2nd Mortgage Resources

Dont take it personallyWhat to do when you are turned down for a loan

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 sellers 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 cant 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 youre 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 dont 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, hes 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 doesnt 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.

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The Lowdown on Loan Options

3 Mortgage Loan Options

When it comes to home loans there are plenty of options to choose from and it can be hard to determine which one can be right for you. Lets have a look at the three main types of mortgage loans there are available and what they have to offer to help find one that will suit your needs.

1. The first and most popular form of mortgage loan is the fixed mortgage loan:

30 year fixed rate: this loan is the most commonly used loan today as it offers the low monthly repayments and is the best option for home owners who want to stay in their house for a long time. Advantage you have more cash in your pocket each month. Disadvantage you pay more for the loan in the end compared to shorter loans.

15 year fixed rate: this loan allows you to pay your home off in 15 years, most likely before your children finish school or before your retirement. You save in the long run. Advantage you pay half the interest of a 30 year loan. Disadvantage you have to pay higher monthly repayments.

Biweekly loan: this loan is usually done on a 30 year fixed rate plan but by paying every fortnight you add in extra payments every year and usually have your loan paid off in about 23 years. This loan also builds your equity in your home a lot faster. Advantage you pay your home off faster and pay less interest. Disadvantage you have to pay every two weeks.

Adjustable rate mortgage or (ARM): this loan is great because it works on interest rates and they usually start off with a lower interest rate than a fixed rate home loan. This leaves you paying less each month but leaves you at risk of paying a higher interest if the rates go up.
Advantage when your interest drops so does your repayment. Disadvantage if your interest rate rises so does your repayment.

2. Next of the mortgage loan options is the convertible loans:

Hybrid and convertible ARM: there are two types of loans with this one. One is an ARM that you can convert to a fixed rate or a fixed rate home loan that you can covert to an ARM. These options give you the flexibility to change your mortgage loan after a few years. Advantage having the ability to change between ARM and fixed rate. Disadvantage if interest rates are high you might not wish to convert.

Interest Only Loan: this loan is good for people who work on commission or get big bonuses so they only pay the interest on their loan and when they get their bulk income they can put it towards paying off the actual loan. Advantages you are able to get a bigger loan amount. Disadvantage you have to pay in lump sums and when only paying interest you arent paying any thing off on your house.

Balloon loan: this loan is a fixed rate loan with small monthly repayments that usually last about 7 years, at the end of that time you must pay the loan in one big lump sum or have the option to refinance. Advantage great for people who will want to sell their house before balloon payment is due and low interest rates. Disadvantage you have to pay lump sum at end of the loan or refinance at usually a higher interest rate.

Reserve mortgage loan: this loan is designed for equity rich seniors. It requires no monthly repayments. Advantage more money in your pocket. Disadvantage loan needs to pay if you sell your house and reduces equity for inheritors.

Buy down mortgage loan: there is two types of this loan, a temporary and permanent. They both work on points and lower interest rates. Advantage lower repayments. Disadvantage need to pay higher down payment to lower interest rates.

3. The third option for loans is the special mortgage:

FHA mortgage: for first home buyers, people with little down payment and credit problems. Advantage low down payment and repayments. Disadvantage cap on loan and limited mortgage options.

Veteran Affairs Loan: only for people and widowers of the armed forces. Advantage no down payment necessary. Disadvantage not available for everyone and usually takes longer.

As you can see there are many loans you can get when you want to purchase a home. The best way to find out which one will work best for you is to talk to a financial professional and they will go through them with you.

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