The best way to get a loan depends very much on your personal circumstances and to a large extent, what you want the loan for. You should also remember that the interest rate you end up paying on a loan may be significantly different to another person. Some of the factors that need to be considered when you are going to apply for a loan are as follows:
A poor credit score could well result in you being offered a loan at a higher interest rate than someone that has a good credit score. So, if you can, try and improve your credit score.
Also contrary to what some people might believe, if you have never had a loan before, you might meet some resistance from lenders towards them giving you a loan. This is basically because you have no credit history and consequently the lenders do not know how much of a risk they are taking if they lend you money. This can be quite tricky to deal with. So it might be worth you creating a bit of a credit history. Taking out a credit card for example, then using it to pay bills you may have otherwise paid in cash and then clearing the full balance by the due date each month.
If you do that you will not incur any charges and you will be demonstrating that you can manage your finances and make necessary repayments on time. Don’t, however fall into the trap of not paying off the credit card in full, as that will mean you will incur charges and possibly demonstrate an inability to manage your finances.
If you have any assets you can use to provide some sort of guarantee to a lender that they will be able to recover their money should you default, you are likely to be offered a loan at a better rate of interest. Any item that offers genuine resale value could potentially be used to help secure a loan.
Another form of guarantee is to have someone act as a guarantor to the loan, young people sometimes ask their parents to co-sign a loan, once again it is a way for a lender to be sure they can recover the value of the loan should you default. The co-signer is in a tricky situation however because they really must trust you to pay the loan, they have little to gain and a lot to lose, but it is a way of securing a loan if you do not have a personal credit history or have had problems in the past.
Many people take out insurance protection to cover the cost of the loan if they default. This is most commonly known as ‘payment protection insurance’. These types of insurance policies are typically very expensive and can actually contribute to you not being able to make a payment. This is because the loan becomes much more expensive with insurance on top. Always consider very carefully if you need payment protection, because if you can make the repayments you really don’t need it. Far better to be sensible about how much you borrow and to stay within a budget that you know you are going to be able to repay comfortably.
The technical term for what has to be repaid is ‘TAR’ total amount repayable. In many ways this is a better measure of what you can afford to borrow than comparing interest rates. Why, because you know exactly where you stand. Comparing interest rates especially APR (annual percentage rates) can be confusing and you may miss the point of exactly what the loan is going to cost you. But knowing the TAR and how many months you need to pay the loan back over, gives you a very good idea of what the loan actually costs you and whether you can afford it.
A secured loan, as mentioned previously, very often offers lower interest rates. But if you do end up defaulting you could lose what you offered as the security. Frequently this is the home you live in and losing it could have a devastating affect. Also secured loans sometimes have variable rates of interest, which means what you start to pay on a monthly basis could actually increase. It could also decrease of course, which would be good, but overall it means you have a more complicated means of making repayments. This isn’t typically the case with an unsecured loan, they tend to be a series of fixed payments for a predefined number of months. So knowing the differences and even more importantly understanding the differences between different types of loan can be crucial to your financial well being.
The Internet provides the perfect media for finding the best type of loan for you. You can compare the differences between, secured loans, unsecured loans and even cheap deal credit cards. One thing for sure is that there are horses for courses and the type of loan you should be looking for needs to be matched to your personal circumstances, the type of loan you need and the reason you actually need a loan.
As a final word of caution, if the reason you are looking for a loan is to pay off an existing higher cost loan, be sure there are no surrender charges involved, because it is quite possible you may end up with a cheaper loan but more to actually repay than the original would have cost you.
I don’t know what you think but I have noticed a distinct lack of press releases from the Departments of the Treasury & Housing and Urban Development (HUD) throughout 2012. In fact the most recent press release I can find is from February 2012. Seeing that we are now in December 2012 that is a pretty large gap in ongoing updates, although it is quite possible that they have just made a change of policy and decided to get all the best news to the public via their official website Making Home Affordable.
Well the good news is that I have discovered browsing through the site, that the HAMP (Home Affordable Modification Program) has been further extended to December 2013 and is now aligned with the finishing date for the HARP (Home Affordable Refinance Program), which does seem to make better sense than having them run on different schedules. These are the two primary aid schemes for helping people in financial difficulty with their homes after all. But if you examine the category list to the right there are quite a few other aid programs that now exist under the Making Homes Affordable umbrella which are aimed at people in different specific situations. Those who are unemployed for example or that have a 2nd mortgage they are trying to deal with.
I suppose it is worth telling you the end of December 2011 figures as they were made available as part of the February 2012 press releases. The figures state that the number of modification arrangements starting between April 2009 and the end of December 2011 was in excess of 5.6 million and more than 930,000 house owners had received a permanent modification. That represents around $10.5 billion savings in monthly mortgage payment at that time. So not to be sniffed at especially as the eligible home-owners now starting a HAMP application are viewed as having a much higher likelihood of attaining a permanent modification. Through the previous 18 month period the percentage of home owners getting a permanent modification sat at around 84% and those managing to keep up payments after getting a permanent modification for at least six months is 94%, which is a better default rate than those that did modifications outside of the HAMP scheme. Nobody explains why that is, perhaps the controls for acceptance are the reason, who knows.
Also if you visit the Department of the Treasury website you can find more up to date reports with the latest figures. The most recent I could find was for May 2012 and the figures are as follows:
The number of house-owners that have received a permanent modification has now risen to more than a million, that is a more than 70,000 increase since the end of 2011, and the average saving per month is still sitting at more than $500, actually it was $536 from the May report.
If there was no other reason for anyone struggling to meet payments to check eligibility, then surely this is sufficient on it’s own, nearly six and half thousand dollars a year on average per household and an estimated £13.3 billion saving on mortgage payments since the scheme began. So if you sit in the ‘it’s not worth the hassle’ camp, you may want to review those figures. Someone is getting that level of assistance, so you could as well if you are eligible.
The number of people getting the permanent modification offer (after trials of 3.5 months) has also crept up a little to 86% from the 84% at the end of last year.
You can see the full report here MHA Report in pdf format. Hope you find it useful.
Children headed off to college, loss of employment, a mortgage poised to jump several points or plans to build an addition to a home are all reasons people decide to adjust their mortgage. Mortgage adjustment involves two types of products: refinance and modification. Understanding the difference between mortgage adjustment options and choosing the right product are important for anyone preparing for a big financial change.
What Is the Difference Between a Refinance and Modification?
The loan refinance process replaces an existing mortgage with a new one. Generally, people seek refinancing to achieve more favorable terms. For example, if a homeowner has an adjustable rate mortgage, she might consider a refinance to take advantage of a fixed rate mortgage or to lower her payments. Loan modifications are available for people experiencing financial difficulty. The product offers a temporary or permanent change in mortgage terms.
What Are the Benefits of Refinancing?
People choose mortgage refinancing for several reasons. One of the biggest benefits of refinancing is equity–if the home has any. The refinance process will make the equity in the home available to the homeowner. For example, if the original mortgage for the home was $200,000, but the home is now worth $230,000, the refinance will place the $30,000 in the homeowner’s pocket.
Despite the benefits of refinancing, multiple challenges exist. Homeowners interested in the product must have a solid credit history; late payments in the last twelve to twenty-four months will disqualify most people from the loan. People who have credit blemishes generally turn to loan modification to meet their financial needs.
What Is a Loan Modification?
People experiencing demonstrable financial challenges can use a loan modification to create more favorable mortgage terms. Generally, people who experience difficulty paying their mortgage or who are facing foreclosure work with their lenders to make the payments more affordable. Lenders offer different modification terms, including changes to the mortgage rate or monthly payment amount. In addition, some lenders will roll the past due balance back into the loan.
How Do People Apply for Mortgage Adjustments?
The mortgage adjustment application process is similar to the process of obtaining an original mortgage. The homeowner’s financial standing plays a significant role in the process. Choosing the right product depends on a number of factors and each individual’s situation is different. Ultimately, considering the long-term consequences of pursuing an adjustment are most important.
For more information about real estate and mortgage adjustments, click here.
Getting a mortgage can be a complex process, but if you know what they look at ahead of time, what you’re going to find out is that you can save a lot of your time. A lot of potential people apply for a mortgage, waste all their time and later find out that they just can’t get approved. If they would have known what the lenders looked at ahead of time, they probably wouldn’t have applied in the first place. To give you a better understanding of what these lenders look at, here are five things that ALL lenders look at to determine if you’re a worthy candidate.
#1 Income Stability
If you were a bank, you probably wouldn’t lend to anyone, right? You would probably want to know how much that person is making before you even consider lending them money. Well, the banks think the same way. Banks are going to look back as far as two years to make sure that you can afford a home. On average, plan on making three to four times your mortgage payment. So if your payment is going to be $800, you should be earning a minimum of $2,400 a month.
#2 Loan Payments – Can You Afford It?
Aside from your income, the bank will want to know if you can pay your mortgage. If you make $2,400 a month but you have $2,000 in bills, there’s a good chance you can’t afford the home. Even if you made all the money in the world, if you have a lot of debt and bills, many banks will be hesitant to lend to you.
#3 Down Payment
On average, the more money that you can put down on your mortgage, the more likely you will be approved. Industry experts noted that most applicants should put down a minimum of at least 20%. This is great to not only bring your payments down but avoid PMI as well. PMI is insurance that you will have to pay out to banks so that they can insure your mortgage in case of a foreclosure.
#4 Credit Score
The higher your credit score is, the more likely you will get a lower rate and get approved. While you can have the best credit score in the world, it doesn’t mean that you’re going to get approved, though. Remember, you have to have a good income, decent down payment and a payment that you can afford. While a credit score is an essential part to your mortgage, it’s not everything.
Like the financial stability, the banks also want to know how much debt you currently have. Generally, they want you to have less than 20% of your income. So if you make $100,000 a year, they want you to have less than $20,000 in debt.
Most, if not all lenders will look at all of these factors. If you feel that you meet these five core criteria, there’s a good chance that you will get approved! If you feel that you fit the bill, consider talking with a broker today to see what they can do for you.
This was a post written by Hannah. She runs Howmuchisit, a resource that helps you find the price on everything. You can reach her on Twitter: @howmuchforit.