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Debt and Mortgage Solves Foreclosure

Are you interested in buy a house? Well, if you are then, here are some pointers that might help you go through the process easily. More and more people are dealing with bad debts these days. This might be a result of over spending and uncontrolled self-discipline. If you are suffering from having bad debt ratings, you probably know that you cannot buy a house if you have a bad debt; they go along together so you cannot buy a house if you have a bad credit rating.

Although there are some instances when people can still apply but this is just under certain circumstances. A lot of homeowners pauses their plan of applying for a mortgage loan because they fear that their debts will prevent them from being approved. This is true at times but there is certain condition that still helps some people to acquire a house. Since you are the bearer of the debts, you are in a better position to tell if you are qualified or not but there are also ways to do that and among those ways is pre-qualifying for it. There is a process one must go through to be able to know if they are qualified or not. This process is called pre-qualification.

Being in this position is not easy. There are some people who go through the same process because they are thinking that they are being prevented from taking a step forward. With all the uncertainties happening everywhere, deciding and asking yourself thousand times will be very helpful in buying a home process. Getting a mortgage loan is not a joke, there are lots of responsibilities accompanied by it so deciding first what will be the best thing you can do to prevent mortgage related trouble will be helpful to you. Here are some helpful tips you can use:

Analyze your debt to income ration –this should be the first on your list to be able to find out what are the risks that are visible. If you are an over spender, you might be using credit cards to shop all the time, chances are you might not be able to pay for your mortgage loan in the long run because of certain debt issues. Checking and noting down the amount of mortgage loan you are seeking and list your income and budget. This way, you will be able to know if you can afford it or not.

Front and back ratio and their difference –analyzing front and back ration is also essential because you will be able to know the right computations regarding your expenses and obligations you must pay regularly. It’s hard to deal with certain issues especially if it is related with money.

Debt income ratio –reducing your debts and being able to qualify for a mortgage is hard to do especially now that there are lots of temptations that are scattered everywhere. Getting another job to fit for your lifestyle is also a solution but you should be able to know that you cannot handle everything so one of the best things to do is to manage your finances appropriately.

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Financing Foreclosed Homes

Most of what people call foreclosed homes are being sold by lenders saddled with a property because there were no other takers at the foreclosure auction. The borrower on such a house owes more on it than the house is worth. These are known as R.E.O. houses, short for “real estate owned” on a bank’s balance sheet.

Distressed properties — those sold at a discount — made up 40 percent of resales in March, up from 35 percent a year earlier, according to the National Association of Realtors. (That includes not only R.E.O. but also short sales, in which a buyer pays less than the loanbalance, once it gets the bank’s blessing.) Though not a record, it is a huge portion of sales compared with what used to be considered normal.

Where the money comes from depends on the buyer and the property. If a house was in relatively good physical shape — with water and power turned on — it could be eligible for standard financing.

Otherwise, right now, all-cash sales are at their highest level ever — 35 percent of total sales, according to the Realtors. Cash buyers, often investors who don’t plan to live in the home, “are a major player in the R.E.O. market,” said Tom McGiveron of Realty Connect in Hauppauge, N.Y., a real estate agent who specializes in foreclosures on Long Island. “Asset managers want to move their portfolios as fast as possible,” he added.

For would-be owner-occupants without cash, the federally insured 203(k) loan is key, said Mark Yecies, the president of SunQuest Funding in Cranford, N.J. Borrowers can roll projected rehab costs into the loan.

As Mr. McGiveron put it, “Since most R.E.O.’s are as is, and the heat, plumbing and electric are turned off frequently, a 203(k) loan is necessary to cover the borrower and the lender — a lender will not lend money on a home where the major heating and electrical systems are not operable.”

Buyers generally hire an independent consultant certified by the Federal Housing Administration to review contractor cost estimates and architectural plans for things like whether the work will bring the property up to minimum standards while not going overboard on improvements.

“In other words,” Mr. Yecies said, “if you’re buying a home in Newark and you want to put in a Viking range, it’s not going to happen.”

Yet in a higher-priced neighborhood like Short Hills, N.J., he added, you probably would be able to borrow for more upscale appliances. The F.H.A. appraiser takes the consultant’s report into account when reviewing a property and determining how big the loan can be.

Not all R.E.O. properties are eligible, Mr. Yecies pointed out. For instance, a partially built house that has never had a certificate of occupancy requires a construction loan of the kind that a commercial developer would use.

Mr. Yecies estimated that an F.H.A-certified consultant would cost $500 to $1,200, depending on the extent of the repairs and the number of units in a property.

The interest rate on a 203(k) loan is about a quarter of a percentage point higher than on a standard F.H.A.-insured loan, and a buyer also can expect to pay 1 or 2 points, he said. (A point is an upfront charge equivalent to 1 percent of the loan amount.)

As with other F.H.A.-backed loans, down payments may be as low as 3.5 percent, and loan limits apply. Currently, most F.H.A. loans in the area are capped at $729,750. (Energy-efficient rehabs may be eligible for more.)

Despite the extra steps, these loans work, Mr. Yecies said. “We’re doing a half dozen a month here,” he said. “They can be done in a normal period of time, as long as everyone cooperates.”

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