If you’re in the market for a new home one of the first things you should do is figure out exactly how much you can afford to pay toward your monthly mortgage payment.  Using an online mortgage calculator is a great way to determine how much your monthly payment would be given specific circumstances.

For example, you can enter an approximate purchasing price, the amount of money you’d need to borrow, and estimated property taxes and insurance.  The calculator will then show you how much your payment will be at current interest rates.  Then you can play around with the numbers and see what happens if interest rates go up by half a point or if you decide to borrow an extra $10,000.

While mortgage calculators offer an effective way to estimate your monthly payments before you sign on the dotted line, they are only as good as the information you put into them.  You can input 3.5% for the interest rate but if you have a lousy credit history and a low credit score you probably won’t qualify for such a low rate.  If your credit score will only justify an interest rate of 4.5% then obviously your monthly payment will go up as well.

Another thing to consider is property tax.  Depending on what part of the country you live in, you could end up paying thousands of dollars every year toward property taxes.  For example, in New Jersey even a moderately sized home in an average neighborhood can run you $6000 to $8000 in property taxes.  That means you have to add an additional $500 to $700 to your mortgage payment each month.  If you forget about property taxes when using the mortgage calculator, you could be in for quite a surprise as your affordable mortgage payment suddenly balloons well beyond your ability to pay.

Another thing many people forget is homeowner’s insurance.  Property insurance will vary wildly depending on where you live, the size of your house, and whether you have certain features like an alarm system or a backyard pool.  Your best bet is to estimate high and then if your insurance bill is lower than you’ll have extra wiggle room each month.

So you’re looking to get a mortgage but you’ve made a few mistakes in the past. Maybe you missed a few credit card payments, got sent to collections for medical bills, or even declared bankruptcy. But no matter how bad things might seem right now, it’s not the end of the world.

Even if your credit is less than perfect, you should still be able to secure a mortgage. There are some lenders who will be willing to give you an adverse credit mortgage (also known as a bad credit mortgage). However, you can expect to do a little extra legwork to prove you will be able to repay the loan.

You should also expect to pay a premium for an adverse credit mortgage. Because a borrower with poor credit is statistically more likely to default on his or her loan, the lender charges a higher interest rate. That means your payments will be higher than someone with really good credit even if you actually borrowed less money than they did. It also means that the amount you can borrow will be limited to keep your monthly payment reasonable. The lender may also require you to pay higher closing costs for a bad credit mortgage.

How to Get a Mortgage If You Have Bad Credit

There are a variety of reasons that could make it difficult for you to get a loan. Perhaps you got laid off from work and racked up credit card debt while looking for a new job. Maybe you had a sickness in the family that saddled you with medical bills. Whatever the reasons, it’s important that you show you’re getting back on your feet.

Start by ordering copies of your credit report. Go over them carefully and make sure there are no errors that could be hurting your credit score. If there are mistakes, you can get those corrected or removed which could have an immediate impact on your score.

Assuming your credit report is accurate and your low score is legitimate, it’s time to start rebuilding your credit. Don’t wait until the day before you need a mortgage to start doing this. Plan ahead and start early because the longer you can demonstrate that you’re in control of your debt the more your score will improve. Raise it enough and you might be able to qualify for a lower interest rate, and that could save you thousands of dollars over the life of the loan.

Another wise move would be to get a second job. Working two jobs isn’t easy but the extra money you earn can help you pay down your debt faster. Plus, the additional monthly income will improve your debt to income ratio when the lender runs the numbers for your adverse credit mortgage.

These measures may improve your situation, but they are only the first steps towards regaining your financial independence. Becoming and remaining debt free requires you to incisively change your attitude towards spending. At the Debt Advisory Line, we can assist you with your plans and support you with our hands-on experience for thousands of satisfied customers. Contact us now to find out how we can help you.

Consider These Reverse Mortgage Pitfalls Before Signing Up For One

For cash strapped seniors who are finding it hard to stay on top of their bills a reverse mortgage may seem like a gift from heaven. By trading in some of the equity in their home they can enjoy their golden years in style rather than worrying about how they’re going to keep food on the table. But before you or a loved one jumps the gun and signs up, there are some disadvantages you should consider. You’ll want to do some research and carefully consider these reverse mortgage pitfalls before signing on the dotted line.

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When you take out a reverse mortgage you are borrowing against the equity in your home. It probably took you decades of monthly mortgage payments to build up that equity and you might not want to give it away so easily. You may have planned on leaving the house to your children or grandchildren but if you borrow against it now your heirs may not be able to keep it when you die. At the very least they’ll have a lot less of an inheritance.

What if you take out a reverse mortgage now and then you run into financial trouble a few years down the road? You may have nowhere else to turn if you’ve already exhausted the reverse mortgage option.

A reverse mortgage doesn’t have to be paid back as long as you are living in the house. But what if your circumstances change and you decide you want to move? You may not have enough money to move after you’ve paid back the loan and you’ll be trapped in a home you no longer wish to live in.

Now that you’ve been warned of some potential reverse mortgage pitfalls, you should know that they do work out just fine for many seniors. The key is to do your homework before committing to anything.  You can start out by reading some reverse mortgage pros and cons.

If you own your own home and pay a mortgage, you probably receive all sorts of offers from banks who want you to take out a home equity loan, refinance your current loan, or convert your mortgage into a biweekly mortgage.

The paperwork explaining the biweekly mortgage says that it can cut between five and seven years off your mortgage and save you thousands of dollars in interest. Sounds pretty good, huh?

It works quite simply. Instead of paying your mortgage monthly, you pay half your monthly bill biweekly. By paying the bill every other week, you end up making an extra payment each year.

For example, let’s say your monthly mortgage payment is $1,400.  If you make 12 monthly payments, you will have paid $16,800 at the end of the year.

If you pay biweekly, you’ll end up making 26 payments each year.  So if you pay $700 every other week, you will have paid $18,200 at the end of the year. The end result is that you made one extra payment, which reduces your loan balance and interest charges.

This is how you can cut years off of your mortgage. That extra $1,400 a year eats away at your balance and helps you pay it all off early.

Paying off your mortgage early is a sound financial move if you can do it. But is it necessary to sign up for one of these biweekly mortgages (sometimes called Accelerated Payment Plans)?

Nope. Not at all. You see, there’s a catch. in order to sign up for the biweekly mortgage that your bank is offering, you have to pay a fee. It’s usually somewhere between $300-$500. Some banks will also charge you a monthly processing fee.

But I can show you a better way to pay off your mortgage just as fast without having to pay any fee at all.

Just take the amount of your monthly mortgage payment and divide by twelve. Using the example above, $1,400 divided by 12 equals $116.67. Now simply add this amount to your payment each month and make sure to make a note that you want it applied to principal.

By making 12 payments of $1,516.67, you will have paid off $18,200.04 at the end of the year. Just like that, you’ve gained all of the advantages of the biweekly mortgage without having to pay any fees or service charges.

A few years ago my mom and dad were in a tough financial situation. They were both retired and unable to work due to health concerns, and they were struggling to get by on Social Security and a small monthly pension.

They still owed a lot on their mortgage, plus credit cards, and their property taxes were too high too. They thought they were going to lose the house they lived in for 22 years.

Then my brother in law read a story in the paper about reverse mortgages. He brought the article over and we all thought that it could be the solution to their problems. They went through with it and let me tell you it changed their lives forever.

In today’s economy where millions of senior citizens are in over their heads and living in houses they can’t afford, reverse mortgages can be a godsend.

Of course, a reverse mortgage is not something to take lightly. Before you sign any paperwork, be sure you do your homework and understand the pros and cons of reverse mortgages. Below I’ve listed some common reverse mortgage questions and answers, but you’ll definitely want to do more in depth research before going ahead with it.

How does a reverse mortgage work?

A reverse mortgage is a type of home loan that does not need to be repaid as long as you live there. In a regular mortgage you borrow money and then your monthly payments reduce your debt over time. As your loan balance rises your home equity increases.

When you reverse the process you use the equity you’ve built up in your home to borrow money. Since you don’t make monthly payments your loan balance actually grows larger as it accrues interest.

Put another way, with a regular mortgage you use debt to convert your income into equity. In a reverse mortgage its the opposite. You use your equity to income.

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What is the main benefit of a reverse mortgage?

Reverse mortgages allow you to tap into your home’s equity to supplement your retirement income and improve your quality of life. Many senior citizens find that Social Security and pensions are not enough to live on. Between the cost of food, medical care, prescriptions, property taxes, and other basic living expenses, there is often little money left at the end of the month.

Taking out a reverse mortgage can give seniors the extra cash they need to pay off bills, improve their home, travel, or do anything else they want with their retirement.

Who are reverse mortgages designed for?

Reverse mortgages are perfect for older homeowners who are “house rich and cash poor.” Perhaps you’ve built up equity in your home or your mortgage is already paid off, yet you do not have money to cover daily living expenses, medical bills, home repair and other expenses. in this situation a reverse mortgage may be right for you.

What are the eligibility requirements?

To be eligible for a reverse mortgage:

• You and all co-borrowers must be age 62 or older.
• You must own your home outright or have a very loan mortgage balance.
• The home must be your primary residence.
• How much money can I get?

Its difficult to give you an exact answer. The amount of cash you can receive from a reverse mortgage depends on several factors including the program you select, your age, current interest rates, your home’s value, and the amount of equity you have in it.

How do I get paid?

Reverse mortgages are generally paid out in one of the following ways: a monthly payment, a lump sum payment, a line of credit, or a combination of each.

Options can vary from one lender to the next. Look for one that offers the solution you need. Perhaps the most common choice is to take a lump sum to pay off credit cards and other debt and leaving the rest as a line of credit that can be tapped into if needed in the future.

When do I have to pay back the money?

A reverse mortgage doesn’t have to be reapid until you either move out of the house or die. If you sell and move somewhere else, you can use the proceeds from the sale to repay the mortgage. If you pass away, your heirs can repay the mortgage by selling the house or using their own funds.

Can I ever owe more than the house is worth?

No. Reverse mortgages are designed to avoid this. the most you can ever owe is the value of the home itself. So if your reverse mortgage balance is $220,000 but your home sells for only $200,000 the lender must take it as a loss. They can not come after you or your heirs for the remaining $20,000.

What about reverse mortgage disadvantages? Can I lose my home?

No, you can not be forced out of your home. With a regular mortgage, your lender can foreclose on your property if you fail to make your monthly payments. But since you don’t have to make payments on a reverse mortgage, foreclosure is never a concern. However, you do have to continue to pay your property taxes on time and keep the house from falling into disrepair.

The bottom line is this…reverse mortgages aren’t perfect and they aren’t for everyone. But if you or a loved one are in financial trouble and you meet the eligibility requirements a reverse mortgage could be exactly what you need to get back on your feet.