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With the recent release of the FICO 08 by Fair Isaac, consumers seem to be unsure as to how this new credit system and modified credit scoring system is going to affect their credit scores. FICO 08, which replaces its predecessor, the traditional FICO, is all set to change the credit scoring system. While the new method of credit scoring has brought with certain boons for consumers, there are also a few hazards attached to the new system.

FICO 08Credit Score System For Credit Cards

With the new FICO 08, if your credit card issuer slashes your credit card balance, this could affect your credit score. Recently it has become a norm with credit card issuers to slash balances of accounts that are not being used and are not profit generating.  This in turn reduces the difference between your overall limit and the amount of credit used. It is a known fact that the higher the difference between the two, the better the impact on your credit scoring, and the smaller the difference the worse the impact. FICO experts are of the opinion that the reduction of balance of one single account will not hamper your credit score, however, if several accounts start to get reduced, then that may be a cause of worry, as you may see a decline in your credit score.

Benefits of New Credit Rating System For Consumers

While the new FICO 08 credit scoring system is set to usher in new changes to credit scoring, there are a few victories for the consumers as well:

• Accounts In Collections: The new credit scoring system is set to be less harsh on consumers who have small unpaid amounts which are less than $100. While the previous FICO credit system was fairly harsh on these small collection amounts like unpaid parking tickets, small medical bills or library fines etc., the new scoring system introduced by Fair Isaac is set to make life a little easier for consumers.

• Major Credit Issues: FICO 08 apparently is not as penalising as it’s predecessor, when it comes down to consumers having repossession or charge-off against their name. The only criteria however is that all the current accounts of the clients should be up to date and in good standing.

• Authorised-Users: As you may already know, adding an authorised user to an individual’s credit card is a widely accepted way of being able to improve the other person’s credit score. While this has been widely exploited by credit repair companies, Fair Isaac have decided that that is no longer going to be the norm. While speculation still exists as to the outcome, it is believed that only a limited number of authorized users will be allowed on an account and after that point any further users will be disregarded.

There are some of the changes that consumers can expect with the introduction of the new FICO 08 credit scoring system by Fair Isaac.  While the three credit bureaus are introducing the new credit scoring system differently it will interesting to see as to what are the changes of the new credit scoring system on individual credit scores.

References:

1. New threads to credit scores – MSN Money
2. FICO credit system to change in 2009 – Credit.com
3. Bureaus Roll Out New Credit Score Formula for 2009 – All Financial Matters

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Consumers are of the opinion that once that after filing bankruptcy, it spells the end of the road for them. This however is not true. There is life after bankruptcy and it can be full of the same if not similar opportunities prior to filing for bankruptcy. [...]

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Consumers often get caught out with having numerous credit cards prior to applying for new credit. Even if the credit cards have not been used and have no outstanding credit balance on them, they can still be extremely detrimental to your overall loan servicing capacity and your credit score. In a tight credit environment such as the one we are currently experiencing, credit card consolidation seems to be the answer.

Credit Card Consolidation Program: What Is It?

In essence as the name suggests credit card consolidation is having all your credit cards with their balance rolled into one finance facility. In other words, you consolidate credit cards into one card or loan much like the debt consolidation plans we discussed previously. Consumers usually use credit card debt consolidation in order to either get a lower rate than the existing credit interest rate which they are paying on their credit cards or to fix in their existing credit card rate at a level at which they feel comfortable. In certain cases a credit card consolidation program can also be very useful if you are struggling to keep up with the minimum payments on various credit cards and would rather just make one larger repayment.

Credit Card Consolidation Help

There are a number of ways to consolidate credit cards. Some of the methods for credit card consolidation help are listed below:

• Principle Increase On Your Home Loan: In certain cases if you have unused or lazy equity in your owner occupied or investment property, you can get your mortgage provider or bank to do a principal increase for you. In this case they will revalue your property and will increase the mortgage loan amount based on the valuation. It is often best to extend the loan up to 80% of the property value in order to avoid any Loan Mortgage Insurance Implications (LMI). With the surplus drawn out funds, you can pay out your credit cards and successfully consolidate credit cards. In this credit card consolidation program, the new debt is just added to your existing home loan balance and your repayments increase slightly. This form of credit card debt consolidation is beneficial in the sense that it allows you to pay off your debt over the life of your loan and at a much lower interest rate.
• One Credit Card: If this is your chosen method of credit card debt consolidation, you must approach any one of your credit card companies and ask them to consolidate your other credit cards. Your existing credit card company, after assessing your application and if you are approved will increase your existing credit card limit. This will allow you to pay out all your other outstanding credit cards and thereby just have one credit card with a larger outstanding balance. However remember to understand the terms and conditions of the increase and also make sure that you are comfortable with the new rate of interest and the minimum payments of your credit card debt consolidation loan.
• Credit Card Consolidation Loan: Nowadays it has become very common for financial institutions to issue clients credit card consolidation loans. These loans are issued with the purpose of enabling consumers to pay off their credit card debts. These loans operate much the same as a personal loan. However consumer might want to note that the interest charged on these credit card consolidation loans is lower than that previously charged on your credit cards.
• Credit Card Consolidation Programs: In case you are unsure about what your course of action should be to consolidate credit cards, approach your bank or financial institution and talk to them about their credit card consolidation programs, if any. These credit card debt consolidation programs are designed to take into consideration your personal circumstances and create a credit card consolidation plan based on that. These programs help reduce your interest repayments and consequently pay off your credit cards.

As we have seen, credit card consolidation has its own advantages. However, prior to considering credit card consolidation it is advisable that clients seek financial advice and take into consideration their own circumstances.

References:

1. Knee Deep in Debt – Federal Trade Commission

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Consumers who like to manage their mortgage loan efficiently and like to have the freedom to draw down used equity or surplus funds in their home loan account, might just find that a line of credit mortgage product is just for them.

Definition: Line Of Credit

A line of credit is popularly referred to as an LOC. This is probably one of the most popular forms of revolving credit, second only to credit cards. In the formal sense the definition of line of credit is a credit contact between a client and the financial institution whereby the client can readily access funds as if it were their own savings account. Interest on lines of credit is only charged on the used portion of the loan. In other words if the total limit of the line of credit is $500,000 and the consumer has only used $300,000 then the interest will only be levied on the $300,000 and not the full loan amount like a normal standard variable home loan/mortgage. This is quite advantageous owing to the fact that if you have been making larger repayments into your mortgage, in effect over time you will be reducing your interest repayments as you are constantly reducing your Line Of Credit outstanding balance.

Common Uses Of A Home Equity Line Of Credit

Being as versatile as they are a home equity line of credit can be used for a variety of purposes. Some common uses of lines of credit are:

1. Managing your home loan better
2. Using the available redraw in your line of credit to make investments.
3. Using the surplus available in your LOC for repairs, improvements and payment of bills around the house.
4. To meet unexpected and urgent expenses.
5. Consumers at times use the surplus/redraw available in their LOCs to pay for holidays etc. This is owing to the fact that the interest rate on an LOC is much lower than credit cards and in addtion not only do you get a much longer term to pay of the amount (over your home loan period) but you also do not have to tap into your savings.

Pros & Cons Of A Home Equity Line Of Credit

The following are a few advantages of a line of credit loan:

• You always have easy access to the money as it is sitting in your home loan account and you do not need to go though the process of applying for a new loan etc.
• LOCs give you the ease of making a single repayment for several bills, as you are only paying off your line of credit or mortgage account.
• The interest rates on a line of credit are much lower and expenses paid of your redraw can be paid back over the course of your mortgage.
• As long as consumes are cautious that they do not exceed the limit on their LOCs the can keep drawing down on the funds.

As is the case with all good things line of credit loans aren’t free from a few flaws either. Some of them are as follows:

• The interest rates on LOCs are open to fluctuations and as a result of that you might find your repayments varying with interest rate changes.
• In case of a residential loan for a main/principle residence consumers must ensure that over the course of the loan the principal component of the line of credit is reduced.
• Sometimes having a lot of credit/redraw available might lead to clients developing a habit of overspending.

Home Equity Loan Line Of Credit & Your Credit Report

A line of credit loan can be very beneficial for your credit report. If you have successfully managed to pay down you outstanding balance with larger and timely repayments, this stands you in good stead with the credit reporting agencies like Experian, Equifax and Transunion. Moreover if you have a large limit on your line of credit and are only using a portion of it with a decent amount unused, this will also help boost your FICO score.

Hence as we have discussed that a line of credit can be a very powerful tool to help you manage not only your home loan better but will also help you manage a lot of your own personal finances. It is however essential that consumers evaluate their situations before getting a mortgage product as this is a matter of personal choice. Lines of credit are powerful financial tools designed to give consumers the advantage and freedom of managing their finances and credit effectively.

References:

1. What is the Advantage of a Secure Line of Credit? – All Business

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If you thought that your credit score only affected your borrowing capacity and future credit contracts, then it might be time to rethink that misconception. In today’s fast changing financial market structure, insurance companies too are keeping an eye on your credit score as highlighted when we discussed auto insurance. Simply put, the home insurance premiums that you pay could be directly related to your credit score or credit report.

Consumer Ratings For Home Owners Insurance

Although it is extremely controversial, but an increasing number of home insurance companies are taking individual credit scores into consideration before deciding on whether or not to issue a home insurance policy contract in the first place. In addition, your home owners insurance premiums are indirectly proportional to your credit score. Stated plainly, the lower your FICO score the higher the homeowner’s insurance premiums and vice versa. In addition to this, factors such as age of the property, prior losses and type of construction are also taken into account.

In order to create and factor in credit score to suit the home insurance ratings, one of the following is used

• Fair, Isaacs & Co, Three digit credit score   OR
• A home insurance score is ordered via FICO.  OR
• Homeowner’s Insurance companies infuse their own underwriting criteria into the evaluation and take into account the FICO credit or insurance score.

It might be noteworthy that unlike your regular FICO score which is concerned with how much of new credit you can take on, home insurance policy scores on the other hand are concerned with your debt management capacity. Hence it is concerned with the time factor of how long you have been successfully managing your debt.

Home Insure Options : What Can Consumers Do

It should be mentioned that once your home insure application is declined, it does not mean that it is the end of the road. There are home insurance options available to consumers in these circumstances.  A few possible alternatives are listed below:

• Obtain Your Credit Report: Get your credit report and check for any credit report errors that might have crept in. If you find these take them up with the appropriate credit bureau and re-approach your home insurance company.
• Ask for Full Disclosure: Speak to your home insurance policy agent and ask them to advise you as to which tier you fall under. This will give you a fair idea of the kind of premium you might have to pay. An agent is required to give you full disclosure if asked these questions.
• Shop Around: Not all homeowner’s insurance companies out there use the credit report scoring system. There are companies which do not pay attention to your credit report when deciding your home insurance premiums. It is about finding the right home insurance policy company to suit your needs.
• Pay Down Short Term Credit: If you find yourself in a situation where you have no option then it might be a good idea to start paying off your credit card debt and small and short term loans to boost your credit score. Once you have done this reapproach your home insurance company and request them to reassess your home insurance application.

Homeowner’s insurance is extremely important in this day and age. Hence it is extremely essential that consumers make the right choice with their home insurance policy. Bear in mind that not all home insurance companies consider credit scores while deciding on premiums or applications. It is all about finding the right insurer to fit your needs.

References:

1. Guess Who’s Looking at Your Credit Report – Smart Money, The Wall Street Journal
2. How credit scores affect insurance rates – Bankrate

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Certain consumers are unaware of the fact but there exists an inverse relation between your auto insurance premiums and your credit score. Simply put, the better your credit report the lower your vehicle auto insurance premiums and the worse your credit report the higher your premiums on automobile insurance. This might come as a surprise to you but nowadays motor vehicle insurance companies are paying more attention to an individual’s credit score than his/her driving record or type of car owned or where the car ranks on the list of most stolen cars. Auto insurance companies have adopted the practice of penalizing individuals with poor credit reports by, in certain cases, charging them up to 3 times as much the personal vehicle insurance premiums as their counterparts with better credit reports would pay.

Relationship Between Auto Car Insurance Premiums And Credit Report

Primarily it needs to be stated that not all auto car insurance companies determine the auto insurance premiums of an individual in conjunction with their credit reports. Big names in the insurance field like GEICO and Allstate in addition o others have adopted this practice. It is not known to the public as to what calculations or formulas are incorporated by automobile insurance companies while calculating the vehicle auto insurance premiums applicable to individuals. While motor vehicle insurance companies are extremely secretive about this, it might be interesting to know the rationale behind linking auto insurance premiums to an individual’s credit report. Vehicle auto insurance companies which have adopted the fore mentioned practice are of the opinion that an individual with a good credit report is under less stress and hence is a lesser threat on the road and a more unlikely candidate to meet with an accident. However individuals with poor credit reports seem to be under pressure and are not only a greater threat to themselves but are also a threat on the road. In addition to this they also pose the threat of not meeting their regular auto insurance premium commitments.

Vehicle Insurance Policy Options

In the event that you find yourself in a situation where the vehicle insurance policy quotes for your automobile are much higher than expected, do not panic, you do have a few options.

• Firstly, speak to your auto insurance agent and inquire as to which Tier you are on. It is mandatory for your agent to disclose this information to you if asked.

• If you find that your credit report is affecting your vehicle auto insurance quotes by and large, try and pay down short term credit like credit cards, personal loans or even vehicle loans to improve your credit score and thereby obtain a lower automobile insurance quote. It might also be a good idea to get your credit report to see if there are any more credit report errors that might have crept in.

• Please note that not all motor vehicle insurers charge you premiums based on your credit score. Shop around to gauge which is the better option. You just have to find the right insurer who does not pay as much attention to your credit report as some of the others.

Considering the fact that auto Insurance is necessary in this day and age, consumers should try and evaluate their options before settling in on an automobile insurance quote. Be careful that your vehicle auto insurance premiums are not inflated owing to your credit report. If this is the case, look for insurers (and there are insurers out there) who do not focus as much on credit reports as their larger counterparts. This might be the difference between you paying an acceptable motor vehicle insurance premium and you being grossly overcharged and penalized for your credit report.

References:

1. Can Your Credit Score Affect Your Automobile Insurance Rates? – Credit Report Advice
2. What is Insurance Credit Scoring? – Insurance Scored

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With the increase of identity theft virtual credit cards are becoming more popular each day however they must be distinguished from the prepaid credit cards we have previously discussed. Virtual prepaid cards not only help save you from identity fraud but can also help you protect your spending habits and thereby from hampering your credit report. These internet credit cards are created specifically for online purchases. However it might be advisable to enquire with your bank how their virtual credit cards work (if they issue them). In today’s fast paced e-commerce world, where consumers and sellers are miles apart, prepaid virtual credit cards might be the answer to making safe and risk free purchase over the World Wide Web.

Prepaid Virtual Credit Card: Definition

A prepaid virtual credit card, as the name suggests is virtual hence no real plastic card is issued. Most banks issue them. All you need to do is log on to your internet banking and apply for a virtual credit card and fill out the corresponding details. While applying select your limit based on the amount you are looking to shopping online. It is essential to remember that these internet credit cards usually expire within 24 hours and hence it is advisable to use them as soon as they are issued.

Once you have applied for the virtual prepaid card you will be issued with a 16 digit card number and a CVV2 number coupled with an expiry date. These cards are normally accepted at all online merchant stores who accept Visa or MasterCard.

Features of Virtual Bank Cards

Listed below are some of the features of virtual bank cards:

• Virtual credit cards usually have a fixed spending amount and this is directly proportional to the limit that you selected while applying for the same.
• An internet credit card usually has an expiration time of about 24 hours and they are usually issued with temporary PIN numbers.
• Consumers can use both debit and credit cards to create virtual prepaid cards from their bank accounts.
• If after usage, your virtual bank card has any balance left on it the amount is transferred back to your bank account.

Advantages Of Virtual Credit Card On Internet

• Protection Against Identity Theft: Virtual credit cards on internet are a great way to protect yourself against identity theft while purchasing goods online. Owing to the fact that these cards predetermined spending limits and set expiration dates it a safer way to purchase online and you can be rest assured that in the event of identity theft the amount lost will be refunded by your Credit Card Company or bank any way. This is usually listed in the terms and conditions of your contract.
• Immediate Availability: These virtual credit cards are almost immediately available for use. There is very little or no wait time between applying for the cards and being able to use it.
• No Impact On Your Credit Report: Virtual prepaid cards have absolutely no impact on your credit report unlike a real credit card and does not create massive credit card debt. These are also a good way to keep a check on your spending as they can be used over and can be refilled. Prepaid virtual credit cards offer the freedom of a credit card without the impact of a real credit card balance on your credit report.

Disadvantages Of Prepaid Virtual Credit Cards

• 24 Hour Expiry: The first distinct disadvantage of a virtual credit card is that they usually expire within 24 hours and hence it is advisable to use them as soon as they are issued.
• Spending Limit: Most banks while issuing prepaid virtual credit cards place spending limits on them. This is done to not only protect the consumer in case of fraud but to also protect the bank as in the event of fraud or identity theft the banks are liable to refund the customer.
• Delay In Dispatch Of Goods: Another drawback of virtual prepaid cards is that until the payment made by a virtual card does not clear or hit the merchant’s account he does not dispatch the goods. This could result in a delay in consumers getting their goods.

Virtual credit cards are beneficial for consumers afraid of identity theft or for sending online. Prepaid virtual credit cards are safer, easier and is hassle free with the added protection of indemnity in the event of fraud or identity theft, not to mention the advantage of not having any impact on your credit report.

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With the rising costs of tuition fees a higher education student loan might be the only way to invest in your future. However if these college student loans are not managed efficiently and your student loan debt is not paid back promptly it can negatively impact your credit report. There are a variety of student loans available, but it is up to the consumer to decide which is best suited to their circumstances.

College Education Loan: How Do They Work

Higher education student loans are, as is obvious from the name, a way to pay for your higher education. No matter what your circumstances, college student loans can be the light at the end of the tunnel when there is no other way out. In order to get a college education student loan, clients need to fill out what is called an FAFSA (Free Application For Federal Student Aid) form and submit it with the possibility of correcting any details later. Students should then aim to visit their respective school’s student centers and try and gauge the kind of assistance they might be capable of getting.

Nowadays Perkin Loans are very popular owing to their lower interest rates.  As long as students are enrolled at least at a part-time status they can defer the repayments on their student loan debt.  Once students graduate they enter what is known as a “grace period”. This is generally 6-12 months long and allows students the time to find employment. Once this is over, the repayments on the college student loan (the principal plus the capitalized interest) comes due. At times, when consumers experience tremendous financial difficulty they can temporarily defer paying student loans without hampering their credit reports.

The Student Loan Types

The student loan can be of various different types, each designed to serve a specific purpose. A student must choose their higher education loan depending on their needs.

• The College Student Loans Made Directly To Students (Federal): These higher education loans are quite similar to the ones described above. As long as the student is enrolled at least in part-time status the student loan debt repayments do not come due. However, if the student falls below part-time status they enter the grace period which can be waived once they enroll again as part-time at least. In the event the student falls below the part-time status again the grace period cannot be re-instated and repayments for the college student loan are due.

• The Student Loans To Parents (Federal): These loans are directly made out to parents. However the interest rates on these college student loans are much higher and the repayments fall due immediately.

• The Private Student Loans: These higher education loans are usually used as supplements to federal student loans owing to the fact that the federal loans are sometimes insufficient to cover all expenses. These loans usually have higher limits and the student loan debt repayments are deferred until after graduation.

Paying Student Loan: Impact On Your Credit Report

Student loans are usually one the first credit agreements people enter into. It is essential that this credit contract is managed efficiently or else it can hamper your overall credit score and it can be default to improve your credit score after these defaults. Irregularities on paying student loans will sit on your credit report for as long as 7 years in certain cases, hence it is of utmost importance that consumers try and repay student loan debt as soon as possible and in a timely manner. Below a few tips to help you manage the student loan better:

1. Pay Off Your Loan: It is in the best interest of consumers to pay off their college student loans as soon as possible. This creates good repayment history and at the same time boosts your credit score.
2. Interest Payments: In the event that you have a non-federal higher education student loan, ensure that you are making the interest payments regularly. Your expenses schedule should include all these expenses and your interest payments should be a part of your calculations.
3. The Grace Period: If you have been able to find a job before the expiry of the grace period, accumulate a fair sum of money and deposit a large amount into your college student loan. This will help you stay on top of your student loan debt repayments and ensure that you do not fall behind.
4. Defaulting is Not An Option: For those who are wondering what the consequences on defaulting on a college student loan are, the answer is an unequivocal “severe”. Even in the event of filing for bankruptcy, college student loans are usually still required to be paid. Moreover bankruptcy will sit on your credit report for a period of 10 years and will put your FICO score behind by about 240-280 points and this is always a matter of public record. If you have defaulted on your student loan debt, prepare for a barrage of collection agencies hounding you. In certain cases your employer may use part of your salary to pay off these college student loans and also use your taxation refunds for the same purpose.

Now that we have established the effects student loans can have on our credit report, consumers should be careful while managing this credit contract. It is always best to shop around and look for option that suits you best. Essentially you should factor your college student loan repayments into your expenses and make sure that you work with the view to paying it off as quickly and as smoothly as possible. These few simple steps should ensure that you have a blemish free, goodcredit report.

References:

1. Ensuring Continued Access to Student Loans – Federal Student Aid
2. New changes will do you good if you have student loans -USA Today

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More and more consumers nowadays are looking for debt settlement services as an option for debt consolidation. It is essential that consumers understand the process that is debt settlement and the impact it can have on your credit report. Debt settlements essentially involve negotiating with creditors and third parties, a part of the total debt obligation owed to them. In essence creditors are paid a part of the total debt in exchange for them foregoing a larger portion. This however is a last resort option prior to filing for bankruptcy and creditors would rather recover a part of the debt than nothing at all.

Debt Settlement Negotiation: How It Works

It has been observed that nearly one-third of the 1.5 million bankruptcies that were reported last ear were on recent credit. Historically it has been noted that certain consumers live off credit. They borrow from one creditor to pay the other. This of course is a flawed process as it eventually comes unstuck. The debt settlement negotiation process can take as little as one year or might last up to three years. The process for debt settlement involves informing your creditors that you are dealing with a debt settlement company and that all debt settlement negotiations must flow though that channel. There is also a wait owing to the fact that creditors need to make up their minds with regard to whether or not they will accept the offer.

During this time consumers are needed to sign a contract with the Debt Settlement service giving them “Limited Power Of Attorney” to act on your behalf. Typically, during the process for debt settlement you will need to deposit funds, on a monthly basis into a “settlement account” and this is used to meet creditor obligations.

Debt Settlement Company: Advantages of Debt Settlement Negotiation

If your debt is spiraling out of control, you probably need to employ a debt settlement company for debt settlement purposes. Listed below are few advantages of debt settlement:

• With debt settlement, the entire debt can be satisfied without actually paying the entire amount.
• Debt settlement usually absolves you of any adverse comments on your credit report.
• Debts which have been resolved through the debt settlement process with a debt settlement service are no longer subject o collection agencies or legal actions.

Debt Settlement Negotiation: Disadvantages

While debt settlement negotiation has its upside, the process for debt settlement has certain negative aspects too. The flip side of debt settlement is as follows:

• Debts which have been settled by using a debt settlement service appear as settled debt on your credit report as opposed to being paid in full.
• In certain situations collectors may on sell the remainder of the debt owed by you to another collection agency if you do not have something in writing from the previous collection agency.
• Usually any savings on the debt owed is considered as revenue and is reported to the IRS.
• Only if consumers have a negative networth can they avoid taxation. Collection agencies must submit a 1099-C form to the IRS for any debt forgiven which is over $600

Debt Settlement Negotation: Impact On Your Credit Report

It is a fact that you will experience a bit of a negative impact on your credit report with a debt settlement negotiation service. However it must be kept in mind that this is far better than having to declare yourself bankrupt and facing the long term implications of a negatively impacted credit report. Typically with debt settlement or a Third Party Assisted (TPA) debt settlement service, you can get rid of your debt obligations in as much as 36 months. On the other hand if you were to declare yourself bankrupt you would not only negatively impact your credit score by about 240-280 points but would also have a public record of your bankruptcy and would have it sit on your credit report for over 7 years.

Hence it is essential that consumers understand fully the implications of a debt settlement service and their importance as a credit repair service. While debt settlement has a number of advantages it also has a down side. Before making a decision consumers should seek legal advice as to the best option available and suited to their current situation. It is of essence that consumers take the necessary precautions to ensure that they maintain a healthy credit report as far as possible.

References:

1. High-fee debt settlement – Consumer Reports
2. Debt Settlement – Debt Consolidation Care

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In recent times, streamline refinances are gaining a lot of ground and are increasingly beind used to avoid home foreclosures in USA. A refinance streamline mortgage is extremely beneficial because not only does it not require a complete credit report or an appraisal but it can also refinance any Federal Housing Administration (FHA) loan which has decent repayment and mortgage history. A streamline refinance is quick and hassle free and requires minimal documentation. It is however a rule of the FHA that the repayments on the new streamline FHA refinance must be lower than those of the existing loan. Consumers must bear in mind that it is in their best interest to see an FHA credit officer or lender to discuss your mortgage loan and the possibility of streamlining it.

FHA Loan Refinance Streamline Program

In most FHA loan refinance streamline programs, no underwriting is required owing to the fact that the loan balance is not increasing. However if the loan balance does increase underwriting will be needed and the HUD (Department of Housing and Urban Development) will be required to submit repayment history for 12 months. Streamline FHA refinances allow for individuals to be added to the loan without a review of their credit report. However in the event that you are looking to take someone off the loan, consumers might need to get the loan re-assessed.

Standard FHA streamline refinance requirements are listed below:

• There should be no cash taken out via the streamline refinance.
• There is usually no income or asset verification.
• The mortgage loan being refinanced must be insured by the FHA.
• The borrower’s repayment history must be current and up to date.
• The payments for the refinance streamline mortgage must be less than the existing mortgage unless the balance is increasing.
• In order to qualify, the borrowing party should own the property in question and must have had it for at least 6 months.
• The new refinanced streamline mortgage will have a term of 30 years or the remainder of the existing mortgage term plus another 12 years.
• A complete credit report is not required and there is very little underwriting that is required as well.
• It is mandatory that the client has not defaulted on any form of federal or government debt.

VA Streamline Refinance Program

IRRL (interest rate reduction loan) is another common name for the VA streamline refinance program loans. Most credit analysts regard this as one of the best loan products on the market as it is easy to qualify for and is designed for people serving active duty and for veterans with existing VA loans. This streamline refinance allows service members to get a lower rate and it is easy to qualify for. As long as the borrowers do not have more than 1 thirty day late payment on their credit report they can qualify for the VA streamline refinance. Just as streamline FHA refinance loans, these too do not require credit or income qualification and are quite easy to enter.

Feature of the VA streamline refinance include:

• There are no transaction costs involved in the VA streamline refinance loan.
• There is no income, job or asset verification.
• No credit qualification required.
• Borrowers are allowed to skip up to 2 payments
• The borrower’s existing loan must be a VA loan.
• Although no cash out is allowed with the loan, up to $6,000 in energy efficient improvements are allowed to be included with the loan.

A loan refinance has always been an alternative to bankruptcy and as you can see both FHA and VA streamline refinances are financial tools that can help borrowers get on top of their mortgages. With no credit qualification and minimal underwriting these loans are not only easy to qualify for but are also beneficial as they ensure that the interest rates are lower than the existing mortgage and so are the repayments. These refinance streamline mortgage loans will help consumers and service people get back in front of their existing mortgages and allow them to rebuild or maintain healthy credit reports.

References:

1. Home Loan Guaranty Services – United States Department of Veteran Affairs
2. Streamline your FHA Mortgage – U.S. Department of Housing and Urban Devlopment

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