Up until not long ago mortgage rates used to be very low, close to the lowest they have ever been. Rates have decreased to near record lows due to the recent housing market crash, which affected both homeowners and mortgage lenders. While millions of people have lost their homes to foreclosure, lenders have also suffered losses and were forced to reduce the interest rates on mortgage loans. Even if interest rates were very low, few people could afford to buy a home until recently, when the economy has started to improve. With the economy improving, the housing market has started to recover, and homeowners are showing more and more interest in purchasing homes.

An improving economy means that the demand for homes increases, so interest rates also go up. Interest rates are still fairly low, but have increased significantly lately, and it looks like they are going to continue to do so. Home buyers who are waiting for mortgage rates to go down again may be waiting in vain, and should hurry up and make a purchase before rates go even higher. That doesn’t mean that you should go ahead and buy a home if your financial situation isn’t ideal for becoming a homeowner. Waiting might be a better choice, even if interest rates continue to rise. Buying a home when you are not ready can result in having to pay a larger down payment, less favorable terms, or even a higher interest rate.

What to Look at When Trying to Tell if Mortgage Rates Will Increase

Mortgage rates are very complicated, they depend on a variety of factors, and forecasting them is close to impossible. However, there are certain things that one can look at, in order to get an idea of where interest rates are going. When interest rates have been steadily increasing or decreasing for a longer period of time, predicting what will happen to them in the near future becomes easier, but it is never a hundred percent accurate. Here are some of the factors which can allow you to tell if current interest rates are going to continue to rise.

• Consumer demand. When there is very little demand, as it happened during the economic crisis, lenders are suffering and so they do their best to attract customers. By decreasing interest rates, mortgage loans become more attractive, so they get more customers. Currently, most industries are recovering, which means more and more people find jobs, so the demand for homes is rising. Like with any other market, the higher the demand, the higher the prices. The housing market is no exception, so it looks like, as long as the demand will keep rising, so will the interest rates.
• Availability. Even if the homes demand is high, the homes availability can slow down or put a stop to increasing interest rates. If homeowners are not selling, fewer homes become available. This means less new mortgages, so the interest rates go up. If more homeowners are selling, the availability increases, and interest rates go up.
• The economic health. When the economy is doing great, lenders see it as an opportunity to make more money, so interest rates are increased. A good economy means that people have more money to spend, so interest rates go higher. The United States economy keeps improving, so we will most likely see mortgage rates go even higher.
• The Federal Reserve. The Federal Reserve has a large influence over mortgage interest rates, among others. Besides controlling interest rates, the central bank also controls how much money each bank has and how much it can lend. When the bank reserves increase, interest rates go down in an effort to attract customers and stimulate spending. When Federal Reserve policy decreases bank reserves, interest rates are usually increased.

All these factors indicate that current interest rates will continue to rise. The economy is strengthening more and more as the time passes, people are finding jobs or need to move to a different area, so the demand for homes also increases. With the exception of some unforeseen incident, like a new war or economic collapse, the mortgage rates will most likely continue to increase for a while. Keeping an eye on the factors listed above will definitely help you tell if current mortgage rates will continue to rise or start going the other way.

One of the key aspects of finding a good mortgage loan is determining what type of mortgage term works out best for you. Long-term mortgage loans seem more attractive at first glance because the monthly payment is much smaller, but if you factor in the larger interest rate, you will quickly realize that a long term mortgage may not be as great as it seems. Short-term mortgages are not as popular as long-term ones, because the monthly payments are significantly larger. However, some of the benefits that a short-term mortgage brings can actually make it much more advantageous than a long-term mortgage.

Out of all short-term mortgages, the 10 year mortgages seem to be the most beneficial, but it is mostly geared towards those with a fairly large and steady income. Home buyers with lower incomes generally tend to lean towards a longer term, because monthly payments are reduced. However, that doesn’t mean that they will be paying less. Because the repayment period is much longer, people with long-term mortgages pay significantly more in interest. Not only they will have to pay interest for a longer period of time, but interest rates on long-term mortgages are higher by even 1 percent in some cases than interest rates on short-term mortgage loans. That may not seem like a significant difference at first, but that small difference accumulates to tens of thousands of dollars over the years.

The Advantages and Disadvantages of 10 Year Mortgage Loans

The most obvious advantage of a 10 year mortgage is that you pay it off much quicker than a long-term mortgage. But paying it off earlier means that you will have to pay much more each month, which is the largest disadvantage of a 10 year mortgage. 10 year mortgages are not as popular as 30 year and 15 year mortgages, but they are a great choice for those who want to pay off their mortgage quicker and can afford the larger monthly payment. Here are the most important benefits that this type of mortgage has.

• Lower interest rates. Interest rates on 10 year mortgages are lower than interest rates on 30 year mortgages and even significantly lower than those on 15 year mortgages, which are ones of the most popular ways of buying a home.
• Pay less interest. You will be paying less interest on a 10 year mortgage for two reasons. One, as mentioned above, you receive a lower rate than you would on a longer term mortgage, and two, you pay the already lower interest for a much shorter period of time than you would if you went with a 15 or 30 year mortgage.
• Build equity faster. Because payments are much larger and the repayment period is much shorter, you will build equity in your home quicker with a 10 year mortgage than you would with a long-term mortgage.

This type of mortgage has great advantages, but they are not for everyone. Here are a couple of the most important disadvantages of a 10 year mortgage.

• Larger monthly mortgage payments. Even with the lower interest rate, monthly payments on 10 year mortgage will be significantly higher than on longer term loans. This makes them a less advantageous choice for home buyers with lower incomes, or large monthly bills.
• Larger risk. When taking out a 10 year mortgage, you might be able to afford the monthly payment, but that can quickly change if you or your spouse lose your job or have an illness. This makes longer term mortgages a safer bet, but it all depends on how much you can afford to pay each month and how you plan on dealing with unforeseen events.

10 year mortgages sure come with many advantages, but you must be careful when making a decision regarding which mortgage to go with when purchasing a home or refinancing your current one. If you have done your homework, and conclude that a 10 year mortgage is your best option, then you will get to take advantage of all the benefits that such a mortgage loan has to offer, like a lower interest rate and the opportunity to build up equity in your home quicker.

The housing market has been recovering steadily lately, but the current government shutdown may interfere with that progress. For the first time in 17 years, the government has partially shut down. Besides other important implications, this shutdown could affect people who are looking to buy a home or refinance their current mortgage loan. Around 90 percent of all mortgages are government backed, but the loans that are purchased by Fannie Mae and Freddie Mac won’t be affected, because these two companies fund their operations with money from fees that they charge mortgage lenders.

Other popular government backed mortgages include loans offered by the United States Department of Veteran Affairs (VA), the United States Department of Agriculture (USDA) and the Federal Housing Administration (FHA). It seems that the loans offered to military personnel by the VA won’t be affected by the government shutdown. Loans offered by the FHA, which account for 45 percent of all mortgages issued in 2012, will be most affected during the government shutdown. The Department of Housing and Urban Development announced that they will stop processing mortgage loans insured by the FHA if the government shuts down, but they reconsidered their position a few days later.

How is a Government Shutdown Affecting the Housing Market?

Normally, a government shutdown means lower interest rates, so an increase in the number of new mortgages is expected, but this shutdown comes at a very bad time, because the construction industry and sales for new homes were just starting to recover faster. Here is how a government shutdown affects the housing industry and those who are planning on taking out a mortgage loan.

• Lower interest rates for mortgages. Interest rates have been increasing steadily lately because the economy is growing stronger, but a prolonged government shutdown can impact the economy in a negative way, so interest rates will most likely stop increasing, and even start going the other way. The longer the government shutdown lasts, the more will mortgage lenders decrease interest rates. However, it looks like, so far, the government shutdown had a smaller than expected impact on interest rates.
• The mortgage application process may be slowed down. When someone applies for a mortgage, the lender has to verify the borrower’s income by checking his or her tax returns. Because the Internal Revenue Service workers are not working due to the government being shut down, lenders will have a hard time checking a borrower’s financial situation, so his or her application process may be put on hold until the government resumes its activity.
• The housing market is weaker. Because many people employed by government agencies, such as the United States Housing and Urban development, are not working during a government shutdown, the housing market will face numerous difficulties. People who are in the market for a home or those who wish to refinance their mortgage could be unable to get their applications approved, so the number of home sales and mortgage refinances may decline.

How Will FHA Mortgages Be Affected

When the government shutdowns started to seem inevitable, the U.S. Department of Housing and Urban Development (HUD) announced that processing loan applications for FHA mortgages will be put on hold. In order to support the housing market, that position has been reversed, so applications for FHA mortgages will still be processed. However, only loan applications for single-family homes will be processed. Loan applications for condos will not be processed during the government shutdown.

As long as the government shutdown is brief, the U.S. Department of Housing and Urban Development does not expect the housing market to be significantly affected. Because the Federal Housing Administration (FHA) is also a government organization, it will probably be unable to process the loan applications at the usual rate, thus some home buyers might be affected by the slower than usual approval process. Other than that, FHA mortgages shouldn’t be affected too significantly by the government shutdown, as long as it doesn’t last for a very long while.

If you are a home buyer or a homeowner who is waiting for an FHA loan to buy a home or refinance a mortgage, the current government shutdown might make the approval process slower for you, or interfere with your ability to get the loan. Most government employees are not working during the government shutdown, making it harder for lenders to check your financial situation, and for your loan to be approved.

There are many reasons for having a bad credit score, and you might be wondering if you are still able to buy a home, despite your shortcomings. The truth is that there are no rules set in stone when it comes to bad credit home loans. Some lenders may be more lenient than others and, not only you will be able to get a mortgage loan with a bad credit, but you have the possibility of getting good interest rates, as well (Read: 5 Tips for Great Mortgage Rates).

However, having good credit will always be significantly more advantageous. Good credit allows you to receive a good interest rate, have the possibility of making a lower down payment, pay less in fees, and have much more loan options. If you find a lender that is willing to give you a mortgage loan if you have bad credit, you will have to pay a larger interest rate, make a larger down payment, and you will have just a few loan options.

How Credit Scores Affect Mortgage Interest Rates

Finding a lender willing to give you a loan is difficult, but not impossible, when you have a bad credit score. However, the lender which agrees to approve your loan application takes on a large risk, so your interest rate will be higher. For example, if your credit score is in the 600 to 640 range, your interest rate will be 1.6 percent higher than the interest rate that people with higher credit scores will have to pay. The lower your credit score is, the more you will have to pay in interest. A credit score of 500 attracts an interest rate increase of 3.8 percent over the normal rate.

Those whose credit scores are under 500 will have to pay a much higher interest rate, and will not qualify for a 90 percent loan, but only for a 65 percent loan, meaning that they will have to make a 35 percent down payment. If your credit score is much lower than what is considered good, you might want to take a while and try to improve it. That seemingly small difference in interest means thousands and tens of thousands of dollars out of your pocket.

Getting a Bad Credit Home Loan

Getting a home loan when you have bad credit might prove to be a challenge and, even if you find a lender who is willing to give you the loan, the interest rate and down payment will be much higher than if you had a better credit score. Waiting a couple of years and trying to repair your credit might be a better choice than getting a bad credit home loan, but if that is not an option, then here is what you need to know before applying for a mortgage loan.

• Check your credit report. Get a credit report from each of the three major credit agencies. Sometimes, the info on your credit report might be inaccurate, which will significantly hurt your score. Try to find any errors on your credit report and have them corrected.
• Find your loan-to-value ratio. Find out the ratio between the amount that you wish to borrow and the value of the property. This is called the loan-to-value ratio, or LTV.
• Find your debt-to-income ratio. The debt-to-income ratio is determined by dividing the total of all your monthly debt by your monthly income. Your debt-to-income ratio should be 40 percent or less to increase your chances of receiving the mortgage loan.
• Try to repair your credit. If you have any open credit card accounts, try to pay them off on time. Also, try to pay off any other debt that you might have. As you’ve read earlier in this article, even a small difference in credit score can help you qualify for a lower interest rate, which will bring significant savings.

Before applying for a bad credit home loan, make sure that you weigh in your options, find out if it is possible to hang on for a while, and get the loan when your financial situation has improved. Getting a bad credit home loan is possible, but the terms of the loan and the current interest rate will be much less favorable than if you took out a mortgage loan with a good or excellent credit score.

When buying a home with a mortgage loan, both you and your lender own parts of the home. The part of the home that you own is represented by the equity which builds up each time you make a payment. Having equity in your home allows you to take out a house equity loan by using the equity as collateral. Home equity loans can be used for a variety of things, from financing a home improvement project to paying for college tuition.

Home equity loans come in two categories. The home equity loan (HEL), which allows you to borrow the money as a lump sum, and the home equity line of credit (HELOC), which allows you to use the borrowed money the same way you would use a credit card, meaning you only take out money when you need it.

What is a Home Equity Loan (HEL)?

A home equity loan allows you to take out usually up to 80 percent of the equity in your home as a lump sum, which can be used to make repairs or improvements to your home, or pay large bills such as medical or college bills. The home equity loan is a secured loan for an amount which is predetermined.

Home equity loans are considered second mortgages and are very similar to conventional loans. They feature a fixed interest rate and the borrower starts repaying the loan immediately after receiving the money. This type of home equity loan is very advantageous because the monthly payment stays the same until the loan is repaid. Interest rates on home equity loans are higher than the ones on conventional mortgage loans, but usually lower than the ones on other types of loans. The interest rates are also higher than the initial rate on a home equity line of credit, but it remains the same, while the one on a HELOC can increase.

The interest on a home equity loan is usually tax-deductible, but there are exceptions. You should always have that confirmed by a tax consultant before taking out a home equity loan. Other types of loans may be more accessible and cheaper if you are unable to deduct the interest rate on a home equity loan.

What is a Home Equity Line of Credit (HELOC)?

A home equity line of credit gives you the opportunity of having a credit up to a predetermined amount. This type of loan is much like a credit card, where the lender puts a limit on potential spending. Unlike a credit card, the home equity line of credit is a secured debt, where the borrower’s home is used as collateral. The home equity line of credit offers more advantageous interest rates than credit cards, but borrowers risk losing their homes if they stop making payments.

On a home equity line of credit the borrower doesn’t owe any money and interest until he or she actually spends money. This makes them ideal for homeowners who plan on making home improvements or repairs several months down the line. The interest rate on a home equity line of credit fluctuates, making them somewhat risky for those who don’t plan for an interest rate increase. The interest rate on this type of home equity loan is also tax-deductible, making it even more advantageous than opening a new credit card account.

Why Choose One Over the Other?

You can use both types of home equity loans to finance several things: a home improvement, repairs, finance your children’s college education, or even take an expensive trip. Another great use for these types of loans is consolidating debt. Because they have tax-deductible interest and interest rates lower than other forms of borrowing, you can use them to get rid of other debt with a higher interest and cost.

Most of the time, though, people use home equity loans and home equity lines of credit for home improvements. Improving your home not only makes it more comfortable, but it also increases its value. Home equity loans are generally used if you need the whole amount at once, for example for buying a new roof, while home equity lines of credit are better if you have ongoing expenses.

Also, because a home equity loan has a fixed interest rate, it gives you more peace of mind, since you know how much you will be paying each month. Home equity lines of credit have an initial fixed rate period, but the interest rate can fluctuate significantly afterwards.

Both home equity loans and home equity lines of credit are very helpful for homeowners who wish to tap into their home equity to get some cash, instead of having to open a new credit card account or take out more expensive loans. The two types of loans differ in several aspects, but you must remember that they both require you to use your home as collateral, so knowing how they work, what the differences between them are, and what other options you have is very important.

Home equity loans are designed to help homeowners gain quick access to some much needed cash by tapping into the equity in their homes. Home equity loans provide an alternative to taking out other types of loans or opening new credit card accounts. While other forms of borrowing may come with high interest rates and stricter qualification requirements, home equity loans have fairly low interest rates and are easier to qualify for. Because the homeowner’s home is used as collateral when taking out a home equity loan, lenders are more likely to give out this type of loan than any other.

However, getting a home equity loan is not as easy as it may seem. Home equity loans are often considered second mortgages because they are tied to the original mortgage that the borrower has. In case the home that is used as collateral goes into foreclosure and is eventually sold by the lender that gave out the first mortgage, the lender for the home equity loan only receives money after the first mortgage is paid off. Many times, the proceeds from selling a foreclosed home aren’t enough to pay for the first mortgage, and the home equity loan lender ends up losing a lot of money.

The higher risk for lenders means that, even though you use the equity in your home as collateral for the home equity loan, the requirements will still be fairly strict. By only approving homeowners who are a lesser risk, lenders try to minimize their own risk of giving out a loan to someone who might default on their mortgage or home equity loan.

Home Equity Loan Requirements

There are several requirements that you have to meet when trying to get qualified for a home equity loan. Knowing what they are can make the loan application process much easier for you and your lender and can help you avoid any unpleasant surprises. Here are the most important requirements for a home equity loan:

• The equity in your home. In order to qualify for a home equity loan, you must have equity built up in your home. The more equity you have, the bigger home equity loan you can get, but only up to a maximum of 80 percent of the equity in your home.
• Your credit score. Like most loans, a home equity loan has a credit score requirement. While some lenders will approve borrowers with a lower credit score, the minimum score for most home equity loans is around 650. Unfortunately, the loan terms and interest rate may be much higher for those with lower credit scores.
• Your income. Your lender will require proof of your employment and an income history before giving you a home equity loan. This will include information about your employer, how long you have been employed and what your income is. Self-employed borrowers will have to provide additional documentation such as invoices, bank statements, and contracts with their clients.
• Your debt-to-income ratio. Your debt-to-income ratio should be in an acceptable range in order to qualify for a home equity loan. Your debt-to-income ratio is the lender’s method of evaluating how you can handle a new debt.
• Your home’s appraised value. Lenders can only determine how much money you can qualify for if they know the value of your home. Your home’s value will be determined by hiring a professional home appraiser, who will analyze the market value, the condition of the property, and the location in order to find out how much your home is worth.

House equity loans, like most loans, have requirements that may or may not help you get a better interest rate or terms. If you qualify for a home equity loan, you should do your best to improve your financial situation in order to get the best interest rate and payment terms. Not all lenders are created equal, so shopping around for lenders and comparing their offers is always recommended. A home equity loan can help you make improvements or repairs to your home, or pay large bills, but before you consider taking out this type of loan, you must make sure that you meet the home equity loan requirements.

Home equity loans allow homeowners to take out a loan using the equity accumulated in their home as collateral. Home equity loans give you quick access to money that can be used for a home remodeling project, medical bills or college tuition. A home equity loan can be more advantageous than opening a new credit card account or even taking out other types of loans. However, your home is probably your largest asset, so using it as collateral must be done carefully because, while taking out a home equity loan has great benefits over other types of loans, it is also risky.

Types of Home Equity Loans

There are two types of home equity loans: the home equity line of credit (HELOC) and the home equity loan (HEL), both of which are taken out against the equity in your home. A home equity loan features a fixed-rate interest rate, and is paid out in the form of a lump sum of money, which will be repaid during an agreed upon period of time. This type of home equity loan is a good choice for those who need a large amount of money at once, for paying medical or college bills, or for home renovations.

A home equity line of credit is a more flexible alternative, where the money is received as a line of credit, much like a credit card, but with a lower interest rate. Home equity lines of credit have an adjustable interest-rate, which changes every month, making them a riskier choice than home equity loans. With this type of home equity loan, you can make interest only payments until the draw period is over, but the disadvantage is that you won’t build any more equity in your home.

Both types of loans normally allow you to take out up to 80 percent of the equity in your home. Both these loans are also considered second mortgages because they are connected to your primary mortgage. Lenders risk more with home equity loans because, in case of a foreclosure, the primary mortgage is paid off first from the proceeds of selling the property.

Pros of Home Equity Loans

Home equity loans have several advantages over other forms of borrowing. Here are the most important pros that home equity loans and home equity lines of credit have:

• Easier to apply. Compared to regular loan, applying and getting approved for a home equity loan or home equity line of credit is much quicker, especially if you have a good credit score and a good relationship with your lender.
• The interest is tax-deductible. Having a tax-deductible interest makes home equity loans a much better option than credit cards and a good alternative to other types of loans.
• Low interest rates than credit cards. Another reason to choose a home equity loan over a new credit card is the lower interest rate. Rates might not be as low as rates on traditional loans, but they are much lower than the rates offered by credit cards.
• Access to a large amount of money. If you have a significant amount of equity in your home, taking out a home equity loan gives you quick access to a large amount of money that can be used for a number of things such as paying medical bills or making improvements to your home.

Cons of Home Equity Loans

Home equity loans are a good option for most homeowners who need some cash, but they are not for everyone. Here are some of the cons of home equity loans:

• You can end up owing more on your loan. If the house market tanks and the value of your home decreases, you can end up owing money on your loan even after you sell the home.
• You can lose your home. Not being able to make the payments on your home equity loan will result in foreclosure, so be careful when taking out this type of loan because you can end up losing your home.

Having access to money without having to sacrifice your investments or retirement accounts sounds good, but it doesn’t come without risk. While home equity loans are very advantageous for those who can afford them, they also can be very risky for those who don’t have enough knowledge about these types of loans. Before taking out a home equity loan, make sure that you understand all its pros and cons and how they will affect you.

Getting a home equity loan with poor credit is more difficult, but not impossible. Before you decide to make improvements to your home or decide that you need some quick cash, you need to find out if a lender is willing to give you a home improvement loan and how your loan will be affected by your bad credit score. There is no exact rule when it comes to which credit scores are accepted and which are not.

The bottom line is that, because you are using the equity in your home as collateral, you are more likely to qualify for a home equity loan than for a traditional loan or a credit card if you have a low credit score. This is especially true for homeowners who have built a large amount of equity in their homes.

What is a Home Equity Loan?

Home equity loans allow homeowners to borrow cash against the equity in their homes. The longer you have paid for your mortgage, the more equity you will have, therefore being able to borrow more. Typically, lenders allow borrowers to take out a maximum of 80 percent of their home equity in a home equity loan. Home equity loans can be used to finance a home renovation project, pay for school tuition or medical bills.

Because you use your home, which is probably your largest asset, as collateral when taking out a home equity loan, your interest rates will be much lower than interest rates on credit cards, or even other loans. This makes home equity loans a good choice when it comes to borrowing money, if you have enough equity built in your home. Your home equity loan will also most likely have a tax-deductible interest, making it even more attractive than credit cards or other types of loans, such as a car loan.

Home equity loans can be taken out as a lump sum or as a line of credit similar to how a credit card works, but with lower interest rates. However, home equity loans are also risky because they are affected by how the housing market fluctuates. If home prices decrease dramatically, you lose home equity and risk having to repay the home equity loan even if you sell the home.

Getting a Home Equity Loan With Bad Credit

When trying to get a home equity loan with a bad credit score, you need to find out what caused your low credit score and keep in mind that failure to repay a home equity loan may result in losing your home. Carefully analyzing your financial habits and setting a budget is very important when trying to avoid these kinds of problems. Also, in order to get a home equity loan, you should follow these steps:

• Get a credit report. Find out what your credit score is and what your credit report shows by getting a copy. You are entitled to one free credit report per year, so this shouldn’t even cost you anything. Knowing what your credit score is will help you in your search for a lender, and avoid unpleasant surprises and wasting time. Try to find any errors on your credit report and have them corrected.
• Improve your credit score. Assuming you are not in a hurry to get a home equity loan, you should do your best to improve your credit score. Besides correcting errors on your credit report, you should stop making the same mistakes that got you into debt. Try paying off some of your credit card debt and improve your debt-to-income ratio.
• Figure out how much you will be able to borrow. Because your credit is bad, you should keep in mind that you will get higher interest rates on your home equity loan. Keeping the interest rate in mind, try to find out how much you can borrow without having difficulty paying it back. Also, remember that you can only borrow up to 80 percent of the equity in your home.
• Shop around for a lender. All lenders will give you a higher interest rate than they would give to a person with good credit, but that doesn’t mean you shouldn’t shop around. Even a very small difference in interest rate can make a large difference in your pocket over time. Apply with several lenders and be prepared to provide documentation regarding your credit score, income and debt.

Home equity loans with a bad credit are possible, but before committing to any type of loan, you should explore your options and decide what works best for you. Keep in mind that, even if a home equity loan will be granted to you much easier than other types of loans when you have a bad credit, it will have a larger interest rate, and you will essentially use your home as a collateral. If you have decided that an equity loan on your home is the right choice, a little discipline and research will ensure that you have access to the equity in your home without encountering any issues.