Tag Archives: assets

5 myths about credit scores and mortgages

Remember that department-store card you signed up for to get an instant discount? Or the medical bill you didn’t pay on time?

What seem like minor moves could drive down your credit score, which factors in big time when you’re trying to finance your future home. Lenders look at how much you make, what you own and how much you’re able to put down — but your credit score also is a major factor.

“It’s four basic factors: income, assets, credit and the property itself,” said Chad Baker, a loan officer at Prime Lending, which has offices in the UTC area and Mission Valley.

“If anything is wrong with the four, then you will have problems,” he added. “If you need a higher down payment, then you can offset it with a gift from a friend or family member. But if you’ve exhausted everything (to fix your credit,) there’s nothing you can do. So, it’s extremely important.”

The good news: Certain credit-score issues can be fixed on your own at no cost as long as you understand a few financial basics — from paying bills on time to requesting your free credit reports. Those simple pointers could help you not only qualify for a mortgage but also save you up to thousands of dollars in the long run.

They can also make or break your chances in today’s tougher lending environment, which generally requires a bigger down payment and more proof of income than during the last housing boom.

A recent study shows the average credit score for someone who successfully closed any kind of mortgage in April was 745 (with 20 percent down). The findings, based on 20 percent of loan originations in the country, are from Ellie Mae, which provides services to the mortgage industry.

The U.S. average is 692, and California’s is 691, according to FICO, which rates consumers’ credit histories on a scale of 300 to 850. So, if you don’t have the 745 score cited in the Ellie Mae study, does that mean your chances of getting a mortgage are nil? No, mortgage insiders say. U-T San Diego busts that credit myth and others in this how-to guide:

Myth: Lenders are looking for one magic number.

Fact: The score range you should shoot for depends on what kind of mortgage you want…

Myth: There’s nothing I can do to change my credit score.

Fact: You have more control than you think. Changes all start with knowing what’s in your credit report…

Myth: Even if I do find an error in my credit report, it will take forever to correct.

Fact: You can get a rapid rescore done with the help of the lender…

Myth: I’ve never been late on any payment, so it’s a waste of time to check my score.

Fact: Errors in credit reports happen all the time…

Myth: The definitive source to get my free credit report is freecreditreport.com.

Fact: It’s actually annualcreditreport.com

Read U~T San Diego’s article in full here: “5 myths about credit scores and mortgages”.

Real estate tips to guard against losing your home

Real estate tips to guard against losing your home

Time and time again, home-buyer wannabes state that the reason they are still fence-sitting is that they don’t want to end up in the same trouble the last generation of homeowners did.

Well, there’s a very slim chance of that happening, given the changes in the market climate: Homes are at rock-bottom prices (not sky-high), and mortgage guidelines are so conservative it is nearly impossible to even find one of the zero-down, quick-to-adjust, stated-income mortgages of yesteryear.

With that said, though, there is a handful of rules today’s home buyers and homeowners can follow to dramatically minimize the chances they will ever face losing their homes:

1. Never a borrower or a lender be. OK, so maybe NEVER is strong, but you’d be surprised at how many foreclosed homeowners actually bought their homes with conservative loans and at low prices many years ago, but got into trouble taking new mortgages and pulling cash out at the top of the market (then not being able to refinance or make the adjusted payment at the bottom).

Today’s home buyers can avoid this fate by starting out their homeowning careers with some ground rules in place around borrowing against their homes.

A good (albeit conservative) place to start is this rule: Decide not to borrow against your home equity for anything but well-planned home improvements.

Here’s another one: Whatever you do, don’t borrow against your home to lend money to someone else. I’ve seen dozens of homeowners over the years borrow to make an “investment” in a friend’s business or to lend money to a child or a parent. Borrowing against your home’s equity to make an investment in a business you know nothing about is a complete gamble with your home. Don’t do it.

2. Stop financial codependency. Related to the rule of thumb about borrowing to lend is this change of the bad habit of financial codependency.

This comes up most often when homeowners borrow money against their home or tap into their emergency cash cushion (leaving themselves unable to make their mortgage payments if they lose their job, etc.) to help an adult child make their own mortgage payments or bail them out of another crisis situation.

It also comes up where one spouse supports another spouse’s habit of overspending, debting, underearning, gambling, or even substance abuse, and ends up going into a financial hole as a result. Over time, these cases can create the temptation or even desperation to further leverage your home, and can run through a savings account, leaving the homeowner exposed and vulnerable in the face of a temporary disability, job loss or recession.

There are a number of powerful books on the market about how to cease being codependent, but many people struggle to recognize they even have this issue until it’s too late. Here’s a hint: If you regularly use money to protect a loved one from the natural consequences of their behavior, you are engaging in codependent behavior.

3. Stay conscious. Going on money autopilot, without occasional check-ins, is the root of many financial woes. Many money experts recommend automating your monthly payments so that your recurring bills are paid on time, every time. And almost any homeowner will vouch that there are few bills that seem to come up as frequently as your mortgage!

The problem is that once you automate your payments, it’s very easy to fall into the habit of simply ignoring your actual statements — and they may contain information that flags issues before they snowball into serious problems.

One homeowner recently realized that through no fault of her own, and despite never having missed an auto-payment, her home was facing foreclosure — all because the bank had somehow erroneously started crediting her payments to someone else’s mortgage account!

Also, financial autopilot mode can support habits like overspending and overdebting; the minimum payments may always get made without much attention from you, but the overall balances will rear their ugly heads and possibly pose a threat to your ability to pay your mortgage, in the event you ever face a job loss, medical bills or other financial crisis.

4. Do your own math before you buy. Only you can know the full extent of your non-housing-related financial obligations and values. Things like catch-up retirement savings, tithing and charitable giving, private school tuition, medical costs and the like can take big chunks out of your monthly budget that your mortgage pro is not accounting for when he or she tells you how much of a mortgage you’re qualified to borrow.

So, before you ever speak with a mortgage broker, it’s up to you as a responsible buyer and adult to get a very clear understanding of your own personal income and expenses, assets and priorities, and to use that knowledge to decide how much you can afford to put down and to spend monthly for a home.

Fortunately, an increasing number of are buyers doing this, and actually choosing to buy a home that costs much less than they are technically qualified for.

5. Don’t buy a house to fix a family or psychological problem. Beware of “pulling a geographic” — moving to a new neighborhood or town to try to run from your problems and bad habits.

Experts caution against expecting the move to solve the problem on the grounds that, in the words of mindfulness guru Jon Kabat-Zinn, “wherever you go, there you are.” If you have bad habits in Chicago, moving to L.A. doesn’t purge the bad habits — only working on the actual dysfunction itself will do that.

There’s a real estate-specific version of pulling a geographic, which we’ll call “pulling a residential.” This is where people buy a home or buy a new home in an effort to cure a deeper family or psychological issue; sort of like that old (and equally bad) idea of having a baby to try to save your marriage.

If your children are fighting because they lack personal space, that’s one thing. But if there are deeper issues going on with your children, your family or your relationship (even your relationship with yourself), do not fantasize that owning a home or moving up is going to automatically solve them.

In fact, the opposite is often true: The larger the financial and maintenance obligations that come with a home, the more a mortgage and property taxes can add strain to already troubled relationships.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

ING Steps Up & NFCU Waives Promissory Note

This post is a follow up to my recent one (which you can view here) regarding a short sale with active military personnel.  Another military couple in a new transaction were forced to sell their home due to NFCU’s (Navy Federal Credit Union) refusal to help them keep their home.  NFCU then forced them to accept a Promissory Note when selling their home.

Navy Federal Credit Union logoING Bank, who held the first loan, did not require any money from the seller–after I demanded that the seller would provide no contribution. This references the new California Law, SB 458, which allows the lender to collect for closing costs to the transaction only from the seller. However, this is still a gray area and only an agent who has the necessary experience to negotiate with banks, like myself, is obviously worth more than his weight in gold to anyone who may need to sell (paticulary those with assets to protect).  Those agents experienced enough in this area will make sure that the seller or buyer will not be required to make any contributions. 

The buyer, who was also being forced to contribute in the same transaction to the second loan with Chase, was also permitted to not contribute because of my negotiating ability. Even the buyer’s agent, having seen my emails to the lien holder, confided that he couldn’t believe how much I was able to do on behalf of the buyer. 

The commission was reduced drastically as a result of my negotiations, but more importantly, the banks were able to save money by me negotiation an above-fair market price on the property.  My hope is that more people will realize that I do my utmost to keep buyers’ and sellers’ interests (and assets!) above my own–and if they believe that, that they spread the word that I strive to be the best of the best.

This new short sale with NFCU had a requirement: that to be considered for the short sale, the seller would be required to take back a promissory note (which in this case was $30K after the seller took out over $80K cash when the market was booming). A seller, in this sort of case, by letting their property go to foreclosure, may create a battle for a settlement on that second loan of over $80K, due to there being no equity in the second loan and the first loan being the foreclosing entity.  In cases such as these, a short sale becomes the best alternative to avoiding hiring an attorney to settle this.

On this transaction, this promissory note was approved prior to the passing of SB 458 (which allows no contributions from the seller to the loan that would pay it down, reflecting a deficiency judgment). My persistent communication with this lien holder resulted in a complete forgiveness of the total debt–saving the seller $30K!

Without a properly experienced agent working in the best interests of the seller and buyer, this would have spelled disaster.  Even with working with some of the more experienced agents out there.

For the Best of the Best to represent you–whether selling or buying–call me at (619) 890-3648.  Thank you for reading!