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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