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What To Do If You’re Behind On Your Mortgage Payment

April 1, 2011

This is a guest post by Cam Jarvis

Life contains some unexpected trials. Without a conscious choice of your own, you may find yourself in a financially tricky situation. Due to health problems or unemployment you could suddenly be unable to pay for your mortgage. The worst thing you can do if you’re facing this kind of predicament is to do nothing. You need to do something and here are some tips that explain what exactly that something should be.

Talk With Your Lender

It’s uncomfortable and you may feel tempted to avoid their calls, but you need to be upfront with your mortgage lender. If you have extended beyond your grace period and are now more than 30 days late on your payment, you will not only have your back payments to come up with but you will also have a late fee assessed. Explain your situation and they will likely come up with a plan to get you on track again. If you are willing to make any kind of effort, they will be willing to work with you.

Refinance

You might consider refinancing to bring your loan current and to pay off your lender. If you don’t have any money left in savings, you also might consider taking the cash out of your equity. This would enable you to re-establish a cushion in the event that you find yourself in a similar situation down the road. This of course all depends on your ability to handle a larger monthly payment. Be sure to look at all the effects of a refinance before you sign the papers.

Sell Home

If you are unable to work out a refinance you should seriously consider selling your home before you go into foreclosure. The late payments on your mortgage will show up on your credit report, which will likely prohibit you from qualifying for a loan for the next 7 years, but in the end will be better than a foreclosure on your record.

If you’ve attempted all these steps and still have a financial puzzle that can’t be solved it could be time to look at declaring bankruptcy. This would also be relevant if you have multiple properties that are in default. Consulting with a lawyer is your best option at this point. There are specialists in any part of the country, anywhere from Tallahassee to Las Vegas bankruptcy attorneys, who know the specific laws in your state and will work with you to make the most of your situation.

Is Refinancing Going to Help Save on Your Mortgage?

April 22, 2009

Are you bogged down in debt?  Are your monthly home mortgage payments rising each year and getting harder and harder to pay?  If this situation sounds familiar, you may have considered refinancing your mortgage.  But, will it help?

When you refinance you’re simply taking out a new loan to pay off the existing one.  It only makes sense to do this if you obtain a lower interest rate enabling you to save money.

Usually, there are two good times to refinance.  If you have an adjustable rate mortgage (ARM) and you’re faced with a continual interest rate rise.  You can refinance to obtain a fixed rate mortgage and avoid the higher payments.

Even if you already have a fixed rate mortgage, it might pay you to refinance if you can secure a lower interest rate.  If you’re experiencing a cash flow problem and want to refinance to lower the payments by extending the term of your loan this is not a good reason.  With an extended term you’ll be paying more over the years remaining that you own the home.

Calculate the cost of refinancing.  It won’t come free you know.  There are various fees such as points, application and recording fees, title search and PMI fees.  Other closing costs you may have to pay are survey and appraisal charges.

You usually have to pay for private mortgage insurance (PMI) if the loan to value ratio is greater than 80% of the appraised value.  It’s to your advantage to pay the loan down as soon as possible to avoid PMI.

A cash-out financing arrangement may be suitable if you’re disciplined on how you spend your extra money.  A cash-out deal is when you refinance and borrow more than you owe.  Pay off the existing mortgage and any excess money is yours to use however you wish such as paying off credit card debt.

If you make the decision to refinance, make sure you save enough to recover the cost. It could be just a break-even proposition.  Usually, a good rule of thumb is not to refinance if you plan to move within five years.  It probably will take at least that long to recoup the expenditures.  Calculate this to be sure.

Use a refinancing loan calculator to determine if a new loan is feasible.  Your lender will be happy to let you use theirs or you can access one on the Internet.  They’re easy to use, just plug in the pertinent loan information

Remember that your refinanced mortgage will be secured by a lien on your home.  If for some reason you’re unable to make payments the lender can foreclose and possibly sell your home to pay off the mortgage.

The decision to refinance should not be taken lightly.  Examine each avenue thoroughly.  Educate yourself on each step.  Ask for advice.  If the move is right, it could lift you out of debt and help make you a happy homeowner.

Two Ways to Save When You Buy a Home

February 23, 2009

Buying a home is probably the largest investment you and your family will ever make. Unless you’re wealthy, few people buy homes and pay cash. Rather, they make a small down payment and obligate themselves to a financial lender for a term of usually 30 years. In this case, the lender determines the interest rate and gives you a thorough financial background check.

There are at least two other ways to buy the home of your dreams and probably save money: assuming the existing mortgage or owner financing. Either method usually saves you time, trouble and money.

If you’re trying to assume a mortgage first make sure it’s assumable and transferable. Many mortgages have a due on sale clause that states if the owner sells all or part of a house the entire balance becomes due and payable on demand. A lender may be willing to overlook a non assumable mortgage is you’re able to make good any overdue payments and agree to do further business with the existing lender.

If a house is selling for $100,000 and the owner still owes $60,000, you could pay the owner the equity of $40,000 and assume the debt of $60,000 with the existing lender.

This is good for the buyer if the existing interest rate is equal or lower than the current rates for a home loan. A second mortgage may be needed for the equity payment.

There are different ways to assume a loan. You can, as a buyer, assume the legal obligation for payments and usually pay an assumption fee of 1% of the loan balance.

Or, you could take over the payments leaving the seller still legally obligated for payment if you default. If this happens, you lose the property and the seller’s credit is harmed unless he makes payments as scheduled.

Seller (owner) financing is good if a buyer can’t qualify for a traditional loan and if the owner has had trouble selling and is in a hurry to unload the house. In this case, it would be wise to find out the need for the rush selling or why the home has not sold previously.

For the agreed upon price you would begin making monthly payments to the seller, usually at a lower interest rate than is being offered at institutions. There is little risk as the home is collateral. If you default, the seller regains possession of the house.

The seller may also need to have an additional stream of income each month instead of getting it in one lump sum. And, he could save on some of the capital gains tax. With owner financing, you as a buyer can avoid some (not all) costly administrative fees and private mortgage insurance (PMI).

Assuming an existing mortgage or obtaining owner financing are two great ways to become a homeowner and save money at the same time. No matter what the current status of the real estate market is or if interest rates are high or low, there are always creative ways to obtain financing.