Category: debt cycle

2 Aug

Learn Everything There is to Know About an FHA Loan

FHA insures home mortgage loans to buyers of homes with only a 3.5% down payment. The loans are available through lenders approved by FHA. They are traditionally known as first time home buyer’s programs due to the lower down payments and easy qualifying standards.

The loan limits are lower than many conventional loan programs though. To find out the FHA loan limits for a particular city or town, look here.

HUD has released new guidelines for FHA loan foreclosures, stating that anyone not current on their loan when applying for a short sale will be denied a future FHA loan for three years. These new rules do not apply to home owners who lost their homes due to unforeseen circumstances, such as unemployment.

MIP Insurance Required on all FHA Mortgage Loans

FHA charges the borrower an upfront fee of 1.5% for their MIP (Mortgage insurance premium) and then a .5% payment each month for the MIP premium. This MIP protects the lender in case the borrower would default on the loan. This fee for the insurance must stay on the property for five years if the home is financed for 30 years. If the home is financed for 15 years, the MIP is removed when the loan to value ratio drops to 89.9%.

How to Qualify for an FHA Mortgage Loan

FHA lenders allow a 29/41 debt to loan ratio. What this means is that the borrower can take 29% of their current income for the mortgage payment basis. Then take your income minus the monthly debts and add in the mortgage payment, taxes, insurance and MIP. This figure must equal to 41% of the borrower’s income.
FHA does allow a lower FICO (credit report) score than conventional loans and sometimes as low as 600 with a thorough explanation of discrepancies on the credit report. Conventional loans require a FICO score of 700 or more. FHA does require credit though. So if the borrower has no credit, he is encouraged to open a department store credit or a fully secured savings loan. There needs to be at least two months of credit reporting on the credit report.

Benefits of a FHA Mortgage Loan

  • Low down payment
  • Loan may be assumable
  • Borrowers may use gift for down payment and closing cost
  • Easy qualifying

Disadvantages of the FHA Mortgage Loan

  • All signers on the loan must occupy the property
  • Lower loan limits than some conventional loans
  • Required MIP for 5 years on 30 year loans
  • Credit is required
  • Conservative loan packages

FHA Refinance, 203K and Streamline Loans

In addition to FHA mortgage loans FHA has many other type of loans:

  1. FHA refinance: cash out loans are available and normally used for a variety of things, such as college education. The borrower may refinance the property for 85% of the appraised value.
  2. FHA 203K loans are also available for home improvements.
  3. FHA streamline financing is available with little paperwork and may not require an appraisal. There is no credit underwriting, credit check, face to face application, debt ratios, and appraisal or income verifications.

FHA mortgage loans do have some disadvantages, but for the first time home buyer it has many benefits. To understand fully all the programs talked about in this article it is advisable to visit

4 May

Pawn Shop Loans – No Credit Check Finance: Borrow Money Fast with a Pawnbroker Loan

Data Monitor (a research and business information group) stated that 9 million UK citizens are refused credit each year. Those who don’t qualify for mainstream credit may find that a pawnshop loan can help them out of a tight spot.

When a consumer has an adverse credit history and needs to borrow money fast, securing no credit check finance from a pawnshop or payday lender could provide the answer. However, it should be considered to be a short-term source of borrowing only.

Pawn Shop Loans Borrow Money Fast with No Credit Check Finance

A loan from a pawnbroker is an increasingly popular way of borrowing money without undergoing credit scoring. It is a poor credit history loan that is granted on the basis of collateral. Jewelry, electrical goods, collectibles, life/endowment policy, shares, vehicle and gold loans are offered on more favourable terms because the lender is able to sell the item to recover their money.

Growth of Pawn Shop Loans – Gold, Vehicle, Electrical Equipment and Jewelry Loans

A&B and H&T pawnbrokers both reported an increase in pre-tax profits of over 30%. According to Brewin & Dolphin (investment analysts) “We calculate the specialist market is capable of doubling in size as traditional sources of consumer credit are withdrawn and the gold price remains high.” The high street presence of pawnbroker shops is expected to increase over the next few years.

How to Get a Poor Credit History Loan from a Pawnbroker

  • Take the item to the pawnbroker’s shop for appraisal.
  • No credit check finance is provided on the basis of the collateral. The item remains the property of the borrower throughout the term of the jewelry, electrical goods, vehicle or gold loan.
  • The collateral can be redeemed at any time by paying off the pawn shop loan and any interest.
  • Should a loan from a pawnbroker not have been cleared, the unredeemed item will be sold to recover the principal and interest.

No Credit Check Finance – Borrow Money Fast, But How Much?

The majority of jewelry and gold loans are for relatively small amounts. However, it is possible to get no credit check finance for well over £10,000. The rate of interest reduces on a sliding scale as the amount of money borrowed gets higher. The monthly interest rate is generally in the 3% to 6% range. It is possible to borrow money for any purpose.

Successfully Applying for a Pawnbroker Loan

A pawn shop loan is an ideal, affordable source of no credit check finance based on the provision of collateral. It is possible to borrow money fast for an emergency expense, such as paying the rent or an unexpected bill. It is important that a loan from a pawnbroker is redeemed within the specified timeframe or the item will be sold to recover the principal and any interest that has accrued.

4 May

Using a HELOC to Pay off Credit Card Debt: Pros and Cons

Credit card interest rates are high. They may not be as oppressive as payday loans, but they are still excessive as they sometimes begin at rates exceeding 20%.

As some consumers calculate the rising level of credit card debt they have, they may consider their options in eradicating the debt to include consolidations, which should only be used as an absolute last resort before the option of bankruptcy. But other than these options, there is always the choice of taking money out on one’s home equity, commonly called a HELOC for Home Equity Line of Credit.

What is a HELOC?

When a person owns a home with a mortgage there are two kinds of money. The first is the money owed on the loan, called the principal, and the second is the difference between what the house is worth, and what is owed on it, called equity.

If a family had $20,000 in credit card debt while owning a $200,000 home of which $100,000 was owed on the mortgage, it would not be hard for this family to take out a loan for the credit card debt amount (or more) using the equity as collateral. This line of credit is a HELOC. While it is a simple procedure to execute, it is not without its pros and cons.

Taking out a HELOC to pay off Credit Card Debt: Pros

The best reason to take out a HELOC to pay off the above credit cards is to be rid of the high interest debt. Where the family was once beholden to a creditor for $20,000 at 23.9%, they may have transferred the debt amount to a lender who only wants 8.9% interest.

Another positive is that the limits will increase on the cards that were paid off. This is not a guarantee, but it has been my personal experience that when I have had a high balance on my credit card and then paid it off, my limit went up. This higher limit brings one’s debt to credit ratio down, making him or her a more desirable candidate for loans in the future, which can also be a con.

Cons to Reducing Obligations via a Home Equity Line of Credit

The biggest con to this transaction is that it encourages people to utilize their home as a means of paying for consumer items. The credit card debt would be a result of a variety of spending to include air fare, dining in fine restaurants, going to Starbucks for a cup of coffee, and even paying for one’s cell phone bill.

While it is one’s right to use their home’s equity, or any other part of their net worth, in the ways that please them, there may come a time when spending habits will exceed one’s ability to keep up with them. After all, much of a mortgage payment goes to interest, making the equity one gains comparable to a tortoise (paying down the mortgage) racing a hare (credit card spending) that may not stop to sleep on its way to the finish line.

Another con is having the same amount of debt, but just by another name, freeing up the credit cards to be used even more freely than before. Psychologically, this could lead to even more credit card spending, especially when one gets cash back rewards.

Overall, HELOCs are not the best way to go, but they should be considered before getting involved in a debt consolidation, and would be much more preferable to filing for bankruptcy.

4 May

Pay Off Loans Quicker to Reduce Personal Debt

Personal debt can quickly get out of hand if not carefully managed. It is important that people do not rack up too much personal debt, as it can easily destroy the chance of ever having a solid financial base. Personal debt normally has the highest interest rates and fees. If people take too long paying it back, the amount they have to pay back will be off the charts. It is important to pay back personal debt in a timely manner.

For example, someone is making payments on loan that is worth 5,000 and the annual percentage rate (APR) is 7.5 percent. It may only take 5 years to pay this off and the person is paying $100 a month. At the end of the 5 years, though, they have paid $1,011.38 in interest alone.

The interest at the end of the five years is up to twenty-percent. If the consumer would add just $50 a month to what they’re paying, then they will only have only paid $599.12 in interest at the end of that five years and the interest rate would be only 11 percent. By increasing their monthly payments just that little bit, they cut their interest payments and rate literally in half.

This shows that if someone has personal debt, they have to be very careful how they pay it off. If the same person paid it off in seven years their interest rate would be 28% and they would have paid $1,442.08 in interest. The longer a person takes to pay off these debts the more money companies get from them and the more money they waste.

Taking out a short term loan is another way of keeping payments down. When getting a short term personal loan, the company does not have as high of a risk factor. The lower the risk factor, the lower the interest rate will be.

If people pay as much as they can monthly, then they will make repayments at a much lower rate. This way, they also won’t end up having multiple loans out they end up needing to consolidate. There are many situations where there are debt consolidation benefits that can’t be ignored, but with proper planning consumers can ensure they don’t end up knee-deep in debt.

When consumers are looking at how much they can pay on their loan a month, they should try and budget as accurately as possible. Do not always go for the “lowest monthly payment option” because these payments have high interest rates and take a long time to pay off.

They should calculate everything in their budget and try to see how much they can put towards their personal loan. They want to pay the highest they can every month, because this will get it paid off more quickly and smoothly.

4 May

How to Stay Out of the Hole of Credit Card Debt

Credit cards are a convenient way to make purchases and dig ourselves into a hole that we cannot get out of. Learning how to use credit cards responsibly will save a lot of headaches and problem in the end. To begin with, do not use credit cards in everyday purchases. Yes, it does make things more convenient, but can lead you to a debt that you cannot afford. Using cash makes sure that you have the money and keeps you from falling into a hole of debt.

Another mistake often made by some, is making only the minimum payment necessary on the account. Over time, this leads to balances from interest and other purchases to accrue into a debt never expected. It is always wise to pay your bill in full or pay more than required.

For some reason, people get the idea that living on credit is ok. Well, it may be for the short term, but overtime the debt builds to an amount way above your head. Follow the rule that if cannot afford it, don’t buy it. The piece of plastic does not make it so you really are able to afford the item you want, it only makes it easier to get and put you in debt.

Many people have a tendency for splurging on their impulse to buy things they cannot afford, but to the credit card, they have. You should always give yourself the third degree, to why you need the item and of what use it will be. You need the ability to tell the difference between what you want and actually need when making this decision.

Some people don’t realize it, but their credit score is determined also by the amount of debt that you have. Cards with lower balances help to achieve a higher credit score. Generally, you should always have the aim of staying under 30% of your debt to credit. This will help balances stay low and increase your score over time.

If there comes a time, that you are unable to make a payment on time for any reason, you will end up with a late payment fee. Sometimes, calling to let them know that the payment will not be on time will help them to waive the fee. Overall, it is important to keep in mind the amount of serious debt you could encounter by irresponsible use of credit cards. Learn what behaviors you should adopt with using your card and this will help to keep you debt free.