Refinancing…Is It Right For You?Written by Neil Goldberg
With interest rates hovering at all-time lows, it has created a stampede of people who have resorted to refinancing their homes. This has become a very attractive alternative to many who are financially overextended. People are using their homes as cash cows, withdrawing equity they have built up over years to pay off their credit card debt. In fact, for some, this may be choice of preference. However, there are several pitfalls that many overlook in their rush to use this option. First, you are losing all equity you have worked so long and hard to build up in your home. Second, you have now freed up all those credit cards which you just paid off, which if abused again will get you right back into same hot water as before, this time with no equity in your home to save day. If you do refinance to pay off your credit card debt, you must cancel most of your credit cards to remove this temptation.
| | Mortgage Lending "A through D"Written by Martin Lukac
What was once a small segment of residential lending is now becoming one of fastest growing areas in mortgage banking. Nearly every major institution is entering non-traditional lending market. These lenders are providing loans to borrowers that do not meet traditional credit criteria of secondary market investors such as Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). Some issues preventing borrowers from meeting these criteria are bankruptcies, defaults, foreclosures and chronic late payments on credit obligations. This article will review salient points of non- traditional mortgage lending. Credit Grades. Non-traditional mortgage lending is categorized into credit grade categories based upon credit and capacity to repay mortgage loan. Those categories are A-, B, C and D. The more serious credit problems, further grade decreases. As grade on loans decreases, lenders generally assess higher rates and fees. Several factors contribute to credit grade on non-traditional lending such as past consumer credit history and mortgage payment history. Generally, lenders review credit history for past 12- 24 months. Income Ratios. Besides credit considerations, non-traditional lenders review capacity of borrowers to repay mortgage obligation. Lenders calculate a ratio (debt ratio) using total monthly debts and total monthly income. For example if a borrower has a monthly income of $6,000 and a total monthly debt obligation (including housing expenses and other consumer debt) of $2,000, debt ratio would be 33%. If a borrower has a low debt ratio, grade will be higher. Conversely, if a borrower has a high debt ratio, grade will be lower. Income Documentation. Non-traditional lenders use three approaches in documenting a borrower's income: Full documentation, easy doc/simple doc and no income.
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