Mortgage Solutions

When finances get tight, even if it’s from an unexpected expense or job loss, your mortgage payment could seem less urgent than other bills. So what happens if you’re late, and what should you do if you miss one?

Most mortgages are due at the first of every month. You have a grace period until the 15th, then after that you may be given a penalty or delinquent fee. It’s not until your payment is 30 days late that lenders will report you to credit bureaus and your credit score takes a hit. After the 30 day mark, you will receive a special notice or letter informing you that you’re in danger of foreclosure if you don’t pay.

Of course our primary advice is to pay your mortgage as soon as you can. But if this doesn’t seem like a possibility, it’s best to contact your lender immediately. Sometimes there are flexible solutions if you’re experiencing a special circumstance. Letting your lender know of late payments ahead of time can save your credit score and your home.

One of your first options is getting a loan modification, which changes the terms of your mortgage. This can reduce your principal amount or lower your interest rate. Loan modifications are given to individuals suffering from medical hardships, job loss, divorce, or another life-changing event that’s affected finances.

If late payments are due to unemployment, find information on the Home Affordable Unemployment Program (UP) which reduces payment or suspends them temporarily.

When it comes down to the wire, you may be able to get a lower monthly payment through refinancing or simply selling your house. This might be preferable over loss through foreclosure.

The first step is to connect with your lender as early as possible. Being proactive about the situation shows that you’re serious about your mortgage and want to avoid foreclosure. Your lender will have a list of the best options available to you!

Bringing down the cost of your mortgage sounds great in theory, but how does it look on paper? Below is a true-to-life sample of how a mortgage works and how you can bring your total payments down.

Example:
$250,000 mortgage over 30 years
5% interest rate
$1,342 total monthly payment

• Add one extra payment per year. This method may not seem like much, but actually yields the most amount of savings. If you follow the above scenario without missing any payments, you’re scheduled to make a total of 360 payments totalling $483,139.46. The total cost of interest is $233,139.46. However, making the equivalent of 13 monthly payments instead of 12 means you’re only paying $439,164.96, where the interest equals $189,164.96.

This is a savings of $43,974.50 over the life of the loan.

Keep in mind that bi-weekly payments will give you the same results, so either option is available to you.

2. When the time is right, cancel PMI. If you’ve put down less than 20% at closing, you’re probably paying Private Mortgage Insurance. However, as soon as you’ve paid down at least 20% of your mortgage, call your lender to cancel the insurance. This may require an updated appraisal but should shave off your monthly bill.

PMI rates range from 0.3% to 1.15% of the loan amount per year. If you have a rate of 1%, then you pay about $208.33 per month.

This is a savings of $2,500 every year.

3. Refinance for lower rates. Once you’ve had a chance to build up your credit through regular payments, this is an excellent way to reduce your rate and gain more savings over time.

Let’s say you are now 10 years into your loan. This means the principal amount is now $203,355 with a total interest of $118,737. If your interest rate changes from 5% to just 4%, now your total interest payment is $92,394.

This is a savings of $26,342 over the remainder of the life of the loan, or about $109 every month.

What are the different types of mortgages, and which is best for you? Let’s explore your options below.

Government Vs. Conventional Loans
Government loans are most commonly offered by the FHA (Federal Housing Administration), the VA (Veterans Affairs), and the USDA (Department of Agriculture). A conventional loan is considered a “normal” loan not backed by the government.

Government loans insure the lender against any losses that may result from a borrower, essentially protecting their interests. These programs offer low down payment options which are great for first-time buyers but keep in mind that you must also pay mortgage insurance as part of your monthly payments.

Fixed-Rate Vs. Adjustable-Rate Loans

First, you must decide whether you want a fixed-rate or adjustable-rate on your loan. With a fixed rate, your interest rates will always stay the same and won’t change for the remainder of the loan. An adjustable-rate will fluctuate from time to time. The benefit of the second option is that the initial interest rate stays low for a certain period of time. However, the amount on which the rate changes is unknown and depends on the market. For this reason, many like the stability that comes with getting a fixed rate.

Conforming Vs. Jumbo Loans

Once you decide where you want to borrow from, and what your terms will be, you must decide how much you want to borrow. Depending on the amount you want to take out, you’ll either want a conforming or a nonconforming loan.

Most people will fall under the “conforming” category under the guidelines set by Fannie Mae and Freddie Mac. These loans have certain limits that can’t be exceeded. This amount changes from year to year.

A nonconforming loan, like a jumbo loan, exceeds the limits of a conforming loan. Since these are a higher risk for the lender, these loans require excellent credit, have a proven history of paying debts, and a larger than average down payment. Interest rates are also higher in this case.

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A high mortgage payment can really take a toll on monthly expenses. Here’s a list of our favorite ways to keep your payments low.

• At the start of the loan, make a larger down payment: if you haven’t taken out the loan yet, this is your best option, so start saving! Even the traditional 20% down has a significant impact on future monthly costs.
• Pay Private Mortgage Insurance (PMI) up front: if you put down less than 20% at the beginning of your loan, you will likely need to pay PMI along with your regular mortgage. Instead offer a one time payment, which cuts on monthly costs.
• Stop paying Private Mortgage Insurance: Once you’ve come to a point where you’ve gained at least 20% equity in your home, an appraisal will confirm that you won’t need to pay PMI any more.
• Extend the repayment term: also called re-casting or re-amoritizing, you can lengthen the time of the loan. For example, changing a 15 year mortgage to a 30 year mortgage, or a 30 year to a 40 year mortgage. Your lender may make the adjustments for a small one time fee.
• Pay extra towards the principle: this may seem counterintuitive, but this is a smart idea for those who want to decrease payments later instead of right away. The more you pay towards the balance, the more you eat into your debt and pay less in interest.
• Get an interest-only mortgage: surprisingly, lenders don’t need you to pay off your balance immediately. Some offer loans in two stages. In the first stage you only pay interest, and in the second, you pay the principal balance plus interest. Remember that you still need to pay off the balance of the loan in the time allotted.
• Monetize your home: rent out the spare bedroom, or the garage, attic, or basement for storage. Offer up the extra space in your driveway for parking. Rent a section of the backyard for avid gardeners. Either way, this supplements your payments.

When is the best time to refinance, and should I refinance at all?

These are questions homeowners ask once they start to wonder if they can get a better deal.

Refinancing is the process of replacing a current mortgage with a new one. It’s ideal for getting a lower interest rate and a shortened term length. It can also change a potentially unstable adjustable rate mortgage to a fixed rate one (or vice-versa, if you believe this is better for you). Refinancing helps you tap into the equity of a property if you need to finance another large purchase or consolidate debt.

There are costs involved with refinancing, so you must decide if refinancing is more expensive than staying with your mortgage. These costs include closing fees like Title insurance, attorney’s fees, and another other related expense. This total amount should be less than the amount you save throughout the life of your new mortgage.

The best reason to refinance is lowering your interest rate. Let’s say that over time, you’ve increased your credit score through faithful monthly payments, enabling you to get better rates for loans. By refinancing, you can take advantage of these lower rates to save hundreds or thousands of dollars.

Another common reason is to take equity out of the home for other purchases, such as cars. After an appraisal, a lender determines how much of that appraisal they want to borrow. This amount is subtracted from the loan’s balance. The remaining funds are given to the homeowner. Many individuals take this money and reinvest in their property, thus increasing its value.

To get the process started, contact your lender and understand the options best available to you. Understand the fees involved, details, and restrictions before signing anything official. Even if it’s not financially viable to refinance right now, you will still find out exactly how to plan and prepare a refinancing in the future.

Foreclosure allows a lender to financially recover from a defaulted loan on a house. This processes is initiated after a fourth missed payment on a mortgage, and a Notice of Default is what begins the process officially.

If you’ve reeived a foreclosure notice from a lender, you legally still have the right to stay on the property until the process is completed. Based on where you live, this can take a few months or up to a year (or more!)

The length of that time depends on whether this is a judicial or nonjudicial foreclosure. A judicial foreclosure involves court action. The lender files a lawsuit to prove that a borrower has done everything in their power to remedy any debts owed. In this case you will have 30 days to respond to the summons. If you don’t respond, you lose the case automatically and the property will be sold at a foreclosure sale.

A nonjudicial foreclosure, or a “foreclosure by power of sale” is where a lender sells the property to save their losses. Since they don’t need a courtroom for this, the process is much faster.

There are other circumstances that lengthen foreclosure. Negotiating repayment plans is a common tactic where both the lender and the borrower can benefit. You can also do a short-sale, where a borrower lists the property for sale for a certain length of time, gets a buyer, and then the lender must approve the bid. Choosing this route gives you a “paid in full” status on your credit history.

Another viable option is a deed-in-lieu of foreclosure, which also takes a couple of months. In this case the borrower gives up the property entirely, saving them from foreclosure. This involves submitting an application and documentation, including a financial statement, recent tax returns, bank statements, and a hardship letter, among others.

There are two options when foreclosure is an inevitability and you want to make the process as painless as possible. Short sales or a deed-in-lieu are two options that can save you from financial trouble.

Short Sale

A short sale involves selling your property for less than the amount you owe on it. While it doesn’t have to be with your lender, your lender must approve of it. Consider that in this situation, the borrower still has an obligation to pay back the remaining balance (unless there is a prearranged agreement with your lender). They may also require proof of financial hardship before a short sale is initiated.

Deed-in-lieu

The short definition of this term is voluntary foreclosure. In this case the borrower essentially gives up ownership of the property to the lender with their permission. Before this arrangement is settled, both parties must agree to a price equal to the market value. The borrower must also enter into this agreement voluntarily. What is beneficial about a deed-in-lieu is that it satisfies your debts and your credit score doesn’t take as much a hit than a true foreclosure.

What’s Best For Me?

If you’re worried how this affects your credit history, it will. But this doesn’t mean it will have a devastating effect. Credit score recovery relies on how the remaining balance is reported and how you rank with the other categories, such as amounts owed, payment history, types of credit, new accounts, and length of credit history. And since your missed payments have already lowered your score, it’s not likely a short sale or a deed-in-lieu will drop it much more, assuming the rest of your credit looks good.

If you’re struggling to make mortgage payments, it’s best to discuss options with your lender as soon as possible. Finding out what’s best for you depends on your situation.

Short Payoff

The short answer? Yes, 100% financing is available! This is a great option for new and repeat buyers alike who want to eliminate the need for a down payment.

This is because many individuals can’t afford the traditional 20% down payment on a home. If you’re buying a $255,000 house, you immediately have to come up with $51,000 just to secure it from other buyers. Instead, the government sponsors 100% financing so that purchasing is more of a possibility for you.

This type of financing is mainly available through no down payment loans. There’s a good chance that you qualify, too. The FHA, USDA, VA, Fannie Mae and Freddie Mac all offer 100% financing when you meet certain criteria. Local credit unions who want to stay competitive in the market may also offer these deals. Before applying for these mortgages, take a look at your credit history and compare lenders against each other to get the best deal.

An alternative to no down payment loans are special programs, assistance, and grants by local and state governments. These will make homeownership more available to you. What’s great is that by combining down payment assistance offers and eligible loans together, you can get 100% financing.

Another option is to use gift funds as a way to supplement your down payment, and this is a common practice if your family has the ability to support your endeavours.

It should be stated that those who can put down on a property should. First of all, no down payment loan programs require MIP (Mortgage Insurance Premiums) that increase your monthly payments. These mortgages also tend to be a riskier investment. Here’s a great example:

If you purchase a $125,000 house with $50,000 down and the value of the property drops to $100,000, you can still sell it with funds to spare. With no down payment, you wouldn’t have had the equity to absorb the loss.

When a landlord wants to remove a tenant from their rental home, they move forward with an eviction process. Once the notice is in place, the tenant can agree to the final move-out date. Or based on the circumstances, a legal dispute may take place. This is why the answer to this question really depends on whether or not the eviction is with or without cause.

Eviction Without Cause

If you’re on a month-to-month lease and the landlord wishes to evict, they must give notice, usually a 30-day period. A fixed-term lease, like a typical one-year lease, cannot be broken without a cause. However renters should take a look at their individual rental contracts to confirm.

Eviction With Cause

It doesn’t matter what kind of contract you have, there are many reasons an eviction can happen with cause:

• Nonpayment of rent. Late balances must be paid or the tenant has a short period of time to move out, usually 3 – 5 days.
• A broken contract. Violating any pre-agreed upon rule (like unapproved subletting). The tenant and landlord will discuss a time period to correct the behavior.
• Property damage or illegal activity. This is one of the more extreme cases in an eviction case. Again, the behavior must be corrected with short timeline.

When the notice expires and the tenant has not left the property, a lawsuit can be filed by the landlord. In a period of a few weeks the case is brought before a judge, and if the tenant is a no-show to the hearing, the judge must order an eviction. In some states eviction is immediate, and in others they give the tenant 1 – 4 weeks for a move-out date.

If the tenant continues to remain at the property, a forcible eviction will occur, which may take an additional few weeks. Further delays are a possibility if the tenant files a motion or objects to the court ruling. For more information on the tenant-landlord relationship and your personal rights, contact a local trusted lawyer with experience in this area.

Filing for bankruptcy is a way to erase certain types of debt and stop creditors from harassing you. It’s unfortunate when it happens, but it’s often necessary for saving your financial future.

People often wonder if they can fully recover to the point of buying another home. Even though a bankruptcy will stay on your credit history for a minimum of ten years, it’s still possible to buy another home again (and thankfully, within that time frame).

Depending if you have filed for a Chapter 7 or Chapter 13 bankruptcy, you must wait a certain period of time before you can get financed again. Each of the major loan financers, including the FHA, USDA, and the VA each have their own guidelines:

• FHA loans: 2 Years
• VA home loans: 2 Years
• USDA loans: 3 Years
• Conventional loans: 4 Years

As you can see, 2-4 years is a typical wait time, but there are some exceptions. The FHA offers a “Back to Work” program that allows you to buy again after only one year, for instance. Other special exceptions will be made if the bankruptcy was due to circumstances beyond your control, such as a medical emergency.

Keep in mind that after the waiting season to purchase another home, you must still quality for all of the other aspects of the loan and meet a lender’s minimum requirements. So if your credit score does not meet their standards, there’s still a possibility of being rejected.

Once you feel ready to be a homeowner again, be sure your credit report is accurate and up to date to prevent any future issues. Repairing your credit is a big factor in being able to qualify again. It does take some financial planning and saving, but purchasing again is still very much possible!