Second mortgages or a further advance

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If you are a homeowner and in need of some extra cash, one possibility you could consider is taking out a second mortgage. If the present value of your house exceeds the amount you paid for it (your mortgage total), then you have equity that can be used to borrow more money. This is basically a loan that is secured on your house – and is sometimes termed a further advance.

Finding Another Lender?

You can approach your existing lender for a second mortgage, or shop around for a lower interest rate. It’s likely your second mortgage will be for a lesser amount of capital, but will nevertheless be subject to higher interest rates and possible charges. This is because it represents more of a risk to the lender – the lender takes a ‘second charge’ over your property, which means that if the debt was recalled and your house repossessed, they would be second in line after your main lender to receive their debt.

For What Purpose?

Secured loans and second mortgages are popular with people who want to raise extra funds – for example if you want to carry out home improvements or set up in business and need capital to get going. Although it can be a good way to find a cash lump sum fast, be aware that you are eating into the investment that your property should be. You should make sure that you have planned for the extra cost of repayments beyond what you initially were bound to. If the mortgage term will last into your retirement, will you be in a position to keep up the repayments?

Understanding The Small Print

While there are any number of lenders offering second mortgages, before you commit yourself to one you should be totally clear about the terms offered. Although there may be a special offer or discounted period of low interest, often these will revert to a higher rate after the set period – once again, you need to take the long term view rather than the short term. Also, your equity can provide a security cushion so that if market prices fall, you will avoid the negative equity ‘gap’ – taking out a second mortgage means you will lose that safety feature. (This is where the phrase ‘mortgaged up to the eyeballs’ is particularly apposite.)

You should also take into account any other costs that you may incur – arrangement fees, a re-valuation survey, additional payment protection etc.

No bubble burst in 2006

No bubble-bursting is in sight for real estate sales in this new year of 2006. This is now expected to be the second best year in history for residential property sales, according to analysts at the National Association of Realtors. “Home sales are coming down from the mountain peak, but they will level-out at a high plateau – a plateau that is higher than previous peaks in the housing cycle,” said David Lereah, NAR’s chief economist. “This transition to a more normal and balanced market is a good thing.”

Even though mortgage rates have edged downward in recent weeks, they will generally trend upward during the year, probably to about 6.6 percent for a 30-year, fixed-rate mortgage, NAR predicts. Existing home sales, expected to reach about 7.1 million units in 2005 (when final figures are available), will probably decline a bit in 2006 – perhaps by about 3.7 percent to a volume of 6.84 million units. New home sales will be about 1.29 million units in 2005 and will probably drop by 4.8 percent to 1.23 million units this year. That would make this year the second best on record for new home sales.

“The housing market still is fundamentally healthy,” said Dave Wilson, president of the National Association of Home Builders. “Many builders sense some tapering off of buyer demand because of resistance to high prices and rising interest rates, and many companies have begun offering certain incentives in order to maintain their sales and production.” Confidence of home builders during December slid from its summer peak, yet remained well within the positive range, according to NAHB.

Thomas Stevens, NAR president, made this comment: “Housing has always been the soundest investment for most families. As the old saying goes, homeownership beats the heck out of a drawer full of rent receipts.

Credit repair is as important as getting out of debt

Avoiding complications in credit repair is almost important as getting out of debt. When we have bills that were neglected simply because we didn't have the money to pay the bills, or else we purchased items instead of paying the bills, we are in debt.

If you are considering a Home Equity Loan to get out of your current mortgage, don't. Why? Simply because most Home Equity Loans get you deeper in debt and once you are obligated you will find the problem is more complicated than when you applied for the loan.

Lenders often target home owners with financial difficulties offering them high interest rates and making them believe it is a solution for debt relief. In most cases, this is where foreclosures come in, or selling homes come into place. The solution is only an option to get you in debt deeper. One solution then is for homeowners to consider the Reverse Mortgage Loans. This type of loan is often as equity against your home, belongings, and so on. The loan offers a 'cash advance' solution and requires that the owner does not pay on the mortgage until the end of the mortgage term or when the home is sold.

Most lenders provide a lump sum advance, a line of credit, or else a monthly installment to the home owners. Some lenders even offer a combination to the homeowners. This is certainly a good solution for repairing your credit, and building your credit to a new future. The downside is that Reverse Home Mortgage Loans often are more suitable for the older generation of people that have built equity over the years in their homes. Another disadvantage is that almost all home loans require upfront payments, such as title, insurance, application fees, origination fees, interest and so on. Therefore, it pays to ask questions and shop around before taking out another loan to repair or build your credit. Fannie Mae Home Keeper Mortgage Programs are one of the many that offer a Reverse Home Mortgage Loan.

Another option for paying off your debts and repairing your credit is to borrow the money from family members or friends. If you have someone that trusts you enough to loan you the money to get out of debt, it is often better than getting a loan. There are several options or questions you must consider before asking family members or friends to loan you the money to build or repair your credit. One of those questions should be the obvious. Can these people afford to lend me the money to get out of debt? Are these people kind enough to loan you money without putting high demands on you. Of course there may be interest involved, but remember they are loaning you money they could be spending on their own bills. Is it possible that you can repay the loan without complicating your situation further? Can I repay these people that loan me the money to free myself of one debt? How long do I have to repay the loan? Make sure there are no extra complications before asking friends or family for money to help get you out of debt.

One of the best solutions for finding a way to repair your credit is searching the options to make the money yourself. If you have a mortgage payment and struggling each month to make ends meet, you might want to sell your home. Many homeowners go for this option simply because they make more money in the long run. Once they sell their home they are often able to repay their mortgage loan and then take out a loan for another mortgage more affordable. If you decide to sell your home to repair your credit and get out of debt, be sure that you look around for the best possible solutions in order to prevent further complications.

Make sure you know how much is owed on your home before you set a price for resell. If there are any repairs that are minor or major, try to repair them first before selling. If you can't afford to repair the home, try to do minimal repair so that you can up the price of the home you are selling.

Refinance mortgage tips down payment with gift letter

If you are a first time home buyer who has been out shopping for that dream house, you’ve probably already heard your real estate agent or property developer’s first question: “How much will you be putting down?” If you have excellent credit, several years of consistent income on record and a relatively long history of using credit wisely, you may qualify for 100% financing, often referred to as a “No Money Down Mortgage” or “Zero Down Home Loan”. But for the majority of new borrowers, a down payment is a prerequisite to buying a house, and finding 20% to 30% or more of the purchase price of a house can very often entail getting the money from family or friends. Getting that much money together can be tricky enough, however lenders will also require that every dollar used for a down payment be documented back to a specific funding source, and this can be particularly difficult when the money comes from a third party, which is why we have “Gift Letters”.

Newlyweds and young people generally have neither sufficient credit history nor income consistency to qualify for 100% financing, and are also the least likely to have sufficient savings and acceptable documentable assets to actually come up with the cash to make the down payment. Members of the family are in some ways the best and very often the only available source of down payment assistance available to “green” borrowers. Your lender generally will only allow you to use money given to you by a true family member, i. e. your mother, father, brother, sister, uncle, aunt, grandfather, grandmother, first cousin, etc. This means that you cannot use funds given to you by people who are really not family members, for example your friends or colleagues, however you may be able to use funds from a non-family third party if you can provide documentation of a very close and long lasting relationship. This is done primarily to prevent people from taking out personal loans which will have to be repaid to come up with their down payment, which have the potential to throw off the person’s debt to income ratio, or DTI. Basically, they don’t want you to take on more debt than they believe you can safely repay, otherwise they would have qualified you for 100% financing.

If you find yourself in a situation where you need to get money from your folks or other family to make a down payment on your new house, you will be required to prove that you did not borrow the money from them with an expectation on their part that it be repaid or with an intention on your part to repay it. In fact, both you and your family will need to prove to your lender that the money was given to you, in the form of a Gift. To verify that the funds are in fact given freely, your lender will require special documentation.

If you are applying for a new mortgage, you should receive as part of your loan application package a special form called a “Gift Letter”. The goal of this letter is to identify the source of the funds and assure the lender that they are in fact a gift. Typically, a gift letter will include the name of donor, the name of the recipient, the relationship between the two parties, the amount of the gift, the address of the property for which the gift is to be used to pay for, the fact that no repayment is required or expected, and an assurance that the person making the gift or the source of funds is not in nay way party or beneficiary to the transaction, e. g. not the broker, seller, agent, loan officer, builder and so on. In most cases the person giving the gift will be required to document where the money came from, such as a bank account or a brokerage account. If you are depositing the funds directly into escrow, or even if they are going into your bank account, take some precautions to document the transfer by keeping copies of the checks or deposit tickets/receipts from the bank/escrow agent.