Mend Your Credit by Rehabilitating a Defaulted Student Loan

Student loan

If you’ve defaulted on your student loans, you’re not alone. According to CNBC, more than 1 million people default on their student loans each year, and approximately 22% of student loan borrowers default at some time. But joining the crowd won’t help your credit or open opportunities for you in the future.

Here are some ways you can work to repair a federal student loan that you have defaulted on. For more details visit the Federal Student Aid Office’s website. If you have defaulted on a private student loan, you will need to contact your loan holder for information.

Repay the Loan in Full
The most obvious way to get your loan out of default is to pay it in full, but for most borrowers, that is not an option.

Loan Rehabilitation
To start the loan rehabilitation process, you must contact your loan holder. If you’re not sure who your loan holder is, log in to “My Federal Student Aid” to get your loan holder’s contact information.

To rehabilitate a William D. Ford Federal Direct Loan (Direct Loan) Program and Federal Family Education Loan (FFEL) Program loan, you must

  • agree in writing to make nine voluntary, reasonable, and affordable monthly payments (as determined by your loan holder) within 20 days of the due date,
  • and make all nine payments during a period of 10 consecutive months.

Your loan holder will determine a reasonable monthly payment amount that is equal to 15 percent of your annual discretionary income, divided by 12. You must provide documentation of your income to your loan holder in order to determine the amount you will pay.

If you can’t afford the initial monthly payment amount, you can ask your loan holder to calculate an alternative monthly payment based on the amount of your monthly income that remains after reasonable amounts for your monthly expenses have been subtracted. Depending on your individual circumstances, this alternative payment amount may be lower than the payment amount you were initially offered.

To rehabilitate your loan, you must choose one of the two payment amounts. Once you have made the required nine payments, your loans will no longer be in default.

To rehabilitate a defaulted Federal Perkins Loan, you must make a full monthly payment each month, within 20 days of the due date, for nine consecutive months. Your required monthly payment amount is determined by your loan holder. Find out where to go for information about your Perkins Loan.

Benefits of Loan Rehabilitation
When your loan is rehabilitated, the default status will be removed from your loan, and collection of payments through wage garnishment or Treasury offset will stop. You’ll regain eligibility for benefits that were available on the loan before you defaulted, such as deferment, forbearance, a choice of repayment plans, and loan forgiveness, and you’ll be eligible to receive federal student aid.

Also, the record of default on the rehabilitated loan will be removed from your credit history. However, your credit history will still show late payments that were reported by your loan holder before the loan went into default.

If you rehabilitate a defaulted loan and then default on that loan again, you can’t rehabilitate it a second time. Rehabilitation is a one-time opportunity.

Loan Consolidation
Consolidating your loan into one Direct Consolidation Loan allows you to pay off one or more federal student loans with a new consolidation loan.

To consolidate a defaulted federal student loan into a new Direct Consolidation Loan, you must either

• agree to repay the new Direct Consolidation Loan under an income-driven repayment plan, or
• make three consecutive, voluntary, on-time, full monthly payments on the defaulted loan before you consolidate it.

If you choose to make three payments on the defaulted loan before you consolidate it, the required payment amount will be determined by your loan holder but cannot be more than what is reasonable and affordable based on your total financial circumstances.

There are special considerations if you want to reconsolidate an existing Direct Consolidation Loan or Federal (FFEL) Consolidation Loan that is in default.

Getting Help with Your Defaulted Loan
If you need help with your defaulted loan, you will need to contact the holder of your defaulted loan. Find out who holds your loan by logging in to “My Federal Student Aid.

Why Do Home Loan Rates Move Up and Down?

Miniature House on A Blue Financial Graph

More now than in recent years, we are hearing the question: Why are home loan rates rising so much? 

The Federal Reserve monitors the U.S. economy and, when necessary, takes steps to address inflationary concerns to avoid economic recession. When the Fed discusses interest rates, it is primarily concerning the Fed Funds Rate, which is the rate banks use when lending money to each other overnight.

Home loan rates, on the other hand, are dictated by the trading of Mortgage Backed Securities (MBS), which are a type of Bond.

At the real heart of home loan rate movement is the dual relationship between Stocks and Bonds, as they compete for the same investment dollars on a daily basis. Inflationary pressures, economic conditions and geopolitical events all influence the direction of both Stocks and Bonds.

When economic reports are weak or disappointing, investors often move their money from riskier investments like Stocks into Bonds, which are considered safer. Since home loan rates are tied to Mortgage Bonds, this helps home loan rates improve.

In contrast, strong economic news often causes investors to move their money into Stocks to take advantage of any gains. This can cause Mortgage Bonds and home loan rates to worsen.

Inflation reduces the value of fixed investments like Bonds. This means that a low inflation environment tends to be good for Mortgage Bonds and home loan rates, while high inflation can cause both to worsen.

Political turmoil or economic crises around the world can also cause investors to move their money into the safety of the Bond markets, helping Mortgage Bonds and home loan rates improve.

If you are second-guessing whether now is a good time to purchase a new home, contact us. We’ll analyze your financial situation together and create a plan that’s right for you. And if you have friends or family members considering a home purchase or refinance, please share our information with them.

You Can Take Control of Some of What Affects Your Home Loan Interest Rate

House and Percentage Symbol

Interest rates are at the top of everyone’s minds right now, especially if you are in the market for a home. But your interest rate isn’t set in stone. Several factors play into the interest rate on your loan, and you are in control of a lot of what affects it. Here are some of the things that can affect the interest rate on your home loan. Let us know if we can help you determine what your home loan may look like.

1. Credit scores
Borrowers with higher credit scores generally receive lower interest rates than borrowers with lower credit scores. Lenders use your credit scores to predict how reliable you’ll be in paying your loan. Credit scores are calculated based on the information in your credit report, which shows information about your credit history, including your loans, credit cards, and payment history. If you’re considering buying a home now or later, check your credit score and do what you can to get it as high as possible.

2. Home location
Your home loan’s interest rate may be impacted by the in which you are purchasing. Part of this could be due to the health of the housing market in your state or county. If the housing market is healthy, the lender is less likely to risk default on the loan, so the interest rate may be lower.

3. Down payment
The more money you put down on your home, the lower your interest rate will likely be. You don’t have to put down 20 percent to get a loan, but if you do, you may get a better interest rate.

If you cannot put down 20 percent or more, you will be required to purchase private mortgage insurance (PMI). PMI protects the lender in the event a borrower stops paying the loan. The cost of PMI is added to the overall cost of your monthly mortgage loan payment. You may be offered a slightly lower interest rate with a down payment just under 20 percent, compared with one of 20 percent or higher. Why? You’re paying mortgage insurance, which lowers the risk for your lender.

When determining your down payment and subsequent interest rate, keep in mind the overall picture of what you are borrowing. The larger the down payment, the lower the overall cost to borrow. Getting a lower interest rate can save you money over time. But even if you find you get a slightly lower interest rate with a down payment less than 20 percent, your total cost to borrow will likely be greater since you’ll need to make the additional monthly mortgage insurance payments.

Look at the overall loan and payments, not just the interest rate, when getting a home loan.

4. Loan term
The term of your loan is how long you have to repay it. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments.

5. Interest rate type: fixed or adjustable
There are two general types of interest rates: fixed and adjustable. Fixed interest rates do not change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market.

Your initial interest rate may be lower with an adjustable-rate loan than with a fixed rate loan, but that rate might increase significantly at a later date.

6. Loan type
There are several broad types (categories) of mortgage loans, such as conventional, FHA, USDA, and VA loans, all of which have different eligibility requirements. Interest rates can be different depending on what loan type you choose. Your lender will discuss different options with you and will help you choose the right loan to keep you and your family financially secure.

7. Discount points
Points, or discount points, lower your interest rate in exchange for an upfront fee. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points may be a good option if you will keep the loan for a long time. There are also tax benefits for discount points for the purchase of your primary residence. Talk to your accountant or attorney about this.

Getting a home loan is about more than just the cost of the house or the interest rate. There’s a lot to understand, and it is our privilege to help you navigate the home buying process. Please contact us if we can answer any questions.

Protect Yourself from Identity Thieves with Free Credit Freezes

CreditFreeze

In the past, credit freezes have cost $5 to $10 in most states. Starting Friday, September 21, credit freezes are free. Take advantage of protecting your credit and your identity.

After the Equifax credit breach, we heard a lot about freezing credit as a way to protect ourselves from identity theft. By freezing your credit, you stop credit card companies, banks, and other lenders from accessing your credit records. When creditors cannot see a person’s credit report or credit score, they generally will not issue a new credit card.

By preventing creditors from accessing your credit report, you are taking a proactive step to stop identity thieves who apply for new accounts in your name.

However, when you freeze your credit, you also stop yourself out from getting a new credit card or loan, or opening a credit account in your name. In the past, freezing and unfreezing your credit could cost you a fee every time.

Starting September 21, if your credit is frozen, you will be able to unfreeze your credit reports at no charge, and then freeze your accounts again for your own protection.

To freeze your credit for free, contact each of the three major credit bureaus after Friday’s fee change.

Equifax
Experian
TransUnion

Want to take one more step to protect yourself? The Colorado Public Interest Group recommends requesting a freeze with the National Consumer Telecommunications and Utilities Exchange. The NCTUE issues credit reports for people applying for cell phones. This helps prevent a thief from opening a cell phone in your name as well.

Your credit counts whether you’re looking for a home mortgage or making any financial decisions. If you’d like to learn more about this email or mortgage loans, please contact me.

Universal Lending is Pleased to Announce that We Now Offer HELOCs

Couple relaxing in their home at night.
Universal Lending is pleased to announce that we now offer HELOCs (Home Equity Lines of Credit) through a new partner relationship. 
The equity in your home is the difference between the value of the property and the amount you owe your mortgage lender. A HELOC is an open line of credit that lets you borrow against the equity in your home.
HELOCs can be a “piggyback” or “stand-alone.” A piggyback HELOC closes simultaneously with a new purchase or refinance 1st mortgage. A stand-alone HELOC closes independently of an existing 1st mortgage.
Below are some potential benefits and uses for a HELOC.
A piggyback HELOC is a great way to:
  • Potentially avoid less favorable, higher balance loan programs
  • Potentially avoid mortgage insurance
  • Lower monthly payments on 1st mortgage
  • Eliminate stress of dropping mortgage insurance based on future property values
  • Put equity back in your pocket as you pay down the line of credit.
A stand-alone HELOC can be used for:
  • Debt consolidation
  • Home improvements
  • Recapturing funds used for down payment
  • Emergencies such as job loss or large, unanticipated expenses.
If you have any questions about HELOCs or if one can benefit you, please contact us today..

Saving for a Down Payment: Save More and Save Faster!

money-2724241_1280 (1)

Whether you’re planning to buy a house in a few months or not for a few years, you’re probably thinking about how you’ll save for a down payment or you’re already saving. No matter where you are in the process – or even if you’re already a homeowner and just want to save more – some reminders on how to save money are always appreciated. The biggest thing to remember is that saving takes time and discipline – and it means re-thinking your budget and maybe even earning additional money.

Remember: You may not need to put 20 percent down for your home. In fact, you may only need to put down 5 percent or 3.5 percent. Saving that amount will be a breeze! Your mortgage loan officer can share information with you about loan options and down payment assistance programs.

Get started saving today:

Transfer a fixed amount of money to savings automatically. Set up a savings account that has money automatically transferred into it each month, every two weeks or every week. Every time you get a paycheck, some of that money should be automatically deposited into this account – no questions asked. Your bank can set this up for you, but you have to be disciplined enough to not withdraw from the account!

Bank any extra unexpected income. Get a tax refund? Put it into the savings account. Get a gift of cash? Put it in the savings account. Bonus or large commission? Savings. If this adds up to hundreds or even thousands of extra dollars a year, good for you!

Lower your expenses. Get an antenna and get rid of cable. Stop buying fancy coffees and reduce your trips to restaurants. Lower your data plan on your phone. If you pay your own gas or electric bills, lower your heat in the winter and raise the temperature on your air conditioner in the summer by three degrees in each direction. Wherever you can make a small change, make a small change.

Monitor your online spending. With online shopping at your fingertips and online sellers that generously store your credit card for you, it’s easy to click and spend without even thinking about how much you’re spending or if you really need what you’re buying. Track this spending with an app or keep an old-fashioned spending ledger.

Shop your insurance. If it’s been a while since you checked rates for your car insurance, renter’s insurance, health insurance, look into those costs. You may be able to save hundreds or even thousands of dollars by making a few small changes.

Save your change! Save your pennies, nickels, dimes and quarters. Never spend your change. Get glass jar and start saving. When the jar is full, put the money in your savings account. This will add up fast!

Skip vacations for a year or two. Check out what’s happening in your community, your state and your neighboring states. If you can’t stand the idea of not going away for a year, plan a camping trip and borrow your friends’ equipment. Take the money you would have spent on vacation and add it to your savings account.

Sell things. You’re probably going to purge before you buy your home anyway, so why not sell some things now. That bike you never ride? The extra set of pots and pans you never use? What do you have that has value to someone else? Sell it on Craigslist, Facebook Marketplace, Ebay… wherever there is a buyer for what you want to sell. Put anything you make into your savings account.

Lose the high interest credit card debts. If you’re not paying off your credit cards each month, you’re probably paying a lot in interest. Pay off your credit cards and either stop using them all together or use them minimally. Paying credit card interest will seriously cut into your savings. If you simply cannot pay them off, transfer your balances to a card with the lowest possible interest rate.

Get a second job. Earnings money working a second job can help you save money a lot faster. Even if you’re bartending or waiting tables 10 hours a week, driving for a car service, pet sitting or working in retail, if you take every dime of what you make working a second job and put it into savings, you’ll see your money add up quickly.

Refinance your student loans. Do some research and see if you can get a better interest rate on your student loans. You just might be surprised at what you can save. Whatever money you do save with the lower payment goes into your savings account.

Celebrate your savings successes. Create a savings graph and put it somewhere that you see it. Add to it regularly – at the end of every week. The more you see your savings grow, the faster you’ll get to your down payment. And we think you’ll want to continue making saving something you do regularly.

Do you have savings tips you want to share? Add them to the comments below!

Decisions, decisions – FHA or Conventional Loan?

Piggy Bank and Scales of Justice - 3D Rendering

It’s easy to feel overwhelmed when you’re considering a home loan. The last thing you want to feel is conflicted and confused! We’re here to help. One of the questions we hear most often is “What is the difference between a conventional loan and an FHA loan?” Let us tell you.

FHA stands for Federal Housing Administration, which means that FHA loans are backed by the government. Originally, they were created to help make homeownership more accessible to buyers with damaged credit or minimal savings. Over time, they became popular across all income levels and especially with first time buyers.

Conventional loans are your “basic loan.” They must conform to specific guidelines, but they are not backed by the government. They also are very popular.

Both loans offer you flexibility in type (fixed rate vs adjustable rate) and term length (30 years or 15 years).

There are some key differences between the two loan types.

FHA vs Conventional Credit Guidelines

FHA Credit Score Requirements
FHA has lower credit score requirements. A credit score of 580 or over allows you to make a down payment of just 3.5%. If your score is between 500-579, and you need to put down at least 10%. Buyers with credit scores under 500 likely won’t be able to qualify.

Conventional Credit Score Requirements
Exact credit score numbers needed vary from lender to lender and are impacted by other factors, but as a “rule of thumb,” 620 is generally the lower limit of conventional credit requirements.

Down Payment Requirements
One of the biggest myths about mortgage loans is that you need to put 20% down to buy a home. There are options available to put as little as 3% down.

FHA Loan 3.5% Down Payment
With an FHA loan, you can put as little as 3.5% down. For many, this is the same amount as you’d put down for a rental deposit.

Conventional Loan 3% Down Payment
With a conventional home loan, you can go as low as 3% with the program’s “conventional 97 loan.”

Private Mortgage Insurance for FHA and Conventional
If you put less than 20% down using any loan except a VA loan, you must have private mortgage insurance. Private mortgage insurance (PMI) protects lenders in the event that borrowers with low equity default on their loans.

FHA Loans
FHA loans insurance is an upfront amount paid at closing, with a monthly mortgage insurance premium. To remove this, borrowers must refinance when they have 20% equity in their homes. 

Conventional Loan PMI
PMI is simple with conventional loans. Once you have 20% equity in your home, PMI drops off. You can get there by putting 20% down on the house for your down payment, or by paying PMI until you hit 20% equity with your monthly mortgage payments. Your lender is legally required to drop your PMI automatically at 22%, or per your request at 20%.

Income Requirements
Debt to Income (DTI) is the percentage of your gross monthly income that will go toward paying off debt Lenders use the following formula to work out this number:
monthly expenses ÷ pre-tax monthly income = DTI %

FHA Debt to Income Requirements
With FHA home loans, some lenders may offer a bit more flexibility if the borrower’s finances and credit are good.  However, you want to choose a lender who has your best financial picture in mind, so working with someone who wants you to get your DTI more in line is a positive factor for your long-term financial security.

Interest Rates
FHA loans tend to come with lower interest rates than conventional loans, likely due to the fact that FHA borrowers have historically been less likely to pay off their mortgage early than conventional borrowers. However, if interest rates are your only factor, the difference is usually negligible, and you can easily pay more in PMI during the life of the loan.

Property Eligibility for FHA and Conventional Loans

FHA Property Guidelines
FHA home loans are backed by the government and are designed to help families, so they place more restrictions on the type of house that qualifies.
• Must be occupied by the buyer
• Must be your primary residence
• Must be occupied within 60 days of closing
• Must be assessed for safety with an additional home inspection
• Must be under the capped lending amount

Conventional Mortgage Property Guidelines
Conventional loans have fewer restrictions. Second homes and investment properties both qualify, and don’t require special inspections.

They have a capped loan amount called the conforming loan limit, which your lender can share with you.

Conventional 97 Property Qualifiers
However, if you use a conventional 97 loan and put just 3% down, there are additional requirements:
• The property must be a one-unit, single family home, co-op, PUD, or condo
• The property will be the buyer’s primary residence
• The buyer (or one of the buyers) can’t have owned a house in the last 3 years
• The loan amount is at or under the capped amount

Which Mortgage Loan is Right for You?
There’s no definitive answer here. Your lender will help you to review your finances to determine your best choice. You may want to consider the following:

An FHA loan may be best if:
• You have lower or no credit
• You have a lot of debt
• You already have an FHA loan and want to refinance
• You don’t plan on staying in the home long enough to hit 20% equity
• You have a bankruptcy or foreclosure in your past

A conventional loan may be best if:
• You have fair to excellent credit
• You have a reasonably low DTI ratio
• You need to be able to make the smallest possible down payment
• You want to be able to dump PMI without having to refinance
• You’re buying an investment property or second home

Remember, this is just a guideline to these two loan types. At Universal Lending we work to educate and inform our borrowers so they make the best financial decisions possible to keep themselves and their families financially secure while enjoying the benefits of homeownership.