DEAN GRAZIOSI: DEAN GRAZIOSI REVIEW – REAL ESTATE FEED BY DEAN GRAZIOSI

Now that you’ve decided to purchase a new home the next step is finding out if you qualify for a home loan.  If you have perfect credit then qualifying will not be a problem.  But if you’re like many people out there, you will have flaws on your credit report, the important thing to find out now is how they will affect your chances of being approved for a home loan.

There are many things that mortgage lenders look at, one is how much debt do you currently have.  Having too much debt can lead to you being denied a home loan.  They’ll see that you’re already overextended and you may have trouble making a mortgage payment.  You should calculate your debt-to-income ratio to see where you stand.  Add up all your monthly bills and divide them into your monthly income.  You will then multiply the result by 100 to get a percentage.  The number represents your debt to income ratio.  Mortgage lenders prefer that number be lower than 28 percent.  If you are higher than 28 percent you may want to begin paying off some of your current debt in order to lower your ratio before applying for a mortgage.

Past-Due accounts also hurt your chances of being approved.  Before applying for a mortgage you may want to pay off any past due accounts that you currently have.  If you are unsure of which debts this includes, obtaining a copy of your credit report will help point them out.  You will have to contact each account holder and either pay off the past due amount in full or set up a payment arrangement.  This will help you pay off amounts that may be too large to pay off at one time.

Checking your credit report for any errors, if you find an error you can contact the reporting agency and appeal it.  This will have the error removed from your credit report.  Even what you feel is a small error may be enough to keep you from getting the loan that you need.  You should check your credit report at least once a year for any errors and have them removed as soon as possible.

Do not open any new charge accounts.  Adding new debt to your pre-existing debt is a sure way to get denied for a home loan.  Lenders want to see that you are responsible with your credit and opening new accounts doesn’t show them that you can be responsible.  If you are applying for a home loan it is important that you not apply for any other lines of credit at the same time.

Applying for a home loan shoes the importance of handling your credit responsibly.  If you have a few blemishes on your credit report it is not the end of the world.  Once you have cleared up any outstanding debt obtain a letter stating that your account has been paid in full.  This will prove to lenders that you are taking the necessary steps to qualify for a home loan.

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In today’s market there are plenty of available homes for prospective buyers.  That combined with the low interest rates has many prospective buyers considering purchasing the home of their dreams.  But, there may be potential danger to their dream of home ownership down the road.  Along with worrying about their credit rating and income level, there are also five potential reasons that prospective lenders may decline your application for a home loan. 

The first red flag for potential lenders is if you are currently in the middle of a divorce.  Many lenders refuse to approve a loan for couples who are in the process of getting divorced.  The primary reason that lenders tend to deny these applications is that they are worried that a one person income would affect the potential buyer’s ability to make payments.  It is also important that any person who is applying for a home loan and is in the process of becoming divorced not hide the fact from prospective lenders.  The truth will come out when the lender performs a background check on the individual; if the fact that you’re getting a divorce comes out after a background check is performed, you can kiss your loan goodbye.  The prospective buyer could also face charges of mortgage fraud for lying in their mortgage application.

Another area where lenders may have a problem with a potential buyer is if they have recently switched careers.  A potential buyer who has had a change of careers within the last two years prior to applying for a mortgage may find it difficult to be approved for a mortgage.  Lenders tend to be wary when approving buyers who are not established in their careers, even if their income has increased with the new position.  If you are considering changing careers you should probably wait until after you have secured your home loan. 

If you are involved in a lawsuit at the time of your mortgage application, you may find it difficult to secure a loan.  This is true whether you are a defendant or a plaintiff.  If you are a defendant lenders may feel that you may be hit with a large settlement that may affect your ability to make payments on a loan.  If you happen to be a plaintiff in a lawsuit, lenders may fear that if you happen to lose your case you will be burdened with high attorney fees that need to be paid.  If that is the case, lenders may feel that on top of the attorney fees you will have a difficult time repaying your loan.

Making repairs on your current residence is also something that lenders look at when deciding whether to approve your loan.  Lenders feel that repairs being made on a home should be completed before the application process has been started.  Lenders would prefer that any home repairs be completed prior to buyers applying for a new mortgage.

New debt can be a mortgage approval problem.  Lenders look at the borrower’s debt to income ratio and do not like borrower’s ratios at more than 43 percent of their monthly income.  Acquiring new debt, such as a car loan or high balance on a new credit card may put many borrowers over that 43 percent limit.  It is recommended that borrowers not acquire any new debt until after a mortgage has been secured.

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With the real estate market the lowest it’s been in years and the market being flooded daily with foreclosed properties, now may be the perfect time to pick up a home at a large discount.  Although, many foreclosed homes come with their own set of issues, there are some diamonds in the rough that can be found for a fraction of what they are really worth.

Foreclosed homes sell significantly lower than their actual value.  This is due to the fact that the properties are now owned by the bank.  Because banks tend not to have a need for vacant homes that are costing them money to insure and keep in decent shape, they are looking to get rid of them as fast as they can.  What this means for you, is that you may be able to find a home that needs minimal work to make it look like new again. 

There are two ways in which you can purchase a foreclosed home from the bank.  One is dealing directly with the bank and submitting your offer to them, the other is to purchase homes at a bank held auction where bidders determine the selling cost.  If you choose to deal directly with the bank, you may be able to negotiate a better deal than if you were to involve a third party.  The benefit of purchasing a home at auction is that you may be the only person interested in the property and be able to purchase for a lower price than the bank was initially asking.

There are some challenges with purchasing a foreclosed property as well as benefits.  Once all the paperwork has been signed and you are in possession of the property you may discover problems that you weren’t aware of before the purchase was finalized.  To avoid finding yourself in this situation, you may want to have an inspection done on the property so that you are aware of any problems before you close on the property.  An inspection is relatively inexpensive compared to what you may have to pay in order to make the property livable.

You may have heard horror stories about the problems that come from buying foreclosed properties, while some are in dire need of repair there are some out there that are in nearly perfect shape.  One of the most important things you need to do before purchasing a foreclosed property is to do a bit of homework.  By doing some research into any problems the neighbors may have had with plumbing or flooding issues, you will get more information from a friendly neighbor than the bank might offer.  Research is the key to finding a foreclosed property that will need minimal work to become your dream home.

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According to a federal report, more than 50 percent of home modification loans fell two or more months behind after just the first year in 2009.  The report covers approximately $6 trillion in loans or 64 percent of all mortgages in the United States.

Believe it or not, the news is not all bad. Only 40.7 percent of mortgages modified in the second quarter of 2009 were delinquent after nine months.  During the same period in 2008, 51.8 percent of mortgages were two or more months delinquent. While the trend is improving, the modification program cannot be deemed a success and goes a long way toward explaining bank resistance to various modification programs.

The Administration’s Home Affordable Mortgage Program has been slightly more successful than non-government assisted programs.  Under the Home Affordable Mortgage Program, payments are modified so as not to exceed 31 percent of pre-tax income.  This should allow homeowners who want to save their home an opportunity to succeed. 

For the most part, interest rate reductions were the chief modifications made to mortgages in the first quarter of 2010.  85.9 percent of mortgages were modified in this manner.  Term extensions were applied to 45.8 percent of the loans while principal reductions were applied to only 1.9 percent of the loans.

The Obama plan offers new incentives to lenders who want to use the principal reductions to avoid foreclosure action.  A troublesome trend is that 25 percent of homeowners who are underwater are willingly allowing foreclosure proceedings.  The damage to credit ratings is severe but homeowners see paying off a mortgage that exceeds the value of the property as a bad investment strategy.  By walking away, the damage is done and homeowner can begin to rebuild their credit.

The rate of completed foreclosures increased by 19 percent in the first quarter 2010.  Short sales increased by 9.2 percent but 120.4 percent in the past 12 months.  No matter how the figures are viewed, they are dismal.

On the brighter side, lenders are showing an increased willingness to work with troubled homeowners.  Modification approvals outweighed foreclosure initiations by 107 percent in the first quarter.  

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