Mortgage Loans and Credit Repair

A home mortgage becomes more difficult to obtain if you have not prepared by cleaning up your credit with credit repair. A credit score above 680 should get you a mortgage but 720 and higher gets you better deals. These score can be obtained through credit repair.

When shopping for a home loan or home equity loan, it is always a good idea to compare finance rates from several different companies. There are several factors to keep in mind and the lowest rate isn't always the best deal.

Other factors to consider are "closing costs" and "points".

Closing Costs are additional fees and expenses necessary in order to transfer ownership of a property. Some examples of typical mortgage closing costs are title insurance, title searches, court filing fees, and survey charges. Sometimes closing costs are called settlement costs. These fees are not the same with every lender so be sure to include them in your comparison.

Points are simply additional finance charges tacked on to the beginning of a mortgage loan. They can be paid up front or spread out over the life of the loan. Although adding them into the loan makes your up front costs lower, it greatly increases your total cost since in effect you are paying interest on interest.

Another factor in the rate that you will be offered is your credit score. Someone with a good credit score provides a much lower risk to the lender so they will be able to offer you a lower rate. Some lenders specialize in one type of borrower over another. In other words some lenders prefer higher risk with higher returns while some prefer lower risk borrowers. So if you ask the wrong type of lender either they will turn you down (in the case of a high risk borrower approaching a low risk lender) or their lowest rate will be higher than you could get elsewhere, (in the case of a low risk borrower approaching a high risk lender). Of course some lenders are willing to loan to either type of borrower and just offer them different rates. It is best to work on credit-repair before shopping for a mortgage in order to qualify for the best rates.

Home Equity Loans: Pros and Cons of Home Equity Loans

Obtaining a home equity loan is a common method of refinancing debt and it has several advantages. But there are a few potential 'gotchas' that are worth considering before taking the plunge.

First, what is a "home equity loan"? The basic idea is simple: obtain a line of credit, secured by the equity in your home. That is, if you have a certain amount of ownership in your house - say, as a result of having made a down payment or payments over a long time (as many homeowners do) - borrow against that equity.

Many homeowners will take out a HELOC (Home Equity Line of Credit), as they're called, in order to use the money for the purpose those loans were invented: financing home improvements. That purpose gave the loan its original name. But, because of tax implications and other reasons, the HELOC evolved to serve other purposes.

Interest paid on most kinds of debt is not tax deductible, but interest paid on a home loan is. Hence, interest paid on a HELOC can actually be a form of less expensive debt.

Suppose, you have a 12% HELOC for up to $10,000. With most HELOCs you don't actually borrow the entire amount at once. You draw on it, much as you would a credit card, as needed and desired.

So, you have multiple benefits. You can borrow only what you need - keeping the payments and the interest owed as low as possible. And, you get to reduce your taxes by a percentage of the interest paid per year.

If you had a credit card that charged 12% APR, the advantage is clear. You pay a net lower amount of money to the lender as a result of using a HELOC rather than a credit card to finance your purchases.

But, like any loan, it's important to remember that a home equity loan is just that - a loan, or debt. If one of your major problems is the inability to exert the will to refrain from spending beyond your means, you have just found another supplier to feed your addiction. As a result, a home equity loan may actually make your more fundamental problem worse, rather than better.

But, if you have made a commitment to control your debt, and are seeking ways to reduce your overall expenses, a home equity loan can be a sensible method to employ.

One essential exercise is to actually calculate how much money you would be spending per month - and over the life of the debt - in one scenario versus the other. There are debt calculators readily available online to help you do just that.

Sometimes you will have to weigh whether you prefer to spend more money over the life of the debt as opposed to having a smaller monthly payment, but higher total amount of interest. The better calculators will help you run through both scenarios, changing amounts to help you weigh the pros and cons.

Mortgage Refinance: Is It Right For You?

There are several interlocking reasons to consider refinancing your mortgage. When rates are low, you can lower your monthly payment and/or the total amount of interest you will pay over the life of the loan. You may also want to take out some equity to finance home improvement projects or pay off other debts.

But as a method of adjusting debt it has some drawbacks that should be considered before making that big step.

One drawback is what was just alluded to: it's a big step. Refinancing your current mortgage loan involves most of the steps required to take out the loan in the first place. You'll need current income statements, past tax filings and an array of other documentation. You'll (usually) be filling out a lot of paperwork, and sometimes paying additional fees.

All that takes time and can cost you a substantial sum of money before the process is complete. You'll want to be sure to run some realistic calculations before making a final decision. Online calculators to help you do that are readily available.

One reason some consider making the effort, though, is almost always a poor one: to pay off credit card and other high interest debt. There are many ways to offload that debt without going through the pain of refinancing your primary mortgage loan.

If you have reasonable credit and some equity, you can get a second mortgage or a home owner's equity line of credit (HELOC). The rate may be slightly higher, but you will find the effort is considerably less. It also protects you in case of financial reverses. Provided you continue to make the primary payments, if you slide for a while on the secondary you are unlikely to be at risk of losing your home.

The second reason is more fundamental. Rather than continuing to seek a way out of debt by borrowing yet more money, you should first make serious efforts to reduce your dependence on borrowing. Some readjustment of current debt may be a good plan - if you can achieve a lower total outstanding debt, a lower interest rate or negotiate relief from some of the payments.

But borrowing more only adds to your long term problem. This should be a last resort, not the first thing you think of as a way out of your debt problem.

Debt consolidation often leads to merely reshuffling your debt, sometimes adding more interest and making your situation worse. But, if it's coupled with a payment plan that does in fact gradually reduce the burden, while making it possible to meet your obligations, it can be a good plan.

In the end, the only way to know for sure is to objectively examine all your outstanding obligations and research the different plans available. Some combination of debt forgiveness, lowered monthly payment(s) and reduced interest payments is the ideal you should shoot for.

Don't surrender your home in order to deal with a short term problem that can be fixed by other methods through credit repair.

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