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Great News! The Financial Choice Act is Expected to Reverse the Wall Street Regulations on Payday Advance

The House Financial Services Committee conducted hearings on the Financial Choice Act at the start of the month. This Act is a 500+ page bill introduced by the US Representative, Jeb Hensarling (TX-5) who chairs the Committee and is a supporter of the free markets. He wanted to free the small banks, payday advance providers and other credit unions of America from the limitations of Dodd-Frank since Trump thought of running for office. Democrats have been prudent of Hensarling including Sen. Elizabeth Warren who is of the opinion that the bill is a ‘handout to Wall Street’.

The reality is that the financial regulatory system at present is not functioning. Rep. Hensarling said that the consumers need to be protected and not just from Wall Street, but also from Washington. He has taken to address issues, such as debit card coverage fees, bank stress testing and bank bailouts in the Financial Choice Act. The objective of this bill is to create opportunity and hope for consumers, investors and entrepreneurs. The heart of the matter is to create a stable, resilient financial system that offers economic opportunity for Americans. The excessive regulatory restrictions placed by Dodd-Frank have resulted in a system that limits access to capital and credit for the small guys. Small banks have been burdened with a lot of regulations and confusion that have resulted in limiting their ability to provide loans to small businesses.

The Financial Choice Act is symbolic of the things that are missing from Dodd-Frank including how to increase bank lending and the number of financial choices available for the small players who have been hurt by the scandals at the financial institutions on Wall Street. The House of Financial Services Committee voted 34-26 to disassemble some of the elements of the Dodd-Frank regulation.

Tension have been created among Republicans due to some of the elements of the Financial Choice Act and most notably the Durbin amendment that set a cap on the debit-credit transaction fees. Hensarling is hopeful about removing that cap and has realized that more discussion is needed. The average leverage ratio that is levied by banks is another topic of debate. He has predicted that if some of the largest Wall Street organizations want to be exempted from regulations on dividend and capital payouts, they will have to raise hundred billion dollars in new equity.

According to the bill by Hensarling, it offers a off-ramp from the regulatory regime of Dodd-Frank. It requires that various conditions under which a stress test is conducted be open to the public and given significant period for comments. It is unsure whether this bill will bust or boom for the biggest bankers at Wall Street, but the bill will free the banks from the numerous regulations if they bump up their leverage ratios.

Anil Kashyap and Douglas Diamond are 2 scholars from the University of Chicago’s Booth School of Business who have studied and analyzed the financial crises. Douglas noted that there is a renowned paradox about regulating liquidity. He said that the point about having liquidity around is that if consumers draw money out, there is no loss when assets are unloaded. It is kept as a buffer against withdrawals. However, Douglas said that there is a problem because when people are required o hold liquidity since it cannot be utilized to meet the withdrawals, it cannot be used. In most cases it might seem like a contradiction, but Douglas and Kashyap have shown that there are cases where it is not a contradiction. There are cases where the point of holding the right amount of liquidity is to provide the bank with an incentive to hold the amount of liquidity in excess to the amount needed.

The academic community has not supported the argument that making banks more liquid put them in a more stable position in times of crisis. According to Douglas, there is not a consensus in the academic community that says there is a need to regulate liquidity. So, this places Hensarling’s bill as something based on hope.

However, the Financial choice Act looks forward to promoting economic growth and provide more financial freedom to small businesses with an aim to empower Americans over Washington bureaucrats. Diamond said that the thought of regulating the payday advance industry was unnecessary to begin with.

The Truth about Payday Loans Online

Florida’s congressional body of delegates is in an intermittent cross-party accord regarding a major topic. Regrettably, it is the mistaken position. The topic is the Consumer Financial Protection Bureau‘s strategy to adjust payday loans and other similar financial products like payday loans online. Subsequently, 7% of the citizens of Florida have to confine to this voracious procedure of small-dollar advances, approximately the highest number in the country. The state’s body of delegates must support the call for reform. Instead of doing so, the Democrats and Republicans are supporting the businesses.

The topic has raised many eyebrows in South Florida lately. This is majorly down to the fact that Tim Canova – the man who is set to challenge the United States, Representative Debbie Wasserman Schultz of Weston in the Democratic, has disapproved the obligation for her backing of House Resolution 4018. It would not only result in the postponement federal regulatory reform for 2 years, it could also end up preventing federal regulatory reform in states such as Florida that have formed regulations for payday moneylenders. As per the to Center for Responsive Politics, Wasserman Schultz has been presented with an amount of 68,000 U.S. dollars in aids from payday moneylenders.

Representative Dennis Ross who is a Lakeland Republican, funded HR 4018, but Wasserman Schultz registered as a co-sponsor, sharing the responsibility. He was joined by Representative Patrick Murphy of Jupiter. Rep. Murphy is in the running for the U.S. Senate Democratic primary. They were joined by Representative David Jolly of Indian Shores. He is in the running for the Republican Senate primary.

Joining this group of co-sponsors were Democrat Corrine Brown of Jacksonville. Her present ward comprises of parts of Central Florida. She was also joined by Republican Bill Posey of Rockledge. Fifty percent of the twenty-four sponsors or co-sponsors are from Florida. Several have been presented with aids from payday moneylenders. Their disagreement with federal regulatory reform is based on the highly untrue principle that Florida’s 2001 parameter is satisfactory.

Here is the system of payday money lending in a nutshell. People who take Payday advances get a small amount of cash as a loan. Needless to say, this amount needs to be reimbursed. The reimbursement is cut from the customer’s upcoming paycheck. The moneylender not only guarantees the repayment by doing so, he or she charges excessively high rates of interest. If we analyze the customer base of these moneylenders, it is quite evident that most of these customers lead their lives on monthly paychecks. They depend on one paycheck at a time I order to meet with their daily necessities. Payday moneylenders are specifically noticeable in neighborhoods that have a lot of minority populations. Ghettos, localities with high crime rates and poverty are usually the ones where this practice is most noticeable. Another community which suffers from financial instability is the community of retired army men. These soldiers come back from war and find it hard to get a job that makes them financially stable. Military representatives have protested that payday moneylenders have been targeting the country’s soldiers and ex-marines.

Payday moneylenders have recognized the fact that a major share of their earnings comes from customers who are unable to repay their initial debt, only to end up borrowing more money to pay off their earlier debts. Even in payday loans online this trend can be seen. Critics call it getting stuck in a sequence of debt. An unbreakable cycle of sorts. 83% of customers who took one payday loan in Florida took it more than seven times. This is a scary prospect for the economy and a terrible way to lead a life.

Some Payday Advance Lenders now Offering Installment Loans

For years now the payday advance lending industry has been under fire. Government agencies, consumer advocate groups and the news media have made no bones about their disdain for payday advance loans. The Consumer Financial Protection Bureau, in particular, has been on a mission to literally cripple the lending companies that provide payday loans.

Operation Choke Point was put into action by the federal government a few years ago, and helped to successfully limit payday advance lending companies access to essential banking services. New rules from NACHA have made it difficult for payday advance loan providers to use the automated clearing house system for payment processing. The CFPB has managed to introduce proposed rules that could lower the volume of payday advance loans by up to 85 percent.

With all of the pressure that has been on payday advance lending companies, it is easy to understand why these lending companies have begun adding installment loans to their available services. An installment loan is typically for more money than the standard payday loan, but allows consumers to space out their payments over a longer period of time. Since advocate groups and government agencies seem less interested in vilifying installment loans, one can easily understand why payday advance lending companies have decided to start offering these types of loans to their customers.

Differences between Payday Advance Loans and Installment Loans

Any payday lending company owner who is considering offering installment loans should be aware of key differences between standard payday advance cash loans and larger, longer-term loans. Failing to differentiate between these types of loans, while using the same strategies that lenders typically use for payday advance loans could result in less than stellar results.

Payday advance cash lending companies may be used to hardly ever having to deny loans to their customers. However, installment loans are typically given for amounts ranging from $1,000 to $10,0000. Factor in that most installment loans can run for terms between one and four years, and it becomes crystal clear that the average payday advance loan customer may not be the ideal candidate to take out an installment loan.

It should also be stressed that the interest charged on installment loans is often somewhere around 36 percent. Most installment loan borrowers, like most payday advance loan borrowers, have less than perfect credit. These consumers know that they will usually have to pay more for loan fees and interest rates because of their subprime credit scores. Still, though, a person who simply needs $300 for an emergency car repair is likely not going to want to take out a substantially larger installment loan that will take years to pay back.

It all really comes down to the fact that payday advance lenders will need to change their mentality with regards to wanting to push installment loans on every one of their customers. Many repeat payday advance cash borrowers simply will not be interested in installment loans. Others may not be able to even get approved for one of these loans.

While installment loans can help to bolster payday advance lending companies that are feeling pressure right now, it is vital for lenders to consider the differences between the financial products they are used to offering and installment loans. Like anything else in the financial world, the devil is in the details, and lenders would be wise to become very familiar with installment loans and develop new policies and procedures to effectively offer installment loans to their customers. With a smart plan in place, there is no reason that payday lenders cannot successfully add installment loans to their regular rotation of available financial products.

A Payday Loan Commentary: Why Banning Short Term Loans is not the right Solution

There is no shortage of government organizations, individuals or consumer advocate groups that seem to have it out for payday loans. These folks will go out of their way to tell people about how much they hate payday loans and other short term consumer loans. They’ll even say that ‘everyone’ hates them, without taking into consideration the 10 to 12 million people who take out these loans every year. We should not be surprised to find out that the Consumer Financial Protection Bureau is on a mission to destroy the payday lending industry.

What is not getting brought up in discussions about the CFPB’s new payday lending regulations, however, is the fact that this country was not founded upon, nor has it prospered because of banning things that some people may not like. This is not a hallmark of a free society or one that has faith in the free market. We may feel that some industries are harmful, or even distasteful, but that doesn’t mean that we usurp the rights of our fellow Americans to do business with these industries. It’s one thing to make laws that ban pollution, but it’s a whole different ball of wax to take away consumers’ rights to get access to short term lines of credit, regardless of how one might personally feel about the payday lending industry.

If plans go through to make the new rules from the CFPB official, those new rules would effectively gut the payday lending industry. But where does the justification for these actions come from? There is no hard evidence of anyone getting ripped off by payday lenders, even though they charge fees for their services. The fact of the matter is that payday lenders, even if some people perceive their loan fees to be too expensive, are not raking in a larger return on their capital than any other companies that are doing business in the consumer financial industry.

It is expensive for payday lenders to make the loans that they provide. And since a lot of people wish to take out these loans, those borrowers must pay for the services they receive in such a way to allow the lending companies to remain in business. So what? Do we ban mansions because they are so expensive? Do we eliminate the luxury automobile market because their cars cost what we believe to be “too much”? We are free to think that people are crazy for forking out a ton of money for these types of luxuries, but that does not give us the right to ban these industries or cry out for regulations that would make it impossible for the companies that sell these types of things to exist.

The only way to really handle these types of situations is to let competition do its thing. Opponents of payday loans and other short term, alternative financial products may not like the fact that we still operate under free market principles, but we do. Banning loans that people need desperately is not a solution. Allowing competition to arise from within the market and from other sources is the best way to ensure that consumers have choices and that they can get the best perceived value for the money they spend on loan fees.

Whether you are a conservative, liberal or somewhere in the middle, you have to agree that big government has no business in over-regulating a viable, legitimate industry to the point that it is impossible for said industry to remain in business. Doing so is unfair, it ignores the real needs of millions of American consumers and is no way to treat the people who rely on these types of loans when they are in need of emergency funds for unexpected expenses.

It Has Begun: The Great Payday Loan Battle has started

The war that will be waged over new payday loan rules and regulations has finally commenced. Supporters of the new regulations believe that the rules will protect lower-income borrowers, while those opposed to the regulations are convinced that they would reduce access to credit; these are concerned parties that are now threatening a lawsuit.

The battle over the ideology behind the new regulations started when the Consumer Financial Protection Bureau (CFPB) released a plan that detailed how they would start to require providers of payday loans, title loans and other smaller-dollar cash advance lenders to be certain of a borrower’s ability to repay their loans.

The CFPB’s plan is open to public scrutiny and comment until September 14. It would prevent lenders from making repeated debit withdrawal attempts on the accounts of people who were late in making payments (some have complained that the fees associated with these tactics tacks on additional fees to the original loans. The CFPB has also started an official inquiry into open ended small dollar loans and the methods that lenders utilize in some cases to seize vehicles, wages or other property from borrowers who do not make their loan payments on time.

The proposal comes with a very influential backer – the POTUS himself, President Obama. He made remarks in a March speech to state that every payday lender should, “… first make sure that the borrower can afford to pay it back.”

The man at the center of this entire scenario is the Director of the CFPB, Richard Cordray. During a recent hearing in Kansas City, Mo., Cordray said, “We have made clear our view that the credit products marketed to these consumers should help them, not hurt them. And our research has shown that too many of these loans trap borrowers in debt they cannot afford.

Cassandra Gould is a representative for an organization called Missouri Faith Voices. She tends to agree with Cordray’s statement. She was at the recent hearing and told of someone she knew of who received a payday loan to cover car repairs. Apparently, this person could not repay the loan in full a couple of weeks later. According to the statement Gould gave, the lender then debited this person’s bank account over a dozen times in one day; kicking off what Gould said was a spiral of debt that led to the person getting kicked out of her apartment. Gould said, “The debt trap is more like a death trap.”

On the other side of the fence, we have those who are starkly opposed to the proposed regulation that the CFP has put on the table. Representatives from the payday lending industry say that making lenders assess someone’s ability to repay a loan would drastically increase business expenses. Of course, this would likely lead to some companies pulling out of the payday lending industry, and may very well lead to consumers being reduced to getting money from loan sharks or other lenders that are completely unregulated.

The new rule may cut off or drastically reduce access to credit to nearly 30 percent of the country’s population. Financial times are difficult enough for people these days, especially those from lower income households. Taking away the only financial resource that many of these people can rely on in times of need is certainly not a smart move on anyone’s part. The CFPB seems dead-set on pushing this legislation through. However, with Obama soon leaving office, and people hoping to see real change in this country in the future, there is no telling if the CFPB will be able to convince enough of the right people that there new regulations actually make sense for the people of this country.

Is Filing for Bankruptcy the Right Choice or do you have other Options?

Navigating through life is really all about doing your best to make sound decisions. This is true of your personal life, your professional life and your finances. Sometimes, even with the best of intentions, you have to make tough decisions. When those times come around, you need assurance to make sure that you choose wisely. This is very true for people who are facing serious financial difficulties. When you have to decide whether you should get drastic and file for bankruptcy, or deciding on a more viable, realistic option, it is not always easy to tell if you are making the right choice. It is smart, when making any kind of a choice, to get as much information on the matter at hand as possible. Keep reading to find crucial information about the bankruptcy process and how to determine if pursuing a bankruptcy filing is the right thing to do.

How do you file for Bankruptcy?
Even getting the ball rolling, for those who have decided to file for bankruptcy, can be a confusing process. There are really two methods that you can choose from. The best way is to voluntarily file, with the second option being to ask creditors to ask the courts for you to file. Either path can be taken on your own, with assistance from a more knowledgeable source or by hiring a lawyer that specializes in personal bankruptcy cases. Most individuals will choose to at least get the opinion of a professional, and most people will wind up filing one of the two filing types of bankruptcy, if filing is deemed to be the right thing to do.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a popular option. Many times, when people face financial hardships, like losing a job, overextending their credit or even a divorce, they opt for Chapter 7. This type of bankruptcy liquidates the person’s assets to pay off as much outstanding debt as it can. Cash made from the liquidation is passed out to creditors, like credit card companies and banks. Four months after the filing is official, you get notice of discharge. This stays on your credit report for about ten years.

Chapter 7 bankruptcy, however, may not be best for everyone. Assets are taken away, and that can include the family home, cars and other important property. Be sure to speak with a bankruptcy professional if you qualify for this type of filing and decide to go down this path.

Chapter 13 Bankruptcy

People who want to hold onto their property often choose Chapter 13 bankruptcy. This type of bankruptcy is commonly known as a “reorganization bankruptcy. It allows you to pay off your debts over 3 to 5 years. People who have regular income find that this type of bankruptcy gives a nice grace period. Any of your debt that is left over after this period is discharged. The courts force debt collectors and creditors from hassling you, so you get a bit of protection, time to pay off debts and a fresh financial start.

Should you file?

Everyone has to carefully go over their income, debt and other financial issues prior to making this decision, and it’s best to consult with someone who handles these issues for a living to discuss all of your options. If it comes down to filing for bankruptcy, though, don’t consider it as a failure. Bankruptcy laws were created to essentially give people a second chance. Mistakes happen and bad circumstances can lead anyone to the point of financial desperation, and bankruptcy may very well prove to be a saving grace during these times for people who need the chance to start over and protection from pushy debt collectors.

Does the Narcissism of Consumer Protectors Know No Bounds?

Richard Cordray is a man who has had the opportunity to see his name in the news quite a bit lately. He is the director of the Consumer Financial Protection Bureau (CFPB.) This organization is pretty much the physical manifestation of the Dodd-Frank Law, and has been pushing hard to introduce new regulations that could potentially decimate the smaller dollar/short term lending market; often referred to as the payday lending industry, though there are other types of lenders that the CFPB is actively targeting with their latest regulations.

Cordray was quoted in the Wall Street Journal as having said, “I personally believe banks and credit unions can be low-cost providers of small-dollar loans. I think that…there would and should be an ability for them to offer decent products.”

This tidbit from Mr. Cordray should both scare and sadden American consumers. It is a sad statement because of the sheer economic ignorance that it displays. But it is scary because this man – one who displays a high level of disconnect from economic reality, is also a man who has a heck of a lot of power. But what Cordray has in power, he lacks in wisdom to use the power to effectively help the American consumer. And all the while he remains almost unaccountable to any person or organization that might have a better understanding of sound economics than he possesses.

This is the United States of America, and so we are all allowed to have our own opinions. When Cordray says, “I personally believe…” or “I think…,” The CFPB director is letting everyone know that he is swimming in the shallow end of the pool of opinion. His opinion, which certainly carries a lot of sway, at least with regards to financial issues in the U.S., is that mainstream financial institutions can somehow afford to supply small dollar, short term loans at prices that are lower than what they usually charge. It looks like Cordray thinks that he knows how to keep banks more profitable than the banks know. He also injects statements of uncertainty, like lenders “should be” able to offer these types of loans to consumers. This kind of implies that the banks could already be doing so, but they don’t feel like doing so.

How is it that Cordray has the right to make decisions about fees, like interest rates, loan application fees, etc…? He implies that the banks should charge less for what they might be able to offer. How would he feel if someone from the government told him he had to sell his property or belongings at a price he didn’t think was equitable? It is more than likely that he would stand up for his rights and flatly refuse to do so. So shouldn’t the banks and credit unions do the same thing when he starts telling them how they should run their business and value their assets?

And what about the economics of payday loans. There is no one forcing people to take out these loans from a certain lending company. If someone thinks a lender is charging fees that are too high, they are free to see what competing lenders have to offer. And since people continue to use payday lenders, it shows that they have not been able to find better deals from other lending institutions.

Thus far, Cordray has shown that he doesn’t have the economic chops to make decisions that are viable for financial providers, and he lacks the tact to come up with real world solutions that actually work for American consumers. Someone needs to remind all of us taxpayers and voters exactly why this guy is still employed in a position where he wields so much power and influence…

Common Scenarios that will make you rethink having an Emergency Savings Fund

Everyone knows the cliché about saving money for a rainy day. This old saying is timeless, as it simply illustrates how vital it is to have money saved up for emergency scenarios. The problem is that we all tend to think it will be sunny all the time; we don’t really think emergencies are going to happen. This is frustrating, as we have all dealt with dire financial situations at one time or another. It’s just too easy to think that there will be no bumps in the road.

We like to look on the bright side of life too. Every once in a while, though, you have to be honest and start planning your finances to deal with emergencies. If you have not yet started an emergency savings fund, think about these scenarios, how common they are and maybe you will get inspired to start saving for life’s little emergencies before they happen.

Getting Your Identity Stolen

Identity theft is horrible to deal with. And unfortunately, it is becoming all too common these days. If your identity gets stolen, it can cause you serious problems for years to come. You can freeze your credit report, report the situation to authorities and take other actions, but you may find that you need some emergency cash to help you through the early stages of recovering from identity theft. Unless you have a sizable chunk of cash set aside, you may find that the common occurrence of having your identity stolen will stop you dead in your tracks with regards to your financial life.

Health Problems

Most people try to live healthy lives these days. Medical emergencies, however, can happen to even the healthiest people in the world. And it may not be you who has the medical problem, it may be a loved one that you have to help out. You probably already know this, but even with good insurance paying for medical care is absolutely expensive. Just having a bit of emergency cash can help to alleviate the stress that comes with a medical crisis, and may help you to get through the situation without going into more medical debt than you might think.

Unstable Job Situation

Unemployment numbers have been leveling off in recent months. Still, though, being employed these days is not like it was a few decades ago. These days, you can’t rely on the fact that you’ll be working at the same job in 20 years. Companies downsize, change ownership or seemingly randomly decide to let valuable employees go. In other words, you may find yourself out of work at some point in time. If that happens, you’ll appreciate having some money saved up to help you get by. Even having an emergency fund that can keep you going for a month or two can be a huge security blanket when a bad employment situation occurs. But even if you love your job and work for the most secure company in the world, it’s still wise to save money regularly.

There are other situations that can occur, like natural disasters, being the victim of crime or even just investment mistakes that can cause you very real financial problems. It is always best to have a financial “umbrella” that can provide you a little bit of stability and protection during those times. No one should walk around always thinking about the worst things that can happen. But it is important to be a realist at times. And reality dictates that bad things can happen to even the best of us. It is best to have an emergency savings fund in place to help you move forward through the storms that inevitably affect us all.

CFPB Brings the Hammer Down on Georgia Law Firm for Illegal Debt Collections

A new order from the Consumer Financial Protection Bureau will stop a law firm in Georgia from issuing multiple, illegal collections lawsuits and will make the firm pay a $3.1 million fine.

Recently, in Washington D.C. the Consumer Financial Protection Bureau filed a proposal to log a consent order in the federal courts that would bring a lawsuit against a Georgia law firm called Frederick J. Hanna & Associates to an end. The law firm – along with its three principal partners – is accused of operating a debt collection lawsuit mill that made use of illegal/deceptive practices. The lawsuit filed by the Consumer Financial Protection Bureau (CFPB) alleges that the law firm utilizes deceptive court filings and fake evidence to crank out multiple lawsuits against consumers. If it is approved by the court, the order would ban the firm and its partners from using illegal debt collection actions, which includes filing lawsuits without first verifying if the consumers actually owed on debts, along with incriminating consumers with bogus court filings. This order will also require the law firm and the partners to pay a $3.1 million fine.

Commenting on the proposed order, the director of the CFPB Richard Cordray said, “The Hanna firm relied on deception and faulty evidence to coerce consumers into paying debts that often could not be verified or may not be owed. Debt collectors that use the court system for purposes of intimidation should reconsider how their practices are harming consumers.”

The bulk of the work that the Hanna law firm works on includes litigation on debt collections. The three main partners, Frederick J. Hanna, Robert Winter and Joseph Cooling all play major roles in the company’s day-to-day operations and business strategies. The firm uses their debt collection practices on behalf of their clientele, which includes credit card companies, debt purchasers and even banks. If the firm’s debt collection actions are not successful, they tend to file lawsuits against consumers in order to retrieve funds.

As far back as the summer of 2015, the CFPB filed suit against the firm and its principal partners in the North District of Georgia federal courts. The proposal, if it is approved, would officially bring the case to closure. In the complaint filed by the CFPB, the bureau charged the firm with a direct violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s ban against using deceptive practices, along with the Fair Debt Collection Act for the following infringements:

Consumer intimidation via deceptive court filings. The CFPB states that the law firm collected on suits that were signed by attorneys, when there was no actual involvement from attorneys at all.

Using bogus evidence – The CFPB says that the firm filed statements in court without providing full details to consumers who signed on the statements. Over a six year span, the firm dismissed thousands of suits because they could not substantiate allegations involved in the cases.

The Consumer Financial Protection Bureau is taking a lot of action against debt collections companies and law firms that act on behalf of the collectors. Any companies that are performing illegal/deceptive activities, and hoping to fly under the radar should be aware that the bureau is not letting these types of defendants off the hook very easily these days. If the charges against this Georgia law firm are true, then it is a good thing that they are finally being brought to task for making a profit by deceiving consumers and clogging up the legal system with unnecessary lawsuits.

Payday Loans Online

It Actually is Possible to get a Mortgage with a Bad Credit Score

People who are thinking about getting a mortgage to purchase a new house, but are stuck with bad credit scores may feel like they have no chance of getting funding for that new home purchase. It may sound crazy, but you can still get a mortgage for a home purchase even if your credit score is lower than 620. However, you will face challenges that folks with higher credit scores don’t have to deal with. It all starts, however, with knowing where you stand with regards to your credit score. You can request a free credit report once a year, to see your score.

If you find that your credit score is low, here are some of the things that you need to keep in mind when you are ready to apply for a mortgage:

Options will be limited

There is only one program available for mortgage applicants with credit scores that are lower than 620 – Fannie May, Freddie Mac and the FHA have made conventional loan financing available to folks with a credit score of 620 or lower. Generally speaking, applicants need to have a minimum credit score of 600 to get a mortgage.

Income Requirements are Strict

The lower your credit score is, the more of a risk lenders take on to approve your loan. To help minimize the risks of consumers defaulting on their loans – as well as to provide a measure of self-protection – lenders require that consumers have a 43 percent debt-to-income ratio. This ratio is consistent with the CFPB’s official definition for a qualified mortgage. To make a long story short – your monthly loan payments, like car payments or credit card balances, along with the proposed mortgage payment, cannot exceed 43 percent of your total income each month.

An example would be that your mortgage payment is $2,800 each month, and you also have monthly payments on a car loan for $600 each month. In order to get a mortgage, you’d have to be earning a bit more than $7,900 to help offset the financial liabilities.

You Might Have to Complete Counseling Sessions

There are some mortgage companies that require bad credit applicants to complete online homeowner counseling sessions in order to understand all of the requirements that come along with owning a home. It doesn’t matter if you are refinancing your loan or even if you have owned a house in the past. Most of the time, these counseling classes can be done online. If your lender requires the completion of counseling sessions, get them out of the way early as a sign of good faith on your part.

Be Prepared to Pay More

You will have to pay more in fees and interest rates because of your low credit score. Lenders calculate charges based upon the perceived risk that they are taking on. Someone with a credit score of less than 620 will pay about $2,000 more in loan fees than a borrower with a score higher than 620, based on the Federal Housing Administration’s official risk based loan pricing system.

You don’t have to give up on your dreams of owning a home if your credit score is low. However, you should be prepared to face some of the challenges that we just listed for you. And don’t forget that the larger your down payment is, the better off the entire home buying experience will be. So make an effort to start saving for your next home purchase right now!