Refinance Your Mortgage Tips

Refinancing A Mortgage With Bad Credit History

Bad Credit Mortgage Refinancing Options

There is no doubt that trying to refinance with bad credit history can be a difficult process and a very despairing one too. There will probably be more turn down replies and application declines than approvals. The last years have caused many families to drop into a dark financial slippery hole, which includes getting bad credit remarks on the FICO credit score. Having such negative remarks on the credit report makes the refinancing dream fade away.

Now (Oct 2011) when the interest rates have again hit the lowest point ever refinancing the mortgage and locking in 30 fixed rate seems to be a financial dream come true. But those hit by the financial Tsunami of 2009 may have several dark spots on their FICO report which would makes the dream of locking rates be less realistic for them.

Plan In Advance For Refinancing At 2012

The best advice would be to plan ahead, and start making the correct steps toward refinancing the mortgage in 2012. If your score is low (below 600) or you have several negative items on your report history, you need to take action NOW in order to be ready to be approved for mortgage refinancing at 2012.

There are several ways to clean a credit score, and they can all be done without outsourcing the process to expensive companies “mortgage rescue” which in many cases have been found to be scams. Because most of the people are not mortgage-brokers or financial advisers, it is recommended to get a credit repair guide and follow the 1-2-3 steps till the credit report is ‘cleaned’ from as much of the negative items still on it.

You can get here a ’37 days to Clean Credit’ Guide

Once you have completed this part your score may be better and not only you may be approved , but you may be offered even better rates than you would have otherwise.

FHA Refinancing Programs For Low Credit Holders

The FHA (Federal Housing Administration) has several refinancing programs intended for those with bad credit history score. Having a poor credit will not automatically qualify you for these refinance programs, and a lot is dependent on how you score looks when it is checked by the lenders.

The FHA do not lend the money, (private lenders and banks do) the FHA  backs you up, and insures the lenders get their funds back. This is done for a low insurance premium fee which is added to the interest rate.

You need to see if you qualify for a HAMP or HARP program, and see the FHA minimum credit requirements for each program.

The lenders offering refinancing solutions for FHA mortgage refinancing programs, seek diverse financial abilities rather than just looking at your FICO score. Many lenders would refinance your mortgage even if your score is lower than 600. For example QuickenLoans offers 15-20-25 or 30 years FHA mortgage plans for people with score as low as 580.

The FHA benefits are incomparable, and are worth the effort, especially if you are turned down by other financial institutes.

Some Negative Items Stay On Score For Years

There are some negative items which can stay on your FICO report for years and years. They will stick to you like a gum on your shoe and follow you in your future financial decisions. For some of these items there is not much you can do, but let time heal the wounds. Other items can be removed in slow process which can take month.

• Chapter 7′s bankruptcy stay on your credit report for 10 years from the date filed.
• Chapter 13′s bankruptcy stay on your credit files for 7 years.
• Judgments – Will stay on your score for up to 7 years.
• Tax Liens – Will keep showing on your score for 7 years since they were paid. Unpaid Tax Liens stay forever.
• 3rd Party Collections (credit cards) – Stay 7 years since creditor’s default date, and not since last payment.

Payments starts to pile up and begin their clock ticking when they turn ‘terminal delinquency’ this is 6 month after their last due date.

So if you plan on refinance with a bad credit history, and one or more of the items above shows on your credit history report, than you should aim at 2012 refinancing challenge. Get the FICO score fixed before you apply.

The amount of money you would save will be incomparable to what you earn.

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See Related Refi Posts:

• FHA Streamline Refinancing
• Refinance To Assumable Mortgage 
• How To Raise Your Score To 800
• When Is Refinancing A VERY Bad Idea

FHA Streamline Refinance – No Out Of Pocket Closing Costs

FHA Refinance – No Out Of Pocket Closing Costs

 There are many FHA refinancing closing costs which need to be paid during an FHA refinancing process. These closing costs may include all the fees and costs summed up in the FHA refinance process. Except from the FHA streamline refinance – ‘no out of pocket closing costs’ which will be explained here, there are other ways the FHA allows borrowers to pay their closing costs.

Closing costs include of all the fees and costs which had to be paid during the approval of the refinanced mortgage. Costs such as appraisal fees, title fees, lenders fees, and government fees connected to the FHA mortgage processing. FHA refinance streamline programs ’no out of pocket closing costs’ can be very appealing to customers who wish to refinance but can not afford paying the current closing costs.

The closing costs for a FHA streamline refinancing mortgage can be 2% of the mortgage loan. This means for every $100,000 you refinance, the closing costs will be around $2000. When homeowners who refinance do not have enough cash to pay the closing costs and the FHA agrees, the closing costs would be mounted into the new mortgage loan.

‘No Closing Costs’ Does Not Mean It Is Free

It might be tricky to think that the fact that the FHA streamline refinancing has a no closing cost option, it is free of charges. It is certainly not. There are two main ways to complete the transaction without pulling cash out of your pockets.

The first option is when you mount the closing costs into the new mortgage. In this case you will be paying an interest as agreed, on a slightly higher amount of mortgage.

The second option in FHA streamline refinancing is that the lender agrees to pay off all the closing costs (which becomes a ‘no out of pocket closing costs’ for you) in exchange to offering a slightly higher interest rate.

Which Closing Cost Payment Option Is Better

Now (Sep’ 2011) when a echo sound was heard when the mortgage interest rates have hit yet another ‘ever low’ rates (60 years low), requesting the first an option may be a smart move. When interest rates are so low, $4000 additional mortgage will overthrow you off the deck. You should forward this issue to your current mortgage divisor, to calculate the impact it will have over your future mortgage payments. 

For a $300,000 mortgage the closing costs may reach $9000. The second option (lender paying in exchange for a higher rate) may not be financial, but may be the only option if the closing costs fees are not affordable. Even though, today (end of 2011)  when the national interest rates  have reached rock bottom adding a small percent may still be acceptable.

Win-Win – No Out Of Pocket Closing Costs

The option not to pay the closing costs is a fine option to the borrower, but it is also a fine option for the lender, as they will be gaining profit twice.

First time would be when the mortgage sum increases, the lender will make more profit as the interest rate will be on a larger sum. The second thing would be that the lender will agree to a no out of pocket closing costs in exchange too slight increase in the rate. They will be making higher profit on the whole sum.

When No Out Of Pocket Is Not Permitted

There are several scenarios in which the FHA streamline refinancing will not approve a no-out-of-pocket closing costs solution. This can be if the FHA streamline refinanced mortgage does not have enough equity (97.75%) according to the FHA appraisal evaluation report. Though appraisal report is not needed for the FHA streamline refinancing, the no-cash-out will be possible for equity over 97.75% or 97.75% of the previous loan amount.

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Read More Relevant Posts

• How to Refinance An Underwater Mortgage
• How To Detect Refinancing Scams
• FHA Streamline Refinancing Guide 2011
• Cash-Out Refinancing Requirements

‘Refinance Scams’ Radar – 6 Ways To Detect And Avoid Them

How To Detect Refinancing Scam Attempts

It is important that you know about refinancing scam attempts and learn how to spot them at early stages. Detecting refinance scams can save you thousands of dollars and can even save you your home. Unfortunately the scammers are shifting their bad ways and techniques all the time, so there might be even now further scams which have not been detected yet. Even though, within the guidelines and tips below you may find enough alert signals to protect yourself from refinance frauds.

Refinance Scams Search For Weak People

Scammers know and understand the weaknesses of human beings, and ride over these weaknesses to rip people off their money. When a person is behind on their mortgage payments, or was recently fired from their job, or have credit card debts piling up their door, they are the perfect victims for a mortgage refinance  scam.

The fear of losing home, or drowning into foreclosure, makes people desperate for any ‘life-jacket’ which is thrown at them. And that is exactly what makes them so vulnerable to fall for mortgage or refinance scams. The scam is not preformed by gang tattooed person, on the contrary, you may be approached by a nice person, who talks ‘financial language’, who say they the solution to your problems, and all they ask for is that you ‘trust them’, and everything will be O.K.

Because people in distress will believe anything, and will have a wishful thinking mode, they are not aware to the scam signs, and even if they see them, they prefer to overlook, as they think they do not have any other hope.

When It Comes To Money Issues – Trust No One

The first rule, is to be suspicious. If an offer seems too-good-to-be-true, it probably is! Even when you decide to put your faith in someone, still maintain your survival instincts, ask question, double check basic facts, verify things with second opinion, postpone decisions to reevaluate, never sign anything under pressure. Trust no one, except yourself.

Here are several tips on how to spot refinance scams:

Beware Of The Direct Approach – If someone has picked you, rather than you picked them.. If someone knocks on your door and offers financial help (without you asking for it), like debt consolidation, or to refinance your mortgage in better terms, say “no, thank you” and close your door. You might have been chosen as a victim. The scammers might knock on all the doors in the neighborhood, hoping for one sucker to be naive and invite them in, or accept their offer.

Advance Payments For Refinance ‘Counseling’ Services – Some scams are very simple, they will send you fancy papers, with graphs and financial data, (which they know you can not understand but looks impressive). They may even agree to meet you at your own home, and will arrive in suits and elegant briefcases. At this time you will not be able to spot they are fraud! 

Their offer will sound like a dream-come-true, and will be FREE too. Except for some ‘fees’ to ‘other people’ which need to be paid upfront. They will say they have to pay an expert lawyer, a great financial adviser, or to order some files or forms. These fees may add up to hundreds or thousands of dollars, and actually there is NO lawyer, No adviser, and No files ordered. Just a plain simple rip off.

Debt Consolidation Solutions – A common refinance scam is to offer the victim a ‘magic’ solution to all their worries, to gather all the debts owed by the borrower, and consolidate them all into ‘One New Mortgage’. The main problem is that, if you are behind your credit card payments, it will damage your FICO score, but will not risk your home. With the new debt consolidation, the new debt to income ratio may increase, and the home mortgage will be at risk of foreclosure.

Not Revealing All Costs And Fees - This kind of refinancing scam is dangerous, because it can be done by legit lenders and mortgage brokers. They get paid every time you process new mortgage loans with them, so they have an incentive not to disclose all hidden costs (like penalty for mortgage early payoff) even if the new mortgage payments get higher than you can afford. If a mortgage agent tries to influence you to refinance with lower interest rates – Throw him away.

Refinance Documentation Scams – Some scams are intended to con you to sign papers which have blank spaces inside them. Once your signature is at the dotted line, new data will be added at the blanks. Now they have your signature on a legal document agreeing to terms different than mentioned face to face. In some cases you will know it only when it is too late, and the application is processed. If you resent they will threat you by legal actions!

Refinance Application Frauds – Because the broker wants their fees, and you might be eager to refinance your high interest mortgage, the mortgage broker may ask you to write false details (income, salary, employment) in the application form. They may say that it doesn’t matter much, or that it is done ‘by everyone’, or that if there is a problem it can be fixed.. The truth is that you have just been tricked to commit a federal ‘false statement’ crime. Another thing is that the new monthly payments may be beyond your financial reach, in the long run, and you will lose your home.

Refinance Scams Conclusion

The best advise is to be a suspicious customer. Not everyone will want to scam you, but when it comes to refinancing your mortgage if you do not spot the refinance scams you may lose your home if warning signs are ignored. Seek professional home-buyer education information and read more on refinancing with bad credit before you decide how to proceed.

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Other Posts you May Find Interesting:

• 10 Signs To Spot Credit Repair Scams
• Your Appraisal Fees Cancellation Rights
•  What Is Refinance Letter Of Explanation?
• How To Get A 800 FICO Score

Refinance Fees Refund & Cancelation Rights

Refund Rights When Canceling a Refi Deal

Many people might not know, but the Truth in Lending Act protects them as borrowers and allows them to back off a closed loan deal, and get 100% of the monies they have paid and invested back. If the refinance deal does not satisfy the borrower or they have discovered hidden fees or have cooled down after the signing meeting, they are still entitled for a full refund. The refinance cancellation and refund will be on all refinance fees and costs, even those paid already to third parties.

The refinance cancellation is not a common procedure by borrowers, at present times. In the past when the interest rates were racing up or down there were numerous cancellation of refinancing deals, when the locked rate became a ‘bad deal’ when it was time to sign the loan documents. The Truth in Lending Act protected borrowers, and permitted to back off from a deal they do not wish to carry on and complete.

The Truth in Lending Act is not blind to the lenders rights for honest protection, and there are some limitations and regulations, when and how the refinance mortgage deal can be canceled. There are also limitation in which cases the refinance refunds are entitled too.

Canceling Before The Closing Meeting

Be careful not to mix up some basic terms, canceling before the signing of the documentation is not protected by the Truth in Lending Act. In case you decide to back off a deal before documentation has been filled, there might be a state or lender penalty! This penalty may reach $1000!

If nothing dramatic has occurred and there was no drastic changes in the lenders terms and refinance process, you better wait and sign all the documentation, and only afterwords, use the right and protection the Truth in Lending Act to cancel the refinance transaction deal.

The Right of Rescission Protection

The Truth in Lending Act protects the borrower from the moment the mortgage refinance loan papers are signed, and within the 3 day rescission period.

The right of rescission, is given to the borrower before they commit themselves into one of life’s most challenging deals, it is a right that is given to prevent people from signing papers under pressure, or signing documents they do not fully understand.

 This law protects any borrower taking a mortgage and home loan, but unlike regular mortgage borrower, or first time buyers, the refinance Right of Rescission permits total refund of money paid by the borrower in the process.

The full refund of fees and costs paid by the borrower include those the lender have collected and paid to third parties like appraisal fees, inspection fees, broker fees or title search fees. Even if the fees have been paid directly by the borrower (and not by the lender) to the third party, they are refundable by the Truth in loans Act.

Fees and costs which are not refundable are those which not directly connected to the credit transaction, as fees paid for home improvements or costs for for a building permits.

Which Refinance Loans Are Protected By The ‘Right of Rescission’ 

The Right of Rescission refunds is not automatic, and not eligible for any mortgage refinancing process. See below to learn in which terms the refinance fees refund is covered by the law.

• New Lender - The Refinanced mortgage needs to be by a NEW lender. If refinancing with the current lender, the refund rights do not stand for you.
• Getting A Larger Home Loan Amount – The 3 days rethinking is allowed by the Right of Rescission only when a larger amount of loan is involved in the refinancing process.
• Cash Out Refinancing – If you are taking cash out refinancing, and taking a larger amount against your home, the 3 days rescission period counts for final acceptance of the new mortgage terms and payback schedule.
• Home Needs to Be Principal Residence – The right of rescission on refinancing applies to events when the main residence is at stake, and emotional pressures might have been part of the decision making.
• Home Equity Line and Installment Loans – Though these are not refinancing loans, borrowers of these kind of loans have the right to cancel the loan within 3 days from the mortgage/loan closing meeting.

Follow These Exact Steps For Refinance Cancellation

Unfortunately many people do not follow these steps as they have been requested by the law, in the exact manner the law abides. If for example a person calls the mortgage broker and tells him he have decided to use your right for cancellation by the Truth in Lending Act (TILA) and requests a refund, he is not entitled for a refund nor for the cancellation to take place.

The exact way to rescind during the rescission period should be:

• Three Days Notice - The law allows to give a cancellation notice within 3 business days. Day ‘One’ is the day the refinance documents have been signed. The law specifies that the rescission period will be over (like Cinderella) at ‘Midnight’ of day ‘Three’.
• Business Days – These 3 business days include Saturday (but not Sundays) and do not include legal public holidays. So If you have signed refinance papers by Thursday morning, the rescission period will be over at midnight 24:00 of Saturday.
• Written Document – The only way to rescind and cancel the loan is by writing a letter to the lender. Any other way such as calling or meeting them at the office is not enough to be covered by the law.
• Documented Notice Delivery – It is best that your cancellation letter will be documented by some way to prove the delivery time was within the 3 day limit. Request a signed approval from the lender for the rescission letter delivery otherwise the lender might claim the notice was delivered beyond the 3 day limit.

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Read Now These Relevant Posts:

• When Is Refinancing a VERY Bad Idea?
• Refinancing? Do Your Homework!
• How To Get 800 FICO Score
• All About Cash-Out Refinancing

Letter Of Explanation (LOX) For Refinance Cash Out

How To Write Cash Out Refinance Letter Of Explanation

Letter of explanation known as LOX or LOE is a common way banks and lending institutes requests to receive financial information from their borrowers and people who are applying for loans and mortgage refinancing. If you are facing a mortgage refinancing, and you plan to do a cash-out refinancing, there are chances you will be asked by your lender to write them a letter of explanation for this cash out refinancing decision.

What Is Letter Of Explanation (LOX)

Letter of explanation is a legal document that institutes need to cover their risk management before underwriting a loan or a new mortgage. When an applicant requests a new home loan or to refinance their current mortgage, the lender needs to see and understand the ‘big-picture’ behind the figures, and numbers.

After the request has been submitted it will be reviewed by a mortgage specialists to see if it is safe to issue and fund the borrower with a new mortgage to replace their existing one. This is part of the risk management the lender must do, in order to make sure the borrower is creditworthiness is safe and sound, and the refinanced mortgage would be paid on time and in full.

Examples For Letters Of Explanations

There are plenty of financial events when the figures and numbers need further explanation, so the specialists could see the whole picture. Here are examples to general situations when a letter of explanation might be requested:

• Borrowers need to explain new inquiries in the for their credit report, too many inquiries or inquiries in the last 30 days might be because a new loan was requested (car loan for example) and the lenders needs to know that to calculate the debt to income ratio.
• Lenders would request a LOE to explain late mortgage payments, or past due payments that show on FICO credit report.
• Letter of explanation might be needed if there was a period in which the borrower was unemployed. The lender would want to understand how stable is your current job, compared to the former one.
• Letter of explanation are sometimes needed to explain personal events which effect might be seen in the financial figures and credit reports such as divorce, spouse death, illnesses etc.. In times like these, negative items might be recorded to the reports but with a simple explanation, would not stop a lender from providing a refinance mortgage to a person.

Cash Out Refinancing Explained By Letter

When it comes to refinancing there are several topics which the lender needs more explanations in order to evaluate the application and reach a decision whether to approve the refinancing. Cash out refinancing means the borrower refinances the mortgage and requests more funds on that mortgage, which will be given as cash.

For example, a home value of $350,000 and a current mortgage of $250,000, the borrower has home equity of $100,000. When applying for cash out refinancing, the person may take $290,000 mortgage, and be left with $60,000 home equity, and cash out $40,000 for any purpose they want.

Most lenders would like this cash out refinancing to be explained by letter or explanation as they have different ways to evaluate such applications.

Writing Letter Of Explanation For Cash Out Refinancing

The simple rule of thumb is always to be honest and straight forward with your lender. You will be asked to explain by letter the reason you are applying for the cash out refinancing. Here are some guidelines to help you through the writing for this explanation letter (LOX or LOE).

Rule No’ 1 – As mentioned above always tell your lender the true reason why you need the cash out solution, and not applying for a regular refinancing option. If it is a car, or home renovation, let the lender know.

Rule No’ 2 – Remember what you wrote in the mortgage application, be consistent with the initial application. If the cause has been changed, make sure you acknowledge the lender the cause for the cash out, is different from what you wrote in the mortgage application. It is better you write it, than the underwriter finds the causes are not similar..

Rule No’ 3 – If there is one reason lender will not want to see in your letter of explanation for cash out refinance, is that you need the extra cash as down payment for another loan… If it is the reason for your cash out refinancing, see rule no’ 1 – Let your lender know!

Rule No’ 4 -  When writing a letter of explanation for cash out refinancing, make sure you have a clear paper trail, to each of the issues you explain in the letter. Writing things down is not enough, add attachments as proof or evidence to your claims. Lack of complete documentation may be one of the reasons an explanation letter is requested in the first place.

Rule No’ 5 - Think WHY the lender asks for the letter of explanation. Once you can foresee what was it that disturbed the lender so much that they requested such letter, you need to write the letter covering the issue and explaining the facts that will fit into the lender’s puzzle. If you are not sure what EXACTLY needs to be explained or WHY the letter was requested, contact the lender, ask them. Once you know what is it they are seeking, you can write explanations more convincing.

Rule No’ 6 – Be professional not an amateur. The person reading the letter of explanation does not wish to read your family history, and all your personal problems. Skip the effort to squeeze some sympathy, explain your self clearly and stick to the facts and build up credibility. Remember every thing you write might be checked and cross checked by the lender, be accurate on what you write.

Cash Out Refinance – LOX

Since cash out refinancing worries the lender more than regular refinancing, as most lenders what to know their money is going for a good cause and not gambling for example… Make sure you can explain by a letter your needs and plans for the funds you are expecting to cash out from the home equity.

Write a short letter of explanation, stick to the facts, add proof and evidence to your arguments, back the letter with documentation from reliable sources, bank reports, credit statements, legal papers and such. Your letter of explanation can be a single sheet letter or a small file including all that is needed to explained.

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More Posts You May Find Interesting To Browse:

• FHA Cash-Out Refinances Becomes Tough
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• Refinance Break Even Point – What People Do NOT Know
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