After a rejection Some borrowers think that because their mortgage application is turned down the first time, they won’t ever be approved. In reality, some borrowers succeed on the second or third attempt, usually with a different mortgage professional, and often several months later, after they have saved more money for a larger down payment or improved their credit score.
Making sense of the story
* Before reapplying for a mortgage, borrowers are advised to look at the reasons they
were initially rejected.
* The Equal Credit Opportunities Act requires lenders to give loan applicants specific
reasons in writing within 30 days of their decision. If it’s based on a problem in the
borrower’s credit report, the lender must tell the borrower the name and address of the credit agency that provided the information.
* Talking to the loan officer who denied the application to see how close the borrower was to being approved also can be helpful. Sometimes the gap is small and could be
bridged with a larger down payment or another home appraisal, for example.
* It also may be worthwhile to shop around for other lenders. Borrowers can work with a mortgage broker or an online network like LendingTree or Zillow’s Mortgage
Marketplace.
* A credit union also might be a better bet for some applicants. Credit union loan
committees may permit better deals for longtime members; they might also modify loan terms for borrowers they already know.
* However, first-time buyers may need to scale back their aspirations. One reason people get turned down for a mortgage is because they try to buy more property than they can afford based on current incomes.
* Applicants also should look at ways to strengthen their financial picture. If a borrower’s credit is poor, paying down credit-card balances can help to increase a FICO score.
Read the full story The New York Times
After a Rejection
Getting back in the black
More than 2.6 million households are at least 60 days delinquent on their mortgage payments, according to the nonprofit coalition Hope Now. While those who are delinquent 60-120 days can make back payments to help them become current, those who are more than two months behind may need to employ other means to catch up.Making sense of the story
* Beyond the obvious threat of foreclosure, falling behind on a mortgage can be costly: Lenders charge late fees as well as legal and administrative costs, and the borrower’s credit score will suffer. Experts say the sooner a delinquent borrower deals with the situation, the better the chances are of making a full economic recovery.
* Borrowers who are determined to stay in their home but cannot immediately make back payments need to start by contacting their lender or a credit counselor to discussavailable options. Among them are devising a repayment plan, modifying the loan, doing a short sale, and adding what is owed back into the mortgage balance.
* The first step borrowers should take is to assess their financial situation by looking at the amount of money brought in each month versus what is spent. Many credit and housing counselors have worksheets on their websites to help with this.
* Next, borrowers should collect pay stubs, documentation on other income, two years’ worth of tax returns, two months of saving and checking account statements, and mortgage records. If the borrower has experienced a hardship, such as a layoff, adivorce, or an illness, they should gather evidence of that, such as unemploymentinsurance receipts, medical bills, a copy of a doctor’s letter to their employer, or a divorce decree.
* Finally, borrowers should talk to their lender, servicer, or an adviser. The federal Dept. of Housing and Urban Development certifies counseling agencies that provide free advice and assistance, and has a list of them on its website. Counselors can offeralternatives and prepare a budget to see if the homeowner can afford to stay in the house.
* Before agreeing to a repayment schedule, it is important homeowners understand how their lender treats partial payments. Some credit partial payments toward the balance immediately, while others hold the money in a “suspend account” until the full amount is received. Some will return the check to the borrower, and some will stop accepting payments after the mortgage is seriously delinquent.
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A reprieve for unemployed borrowers
Fannie Mae and Freddie Mac recently extended their foreclosure forbearance programs to give
short-term aid to unemployed homeowners, but housing counselors warn that these borrowers
will need to look at longer-term solutions.
Making sense of the story
* In a forbearance program, a lender agrees not to foreclose on a property and gives the borrower several months’ grace from or reduction in monthly mortgage payments. The programs work best for temporary setbacks, like job loss, health problems, or natural disasters.
* There are drawbacks to the forbearances though. The most-significant drawback is a larger total debt from the smaller payments. The unpaid balance continues to increase during this time.
* The new temporary mortgage payment is often set to 31 percent of the household
income; in some cases lenders agree to accept no payments. Fannie Mae’s extended
unemployment program, first offered in the fall of 2010, limits any nonpayment or other forbearance plans to one year, with the second six months requiring approval by both Fannie Mae and the lender.
* However, even with the program in place, the lender could still report a mortgage as delinquent, which could adversely affect the borrower’s credit score.
* Because some agreements add onerous term and conditions, homeowners should also consult with a housing counselor certified by the Dept. of Housing and Urban Develpment.
Read the full story The New York Times
Shopping for the best rates
Interest rates are the lowest in decades, enticing many borrowers to shop for a loan. Mortgage lenders adjust their rates based on perceptions of risk, so unless the borrower can show they’re a low-risk individual, the borrower is unlikely to qualify for a rate that matches those seen in recent advertisements and headlines.
Making sense of the story
The rates quoted are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them. Consumers who want to try for the lowest rates available need to consider basic factors, such as credit score, points, property type, down payment, and length of the loan.
Credit score: The ideal borrower has a FICO score of 740 or higher, which puts the individual in the best place for pricing.
Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount. Borrowers may buy points in order to get the best rates at many banks. Points might make sense depending on the borrower’s financial situation and how long they expect to stay in the home.
Property type: Borrowers planning to buy a duplex or a four-unit build likely will have a higher interest rate. Condominiums also may have a rate premium rate, especially if they are newer or the down payment is less than 25 percent. Lenders also may charge more if the borrower is not planning to live in the home.
Down payment: Borrowers who put down at least 25 percent are more likely to obtain the best interest rates. Lenders offer different breaks on rates if equity in the property is higher, so borrowers should ask what is available.
Length of loan: Borrowers who are likely to move in a few years may want to look into an adjustable-rate loan with a low interest rate fixed for a few years, and adjusted afterword.
Read the full story The New York Times
State targets property-tax payers
Beginning with the 2012 tax bill (the one due in April 2013), the state Franchise Tax Board will require property owners to break down their property taxes into deductible and non-deductible portions.
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Orange County Register
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