Mortgage Lowdown

In a perfect world, you and I would’ve had perfect credit and life would have been a stroll in the park. Since that’s not the case, and like most other Americans, you too are struggling with a less than perfect credit, you probably have to do the juggling act. Like when you need to buy a home and are worried that you may not get approved for a mortgage because you have bad credit. Don’t worry; there is a way (rather ways) out. Hotlib.com reports:

Getting a home loan with bad credit is not very hard. In fact, each day homebuyers are approved with low credit scores. The secret to finding a bad credit home loan is applying with lenders that specialize in these sorts of loans.

Read more: How to Get Approved With Bad Credit

Government-sponsored enterprises (GSE) have a very important role to play in the American housing finance system. When I came across this sentence, I was quite stumped. I do know a bit about the American mortgage market, but what exactly constituted a GSE, I had no idea. That’s until now.

Firstly, let’s have a look at the existing GSEs Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLBs). All of these are for-profit corporations owned by private shareholders. What makes them different is that each one is chartered by a specific act of the U.S. Congress. These acts allow special privileges and advantages to each of these entities. All the GSEs are among the largest issuers of debt securities in the world. These three entities especially represent a very large financial sector, with their combined assets accounting to more than $5 trillion. The GSEs can best be understood as representing a historical ‘paradigm shift’ in American housing finance from a deposit-based to a bond-based system. The key transition was the insolvency and collapse of the savings and loans in the 1980s, which made possible the ascendancy of Fannie Mae and Freddie Mac. These two GSEs filled the competitive space formerly held by several thousand savings and loans.

A recent report by the Mortgage Bankers Association of America shows that 4.7 percent of U.S. mortgages were delinquent at the end of 2005. Outstanding US mortgage debt stands at $9 trillion today and homeowners would do well to use a few tips to avoid mortgage trouble.

Be very careful with ARMs or interest-only loans. These types of loans let borrowers qualify for more expensive homes - but beware as rates (and payments) climb. If you can barely afford the payment on your ARM or interest-only mortgage, you are asking for trouble in a few years when the “teaser period” expires and your loan re-sets to a fixed rate. Be sure you have extra cushion in your budget with these loans. The unexpected can and does happen to millions of Americans each year. For people who live at the far edge of their means, one life event can hijack their lives and lead to defaults on bills and/or mortgage payments.

This is one thing that just about everyone, who has a mortgage loan, dreams of — paying off the mortgage loan and really owning your house. However, as a homeowner, you should be cautious when attempting to pay off your mortgage early. Dailyindia.com reports:

Though you may want to pay off your mortgage early, it is important to make sure you are able to pay for your retirement and the education of your children. You want to remember that tax deductions will play a factor in your mortgage payments, and you should be sure that the tax deductions will work with your financial plans.

Read more: How To Pay Off Your Mortgage Loan Faster

Fact: A good credit score is of great help when you apply for a mortgage. The better your credit score, the easier it will be for you to get a loan. So, if your score is not too good and you want to improve it before you purchase your dream home, try these tricks to get your score back on track:

Pay your bills on time. Late payments definitely have a big negative impact on your score. Did you know that if you delay payment on your bills by 30 days or more, it can lower your score by 50 points or even more. Another thing is you should never max your credit cards. Always try to keep your balance small. If you go on a spending spree, then you may realize that paying off all that money is no easy task.

Imagine using your credit card to purchase something and at the same time earning points to pay off your mortgage for every retail dollar you spend. Sounds like fiction? No I’m not fibbing. If you live in the Connecticut region, you may earn points toward paying off their mortgages by shopping with a new credit card issued by William Raveis Real Estate & Home Services. The William Raveis Rewards Card is an American Express card with no annual fee. If you are a cardholder, you can earn one point for every retail dollar they spend.

You can also expect to earn extra points when you make purchases at selected home improvement, electronics and home furnishings retailers. And don’t worry if you are not a William Raveis client. Anybody can apply for the card and the only condition is that additional points are awarded only to those who buy a home, obtain a mortgage or buy insurance through William Raveis. Rismedia.com reports:

Points can be used to pay down home mortgages, Raveis said, adding that the company is the first in the region to offer such a program. Each increment of 5,000 points will be converted into a $50 value.

Read more: Real Estate Firm Offers Unique Credit Card in Shelton, Conn

Are you planning to purchase a home for the long term? One of the first things you need to do is get your finances in order before you begin looking for a loan. Before you own a home, you should understand all of the financial responsibilities that come with owning a home and make sure, you’re up to the challenge.

This is especially important if your credit isn’t too good because then you’ll realize how difficult it is to get a decent loan to buy a home. If you have overdue utility bills then most probably, most lenders’ll turn you down. So how are you supposed to get around this problem? By repairing your credit! And though this may seem like a big task but it’s only a tiny part of the preparations you’ll need to make before you purchase your home. Blackenterprise.com reports:

William C. Johnson Jr., a Washington, D.C., attorney specializing in consumer protection and civil rights, says that many times the allure of buying a home clouds the buyer’s judgment. "When someone wants a home, their wants may override their needs or what they can afford," he explains, adding that a prospective homebuyer must consider his or her debt-to-income ratio before buying.

Read more: Preparing To Buy A Home

Almost anybody who has tried to get a mortgage loan knows the importance of having a good credit score. It shows the lender that you are a responsible person and can deal with your loans and repay them on time. Your credit score is based on the perceived risk associated with extending you credit. Credit reporting agencies analyse the risk associated with a borrower before scoring him/her. In this context, a person who seeks credit from many different lenders is riskier than others. So, everytime a lender pulls your credit report, these agencies decrease your score.

So, here’s a bit of advice, don’t overshop for loans. When you do that, if your credit score isn’t too good, it gets worse with every application you make for a loan. Healthywealthynwise.com reports:

While some consumers are ONLY focused on rates, you should seek the guidance of a National Association of Responsible Loan Officers member that is willing to speak with you about your loan options. There are literally hundreds of loan products available and every borrower has a different financial situation and financial goal.

Read more: Home Mortgage Loan Mistakes Most Homebuyers Make

When your credit isn’t too good, the home buying process can be daunting and it can seem almost impossible to buy a home. However, there’s no need to worry, there are a number of steps you can take to minimize the risks involved in purchasing a home. Blackenterprise.com reports:

William C. Johnson Jr., a Washington, D.C., attorney specializing in consumer protection and civil rights, says that many times the allure of buying a home clouds the buyer’s judgment. "When someone wants a home, their wants may override their needs or what they can afford," he explains, adding that a prospective home buyer must consider his or her debt-to-income ratio before buying. "For the most part, a person’s debt level should not exceed 33% of their monthly income, and the mortgage should not exceed 25% of their monthly income."

Read more: Preparing To Buy A Home

So you want to be debt free and want to be lord and master of your own home. Here are a few tips that will help you get there:

• Shorten payment period: Implement this method only if you have enough disposable income with you. Here, instead of making monthly payments on your mortgage loan, you will have to make bi-weekly payments. That this is an excellent method of hastening up the payments can be gauged by its popularity.
• Lump sum: You don’t want to be hassled with maintaining records of bi-weekly payments. No sweat. All you need to do is make payments in lump sums. If you get a bonus at work or money from some other source, you could use it to make lump sum payments against your loan. However, for this method, you need to first contact your lender and find out if your contract allows you to do so. Depending on the contract you’ve signed with your lender, you may only be able to make large payments at certain times.
• Shorten loan period: If you’ve taken a 30-year mortgage but feel that you are earning enough to repay the loan faster, you can shorten it to a 15 year mortgage. But don’t forget, you will have much higher bills.
• Lower the interest: Intrigued? Well you can lower the interest of your mortgage loan. All you need to do if you have a 30-year mortgage is make payments towards the principal amount. That is your funds that were supposed to be paid for interest can go towards reducing the principal amount of loan. However here too, just like before you must talk to your lender and find out if this strategy works for you.