There are alternatives available other than debt consolidation loans, instead of shifting debt from unsecured loans to secured loans, debt is eliminated through settlements or payment plans. All the options available to consolidate debts can often be quite confusing, debt consolidation loans, debt settlement, credit counseling programs, bankruptcy are only a few of the many options available now. It can often be a difficult task to find the best option to suit your current financial situation. Sometimes an advisor should be contacted to help with the many options available in elimination of debt.

Most often, debt consolidation programs are typically debt repayment programs. These programs can consolidate most types of unsecured debt from major credit cards to personal and student loans. Upon joining the program you choose the accounts you want to enter. Once enrolled, your creditors will be contacted by the company who will negotiate more favorable repayment terms, reduction of interest rates and may even eliminate late fees on your accounts. One monthly payment will be made to the debt consolidation program company which will cover the payments on the accounts you entered when joining the program.

Debt consolidation loans are usually just home equity loans in disguise. All unsecured debts are paid using the equity built in your current home loan. Loan options of these types often come with heavy application fees and can extend the amount of time it takes to pay off those debts. All unsecured debt is converted to secured debt which is backed by your home with the use of these types of loans. Falling behind on your payments could cost you your home.

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Countrywide Home Loans
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House Financial

The most common method of achieving 100% home financing was to split a transaction into two loans with the first mortgage accounting for 80% of the purchase price and a second 20% mortgage making up the balance. This allowed a borrower to avoid paying private mortgage insurance because as long as a loan amount is not over 80% of the purchase price, PMI is not required.  The number of lenders offering second mortgages has plummeted with the retraction of the mortgage market and now it is hard to find any lenders that are willing to offer second mortgages up to a combined loan to value of more than 75%.  Second mortgages have become too risky for lenders.

The other method of achieving 100% financing was to take out a single loan for the entire purchase price and pay private mortgage insurance.  This is still an option in some markets but for many markets in areas that are seeing property values fall, lenders have put declining market guidelines into place that reduce the loan to value that they are willing to go up to for those higher risk areas.  This means that the maximum loan to value drops by an automatic 5% for all of their programs.  A borrower may qualify for the 100% program that a lender offers but they will be required to put 5% down due to the declining market.

These changes in the mortgage market mean that it is constantly getting more and more important for borrowers to have some reserves in the bank when they go to purchase a home.  Those that don’t have the ability to put any money into the transaction are likely to find that they are unable to qualify at this point in time.  It is also vital that potential buyers take every possible measure to keep their credit scores as high as possible.  Making payments on time is the best way to keep those scores up.  A recent 30 day late on a $5.00 balance could drop a borrower’s credit score enough to make the difference in them qualifying or not qualifying to buy a home in the current market.

Happy house hunting,

Ben Hawkins

President

Arizona Home Loans

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C~602-410-6388

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