With foreclosures becoming common and unemployment rate rising to 5.7 percent and 1.6 million workers out of job, bad credit ratings for millions of Americans may also visit upon them. So even when economy recovers and unemployment rate falls, it will be hard for many to obtain a home mortgage. Even if they are approved for a home mortgage they will face increased closing costs and higher interest rates. Many will be unable to obtain or afford a home mortgage.
There is plenty of blame to go around when we try to figure out why people find themselves in situations such as, losing their homes. You certainly do not have a job for life any longer. Yet you certainly should be smart enough to keep a handle on your spending. It is not wise to dip into your home equity to take a vacation and buy a luxury car that will leave you nothing to save but only pile up on your debt. Many people cannot resist the credit card offers and then pay one credit card balance by borrowing from another because they must have a big-screen TV and new furniture just like their neighbors.
It is, therefore, no surprise that American consumers are in debt to the tune of $2.6 trillion and add around $15 billion to it every month. The credit card debt alone is alone reaching close to $1 trillion. The credit card companies milk them with annual fees, surcharge on cash advances, penalties for late payments and exceeding credit limits. Homebuyers were wooed by lenders who ignored underwriting guidelines and pushed new products and dangerous loan features with high prepayment penalties. Now they are trapped in a cycle of loan flipping, triple digit interest rates, refinancing, and destructive debt.
Many housing developments were stopped in their tracks; parts of many neighborhoods became empty and targets of crime, and homeowners paying a price with the value of their homes declining and their lines of credit dwindling.
Many mortgage lenders went bankrupt and others are losing thousands of dollars for every home they foreclose. Given the above situation one can only wonder if there is still a home mortgage waiting for a homebuyer with bad credit?
Borrowers be ware:
With one of every 557 homes receiving a foreclosure notice it is no surprise that more real estate speculators are showing up on the doorsteps of desperate homeowners. People with bad credit should be skeptical if someone knocks on their door and claims they can help them catch up on mortgage payments or sell their home. It is important for people to avoid signing any paperwork even if an offer seems to be the answer to their bad credit problems. Before making any deal they must check out the person's company and reputation
Some solutions:
1. Do not try to stop a foreclosure by declaring bankruptcy. Your mortgage loan is secured by your home, so filing bankruptcy will not permanently delay a foreclosure. Bankruptcy and foreclosure can appear on your credit report for up to ten years; both should be avoided when possible.
2. If you can't make your mortgage payments due to circumstances beyond your control, your mortgage lender may have relief programs designed to help you keep your home by extending temporary forbearance, create a repayment plan, or modify the terms of your mortgage to more favorable terms.
3. If you decide to sell your home, call your lender and ask for temporary forbearance (a period of time free of payments) until you can sell your home. If your home is worth less than you owe, ask your lender about a short sale—sale price less than your mortgage. If approved, the lender would accept the sale proceeds of a market value offer to pay off your mortgage.
Consolidate your debt and repair your credit by getting rid of your credit cards and/or their balances by obtaining a home-equity loan also known as a second mortgage. Banks charge higher rates for home-equity loans but it may still be lower than what you pay the credit card companies. Moreover, you will be able to extend your debt over a longer period and lower your monthly payments.
5. Try to refinance but get copies of your credit reports from Equifax, Experian, and Trans Union before shopping for it. You are entitled to receive a free credit report from each of these credit bureaus once a year—go to: www.annualcreditreport.com. If you see that your credit isn’t so awful, you should start with a Fannie Mae or Freddie Mac lender to see if you can get an A- deal. If your credit is worse, you'll have to try harder and find a lender before you get a foreclosure notice. Be careful to apply on-line and do not give any personal information such as your social security or bank account number.
6. Try to rebuild your credit as soon as your financial situation improves by having one or two active accounts with balances of no more than a third of their credit limits. Try opening store credit cards.
7. If you have problems with impulsive spending, consult a credit counseling agency that may help you modify your behavior as you work toward repairing bad credit.
8. Using a debt consolidation service to repair bad credit is also an option for some homeowners. However, it's important to check out a debt consolidation company before signing. Anyone who makes promises that seem too good to be true should be avoided at all costs.
Under a new law just signed by President Bush a $300-billion fund will be set up under the Federal Housing Administration to help distressed homeowners get more affordable, government-backed mortgages and get out from under mortgages they cannot afford. It will also prove about $4 billion in grants to communities to help them buy and repair foreclosed homes.
The key is not to give up in despair but keep trying until you find a solution and promise yourself to be a better manager of your finances and not try to keep up with the Joneses.
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