If you are having trouble paying your mortgage for any reason, or expect problems, you should work with your loan servicer (the company that collects payments on your mortgage) or other experts to find a solution now. If you fall behind and don’t take action, the lender will foreclose on your home. If that happens, you may lose your home and all of the money you have already invested in it. The sooner you act, the better the chances you will avoid foreclosure.
Talk To Your Lender
Talking to the lender, or loan servicer, the company that collects the payments, should be one of your first steps. The earlier you call, the better your chance to work out a solution.
Here are some options:
Loan Modification. Loan servicers can help you catch up on late payments or amend your mortgage to make it more affordable. For homeowners who face losing their home, a loan modification is often the most effective way to avoid foreclosure. The options include:
- Adding all the missed payments to the loan amount and changing the monthly payment to cover the larger loan.
- Giving you more years to pay off the loan, lowering the interest rate, and/or forgiving part of the loan, to lower your monthly payment.
- Switching from an adjustable rate mortgage to a fixed rate mortgage, so you can avoid higher monthly payments.
- Requiring amounts for taxes and insurance to be included with your monthly mortgage payment so you avoid big bills in addition to your mortgage.
Other options include:
Repayment Plan. If you can start making payments to catch up, the lender may let you pay an additional amount each month until you are caught up.
Forbearance. Lenders may let you make a partial payment, or skip payments, if you have a reasonable plan to catch up. Tell your lender if you expect a tax refund, a bonus, or a new job.
Reinstatement. Reinstatement refers to making a payment that covers all your late payments, usually at the end of a forbearance period.
Sign Over the Property to the Lender in Exchange for Debt Forgiveness (often called “deed in lieu of foreclosure”). This can hurt your credit, but is better than having a foreclosure in your credit history.
Watch out for companies that ask you to sign papers that waive your right to pursue legal actions against them—especially if you expect to continue struggling with your home loan.
For immediate advice, call 888-995-HOPE to speak to a counselor on how to avoid foreclosure. Available in English and Spanish, 24/7. Or visit www.995hope.org for more information.
The conforming loan limits are changing – what does that mean and why should you care?
For most borrowers, it probably means nothing at all, in fact the majority of the country falls into the standard conforming limit and they won’t be affected at all.
Since 2006, the conforming loan limit has been set at $417,000. In 2008 Congress passed the “Housing and Economic Recovery Act of 2008” (HERA). HERA permanently increased the conforming loan limits to the lesser of:
- 115% of area median home price (which varies by county) or
- 150% of conforming loan limit ($625,500). If that amount is less than $417,000, $417,000 remains the conforming limit
For roughly 250 counties in the US (out of just over 3200) the amount folks can borrow will go down. If you live in an area where the cost of living is high, you are probably impacted.
Many of these areas will drop from a maximum of $729,750 to $625,500, but that’s just the headline numbers. Any counties where the limit today is over $417,000 will probably be lowered down. The same goes for FHA loans – if you are considering an FHA loan, the limits will drop even further.
The “temporary” limits that are set to expire could still be extended again by Congress. Many people expect them to do so. But if Congress does not act to extended the temporary limits, any loan with the higher loan limit will need to close by 9/30/11.
We’ll keep you updated here on these conforming limits, when and if Congress extends them, or not.
Here’s how parents can help with the downpayment, satisfy lenders and not pay any gift tax.
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While shopping for a mortgage, you will need to decide whether to take a fixed-rate mortgage or an adjustable rate mortgage (ARM).
As the name implies, the interest-rate of a fixed-rate mortgage will remain the same throughout the life of the loan. If interest rates are low when you are buying or refinancing a home, a fixed-rate mortgage is a good choice, because you can lock in a low interest rate. ARMs, however, will fluctuate as interest rates rise and fall. Your 6 percent rate today could drop to 5 percent next year or end up at 8 percent if the market rate goes up.
Exactly when the rate of your ARM loan will change depends upon the terms of your loan agreement, which could see rates change every three months, once a year, every three years, or every five years. It’s not uncommon to find ARMs that start at a fixed rate and convert to an adjustable rate after several years.
ARMs also generally come with a “cap,” which limits the amount a lender can raise its rate. The cap for most ARMs is 2 percent, meaning a lender can only increase its rate 2 percent within a single adjustment period. But several adjustments can turn a 4 percent interest rate at the beginning of the loan into a 10 percent interest rate later on.
As you might imagine, fixed-rate mortgages are more popular. Most home buyers want the security of knowing how much their mortgage will be each month. A fixed-rate mortgage will allow you to more easily manage your monthly and yearly budget. If you have a fixed-rate mortgage and rates do drop, you can always refinance.
Which type of mortgage is right for you? Basically, it comes down to two factors:
1. How comfortable you are with risk
2. How long you plan to live in the house
Clearly ARMs are riskier than fixed-rate mortgages. But taking on more risk may result in a lower rate — at least temporarily. But if you plan on staying in the house for a long time, an ARM can be particularly risky — and potentially confusing — since rates will fluctuate many times over and there will be more adjustments. Conversely, if you plan to move after five or six years, you could take a 5/1 ARM, meaning the first five years are locked in (at a low rate) and it converts to an adjustable rate after that — right about the time you plan to sell.
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Some first time home buyers as well as experienced home buyers sometimes have a difficult time searching for and comparing home loans.
Credit cards are a double-edged sword. If you’re not careful, they can destroy your financial life. But if you know how to manage them, they’ll treat you right with all sorts of rewards.