No Seriously, What if I Owe More than My Home is Worth?

What if I owe more than my home is worth?

Have you heard the terms “under water” or “upside down” regarding homeowners and their mortgages? These terms refer to homeowners who owe more than their house is worth. Unfortunately, this situation is all too common in today’s troubled economy. If you find yourself “under water”, you may yet be able to turn your situation around. Please give these options a try before walking away from your home. Avoid foreclosure. It is the absolute worst choice to make.

–Banks are becoming more willing to do loan workouts, also called loan modification or loan reworks, with homeowners who are behind on their payments. Even if your house has already gone into foreclosure, you might still be able to work things out with your lender. It may take some negotiation, but the bank appreciates honest people who are sincerely trying. Below are the different options for reworking your loan:

1. Loan Reduction. To get the ball rolling, call your lender and ask for the loss mitigation department. If you can show proof that homes like yours in your area have recently sold for less than what you owe on your home, the lender may agree to lower the loan amount of your mortgage. Lowering the loan amount will, in turn, lower the monthly payments.

NOTE: No matter which of these options you are working on, DO NOT stop communicating with your lender. This leaves the lender to conclude that you have given up on trying to save your home, and makes them more likely to move forward with foreclosure proceedings. As a matter of fact, cutting off communication with your lender will ensure foreclosure.

2. Extension. This is a loan modification (also handled by your lender’s loss mitigation department) that extends the life of your loan. The interest rate does not change, but your payments are spread out over a longer period of time. This change will reduce your payments. True, you will be paying more interest, but your credit and your home will be saved.

3. Interest Rate Reduction. This option is especially favorable if you have an adjustable rate mortgage that has risen so high that your payment is no longer affordable. On the whole, banks do not want to foreclose. It is costly for them, time consuming, and they always lose money on the deal. Lowering the interest rate is a better option for the bank.


If you are behind on your payments, but are expecting a lump sum of money (yearly bonus, insurance payout, or tax refund) that will catch you up, your lender may be willing to grant a forbearance. This means that the lender agrees to temporarily suspend your payments. You agree to bring the payments up to date by a specified future date and resume monthly payments at that time. Resuming the payments on your loan is called a reinstatement.

Repayment Plan

If you know your lapse in payments is temporary, but you are not expecting a lump some, your lender may agree to allow you to continue making monthly payments with extra added on. The extra amount will be applied to your overdue balance.

Rent/Lease Your Home

If you know your inability to pay is not temporary and you will not be able to catch up on your payments, you may be able to rent out your home. There is a flood of people, most of whom have lost their homes to foreclosure, who are now looking for a home to rent. The ideal situation is to rent your home for an amount that will cover your monthly payment. The house should at least rent for somewhere close to the payment. If you have to make up $100 or so a month, it will probably be worth it. You can find a cheap place to rent for awhile. It may be a step down for you and your family, but these are hard times, and it won’t be a forever thing. Once housing sales recover, you can sell the house then, and maybe even make a little money in the process.

Short Sale

If you’ve suffered financial devastation, i.e. lost your job or have had a medical crisis, you may know that you will not be able to pay for your home at all. In these situations, a short sale may be the best way to avoid foreclosure. In a short sale, the house is offered for sale at a price that is less than you owe. Sometimes the bank will accept the reduced amount as payment in full. Other times, the bank will require you to pay some, or all, of the difference. A friend of my husband’s, Mike G., sold his house via short sale. He made payment arrangements with the bank to make up the shortage. He joked that he will be paying the bank $100 a month for the rest of his life. Essentially, Mike decided his good credit is worth $100 a month to him.

Loan Assumption

If you have a reasonable interest rate and loan amount, you may be able to sell your home to someone that can assume your loan. Loan assumption is essentially someone agreeing to take up your payments. When the assumption is complete, you no longer own the home and are no longer responsible for the mortgage—saving yourself from foreclosure. However, if you have a high interest rate or are upside-down on your mortgage, it will be impossible to find someone willing to take it over. Work very closely with your lender during loan assumption. Many homeowners have been scammed into thinking their loans are being assumed, but gave up their homes only to find that they were still on the hook for the payments.

Deed in-lieu-of mortgage

A deed in-lieu-of mortgage is only one step above foreclosure as far as how it affects your credit. It is a desperate measure. This is essentially a process in which you voluntarily surrender the home to the lender. In foreclosure, the bank initiates a legal process of eviction, forcing you to vacate and surrender the property. If you do it voluntarily, the bank is saved the expense of suing and evicting you. Having the deed-in-lieu-of mortgage on your credit is less damaging than having a foreclosure.

A foreclosure on your record essentially says that you have breeched a legal contract on the most important financial obligation of your life. It further indicates that you breeched the contract in a manner that forced the lender to resort to suing you. In short, it appears that you are not an honest person. That is why you must avoid foreclosure at all costs.

It will follow you for years, maybe for the rest of your life. Once you lose your home in the foreclosure process, you will need to live somewhere, right? Well, landlords and leasing agencies routinely check your credit when you apply for a rental. Employers often will check credit before hiring or promoting. Now that you know what a foreclosure says to those who check your credit, do you really want that on your record?

Most Important To Remember

Keep open communication with your lender to let them know that you are genuinely trying to work things out.

Ask to speak with the loss mitigation department about reworking your loan.

Make suggestions about possible solutions: loan modification, forbearance, repayment, short sale.

Stay friendly.

Don’t make up sob stories—honesty is always the best policy.

Mortgage Rates Mobile Home Loans

The experts used to say that buying a mobile home was a bad investment. There was a time when a home built on a foundation was considered to be the best place to put your money. Foundation homes, for many years, grew in value (appreciated) over time—on the average 5%. Mobile homes go down in value (depreciate) over time. That was then. This is now. Things have changed.

Our economy is in a downward turn and it could take years for it to turn back around. Anyone who bought a house three to five years ago and tries to sell that house now will probably have to take less than they paid for it. In the past, those people could have expected to make a healthy profit. Now, they do well just to break even on the sale.

For people who don’t want to throw away their money on rent, owning a mobile home may be just the alternative they are looking for. More and more people are doing just that. There are two ways to own a mobile home.

#1 Buy land and put a mobile home on it.

My dad use to say, “Land is a great investment. After all, they aren’t making any more of it.” They sure aren’t. Land is a non-renewable resource. That simply means, that there is a fixed amount of land, and once it’s gone, it’s gone. There is only so much land to go around, right? Because of the fact that land is a non-renewable resource, it will most likely appreciate in value over time. The house that is built on that land may not appreciate. So, the safest way to invest in real estate and do it with the least amount of investment is to buy land. To make the best use of the land, someone should live on it. A mobile home is a cheap way to own land and live on it. Lenders will loan money to purchase the land with a competitive mortgage rate. Mobile homes financed with a land purchase are a more secure loan for lenders. Banks are just as willing to lend money for land and a mobile home as they are to lend to finance a loan for a home on a foundation. You can get one loan to pay to cover the land and mobile home, or you can get two separate loans—one to pay for the land and another to pay for the mobile home.

#2 Buy just the mobile home .

If you can’t afford land, you can still do better than renting by purchasing a mobile home and parking it in a mobile home community. When you live in a mobile home park, you pay rent on the lot. Lot rental is usually pretty cheap. The two payments added together are still usually cheaper than renting a house or apartment. And, you have the benefit of building ownership. If you live there long enough, the mobile home will eventually be all yours.

What if I don’t live in your mobile home long enough to pay it off?” You can sell the mobile home even if you haven’t paid it off yet, and can sometimes make money on the sale. But a good idea is to try and rent it out. That way, someone else is paying your mobile home payment for you, and you are reaping the benefits of paying down the loan. You may not make out like a bandit if you go with the mobile home, but it is cheaper than renting a house or apartment. And your monthly payments are going towards ownership.

Mortgage Principal – What is it?

Simply put, your mortgage principal is the amount you owe the lender (or bank, or credit union).

Your mortgage principal starts out at whatever amount you have to borrow in order to pay the full price of your house.

Your principal decreases every time you make a mortgage payment. It’s important to note that, as you pay down the principal, you are building “Equity” (ownership) in your home.

What is Equity

Equity is the dollar amount of ownership you have in your home. For example, if an appraisal on your home sets its value at $200,000, but you only owe the bank $150,000, you have $50,000 of equity in your home. So, your principal is equal to the purchase price of your home, right?

Not always. Buyers often must borrow additional funds in order to pay “closing costs”.

Closing Costs

For example, if the purchase price of your dream home is $200,000, chances are you do not have enough money in your savings to pay cash for it. You’ve scraped enough money together for a 5% down payment ($10,000) and that’s it. So you do what any other red-blooded American would do. You borrow the money from a bank or other lending institution.

Well, setting up a home loan involves a variety of costly tasks:

• The lender will do a title search to make sure that the seller actually owns the house they are selling to you—kind of important ; )

• The lender will order an appraisal to be done on the property.

• The closing attorney will charge a fee for overseeing the transaction.

• You will pay an application fee to the lender.

• The loan officer will charge an origination fee.

• You will pay interest for the remaining days in the month after the closing date. (This is called pre-paid interest). That’s why it is best to close as late in the month as possible. If you close on the last day of the month, you will only be charged one day of pre-paid interest. This expense is included in your closing costs as a “pre-paid item”. There are other pre-paid items that will be discussed later.

• You will have to start a reserve fund with the lender to cover your annual property taxes and home owner’s insurance.The above list represents only a few of the tasks and fees involved in setting up a home mortgage. The bank/lender will charge what they call “closing costs” in order to cover the expenses involved in accomplishing all these tasks and then add a little more on top to insure that they make money in the process—it’s the American way, right? Ok, so your house costs $200,000, but your closing costs will probably run another $6000 or so.

Most folks do not have $6000 in spare change sitting in a savings account, so the lender will usually allow the borrower to add his closing costs onto the mortgage amount. Continuing with our example, the price of the house is $200,000, but you have to cover the purchase of the house plus the closing costs. Your principal – the amount you owe the bank — is $206,000, right? Nope.

Don’t forget to reduce that amount by your down payment, $10,000. You will need to actually borrow $196,000, and that is your principal—the amount you owe the lender.

The good thing about principal is that it goes down every time you make a mortgage payment—that is, unless you have an interest only mortgage.

With an interest only mortgage, your mortgage principal never decreases, because, hello, you’re paying “interest only”—no principal—the amount you owe the bank never goes down.

Ok, enough about interest only loans. This section is about mortgage principal, and I have explained it pretty thoroughly—principal is the amount you owe the lender.

Mortgage Loan with a low Credit Score

What’s the Minimum Credit Score For a Home Mortgage Loan?

Is it 640?If your credit score is below 640, it will not be easy for you to get a home loan…not impossible, though. But even if you have a great credit score, you will still have to provide proof of sufficient income to afford the monthly payments.

It is worthwhile to contact a mortgage broker even if your credit score is less than 640. There are loan programs out there for you. Be patient with yourself, though. You may have to work on your credit for a few months before you can qualify for a mortgage loan. In order to keep track of your progress along they way, you need to stay informed about your credit on a regular basis.

Get a copy of your Credit Report

You can obtain your credit report yourself. There are three credit bureaus that keep your credit history on file. They are Experian, Equifax, and TransUnion.

If you have over-due bills, now is not the time for you to apply for a home loan. Thinking from the perspective of the lenders, why would they loan money to someone who is already struggling to pay their bills. If you are behind on your bills, it is time to practice some mature decision-making. I’ve heard it called, “putting on your big boy pants.” Look at your monthly income. Add up all the bills you have to pay out each month. If you are coming up short, you have to make some big boy decisions.

Budgeting, Cutbacks, and Living Within Your Means

My husband works for a major airline (no, he’s not a pilot). A few years back, his pay was cut drastically and insurance benefits were decreased. Suddenly we had A LOT less income. At the time, I was a stay-at-home mom. If we had continued to try and live at the same level of lifestyle, we would have gotten behind on our bills. We stood to lose the good credit it took us decades to build. On went the big boy pants. We cut back everywhere. We cut out cell phones, cable TV, cut out our gym membership, downgraded our car insurance from full coverage to minimum coverage, got cheaper home owner’s insurance. We even sold one of our cars to get rid of the monthly payment. To spend less on groceries, we ate sandwiches once a week for dinner. We even had “cereal night” once a week. No one complained too much about sandwich night and cereal night, but my daughter was crushed to have to say good-bye to the Disney channel. And my teenage son grieved the loss of his cell phone. Times were tough, but we got through it. We explained the situation to our kids and let them know that we were all going to have to make sacrifices.

Families have to do that sometimes. The point of this story is simple: Live within your means. If you do not keep track of how much you are spending each month, you will eventually over spend. Getting your spending under control is the only way to improve your credit score. So know your credit score, work to raise it, and check it regularly (at least twice a year).Reviewing your credit regularly will make errors easier to find. If you find errors, report them to the credit bureau(s). Read it over carefully and if you see any errors, request corrections from the credit reporting company.

Errors are not that uncommon, so don’t feel weird about having to report them.

If you need to improve your credit, you can give your rating a boost by using a secure credit card. A secure credit card works almost exactly like a debit card. You deposit money into an account with the card company. The amount of the deposit represents your spending limit. If you try to spend more than your limit, your card will be declined because, hello, the money is gone.

That’s bad.

The best way to use a secure credit card is to keep your spending way below the limit. The recommended amount is 30% or less of your limit. If you have a limit of $1000 on your card, you should keep the balance at $330 or less. Paying your balance off every month will improve your credit within a few months. If you are one of the millions in our country with a bankruptcy on your credit, you should live as simply as possible for at least two years after your bankruptcy. I have some friends that went through it. The husband had a six figure engineering career. The wife was a pre-school teacher. Their spending was lavish. He is a techno-addict and a musician. She loves to decorate. Within a three month span, they both lost their jobs, could no longer afford their lifestyle, bah-duh-bing, bah-duh-boom, they had to file bankruptcy.

For the next two years, they lived in a SMALL rental house. During that time, they drove beater cars that they swear ran on prayer. They ate beans and rice, and rice and beans. They did NOT eat out. The hubby brown-bagged his lunch every day (usually left-over beans and rice). They kept in touch with the bankruptcy attorney, kept a check on their credit, paid their bills on time, and learned a lot about how little they could live on. It was sooooo tough, but they adopted a since of humor about it that got them through. After making these sacrifices (and many others) for two full years, they will be moving into their new home next month. They did it the right way. Well, they did things the wrong way for too long, went bankrupt, and then did it the right way. They are back on track. Their income is much less now than it was two years ago, but they have new spending habits, have learned some tough lessons, and will tell you that they are better people for having been through the tough times.

Bankruptcy, Charge-offs, and your Credit Score

Although bankruptcy is tough, “charge-off’s” and accounts that have been handed over to collections are the kiss of death when it comes to your credit. The only way to get them taken off of your credit is to pay them in full. And even then, it is up to the creditor that you owe to delete it. You must take the initiative, call the creditor and work it out. Most creditors just want their money out of you, and will work with you if you are honest and if you do what you say you will do. But first, get it in writing from the creditor that they agree to delete the charge-off once the account is paid in full. Do that up-front, then start making the payments to them. If they don’t delete it, the item will remain in your credit file. I have given real world examples of what it takes to keep good credit, and what it takes to build back damaged credit. Every situation is different. Some people are years away from qualifying for a mortgage loan, some are only a few months away, and some are ready right now. The best way to find out where you are is to know your credit score.

640 Credit Score

Get Equifax Score Watch Now! If you have a score under 640, get in touch with a mortgage broker. He can guide you in a step by step process to raise your credit scores. Mortgage brokers know what lenders like to see in a borrowers credit file, and they are willing to work with you for as long as it takes to raise your credit score and make you a qualified borrower. Find out your credit score. You may be in better shape than you think.

Mortgage Loan Payment Calculator

Using a mortgage loan payment calculator can be a huge help as you consider buying a home or refinancing the mortgage rate on your present home. Just know that a mortgage loan calculator can only give you one piece of the puzzle. There are usually three more amounts added onto your monthly payment to cover :

1. your taxes,

2. your insurance, and

3. p.m.i. (all are explained below).

How to Use a Mortgage Calculator

Most mortgage payment calculators are pretty user friendly. You just enter :

1. the price of the home (or the amount you will be refinancing)

2. the down payment amount (“0” if you are figuring for refinancing a mortgage rate)

3. the term—that means the length of the loan (usually 30 years), and

4. the interest rate you plan to secure for your mortgage.

Then, you hit “calculate”, and the mortgage loan payment calculator will figure your monthly payment for you and you’re all done, right! WRONG!!! Most mortgage loan payment calculators will only give you the main portion of your monthly payment. That main portion consists of two parts: principal and interest.

• The principal part goes towards paying down your loan balance. The balance goes down every time you make a payment.

• The interest part goes to the lender. Interest, of course, is the fee the lender charges for letting you borrow the money to pay for your house.

I know, I know, that’s pretty basic, but in my years as a realtor, I learned never to give anyone the benefit of the doubt when it comes to their knowledge of mortgages. OK—on we go.

Although the principal and interest portion makes up the lion’s share of your mortgage payment, there can be as many as three other amounts tacked on to your monthly mortgage payment. These are taxes, insurance, and p.m.i. Most folks do not consider these amounts when using a mortgage loan payment calculator. And they end up being really disappointed when their payment is figured by a loan officer and it is several hundred dollars higher than the payment reflected when they used the mortgage loan calculator.

The calculator at the top of this page gives estimates on two out of three of these “extras”, namely taxes and p.m.i. Add another $75 to cover home owner’s insurance and you will have a good payment estimate.

Mortgage Loan Modification Protocol

10 Steps to getting your DIY loan modification started

What is a mortgage loan modification protocol?

A mortgage “loan modification protocol” is simply the order or sequence of steps that a homeowner takes to accomplish a loan mod.

A loan modification is an arrangement in which the lender alters a distressed homeowner’s loan to reduce the monthly payments. Not all borrowers who are behind on their mortgages will be good candidates for loan modification. If you find your situation listed below, it might be appropriate to contact your lender about a loan modification:

* Loss of a Job

* Pay Cut

* Divorce

* Separation

* Death of a Spouse

* Emergency Expense

* Injury or Disability

* Job Transfer

* Rate/Payment Adjustment that Raised the Payment Unexpectedly High

* You Owe More than Your House is Worth

* Military Duty

* Business Failed

* Damage to Property
You could be on hold for an hour or longer before you reach someone who can speak with you about your loan. If you don’t have what the lender needs, you will have to hang up and call back later. How frustrating. Therefore, be well prepared, so your long wait will not be wasted time. The lender will require that you fax certain written information to them in order to submit your modification request.

Here is your to-do list.

Mortgage Loan modification Protocol steps to do BEFORE you contact your Lender

Step 1 of the mortgage loan modification protocol…

1. Prepare a financial statement. A financial statement is actually your budget. If you don’t already have your budget written out, look over your checkbook or bank statements for the past three months or so. List every regular expense: mortgage payment, utilities, clothing, groceries, credit card payments, car payments, insurance, gas, bus fare, prescription/medical costs. Some of your expenses may have to be averaged—that’s OK. If there are bills that you have not been able to pay for a while, list them as well. It’s best to tally your expenses on a spreadsheet, but it’s not required. Don’t be surprised if your monthly expenses add up to more than your monthly income. After all, the purpose of the financial statement is to illustrate that you are experiencing financial hardship.

Step 2 of the mortgage loan modification protocol…

2. Find out the value of your home. To determine your home’s value, you must know the recent sales prices of homes that are comparable to yours. There are internet sites that aid you in finding your home’s value. If the web-sites don’t help, you may have to go to the court house to get this info. But if you know someone in real estate, it will be easy for them to do a Comparative Market Analysis for you. A Comparative Market Analysis, or CMA, is a report that shows recent sales of comparable homes in your area. CMA’s are free.

Mortgage Interest

Mortgage Interest is the amount that you pay the bank for loaning you the money to purchase your home. The amount of interest you pay is determined by the amount of your loan and your interest rate. You will pay interest every month as part of your mortgage payment.

During the first few years, most of your payment goes to interest. Only a few dollars a month goes to decrease your principal. However, as the years roll by, less and less of the payment will go towards interest. That means, more and more of your payment will go to decrease your principal and pay off your house. Let’s extend the example from the previous section.

• You borrow a total of $196,000.

• Let’s say you have an interest rate of 6%.

• Based on a 6% interest rate, the principal and interest part of your monthly payment will be $1175.12.

Notice I said “the principal and interest PART of your payment…” Remember that your monthly payment has several “parts” that make up the total. The $1175.12 is your monthly principal and interest payment. There will be other parts added on. We will go into those later.

• In the first year of your loan, you will only pay down the principal by about $2400. After making 12 payments, your principal (remember, that’s the amount you still owe the bank) will be $193,593.09. That means during your first year of making payments to your bank/lender, you will have paid $11,694.53 in interest—A LOT more interest than principal. In the early years of the loan, the lion’s share of your payments goes to the bank for interest.

• You will have to pay on that loan for 17 years before you reach the “half and half point”–meaning an even half of the payment goes to principal and half goes to interest (about $560 to each if we use our example of $1175.12 per month). After that, the game swings in your favor and most of your payment goes towards principal. But 17 years is a long time.

• You can speed up the process and save thousands in interest by making extra principal payments. Anytime you make a payment that is more than your set monthly payment, the extra will be applied to the principal (unless you owe for late charges and/or late payments).

• If you make one extra payment every year and apply it to the principal ($1157.12, if we use our example), you can just about cut your 30 year mortgage in half. To make it easier on your budget, just divide your normal monthly payment by 12 and add that amount to each house payment. That will be the same as making one extra payment a year. The more principal you pay, the more equity (dollar amount of ownership) you acquire in your home. Using our example of $1157.12 (divided by 12), you would need to pay an extra $95 per month. Think of the interest you would save!!!

Most of us don’t have the financial discipline to do what it takes to pay off our mortgage early. And sadly, most people never pay on their loans long enough to even reach the “half and half point. But every little bit helps. Twenty dollars extra a month will make a big difference for most people without stretching the budget too far.

Or be creative.

I’m not a real “gift” oriented person, so I asked my husband to make an extra principal payment on our mortgage every year when my birth month rolls around. Not particularly romantic, I know—but hey, it works for us. Ok, we’ve covered interest—you pay it every month in your mortgage payment, and you pay A LOT of it–pretty simple so far, huh?

Loan Modification – Loan Rework- FHA Hope for Homeowners

Many lenders have been rejecting the efforts of their borrowers to negotiate a “loan modification” or “loan workout”. A loan modification is an attempt on the part of the borrower to rework their current loan with the lending institution in an effort to avoid foreclosure.

The issues facing today’s troubled homeowners are varied.

• Many borrowers are upside down on their mortgages —meaning that they owe more than their house is worth.

• Others are locked into mortgage payments that they can no longer afford due to loss of employment.

• Still others cannot afford their house payments because they have adjustable rate mortgages that have risen too high for their budgets.

Regardless of the reason, a large number of these troubled homeowners have approached their lenders and asked for a possible loan modification of their home mortgage.

• Some borrowers ask for a reduced loan amount that more closely reflects the value of the home.

• Some ask for a reduced interest rate that will bring the payment down to an affordable amount.

• And still others ask for reductions of both loan amount and interest rate—gutsy!

Until lately, most of these efforts have been rejected by the lenders. In other words, the lenders opted to foreclose. Now that there are a flood of foreclosures in the market, lenders are being overwhelmed—and humbled. More and more, the attempts of honest people to re-work their mortgages are actually working. Borrowers who tried to negotiate with their lenders and were rejected even as recently as 6 months ago, may now find that the lender is a bit more open—especially if the borrower has a high sub-prime or adjustable rate mortgage.

Before approaching the lender to attempt a loan workout (or loan modification), you should familiarize yourself with the “FHA – Hope for Homeowners Program” which was activated on October 1, 2008. It is hoped that the program will save over 400,000 homeowners from the tragedy of foreclosure. Even if you are currently in the process of foreclosure, you may qualify for the program. This new FHA program will also be available to those who have high interest, sub-prime mortgages and those who are facing a possible foreclosure.

Here’s how a loan workout (or loan modification) differs from the FHA program:

Loan Modification:1. You can have your current loan restructured with new terms such as a lower fixed interest rate and/or a lower loan amount.

2. A Loan modification is not free. Just as there were costs involved in creating the original loan, there will be costs involved in re-structuring it. Just as many borrowers tacked the closing costs onto the original loan, the re-structuring costs usually can be added to the new loan amount. So be prepared to have a bigger loan than you might think.

3. The loss mitigation department of your lending institution will process the changes to your loan. It is their call as to whether or not they will lower your loan amount. Lowering your loan amount is important if you owe more than your house is worth. But, even if they do lower the amount, it may not be enough to really help you. What good does it do to get a reduction if you still can’t afford the payment, right? If the reduction is not significant enough to make the payment affordable, you may find yourself in financial trouble again in the future.

4. Servicing your loan is lucrative for your lender, but with so many foreclosures, many lenders have gone under and have sold the servicing rights to your loan. The new lender incurs expenses as they transfer the loan and all the documents into their system. This transfer not only takes money, it takes time as well. Homeowners are completely unaware of the “behind the scenes” activities involved in this process. But this transfer can severely bog down the loan modification process. In the meantime, the homeowner could be facing foreclosure. Therefore, loan modification has the best chance for success if it is initiated months before foreclosure proceedings begin.

5. For the most part, loan modification requests are not well documented by lenders. That’s not a bad thing for you. If you request a modification and you are rejected, wait a few months and give it another try. If the market is shaky, that makes lenders nervous, and they may be more open to your request. You will need someone who is experienced in real estate, mortgage lending and loan modifications. Hook up with a loan officer or real estate attorney you trust and let them speak to your lender’s loss mitigation department. Their services will be well worth their fees. However, these fees are not part of the costs of re-structuring, so you will be responsible for paying anyone you hire to represent you.

6. Oftentimes, a loan modification specialist working together with an attorney can speed up the process for you. The attorney can assure that your original loan documents are legally sound and can spot anything fraudulent. Again, these fees cannot be added onto the loan. Using these professionals is advised, but not mandatory, therefore these expenses are solely the responsibility of the borrower. It is like using a real estate agent when buying a home. You do not have to use one, but most people benefit greatly from their services. Using a loan mod specialists and attorneys can cost you anywhere from $1000 to $5000. Payment plans are usually available, but most require 50% of their fees up front. Fees are due even if the lender rejects your request for modification of your loan.

7. A great number of loan workout requests are accepted by the lender. Your chances of being accepted are better if you are working with people who know what they are doing.

8. Most times, the lender will not require a new appraisal. That’s good because appraisals cost money. Your representative can provide data to substantiate your home’s value. This is important info because it will determine your new loan amount.

9. When your lender starts foreclosure proceedings, there are expenses involved. Foreclosure is a legal maneuver involving legal fees, title costs, and possibly ad fees for posting your property for sale. The lender may require you to reimburse them for those expenses before they approve the modification.

10. You do not have to accept their terms and conditions for modification. If the loss mitigation department offers you a tiered-fixed loan or an adjustable rate mortgage, make sure it will work for you. Be diligent in making sure you understand what you are signing. If you have representation, have them explain everything to you. You probably got into this mess by not having a full understanding of what you were getting into. You do not want to make the same mistakes again.

FHA (Federal Housing Administration)- Hope for Homeowners Program:

1. In order to qualify for this program, you must accept a 30-year fixed rate loan. No other loan types are offered under the Hope for Homeowners Program.

2. FHA will loan up to 90% of the property’s current value. The lender may take a loss if you owe more than your property is worth.

• For example, if you owe $250,000 to your current lender, and your home is only worth $200,000, then

• FHA will loan you 90% of $200,000, which is $180,000.

• That translates to a $70,000 loss for your current lender.

3. If you have other mortgage liens on your home, those lenders stand to lose all their investment unless they purchase the primary lien. Most do not.

4. Obviously, the goal of the Hope for Homeowners Program is to help homeowners avoid losing their homes to foreclosure. This is not only good for individual homeowners, but it benefits the real estate market by preserving home values. The flood of foreclosed homes on the market has driven down the value of real estate. When home values are healthy the overall economy is positively affected as well.

5. The FHA has less stringent requirements for approval than conventional lenders. FHA exists to put families in homes. They are more lenient with their borrowers regarding income level, employment record, and credit history.

6. Qualifications for a Hope for Homeowners loan include the following:

• The home must be a principal place of residence.

• Home owners can’t own any other property.

• The existing mortgage payments must exceed 31% of the home owner’s gross monthly income.

• The home owner did not obtain the existing mortgage by falsifying loan documents.

• The home owner has not been convicted of fraud within the past 10 years.

• The home owner is struggling to meet the mortgage obligations and can no longer afford to pay on the mortgage.

NOTE: FHA will not insure the loan if the borrower fails to make the first payment.

7. Since the activation of Hope for Homeowners on October 1, no lenders have stepped forward to participate in the program. It seems, at this point, lenders are willing to take their chances on getting their money back the old-fashioned way—foreclosure. The bank will take a sure loss on the property by going the foreclosure route. At this point, lenders seem to be betting that their losses will be less by foreclosing on the property than by participating in the Hope for Homeowners Program. And it is their call to make. No lenders will be required to participate.

8. Your lender may not have your actual loan documents in house. With the high volume of requests coming in from worried home owners, loss mitigation personnel feel the pressure to make a decision quickly even without the benefit of having the documents. That may work in your favor. Be diligent in providing items requested so that you do not slow down the process.

9. Heavily populated areas like Los Angeles, Orange County, San Francisco, Seattle, Portland, Denver, Miami, etc., have a high volume of foreclosures, so homeowners in these areas will probably fair better in dealing with a loss mitigation department.

10. HERE IS THE CATCH associated with participation in the Hope for Homeowners Program!!! The home owner must agree to give some future appreciation (money) to FHA and the lenders. During the first year, if the home owner sells, FHA and the lender can collect 100% of the equity. Their right to the equity reduces on a diminishing scale and bottoms out at 50% by the fifth year after the loan closes. Understand this money refers to the dollar amount of equity in the house, not the full value of the home. This provision is fair in the sense that the lender has taken a loss, and FHA has taken a chance on you. From the homebuyers perspective, this deal may be better than the alternative, if the alternative is losing their home and ruining their credit.

11. Make sure you ask if your lender is an FHA approved lender. If so, they will probably require that your loan be recast within their FHA department. This will save some confusion. Your loan officer may try to do the loan on your behalf without determining if your current lender wants the new loan on their books, so talk to your loan officer about whether or not your lender is licensed to do FHA loans.

12. You will not be required to pay the expenses that we discussed in loan reworking like, attorney fees, loss mitigation fees, foreclosure posting fees, etc. These costs will be written off as a loss by your lender.

13. If you are a first time homebuyer, you should purchase your home before July 2009. The Foreclosure Prevention Act of 2008 gives first time home buyers up to $7500 dollars in tax credits. This program is intended to stimulate the housing market. If it works, the economy in general will get a much needed shot in the arm.

How do I Improve My Credit Score?

Excellent Tips for “How to Improve my Credit Score?”

1. Why does my report still reflect balances on some of my paid accounts? Often, creditors stop reporting to the credit bureaus once they are paid off. So, your report may show the last balance before the payoff. Creditors are not worried about your credit score—only about getting their money out of you. Be sure any paid accounts reflect a zero balance. If the account is closed, make sure that fact is reflected as well.

2. Why should I avoid having my credit checked by lenders? People have their credit checked every time they apply for more credit. Whether or not they accept the line of credit once they are approved is irrelevant. Just the fact that you have had your credit checked matters to the bureaus even if you don’t increase available credit lines. Each inquiry will ding your credit a few points. Inquiries remain on your report from 90 to 180 days. This is especially important to those who are shopping for a home loan. You will want to shop around for the best rates. When you speak with a loan officer, he may want to check your credit. If you talk to several lenders while you are shopping around, and each one checks your credit, you will hurt your credit score. Take a copy of your credit report with you to show the loan officer. This will save the lender from having to do a credit inquiry.

3. Why is the same account listed more than once on my credit report? One account listed several times on the credit report is usually an account that has gone to collections. Collections agencies will report a delinquent account several times just to make sure it makes it on your report. The scoring programs that compute your credit rating may not pick up that the same account has been reported multiple times. To the program it appears that you have several accounts in collections. Of course this results in an inaccurately low score. Be sure that any collections only appear once and the account status is accurate (outstanding or paid in full).

4. Is it necessary for me to pay off outstanding charge off accounts and collections prior to refinancing or purchasing a home? Doing that can actually hurt you in the short term. Here’s why:Collections agencies sometimes report one time when the account goes to collections and do not report again. A collection account from 5 years back may not have been reported since then. So, that account is not affecting your credit score as much as an account from a few months ago. Paying off the old account will cause a report on a derogatory account that may not be affecting you that much now. It’s better to leave it alone. While the pay off would be positive, it is still “digging up bones” because it will show an old account as a “current collection”. This may actually lower your score for a few months.For the sake of your long term credit score, pay all collections. But do it at least six months (or a year, to be perfectly safe) before you apply for a refinance or a home mortgage

5. Should I close my credit card accounts? Credit bureaus love to see long term credit history. If you close credit card accounts, close the newest ones. New accounts reduce your credit for the short term until you establish that you can handle the account responsibly. That takes time (six months to a year). The immediate impact upon your credit score is a reduction.

6. Is there a recommended number of credit accounts I should have? Yes. Three active lines of credit is the minimum recommended amount to build good credit. Try to vary the types of credit accounts you open: home loans, auto loans, credit cards or college loans. You want your credit report to reflect that you can manage many types of credit lines.

7. Should I pay my credit card balance off every month? Paying a balance in full every month is not a bad thing. But it is OK to carry a balance. Remember, the credit bureaus want to see you manage your credit lines. If you are constantly paying them off, you are not really “managing” them. Keep the balance below 30% of the limit. Pay it off once or twice a year. Your credit will go up, up, up.

8. What is Rapid Rescore, and is it a good way to boost my credit? Rapid Rescore is a method of quickly resolving errors on your credit report. If it works, it will get your errors removed more quickly. Usually, it is used when a home buyer applies for a home loan and errors are found on the credit report. Your loan officer assists you in contacting the creditor(s) and getting written statements directly from them stating that the account was paid off, that the account is not yours, releasing a lien, a bankruptcy discharge, a letter of deletion, etc. If it works, Rapid Rescore will allow you to qualify for better interest rates. However, this method is not guaranteed, and will cost you about $50 for every error you attempt to correct.Many times, credit report errors disappear within 30 days just by your sending a dispute letter. If you have written statements from the creditor(s) proving the error, send copies of that along with the dispute letter. This speeds up the process because you’ve made the credit bureau’s job easier.

9. What if I don’t have written evidence from the creditor about an error on my credit report? If you don’t have proof to refute the information on your credit report, send a dispute letter by registered mail. Federal law says that anytime the credit bureaus receive a dispute letter, they have a “reasonable amount of time” to investigate your claim. They must contact the creditor for verification. The report will be amended accordingly. The rule of thumb for “reasonable amount of time” to contact the creditor is 30 days. So Are you still asking the question – How do I improve my credit score?

Getting the Best Refinancing Mortgage Rate

When refinancing a home mortgage, the goal is to get the lowest rate possible. But there are several matters to consider in finding the best interest rate.

Here is one BIG question to consider:

Should I use my current banking institution?

The short answer is, “Probably not.”

If you go through your bank or credit union, you will have to settle for the rate that your bank is charging. Your bank or credit union is a one-trick pony when it comes to refinancing a mortgage

The price is the price.

Your best bet is to use a mortgage broker. Mortgage brokers have the ability to shop the lender market for you and match you and your specific financial picture to the best loan program you can qualify for.

Just because your next door neighbor was able to refinance at 5.5% interest rate with 1% in closing costs doesn’t mean that you can.

Your mortgage rate will greatly depend on your income, your credit rate, and your work history. Your closing costs will depend upon the lender and the loan program you use.

You’ve always heard, “It’s wise to shop around.”

This is never more true than when refinancing a mortgage. And shopping around can be tricky if you don’t know a lot about the hidden costs that can be associated with securing your new mortgage.

A mortgage broker can compare apples to apples when she shops for you.

For instance, say you shop on the internet and find a great 5% interest rate on a loan offer from ABC Mortgage. So you hurry and sign up with ABC Mortgage before the rate goes up.

Then, as you get close to your day of closing on the new loan, you get an e-mail notice giving you your “cost to close”—that is the amount of money you must bring to the closing table in order to pay these nice people for structuring your new loan. You open up the e-mail, and find out that it is going to cost you $10,000 to get this great 5% rate—-

SCAM ALERT — A mortgage broker should never charge you to check your credit and work up a “good faith estimate” for you. If any loan officer ever tries to charge you for a credit check or an estimate, this is NOT a lender you want to use. Cross them off your list immediately and move on down the line.

To find a good mortgage broker in your area, you can always shop on-line, or you can ask any realtor. Most of us have a friend or relative who is a realtor. If you don’t know a realtor, ask around among friends and family. Chances are, you’ll find one quickly. Realtors have to work closely with lenders on real estate transactions, so they can give you the names the lenders with which they have had the best experiences — honest, reliable, local lenders with the best rates.

Another question you should consider when shopping to refinance your mortgage rate is:

What are the costs involved in refinancing my mortgage rate?

• Attorney fees

• Appraisal

• Termite inspection (and treatment if infestation is found)

• Origination fees

• Application fees

Ask your lender for a “good faith estimate”. The estimate is on a form with all fees spelled out for you line by line.

Good faith estimates can be confusing, and lenders know this, so don’t be shy about asking your loan officer to explain any item or items on the estimate.