The Home Equity Loan Zone

Often, when your lender scrutinizes your loan application for a new home or piece of property so finely that it is finally turned down, it can be very distressing. If this happens, you should be able to understand just why such a decision was taken and do what you can to remedy the situation. The cause for rejection given below will help you understand just why it happens to some people.

Causes for rejection:

The appraised value is far too low: Your lender perhaps found the ratio of the loan amount to the sale price or the appraised value of the property to be substantially lower than the purchase price or loan-to-value (LTV) ratio. Or perhaps the LTV is higher than your lender is allowed to approve. Then, perhaps you have applied for 90-95% of the purchase price as the loan amount. A low appraisal will then make your loan request far too large.

If the seller”??s price of the property far outstrips the prevailing rates in your locality, you would be best advised to renegotiate the price with him so that it conforms to the prices in the area. It should also be one which your lender would not refuse in order to pass your loan request. If this can”??t be done, it might be a better idea to accept a smaller loan amount, and pay the balance from your personal funds.

Insufficient funds: When your lender goes through your financial information and you”??re verification of deposit, he will find that you do not have enough funds to make the necessary down payment and cover closing costs. Even if these funds do not come from a loan, a gift could go a long way. Alternatively, you could ask the seller to take back a second mortgage on the property. This would help lower your down payment or get the seller to pay some of the closing costs, perhaps the origination fees. After all this, you could ameliorate the situation by just waiting in the wings, while you begin a savings scheme.

Do you have insufficient income? Lenders will refuse your loan application if they find that the mortgage payment on your property exceeds 28 percent of your monthly gross income. In addition, if your total debt including mortgage payments and other installments exceed 36 per cent, you stand to be refused. The figures are higher for FHA loans. But the situation can improve for you if your credit card record is good and you can prove that you already are carrying a huge household expense including rent or mortgage payments, perhaps your lender will swing his decision in your favor. This is just why you need to make a clean breast of your income and expenses while making an application.

Up to your eyes in debt: Often, lenders don”??t reject applications solely because of the amount of debt they carry on their heads. It is also the many credit cards they possess and revolving credit accounts with proof of rising account balances that come close to the limit prescribed. Such information is detrimental if you are out to prove your creditworthiness. To remedy the situation, you will need to pay off as many of your debts as possible and then reapply for a loan.

Poor credit history: What can be more devastating than to have your loan request turned down due to a history of poor debt repayment habits? If your lender sees that you have a history of making late charges often, owing amounts to the bank or insolvency, he”??s hardly likely to pass a loan application for purchase of property. Your lender is surely not going to be tolerant of a bad credit record. Even if you have had a low loan-to-value ratios and debt ratios, you cannot wipe out a history of poor credit.

Rejection is not the end of the world: Just because a lender rejects your loan application doesn”??t mean you can never own property in all your life. You can take corrective steps to improve your chances of acceptance. But if you work steadfastly at it, you can work a way round your problems. Find out why your loan application was rejected and work towards loan acceptance.

It’s time for Home Equity 101. But, don’t worry, it’s not a difficult subject, so you should be able to ace the course. However, what you do with what you learn can, in the long run, effect your life more than your entire grade point average.

Let’s begin with the basics. Your home is worth a certain amount and you probably have a mortgage for part of that. For example, let’s say your house appraises for $250,000 and your mortgage is currently for $200,000. The amount you owe on the loan ($200,000) subtracted from what it’s worth on the open market ($250,000) adds up to the equity you have in your home. In this case your home equity would be $50,000.

See how easy it is? But here comes the tough part. What are you going to do with that $50,000 equity you have in your home? Are you going to keep it there in case you ever have some kind of emergency or want to sell your home and have something left over? Or maybe you even like the idea of paying off your mortgage entirely so you own your home free and clear and no longer have the monthly overhead.

But, then again, maybe you want to take out a home equity second mortgage or a home equity line of credit to be able to access that $50,000. There are lots of reasons you might want to have your hands on that money. Possibly for something like credit card debt consolidation, medical expenses, a college education for your children, taking a vacation to somewhere you’ve always wanted to go or just to have more cash on hand to spend when you feel like it.

However, and here’s the tough part to consider, if you do that, you’ll use up all the equity in your home. And that puts the roof over your head in a shaky position. If anything should happen and you couldn’t cover the extra mortgage payments, the top would blow off of your home investment and you’d no longer have the security of a roof over your head.

So, now that you know the basics, it’s time to see if you have the common sense to make a good, sound, grown-up decision about your home equity.

Mortgage brokers don’t work for banks, nor do they lend money. They work as independent free-lance agents. They may have a working relationship with more than one commercial bank, savings and loan association, investment bank or private lending source.

Brokers work as go-betweens, bringing borrowers and lenders together for a fee. Their fee may be paid by the borrower, the lender or even a combination of the two. The point is brokers have their own agendas and work in their own interest as well as yours. Still, you may get a better dealing going through a broker than you would on your own.

Mortgage brokers will work with you and the lender through the whole mortgage loan process. They’ll take a look at your specific needs and desires and evaluate your particular circumstances - equity, income, credit standing, etc. - with the intention of finding you the best lender for your situation.

You could do all this yourself, but a broker will save you the time and hassle. And, since they work with various lending companies, they may be able to get you a better mortgage with lower interest and improved terms, especially if your local bank denied you a loan or you’re having other problems getting a mortgage. Brokers can often find lenders for applications some banks refuse.

If you decide to set up a meeting with a broker, always take along all of your necessary information, including copies of your credit reports. This will help get the whole process off on the fast track. The broker will have a clearer picture from the start of you and your particular situation. It’ll also provide a better idea of the type of loan and terms that would be best for you.

Finally, always do your homework. Read all the ads and check out all your options. Before choosing a mortgage broker to work with, get referrals from someone you know or ask the potential brokers to provide references. Local real estate agents might be willing to recommend brokers they know and respect. You might also get a better deal if you work with more than one broker. That way they’ll be competing for your business and a little competition always works to your benefit.