Wednesday, April 23, 2008

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How To Be Prepared For A Mortgage

The dream of owning a home is a common one with most Americans. Yet, in most cases, the biggest obstacle to achieving this is financial in nature. In other words, most people do not have the money to go and buy a home outright.

Mortgage loans exist for this very reason. Obtaining a home loan is not difficult, generally speaking. There are some definite strategies that can help you be prepared when you apply for mortgage.

The best place to start your preparations for a mortgage is to determine what amount of money you can afford to spend each month. The best way to do this effectively is to use a budget to find out what is left over after all of the necessary household expenses. Take at least a month to track all of your daily expenses. Record each expense you have through the day in a notebook or PDA, including descriptions and the total amount you spend.

This process has two aims. First, you should have an idea about where the money is going. Second, will be able determine whether an expense is necessary or unnecessary, or whether it is a need or a want. You should be able to cut down or eliminate certain expenses as a result.

Of course, the goal is to concentrate your cuts on those you consider wants rather than needs. If you do eliminate these types of expenses, you will then have extra money that can be put in savings with the goal of making a down payment on a house.

Most lending experts suggest that you make every effort to save enough to put down 20% of the total cost of the home. Keep this savings separate from you other savings amounts by opening a separate savings account. Put as much of the disposable income you freed up in this account to reach your goal quickly.

Another way you can be prepared for a mortgage loan is to cut back or stop using your credit cards entirely. The only exception is if you know that you will be able to use the card and pay off the balance every month. Now if you do have a balance on the card, the goal is to pay it off so you can take the money and move it to your mortgage savings account that you may have set up expressly for your down payment.

Once you've actually saved a decent amount for your mortgage down payment, the next step is to get a copy of your credit report. This is offered free of charge by major credit bureaus once a year. With it, you will see your credit standing and know whether your current score will allow you to qualify for a home loan.

A credit report will also allow you to estimate what the probable interest rate will be on your loan. If the score is higher, you rate will be lower. Conversely, the lower your credit score, the higher interest rate you will have to pay.

The state of your credit history including any delinquent accounts will have an adverse impact on your chances of getting loan approval. The same is true of any collections or charge offs. This may require you to use some of your saving to deal with these problem areas.

Preparing your financial circumstances for a mortgage can be an ongoing process, and you should take plenty of time to as "mortgage-ready" as possible. In the meantime, you will have probably learned some valuable skills that will help you manage your finances better when you finally obtain a home.

About Author:
Joe Kenny writes for Only Stop, compare bad credit remortgages in the UK, visit them today for mortgages or Glitec for more mortgages and information.

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An Overview on Reverse Mortgages

A Reverse Mortgage HECM, sometimes referred to as a Home Equity Conversion Mortgage (HECM), is a special type of home mortgage that lets a homeowner convert a portion of the equity in his or her home into money in their pocket.

Simply put, a reverse mortgage is the exact opposite of a regular mortgage. The lender pays the borrower, and the borrower 's debt will increase as the equity in their home decreases. It allows individuals aged 62 and older to convert their home 's equity into tax free cash to help act as a second income during retirement.

A reverse mortgage is a great way to tap into the equity of your home if you are not looking to sell your home and are also looking for tax free income. You may be asking yourself, just how does this work, and when will the loan need to be paid back?

Reverse Mortgage Loan Details
Reverse mortgage loans can be withdrawn in one (or more) of three options:

  1. Lump sum - funds can be withdrawn all at once if desired
  2. Line of credit - at the discretion of the borrower, any amount desired up to the maximum loan amount may be withdrawn in one or more dispersions throughout the life of the mortgage.
  3. Monthly Payment - the most popular choice by far, as a fixed payment is made to the borrower until the balance is depleted.

As aforementioned, the monthly payment option is chosen the most often. I have heard that some 95% of Reverse Mortgage HECM s choose this option, as folks in retirement want to supplement their monthly income, without sacrificing other benefits. Loan proceeds by the way of monthly checks are not considered income and therefore will not affect any of your Social Security or Medicare benefits.

A great benefit for the loan is that no payments are due until the house is used for something other than a primary residence by any of the initial borrowers. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current.

What If My Distributions Exceed My Home 's Appraised Value?
Another great benefit of the Reverse Mortgage HECM is that you can never owe more than your home 's appraised value. If your loan balance ends up to be greater than the value of your home, then your mortgage insurance will make up the difference.

This feature protects you and your heirs from a future debt that is greater than the value of your home, as well as making sure that you can not be forced out of your home so long as you keep paying the necessary taxes and insurance. Even if the appraised value of your home plummets, it will not affect your reverse mortgage. Any additional value acquired from the sale of the home would be passed onto the surviving legal recipients (beneficiaries).

One Key Point:
In order to qualify for a Reverse Mortgage HECM, you must not have any other liens on your home. If you have an existing mortgage, it must be paid off with the proceeds from the reverse mortgage. This is generally not a problem though, as if you are 62, it is likely that you will already own your home free and clear.

About Author:
Get more great finance and investing tips at Jeffry Evans'
personal finance blog. HECM Reverse Mortgage is just one of many great articles you will find at Personal Finance Resources.

Monday, April 21, 2008

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