the final paperwork. Typically it will only be a few days after this point that you can move into your new home.

How long is the USDA loan process?

When working with a lender for a USDA loan, you will typically find that the process takes four to six weeks. A backup of files because of high volume could cause this period to be extended, but this is rare.

While not available to everyone, USDA-backed loans are an excellent resource for those who have low to very low income and want to purchase a home in rural areas. The USDA home loan program can open up new possibilities for those who may not otherwise have access to safe and affordable housing.

If you’re ready to start your journey to homeownership and have considered a USDA home loan, reach out to the experts at Hero Home Program. They work tirelessly to find local and federal grants to assist with your home purchase and also work alongside local vendors who will help you save money on your home purchase.

Original post here: Your Guide to the USDA Loan Process

Importance of Bank Statements for Mortgage Applications

When you apply for a home loan, you find yourself combing through a lot of financial documentation—tax returns, pay stubs, bank statements, and the like. But why all the scrutiny? The short answer is that mortgage lenders have strict standards for lending money because they aren’t out to lose money. They want to be sure that any payee will not default on their home loan because of lack of funds.

While lenders are careful about how they lend money for their self-interest, this caution is beneficial to the home buyer as well. A buyer doesn't want to lose their house because of any miscalculation in available funds.

Why do mortgage lenders want bank statements?

Bank statements are an important piece of accessible assets. A bank statement is a monthly (or sometimes quarterly) summary of your banking activity. Even with other documentation, a lender will want to analyze this information to determine several things. They want to know that:

• you have a regular income that comes from a known source
• you have enough available for at least a few months of mortgage payment
• the money you have has been building for a period and not just a recent deposit

These markers indicate that the money in your account is not laundered money or from a fraudulent source. It also shows that the buyer is not using another loan to qualify for the mortgage.

Mortgage lenders require bank statements to be provided over a period of time. They will scrutinize these documents to ensure that the potential payee is a good risk and will be able to make prompt and regular payments on their home loan.

The twelve-month bank statement will be examined for “sourced and seasoned” income, which refers to monies from legitimate sources and have been present for a period of time. This may be required if there are red flags in the sixty-day bank statement.

A sixty-day bank statement is the standard period examined. Lenders will make sure that there are no overdrafts or bounced checks and that the money looks good. Even a five-dollar overdraft can disqualify an applicant, depending on the lender.

How do lenders verify bank statements for mortgages?

Each mortgage lender has its own process for document verification. Some work with physical documents, while some will manage them electronically. Expect that your lender will follow up with your bank to validate the statements after you’ve provided them.

They will check the account for what is called “proof of deposit.” This is a determination that enough money has been deposited or has accumulated in the account to cover the property’s down payment the applicant wishes to purchase.

If you have received a gift of money from a family member to help qualify for a mortgage, realize that this will also be scrutinized. This gifted money for a down payment must be thoroughly documented through transferral of funds, typically with a statement or withdrawal and deposit slips. Remember, large amounts quickly deposited cause red flags.

Things lenders look for from your bank statements:

• “Proof of deposit” (enough funds for the down payment on the desired home)
• Sufficient funds for the home
• Consistency of funds (aka “seasoned” income)
• Funds are from known sources (aka “sourced” income)

Things that shouldn’t be in your bank statements

• Bounced checks
• Overdraft (even one can disqualify you from some lenders)
• Large undocumented deposits
• Regular payments with irregular activities

Can you get a loan without a bank statement?

While some mortgages may allow you to apply without W2s or pay stubs, bank statements are always required by mortgage lenders. These companies lend large amounts of money to individuals, and they must be sure that each one is a good risk that won’t default on the loan. They must have a full financial picture to ensure that their investment is safe, and bank statements are the best way to determine this.

Understanding that the investigation of bank statements will be a part of the loan application process, take great care when getting ready to apply for a mortgage that your financial house is in order.

Have all required documentation gathered and ready to share with your lender. Know the cost of your “dream home”, and be sure that you have the money to cover the down payment, and to easily pay the monthly mortgage payment. Don’t make any drastic changes to your funds, and be sure to document any gifts you may receive from generous family members. Be very careful to spend wisely, and ensure that there are no overdrafts on your bank account.

Homeownership is a major and important step in life. Approach it with appropriate reverence, and understand that lenders are laser-focused on their own interests.

Although each lender is different in their qualifications, don’t expect lenience. You are an investment to them, and with careful planning, you can be a good risk and able to make your own investment in turn.

Are you ready to make the dream of homeownership a reality? Contact the team at Hero Home Programs™. They work hard to save you thousands of dollars on your home purchase. They can refer you to local vendors, search out federal grants, and help you on your home buying journey.

Original post here: Importance of Bank Statements for Mortgage Applications

A Quick Guide to a Bank Statement Mortgage

A bank statement mortgage, also known by the names self-employed mortgage or alternative documentation loan, is a mortgage that enables an applicant to secure a loan from a lender without using traditional documentation such as W-2s or tax returns. Instead, the applicant submits 1-2 years’ worth of bank statements and a few other qualifying criteria that will be discussed in this article.

What are the advantages of a bank statement mortgage?

A bank statement mortgage is an ideal option for those who might not qualify through traditional methods due to the nature of their income. Advantages of the bank statement loan include the following:

• Pay stubs, W-2s, or tax returns are not required
• Usually have high loan limits
• Often allow for higher DTIs (debt-to-income ratios)
• May be used on a primary residence and also on second homes or investment properties
• An applicant can qualify with as little as 10% down

Different types of bank statement mortgages

Personal bank statement loans

A personal bank statement loan is for an individual applicant who needs this special loan because of an irregular income but can pay on a mortgage. These generally fund primary or secondary homes but may also apply to investment properties.

Business bank statement loans

A business bank statement loan is offered to a business and is meant to fund business-related purchases, such as properties, offices, warehouses, and investment properties.

One-month bank statement loans

These are far rarer than the other two categories of bank statement loans. In some special cases, the applicant qualifies under strict credit and down payment requirements, the bank may grant a loan based on bank statements covering only a month. One-month bank statement loans are not offered by many lenders. It is basically a no-income documentation loan where the bank statement activity is what gets scrutinized. If the bank statement shows unusual activity, such as a large income but simple living, the loan may be denied.

How does a bank statement mortgage work?

While a bank statement mortgage can benefit those who want loans without having to submit tax info or pay stubs, they must have a slew of other information ready to share with loan officers. Requirements change lender to lender, but be ready to submit the following information.

Requirements

• 1-2 years worth of personal or business bank statements
• A credit score of 620 or above (this will vary by lender)
• A two-year history as a self-employed person
• Enough ready cash to cover several months worth of mortgage payments
• Verification of assets (i.e., mutual funds or 401k)
• Letter from tax accountant verifying business expenses and confirming that applicant files as an independent contractor

This information may be uploaded into digital mortgage software or synced with your bank to the lender. They are then approved through a manual underwriting process that can take up to 30 days to process. More complicated cases may take up to double that time.

Who would benefit from a bank statement mortgage?

Certain professions are set up in such a way as to be unacceptable for their workers who are not qualified for conventional or FHA loans because the income reported on their tax returns don’t reflect the true earnings. Deductions and business write-offs can skew the true picture. Those affected by this discrepancy can include freelancers and consultants, lawyers, doctors, small business owners, real estate agents, and investors. Bank statements will give a clearer picture of their true income and ability to pay on a mortgage loan.

Conclusion

A few downsides to a bank statement mortgage loan include the need for a larger down payment and potentially higher interest rates. They are also not offered by every lender. Some small business owners may qualify for conventional loans if they have been in business for over two years and have seen steady growth since. But a bank statement mortgage loan is available to newer small business owners.

A bank statement mortgage loan may also be applied to existing homeowners to refinance their mortgages. This can be a useful option to those who have left the traditional workforce since their initial home purchase but want to take advantage of home refinancing benefits.

Homeownership is an important investment and the best way to build wealth for most Americans. For those whose professions do not allow them to qualify for a conventional loan, or for those who are seeking a lower interest rate on an existing home, bank statement mortgages offer an excellent alternative to assist in the purchase of a home or business property.

If you are ready to pursue your dream of homeownership, reach out to the specialists at Hero Home Programs™ today. Our team is proud to offer access to local grants, rebates, and vendors who will assist you on your home buying journey. On average, homebuyers who use Hero Home Programs™ save thousands of dollars on their journey. Contact us today to learn how we can help you save money on your home purchase.

Original post here: A Quick Guide to a Bank Statement Mortgage

Military BAH Pay Rates for 2021

BAH, or Basic Allowance for Housing, is an allotment of money offered by all military branches to active duty members to cover housing costs for those who do not reside in government housing or barracks. Administered by the Defense Travel Management Office, BAH pay rate will vary on several factors. Still, the amount is calculated to cover 95% of housing expenses with the service member paying only 5% out of pocket. (source)

How much does BAH pay?

A powerful military benefit, the BAH payment rate is directly related to the cost of rental housing in local markets. It is designed to cover expenses if you live in privatized housing and thus changes based on the rental costs found at your duty station. Your pay grade and the number of dependents are also taken into account. If you are stationed in a more expensive area, the amount offered will be higher to allow for this increase. And while the rate itself changes each year, service members are not adversely affected by these changes. When BAH rates go up, it is generally observable, while the opposite is not. When rates drop, individual rate protection is in place to ensure that your own BAH doesn’t decrease if your situation remains the same.

Ways to see a decrease in your BAH

It isn’t often that you’ll see a decrease in your BAH pay. More often than not, the allowance is increased for the cost of living adjustments. But, there are some cases where a service member will see their BAH decrease. These scenarios include:

• Change of location. If you are PCSed to an area with a lower rental housing cost market, your BAH will be adjusted to reflect that change. The decreased amount will go into effect from your report date at your new station.
• You get demoted. If you are demoted, the BAH rate calculator will reflect that change of rank in allotted funds. If you are demoted to a level with a lower rate, this is your new rate. However, if you are promoted to rank with a lower BAH payment, you will not be penalized but will receive the BAH of your previous rank. Generally, those service members with higher ranks and more years of service get more BAH money, but there are some exceptions to this rule.
• Dependency status. Your amount of BAH is also calculated with your dependents in mind. Supposedly a change of circumstances creates a change in status from “with dependents” to “without dependents,'' it will be reflected in the BAH amount. The reduced rate becomes effective at the date of the dependency status change. On the other hand, there is no increase of BAH money for a service person with a spouse and children compared to one with a spouse only.

Basic allowance for housing rates in 2021

As reported by the Department of Defense release, the BAH rates for 2021 went into effect on January 1, 2021. These new rates reflect an increased rate of 2.9% across the board, although some may not see the increase due to cost of living factors in certain areas. You may calculate your personal BAH amount by using the Basic Allowance for Housing calculator available here.

Using your BAH to qualify for a VA loan

Basic Allowance for Housing continues to be one of the most useful benefits the military offers to its service members. Covering one of the largest expenses for any worker (housing), BAH allows those in the military to save money toward eventual homeownership. And extra money flowing into the budget isn’t the only advantage.

In addition to saving a bulk of the money that is usually paid for housing rental, the Basic Allowance for Housing is also a powerful benefit in that it can be used to pay toward a mortgage. Mortgage lenders consider BAH as income for those service members who wish to invest in a home purchase.

Also eligible for VA home loans, service members can take advantage of both of these powerful financial boosters to help buy their first home. Homeownership is the first step to building wealth for most Americans, and BAH income can make this dream possible for military service members.

If you are a service member who is ready to take that next step to homeownership, reach out to the team members at Hero Home Programs™. They will help you find area experts who can assist you with your home buying adventure while saving you thousands of dollars. They also have access to local grants and tax rebates, stretching your dollar even further. They work tirelessly to find a military home loan lender that will use your BHA to your advantage while keeping as much money as possible in your pocket. Contact a Hero Home expert™ today.

Original post here: Military BAH Pay Rates for 2021

Is A FICO Score The Same As A Credit Score?

Is there even a difference between your credit score and your FICO score? Actually, yes! Check out this article to learn more. 

 

Your credit score tells lenders how likely you are to pay your bills on time. The better your credit score, the less risky you look as a borrower. But a “credit score” is an overarching term to describe your overall creditworthiness. 

The 3 major credit bureaus are TransUnion, Equifax, and Experian. Each bureau calculates their own credit scores, so your score may vary between the three different bureaus. 

 

What Is A FICO Score?

 

A FICO score is just one kind of credit score, but it’s the most popular one. Think of it this way: if credit scores were search engines, the FICO score would be Google. 

The name “FICO” comes from the Fair Isaac Corporation. Generally, FICO scores can range from 300 to 850, with a 740 usually considered to be an excellent score. However, there are different versions of FICO scores, with some being industry-specific. These industry-specific FICO scores generally range from 250 to 900.

For example, if you’re applying for a credit card, the credit card issuer will probably look at your FICO Bankcard Score. But if you finance a new car, the auto lender will look at your FICO Auto Score. For purchasing or refinancing a home, mortgage lenders will look at different versions of your FICO scores across all three of the major credit bureaus. 

In addition to industry-specific FICO scores, there are new models of FICO scores that are released throughout the years. For instance, the FICO Version 9 came out in 2014. 

 

Are There Other Types Of Credit Scores?

 

Yes! One alternative to a FICO score is the VantageScore, and there are different versions of VantageScores being released such as 2.0, 3.0, and 4.0. 

Also, some large lending institutions will use their own, customized scoring models to determine your credit score.

All in all, credit is pretty complicated. There are several different types and models of credit scores, with new versions constantly being released. Chances are, you have dozens of different credit scores.

 

What Does This Mean For You?

 

Instead of trying to master the complexity of different credit scores, it’s best to focus on good credit behaviors across all of your finances. These healthy credit behaviors include paying your bills on time, preventing debt from going to collections, and maintaining a strong credit utilization ratio.

If you’re struggling to repair or maintain your credit, then talking to a reputable credit counselor can help you come up with a game plan. When it comes to navigating your credit history or even disputing errors on your report, it may be best to talk to an expert who can negotiate with creditors on your behalf.

Original post here: Is A FICO Score The Same As A Credit Score?

All You Need to Know About Military BAH (Basic Allowance for Housing)

If you are associated with the military in any way, you’ve heard the acronym BAH. While you may know a few of the basics, this article will examine the military BAH in-depth, including types, benefits, and how to calculate rates.

What is BAH?

BAH stands for Basic Allowance for Housing, and it refers to a stipend received by active military members to cover around 95% of the cost of home rental. BAH money is offered on top of your regular monthly payments. In addition to covering a home rental, it may also be counted and used toward utility payments.

What are the benefits of BAH?

BAH allows for service members to have the freedom to live off base without worrying about the extra cost that this entails. Single service members don’t have to be tied to the barracks and can find an apartment or house where they can live independently at a price they can afford. For those with a family, they can avoid having to wait for base housing availability and find a home that will be the right fit for them.

Different types of military BAH programs

BAH with and without dependents

The military BAH will be adjusted according to whether or not you have dependents. Those who have a spouse and/or children will receive a greater amount of BAH to accommodate a larger living space.

Partial BAH

This is given to a service member living in government quarters (such as barracks or base housing) in accordance with their location and rank.

BAH-differential

Also known as a BAH Diff, this payment is reserved for those who live in government quarters and pay child support. However, if the amount of child support owed is less than the amount of BAH Diff the service member is eligible for, they will not receive the BAH Differential.

BAH reserve component/transit (BAH RC/T)

The BAH RC/T, also known as BAH Type II or BAH non-locality, is a non-locality housing payment for members that are in specific circumstances such as members overseas, or reservists who are serving active duty for 30 days or less. It is not calculated by location but is the same across the board and based on BAQ (Basic Allowance for Quarters).

Calculating military BAH rates

Calculating BAH rates is best done through the use of the BAH Calculator. The DTMO offers this service, and you may check what your payments will be at any location in the world by inputting your paygrade, location, and the number of dependents.

BAH rates are dependent upon several factors:

• Duty station (the average rent for the location where you’re stationed)
• Paygrade
• Years of service

Your BAH will increase with an increase of pay grade and years of service, and the location will determine the average housing costs for the area. Payments will increase for those stationed in more expensive areas and vice-versa.

BAH payment variations

BAH payments will vary according to these factors, but the payment is calculated to cover roughly 95% of the home rental cost. This greatly reduces the cost and stress of renting for the service member. Military BAH rates in 2021 are now available and may be calculated through the BAH Calculator found at Military.com. You may also view the military pay chart for 2021 at this site, reflecting a 3% increase in military pay, and a 2.9% increase in BAH payments compared to 2020. Service members may not see a change, especially if there are rent increases in their area.

BAH payments do not vary between the branches of the military. Coast guard BAH rates are the same as Army BAH rates, and the Navy BAH scale is the same as the Air Force. So, how much does BAH pay? It is entirely dependent on your pay grade, years of service, dependents, and duty location. These are the only factors considered when calculating BAH.

The only ways you’ll see a change in your BAH payments are if the status of dependents changes, you are demoted, or if you change location. If you are being stationed in a different area, you may want to check the BAH Calculator to determine what your new BAH payment will be.

Basic Allowance for Housing is an excellent resource for military service members that can be used to greatly reduce financial burden. In addition to the direct benefit, it is also important to know that mortgage lenders recognize a basic allowance for housing as a source of income the same way they would a W-2 income.

Those service members who are receiving a BAH payment may use this to qualify for a Military Home Loan to actually purchase a home. In addition, the BAH payment will very likely cover the entire mortgage payment.

If you are in the market for a new home and have a BAH, contact the team at Hero Home Programs™. They will work to save you thousands of dollars on your home purchase while also putting you in touch with local experts in your area for home inspections, insurance, and more.

Original post here: All You Need to Know About Military BAH (Basic Allowance for Housing)

Top 5 Things That Affect Your Credit Score

How is your credit score calculated? Read below for the full breakdown.

Credit can get pretty complicated because there are several different models and versions of your credit score. To keep things simple, we’ve broken down the main factors that impact your FICO score, which is the most widely used credit scoring model.

Your FICO Score is calculated by 5 different categories: Payment History, Amounts Owed, Length Of Credit History, New Credit, and Types Of Credit.

1. Payment History (35%)

Your payment history accounts for 35% of your credit score. This means that missed payments can do serious damage to your credit. Just one late payment could knock up to 110 points off your FICO score. Depending on the lender and your payment history, a late payment of just a day or two could be reported.

At the time, the late payment may cost you only a late fee. But it could cost you thousands later if a lower score means you pay a higher interest rate on your next loan.

Little other than time will decrease the negative impact of a late payment, so prevention is the one sure remedy. 

2. Amounts Owed On Your Credit Accounts (30%)

Having credit card debt doesn’t necessarily hurt your score. However, if you use too much of your total available credit balance, this can make you look like a high-risk borrower. Opinions vary, but experts say it's best to use only 10% to 30% of your available credit to keep up your credit score.

It’s important to understand your credit utilization (the amount of debt relative to your total available credit). Closing out old credit accounts can lower your total available balance, which raises your credit utilization and hurts your score. For a healthy credit score, you generally want to keep your debt low, and your total available credit high. 

3. Length Of Credit History (15%)

It takes some time to establish your credit history. But someone with a short credit history can get a high score, as long as they don’t have negative information on their report. In some cases, if a person has little to no debt or late payments, they can build up a high FICO score in just a few months. Good credit behaviors, like avoiding negative credit information and using credit cards wisely, can help someone build their score relatively quickly.

Keep in mind, this factor is one of the reasons why closing unused credit card accounts can hurt your score. Older credit accounts give you a longer credit history, and closing them out might wipe the slate clean on that credit history. 

4. New Credit (10%)

If you open several new credit accounts, this rapid activity may appear like a high risk to borrowers and therefore hurt your score. If possible, try not to open multiple accounts over a short period of time.

If you’re in the process of applying for a loan, opening credit accounts can hurt your chances of getting approved. New credit accounts often involve hard inquiries that could knock points off your score. 

5. Types Of Credit In Use (10%)

The FICO scoring model will look at your mix of different credit cards, loans, retail accounts, and more. It’s not necessary to have a large variety of credit accounts to build your score. However, you should keep this factor in mind before signing up for any new credit account. 

The Bottom Line

Even minor adjustments can impact your score, and it's not always obvious whether they will hurt or help. If you’re trying to get approved for a loan, speak to a professional before you do anything that might affect your score. Changes like closing an old credit account, signing up for a new retail card, or even paying off collections might hurt your chances of getting approved. 

Overall, when repairing or maintaining your credit, you never want to do anything that can be seen as impulsive. If you’re not sure what moves you should make, consider reaching out to a reputable credit counselor for help.

Original post here: Top 5 Things That Affect Your Credit Score

Starting From Scratch? Here’s How To Build Your Credit

If you don’t have a lot of credit history, it may seem a little intimidating to get started. But starting from scratch isn’t as difficult as you might think.

Understand Factors That Could Hurt Your Score

Prevention is key. Once a late payment is sent to collections, this will harm your credit, and paying off that delinquent debt won’t boost your score either. Negative information on your credit history, like bills sent to collections, can stay on your credit report for several years.

It’s important to pay all your bills on time because late payments can negatively affect your score. Unfortunately, not all bill payments will boost your credit score. For example, paying off an auto loan early probably won’t raise your score. However, keeping up with your utility bills and credit card payments will help you build credit.

For regular bills like student loans or car payments, make sure to pay these on time to prevent late payments from hurting your score. Consider setting your bills to auto pay, or putting reminders in your calendar so you don’t miss payment due dates. Just don't expect all your bill payments to help you build credit.

 

Little-Known Mistakes You Should Avoid

For your monthly bills, confirm if you are on auto pay or not (especially for utility bills!). Sometimes, you may pay a utility bill in advance, just to be charged a second time on the auto pay date. If this occurs, the double charge is usually credited to your utility account, so you don’t lose the money, but it’s definitely frustrating to be automatically charged for a bill you already paid!

Another thing to avoid, if you’re at the mall and a cashier tries to sell you a retail card, this may not be a good idea. Taking on new credit accounts like retail cards can hurt your credit if you don’t know how to use them properly. 

 

Use Credit Cards To Your Advantage

Having some utilities in your name, and paying those bills on time, is definitely a good idea for building credit, but a more effective way to build credit is through a credit card.

The great thing about starting from scratch is strategizing how you use credit cards. If your main goal for credit cards is to build credit, then it’s easier to stay on top of your monthly payments. As long as you don’t have any negative information on your credit history, then applying for a new credit card shouldn’t be too difficult. Just don’t get carried away!

 

Have A Credit Card Game-Plan

Let’s say you have very little credit history, so you apply for a new credit card and wow! They give you a total available credit balance of $1000 per month! You now have an extra $1000 to spend each month, right? 

Actually, no. For your monthly credit card spending, you want to stay within 15% of your total available credit balance. If you get $1000 of total credit each month, don’t spend more than $150 on your card before paying off the full amount from your checking. 

You do have the option to only pay the minimum balance each month (instead of paying off the full amount). However, only paying the minimum amount probably isn’t a good idea. If your goal is to quickly build credit, then paying off the full amount each month will get you there faster. Also, only paying the minimum balance means taking on more debt.

 

Avoid Taking On Too Much Debt

It can be tempting to rack up debt each month. To prevent yourself from making this mistake, you should only use your credit card for a fixed expense like gas or groceries. If you use your credit card for more variable expenses like online shopping, this can rack up credit card debt faster than you think. Use your credit card on one or two expenses that you NEED to buy each month, not impulsive purchases that you want. 

All in all, keeping your credit card debt low and paying off the full amount each month will help you build credit relatively fast.

 

The Takeaway

If you have little to no negative information on your credit history, then starting from scratch will be faster and easier than you think. As long as you steer clear of excessive debt or late payments, then you’ll quickly realize that building credit isn’t actually that difficult.

However, if you do find yourself in a situation where there are errors or negative information on your credit report, you may want to reach out to a professional who can help (Just make sure to avoid those credit repair scams!). 

When you find yourself in a bad credit situation, you don’t want to accidentally make mistakes that can harm your credit even more. Talking to a reputable credit counselor will help you avoid those mistakes and address credit problems in the best way possible.

Original post here: Starting From Scratch? Here’s How To Build Your Credit

Top 5 Little-Known Facts About Credit Scores

When it comes to credit scores, there’s a lot of conflicting information out there. Check out these little-known facts to keep you informed.

1. There Are Several Types Of Credit Scores

The phrase “credit score” is an overarching term used to describe how likely you are to pay your bills on time. There are several different scoring models that determine your creditworthiness. 

You’ve probably heard about the FICO score, which is the most popular scoring model. However, there are different versions of FICO scores, with some of them being industry-specific. For example, an auto lender will look at your FICO Auto Score when getting you approved for a new car. For purchasing or refinancing a home, mortgage lenders will look at different versions of your FICO scores across all three of the major credit bureaus. 

Not only are there several versions of FICO scores, but there are also new scoring models coming out throughout the years, such as the VantageScore. Trying to understand all the different types of credit scores can get confusing. Overall, it’s better to focus on good credit behaviors across all your financial activity.

 

2. Sometimes A Dispute Isn’t A Good Idea

Here’s where things get a little controversial. On the one hand, checking your credit history for errors is crucial for maintaining a healthy credit score. But in some cases, fixing your credit report right away may not be helpful. 

When you report an error, a credit dispute notice is placed on your report until the original entry is either verified as accurate or corrected. If you disagree with their finding, the credit agency will put another dispute notation on the report while the process starts over.

But when you’re applying for a mortgage, a dispute notation will probably cause the loan to be sent to manual underwriting (a longer process) or even denied. Fixing the error may not be worth the risk of having a notification linger on your report.

If you’re in the process of applying for a loan and notice a mistake on your report, make sure to consult with your lender before taking any action. 

 

3. Paying Off Collections Won’t Boost Your Score

If you’re in the process of applying for a home loan, and you notice a delinquent balance from a couple years ago, you should immediately pay it off, right? Actually, no! While paying off an old bill that you missed seems like the right thing to do, that recent activity could raise a red flag to underwriters. If an unexpected item comes up on your credit report, you should consult with your lender before taking action.

To maintain a healthy score, you want to prevent any bills from going to collections. Letting a delinquent bill go to collections can hurt your score, but paying that bill won’t raise your score. If you find out about an old balance that has already been sent to collections, you may want to consult with your lender or a credit repair specialist before paying it.

 

4. Messing With Your Credit Limit Can Lower Your Score

A lot of people focus more on the debt rather than their total available credit balance. But an important factor that impacts your credit score is the credit utilization ratio. Your credit utilization is the total amount of debt that you owe, divided by your total available credit balance. 

For example, let’s say you have two credit cards with a combined $100 in debt, but your total credit limit for those two cards is only $200. This makes your credit utilization ratio 50%.

Someone with the same credit card debt of $100 but a credit limit of $1,000 has a credit utilization of 10%.

To maintain a healthy credit score, you want to keep your credit utilization low, preferably between 10% to 30%. Closing unused credit cards can lower your total credit limit, which raises your credit utilization and hurts your score.

 

5. Negative Info Can Remain On Your Report For Several Years

When it comes to negative information on your credit score, prevention is key. Unfortunately, paying off collections doesn’t immediately wipe it from your report. Late payments can stay on your report for seven years. Thankfully, all negative credit events eventually will fall off your report. 

If you have problems in your credit history, it’s best to focus on the things you can control to positively impact your score. Working with a reputable credit repair specialist can help you overcome these issues and create a game plan for improving (and maintaining) your credit.

Original post here: Top 5 Little-Known Facts About Credit Scores

Is A Credit Counselor Right For You?

While some people do just fine with DIY budgeting, others need a little help managing their finances and maintaining healthy credit.

What Is A Credit Counselor?

A certified credit counselor is someone who looks at your entire financial situation and helps create a personalized plan for getting back on track. 

If you work with a credit counselor, they will help you obtain copies of your credit reports, advise you on managing money and debts, and work with you to develop a budget. 

So how might working with a credit counselor be better than a do-it-yourself plan?

• The counselor will help you take time to think thoroughly about your finances.
• The counselor is not emotionally invested in your past decisions and may help you see them from a different perspective.
• A credit counselor will encourage you and facilitate positive change.

What Is A Debt Management Plan?

Reputable credit counselors can help you with budgeting and managing your income and debts. Sometimes, they’ll recommend a debt management plan (DMP).

If you establish a DMP, the credit counseling agency will work with you and your creditors to develop a payment plan for your unsecured debts, such as credit cards or medical debt. You will make monthly payments to the credit counseling organization, which will disburse payments to your creditors.

Participation in a DMP can negatively impact your ability to access new credit in the future. You should ONLY sign up for a DMP if you have spent time reviewing your complete financial situation with a certified credit counselor.

 

Why A Credit Counselor May Be Right For You

Connecting with a credit counselor may be a good decision if you:

• Feel helpless in dealing with negative information on your credit history
• Need education to establish positive financial habits
• Don’t want to make any mistakes that will worsen your situation

 

How To Find The Right Credit Counselor For You

If you’re working with a loan officer, ask them for recommendations on reputable credit counselors. You can also try an Internet search for credit counseling near you. Once you’ve found some potential credit counselors, you can vet them through the consumer protection agency.

Reputable credit counselors should give you free information on their services. Any credit counseling agency that isn’t an open book when it comes to their services may be a red flag. Do not give out any of your personal information before getting detailed information on the services they offer.

What To Watch Out For

There are a lot of reputable credit counselors who can help you get your finances in check. Sadly, there are also a lot of scams out there that you need to avoid. When researching credit counselors, be on the lookout for red flags so you can steer clear of those credit repair scams.

Original post here: Is A Credit Counselor Right For You?

How Your Credit Score Affects The Cost Of Your Mortgage

You probably know that a higher credit score helps you get a better interest rate. But there’s more to it than that. 

Your credit score directly affects the interest rate on your mortgage. The difference between a “good” versus an “excellent” credit score can save you thousands of dollars on interest.

Most people know that a healthy credit score gets you a better rate on your home mortgage. But interest rates aren’t the only costs associated with your credit score. 

Depending on the type of home loan you get, there are other fees that can be impacted by your credit score. For example, certain types of home loans come with additional mortgage insurance fees. Having a higher credit score might help lower those mortgage insurance fees. 

Your credit score also affects the Loan Level Price Adjustment fees (LLPAs) paid on your loan. These are upfront premiums that mitigate risk and can be added to your interest rate. The lower the credit score, the higher the risk, and the higher the LLPA. Other factors are considered, too, such as the amount of your down payment and the type of home.

LLPAs can potentially add thousands in the upfront cost of your loan. All in all, these fees are yet another reason why it's important to take care of your credit score. 

Talking to a mortgage professional can give you a better idea of how your credit score will affect the interest rate and other fees. If you already have a home mortgage, but your interest rate is high, then it may make sense to refinance, especially if your credit score has improved.

Original post here: How Your Credit Score Affects The Cost Of Your Mortgage

Credit Repair Companies: How To Spot The Scams

A credit repair service can be the perfect solution for people who need help improving their credit. Unfortunately, there are a lot of scams out there. Here’s how to avoid them.

Credit Repair Scams: Red Flags To Watch Out For

These are some telltale signs of a credit repair scam:

• Asking for payment upfront before you use their service
• Encourage you to give false information on any credit applications
• Tell you not to directly reach out to any credit reporting agencies
• Suggest you dispute information that you know is accurate
• When talking about their services, they do not explain your legal rights
• They promise you a quick fix, a new credit identity, or an erasure of bad credit

Any company that offers you a “new credit identity” is likely committing major fraud. If you work with a fraudulent company and follow their advice, this can get you into serious legal trouble.

According to the Credit Repair Organization Act (CROA), it is illegal for credit repair agencies to lie about their services, or demand payment upfront. This law was passed by the Federal Trade Commission.

The FTC requires all credit repair companies to disclose:

• Your legal rights with a detailed explanation of their services 
• That you have 3 days to cancel without charge
• The amount of time it will take to get results
• The total costs of their service
• Any additional guarantees

What About The Reputable Credit Repair Companies?

Now that you know what red flags to look for, you may feel hesitant to seek out help. Thankfully, there are reputable credit repair specialists who actually can help!

A legitimate credit repair specialist will always provide the following:

• A written contract
• The ability to cancel without charge within three days
• An estimate of how long it might take to get results
• Information on any guarantees they offer
• A list of total fees you will pay for their services

Why Hire A Credit Repair Specialist?

Credit is incredibly complicated. There’s a reason why there are experts who deal with the ins and outs of credit issues every day. 

A credit repair specialist may be able to correct false information on your report more quickly. In addition, they can help you manage any negative items on your report such as late payments or bills sent to collections. A specialist may even be able to negotiate with your creditors on your behalf. 

Another thing to keep in mind, if you have negative information on your report, trying to fix these issues on your own might actually create more problems, especially if you’re in the process of applying for a loan. 

Even if you’re not a credit expert, it’s a good idea to understand the best practices for maintaining healthy credit. However, for complicated issues that arise when you apply for a home loan, it may be best to speak to a reputable credit counselor who can help.

Original post here: Credit Repair Companies: How To Spot The Scams

What is the Right of First Refusal?

For renters interested in eventually purchasing the property they live in, there is a way to secure the front-of-the-line spot when the home goes on the market. Rather than have to worry about third parties driving up the price in a bidding war, the renter may purchase the house before any other can put in an offer. This situation is made possible by what’s called a Right of First Refusal clause. But what exactly is this clause, and how does it work?

What is a Right of First Refusal?

Also known as a ‘First Right of Refusal’ or by the acronyms ROFR or RFR, a Right of First Refusal is a contractual clause that gives the contract holder first dibs on entering a business contract before other interested parties. While the ROFR can be used with any sort of asset, it is a particularly popular option for real estate lessees as it gives them preference for the properties they live in.

If a party that holds the ROFR decides that they don’t wish to enter into a transaction, then the company or individual that is the obligor is then free to take other offers.

The difference with Right of First Offer

There is a difference between the First Right of Refusal and the clause Right of First Offer. The Right of First Offer is also called the Right of First Negotiation, is a requirement for the obligor to enter into exclusive good faith negotiations with the holder before engaging with other parties. While a ROFR calls for a transaction in either exact or approximate terms, the Right of First Offer is only an agreement to negotiate.

How ROFR in real estate works?

In real estate transactions, the Right of First Refusal real estate contract is held by the person who is leasing a property. Say, for example, they have a contract to lease for seven years. At the end of these seven years, they may choose to buy the property from the owner or to refuse it and move on. Only when they refuse to purchase can the property owner begin negotiations with another party.

Where can you apply for ROFR?

There are a few scenarios in which the Right of First Refusal is used in real estate transactions. The first is between a tenant and a landlord. This is similar to our previous example, during which the renter had the contractual right to purchase the home they’d been living in before the owner sold to someone else.

The ROFR may also be used between family members in a real estate transaction. If the owner has a family member who wishes to purchase the home, they may submit the first offer when it goes on the market. However, if they decide that they aren’t interested, the owner is then free to do as they wish.

The third scenario in which ROFR applies to real estate is when a homeowners association or condo board adds this clause into their governing documents. They do this so that the board can select from among potential buyers before the homeowner can accept an offer. The governing board may wish to avoid a discount sale or refuse a specific offer.

Advantages and disadvantages of ROFR

There are good and bad aspects of a Right of First Refusal clause for both the buyer and the seller. Here’s a brief rundown of the advantages and disadvantages for both parties.

Right of First Refusal for buyers

Pros

• The clause gives a potential buyer time to save up money and prepare financially to purchase the property.
• Lack of competition means that the price won’t be driven up by a bidding war between other potential buyers.

Cons

• If a third party wants to purchase the property, a buyer must be prepared to make an offer or move out quickly.
• If they are not yet prepared for purchase, they can lose out.

Right of First Refusal for sellers

Pros

• In a buyer’s market, a ROFR may make the sale more attractive for interested parties, and allow them to charge a higher price (as the ROFR is a direct benefit for the buyer).

Cons

• In most cases, a ROFR isn’t ideal for a seller, because it ties their hands when it comes to selling the property. In a good market, the time it takes for the clause holder to decide whether to buy or not, a seller could lose valuable third-party offers due to loss of interest.

Is Right of First Refusal the right one for me?

As with any significant financial decision, consult a lawyer before embarking on a ROFR clause. They can vary in scope, and no two are the same. While the Right of First Refusal generally benefits the buyer, contingencies may be added to your disadvantage. Before signing, make sure that all parts of the clause are suitable to you.

If you have a ROFR clause on a property that you have been leasing and you are now ready to purchase, contact Hero Home Programs™. Their team of home buying specialists will put you in touch with local experts who will assist with your purchase while saving you thousands of dollars.

Homeownership is a dream for many. Let Hero Home Programs™ helps make it a reality for you.

Original post here: What is the Right of First Refusal?

Basic Guide for Non-Qualified Mortgage Loan

If you have a less than perfect credit score or are self-employed with alternative income, you won’t qualify for a traditional home loan. However, you don’t have to rent forever.

There is another option. It is called a non-QM loan or non-qualifying mortgage. This article will go over what a QM or a qualifying mortgage is and QM versus non-QM loans, where to find non-QM loans, and who might benefit from one.

What is a non-qualifying loan?

A traditional, qualified mortgage meets requirements laid out by the Frank-Dodd Act put into place after the housing market crisis of 2008 and standards set by the Consumer Protection Act. Some of these standards include having a debt ratio lower than 43%, verification of income, and a loan term of 30 years or lower, among others. The purpose of a QM loan is to prevent another housing crisis, which is why these loans have such stringent requirements.

However, a non-qualifying mortgage, also called a non-QM loan, doesn’t have to meet a qualified loan’s standards. Non-QM mortgages use non-traditional verifying income methods to provide home loans to those with unique income circumstances or situations. The main differences between a QM loan versus a non-QM loan are the requirements.

Requirements for a non-qualifying loan

Since non-qualifying loans are not backed by any government entity such as Fannie Mae, FHA, or VA, the requirements are not standardized. This means that each loan provider can set their own standards for verifying your income and ability to repay the loan.

For instance, if someone is self-employed, the lender can’t call your employer as a QM loan officer would. When this happens, the mortgage lender might ask for five years of bank statements to prove income.

You could still see some traditional loan elements, such as a minimum credit score requirement, proof of income, and debt ratio requirements. However, any requirements with a non-qualifying loan will be met in ways that a qualifying loan would not allow.

Type of borrowers that would benefit from a non-QM loan

A non-QM loan would help any buyer with income to make regular payments but does not meet a qualifying loan’s requirements.

A great example would be if you owned your own successful business. You receive income, but it is not regular on a set schedule. Some months you might have double your ordinary income, but other months, you might have had a bad month and have less income.

Even though you might be able to afford a loan payment every month, you would not be able to meet the income verification requirement of a qualifying loan. In this scenario, a non-qualified mortgage loan would be of great benefit.

Other borrowers that would benefit from a non-qualifed mortgage loan include:

• Retirees
• Buyers with high debt-to-income ratios
• Buyers with a lower credit score
• Foreign nationals
• Those who live off of investments, such as a real estate investor
• Buyers with high assets but low income
• Medical professionals
• Prime or non-prime borrowers

Advantages and disadvantages of non-QM loans

Like every loan, there are advantages and disadvantages of non-QM loans. Let’s take a look at a few of these.

Pros

• Lower credit score requirements enabling buyers with less than perfect credit scores to qualify
• The application process is not anymore difficult than a traditional mortgage
• Income verification is less specific, allowing for alternative forms of verification.

Cons

• Non-QM loans can be harder to find as fewer institutions offer them.
• Interest rates and fees can be higher.
• Non-QM loans can have higher down payments.

Do you need a non-qualifying mortgage?

If you don’t meet certain criteria, you may need a nonQM. If you’ve tried to obtain a traditional loan for a home and been denied because your income is sporadic or your DTI is too high, ask the lender if they offer non-qualifying mortgage loans. Not all lenders offer nonQM loans, so you may need to shop around.

Who offers a non-qualified mortgage loan?

Even though non-qualified mortgages are offered at fewer institutions than traditional mortgage loans, there are still several options that allow you to shop around for a good lender.

• Credit unions: You don’t usually have to be a credit union member to take out a loan. However, you might have to meet additional qualifications like living, working, or attend a house of worship within a certain radius of the credit union. Credit unions have the benefit of typically having lower interest rates, though their credit score requirements can be higher than other mortgage lenders.
• Bad credit mortgage lenders: Some lenders work specifically with those who have lower credit scores. These lenders will have lower credit score requirements but sometimes higher interest rates. However, they are a good option if you have a less-than-average credit score.
• Private mortgage lenders: Several private mortgage lenders offer non-QM loans, each with its own requirements. A simple Google search can find you several different options to find one that you meet the requirements for.

Non-QM loans are perfect for those who want to buy their first home, second home, or even an investment property but don’t meet a QM loan’s strict requirements. Though there are some downsides, the pros outweigh the cons, making a non-qualified mortgage loan a viable option for those with alternative incomes.

If you are ready to purchase a home and think that a non-qualifying mortgage is a good option for you, reach out to the experts at Hero Home Programs. Their partnership with local vendors and national lenders makes finding your home buying partners easier than ever before.

Original post here: Basic Guide for Non-Qualified Mortgage Loan

How Can You Use Home Equity To Pay Off Debt?

A lot of people struggle with getting their debt under control. It can be all-too-easy to rack up credit card debt before learning the best strategies for spending and saving your hard earned money.

But even after you learn about these best practices, you may still be stuck with a mountain of debt looming over you. High interest debt can snowball into a bigger and bigger problem, all the while harming your credit score.

If you’re like the thousands of homeowners who have invested a lot of time, energy and money into their biggest asset, then it may be a good time to tap into your home equity and pay off your debts.

 

What Is Home Equity?

 

Home equity is the difference between your home’s current value and the amount of money you owe on your mortgage. Building home equity is an incredibly powerful asset because it’s pretty much like putting money back into your pocket. 

Here’s how it works:

Let’s say you took out a mortgage on a home that costs $200,000. 

Five years later, you’ve paid off $50,000 of your mortgage. And good news, your home has risen in value to $250,000!

This means you have $100,000 worth of equity in your home!

Here’s another way to visualize that example:

$250,000 (current home value) - $150,000 (what you owe on your mortgage) = $100,000 (your home equity)

If you’ve built up equity in your home, you ought to know what you stand to gain from that equity.

For example, maybe you’ve stacked up a little too much credit card debt than you can handle. This debt could hurt your credit score and cost you extra money with high interest rates. A lot of homeowners run into this issue. Thankfully, they’re able to take cash out of their home’s equity and pay off their credit card debt.

This is called a cash out refinance. Here’s how it works.

 

Cash Out Refinance

 

This option lets you change your original mortgage into a different type of mortgage, while cashing in on your home equity. 

In a cash out refinance, you refinance your current home loan for more than what you owe on your mortgage. You can receive the difference (the new loan amount minus what you owe) in cash. 

Let’s use the example from earlier. You owe $150,000 on your original mortgage but now have $100,000 in home equity as leverage. 

With a cash out refinance, you could take out a different loan for $200,000 and receive a check for the difference ($50,000). 

$200,000 (new loan amount) - $150,000 (what you owe on first mortgage) = $50,000 

You will need to repay the new loan in monthly payments with interest, along with the closing costs of refinancing. 

Unlike a Home Equity Loan (HEL), a cash out refinance does not work like a second mortgage. With a cash out refinance, you won’t have to cover two mortgage payments each month.

To access the cash out option, you’ll have to build up enough equity in your home. The amount of extra money you can get from this cash-out depends on how much equity you have. The more equity you have in your home, the more money you can take out.

 

The Bottom Line

 

Building up equity in your home gives you major leverage for the future. If you do find yourself in a bind and need help paying off debt, then tapping into your home equity may make sense for you, especially if your debt payments have high interest rates. A cash out refinance may allow you to get rid of that debt and opt for lower-interest loan payments.

But keep in mind, if you decide to tap into your home equity in order to pay off debt, make sure you have a better understanding of financial strategies to prevent you from racking up more high-interest debt in the future.

If you’re interested in using your home equity to pay off debt, talk to a mortgage professional about your options. A mortgage professional can look at your unique situation and help you decide which options are right for you.

Original post here: How Can You Use Home Equity To Pay Off Debt?

How To Get A Lower Interest Rate On Your Mortgage

Looking to refinance for a lower interest rate on your mortgage? Here’s what you need to know.

 

When Should You Refinance?

 

There are several potential benefits to refinancing your home. But one of the best reasons to refinance is getting a lower interest rate.

As interest rates fall, you may want to refinance your home to reduce your interest payments.

Traditionally, it’s believed that lowering your interest rate by at least 2% will save you a significant amount of money. In some cases, however, lowering your interest rate by a mere 1% can also make sense.

These “rules” are helpful to keep in mind, but they don’t paint the full picture of how refinancing affects your unique situation. While it’s a good idea to look at changing rates in the market, your individual situation can be a deciding factor on whether to refinance.

For example, your original interest rate could be high. So even in a market when rates are rising, you may still be able to get a lower rate on a refinance. It may be a good idea to go ahead and refinance before interest rates rise any higher.

Also, if you have improved your credit score, this could help you get a better rate regardless of changing rates in the market.

What it all boils down to is this:

How much lower of a rate can you get, compared to the rate you already have?

 

What A Lower Interest Rate Means For You

 

Most people know that a lower rate saves them money on interest, and these savings can seriously stack up over time. 

However, a lot of people don’t realize that refinancing for a lower interest rate can also reduce your monthly payments, which means bigger savings in the short term, too.

Lower monthly payments on your mortgage are a total game changer. The easier it is for you to pay off your mortgage, the more equity you can build in your home. 

Keep in mind, refinancing means you will need to pay additional fees and closing costs. When working with a mortgage lender, make sure to go over those costs. You want to determine whether paying these additional costs will end up being worth it for you in the long run.

 

The Takeaway

 

Having the option to refinance can be a powerful asset later down the road. Still, there are a lot of factors that determine when you should refinance and what refinancing options you should go with. 

Some other factors to consider when refinancing:

• How long are you going to keep your mortgage? Do you plan on selling your home in a few years?
• Will there be any changes to your income in the upcoming years?
• How much equity do you currently have in your home? Has your home risen in value since your original purchase?
• What are your financial goals? Maybe you’re looking to save money on your mortgage so you can invest in stocks, or maybe you’re wanting to save up more money to put into your retirement fund.

For these reasons, it’s important to speak to a mortgage professional who can look at your unique situation and help you choose the best course of action for you.

When talking with a mortgage professional, it’s always a good idea to get a second opinion. You want to work with someone who understands your future goals and can help you achieve them.

Original post here: How To Get A Lower Interest Rate On Your Mortgage

What is a Home Loan Modification?

Significant life changes that affect income can happen, and when they do, homeowners are hit hard. In addition to a slew of living expenses that must be paid — groceries, water, keeping the lights on, etc. — there is a big expense that is sometimes hard to maintain when a financial difficulty happens. A home mortgage is often the largest bill a family has and the bill that doesn’t get paid when money is tight.

For borrowers and lenders who want to avoid the negative impacts of a foreclosure, there is a less extreme choice called a home loan modification.

 

What is a loan modification?

A loan modification is when a lender changes any one of several terms of a loan, typically because the borrower cannot pay. The changes made can include extending the length of time for repayment, reducing the interest rate, or switching up the type of loan. While loan modification can be applied to any type of loan, it is most often used for mortgages.

Eligibility for a loan modification will change from lender to lender, but borrowers facing financial hardship are eligible to apply. These hardships may include any of the following: natural disaster, increases in housing costs, a job change that entails a lower salary, divorce, death of a family member (and loss of their earnings), and disability or illness.

Benefits of loan modification

You don’t want to be in a place where you need a loan modification, but there are plenty of benefits of loan modification if disaster strikes.

Resolving delinquency status with the mortgage company

If you’ve missed a mortgage payment or two, you want to resolve this quickly to avoid damage to your financial history.

Reduce monthly payments

If you are bringing in less income for some reason, a loan modification can lower your monthly payments so that you can keep your home.

Less damaging to credit score

If the bank ends up having to foreclose on your home, it destroys your credit score for years. With a loan modification, you may damage your credit score with a loan modification, but it won’t be as dire.

Avoid foreclosure

By reducing monthly payments and adhering to your loan’s new terms, you can avoid foreclosure on your home. This is better for your credit and also allows you to keep your house.

Fresh start

If you find yourself struggling with payments because of financial hardship, a loan modification may help you to get back on track and make an actionable plan for getting your financial life in line.

Why do lenders allow house loan modifications?

A lender will sometimes agree to a house loan modification because they have done an analysis and decided that a modification will be less of a loss to themselves than a foreclosure or a charge-off. It becomes a win/win for both parties when the borrower can begin making regular payments.

How does a mortgage loan modification work?

When a borrower decides that they cannot keep up with mortgage payments, they may apply to the lender for a loan modification. The lender will then assess the hardship and decide whether loan modification will solve the problem. For example, they are likely to reject someone who has lost a job, while they will likely approve someone who has merely taken a pay cut. Some lenders will require a history of one missed or late mortgage payment for a borrower to qualify. If you are found eligible, there are several ways that the lender can modify your loan.

Reducing rate interest

By lowering the interest rate, your monthly mortgage payment can go down by hundreds of dollars. This action is similar to home refinancing, except that there are no fees or closing costs involved.

Changing mortgage type (adjustable to fixed-rate)

The lender may also change the type of mortgage plan. By switching from an adjustable-rate mortgage, where fluctuating rates may cause an increase in monthly payments, to a fixed-rate mortgage in which payments remain steady, you will lower the risks of inflated payments with an increase in market rates.

Extending repayment period

By lengthening the term of the mortgage, your payment stretches over a greater period of time and lowers the current monthly payment. Realize, however, that if you extend the loan, you will end up paying more over time. It will just become easier to pay at the moment.

Adding late fees to principal

Another option is to take any late fees, interest, or escrow and roll these into the principal. Then this new amount will be stretched over the life of your loan, making it easier to pay down these smaller amounts over time.

Principal reduction

This last option is rare, but your lender may even reduce the principal to help lower payments. This is more common during times of widespread crisis; the principal reduction was more commonly seen during the housing crisis when home values plummeted across the board. Getting this kind of modification would take a combination of a poor housing market, not too much owed on loan, and loss analysis for foreclosure going your way.

Basic requirements to apply

Lenders have their own individual standards for doling out loan modifications, but there are some basic requirements to fulfill before anyone can apply. You will need to have documents to back up your financial status (this includes details on both your income and expenses). Along with this, you will need to provide a letter that describes your economic struggles. The lender will want proof that a loan modification will be a good decision for themselves. Therefore, those with high DTI may be rejected, as a large amount of debt may demonstrate the applicant as unable to pay regardless of a loan modification. You will also be required to submit an IRS form 4506 to verify that you will be able to pay a modified loan.

Do you need to apply for a home loan modification?

If you are a homeowner who has suffered a financial hardship that leaves you struggling to pay your mortgage timely (or at all), you want to speak to your lender right away. Show good faith by explaining your situation immediately before you miss a payment. They will be able to guide you through their company requirements.

If you apply for a loan modification, you need to have some sort of income. This isn’t debt forgiveness; it is a lender trying to make something out of a mortgage to prevent a foreclosure loss to themselves. If you are struggling to pay but could make payments if they were smaller, then a home loan modification may be right for you. Contact your Hero Home Program experts today and ask how they can help connect you with local partners to see if you qualify for a home loan modification loan.

Original post here: What is a Home Loan Modification?