The nineteen sixties was a very controversial time for the United States, with one of the most important issues being equality among race and gender. Racism was visible in almost all areas of life, including the financial industry. To help address this issue, congress passed a series of laws intended to help prevent discriminatory lending practices.
One of the major problems in the lending and credit industries was that the terms of a loan was often not completely obvious to borrowers. This meant there were often hidden terms and costs, which would not be disclosed to the borrower until they violated these terms. To help protect against this, Congress passed the Truth in Lending Act in 1968.
The main purpose of the Truth in Lending Act was to ensure that prospective borrowers were made fully aware of all terms and costs associated with a loan, before they actually signed the loan agreement. This may sound like common sense advice that should be used before entering any contract, but many lenders purposely hid information from borrowers.
In most cases the Truth in Lending Act does not attempt to regulate the types of charges that can be applied to a consumer credit line, but instead is aimed at requiring a standardized disclosure of the charges and terms, without requiring the consumer to first sign the contract. The exception to this is subprime mortgages and high cost mortgages, whose charges may be regulated by the Truth in Lending Act.
The Truth in Lending Act also allows the borrower more freedom in canceling credit transactions that require a lien to be placed on the borrowers primary dwelling.
The Truth in Lending Act contains several sections, which require that:
While the Truth in Lending Act was a step in the right direction, a true change in the lending industry would take many years and still has a long way to go.
With as complicated as most mortgages are, even with the information fully disclosed, many borrowers do not fully read or understand closing documents, which can lead to many problems.
Today, women borrowers are one of the fastest growing demographics in the lending industry, however even just a short while ago, this would have been impossible. This is because until the Civil Rights Movement of the 1960’s, lenders participated in discriminatory lending, discriminating by race and gender. These practices began to change with the passage of several pieces of legislation in the sixties and seventies.
One of the most important pieces of legislation to reduce discriminatory lending practices was the Fair Housing Act of 1968, which led the way for several other laws that would help further reduce discrimination.
The Fair Housing Act of 1968 was passed to prevent mortgage lenders from discriminating against people by their race, gender, religion, or nationality. Today, this seems like common sense, but at the time, creditors would gather a great deal of personal information about prospective borrowers and use this information to decide whether or not to offer them a loan.
Originally, the Fair Housing Act was referred to as the Civil Rights Act of 1968 and came 4 years after the first Civil Rights Act. However, because it addressed housing discrimination, it became known as the Fair Housing Act.
The Fair Housing Act not only prevents discrimination when selling homes, but also in lending, as a it prohibits people from refusing to rent or sell a property based on a persons race, gender, religion, or nationality. It also prevents changing the terms of a loan or rental agreement based on discriminatory factors, using coercion in lending practices, and discrimination in advertising.
While the Fair Housing Act is designed to prevent discrimination, it does allow landlords some rights when selecting a tenant for their rental property. For example, a landlord can discriminate against someone based upon their income, ability to pay rent, job status, or credit history. Landlords are also not required to accept Section 8 Housing Vouchers in all areas.
The main purpose of the Fair Housing Act is to prevent discrimination against prospective buyers and renters, but these groups themselves are allowed to be discriminatory when looking for a home. For example, it is not illegal for a potential buyer to ask their real estate agent to search for homes using a discriminatory basis.
Since the Fair Housing Act prohibited outright discrimination, the lending industry and real estate industry became more subtle in their approach, using redlining and steering to achieve a similar goal. These subtle forms of discrimination took the place of outright discrimination in the real estate and lending industries.
Redlining is the practice of not offering credit to certain areas of a city. This was typically preformed in low income areas or minority areas and would prevent people in these areas from getting a loan. Redlining was so prevalent in the industry that there were even official maps made by banks and other creditors outlining areas that should not receive credit.
Steering is when real estate agents, bankers, and city officials would try to steer minorities and certain social groups to a specific part of the city. These officials would lie or manipulate prospective buyers and steer them into housing projects, creating ghettos and low income housing areas.
Today, other pieces of legislation have been passed to prevent steering and redlining, although the practices still occur.
Discrimination based upon race, gender, religion, and nationality were deep seated and could not be removed with only one law or over night. However, the Fair Housing Act was a step in the right direction to help protect the rights of buyers and renters in the housing market.
It would be followed by a number of pieces of legislation to further protect the rights of minorities.
Purchasing a home is often the biggest investment a person will ever make, so it is not a decision that should be taken lightly. Most people do not have enough money saved up to purchase a home outright, so instead must rely upon a mortgage.
A mortgage is a type of loan, which uses the home as collateral. There are actually quite a few different types of mortgages, but the most common mortgages are Fixed-Rate Mortgages and Adjustable-Rate Mortgages.
The Fixed-Rate-Mortgage is sometimes referred to as a traditional mortgage. Fixed-Rate Mortgages are typically offered for durations of 15 or 30 years, although there are also some less standard durations including 10 and 20 years. Over the entire duration of a fixed rate mortgage, the interest rate does not change, so it is very easy to plan your monthly payments using an amortization table.
An Adjustable Rate Mortgage(ARM,) on the other hand, usually offers a low initial interest rate, but the interest rate is adjusted every few years.
Often, you will see Adjustable Rate Mortgages described using the format 5/1 ARM. The first number represents how often the rate of the ARM Increases. So, in the above example, the interest rate would be adjusted every 5 years. The second number represents the percent at which the interest rate can change, so in the above example, every five years, the interest rate would change by up to 1%.
While in most cases, the interest rate of an ARM will not decrease, it is possible. However, when considering going with an ARM, it is important to plan that the interest rate will increase each time. Another important consideration is what the maximum increase of the interest rate is over the course of the loan. Most lenders will provide a maximum of an 8% or 10% increase over the course of the mortgage, although this varies by lender.
Adjustable Rate Mortgages usually offer a lower initial interest rate, making them appear very attractive. However, as the rate increases, the monthly payment of the mortgage can quickly become very unfordable, so it is important to consider not just the initial rate, but how often the rate increases and what the monthly payment will be when the rate increases.
No matter what type of mortgage you go for, having at least 10% of the homes value for a down payment is very important. Traditionally, lenders had required a 20% down payment, but over the last 20 years, many lenders relaxed this requirement, with some even offering mortgages with 0% down.
However, due to our current economic situation, most lenders are returning to more traditional down payment requirements, so in many cases it will no longer be possible to get a mortgage without a down payment.
While having a down payment may now be a requirement for receiving a mortgage, this is not the only reason to save money for a down payment. This is because by having some money set aside, you will be able to get a lower interest rate and more favorable mortgage terms from your lender. With more options, you will be able to choose your lender, instead of having to go with a subprime mortgage lender. Not only will having money for a down payment mean there will be more options and more favorable terms, but it also means that you will have equity in your home as soon as you move in.
A Credit Score is a numerical value between 300 and 850 that is used by lenders to determine the risk offering someone a loan. Credit scores are based off of a number of factors, including the number of different lines of credit a person has, their payment history, and how long they have had credit. When applying for a mortgage, credit scores are one factor that are considered by mortgage lenders, so it is important to understand the relationship between credit scores and mortgages.
Credit scores are not exactly new and have been around for many years. The FICO credit score is the most common type used, but there are others as well, specifically those offered by the three credit reporting agencies. However, up until relatively recently, the average consumer was not able to see their credit score. This changed in 2003 with the passage of the Fair Credit Reporting Act, which required credit reporting agencies to provide consumers with their credit score for a reasonable fee.
There are many factors that goes into a credit score and a persons debt level is actually not what the credit score is predominantly based upon. Instead, only about 30% of the credit score is based off of a persons current debt, with more weight being placed upon how the person handles debt, as well as their credit history and payment history.
In times past, getting a home mortgage was a much more personal process. The loan officer took the time to get to know the person and made a subjective decision based upon the information available to them. Today, however, much of this personal touch has been lost, replaced by mathematical formulas that are processed by computers. These formulas take into account the persons credit history, their credit report, and their credit score, determining mathematically the risk of offering the prospective lender a home mortgage.
Since so much of the mortgage approval process has been automated, it is essential to have a good credit report and as high of a credit score as possible. Studies have been shown that the higher a credit score is, the lower the mortgage rate offered will be.
For example, according to myfico.com, in 2007, a person with a credit score between 760 and 850, which is considered to be very good, received an average interest rate of 6.3%. A person with a credit score between 500 and 579, on the other hand, received a interest rate of 9.9%. This shows the importance of having a high credit score before applying for a home mortgage.
Since having a high credit score is such an important factor when applying for a mortgage, it is a good idea to spend time fixing any areas and maintaining a healthy credit score before applying for a mortgage.
One of the most important steps of maintaining a healthy credit score is taking care of any errors on your credit report, which even though they may simply be a mistake, such as a creditor not reporting a payment. Even though the mistake is not your fault, it still affects your credit score the same, so finding and fixing errors on your credit report is essential.
Paying bills on time is also extremely important to help maintain a healthy credit score and is one of the main factors prospective mortgage lenders consider when considering a mortgage application. If you have missed a payment, always make sure all of your payments are up to date before applying for a mortgage or other type of loan.
It is also important to pay down your credit lines based upon the amount owed and interest rates of the credit line. For instance, it is important to pay down those credit lines with higher interest rates sooner, rather than later, which not only helps your credit score, but also helps you save money.
Credit scores are a numerical value between 300 and 850 that is based upon a persons credit report. The credit score is intended to provide prospective lenders with a way to evaluate a persons creditworthiness, with credit scores between 760 and 850 being classified as the best. Credit scores are used by many different types of lenders, with the mortgage industry usually relying very heavily upon credit scores. Having a high credit score can be very important when applying for a mortgage and getting a good interest rate, especially in today’s market where lenders are much more careful about who they lend too.
There are several companies that offer credit scores, including each of the three different credit reporting agencies, but the credit score compiled by Fair Isaacs Corp, called a FICO score, is the standard in the lending industry.
While credit scores have been around for over fifty years, it was not until 2003 that the average consumer could easily and inexpensively view their credit score. This came as part of the Fair Credit Reporting Act of 2003, which required all credit reporting agencies to provide individuals their credit reporting score at a fair price. Now, credit scores are available for between $6 and $16.
Credit scores are based upon the information in a persons credit report, so it is not possible to directly change your credit score if there is a problem. Instead, it is necessary to fix problems with your credit report, which will in turn raise your credit score. This is why it is so important to regularly check your credit report for errors and fix them as soon as possible.
As a consumer, it is also important to pay all bills on time and not max out your credit lines. This is because credit scoring agencies place more emphasis on your payment history than they do on your level of debt. Late payments, especially those sent to a collection agency, can have a very negative impact on a credit score.
Requesting new lines of credit too frequently can reduce your credit score, so instead it is better to try to limit your requests for new credit to as short of a time period as possible. This is especially important when trying to repair bad credit, because many people will begin applying for each credit card offer they get, but this actually lowers a persons credit score.
It is also important to balance your debt in a smart and efficient manner. In another words, pay off debts that have higher interest rates or less favorable terms first and try to avoid transferring debt among credit lines too often.
Since a big part of having a good credit score involves using your credit responsibly, most loan officers suggest using your credit, but not exceeding 30% to 50% of your credit limit. Of course, this should be taken with a grain of salt, because it is in their best interest for you to use credit.
Another factor that goes into a credit report is the length of your credit history. Rather than canceling credit cards you are not using, it is typically better to simply destroy the credit card so you can not use it, but keep the account open. This way you can extend your credit history, without actually using it. Instead, begin using debit cards, which offer the same functionality as a credit card would, without the extra fees.
Having a high credit score can mean the difference between getting a good interest rate and getting a great interest rate. A low credit score can quite literally cost you a great deal of money, so it is important to take measures to improve and maintain a healthy credit score.
In the United States, Bankruptcy is used as a last resort when a borrower is unable to pay back their creditors. There are several different types of bankruptcy, but most people either declare Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Chapter 7 Bankruptcy, which is most often used, focuses on the liquidation of the debtors assets. Chapter 13 Bankruptcy, on the other hand, deals more with the reorganization of the debt. However, with both of these types of bankruptcy, the debtor can usually retain some of their property.
While in some cases, bankruptcy is the only option, it can have a very negative affect on a persons credit rating. Typically, for the next 7 to 10 years, the individual will have a very low credit score, which makes borrowing money very difficult.
This article discusses how to refinance a home after bankruptcy, although the information provided can also be applied to anyone who wishes to refinance their home. Even though many types of loans, like a new car loan, can be very hard for someone who has declared bankruptcy to get, refinancing a home is often not viewed as a large risk by mortgage lenders. So, even if you have declared bankruptcy, it is usually possible to refinance your mortgage.
Most people decide to refinance their mortgage in an effort to get a lower interest rate and a lower monthly payment. In the case of someone who has filed bankruptcy, it is not uncommon to have a subprime mortgage, which can have excessive rate increases, higher interest rates, and unfavorable terms. As a result, refinancing your home can often be the best way to save money and stay in your home.
It is important to note, however, that when you refinance your home, you are basically starting from scratch with your new lender. Over the course of the first few years of a mortgage, you are primarily paying the interest of the loan. Over time, the amount of interest you are paying will decrease, while the amount that you are paying towards the principal will increase.
As an example, lets consider a home that costs $200,000. In the first three years of your mortgage, you might pay $50,000 to your lender, but only $3,000 goes towards the cost of the home. So, after 3 years, you would still owe $197,000 towards the home. Over the next three years, you may pay $9,000 towards the principal and as time goes on, the amount that goes towards principal increases. If you were to refinance your home after only 3 years, you would be refinancing it for basically the full amount, even though you have paid your lender $50,000.
This is important to remember, because a big part of refinancing your home involves determining whether it is in your best interests to do it in the first place.
The first step when preparing to refinance your home should be to begin setting aside some money every month. When you refinance a mortgage, you will usually have to pay a number of different fees, including an application fee and a loan origination fee.
These fees are often called junk fees, because they do not actually go towards the mortgage itself or the value of the home. In many cases, junk fees can cost several thousand dollars, so it is a good idea begin saving money as early as possible.
It is also important to determine if your current mortgage has a penalty for paying the mortgage off early. Some mortgages, especially subprime mortgages, have a pre-payment penalty, which goes into affect if you pay your home off early. If this is the case, you will need to take this into account.
Before you begin shopping around for a new mortgage, it is also very important to analyze your monthly expenses and compare these with your monthly income. This is important because you need to get an idea of what type of monthly mortgage payment you can afford.
It is important to take into account all of your monthly expenses, including utilities, phone bills, car payments, food, and any other living expenses you may have. Also, make sure that you include any outstanding debt, such as credit card bills, as well as emergency bills that may occur.
Getting an idea of the current mortgage rates is essential, even if you have poor credit or have filed bankruptcy. You can use these figures to help decide whether a particular lender is offering you a fair interest rate or if they are offering a subprime mortgage.
Begin by calling around to several of your local banks to find out what the current mortgage rates are. At this time, don’t mention the details of your situation, but simply inquire as to what the current mortgage rate is. It is also a good idea to consult some online lenders as well, who usually have their basic interest rates posted on their website.
Once you have an idea of the current mortgage rates, you can start to get estimates for refinancing your home, as a number of lenders to provide a pre-qualification letter with their rates. The lender will ask you for your financial information, but they should not actually run your credit or charge you any fees for the written estimate.
At this point, it is imperative that you are upfront and honest with the lender. Lying about your bankruptcy or your credit score, might get a higher estimate, but when they actually run your credit, they will find out you were lying and will not offer you the same rate. In the end, you are only wasting your own time, as well as that of your lender, which can often disqualify you from receiving the loan anyway. Instead, honestly answer their questions about your income and bring up the fact that you have filed for bankruptcy.
Make sure that you also ask about the cost of refinancing your mortgage, such as attorney fees, application fees, and any other charges that the lender might have.
It is a good idea to check the rates of a multiple lenders, so you can explore all of your options.
Once you have a number of estimates, you can begin comparing the different loans to find the one that best fits your needs. Start by comparing the interest rates offered to the standard interest rates that you found in step 3. This will give you an idea of whether the interest rate is normal or if it is subprime.
Next, compare the cost of refinancing your home against the cost of keeping your existing mortgage. It is essential not just consider the difference between the monthly payments, but also the cost of the junk fees and any pre-payment penalties associated with your current mortgage. For instance, if your monthly payment is $100 less on the new mortgage, but you have to pay $3,000 in junk fees, then it would take you almost 3 years before you break even on the mortgage. Remember, that the junk fees are due at the time of signing.
It is also important to look at the big picture. An amortization table can be very handy, which will break down every payment over the course of the loan to show you how much of it is going towards interest and how much towards principal. It is important to compare where you are with your current loan and where you would be if you refinanced your mortgage.
After you have carefully considered all of your options and decided upon a lender, it is a good idea to try to get your lender to reduce the junk fees. These fees can often be reduced with a little negotiation and are often padded just for this reason.
While refinancing your home can be a great way to reduce monthly payments or get out of a subprime loan, it is not a decision that should be taken lightly, especially for those who have filed bankruptcy. Instead, it is important to make sure that refinancing your home is really in your best interest and not just think about the difference in monthly payments.