Posted: March 12th, 2010 | Author: Joe | Filed under: Debt | Tags: Bankruptcy, Debt, Mortgages, refinance | 1 Comment »
Don Taylor, over at Bankrate.com, recently received a question about Bankruptcy and mortgage refinancing that I think is a poignant reminder of how serious bankruptcy is and how long it can follow you.
The reader writes to Mr. Taylor and pleads his case:
We have about 60 percent equity in our home. We both have credit scores above 700 and both have good incomes. We recently tried to refinance our home mortgage loan at a lower interest rate but, because I filed for bankruptcy three years ago (with the discharge completed two years ago), the lender wasn’t willing to approve a loan with me as a co-borrower. (My spouse was not involved in the bankruptcy.)
The reader goes on to state that they have been in the home for 19 years, presumably with the same loan and bank. Mr. Taylor does remark on being surprised that the bankruptcy is still preventing them from refinancing their mortgage, so maybe they haven’t held this loan for the full 19 years. This point isn’t stated one way or the other.
Regardless, the fact remains that the bank seems to have more stringent standards than simply a good credit score. Many banks have underwriting standards that delve deeper in the borrower’s credit history – especially since the sub-prime mortgage meltdown. Apparently, this bank still weighs the bankruptcy more heavily than the current credit score.
Of course, the bank recommends that the reader’s spouse be the borrower, and that they can then get mortgage insurance to pay off the home in the event of the spouse’s death. This is not surprising as banks often make far more on selling loan insurance than they do on the loan transaction itself.
The bottom line is that a bankruptcy can have far greater and longer lasting impact than you may think, and that rebuilding your credit score alone may not be enough to offset the black mark on your history.
Related Posts:
Posted: October 6th, 2009 | Author: Joe | Filed under: Debt | Tags: buying a home, mortgage, mortgage costs, refinance | No Comments »
Closing costs for a home range from 3-6% on average, and most lenders require at least and additional 5% down payment.
My wife and I have bought two houses, sold one house and refinanced once. Here’s how we’ve saved on our closing costs, mortgage and more – and you can too!
Have the seller pay the closing costs
Ask the seller to pay some or even all of your closing costs. You can even roll the cost into the selling price, and have it included in your mortgage. That way the seller isn’t really paying for it. This is helpful if you’re short on cash for the closing, but you do end up borrowing more in the long run. Also, Freddie Mac and Fannie Mae limit the amount you can roll into the mortgage to 6% of the purchase price, and only if you’re putting at least 10% down. Similarly, FHA allows up op 6% and the VA allows up to 4%.
Shop mortgage terms.
Don’t just accept a mortgage from the bank you keep your savings or checking account with. Shop around. Get quotes from at least 3 or 4 lenders, or 2 lenders and a mortgage broker. You’ll want to get at least 2 lender quotes on your own to verify that the mortgage broker isn’t piling on excessive fees. In fact, if you just get 2 quotes from local banks you should almost certainly get a better deal through the broker, otherwise the broker isn’t really getting you anything. After all, the whole point of a broker is that he has the connections and does the leg work to get you a better deal than you could on your own.
When you get quotes from lenders on your own, be sure to get a copy of the
Good Faith Estimate, or if you’re refinancing, a copy of the HUD-1 form.
Eliminate the PMI.
Personal mortgage insurance is usually required if you have less than a 20%down payment, but not always. I shopped about 4 lenders when we bought our last house, and I ended up going with a local bank (that I was not yet a member of) because they had no PMI requirement, offered a quarter percent of my rate if I opened an account and signed up with direct deposit. The interest rate is horrible, of course, but I use ING and HSBC online for savings anyway. Alternatively, if you’re in a high tax bracket, ask the lender if you can pay a single PMI premium up-front, and roll that into the loan. You’ll be borrowing more money over all, but you’ll get to deduct more on your taxes, so it may offset the PMI premium.
Shop around for title insurance.
Many lenders will try to automatically direct you to their affiliated title insurance provider, but you can often times shop around for a cheaper one on your own. According to a recent Kiplinger article, as much as 80% of your title insurance fee goes to the commission of the title insurance agent. That’s a hefty discount if you go it alone!
Pay more (often).
Go with a Bi-Weekly Mortgage Payment Plan if you can – and if there’s no additional fee. Another reason I went with my local bank is that they offered a Bi-Weekly mortgage payment plan for free as a perk to get my business! This saves me years off my time to pay off my mortgage and thousands in interest. I can even make extra payments above that, if I want.
If the lender wants a fee – any fee – to enroll you in a Bi-Weekly Mortgage Payment Plan, opt out. As long as there are no pre-payment penalties, you can still make an extra payment every year on your own, it just takes a little extra discipline.
There are a host of other tips out there, and I’m sure some readers have a few of their own. Maybe if we’re lucky, they’ll leave a comment about one. 
Related Posts:
What others are saying