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Archive for the ‘Mortgage’ Category

How to get perfect credit score?

Saturday, December 1st, 2012

Median FICO credit score is 723 and the possible high score is 850. If your credit score is better than 723, pat yourself on the back.  If not, check out this article from Wall Street Journal. Basically, it boils down to the following:

  1. Pay your bills on time.
  2. Have low credit-utilization. For example, if you have $10,000 credit available to you, use only $3,000 max from that credit line. Wall Street Journal article claims that “you cant have too much credit”. I doubt it. Keep the limit on total credit available to you. Do not respond to all credit card offers that are coming your way. Also, keep the limit on your spending. That should take care of it.
  3. Don’t get into collection mess.

Bankruptcy and Your Credit — Part 2

Saturday, October 23rd, 2010

So you have filed for a bankruptcy, now what? Probably the first question in your mind is how will it affect my credit score? There are too many factors to accurately predict the fallout on your credit report. If you had a pretty high score prior to filing you may find that your score is still hovering around in the 600’s. However most people’s credit gets pretty trashed from lates and charge offs, so their score after filing is closer to 500 than 600.

The total number of credit accounts you have is a factor as well as the ratio of debt to available credit. Both those can sink your score in a hurry, especially when you pile up a chapter 13 or 7 on top of it.

So, which is better, chapter 7 or chapter 13? I am not a lawyer so I cannot answer that question and it should be put to bankruptcy lawyers.

What I do know is that there are a few advantages to chapter 7 over chapter 13. If you file a chapter 7 the process is quick, usually from 3 to 6 months. You get your discharge date rapidly and you are on your way to starting over, and with no debt hanging over your heads. If you file chapter 13 you are required to pay off your debts in 3-5 years. Most people who file chapter 13 do not complete the program and find themselves in hot water again. If you file chapter 7 you still get to keep most of your assets including the home you live in. Keep in mind, not everyone qualifies for chapter 7 and that is something you will have to research with bankruptcy attorneys.

Remember, just because you have a BK on your report that doesn’t mean you cannot refinance or purchase a new home. Check around with different lenders and let them know all the facts up front before you allow anyone to check your credit. You may be in for a pleasant surprise.

Related Link: Bankruptcy and Your Credit — Part 1

Bankruptcy and Your Credit — Part 1

Saturday, October 23rd, 2010

This is a big topic so I will try and break it down in a couple articles. Rather than focus on what your score may be after going through a bankruptcy, I am going to tell you how lenders view a borrower who has a BK (bankruptcy) on their report.

Of course everyone wants to know, how long do I have to wait before I can refinance or purchase a home? The answer is, quite often there is no set time you have to wait. Bear in mind that it will stay on your credit report for up to 10 years so get used to it.

All lenders have a bottom credit score they work with and that is usually 500. As long as your bankruptcy doesn’t lower your score beneath that floor, you may be in business. In fact, many lenders will still work with you even if your BK has not been discharged yet. Make the call and you will find a consultant that will be eager to push your loan through if there is any way possible to do it. If you filed a chapter 13 it will have to be paid off with the loan. You will also have to get a rating from the Trustee. That rating is much like your mortgage rating and if you do not have any late payments you may still be able to get your loan. However, if you do have late bankruptcy payments, that is kind of your last chance and you will have a tough time getting the loan.

The one factor that prevents many borrowers from getting a loan is the LTV (Loan to Value) that is allowed under the underwriters guidelines. If you have a recent BK many lenders will not let you borrow more than 60% of the home’s value. Some lenders are a little more forgiving so you will just have to check around. Some lenders will not let you get any cash out which will not work if you have filed a chapter 13 because you have to pay off the debt you own to your various lenders. If you have filed a chapter 7, wait till the discharge date has passed and it will be a lot easier to get the loan and you may find lenders who are willing to give you cash out, or at least let you borrow up to 80% of your home’s value.

Bottom line, having a bankruptcy does not necessarily prevent you from getting your loan. If you can wait, the one year mark is a magic number for many lenders and you will find them more agreeable after that date has passed.

Related Link: Bankruptcy and Your Credit — Part 2

Bait and Switch in Mortgage Industry

Monday, October 18th, 2010

Everyone knows bait and switch is illegal but that doesn’t mean it is not practiced, especially in the mortgage industry. Here’s how it works.

Mr. Client makes a call to Lender B and asks what their rates are. After answering a few questions the mortgage consultant for Lender B asks what rates other companies have offered Mr. Client. After hearing what his competitors are offering Lender B will beat the lowest rate and the lowest points, no matter how low Mr. Clients says he’s been offered. Lender B knows there is no way he can close the loan at the rate he promised and it doesn’t matter that he can’t. His client will take whatever he offers.

I know that sounds crazy but it works nearly all the time. All Lender B has to do is wait until the loan is set to close, then he calls Mr. Client with some reason why he can no longer offer the rate he sold. He can offer a different rate, even if that new rate is as much as a percent higher. So how does Lender B get away with it?

This really only works with non prime lending and works best when they have a client that is paying off revolving debt with the loan. Many clients, confident the loan will close in time stop making car payments, card payments, and sometimes mortgage payments and they pocket the saved money. They are that sure that the loan will close and pay all that debt off.

Fast forward three weeks into the loan process and they are told the rate will be significantly higher, but will still close on time. Mr. Client can either stop the loan process and go to another lender or go through with the loan. The problem with starting over with another lender is the client hasn’t been making their debt payments and may even incur new late payments on their report. That could easily lower their score enough to where they cannot get a rate that even equals the new rate their lender changed on them. They may be out of money because they have begun spending expecting cash out at the closing and suddenly they are in a position where they cannot afford to start the clock ticking with a new lender.

Lender B has his client over a barrel and they both know it. So how can you prevent the above scenario? Number one, do not stop making any kind of payments. Pay them up until the loan funds. That will alleviate most of the problems. When Lender B quotes a rate, if it sounds too good to be true, it probably is too good to be true. Trust your gut. You have to find a broker you can trust and that is a subject for another article.

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