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Should you file for bankruptcy if you’re behind on a mortgage loan?

October 29th, 2010

Who files for bankruptcy? People of all ages, races, occupations, and socio-economic levels. According to the American Bankruptcy Institute (ABI), U.S. consumer bankruptcy filings rose 11 percent during the first nine months of 2010. The credit crisis, falling home values, and job losses have forced many people to take the desperate step of bankruptcy. Medical debt is also a huge factor.

Bankruptcy filings rise

“While the 2005 bankruptcy overhaul law aimed to reduce filings, overall consumer debt and continued financial stress have led to consumer bankruptcies climbing back to pre-BAPCPA levels,” ABI Executive Director Samuel J. Gerdano said in a statement. “We expect that there will be nearly 1.6 million new bankruptcy filings by year end.”

Mortgage loans and other debts

If you’ve fallen behind on your home loan and other bills, you may feel like there is no choice but to file bankruptcy to get rid of debt. Consider the following things when deciding whether filing for bankruptcy makes sense.

A Chapter 13 bankruptcy would allow you to set up a plan to repay some debts, but you need to have a steady income. The repayment plan would last for three to five years. If you are really struggling to make mortgage payments, a Chapter 13 filing could help stop foreclosure so you can stay in the home and catch up on payments. The bankruptcy judge also might allow a mortgage loan modification.

Liquidating Assets

Many people who have lost their income end up filing a Chapter 7 bankruptcy. Chapter 7 would allow you to liquidate assets to pay off debt. The bankruptcy judge might allow you to keep some basic assets that are necessary for living. You may be able to stay in your home, but that depends upon whether there’s any equity in it. If you have too much equity, the house may need to be sold to pay off debt. Chapter 7 is usually a faster process than Chapter 13.

Bad Credit Rating

Filing for any type of bankruptcy is going to send your credit score plummeting. The bankruptcy will show up for 10 years and can affect everything from getting another home loan, to applying for credit cards, to getting a job. You must talk with a credit counselor before filing for bankruptcy, so look for someone who can really explain the process and help you make the right decision.

Many Americans say owning a home is a priority

October 22nd, 2010

Despite continuing struggles in the housing market, a majority of Americans still believe that buying a home is a good investment. A survey by the National Association of Realtors found that 68% of those polled strongly believe that buying a home is a good financial decision.

Job security and mortgages

The survey measures how affordable housing issues affect consumers and found that concerns about job security were at the highest level in eight years. About 70% of those polled said job layoffs and unemployment were a big problem in their area. The job situation makes it tough for many people to qualify for a home loan or get approved for a refinance.

Even with the tough conditions, 39% of renters say owning a home in the future is one of their highest priorities and 24% say it is a moderate priority. Only 21% of renters said owning a home is not a priority. If you’re among those who currently rent but believe that home ownership is in your future, here are some things you can do to prepare yourself.

  • Pay off all debt.When it comes time to get a mortgage, you’ll want to have the lowest debt-to-income ratio and the best credit score possible. Pay off credit cards, student loans, and other debt while you are still renting. After those debts have been paid off, put the money you that used to go toward those payments into a savings account. The more money you save for a down payment, the better position you’ll be in when you’re ready to compare mortgage loans.
  • Research the ins and outs of getting a mortgage. Read newspapers, magazines, books, and online sources of information to learn more about buying a home. Many homeowners who made the mistake of applying for mortgage loans without doing their homework are now facing foreclosure and other financial problems. Getting as much knowledge as you can about the home buying process will equip you to make smart choices when you finally get ready to buy a home.
  • Stay employed for as long as you can. Even if you have a job that you aren’t always thrilled about, it’s better to stay where you are than quit in this job market. If you want a job that pays more money, keep in mind that mortgage lenders usually base part of their decision to approve mortgages on how long you’ve been at your current job. They want to know that you have a stable work history and will repay money you borrow.

You can buy a home

A house can be an important piece of your plan to build wealth. Don’t let the current housing market discourage you from pursuing a dream to own a home.

Checklist for making an offer for a home

October 15th, 2010

Have you found a house you’d like to buy? If you’re on the verge of making an offer for home, use the following checklist to make the process as smooth as possible.

  • Get pre-approved for a home loan. If you’ve shopped for loan quotes from several mortgage lenders, choose one and get a pre-approval offer in writing. Having a commitment from a mortgage lender shows home sellers that you’re serious about making a deal. Try to get pre-approval before beginning a serious house hunt so you can quickly move on making an offer for a home. While bidding wars aren’t as common as they were when the housing market was booming, they still can happen.
  • Make sure your credit is tight. There’s nothing like a poor credit score to derail a home buyer’s plans to buy a home. Don’t wait until you are on a serious house hunt to start addressing debt and other problems dragging down your credit score. Start fixing problems with your credit at least six months to a year before attempting to apply for a mortgage. Be realistic about plans for paying down debt. Don’t expect to pay off $20,000 of debt in six months if you don’t change your spending habits.
  • Make sure you have a healthy down payment. The more money you have to put down on a home, the lower your mortgage balance is going to be. Also, sellers are more likely to accept your offer if you make a healthy down payment. Mortgage rates are at historical lows, so your dollars actually buy more house than a few years ago.
  • Don’t be afraid to ask for incentives. Some home sellers may be willing to chip in on the closing costs or let you keep certain items such patio furniture, a piano, or exercise equipment as part of the deal.
  • Don’t let your emotions take over. Even if you feel like you’ve found your dream home, don’t let yourself make poor decisions about a home when you see obvious red flags. Avoid making an offer for a home with serious issues you can’t afford to address, such as structural problems, or problems with plumbing or wiring. Remember, once you buy a home you’re responsible for repairs and maintenance. Get an inspection after your offer has been accepted so you’ll know exactly what you’re up against.

Buying a home can be exciting and stressful at the same time. But if you prepare yourself as much as you can before beginning a house hunt, you’ll be able to quickly make an offer and hopefully get the home of your dreams.

Home refinance checklist

October 8th, 2010

Current mortgage rates are super low, and many homeowners are rushing to refinance before they begin to rise again. If you’re thinking of refinancing, remember the following things.

  • Shop around to compare mortgage rates from several lenders. Not all mortgage lenders offer the same type of deals. Among the differences in refinance programs you may find are deals that offer low closing costs and bonuses or other incentives for closing on time. Some mortgage lenders may even be willing to waive certain fees or closing costs.
  • Your credit score does matter. The key to being offered the best mortgage rates lies in your credit score. Mortgage lenders want to see a strong credit report that includes a history of paying bills on time, a low debt-to-income ratio, and no judgments or liens. If you have a spotty credit history, take time to repair your credit before going to a lender to apply for a refinance.
  • A refinance could actually increase your monthly payments. That would be the case if you were to choose a 15-year mortgage loan. A 15-year home loan is going to have a lower interest rate than a 30-year loan, but you’re likely to have significantly higher monthly payments with the shorter term.
  • Refinancing into a 15-year mortgage can help pay off your home faster. If you can afford the monthly payments without it being a financial hardship, this could be the way to own your home free and clear of debt sooner.
  • Refinancing can get you out of an adjustable-rate mortgage (ARM). Many homeowners with ARMs fear the day mortgage rates begin to rise because that means they would end up with a higher monthly payment when their loan resets.
  • Be ready to provide documentation for everything. Mortgage lenders want to know how much you earn each month and will ask you for recent pay stubs and your most recent tax return. If you are self-employed, expect to provide an income statement or other information about your business. You also may be asked for proof of assets in savings or investment accounts.
  • Make sure you have enough home equity to avoid mortgage insurance (MI) payments. MI is required when you have less than 20% equity in a property.

Depending upon your situation a refinance could allow you to keep a lot more money in your pocket each month. Refinancing also can shave thousands of dollars off the amount of interest paid over the life of a mortgage loan.

Home offices, outdoor living spaces popular with new home buyers

October 1st, 2010

What are people looking for these days in newly built homes? According to the American Institute of Architects (AIA), some of the most requested spaces are home offices and outdoor living spaces. There also is growing interest in home features, products, and systems that promote greater energy efficiency and accessibility throughout the home.

Remodeling instead of getting mortgage to move

The AIA’s Home Design Trends Survey for the second quarter of 2010 found, not surprisingly, that homes at the lower end of the price spectrum are doing better than higher-end homes. Remodeling projects continue to gain steam while second homes and vacations homes continue to be the weakest sector of activity. Activity has picked up for kitchen and bath remodels. With housing values still struggling it makes sense for many families to stay put and do renovations than try to get a mortgage to move.

Fewer requests for luxury rooms

The struggling economy has taken a toll on home projects, including the way in which people want to use their homes. It’s tougher to get a mortgage loan these days and people need to make their dollars stretch further. More people are requesting mud rooms, reflecting a need for additional storage space.

Meanwhile, as some people are downsizing their homes, some previously popular luxury rooms are no longer in as great of demand; among them are media rooms/home theaters, exercise/fitness rooms, hobby/game rooms, home workshops, kid’s wings/guest rooms, interior kennels, and interior greenhouses.

Energy efficiency

Many architects surveyed said they were seeing more demand for projects that have immediate savings implications, such as insulation projects. According to the AIA:

Systems with the greatest increase in interest include energy management systems, solar panels/collectors/photovoltaics, and geothermal heating and cooling heat pumps. While it is fair to assume that the actual levels of adoption for solar panels and heat pumps still remains quite low, residential architects are indicating that saturation rates could well begin to increase as interest continues to grow. At the other extreme, systems and technologies where interest has not yet caught on, or where it has begun to wane, include electric docking stations for cars, automated lighting controls, and security systems.

Mortgage loans for new construction

If you are gettin a home loan to purchase new construction, make your dollars stretch to get the most bang for your buck. At some point you may be looking to sell, so it’s a good idea to build a home with features that will appeal to as many potential buyers as possible. You can begin searching for a new home loan here.