3 Common reasons why you can be denied for a mortgage loan

Prior to requesting for a mortgage, it is essential for you to think about the reasons why you might be declined for a loan. Though there are multiple reasons why a mortgage loan can be refused, there are three familiar reasons that happen most frequently. But the good news is these reasons can be sorted out. Following are 3 familiar reasons why you can be turned down for a mortgage and techniques to prevent them so that your loan request is accepted:

1) You have too much debt

When the average American household is carrying 8 credit cards amounting to almost $10,000 of credit card debt, it is not amazing that people are being refused for home loans. If you have huge credit card balances, student loans, car loans or any other kind of loan that sum up to a considerable amount of money, even though you have a good credit rating, you would have problems to qualify. Typically, lenders wouldn't risk lending money to an individual who spends more than 40% of their gross income on loans and monthly minimum payments for their credit cards. These expenses also incorporate the projected mortgage payment you're requesting for. If you have too much debt, pay it off prior to applying for a loan.

2) Inadequate down payment

Usually, lenders ask for a down payment of 20% on home mortgage loans. However, as home prices went up, they permitted buyers to make a lower down payment provided they purchase private mortgage insurance (PMI). Due to the troubled economic conditions, lenders have made the lending requirements stricter since borrowers with private mortgage insurance are making down payments of 3%-5%. If you don't have sufficient money to compensate for the necessary down payment, you should wait for some time and save some money. Always keep in mind that a bigger down payment suggests you have higher equity in your home and as a result of this, your monthly payments would be less. If you wait for some time, you can save more and it would benefit you in the end.

3) A poor credit score

A bad credit score can be a hindrance in becoming eligible for a loan and it also might ultimately cost you more. Even though you get a loan with a bad score, you would need to pay a higher interest rate since you're deemed as a more risky borrower. If your credit score is 720 or less, it would be a tough time for you to obtain a loan. Rather than being turned down or fined for a poor credit score, take your time to restore your score prior to going for a loan. You can better your score by making timely bill payments, reducing your credit balances and not bouncing any checks. Carrying a good credit score would help you get a low interest loan.

Try to solve these familiar problems prior to applying for a loan since this would help you get the loan that is most suitable for your needs. If you can pay off your debts, save money and restore your credit score, your odds of obtaining a home loan are quite high. Get ready to buy your dream home.

How to become approved for a mortgage loan

If you're trying to become approved for a mortgage, it might appear to be an intimidating task. However, it need not be so. You can take some initiative to better your possibilities of securing a mortgage loan. A little bit of homework is also required. The following steps would help you become approved for a mortgage loan:

1) Check your credit score

Examine your credit score and credit report. If you want to enhance your possibilities of becoming approved for a mortgage loan, then it is important to better your credit score. You can check your scores on the Internet without any fees and evaluate your credit report for any irregularities.

2) Improve your debt to income ratio

Try to reduce your debt to income ratio. If you can, pay off your credit card debts and other recurrent monthly expenses and try to raise your monthly income. If you have a feasible debt to income ratio, then you have higher chances to qualify.

3) Select the right house

Select the home that is right for your needs. Also check the condition of the house and its selling price. While buying a property, you must search for a home that is in average condition or better than that. The property has to be fit for the appraisal to be performed by the bank. Nowadays, banks and other lenders wouldn't sanction a mortgage if the condition of the house is below average. A feasible price for the home is also an important factor in obtaining a loan. The price must be equal to the market value or lower than that and it should be reasonable to your debt to income ratio.

4) Save money for your down payment

Try to save money for your down payments and closing costs. You can choose to make the minimum down payment. Nevertheless, the more the amount of down payment you make, the less risky you are to the bank or lender since they can accept you for a smaller amount of mortgage loan.

5) Shop around

Shop around for various mortgage lenders and brokers. Different lenders have different lending prerequisites and offers. Though one lender might not provide you a mortgage loan, another broker or lender might help you obtain an approval.

You must try to better your financial situation and credit score so that you can be approved for a loan at the most affordable rate.

Mortgages for people with poor credit rating

If you have a poor credit history, it means that your credit score is less than 640. But if you are looking for a home loan, to a mortgage lender, a poor credit rating may mean any one of the following –

• You may have filed bankruptcy

• It is quite likely that you have several missed payments to your credit.

• It can be any financial obligation that you failed to meet

• You may have defaulted on your previous auto or home loan

Mortgage lenders usually categorize borrowers in 2 ways –

• Prime mortgage borrowers
If your credit score is 640 or more than that, you fall in the category of prime borrowers. You will be entitled to favorable or lower mortgage rates. You need to have a flow of income that is steady.

• Subprime mortgage borrowers
Borrowers falling in this category are those having credit score less than 640. The interest rates applicable for subprime borrowers are usually very high.

FHA (Federal Housing Authority) loans
If your credit score isn't good, you can also opt for FHA loan. These are the home loans the Federal Housing Authority guarantees. Since the FHA (an agency under HUD or Housing and Urban Development Agency) guarantees these home loans, they are favorite of the banks. This is because the banks know that if the borrowers default, they will not have to incur the loss as it is guaranteed by the federal government.

In case of FHA loans, you don't need to make a down payment that is 10% to 20% as required in case of a prime loan, but you can make a down payment that is as low as 3.5%. In a nut shell, if you have a poor credit history, you can avail the FHA loans. Availing FHA loans requires that if you filed bankruptcy prior to applying for FHA loan, bankruptcy should have been discharged 2 years prior to it. You must have had a good credit payment history for at least 2 years prior to applying for the FHA loan.

Why are lenders giving in to loan modification requests?

Following recession that was triggered by the subprime mortgage crisis, the number of foreclosures and mortgage related delinquencies has escalated remarkably. Earlier lenders were too eager to foreclose on houses as homeowners fell behind on payments. However, as subprime mortgage crisis assumed a bigger proportion, lenders decided to approve loan modification requests. Lenders realized that the cost of foreclosing on a property is approximately USD$60,000 or 20% to 25% of the outstanding balance. In fact the legal fees can be USD$4,000.

As part of the Obama's Mortgage Bailout Program, many lenders have been getting incentives for modifying mortgages. In fact the Mortgage Bailout Programs that were introduced earlier did not provide incentive to lenders. As a result of which the programs were not so successful.

However, with the government announcing incentives for lenders, many lenders have agreed to approve loan modification requests. Moreover, many banks have a number of properties foreclosed already. So, the loss mitigation departments of the banks and lending institutions are modifying mortgages of borrowers so that the homeowners can enjoy better terms on their mortgages.

In case you are planning to modify your loan, you can take help of a legal professional. Lenders usually help homeowners in any one of the 3 ways –

• The rate of interest may be reduced
• The loan term may be extended
• Sometimes the total outstanding balance of your mortgage may be reduced.

However, in order to get approved for loan modification, you need to provide sufficient documentary evidence that you are facing financial hardship. If you sense that there is some irregularity in the mortgage that has been extended to you, you can opt for a forensic mortgage loan audit that will help you to find out irregularities in the mortgage that has been extended to you.

Forensic mortgage loan audit is usually performed by a group of legal professionals. The findings of the forensic mortgage loan audit get recorded in a report that is referred to as the forensic mortgage loan audit report.

What are strategic defaults on mortgages?

Of late a trend is being observed in the mortgage market referred to as "strategic defaults" on mortgages. When you strategically default on a mortgage, it means that although you have the ability to make payments, you don't want to do so since the value of your property has nosedived. In other words, when the value of your mortgage far exceeds the value of the property (by at least 15%), you tend to default on your mortgage strategically.

Studies reveal that approximately 26% of the mortgage defaults are due to strategic defaults. The mortgage bailout programs that were introduced by the Obama Administration aimed at making the monthly mortgage payments affordable. But it failed to address the needs of the underwater homeowners.

Reports also suggest that strategic defaults were there even during the recession that occurred during 1990 to 1991, but the number of homeowners defaulting strategically on their mortgages now is even more pronounced.

Why are homeowners defaulting strategically on their mortgages?
Underwater homeowners that are defaulting strategically on their mortgages are doing so because they are of the opinion that they don't want to waste good money for a property that is no longer an asset but a liability.

There is also a moral and social side of strategic defaults. There are many homeowners that are aware that this may not be the right way of getting rid of mortgage payments (although majority of them can afford but they no longer want to do so since they are underwater). But it has been observed that those areas where cases of strategic defaults are more pronounced, homeowners residing in and around the area are more likely to join the bandwagon.

A survey conducted suggests that at least 77% of the homeowners may not declare that they intend to default strategically. But if homeowners living in an area where incidence of strategically defaulting on mortgages is high, approximately 82% of the homeowners residing in the same area may declare their intention of strategically defaulting on their mortgages.

Get the highest possible value while selling your home

Today I will discuss about one of the major challenges that most of the home owners do face today and that is putting the right price tag price to the property. Have you ever thought that when you put a very high value to your property then you might be the ultimate looser for that, because a prospective buyer will be really scared of that price which you will put against your house? It might be otherwise too, because it might happen that the tag price that you have set against your house is too low compared to the market price.

In order to maintain a proper balance between these two factors you need to take care of few things while putting a tag price against your home. Those points have been mentioned bellow:

1) The first thing that you need to do is to sense the local real estate industry. For this you might need to ask for help from a professional real estate agent. But there are certain things that you might learn on your own. For example there might be a price that you think to be right from your point of view and there might be another price that is right from the point of view of buyer. But if there will be a huge difference between these two prices then it might not fulfill your target. So you and the prospective buyer can negotiate regarding this and fix the matter so that the result may turn out in sale.

2) Another point that might work in your favor is the location of your home. It works just like the law of supply and demand. For example, if your home is located near a special economic zone then you might set a higher value to your house. Because here the location will work in your favor and it will be a correct decision to set a higher value.

3) There are some other factors also that may affect the sell price. For example, if as a property owner you are trying to sell your home very quickly then you might have to compromise with a lower price. But if you will think from the point of view of a buyer then the buyer will definitely think why you have set such a lower price when he will notice other houses in your area having much higher price. It might affect the total selling process.

At the end I will suggest you to be practical while setting your sell price. It would really be a very challenging job as you need to take whole lot of things into consideration. So take decision wisely.

Savings 529 plans

When you are sending your kid to college then it's a very important time in your life. And if you will think from the dip of your mind then it's a huge investment.

According to the information that has been provided by the College Board was that the total average cost of a college education inciuding all the required amenities was around $34,132 during 2008-09.

For students(in-state) in a loacl college & university, LAC(local average cost) including tution fees, and other incidential charges were $14,333. If you will compare the the cost with previous year then you will notice a difference that is 5.7% higher than the last year.

As the college fees are becoming higher every year, how parents can make some effective plan to save money? It's a biggest challenge for them.

There is a way out for this and this process can be followed not only by parents, but by grand parents too. The plan that can help you save some money for your child is tax-deferred 529 plan. With a 529 plan, all funds grow free of federal and state income tax.

You will get one more benefit out of it, when you will try to withdraw this money then it will be from all types of federal taxes for qualified educational expenses.

There are two types of 529 plans: prepaid and savings plans. With a prepaid plan, you enter into a contract to save a specified amount to lock in the costs at a specific college at today's prices.

The 529 plan is categorized in parts and it is as follows-

1> Prepaid plans.
2> Savings plans.

Prepaid plan: With this you come under a contract to save a specified amount to lock in the expenses in a specific college at today's price.

Savings plans: With the savings plan, you can start saving at your own pace and as per your convenience. But, as your contributions are not part of a contract, it won't lock in today's college prices.

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Investment Rental Property

Are you thinking of buying investment real estate property? If then then i will not be surprized as this is the right time do so. Because, due to recession the price has dropped in real estate market. Though people intend to invest in real estate in spite of due to lack of money in hand no one wants to take the real risk. However, if you have already decided to buy investment real estate property then you need to take certain steps ver carefully. Otherwise it might turn into a real nightmare for you. Here goes some tips that you can follow to remain in the safe side:

1. Be brave - many fail to drag the trigger on investment rental property.

2. Before you jumpin, gather some knowledge, obviously not the distorted ones that often people do, it will help you a long way.

3. Choose the right type of property that will be best fit for you.

4. Be conscious about the location. If you will choose a location that is almost like hell then no one will rent your property.

5. In the initial steps start with the single family houses.

6. Learn how to finance correctly your real estate. You will find dozens of creative ideas.

7. Save money for the downpayments. Because it will have no negative cash flow.

8. A good credit scor is must. Clean it up if you have any past negative record.

9. Buy property in starter price range.

10. Buy property from the motivated sellers.

12. Don't go for the over improvement of rental house.

13. Always check the background on potential tenants.

14. Follow the your lease to the letter, it is strongly recommended for you.

15. Keep a proper record of your income and expenses.