What To Do When Mortgages Default

What To Do When Mortgages Default

Mortgages default every day in the world and they are just a normal part of the business for mortgage lenders. There are a certain number of mortgages that will default every year and it is planned for accordingly. While it is common business practice for lenders, it can be devastating for you individually. If you default on a mortgage, it can ruin your credit and your financial outlook for the future. Mortgage default is a major setback for you, but it is not the end of the road. If you are faced with a default on your home, you can take measures to get back in good standing with the lender.

What else do I need to know?

What else do I need to know?

While most mortgage lenders and brokers have your best interests in mind, there are lenders that may try to take economic advantage of you. There are lenders that target people with low credit scores, who may have fewer credit choices or are perceived as higher credit risks. Unscrupulous lenders often reach out to elderly and low-income homebuyers, minorities, women, people with less than perfect credit and people who know very little about home loans and mortgages.

Be suspicious of anyone who offers you “bargain loans,” whether they mail or e-mail you an offer, call you on the phone or come to your door. Avoid promises of “No Credit? Bad Credit? No Problem!”
For more information on how to protect yourself from unfair or deceptive lenders, contact the Bureau of Consumer Protection in your state.

Protecting Your Identity – Caution: Under no circumstances should you sign blank forms giving your lender permission to obtain tax or personal financial information on you. Be specific about personal information that you grant authority for lenders to obtain in the verification process. You should confirm the name of the lender designated to receive the information, insert the specific information that you wish released, and date the authorization ( e.g., Form 4506,Request for Copy of Tax Form, or Form 4506 – T, Request for Transcript of Tax Return, should always specify the tax years to be released).

How do I find a trustworthy lender?

How do I find a trustworthy lender?

You can get a mortgage from many different sources, such as mortgage companies, commercial and community banks, credit unions, mortgage brokers and other financial institutions. When looking for a mortgage lender, it's important that you find someone who will work with you to meet your needs. To find a trustworthy lender, you can:

• Contact your bank, credit union or financial institution (they may offer better mortgage terms to their own customers)
• Talk to a real estate professional
• Consult a non-profit housing agency
• Ask family members, friends and coworkers for personal recommendations
• Look online, in your local newspaper or in the telephone book for a lender

How do I know if I can get a mortgage?

How do I know if I can get a mortgage?

To determine if you can get a mortgage loan and make mortgage payments, a lender will:

• Look at your employment and credit history. The lender will want to see financial stability.
• A potential lender will look for steady employment – with a single employer for the past two years or at least employment in the same field.
• They will look at your credit history and note late payments. Lenders pay particular attention to any rent or mortgage payments that were more than 30 days past due.
• In order to qualify for a mortgage, most lenders require that you have a debt-to-income ratio of 28/36. This means that no more than 28 percent of your total monthly income (from all sources and before taxes) can go toward housing, and no more than 36 percent of your monthly income can go toward your total monthly debt (this includes your mortgage payment).
• The lender will also verify your bank account information.

Based on the type of mortgage you're interested in, lenders will obtain, or ask you to provide, some or all of the following financial documentation:

• Credit report
• Pay stubs for the past 30 days
• W-2 forms for the past two years
• Information about debt obligations, including car loans, student loans, tax liabilities, liens (including federal tax liens), bankruptcies, etc.
• Recent statements from your checking, savings, mutual fund or other accounts
• Tax returns for the past two years if you're self-employed
• Proof of any supplemental income
• Records of any negative credit accounts that have been paid off
• Records of child support or alimony

What type of mortgage is right for you?

What type of mortgage is right for you?

There are several different types of mortgages and it’s important to know what mortgage is best for you and your personal situation. Common mortgage types include:

• Fixed-rate mortgages – These mortgages offer an interest rate that will never change over the life of the loan. The length (known as the term) of your fixed rate mortgage can be 15, 20 or 30 years. Note: The higher the interest rate, the higher your monthly mortgage payment.
• Adjustable-rate mortgage – An adjustable-rate mortgage (ARM) has an interest rate that changes based on varying market rates and economic trends. An increase in the interest rate will result in a higher monthly payment.
• Federal Housing Administration Loans (FHA) and Veterans Administration (VA) Loans – Government housing loans help lower the costs of mortgages so more people can afford to own their own home. Only approved lenders can offer these loans, and the property must meet required standards.

How Do I Choose the Best Commercial Mortgage Loans?

Businesses who wish to expand by building new locations or outlets are faced with the task of choosing the best commercial mortgage loans possible, if the costs for those expansions are to be kept within the limits of a budget. 

Like any other type of mortgage arrangement, thecommercial loan must be a good fit for the debtor, or the chances of some sort of problems developing later on are greatly enhanced. Obtaining business loans of this type requires careful attention to a number of factors, including the interest rate, the terms of the loan agreement, and even the general reputation of the lender.

One of the primary considerations with commercial business loans in the rate of interest that different lenders are willing to extend to the business. This is often based on the financial stability of the company as well as its credit history. In addition, many lenders will look closely at the potential success connected with the purchase of the new building site. 

All these factors relate to determining the degree of risk the lender is assuming by approving the loan application. Assuming all relevant factors are satisfactory, the lender will extend a competitive flat or variable interest rate for the consideration of the company.

When evaluating the interest rates connected with commercial mortgage loans, it is important to project the movement of the economy over the life of the loan. In some cases, a variable or floating rate of interest will serve the company well. 

At other times, locking in a low fixed rate will be the better option, especially if there are strong reasons to suspect that the averagemortgage rate will increase significantly over the years.

Keep in mind that finding the right commercial business loans also requires understanding how that interest rate is applied. Some lenders will apply the rate based on a 360-day year, while others will use a 365-day year. 

While this approach makes only a small impact with other types of loans, it can be very significant when it comes to commercial mortgage loans. For this reason, make it a point to project the total cost of every loan offer and determine which one will ultimately cost less in terms of interest.

Mortgage Arrangement Fee

The amount of the mortgage arrangement fee may vary from one lender to the next. Some lenders charge a flat rate, while others assess a fixed percentage of the loan amount. 

In some countries, lenders may assess a fixed percentage of the total loan amount, then a small percentage for each year that the loan is anticipated to remain in force. With this arrangement, the borrower pays a percentage for the overall loan, then also tenders a similar percentage for each year in the duration of the loan. 

Depending on the amount of the percentage and the number of years that the loan will be in effect, the mortgage arrangement fee can be substantial.

Since the mortgage arrangement fee may be known as an administration fee or even some other name, it is sometimes necessary to work with the lender to identify what each assessed fee encompasses. This makes it easier to understand what the charge relates to and how that charge relates to the loan itself. 

Depending on the circumstances, it may be possible to negotiate a lower fee, although many institutions consider the arrangement fee to be standard and non-negotiable.

In many cases, the mortgage arrangement fee is not paid up front, but is bundled into the total amount financed for the mortgage loan. This has the benefit of allowing the debtor to repay the fee over the course of the mortgage, but also means that interest is applied to that fee along with the other components of the loan balance. 

When and as possible, choosing to pay the mortgage arrangement fee up-front rather than bundling the fee into the financing can save a great deal of money over the course of a 30-year mortgage.

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