Posts Tagged ‘Home Refinance’

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

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
• How To Get 800 FICO Credit Score
• Refinance Break Even Point – What People Do NOT Know
• Front End & Back End Debt To Income Explained

When Is Refinancing a VERY Bad Idea?

When Refinancing Can Be A Bad Decision

There is something about refinancing which can be like a hype, when everybody is speaking about refinancing many people and homeowners might think that refinancing is like a magic solution to all their troubles and financial pit holes. But that is not the case, refinancing a mortgage is a smart move only if the conditions are right. In this review you could read when is refinancing a very bad idea.

There are several basic refinancing mistakes some people do because they hurry to refinance their mortgage, and never stop for a second and figure out, is this the best thing for them. The way to see if refinancing is a bad idea is to do some simple calculations, which in the end you will have a numeric figure, (in US Dollars) which will be either worth the refinancing effort or not worth the refinancing process.

Even if refinancing your mortgage may be a bad idea, there are other ways to benefit from the current low rates.

Refinancing Is Bad Idea If You Have An Old Mortgage

The first thing you should check before deciding to refinance your mortgage is how long have you been paying for the current mortgage. There is a financial term called amortization. Which is the change in the payments of a loan throughout a whole cycle from beginning of day 1 till the last payment 30 years a head.

The monthly payments might be of the same amount $1000 at the first month and at the last month, but the thousand dollars are divided differently to principle and interest. At the beginning of the mortgage, 90% of the return payments are for paying back the the interest rate, and a small portion is to cut some of the principle down.

Usually after half of the mortgage period has passed, you have paid most of the interest already. And at the second half most of the payments go to the principle and less to the interest rate. So refinancing will be a bad idea because getting lower rates will not save you much.

Refinancing Is A Bad Idea If Your Score Is Now Low

The interest rates for refinancing are calculated by the lenders just like for a first time mortgage. The lender will check your financial abilities, the same Front-End & Back-End debt to income ratio will be evaluated, the lenders will run a thorough check to your FICO score credit report.

If your FICO score is now lower than it was when you first bought the house, than a national low rates will not be relevant for you. The lenders will see that your score is low (or lower than it was) and the rate you will get for refinancing will be set accordingly.

So before you run to refinance do your refinancing homework, check the minimum refinancing credit score needed. If your FICO score is lower, but you still want to save thousands by refinancing, the appropriate move would be to raise your FICO score by some points and get the best refinancing rates you can. Rebuilding the FICO score is not ‘rocket science’, you can learn how to do it through this guide.

Refinancing Is A Bad Idea For Paying Credit Card Debt

Some people who have a lot of credit card debts are tempted by the low mortgage rates to try and refinance the home and to roll the revolving credit debts into the new refinanced mortgage. The main problem is that while dealing with collectors and collection companies is certainly not pleasant, having your home taken away by foreclosure is even worse.

If you have problem to manage your expenses, it is worth to get some home buyers education or family economic course, rather than adding debts to the mortgage. Being behind on the mortgage may end up loosing the house!

Refinancing HELOC loan May Be a Bad Idea

Refinancing a HELOC (home equity line of credit) means that your loan is given to you in exchange for the equity you have in your home. If you have a home equity loan which is more than 80% of your home value, your lenders know they are at great risk if the home market value declines. Since lenders are at risk they will give a higher interest rate, which may be unworthy for refinancing. Another thing to take in mind is the private insurance rates, they will be adding some more payments to the overall loan payments.

You might find out that refinancing a HELOC is a bad idea.

Refinancing With Prepayment Penalty Is a Bad Idea

Some borrowers have a pre-payment penalty on their mortgage. This means that the lender placed a penalty for any pre-payment, even if it is refinancing. Lenders do that so they can plan ahead about their funds and nostro investments, and have a steady forecast for their income. Part of the refinancing homework is to see if your current mortgage has a pre-payment penalty, otherwise refinancing will be a bad idea.

If you plan to refinance with a different lender do the calculation how much you will be saving by refinancing and include the prepayment penalty inside. If you plan to refinance with the same lender, than you have two options. One is to negotiate the prepayment penalty, and the second is to request it to be waived into the second mortgage.

Having a great credit score may help you negotiating every fee and cost! Since lenders are at financial risks themselves and adding high credit customers is part of their goals. If your credit is below 650 check this guide and learn if you can pass the 700 points.

If You’re Planning To Move? Refinancing Is A Bad Idea!

Refinancing has it’s costs. One basic thing you should consider before you rush to refinance your mortgage, is how many month (years) are you planning to stay at your current home. If you are a student or unmarried, and your life is not 100% settled down, than you need to calculate the refinancing ‘break even period’. The break-even period is the exact amount of month (years) you will need to stay at the current home, until you benefit from th lower mortgage rates you achieved by refinancing.

If your closing costs are $2,400 and by refinancing you managed to lower the monthly $1,900 payments to $1,800 each month. Then the ‘break even point’ will be to divide the $2,400 by the $100 savings. This will be 24. This means that the real saving from refinancing will begin after 24 month (2 years). If you plan to move in the next year than refinancing was actually a bad idea since it didn’t save you anything.

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Other readers found these articles interesting too:

1. How You Can Increase The Appraised Value Of Your Home
2. FHA Refinance Requirements
3. FHA Underwater Mortgage Refinancing Requirements

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Refinance Minimum Credit Score

Bad Credit Refinancing

Getting a mortgage refinanced is like getting a new mortgage. You will need to show to your lender or new lender that you can pay back the borrowed mortgage and that you can be trusted to be a handed the large sum of money into your bank account. Having bad credit refinancing with low FICO score, is not a good start on a way for mortgage refinancing. Lenders will check your score, and investigate all the negative claims on your report before deciding to accept you as a borrower.

People who plan to refinance through the FHA refinancing programs, may be disappointed to find out, that the FHA accepts borrowers with 580 FICO score, but no bank or lending institute will get you approved with a score lower than 640! This situation happens because it is not the FHA  who is lending the money, but the lenders. And after the sub-prime disaster of 2008/9 they are not willing to take the chances with bad credit applicants, and accept people by new and higher terms.

Get Your FICO Report

The first thing you need to do, is to get your credit report from MyFico, you are entitled to get your credit report from each of the three CRAs (credit reporting agencies) once a year for free. With the credit reports you could learn what negative items are reported on your report and how does the creditors see you.

FICO Report Is Your Financial X-ray

The FICO score is a chart that examines all your credit debts and the credit balance and history. With this credit report the lenders learn about your credit worthiness and may decide if you qualify for refinancing. Having a score higher than 700 will get you accepted at any lending bank as it means that you are straight with managing your debts and pose less risk on them. Any change in the FICO score (higher or lower) will result in a change of your refinancing interest rate.

Refinancing With 600 FICO Score

If you do NOT have a FICO score over 700, than you will need to choose, either to accept the higher interest rate or to raise your score. Refinancing with a score lower than 700 means that not every lender will accept to get you qualified. This means your negotiation position has less leverage (than for people with FICO over 700 score). The lenders know their competition and know other lending institutes are just as careful as they are, so they can be more tough when negotiating the refinancing interest rates, as they know you have less options to leave the table.

The good side is that, if your credit score is at the 600, it means you have a good chance to rebuild your credit score. The negative items on your score are probably not that severe if your score is over 600, this gives you hope to begin a credit repair program and see results. These programs people with bad credit buy today are quite cheap ($37), they help gain huge financial benefits and save thousands of dollars on better rates and lower credit interest rates. You should aim at the higher 600 score (660-699) level to get better refinancing rates.

See here a 37 Day Credit Repair Program

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Refinancing With Less than 600 Score

Having a FICO score of less than 600 points, places you as a person with ‘bad credit’ this means that in the eyes of your creditors and lenders you are a ‘persona non grata’ - Unwanted person or ‘un welcome person’. While the creditors are making money on your high interest rates, for the lender you are a risk, a financial ‘time bomb’ which lending large sums of money may be a deep mistake.

The good side is that with some efforts you can change the way the lenders will see you, but for this plan to succeed you need to start right away, like as TODAY. Although the FHA accepts borrowers with score less than 600, for the maximum down payments requirement they need to see a 580 score or higher. The 2011 FHA down-payment requirements accepts FICO scores of 500-579 but only for 10% down payment financing programs.

If your credit score is below the 580, you need to undergo a personal credit repair program, which will pull you out of the financial mud you are stuck in. The 37 days repair credit program may be good place to start, or in your condition you may need a credit repair software to help you manage your credit improvement.

Going through credit repair forums you may see here and there specific lenders (usually mortgage brokers) announcing they accept the FHA 580 minimum FICO score. Though it might be wise to see the terms they offer before accepting such mortgage plans, but it shows that with some effort on fixing your bad credit you may have a chance to pick your best refinancing offer.

See here a 37 Day Credit Repair Program

Get more serious help with a Credit Repair Software

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Refinancing? Do Your Homework

Plan Your Mortgage Refinance Wisely

There are many reasons to refinance a home mortgage, but when the refinancing process is done in the wrong way, it may cost you a lot of money! The best advice before refinancing a home loan, is to do your homework. Check and plan all the things that needs to be taken care of, make all the refinancing calculations prior to the decision. In this short review we will try to clear out the things you need to know before you go into a refinancing procedure.

Should You Refinance Your Mortgage

This is the first question you should ask yourself, “should I refinance my home?”, there are several reasons why to refinance, as there are several reasons why not to. The main reason to refinance is to lower your existing mortgage interest rate. If your current mortgage rate is 2% higher than the best national mortgage rates, then refinancing may save you a lot of money.

Other reasons to refinance:

• You may be to lower the monthly payments by extending the new loan.
• You can choose to leave the monthly payments unchanged, but with a lower rate, the mortgage will end sooner.
• If you can afford it, you can pay higher payments each month and shorten the mortgage life span even sooner.
• You can take cash out for other needs – By refinancing a larger sum than is still left on the mortgage, you can get cash money to renovate, invest, use as downpayments, close credit debts, pay other loans or just take a trip to Hawaii.
• Change the type of interest rate from fixed rate to adjustable rate mortgage -ARM (or vise versa).
• Consolidating several mortgages on the current home into one new mortgage.

Homework You Need To Do

Your homework is not difficult, but it is not that simple. First you need to decide about your financial gaols. Where do you want to be after the refinancing ends? with lower monthly payments or with less payments due to pay? With a different type of mortgage rate or with the same? Do you plan to cash out?

If you are uncertain about which goal to choose, here are some questions to ask yourself, they will help you get a direction:

1. Which lender – Are you going to stay with your current lender? There are many advantages as the lender knows you and has all your documentations. Moving to another lender means sometimes paying more fees.
2. What are your debts – How many other debts do you have on your balance? Credit debts, car loans? student loans?
3. What is your FICO score – How high (or low) is your current credit score? A low score may mean getting higher refinancing rates, which can ruin your plans. See further below about simple credit plans that fix credit fast enough to refinance this year.
4. Do you have savings – The refinancing process is not a ’no money down’ deal, there will be points, fees, appraisal costs and other closing costs to pay. Even when some of these fees can be added to the new mortgage, some are still POC paid outside of closing.
5. Make some overall calculations – Will the lowering of the interest rate, save me more money than the fees and closing costs? How much in total will I save with the new mortgage compared to my current mortgage?

Refinance Homework At The Bank

One more step you should be doing is a very thorough ‘rate shopping’. Some people invest more time buying a Valentine gift or a Sony 3D camera than investigating about the new mortgage rates and terms. One more refinancing homework task will be to request two documents from the lending banks:

Good Faith Estimate - This document is issued by the lender and has an estimation of the fees and costs which will be included for the refinancing process. Once you ‘shop’ for the best refinance home rates, you need to have at least 3 ‘good faith estimate’ forms. This will be helpful later on when you will need to negotiate the refinance fees and costs. 

Truth in Lending Statement - This document is a mathematical calculation done by the lending bank, that states all the financial figures of the refinance program. This ‘truth in lending statement’ will show the monthly payments expected, the length of the mortgage, and the overall money you will need to be paying back over time. This is very important part of your mortgage ‘shopping trip’ as its the document that has the actual price tag of the loan.

Do Your Homework – Raise Your FICO Score

The first thing to begin with, should be the action item that usually takes the longest time to accomplish. Before going to any bank and requesting information on refinancing, you should get your credit raise in a few points! The first thing the lenders will do, once you leave their office, will be to investigate your credit score.

Even a small raise in your credit score (30-50 points) can mean lower interest rates, and thousands of dollars saving per year! Credit repair takes time, it is not an instant ‘hocus-focus’ therefore it should be planned ahead, and be the first thing in your refinancing homework to-do list.

Paying hunderds of dollars for professional attorneys services for credit repair may be a waste of money, many people buy today online credit repair plans or software, and do it themselves. It is wiser to invest $97 on a credit repair software than to stay with the current score and get 0.3% percent higher interest rate on your mortgage!

• Here is a credit repair software you can use.
• Here is a 37 Days Credit Repair Program.