Turned Down for a Mortgage? Prepare to Apply Again.

More prospective homebuyers are eager to enter the market as the economy improves. Yet in this post-recession world, many borrowers are finding it difficult to navigate stricter lending requirements and successfully reapply for a loan after being turned down.
If you’ve been turned down for a mortgage and want to know how to prepare to apply again, start with these tips.Evaluate Your Cash Flow: One of the primary roadblocks to obtaining a mortgage is cash flow. At a minimum, you need a 3-percent down payment and about $1,500 for closing costs. You’ll also need to take moving and ongoing maintenance costs in account, including utility deposits, appliances, a lawn mower, home furnishings and other miscellaneous expenses. As a general rule, prospective homebuyers should have at least $10,000 saved before shopping for a home.
Build Your Credit: Many young people today haven’t used credit, aside from student loans, so lenders have difficulty assessing their ability to pay back the home loan. Borrowers who fall into this category need to focus on building a positive credit history with three trade lines, such as a credit card, auto loan and signature loan, for at least two years before attempting to reapply.
Avoid a “House Poor” Lifestyle: Many consumers assume if they can qualify for a loan, they can afford a house; but that’s not always the case. With lenders approving 31 percent of gross salary for a house payment and 43 percent for all debt service, it’s easy to buy a house one can’t afford. It’s important to remember the mortgage is only part of the financial commitment of owning a home. You should also consider ongoing costs, such as commuting, utilities, HOA fees, landscaping and general home maintenance. It’s wise to limit house payments to 28 percent of gross income, and all debt service to no more than 34 percent.

Beyond the Mortgage – Additional Costs of Homeownership

In addition to a monthly mortgage payment, owning your own home involves a number of additional costs and expenses you need to plan for in your budget. Some of them will be recurring expenses, others you won’t see coming – but you’ll need to be prepared for them nonetheless.
Recurring Expenses
Utilities – If you’re moving into a larger space than you’re used to, remember it means your utility bills will be larger as well, particularly the heating and cooling costs. If your utility company offers it, consider going on a plan that “equalizes” your bills over the course of the year so you’re always paying close to the same amount. It will make budgeting for utility expenses much easier.HOA – If you live in a neighborhood with a homeowner’s association, there will be monthly or annual HOA membership fees. There may also be fines assessed if you violate HOA rules, so be sure to learn what they are and stick to them to avoid paying the price.
Homeowners Insurance – Homeowners insurance protects your home, its contents, and other assets in case of fire, theft, accident or other disaster (certain geographical areas may require additional coverage for events such as floods or earthquakes).
Your homeowners insurance should cover the cost of rebuilding and refurnishing your home. Most policies allow you to pay annually or month-to-month. You may be able to save a bit by paying for a full year up-front. Plus, you won’t run the risk of coverage lapsing due to a missed monthly premium payment.
Property Taxes – If it’s not already included in your house payment, you will receive an annual bill for property tax, which is determined by the county in which you live, and based on the assessed value of your home. It’s a good idea to save a little bit throughout the year to go toward your property taxes, so you don’t have to come up with the full amount all at once.
Long-Term Expenses
Routine Maintenance and Repairs – Every homeowner must plan to perform routine repairs and maintenance. These expenses increase as homes age, but even new homes require regular upkeep to ensure they increase in value over time. In fact, neglecting basic home repair and maintenance can actually cause homes to decrease in value.
On average, homeowners spend one to four percent of the total value of their homes on maintenance and repair each year. Some years you’ll spend more, some less, but you’ll always spend something.
We recommend setting up a savings account devoted to home maintenance and contributing to it regularly to ensure you have the funds ready when you need them.
Emergency Repairs – In addition to routine maintenance, every homeowner will eventually face a major repair or replacement, such as an air conditioning unit or hot water heater. This is when having emergency savings ready comes in really handy.
We recommend establishing an emergency savings account (separate from the home maintenance account) that’s strictly reserved for catastrophic events, including major home repairs. By having emergency savings as a safety net, you can avoid going into debt by having to charge a big-ticket item.

Precautions for Co-signers on Home Loans

Lenders require a co-signer when a consumer doesn’t qualify for a loan, either due to a lack of credit history or poor credit history. A co-signer is an individual who meets the loan requirements and agrees to cover the loan payments if the borrower requesting the loan is unable to make them.
The decision to co-sign a loan – or to ask a loved one to co-sign for you – shouldn’t be taken lightly. You must carefully weigh the pros and cons and take an honest assessment of your ability to pay back the loan in the future.
According to the Federal Trade Commission, numerous lender studies show as many as three out of four co-signers are ultimately asked to repay the loan. Co-signers who fail to examine the fine print may be stunned when they’re stuck with the bill. Not only can this cause a serious financial hit, it can strain personal relationships.Prior to co-signing any agreements, consumers need to educate themselves on the facts and potential consequences.
Did you know?

Once you co-sign a loan, there’s no going back. Co-signers cannot pull out of the loan midway through the term. They must take unexpected events into account, such as divorce or job loss, before signing.
Co-signing a loan for someone else may prevent you from obtaining credit for yourself. Lenders consider co-signed loans as one of the borrower’s credit obligations, even if they aren’t making the payments. The liability can prevent co-signers from qualifying for another loan or credit card.
If you co-sign a loan, you may be required to pay more than the loan amount. If a borrower skips one or more payments, late fees and collection costs can also be forwarded to the co-signer. Additionally, the co-signer may need to pay attorney fees if legal action is required.
Lenders can garnish the wages of co-signers. If the borrower and co-signer cannot repay a loan, the lender can sue the co-signer to garnish wages and even property in order to satisfy the repayment.
Co-signers can lose their property if the loan defaults. If a co-signer secures a loan with property, such as a home or vehicle, the co-signer risks losing those items if he/she is unable to make payments when required.

If you do choose to co-sign a loan for a family member or friend, there are steps you can take to limit potential problems. Keep copies of all paperwork on hand in case disputes arise, and ask the lender to notify you in writing if the borrower ever skips a payment. This move can prevent a trail of extra fees.
Co-signer rights can vary state-to-state, so make sure you research what you’re entitled to ahead of time, and what you’re not.

Reverse Mortgage 101: Debunking Common Myths

With so many scams targeted at the elderly, many people wonder whether reverse mortgages are a legitimate option for generating cash or simply another scheme that exploits seniors.
Simply said, a reverse mortgage or Home Equity Conversion Mortgage (HECM) enables homeowners 62 years and older to convert part of their home equity into tax-free cash. It may prove a good solution for seniors whose savings accounts are dwindling or who simply need a little extra income each month.
If you or someone you love is considering this option, read on for Take Charge America’s top six reverse mortgage myths:

Myth: Reverse mortgages are exactly the same as home equity loans. The only similarity between a reverse mortgage and home equity loan is that both use the home’s equity as collateral. With a traditional home equity loan, borrowers make regular monthly payments toward the principal and interest. With a reverse mortgage, the loan isn’t due until you sell the home, live away from the home for 12 consecutive months, fail to pay property taxes or insurance, or pass away.
Myth: Your heirs will not inherit your home. Your estate will inherit your home, but there will be a lien on the title, which will include the financial proceeds from the reverse mortgage plus interest.
Myth: You may be forced out of your home. Actually, this loan was designed to help seniors continue living in their own homes for the rest of their lives. In fact, you will never be evicted or foreclosed upon unless you fail to pay property taxes and insurance or let your home fall into disrepair.
Myth: You can lose Medicare and Social Security. Not true. Reverse mortgages have no impact on Medicare and Social Security, though needs-based programs like Medicaid may be affected. To keep Medicaid benefits, you will need to manage your monthly withdrawal to ensure your income does not exceed Medicaid limits.
Myth: Reverse mortgages are costly. Yes and no. With a reverse mortgage and any other home loan, you are required to pay origination fees and closing costs. Depending on the type of loan you select, you may also be required to pay upfront mortgage insurance. That said, your heirs will never have to repay more than the home is worth, even if your loan balance is higher than the appraised value.
Myth: A reverse mortgage is a last-ditch option. Actually, reverse mortgages are best used as part of a comprehensive financial plan – not a last resort for seniors who can’t make ends meet. Under the right circumstances, this type of loan will supplement your income to allow you to live more comfortably in your golden years.

Before obtaining a reverse mortgage, the U.S. Department of Housing and Urban Development requires seniors to undergo reverse mortgage counseling from an approved third-party organization like Take Charge America. Certified HECM counselors guide seniors through the process, loan terms, financial and tax implications, and alternatives.

What is a Reverse Mortgage

A reverse mortgage, otherwise known as a Home Equity Conversion Mortgage, (HECM) is a loan, using your home as collateral, and where payments on the loan are not required monthly or at all. Instead the loan becomes due and payable only after the last homeowner either dies, sells the home or stops living in the home for 12 consecutive months. With a reverse mortgage, unlike a conventional mortgage, where you make payments regularly and the balance on your loan slowly goes down each month and the equity in your home increases; with a reverse mortgage, you do not make regular payments so the balance on your loan actually increases every month and the equity in your home decreases. Most of these loans are backed by FHA Mortgage Insurance and are designated as non-recourse loans. This means that at no time will the homeowners or their heirs ever owe more than what the house ultimately sells for when the loan becomes due.

The requirements for this mortgage are simply that all persons who will be listed as homeowners on the mortgage are at least 62 years of age. Also no other loans can be listed ahead of this loan so generally any other mortgages would need to be paid off from the proceeds of this loan. This means, in order for you to get a reverse mortgage, there must be more than enough equity to pay off any existing mortgages on the home.

The amount available to borrow is dependent on the fair market value of the home as well as the age of the youngest borrower. The older the borrower, the larger the percentage of the home value is available to be borrowed. The formula for determining this is maintained by the FHA. You can never borrow the full amount of the equity because of the non-recourse nature of these loans so as a result not all seniors will actually have enough equity get a reverse mortgage.

The loans can either be taken as fixed rate or adjustable rate loans. When the borrower elects to take an adjustable rate loan they will have a choice to take the loan out as one lump sum payment, or to take regular monthly payments. Further, the borrower can take a combination of lump sum and monthly payments, and still leave some of the funds in a credit line, available to take whenever needed. All these choices have advantages and disadvantages that need further explanation.

These loans can be very expensive with fees and other costs, especially if the homeowner does not intend to stay in the home for very long. It is due to the complexity of the loan and the costs, that the Department of Housing and Urban Development has mandated that anyone interested in obtaining a reverse mortgage must go through a counseling session with a HUD Certified HECM Counselor before applying for a loan. The purpose of the counseling is to insure the borrower understands how the loan works, what the implications to the equity in the home are, how it will affect your heirs, tax implications, what other alternatives may be available to the borrower to help with their financial situation and what to look for when evaluating different lenders’ loan products. A list of HUD Approved Counselors is available on the HUD website but if you are interested you may call Take Charge America at 1-866-750-9618 to be connected to a HUD Approved HECM Counselor.

Is a Reverse Mortgage Right for you?

Seniors are living longer than ever before. Medical advances and a focus on healthy living have dramatically improved longevity, but living longer presents a complication: the potential to outlive savings.
Older adults often do not anticipate the high costs of health and long-term care, or the uncertainty of Social Security and Medicare. As a result, many are exploring reverse mortgage loans.A reverse mortgage, also referred to as a Home Equity Conversion Mortgage (HECM), enables homeowners 62-years and older to convert part of their home equity into tax-free cash.
If you or a family member are considering a reverse mortgage, it’s important to first evaluate the following:

Loan fees: Borrowers are tasked with paying upfront mortgage insurance, origination fees and closing costs. It’s critical for seniors to read the fine print and understand the fees they’re paying.
Taxes and insurance: With a reverse mortgage, seniors borrow money against the equity of their homes and are not required to make loan payments. However, they still must pay property taxes and homeowners insurance, or they risk foreclosure.
Home maintenance: Seniors are responsible for home maintenance, but cannot take out a home equity loan or second mortgage to cover repairs.
Home equity: The borrower’s home equity is reduced by the amount of the reverse mortgage. The estate will receive whatever equity hasn’t been borrowed.
Loan repayment terms: The loan is due when the borrower sells the home, lives away from the home for 12 consecutive months, fails to pay property taxes or insurance, or passes away. The principal, interest and closing costs are repaid from the proceeds of the sale of the house. If the heirs elect not to sell, the money is paid from the estate.

To obtain a reverse mortgage, the U.S. Department of Housing and Urban Development requires seniors to undergo reverse mortgage counselingfrom an approved third-party organization.
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What to do if you Can’t Pay the Mortgage

Sitting down to pay bills and discovering that there isn’t enough money to cover the mortgage is a shocking moment. Fortunately, there are options available to you if you find you can’t make your mortgage payment. But you must act quickly to have the best chance of a positive outcome. Here are the steps to take if you can’t pay your mortgage:
Don’t Panic- There is no doubt it is a scary and confusing time, but panicking won’t help the situation. Try to stay as calm as possible. Keeping a level head will help you stay focused on what to do next.
Act Immediately- You need to get in touch with your mortgage servicer as soon as you realize you can’t make a payment to avoid the danger of default or foreclosure. The sooner you act, the more options may be available to you. Those choices diminish if you wait too long. If you are not sure how to contact your mortgage servicer, there are several ways to find that information. Their phone number will be on your monthly mortgage loan statement. If you don’t receive a mailed statement, look for the number in your mortgage coupon book, or search for it on the Mortgage Electronic Registration System (MERS).Be Prepared- You will need several pieces of information ready when you call your mortgage loan servicer. These include: the reason you can’t make a payment, whether you anticipate the hardship to be temporary or long lasting, a rundown of your other expenses and information about your sources of income and other assets.
Understand Your Options- Depending on your situation, your options may include refinancing the loan, receiving a forbearance or a loan modification, participating in short sale of your home, and more. To help you fully understand your options and help you make the best choice for your situation, your mortgage servicer may recommend Housing Counseling from a HUD-approved nonprofit such as Take Charge America.
We understand that not being able to make a mortgage payment is scary, but it doesn’t have to lead to a worst-case scenario. The most important thing is to act quickly and work proactively with your loan servicer to achieve the best possible outcome.
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Purchasing a Home? What to Expect out of Mortgage Closing.

Do you know mortgage closing is the last step of buying or financing a home? it is at the end of the closing when the buyer becomes the legal owner of the property. This is also known as the settlement and the parties involved in the mortgage loan transaction need to sign the necessary documents and papers. Once the paper is signed you become responsible for the loan. 
You are Responsible for the Repayment of the Loan
When you are purchasing a home with a loan, the closing of your home purchase and the closing of your loan more or less happen at the same time. Once the closing is completed successfully, you need to have a repayment plan for the mortgage. The following entities might be included in the closing. 

The title insurance company
An escrow company
Your attorney
The seller’s attorney
The lender

The Closing can be Performed by Various Means
Depending upon where you live, the parties may sit and sign all the documents at once. The closing might take several weeks when the signatures are collected separately. There are a few organizations that allow electronically signing the documents at the day of the closing or in advance. It can be carried out even via e-mail on the internet. 
Read the Documents Carefully Before you Sign Them
It doesn’t matter who performs the mortgage closing or where it takes place, but you need to make sure that there are several important documents that you need to sign that will possess a lasting implication and effect on your life. You must make sure that you carefully read the documents and understand them before you sign any paperwork. 
Don’t Take Hasty Decisions
You should never sign the loan document in case it is different from what you were told or you expected Moreover, if there are errors or you don’t understand the terms of the loan document, it is advisable that you should not take any haste in signing the document or else you will be burdened under mortgage debt. 
You must have knowledge about the change in payments over the time. It might happen that within a year’s time your mortgage loan payment goes up. It is essential for you to understand when the payment changes and by how much. This is not only the case with adjustable mortgage, but with the fixed rate mortgage as well. The changes might occur in your taxes and insurance. 
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Mortgage Shopping Tips

Financial commitments often require you to make several transactions that end in some sort of compromise. Fortunately, you can always make some financial exchanges work in your favor. Mortgage can be a very beneficial agreement in the long run. A home is expensive. It probably is the biggest purchase you will make. This is why you need to have a plan chalked out for when you decide to take out a mortgage against your property for your financial needs. 
Check your credit! Your credit can make or break your plans of securing a loan. The biggest mistake most borrowers make is not checking their credit score before applying for a loan. Credit history defines how you refinance loans. Do a credit check well in advance. Get free credit reports from sites like AnnualCreditReprot.com/ If you see any errors and incorrect listings, get it fixed. Also, amendments take up to 40 days, so it is best to do this earlier on while mortgage shopping. 
Hold off getting any new loans. Managing expenses is a major part of getting a loan that directly affects your repayment plan. When you have a mortgage to pay off, quite a bit of your money will be tied up towards repayment. The best way to ensure your finances don’t suffer is to not put yourself further in debt. Don’t start a new credit account or anything of the likes while you have a mortgage. At the same time, make timely payments to lessen mortgage debt.Pick lenders wisely.  Choosing the best mortgage is a matter of choosing the right lender. With all the options out there, lenders will try to appeal to you by offering bonuses and claim to give you a better deal to bring in business. Comparison and references are the keys when it comes to picking a lender. Asking friends and family who have worked with lenders will ensure you get first hand reviews. Make enquirers with at least two or more lenders and get information of the entire cost break-down.
Get pre-approved. A pre-approval involves getting your mortgage approved even before you have found a home to bid on. It helps you sort out your options and get an estimate from a lender early in your mortgage search To get pre-approved you will need to submit loan related paperwork like bank statements and tax returns. Pre-approval will mean that you get your mortgage a lot quicker. 
These steps will help you with searching for a mortgage and staying out of mortgage debt in the longer run. With a little professional help, you can make maximum use out of your property. 
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Common Mortgage Pitfalls to Avoid

It is said that a mortgage is the biggest debt many people will ever have to carry. As the case is with everything in life, there are risks associated with taking out a mortgages – risks that can escalate into nasty situations should they not be navigated properly. Simple mistakes can be made which sometimes leads people to pay more than necessary for their home or to lose their home in extreme cases. These mistakes are avoidable and some of them are discussed here to help inform the decision making process of prospective borrowers.

FAILING TO COMPARE OFFERS- People are more concerned about picking out a house today than they are about partnering with the right lender. According to the Consumer Financial Protection Bureau, more than 50% of Americans only consider one broker or lender while applying for a mortgage and 75% fill out their applications with only one broker. This situation is an avoidable pitfall, by considering many different brokers and lenders, prospective home owners can compare the numbers from all sides and ensure that they are getting the best value for their money – not just what is being offered.
FORGETING THE TRUE COST OF OWNING A HOME- Buyers need to have a personal budget and in it, allocate at least 1-2% of the cost of their home annually for maintenance of the property. Ignoring this cost is asking for trouble, since such expenses will crop up whether they are liked or not. A $250,000 home, for example, will cost between $2,500 and $5,000 to maintain every year. Should this kind of amount be allowed to come as a surprise, it has the potential to destabilize finances and lead to delays in remitting mortgage payments – thereby incurring more fees and more debt.

APR calculations also need to be very accurate. A lower interest rate does not automatically translate to lower APR because of the possibility of other charges – prospective borrowers need to keep their eyes open for such financial sink holes.

CHOOSING TO BE HOUSE POOR- This is also another area of incessant mistakes by borrowers for a new home. In calculating repayment plan, many forget the need to ensure they have enough money at hand to handle day – to – day expenses, prepare for emergencies among others. Experts advise that 28% is the highest amount of monthly income that should be spent on housing – this includes mortgage debts, insurance premiums, etc. Someone who earns $75,000 yearly should not spend more than $1,750 on this. Other factors also contribute to determining how much an individual can afford: like the location and cost of living, presence of a personal debt, other debts or loans being serviced, etc. Falling into this trap can take the shine out of the home – owning experience and create more of a “buying hell” kind of situation.

There are more mistakes to watch out for, but the 3 discussed above are the cream of the crop since they are situations that usually gets overlooked.