What are Unsecured Personal Loans?

Unsecured loans are loans that do not require collateral. Many types of loans require a borrower to put up their home or property in order to reduce the risk to the lender.

Loans that are unsecured do not require collateral. They tend to be given in amounts between $1000 – $20,000, and come with higher interest rates than loans which are attached to collateral.

- Personal loans are often more difficult to qualify for because they are unsecured.

- Your ability to qualify for an “unsecured personal loan” is usually based on your credit rating and/or current means of employment. In this instance, your lender will require paperwork that ensures you have adequate ability to pay the sum back.

- Unsecured means that if you default, the lender can not take you property or home.

Personal loans usually have a fixed interest rate and repayment terms. This means that  the interest rate of the loan will not change during the lifetime of the loan. The amount of interest you pay depends on the overall risk to the lender. The better your credit score is, the lower your interest rate will be.

The repayment period for your personal loan can be set at any number of months that you agree to in your loan documents. The longer it takes to repay your loan, the more you will pay in overall interest.

Are Unsecured Loans Available Online?

Almost any type of loan or financial product can be found both online and offline. You can easily do a quick internet search and find a number of websites which allow you to apply and get funded completely online.

Some websites do not even require supporting documentation. This type of loan tends to have very high interest rates, but will directly deposit the funds into your bank account.

Online loan companies can have funds put into your account in as short as a 1 hour period. The time it takes for a company to add funds will vary from lender to lender.

If you require a higher personal loan amount, you will have to provide more documentation. It also may take longer to verify this information. Lenders that provide higher loan amounts will not be able to deposit funds as quickly as the smaller online lenders. You will need to check with your lender if you require this funding to be deposited within a certain time frame.

Are personal loans available to people with bad credit?

Small personal loans are very common among people with bad credit. Individuals with poor credit may only qualify for lower amounts around $2000 or under. This type of loan is usually used to deal with cash flow problems and debts such as monthly bills, car or home repairs, or unexpected expenses.

It is very easy to qualify for a personal loan of a low amount online. There are a multitude of websites that allow you to fill out an application and get funds deposited directly into your account with in a one hour period. You should always make sure you understand the loan terms, the interest rates, and repayment terms BEFORE you fill out any online application.

 

 

 

 

 

How will Bitcoin impact the Loan Industry?

As Bitcoin gains new ground as a currency in 2014, services aimed at the dollar such as lending, ATM machines, and money transmission will soon take advantage of the benefits it offers.

In the early 90’s…The online lending industry began with meager beginnings. At that time, many consumers were uncomfortable supplying banking or personal information to online websites.

Over the years online banking has become very widely used and acceptable. Applications for mortgages, auto, personal, and business loans are commonly filled out on various websites like lendingtree, prosper, and lending club.

Internet users have grown to feel more secure when filling out an online loan application, and more lending transactions than ever are taking place online.

As Bitcoin becomes mainstream, there will be a growing demand for new online Bitcoin lending services. For example, auto lending services will be needed if car dealerships begin accept the digital currency.

Last year, a Lamborghini as well as a Tesla were paid for completely in Bitcoin. Although this might be an uncommon occurance now, making large payments with Bitcoin can reduce the costs of spending money on a large purchase. It will also eliminate the need for a wire transfer or credit card to make a large purchase of this type.

What Types of Loans are Currently Available in Bitcoin?

Currently, the online lending field for Bitcoin is wide open… There are a few newly started Bitcoin loan startups that take advantage of the unique technology it has to offer.

These advantages include crowdfunding, cheaper money transfers, an undeniable public record of the transaction, as well as immediate or automated payments.

Any common type of loan including auto loans, mortgages, business, personal, and cash advance loans would be applicable if Bitcoin was widely adopted. Lending in the digital currency space is still in its infancy, but is primed for worldwide adoption.

Right now, there is an underground market for Bitcoin loans scattered throughout the internet.

Borrowers on these underground websites most often seek Bitcoin loans for digital currency mining equipment, or funding of Bitcoin based startups. This industry to completely in its infancy and still needs time to mature. As it becomes more commonplace, lenders will begin to offer any type of loan that can be found in U.S. dollars.

What are Bitcoin’s Advantages in the Lending Space?

One of the most interesting innovations that Bitcoin allows for is crowdfunding.

Crowdfunding is a completely new way to fund a loan through the internet. Crowdfunded loans work by having a borrower fill out a public profile or application. This “application” is then verified and rated based on credit scores and other information like eBay ratings or other types of social media data.

The crowdfunded lending site, (like Btcjam) then allows the applicant to have this loan funded by internet investors. These investing users can then automatically be paid interest on this investment directly to their Bitcoin wallet. These crowdfunded loans represent a completely new way to find money or invest in an online loan for a return.

Crowdfunding also dramatically changes the game for online borrowers who may not be able to access a traditional loan. They may not have access because of location or reduced access to banking. This would allow people in impoverished areas to acquire business loans and lift themselves out of poverty. In addition to improving conditions for 3rd world borrowers, crowdfunded loans to fund borrowers who might have credit issues.

Borrowers no longer have to rely on the traditional banking industry to get funding!

They can go directly to the internet to get money for a business, mortgage, or auto loan… Of course, this is no guarantee that a borrower will get the money they need, but it is a completely new option for them to fund a loan.

Cheaper Transfers

In addition to crowdfunding, Bitcoin allows for quick and almost free transfers of money from one wallet to another. Money transfer fees can add up, especially on large dollar amounts. If lenders adopted Bitcoin, these fees could be avoided. This would save the borrower money by reducing the transfer fee and would help the lender by reducing their expenses.

In addition to reducing transfer fees for lending, it could reduce the transfer fees on remittances. In countries like India, The Philippines, and Mexico, remittances (citizens sending money home) make up a huge part of the overall economy.

The currently favored remittance institution, Western Union, can charge up to 10% to transfer money. That would add a $100 cost to a $1000 dollar instant money transfer. If this payment were conducted in Bitcoin, it would bring the overall expense from $100 to just $1 dollar!

Public Records Stored in the Block Chain

The advantages of using bitcoin for lending also include a public record of the transaction permanently stored in the block chain. As the cryptography is solved by the network, the block chain keeps a record of each transaction from wallet to wallet.

The permanent record which is created by this process can reduce legal issues and prove that certain transactions have taken place. A money receiver cannot dispute whether or not the money was moved in their account, because this transaction is a record stored within the block chain.

This record of transactions will help reduce the need for paperwork as well as provide a necessary record for the borrower and the lender.

Is Altcoin Lending Next?

With the rise of Bitcoin and other Altcoins like Litecoin, Dogecoin, and Namecoin, a market may begin to emerge for the lending of these altcoins. Currently altcoins are mostly speculative, but this may change if merchants begin accepting them as payment.

Right now some merchants like TigerDirect have begun to experiment with Bitcoin and Litecoin payments. As consumers are able to spend virtual currencies on cars, computers, or whatever else, the demand for loans in the alternative currencies will grow.

Recently, the market has become flooded with new Altcoins, so a clear leader such as Bitcoin has yet to emerge. These new altcoins are being created every day and include recent additions like Peercoin, Tagcoin, and Particlecoin. Currently, Litecoin seems to be favored as the second runner up compared to Bitcoin, but the newer currencies still have a lot of catching up to do when compared to the dominance of Bitcoin.

Bitcoin, The Currency of Freedom (5 Reasons its here to stay)

In the last few months, crypto-currencies like Bitcoin, Litecoin, Peercoin, etc. (here’s a list of the top 50 cryto-currencies), have been a story which has consistently dominated CNN and regularly flashes across bottom-scrolling T.V. news tickers worldwide!

Bitcoin loans and digital currencyBitcoin and over 50 brand new “digital currencies” have made a splash partly due to their novelty, but mainly due to the dramatically rising value of these digital coins

Many feel that Bitcoin’s worth extends FAR beyond the quick gains that speculators are making, using it as a tool for daytrading.

Bitcoins can be purchased at an exchange like Mt. Gox, which is based out of Japan and a digital bitcoin wallet can be downloaded from Bitcoin.org.

SO, How Does Bitcoin promote an Individuals Freedom and Personal Liberty?

- Bitcoin is a decentralized currency. No one controls it.

- Bitcoin is difficult for the established power structures to regulate. This includes governments and the financial industry.

Bitcoin is anonymous, peer-to-peer, and decentralized. If it becomes adopted, many of the established controllers of wealth (i.e. banks, payment transfer companies, and especially in the financial industry) will experience major change. Just think of how the music industry changed after file sharing become popular!

Listen to what Bitcoin and “digital money” expert Andreas Antonopoulos says about BTC:

Many investors with the “speculator mindset” about Bitcoin see it as just another bubble waiting to pop

But, others believe these crypto-currencies are a complete evolution in finance…that empowers the individual. Digital currencies and Bitcoin may be the start of a new trend that will have far-reaching implications in monetary control, online payments, and wealth.

Currently BTC is generating the most interest from speculators.

Stories of “accidental millionaires” are popping up consistently as the world is starting to realize the value in this new form of “digital money”. Much of the attention Bitcoin has attracted is from those who think they are going to “get rich quick”…by profiting as its value increases or decreases.

Riding the dips and rises in the currencies bubble as a speculator is really the least interesting aspect of Bitcoin. As you investigate further into digital currencies, you can see that Bitcoin’s worth extends far beyond it monetary value…into personal freedom, civil rights, and financial security.

5 Reasons why Bitcoin will change everything:

1) Bitcoin’s value – why do speculators like Bitcoin? - As with any type of speculative financial investment (like currencies, stocks, or commodities), prices gain and fall as consumer interest (or demand) waxes and wanes.

The amount of news coverage Bitcoin receives affects consumer interest – daily. This causes demand to grow or diminish, and the price will almost always increase or decrease from this extra attention (or lack of).

Day traders purchase Bitcoins (or other currencies) and speculate as to whether its value will rise or fall. Speculators can follow this buzz and use it to generate quick profits from these value fluctuations. This “get rich quick excitement” ping-pongs from new outlet, to twitter, to the social networks, but is FAR from the reason Bitcoin (or any other currency) will be a long-lasting way to buy things.

On Nov. 29th 2013, when a well-know Billionaire named Richard Branson mentioned that his “space travel company” Virgin Galactic will accept Bitcoin as payment, the story generated massive headlines, and a nice increase for currency speculators.

That very day, Bitcoins rose to a price of $1242 after this digital currencies, loans, bitcoin, litecoinannouncement was made! (do you really think a Billionaire wouldn’t have a position in Bitcoin if he had the ability to influence its value by talking about it on TV???)

SO, If traders purchased Bitcoins, they were able to ride and profit off this wave of these rising values and demand.

These short term digital currency speculators are looking to make a quick buck by riding the value and demand of these currencies, but aren’t necessarily considering the future implications of this new “decentralized currencies“.

2) Anonymity –  The perfect example of extra functional value that Bitcoin has (other than monetary value), which the American dollar does not have, is to let consumers make purchases  including on marketplaces that sell illegal goods and services like the Silk Road.

The Silk Road (although shut down by the FBI, but immediately replaced with multiple alternatives) allows consumers to anonymously purchase illegal drugs online!

silk road bitcoin

A marketplace that sell illegal narcotics (and prescription drugs) like the Silk Road may be a thorn in the side of law enforcement and government control, but it serves a demand for consumers. Bitcoin provides a veil of anonymity to purchase goods which are useful and very valuable to many consumers! This extends far beyond the ability to purchase illegal drugs…

Privacy is VERY VALUABLE! Ask the NSA!

3) Elimination of Money Transfer Fees – Payment transfer companies like PaypalWestern Union, or MoneyGram generate millions of dollar in fees from the transfer of money from customers to a businesses.

In places like rural Africa, migrants can spend over 15% of their total income on wire transfer fees! For someone who has an income of $2000/mo., a 15% savings means an extra $300 per month or $3600 yearly. This is extremely significant, especially to a person with a low income.

Payment transfer companies do provide some assistance if arbitration is needed. But their services leave much to be desired.

4) Decreased Goverment Oversight - In many highly regulated and repressed countries like Iran or China, Bitcoin will be gain value as its citizens seek to make purchases which their government restricts. Bitcoin extends freedom and personal liberty. It allows consumers to skirt regulation and opens up access to marketplaces which have been traditionally closed to them.

Bitcoin can be used for illegal activities such as money laundering, the purchasing of illegal drugs.

BUT, in the opinion of many, this gives it INCREASED value. The lack of transparency into personal financial transactions provides increased liberties and personal freedoms surrounding money which allows for options that traditional currencies can’t.

Governments may currently be baffled as to how to deal with the implications of a completely anonymous payment system. This will increase the likely hood of government regulations for these digital currencies, BUT like the global internet, many believe that the government DOES NOT have the power to stop the peer-to-peer technology that Bitcoin operates on!

5) No Bank Account Needed – for people lacking bank accounts or living in places where it is difficult to transfer money, Bitcoin is a complete game changer.

Consumers only need to have access to a cellphone that allows for the transfer of Bitcoins from one wallet to another. This also opens up new marketplaces and allows consumers access to new forms of goods and services.

The Negatives of Bitcoin

Of course, nothing is perfect. Bitcoin is not a perfect system without flaws or drawbacks. Bitcoin is so very new, that no one can predict what will happen if it is widely adopted and becomes mainstream as a form of payment.

Many governments have a tendency toward over-regulation of ideas that threaten their control or power. Many times they can make knee-jerk reactions and create laws before they actually understand the implications of this powerful new way to exchange payment for goods or services. Here are some drawback to the new anonymous currency:

1) Government Regulations – As anonymous digital currencies start to gain traction in populations around the world, governments may see a threat to their power with decreased ability to collect tax money, enforce certain rules or laws, or the ability to maintain certain power structures.

Rich people like to stay rich! They have huge incentives to maintain their current power and wealth. There are many powerful businesses which will do anything they can to influence laws and ensure there will not be a threat to their businesses and lifestyles.

2) Bitcoin’s Value Fluctuates Dramatically – one of the aspects that naysayers have used against the overall value and worth of Bitcoin is that its value is not predictable. Most types of currencies including gold and the U.S. dollar have a predictable value. These values will consistently rise and fall, but tend to remain in a predictable range.

If a business were to accept payment in the form of Bitcoin, they might not want to hold on to the Bitcoins. With a currency that fluctuated widely, it would make more sense to accept payment with Bitcoin and then transfer this money into a more stable form of wealth (such as gold or the U.S. dollar)

3) Security Problems with Bitcoin – There have been numerous incidents of theft involving hackers. There have also been DDOS attacks on exchanges like Mt. Gox, where hackers brought  them down in order to manipulate Bitcoin’s value. If someone steals your Bitcoins, there is really nothing you can do about it! Credit card companies and banks would offer assurances in situations like these, but Bitcoin is completely new territory.

Of course, no currency is completely safe from theft. But at least traditional currencies have some safeguards.

Will Governments and Banking Survive the Impact of Bitcoin?

Imagine it is 1999 all over again. A college student named Sean Hayes has just invented a “peer-to-peer file sharing service” called Napster. 15 years later, music is basically free for all listeners.

As of 2014, most musicians no longer try to sell their music…They give it away for FREE. They do this in the hopes that they will be able to make money with touring and merchandise.

Bitcoin (and other decentralized currencies) will do to banking, what Napster did to the music industry. All you need is a smart phone to use it, it is cheap or free to transfer money, it is out of the hands of corrupting influences like politics and government.

In fact,what is bitcoin? Bitcoins are so difficult for the government to control, that when the illegal drug market The Silk Road was shut down, the FBI was unable to seize his $600,000 Bitcoins its owner Ross Ulbricht (worth over 80 million dollars)!

In this case, the government was not able to seize a Bitcoin users assets. This failure to seize the currency shows how the current power structures will struggle to deal with this new invention!

Here is another video of digital money expert Andreas Antonopoulos explaining the importance of BTC and how it will change our society:

 

 

 

 

Can you Refinance Your Home if you are Underwater?

Since the 2007 mortgage crisis, home prices have fluctuated significantly. Many homeowners have home values which are worth less than the amount of money borrowed to finance them. If a property is worth less than the loan it was purchased with, a homeowner is considered to be underwater. Being underwater is a difficult situation for many homeowners to be in because they are stuck with loans that unfavorable to their situation.

It can be difficult for a homeowner who is underwater to modify their loan because most lenders require that they have at least 20% equity in the home to refinance. In order to help these people, the Obama administration has created the HARP (or home affordable refinance program) in order to help “underwater” homeowners modify the terms of their home loan.

Refinancing with HARP

The HARP program helps homeowners with loan values up to 125% of the current price of their home qualify for refinancing. Homeowners will have to meet other qualifications to qualify for this program, including being current on their loan payments for the last 12 month period.

Another qualification for the HARP program states that the loan must be owner by the government organizations Freddie Mac or Fannie Mae.

In order to use HARP, the loan must have also been taken out before May 31 of 2009.

The Benefits of HARP

There are many benefits of HARP for underwater homeowners. These benefits go beyond just the ability to change the terms of their bad loan. They also add more opportunity to save money and reduce their monthly mortgage payment.

HARP also helps homeowners by:

1) Eliminates the need for a second appraisal – one of the benefits of HARP is that it can save homeowners extra fees of a home appraisal. It provides them the ability to refi without this second appraisal and save $300 – $500 on these fees.

2) Reduces the amount of paperwork -  HARP can also save you time by allowing you to use the same paperwork you used for your original loan application.

3) Reducing the need for PMI (or private mortgage insurance) – HARP eliminates the need for  PMI or private mortgage insurance. PMI was usually required if a borrower had less than 20% equity in the home. HARP allows refinancing without PMI for borrowers who have as little as 3% equity.

Locking in a Low Interest Rate

Currently interest rates are very low due to the federal reserve bond buying program. The Fed has been purchasing bonds to artificially reduce interest rates and improve the environment for both lenders and borrowers.

It is still in the benefit for underwater homeowners to shop around for low interest rates and lock them in. An underwater homeowner still has the ability to change their loan from a changing ARM (or adjustable rate mortgage) to a static fixed interest rate loan.

This is one of the main benefits of a fixed rate loan. Even if the lending environment becomes tough for lenders, a fixed rate loan has a monthly payment that will never change from month to month. Once your loan’s interest rate has been locked in, it will never change unless you refinance to more favorable loan terms.

What is HAMP?

HAMP is another program setup for home buyers that find themselves underwater. This program is slightly different form HARP in that it allows home buyers who have missed a payment in the last 12 months to qualify for refinancing.

With HAMP, it is not guaranteed that a homeowner will qualify for refinancing. A lender will make the decision as to wether or not they want to approve the borrower for refinancing, but their are paid government incentives for the lender to do so. This includes payments of up to $1500.

HAMP provides a relief and reduction in monthly mortgage payments for up to 60 months. After this period, the rate may increase.

If you are currently underwater with your home loan, a refinance under the HARP or HAMP programs may lower your payments and help you stay in your home.

 

 

 

 

 

What is an FHA Short Refinance?

An FHA short refinance is a type of home loan modification that mixes debt forgiveness with a change in a homeowners current loan.

“Short refi’s” are not a very common type of refinance, but they do keep homeowners who are having a difficult time paying their mortgage, from losing their home. Most “short refinances” are negotiated by mortgage brokers in order to reduce the total amount of loan debt. A mortgage broker will get a commission for this “short refinance” which is be paid for out of closing costs.

Since home prices rose and dropped significantly through 2007 – 2009, many borrowers purchased their homes when prices were inflated.

For this reason, many homeowners currently owe more on their loans than their home is even worth. This is sometimes called being “underwater”. In an effort to support underwater homeowners, the Obama administration is supporting the idea of a short refinance.

FHA short refinances are only allowed for homeowners who are “current” on their mortgage. This is different from traditional refi’s in that most loan modifications, which are setup to help homeowners who have been behind on their payments.

What are the costs of a short refinance?

There are costs associated with all types of home loan refinancing.

These costs include the typical charges such as a new appraisal, title fees, pest inspection fees, origination fees, and underwriting fees. This is no different when a short refinance is negotiated. A mortgage broker may negotiate this refinance in order to earn a commission.

Costs of a typical refinance on a $100,000 loan with good credit will be around $5000. This fees will most likely be similar for a short refinance.

Why are short refinances uncommon?

Short refinances are always beneficial to homeowners in trouble. Unfortunately they aren’t as popular with lenders.

Lenders don’t always have the incentive to reduce the loan balance in order to keep a borrower in their home. They many times will prefer to allow the homeowner to default and repossess the home. This home can then be sold at auction in order to recoup the unpaid loan balance.

It can also take a long period of time to negotiate this refinance. Also there is no absolute guarantee that a lender will agree to this reduction in your loan balance.

Will a short refinance affect your credit?

Similarly to a short sale, a short refinance will negatively affect your credit. Since borrowers have fallen behind on their mortgage payments, this will affect their record of repayment. This will cause their credit score will drop.

Even though a homeowner might experience a drop in credit due to a short refinance, it still might be the best option. If you are able to negotiate one, it can keep you in your home.

Why do lenders not want to do short refinances?

Short refinances help borrowers keep their homes, but don’t really offer much to lenders.

When a lender agrees to give a borrower a loan to purchase their home, a borrower uses this property as collateral. This collateral “secures” the property so a lender reduces the risk if the borrower defaults. If the borrower defaults, the lender has the right to sell the property at auction in order to recoup the full balance of the loan.

Many times a short refinance doesn’t make sense for lenders. They will often make more money foreclosing and selling a property, than reducing the current loan balance. Many short refinances are done as the result of a lawsuit.

Another reason that a short refinance might be difficult is that they can cost an already struggling homeowner fees and closing costs. Since a borrower who is looking for a short refinance will usually be delinquent on their payments, these closing costs may be difficult for them to stomach. These short refi’s are only seen as the best option if they lose less money when compared to a short sale.

 

 

What are Micro Loans? (How to Help the Poor)

A micro loan is a type of financing for impoverished people through social lending.

In countries with high rates of poverty, only small amount of money are required to help allow them to start businesses and create economic prosperity for themselves and their community.

Social lending websites like Kiva.org allow lenders from countries like the U.S. or Canada to connect with aspiring entrepreneurs in countries like The Philippines or Peru.

Micro loans may be considered a type of charity, but also have the opportunity to repay the social lender in interest.

Most borrowers ask for small amounts of funding in order to start small businesses such as stock for a small store, farming equipment, or fertilizer. Multiple small loans for these individuals allow them to make small purchases that can change their economic situation.

How Much Does it Cost to Fund a Micro Loan?

It is very cheap and easy to get started with micro loans through Kiva or another micro lending site. The minimum loan amount starts at $25. Many lenders start by funding their 1st loan, then when it is repaid, they can just roll it over into a new loan.

The website Kiva states that over 98% of its loans are repaid. But, most people think of Kiva as a way to help lift others out of poverty. It is not really a vehicle to generate income like other social lending sites such as Prosper or Lending Club, but it is used to help create new businesses for people living in poverty.

Can You Choose Who You Lend To?

When you visit Kiva’s website, you have the opportunity to look over “borrower profiles”. You can also search through different countries and read about what each borrower is looking to borrow the money for.

Examples of what these borrowers are attempting to get financing for include stock for their stores, equipment to work on their farm, or farm animals. Often a very small investment is required to help these people and start a business that will lift them out of a bad economic situation.

When you lend, you get the opportunity to pick your borrower by looking at their Kiva profile. Some people have stated that even though you do choose who you lend to, Kiva may already have funded their loan. There is some documentation on their website which speaks to this.

Are their Other Micro Lenders?

There are a few micro-lenders that you may want to check out if you are interested in micro loans.

These include:

Kiva – Kiva is the largest and most well know, charitable micro-lending site. You can get started very easily for $25. Once you get repaid, you can roll the funds into a new loan.

World Vision Micro – This is probably the second largest micro-lending site. It operates in a very similar fashion to how Kiva works. You can get started here for $25, similarly to Kiva.

AccionAccion is a non-profit organization that was created in 1961. They have been issuing micro-loans since 1973.

They don’t provide profiles which allow you to to see what types of loans are being funded, but they allow you to donate different amounts of money directly to their website which provides micro-loans to various borrowers in impoverished areas.

Which Micro Lender Should You Choose?

The three micro-lenders above all have very good reputations and are well-know to provide loans to people in poverty.

We believe that all of the choices above are good choices to donate your first micro loan. Kiva’s website is a little more interesting because you can see who your are lending to and choose a borrower based on their location and business need.

 

 

 

First Time Home Buyer Loans – how to qualify

Buying a home is a huge step for any first time buyer. It requires alot of research, education about the buying process, connecting with the right lenders, and finding the right property.

There are many steps to take, even before you make an offer on a property. Before you make an offer, you may want to get pre-approved or at least pre-qualify with a lender. This lets a property owner know that you are serious about the purchase. It also lets the know if you will even have the ability to afford the home. A realtor is much more likely to take you seriously if you have a pre-approval letter from your lender.

What do your need to get a loan?

Even before you start looking around for homes, you should consider getting pre-approved or pre-qualified for a home loan. This means that you have made contact with an online or off-line lender and presented them with financial information that can assess your ability to pay for the home.

Once you are pre approved, your lender will provide you with a written conditional statement that says they will provide you with funding if you are accepted to purchase the home. This lets the home seller and the realtor representing them know that you are able to qualify for financing. Once they have a written statement from your lender, they will take an offer more seriously if there are additional offers on the property.

Down Payment – if you are seriously thinking about purchasing a home, you need a 10 – 20% down payment to put on the property. If you place less than 20% down on the home (if it isn’t a FHA loan), you will have to pay for private mortgage insurance. Private mortgage  insurance will add an additional $50 – $100 per month, per $100,000 borrowed. This can be a significant extra expense, especially if you mortgage payment is at the upper end of your budget.

Closing Costs – Additional fees from the home buying process will come from lender closing costs. These costs include fees such as title searches, property inspections, pest inspections, origination fees, underwriting fees, as well as fees setup to pay the lender/mortgage broker. Some of these fees can be waived, but they may require some negotiation with the lender.

What type of mortgage do you need?

There are different types of mortgages you should research before you apply for a loan. The 2 main types that first time home buyers should know about include fixed rate and adjustable interest rate loans. The main differences between these 2 types of loans includes an interest rate (and monthly mortgage payment) that can fluctuate along with federal interest rates.

A fixed rate loan will remain static as federal rates change, while an adjustable rate loan (or ARM) will fluctuate. In most cases a homeowner will want to go with a fixed interest rate because they will have a stable mortgage payment that can be predicted from month to month. An ARM (with an adjustable rate) will change and can add unpredictability to a homebuyers monthly bills.

There are also other less commonly used types of mortgages including no closing cost mortgages, jumbo mortgages, balloon mortgages, as well as multiple types of ARMs that adjust at different rates. If you are a first time home buyer, you will most likely only be concerned with finding a fixed mortgage at the lowest interest rate.

Can you afford a mortgage?

When people see a home they like, they can get in over their head because imagine themselves living there. It is always important to go over you finances and make sure you have enough stable income to make a monthly mortgage payment.

You can use a mortgage calculator in order to calculate these payments. You can also search only for the best interest rates from lenders.

Loan comparison and review sites –  Many loan or mortgage comparison websites offer you the ability to compare interest rates by simply entering in your zip code and credit type. The better credit you have, the lower you interest rates will be, and the easier you will be approved for the home loan.

Should I Refinance? (5 reason refinancing will help)

Due to the current poor economy, the federal government has taken actions to reduce “federal interest rates”.

This means that the lending environment is very positive for the lenders. A homeowner can take advantage of these lower interest rates by refinancing. Refinancing allows a homeowner to lock in a low monthly mortgage payment (at a particular interest rate) which they can payback over the next 15 – 30 years.  Refinancing also allows borrowers to switch from an adjustable to a fixed interest rate.

Other benefits of refinancing include:

Refinancing to a Shorter or Longer Amortization Period – Each borrower will have a unique financial situation. They may be having difficulty making their monthly payments, or they may want to pay the mortgage down more quickly. It is possible to save money on interest by refinancing to a shorter amortization period. for example, if you decided that you wanted to repay the loan over a 15 or 20 year period, instead of 30 years, you could refinance down to this shorter amortization period. This will save a borrower in reduced interest costs.

Fixed Rate Vs. Arm – Another reason a borrower may want to refinance is to switch from an adjustable, to a fixed rate mortgage. Adjustable rate mortgages have interest rates that fluctuate along with the federal interest rate. This means that your monthly payments can increase significantly if your home prices change (there is also a change it could decrease).

After the 2007 mortgage crisis, many homeowners used loan modifications to switch from an adjustable rate to a fixed rate. When borrowers home values dropped, their interest rates rose significantly. Many borrowers were underwater (their homes were worth less than their loan) and modified their loan into a stable monthly fixed rate.

Fixed interest rates can be more expensive than adjustable rates, but they can provide stability for the homeowner because their won’t change as home values change.

Interest Rate Reduction – One of the main benefits for refinancing is that a homeowners can “lock in a low interest rate”. As the lending environment becomes positive for lenders, interest rates can drop. A borrower can take advantage of this by refinancing at a fixed rate. Locking in this fixed rate will ensure a borrower stays at that rate for the lifetime of their loan.

Negatives of Refinancing

Closing Costs – One of the negatives of refinancing your home loan includes the extra closing costs. Closing costs are made up from different fees including home appraisals, title searches, pest inspections, etc. If you refinance your home you will most likely have to pay these costs again.

You may want to look into no closing cost refinancing. Some lenders (or mortgage brokers) may be able to reduce, waive these costs, or pass the closing costs into your monthly payments. Recently, the lending environment was so positive for lenders that refinancing companies waived all closing costs and paid borrowers $1000 to complete this refi.

Private Mortgage Insurance – if a borrower’s home value has dropped below 20% equity, they may need private mortgage insurance. PMI can cost $100.00′s more per month and add significant costs to your bill. If your home values have dropped to a price that will make you pay for monthly PMI, it might not be cost effective to refinance.

Paperwork – Another negative to refinancing your home loan is the work involved. You will have to fill out another application and provide documents to get this refinance approved. Gathering bank statements, credit reports, and other financial documents can take time and be stressful. This is a bit of extra work which may be a pain for borrowers, so it should not be any reason to avoid it.

 

 

Get The Best Rates on a Home Equity Loan – 5 Tips

A home equity loan is a type of “low interest loan” that allows you to tap the equity locked up within your residence.

It is a secured loan that places your personal home as collateral. The total amount that you can receive depends on your financial history and credit (as with other types of loans). Maximum amounts vary from lender to lender, but can be as high as $500,000.

Lenders consider home equity loans to be like a second mortgage. They allow a homeowner to get money in order to finance projects like home improvements, consolidation of debts, purchasing a second residence, or financing college. These are the most common uses for home equity loans, but they can be used to finance any type of project.

Benefits of a Home Equity Loan

A home equity loan comes with many types of benefits compared to other loans. These benefits include access to very “cheap money”.

The interest rates that you can get with a Home Equity Loan (or HELOCs “which are a little different”) are extremely cheap compared to other loans. Interest rates for these loans range from 7 – 8%, which is much lower than a personal loan.

Home equity loans usually come with a fixed rate.

This static interest rate will always remain the same, no matter what happens to the federal interest rates. This is very beneficial to home owners because it allows them to plan their debts and expenses. Any large unexpected increase in monthly bills can cause severe financial strain to a borrower.

Using a “fixed rate loan” of any type is usually preferable, in spite of the fact that “adjustable rates” are usually lower.

Another benefit of a home equity loan is that you CAN often qualify for one if your credit isn’t perfect.

Since the loan is secured by your personal property (your home), you will not need to have a perfect financial history. Your loan is backed (or secured) by property that is of higher value than the total dollar amount of your loan. This reduces the risk on the lender and allows them to extend larger amounts of credit.

Even though your home secures this loan, a lender will usually not lend more than 80% of the value that you have within your home. For example, if you have $100,000 in equity on your property, a lender will usually only extend a maximum amount of credit of $80,000 with a home equity loan.

Negatives of a Home Equity Loan

One of the biggest negatives of a home equity loan is that it is secured by your private residence.

This means that if you default on the loan, your home will be at risk for foreclosure!

Depending on your personal spending habits, your monthly income, and your financial stability, this may or may not be a risk you are willing to accept. If you are not willing to risk your home as collateral, you may also opt for an unsecured personal loan.

An unsecured personal loan is a type of loan that may have a higher interest rate, come in a lower dollar amount, but will not risk the ownership of your home.

Another negative when it comes to home equity loans are the “early payment penalties“. These penalties will cost you extra if you decide to repay the loan earlier than planned.

Some HELs do not come with early payment penalties, and some can be waived if you negotiate with your lender. It is always important to know the terms, interest rates, and potential penalties, before you apply for a HEL.

These early termination fees usually come as a percentage of your total interest rate. They can also be seen as a number of months such as 3 – 6. These termination fees will vary from lender to lender.

 

 

5 Tips to Get The Lowest Mortgage Rate

A mortgage loan is a long-term loan usually spanning a time frame of 15 – 30 years.

Over this lengthy period of time, a mortgage holder will make monthly payments that will most likely be one of the most expensive “re-occuring bills” that they have ever had to pay. A borrower needs to consider all ways to reduce or search for the lowest interest rate.

Each percentage drop or the mortgage rate will reduce the month bill that you will pay on your house each month.

Here are 5 ways to drop your mortgage interest rate:

Negotiate closing costs and fees – one of the easiest methods to reduce the costs of your mortgage (but not necessarily the interest rates), is to negotiate with your lender for reduced closing costs and fees.

When you obtain a home loan, your lender will charge you a group of fees called “closing costs” (more info about the fees associate with closing costs). These fees include title searches, origination fees, appraisals, etc. They will be tacked on when you pay your mortgage.

Many lenders or mortgage brokers will negotiate these fees by either reducing them and giving you a higher interest rate, or flat out dropping them to keep your business. A lender may be able to do this if you have excellent credit or there are other lenders competing for their business.

1) Refinance if interest rates drop – home loan rates are constantly fluctuating as the “federal interest rates” rise and fall. The interest rates for mortgages will drop significantly as lenders have better access to cheaper money. The environment for businesses that work in the lending industry will dictate what types of deals and rates a broker (or lender) can offer.

- A borrower can refinance their current mortgage in order to take advantage of better rates as they fall.

Some lenders can offer reduced closing costs or in some instances even pay borrowers to accept the new loan. This will only occur when federal rates are extremely low and the competition for loan refinancing is particularly stiff.

2) Make a larger down payment – another strategy that a homeowner can use to get a lower mortgage interest rate is to provide a larger down payment.

- By initially spending more money on your home’s down payment, you will lower your total loan amount. With a lower loan amount, you will have access to lower interest rates and monthly payments.

Some lenders call this “buying down the rate“. This happens when you buy points (1% of the total amount of the mortgage). This allows you to buy out some of the loan to reduce your rate and monthly payments.

If you pay at least 20% down on your mortgage, you will avoid the need for Private Mortgage insurance. This can represent a significant savings for the home owner. For example, a $200,000 loan would have a private mortgage insurance payment of around $100 per month. This is an additional expense which some borrowers cannot afford.

3) Improving your financial history (credit, DTI) – There are a few aspects of a borrowers financial history that can be improved upon. This includes credit score as well as debt-to-income ratio.

Over time, a borrower’s credit score can be improved. Score increases can be seen, with the use of a credit builder loan, the removal of negative items from a credit report, or the reduction of debt. Improvement of a borrowers score will not happen overnight, but is definitely an aspect of financial history that can be improved to get better interest rates.

Improving your debt-to-income ratio can help you get the best interest rate possible. This can be done by paying down auto loans, credit card balances, and other outstanding debts. Some lenders see DTI as being more important than credit score.

4) Use Rate Locks – a rate lock is a guarantee that a loan will be available to a borrower at a certain interest rate. These “rate locks” are usually good for a short period of 1 – 3 months. A borrower can use them to guarantee an interest rate when going through the application and approval process.

5) Shopping For Better Interest Rates – The internet allows borrowers to easily search for multiple interest rates from local lenders in their area.

Instead of calling up local banks or a mortgage broker to find great rates, you can simply enter your zip code and see which lenders meet your criteria to get the type of loan you need.