Archive for the ‘Mortgage’ Category

The news is filled with talk about loan modification and President Obama’s Making Home Affordable plan, and in a nation where over 3 million people are past due on their mortgage payments, a solution to their woes is something worth talking about. Loan modification is being pitched as a way to help troubled homeowners reverse their progression toward a short sale or foreclosure.

While loan modification may be a perfect recourse for some, it should be noted that not all homeowners will qualify for a loan modification and even then, some who do would be better served pursuing a different option.

In order to qualify for a loan modification your mortgage must have originated before January 1, 2009, you must live in the home, your monthly mortgage payment must be more than 31% of your pretax income, you must prove financial hardship, and the amount you owe on your home cannot exceed $729,750. If you do qualify for loan modification, your loan servicer will reduce the interest rate on your mortgage until your monthly payments drop below the 31% threshold. This new interest rate can go as low as 2% but if that is not enough to get below 31% they may extend the life of the loan or offer to defer a portion of the amount you owe until the loan matures.

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With mortgage rates plummeting, homeowners are flocking to lenders with hopes of refinancing their home loans at a lower interest rate and saving loads of cash in the process. On a $250,000 30 year loan, refinancing from 8% to the record lows in the 5% range that were reported in early January would lower monthly mortgage payments by nearly $500. Over the course of the entire loan, this amounts to over $170,000 worth of savings.

Most people, however, will not be able to qualify for a refinance loan and an even larger percentage will not be able to get approved for the best interest rates.

Having a good credit score simply isn’t good enough when it comes to getting the best rates on a refinancing loan. Most people consider a 720 credit score to be a good score, says Chris Freemott, president of All American Mortgage, but to get the best rates, borrowers will need a credit score of 740 or higher.

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Transcript from the video

“My husband and I had a couple of late payments, inaccurate late payments in our report. We were trying to get a house and it was really difficult. It was really stressful. We were really worried about our future. We were worried about him finishing school. We were worried about not being able to get a house. It’s sad and it was very, very stressful.

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CNN Video provides a video located here for consumers looking to maximize their credit score before applying for a mortgage. According to CNN, in today’s credit environment, a credit score of 750 is likely required to ensure you get the best rates and terms on your home loan.

According to the video, there are a few steps you should take to improve your credit score. Before applying for a mortgage loan, make sure to settle collections accounts, pay off high credit card balances, and avoid opening new lines of credit. In addition, do not close old credit cards even if you are no longer using them because the show a history of credit use which is an important component of a high credit score.

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