How to avoid foreclosure?

Foreclosure is the worst nightmare for a home owner. IF you are stuck in a foreclosure mess, you can avoid it or you can prevent the worst happening. There are some steps which can help you during a foreclosure.

• Most important step to take is to contact your lender. Make your lender aware of your situation. Don't neglect the problem. The more you avoid, the worst it will get. Your lender don't want your home, they just need their money so they can help you out with financing options.

• You should understand your rights during this situation and what your lender can do. You should read all the mortgage conditions properly and can also contact state government office for further information as different states have different laws. Learn as much as you can about foreclosure prevention. You can also contact lawyers for further help.
  

• You can contact HUD approved counselors for help. They are experienced government officials who can help you out in understanding the laws in your state and and will help you in recognizing available options. They can also deal with the lender if you need help.

• Spend your money wisely. You should avoid spending money on unnecessary things. Your main priority should be paying your mortgage payments. You should also use your assets wisely. You should understand what you can sell to raise your cash.
  

Applying for $8,000 tax credit

• Single buyers should have an income less than $95,000 and married buyers should have an income less than $170,000 to be eligible. For full tax credit single buyers should have an income less than $75,000 and married buyers should have an income less than $150,000. Others can apply for reduced tax credit.

• Tax credit incentive is for first time home buyers only. People who have not owned a primary residence for the past 3 years are also considered as first time home buyers.

• 10% of the purchasing amount of the home is provided as credit which cannot exceed $8,000. This money can be used for down payment for buying a home.

• All types of homes including single family homes, condominium units and also manufactured homes are eligible but they should be used for primary residence.

• Closing date should be after January 1, 2009 and before December 1, 2009 to be eligible for full tax credit.

Recapture Tax

Many benefits are provided to first time homebuyer and who apply for FHA financing for buying a home. These benefits include loans on low interest rates and also funds for down payment assistance. These programs are governed by Federal laws. There is "recapture" tax to pay if the borrower meets the following conditions:

• Borrower sells the property within nine years of ownership.
  
• There is a net profit on the sale of the property.
  
• There is a increase (5% per year) in the income of the borrower.
  

But, the borrower don't have to pay the recapture tax if,

• the property is sold after nine years of ownership.
• there is no profit by selling the property.
  
• no increase in the salary of the borrower.
  
• the house is destroyed by any natural calamity.
  
• transfer of property to the spouse or ex-spouse as an agreement of divorce.

Buying a home after bankruptcy

Buying a home after filing bankruptcy is quite difficult. It affects your ability to take a loan in the coming months and sometimes in years but if you take proper steps then you can purchase a home after 18-24 months of filing bankruptcy. You have to wait until your bankruptcy case has been decided.

After bankruptcy, the most important step to take is to rebuild your credit scores. You must keep your credit scores perfect after bankruptcy and should have a steady job. Keeping credit scores perfect for nearly two years will bring back the faith of lenders in you. You have to prove to lenders that you can be trusted on paying back the money you owe. For this, you can apply for "installment loans" which can include student loan, car loan etc. and the only thing you have to do is pay your installments on time.

After improving your credit scores, you can go for FHA home loans as FHA requirements are flexible.

• two years have passed since bankruptcy have been discharged.
• three years have passed since a foreclosure
• all the judgments have been paid.

Your first home loan after a bankruptcy may be available to you on higher interest rates but if you can manage large down payment then, you can get loan at low interest rates.

Common misconceptions about reverse mortgage

# 1: Lender owns your home - False

This is the biggest misconception about reverse mortgage. Borrower owns the home as long as the home is their primary residence. Borrower's need to pay back the loan, when they leave the home.

# 2: Borrower can end up owing more than the value of the home - false

One of the biggest advantage of reverse mortgage is that the borrower can never owe more than the home's value even if the borrower has borrowed more than the value of the home.

# 3: Borrower's home must be debt free - false

It is not necessary that your home must be debt free or there can't be any mortgage on the home. Borrowers can go for reverse mortgage as long as the debt can be paid with some part or all of the funds of the reverse mortgage.

# 4: There are restrictions on the use of money obtained from reverse mortgage - false

There are no restrictions on the use of the funds. You can use the funds for a holiday, paying your debts, paying college fees of your children, anything.

Importance of FHA home inspection

Every home buyer should go for a FHA home inspection. When you want to buy a home, you want the home to be in proper condition. You don't want to face any problems in future or spend thousands of dollars in repair works. Getting a home inspection from a trained expert before buying a home is an intelligent step.

A home inspector will evaluate all the physical conditions of the home including construction, structure and mechanical systems. A inspector will also evaluate the working of major equipments (plumbing, air conditioning, electrical etc.) Inspector will provide the buyer with the detailed information about the home and any repair works that are needed in the home.

One thing home buyers should understand is that the home inspector will not evaluate the value of your home. Home inspection is different from an appraisal. Appraisal provides you with the estimated value of the home which is required by the lender before your FHA loan approval so that you don't borrow more than the value of the home.

FHA loans vs. Conventional loans

FHA loans have many benefits when compared to conventional loans. There are many benefits for the borrower and also for the lender as FHA loans are less riskier for the lenders as the loans are insured by FHA.

• Down Payment: For FHA loans only 3% down payment is required, while for a conventional loan minimum of 5% down payment is required and it can go up to 15%.

• Credit Scores: For conventional loans you require perfect credit scores while credit score is not an issue if you are applying for a FHA loan.

• Monthly Mortgage payments: It is less in FHA loans as compared to conventional loans.

• Property standards: FHA has certain property standards while conventional loans don't have any property standards. FHA Homes should be inspected properly and should be perfect for living.

Also, you can apply for a FHA mortgage loan after two years in case of a foreclosure and after three years in case of a bankruptcy.