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Look At All Options Before Walking Away from Home

We have faced a lot of challenges the last two years in holding on to our home. My husband lost his job two and a half years ago, so we have been a one-income family paying a big house note, getting one girl through college, and another girl through high school. We’ve had to make some very difficult choices to keep our house, but the sacrifices will be worth it in the long run.

If you are considering walking away from your house because you owe far more than the house is worth, consider some of the federal relief programs currently available. USA Today explains the biggest problem could be your credit score,

If you decide to walk away, be prepared for a seriously negative hit to your credit rating. But before you pack up and leave, consider the federal mortgage programs.

If you are not behind on mortgage payments but have been unable to get traditional refinancing because the value of your home has declined, you may be eligible to refinance through the federal Home Affordable Refinance Program (HARP). HARP is designed to help you get a new, more affordable, more stable mortgage.

It’s a difficult decision everyone must ultimately make for themselves. But get adequate legal advice and be armed with knowledge before deciding.

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New Rules Tighten Credit Qualifications

by Kathy T. Leave a Comment

With some new federal regulations coming next year, home buyers may find it more difficult to get into their new houses. But not everyone agrees that the new rules are necessary. From Bloomberg.com,

Consumer advocates, who question whether high credit standards are really just a response to regulation, say the industry’s fears are overblown.

“All of these rules are reactions to the failure to regulate at all over the last decade,” said Alys Cohen, a staff attorney at the National Consumer Law Center. “The rules don’t need to be in lockstep in order to provide reasonable oversight.”

The next few months will usher in a new implementation phase of the government response to the financial crisis of 2008 as regulators begin to unveil exactly how they will set limits intended to prevent another housing bubble.

Read the rest of the story about what next year will look like for those concerned about qualifying for a home loan.

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Cash is Great, But Good Credit Also Important

by Kathy T. Leave a Comment

A friend of mine is trying to refinance their family home in his name so they no longer have to worry about his brother making the mortgage payment. Unfortunately this could be very challenging for him because he pays cash for everything. He has very little credit unless he can find a lender that accepts alternative credit like electric bills, phone bills, and other items paid on-time.

While it is great to avoid debt and pay cash for everything, it is also vital to somehow someway have good credit for big ticket items. From Smart on Money,

Your financial habits are of immense interest to a number of people that you might not realize. Some banks check your credit before allowing you to open certain types of accounts. Even if a full credit check isn’t done, a ChexSystems check might be used to look at some of your consumer behavior. You can be denied a bank account based on what’s in certain consumer reports.

Additionally, one of the biggest impacts come when insurers occasionally check your credit score. I am actually receiving a discount on my bundled home-aut0-life policy because of my credit score. A poor credit score means that you can miss out on monthly savings in the form of lower insurance premiums. Over a lifetime, a savings of $10, $20, or $30 a month can make a real difference.

Having credit does not mean you will be in dire credit card debt. You can have a credit card and pay it off every month or two. You can buy a piece of furniture on credit and pay it off with a six months same as cash program. There are ways to establish a good credit report.

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Credit Report Fallacies

by Kathy T. Leave a Comment

Even the thought of rough credit reports has long been something people people have nightmares over. That late payment to the credit card company when you were out of town for Grandpa’s funeral? DING. The time your kid had 10,000 text messages and you didn’t have an unlimited plan, so had to make payments on the cell phone bill? DING.

However, there are some fallacies about credit reports that you should know about. Here from The Wisdom Journal,

1. Credit Repair Firms are Worth the Money. False.

2. Getting Caught Up on Debts Will Instantly Clean Up My Credit Report. False.

3. I don’t Need to Check My Credit Report if I Pay My Bills Online. False.

Read why all of these are false over at the Wisdom Journal, along with other fallacies.

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Mortgage Rates Still Creeping Up

by Kathy T. Leave a Comment

After remaining fairly steady (and low), mortgage rates increased this past week to 4.08 percent, the highest rate in nearly six months.

According to CNN Money,

The 30-year fixed-rate mortgage, a popular choice for most homebuyers, hit 4.08%, according to Freddie Mac’s weekly survey. That’s 0.16 percentage points higher than a week earlier and its first time over the 4% mark since October. The average rate for a 15-year loan also climbed, to 3.30% from 3.16% last week.

A friend of mine whose credit is sterling – no bumps or hiccups anywhere – is buying a new house at this time. Even with hungry lenders and a highly qualified buyer, she is struggling to get all her paperwork turned in that is now required. It’s slow, but recovery will come.

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If You Walk Away, Live With It

by Kathy T. Leave a Comment

A friend of mine went through a nasty divorce last year. The very weekend that the ugly argument occurred that ended the marriage, both he and the ex-wife moved out of their home. The home is sitting empty today with a for-sale sign, grass that doesn’t get cut, and angry neighbors. What’s worse is what is happening to their credit score.

He called me yesterday and wanted to see another home – an $80,000 fixer-upper that would ordinarily be a steal. There’s zero chance he will get a loan for the house. When you walk away, you pretty much guarantee no chance of buying (unless you win a lottery or inherit money) for several years.

Reuters Finance featured a story on just this issue,

The penalties largely revolve around your credit record, which admittedly gets blown up in the near-term. For a few years you can likely forget about qualifying for a mortgage or a car loan. When lenders are ready to take a chance on you again, you’ll have to pay for the privilege, with stiff interest rates due to your default history.

Sometimes a strategic default is the best option. But make sure before you do, you can live with the results.

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Stifling a Home Purchase

by Kathy T. Leave a Comment

New mortgage lending policies are now being developed to classify mortgages and set the standards on who qualifies. While the intent is to develop rules “in the spirit” of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, what essentially happens is it becomes even more difficult for regular people to qualify for a home loan. From Real Trends,

However, the lower default rates, moving from QM to QRM come at a cost—the number of potential borrowers who would be excluded from the market. This is where real estate professionals and their customers really get whacked.

Items of concern include the elimination of 8.55 million qualified loans of the 19 million analyzed. Also excluded are minorities and low income buyers, “Even at a 3% down payment, 25% of low-income buyers would be excluded, and at 10% down payment, 50% would be excluded.”

Scary stuff coming around the bend. Looks like a lot of houses will sit empty.

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Refinance Eligibility Expanded through HARP

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The Home Affordable Refinance Program is expanding eligibility requirements, allowing homeowners who are underwater to qualify. By refinancing, homeowners gain a lower interest rate, therefore save money on their monthly payments. According to Bargaineering, more people may now be eligible,

Before, in order to be eligible for HARP, missing a mortgage payment was not allowed. Now, as long as you haven’t missed a payment in the past six months, it won’t disqualify you if you missed a mortgage payment in the last 12 months. The program has been extended through December 31, 2013, and gives time for homeowners to work to meet eligibility requirements for an eventual refinance.

The catch? Your mortgage has to be a Fannie Mae or Freddie Mac backed. That makes it too good to be true for many.

Photo by nikcname.

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Life After a Short Sale

by Kathy T. Leave a Comment

The stigma of marketing a house via short sale for sellers can cause fear in the pit of your stomach. However, Cathy McAlister, a real estate agent from Sacramento, points out that there IS life after a short sale,

I just closed escrow last week for a very nice couple; repeat clients who were short sale seller’s only three years ago. In the winter of 2007 I received a lead for a young couple who were facing the prospect of a short sale. They owned a small 3 bedroom townhome which had been purchased in 2004. Great couple with a good outlook on life and an amazing amount of patience and trust. Life events had happened that necessitated a short sale.

Cathy reports that two months ago her former sellers became buyers again when they closed . The dream of home ownership is not dead for people who have been forced to sell via short sale. There is hope!

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Determination of Credit Score Changing

by Kathy T. Leave a Comment

Just paying bills on time may no longer be enough to keep a good credit score. According to RIS Media, things are about to get very personal,

But in an attempt to develop a more well-rounded picture of a person’s finances beyond credit, tools are being developed to help the lending industry dig deeper.

Fair Isaac Corp., or FICO, the company behind the widely used scoring formula, and data provider CoreLogic last week announced a collaboration that will result in a separate score that will be available to mortgage lenders and incorporates information that will include payday loans, evictions and child support payments. In the future, information on the status of utility, rent and cellphone payments may also be included.

Apparently lenders want to know a whole lot more about the financial stability and history of a borrower. Big Brother is here to stay!

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