With recent news of sub prime lenders such as New Century Title closing its division triggered scare among many other lenders. All major lenders in sub prime market or anyone who has a bad credit, credit score (FICO) below 600 will not be able to apply for 100% loans anymore. Today, you will have to show at least 5% down payment.
Almost all of us heard the news on TV, radio, Internet about foreclosures rising to unexpected high levels. People who got these loans, that are in default, got 2-5 year adjustable loans. What this means is that your $1,000 monthly mortgage payment may have gone up to $2,500 a month. Not many people can afford such huge payment and start to default and loose their properties.
But what if you can refinance your home and pay off your mortgage? This should be the answer to get rid of adjustable loans. When property values were going up through the roof, many homeowners refinanced to pull cash out, and since now we have decline, these homeowners own more money on their mortgage, that their house is worth.
Because of rising foreclosure rates, many lawmakers start to put pressure on credit card companies, mortgages and eventually sub prime mortgages. Wall Street investors stop funding companies such as New Century Title and since there was no funding; lenders could not make any loans. Many lenders also stop funding loans to anyone with credit score below 600. Because of rising number of foreclosures, this has slightly changed mortgage industry.
But who is to blame? Mortgage companies for giving you bad credit loans? Or Credit Card companies that charge you 24% interest rates?
The problem started few years back when most lenders, brokers, start to sell 1% loans. Well, not many people bothered to find out what these loans are and how they work. Most people cared about one thing; my monthly payment is how much?
So who is to blame here? It is you, the consumer! You are the one that got into these loans, you are the one that did not find out or asked questions when you signed your mortgage papers, and you are the one that did not know that your payment will go up.
People like to point fingers to blame someone, and because lenders stop funding 100% loans, everyone is pointing fingers at them, as they gave you these bad loans. Remember, you re the one that signed those papers.
There is one big piece missing in mortgage, Education! Not many people understand mortgages, and certainly not many people understand their own credit scores. Everyone likes to shop, compare prices and most consumers went for the low rate offers who did not understand anything about how certain loan programs work.
Education was missing and that is why there are so many foreclosures today. Lenders are careful now and removed 100% loans from market.
Here are some suggestions:
-If you shop for a mortgage this will result in lower score. Each time lenders pull your credit an inquiry will be shown on your credit. More inquiries you have, the lower your score will go. This is also how lenders know if you are shopping around for mortgage, car loans, etc.
- Do not max. out your credit cards! And do not get too many credit cards.
-If you need to get a quote, first get your own credit score, than just let lenders know about your credit score. Lenders do not have to see your credit to quote you a rate if you are shopping. Once you find a lender that you like to use, allow him/her to pull your credit for a further review.
- There is no such a thing as best rate! You can compare many mortgage quotes and still find that mortgage rates are almost same. The reason, most brokers, loan officers shop the same lender. Your rate will depend on many factors such as current property value, your current mortgage, credit cards that needs to be paid off etc. Every situation is different and if every situation is different, there cannot be a best rate.
- To get best rate, than everybody in this world would have to have same job, same income, same property value. . . etc.
- Educate yourself, ask questions!. Lenders are here to help you. There is no stupid question when it comes to understanding about different types of loan programs. If your lender is not helping you, move on, find another lender who can help you with your questions.
- Listen to lenders! Just because lender is suggesting to pay off few credit cards prior to getting a loan, it does not mean he/she is trying to stop you from getting a loan. Lenders and most loan officers have been in mortgage industry for many years. They know how credit reports work; they can provide their own expertise on how to fix your credit. Just because you are not getting same loan as your neighbor, it does not mean that a lender is trying to cheat you. Every credit is different!
- Visit different websites to learn about mortgages! Get an idea from many different websites how loan programs work. There are lots of questions, such as how adjustable loans or interest only loans work. Find the answer, ask questions.
Lenders are here to provide you with financing for your property. They are the ones that also try to educate you prior to getting a mortgage. So this time. . . LISTEN! And EDUCATE yourself and we may save 100% loans sooner than you think!
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