Tag Archives: credit

A D-I-Y Don't: Divorce

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Legal disclosure:  I am not an attorney, nor do I play one on TV.  Please do seek legal council if you are considering a divorce and before DIY legal documents relating to your marriage or mortgage or real estate.  🙂

I recently met with newlyweds who wanted to start developing a plan to purchase a home together.   The bride was previously married and terminated that union with a do-it-yourself divorce decree and saved money (or thought she did) by not utilizing an attorney.  When they did this several years ago, it made sense to them.  They were amicable and agreed to how they would divvy up their debts and what assets they had acquired at that time.   He would keep the house and the mortgage.   She would sign and record a quit claim deed.    This is where the trouble begins.

A quit claim deed does not remove borrowers from the mortgage and a divorce decree does not remove one’s liability from a mortgage (or other joint debts).

In my clients case, she is now liable for a mortgage on a property she has no interest in except for the debt. 

You would think a borrower could contact the lender and ask to have the mortgage modified by removing one of the ex’s assuming the person retaining the property qualifies for the debt on their own.    This is just not the case.

My client’s ex-husband decided to no longer pay the mortgage.   Foreclosure proceedings are scheduled to begin next month.   Her credit score has plummeted and the mortgage company couldn’t care less about her situation.   She is being sucked into the foreclosure on a property she has not lived in for years.    And she will not be able to qualify for a mortgage at this time.  It is emotionally and financially devastating.

Unfortunately, the only way to safely remove someone’s responsibility to the mortgage is by paying it off.   This can by accomplished by:

  1. Cash (paying off the mortgage)
  2. Selling the property
  3. Refinancing the mortgage

In addition, an ex’s debts from a divorce are factored into the debt-to-income ratio unless the ex has made the payments on time for the past 12 months and the debts are clearly listed in the divorce decree.   If the ex has been late once on an account over the past 12 months, that monthly payment is factored into the debt to income ratios of other ex trying to qualify for a new home.    This isn’t limited to mortgages; it can be joint credit cards, car payments…any joint debts. 

If you own mortgaged property with someone (married or not) and are considering dissolving your relationship, please do not “do it yourself

What is your Mortgage Exit Strategy?

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Unless you have a long term fixed rate mortgage, you should develop an exit strategy.   An exit strategy is a well thought plan on how you’re [photopress:airplaneexit.jpg,thumb,alignright]going to leave your current mortgage.  Every time you board an airplane, the Stewardess reviews the “exit strategy”.   They’re not planning on an actual emergency landing, they are simply preparing you for a worse case scenario and informing you where the exits are and what you need to do in that event.  

You should have a plan if your current mortgage is:

Having a plan (being prepared) does not mean waiting until you receive a notice from your mortgage company that your mortgage payment is hiking because your fixed period on your ARM is over.   You need an exit strategy because once fixed period is over and your mortgage adjusts, odds are that your new mortgage payment will not be desirable or affordable.  

You need to start developing your plan well in advance.    Here’s what I recommend:

  1. Find the Note for your mortgage (deed of trust) and determine what your new rate may be using the worse case scenario.   If you have an ARM, you can figure this out by adding the first cap to your interest rate.   For example, if you currently have a 5/1 ARM with a note rate of 5% and the first adjustment rate cap is 5% (5/2/5 is a common cap structure), your new rate could be 10%.   If the first adjustment cap is 2% (2/2/6 is another possibility); your new rate could be 7%.   If your ARM has an interest only feature and will also be converting to amortized payments (some have longer interest only terms beyond the fixed rate period), you’re in for a double whammo if you’re keeping the mortgage.
  2. Determine what your worse case payment may be.  Your new payment will be amortized over the remaining term of the mortgage.   Use an amortization schedule to see what your mortgage balance will be at 60 months (using the 5/1 ARM scenario) and figure your payment based on the maximum possible rate amortized for 300 months.   This new payment does not include taxes and insurance.  In fact, anyone with an adjustable rate mortgage, regardless how long the remaining fixed term is, should contact their LO to determine what their “worse case payment

Bribery to Work with the Builder’s Preferred Lender

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When ever I’m working with a home buyer who may be considering new construction, I know I might lose them to the builder’s in house lender.   Often times the builder will offer an enticing credit to the buyer’s closing costs only if they obtain their financing from the builder’s preferred lender.

How can having a Loan Originator (in this case, they are a retail sales mortgage person, or what ever Jillayne refers to them as  🙂  since they wait to be fed from the builder, often sitting at the construction site) who’s livelihood is supported by the Seller (i.e. the Builder) be in the Buyer’s best interest?    Who is looking out for whom?  How do you know the Loan Originator will not disclose the Buyer’s private information to the Builder if pressed?

Enough of my questions…here are some of my recent dealings with the Builder credit when working with the preferred lender.

UPDATE 12/12/2018: Unfortunately, it looks like part of the this original post is missing.

Triggering My Hot Spot

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I have blogged about this before…it is really one of my “hot spots”.   This morning, not only did I receive an email from this company (oh, I mean SPAM) stating that this is information that I requested, which I did not, it is about something I am absolutely against: selling consumer’s information when they’ve had a credit report pulled to become preapproved.    [photopress:trigger.jpg,full,centered]

If you go to their website, they state, “Receive a daily feed of consumers in your target market that just yesterday had their credit checked for a mortgage loan approval.That ’s right, these consumers have just had their credit checked within 24 hrs, specifically for a mortgage loan approval! Now you can provide them with a pre-approval in just a few days for unlimited growth potential.”

Picture this, Mr. and Mrs. Homebuyer meet with a Loan Originator and sign many documents for the preapproval process including disclosure forms that their private information will not be sold. Within hours, they begin to receive relentless phone calls and post cards from other lenders.   It’s too bad the credit bureaus are not a party to this agreement and that it is legal for the bureaus to re-sale credit scores, addresses, phone numbers, debts, etc.

I’ll go eat a box of Valentine’s candies and go chill out in a corner somewhere.

 

 

There's No Love for the Subprime Borrower

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It’s all over the news, we’re hearing about major subprime lenders having to restate their losses and every day, lenders are coming into my office to inform us of changes to their guidelines.   This is all good, right?    It will be tougher to provide loans for home buyers who maybe should be spending more time to learn about budgeting and using their credit cards.    What about the people who are all ready in these programs?

First, allow me to explain the basic dynamics of these loans.  Many of these mortgages are zero down, 80/20s (80% of the loan to value for the first mortgage/20% of the value for the second mortgage).   The first mortgage is typically offers a fixed rate for 2-3 years with a prepayment penalty (the standard is six months interest) that matches the fixed rate period.   In addition, the mortgages may be interest only or amortized at 30, 40 or 50 years.    The rates on these mortgages are completely dependent on credit score. 

When I meet with Mr. and Mrs. Subprime, I advise them of their options of buying now using this type of subprime mortgage or that they can work on their credit, job history, etc. and buy later with a better mortgage program.   Because there are no guarantee of what rates will be (or maybe because they know there’s not guaranteed they’ll clean up their act) and because they want to buy a house now, they often opt for the subprime mortgage.   Once this happens, I heavily stress (or Jillayne would say, I lecture 🙂 —which I’m sure I do) to Mr. and Mrs. Subprime that they have 2-3 years to change their spending habits because once their fixed period rate is over, their mortgage is going to adjust and do so big time.    I let them know that I want them to be in the best position for a refinance into permanent financing (or to have a better mortgage should they decide to sell the home assuming they have any equity) and that the subprime mortgage they are using to obtain their home is temporary financing.  

Many of my clients in these mortgages have done very well and I’m proud of them.   They have taken the responsibility of owning a home and having a mortgage to heart.  I’m able to restructure the original mortgage and improve their situation greatly.   The concern is for Mr. and Mrs. Subprime who just didn’t get the hang of it.   They continued to charge up their credit cards, they bought or leased a new car to go in their new driveway and maybe a new TV, too.   They’ve been sliding ever since the holidays and are now having a tough time paying their mortgages on time.   Maybe they just have one mortgage late.   Their credit is rough at best.   Their fixed period (and prepayment penalty) is over and now they really need to refinance fast because their mortgage has adjusted for the first time—their rate is now 2% higher.  Their situation has gone from bad to worse.    With all the tightening in the subprime market, even if their credit scores and scenarios are the same as when they bought, there may not be a program for them to refinance out of now.   They will be forced to sell (hopefully they have enough equity to pay commissions and other closing costs) or to somehow manage to choke down their increased payments.

I guess this post is a plea of sorts.  If you currently have a subprime loan (especially the type I described) please contact your Mortgage Planner to have your credit reviewed to make sure you’re on the right track to be able to refinance (or have a better loan for when you sell) when the time is due.   Do not assume there will be a program for you if you have not made significant changes to your spending and use of credit cards.   If you’re a real estate agent or loan originator, check in on your subprime clients to let them know of the changes in the industry…see if they need guidance to stay or get on track so they don’t wind up stuck with a higher mortgage payment, being forced to sell or foreclosure.

Confessions of a Zero-Down Lender

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This is a two part (well so far I’m planning a second post…their could be more) series of a couple of clients (names changed to protect identities, of course!) who have purchased homes utilizing 100% financing.   Both parties utilized similar programs but they wound up in entirely different situations.  

Mr. and Mrs. Spender eagerly wanted to purchase a home.  They were tired of renting and had two kids with one on the way.   They didn’t have a lot of money in savings and their credit had a troubled past (some of it was medical and some was plain irresponsible).    They live paycheck to paycheck but they are anticipating receiving raises and bonuses from their employer.   Their credit report shows that they rely on their credit cards and you can see on their bank statements that they dine out a lot and spend their money on frivolous extras.  

Based on their credit scores, I was able to provide them with an 80/20 from a sub-prime lender who does not verify where their funds are coming from for closing and would allow for the seller to pay up to 6% of the closing costs.   I structured their preapproval with the seller paying all the closing costs.  In fact, at funding Mr. and Mrs. Spender receive a check back for a majority of their earnest money.

Not long after closing, the Spenders discover that the gas heater in their home was defective (apparently this was missed on the home inspection?).   It just so happened that the repair company they called to repair it had previously serviced it and informed the previous owners that it needed to be replaced.  Mr. and Mrs. Spender decided to take their Seller to Small Claims Court and their Agent attended with them.  I had asked them what the results were, here is their edited response:

“Yes we took them to court and even though we had all the documents showing that the (sellers) knew the furnace needed to be replaced and needed to be fixed the judge did not find that we had proved our case… so we got nothing.. (the Real Estate Agent) came with us and she was just as shocked…  She too was amazed that all the paperwork we sign to protect us from buying a home with flaws, the (Sellers) even stated and had to initial that there was no problems with the heating system and even though we had documentation to show that they knew there were problems and didn’t disclose it… we got screwed to be honest…. They knew.. They didn’t care… and the judge just wanted to get out of there… It was a joke…

Your Private Information is For Sale

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This subject totally irks me…it is just so completely wrong. The three major credit bureaus are selling personal information to hundreds of mortgage companies throughout the country as soon as a credit report is pulled from a mortgage lender. You visit your preferred lender to get preapproved for a mortgage, and whammo…within hours you may start getting calls from other unscrupulous lenders who will even go so far as to pretend to be working with the preferred lender. You’ll also start noticing mailers appearing in your mailbox offering special rates and programs, too. You’re going to feel very popular and probably very annoyed.
Private information is being sold without your consent or knowledge. These mortgage companies buying these trigger list (also referred to as prescreening) are generally “fly by night

No Credits "For Repairs" Allowed

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This excerpt from a recent comment to an old article of mine, deserves more than “comment back” attention.

“we said we would take $5,000 for…repairs…The addendum was signed by both seller and buyer….Our lender wanted us to take the word repairs out of the contact, but we wouldn’t do it, so our loan fell through…’

Lenders do not want to lend out money for future repairs to a home, nor do they want to finance properties that need repairs. Let’s say a house needs a new roof and the cost of that roof is $7,500. Agents cannot write a contract with an addendum that says “Seller to credit Buyer $7,500 for a new roof” and expect the sale to close. Nor can the lender simply say “remove that addendum”, as if the buyer is supposed to pay the same price without a new roof or the money to buy a new roof.

Clearly this situation has come up several times in my career. Most recently, the roof was OK, but was two layers of composite over a wood shake roof, meaning at time of replacement all three layers would have to come off. Also, since wood shake roofs do not have sheathing, the new roof would have to include all new components and not just new shingles. The owner agreed to “pay” for most of the new roof and the buyer “agreed to pay” for a portion of the new roof. The new roof was installed by the seller prior to closing, and the sale price was increased to include the buyer’s share of the roof cost. Excellent resolution as the lender financed a house with a brand new roof. Everyone is happy.

Another good and often used solution, if the buyer wants to take a credit and pick and install their own roof, is for the buyer to take a credit “toward closing costs”, They simply use the money they were going to use to pay closing costs, to put on a new roof. It’s just a replacement of these monies for those monies. It satisfies the lender, as they will usually allow a credit toward closing costs, but not for repairs. As long as the appraiser doesn’t “call” the roof and require it to be done before closing, the buyer can get the monies this way.

So is Denise “bad” to refuse to take the word “repairs” out of the addendum? Or are the agents (if there were in fact agents involved) “bad” for writing and accepting an addendum in the first place, that they should have known would cause the loan to fail?

It is no surprise to me that a lender would not fund a loan that included a $5,000 credit “for repairs”. It is worth noting here, so that others do not write or accept addendums that offer credits for repairs, that send up red flags to the lender that the house is not in good condition. Perhaps it was a For Sale By Owner that Denise purchased without the assistance of agents. So to For Sale by Owners and private individuals buying from For Sale by Owners. and attorneys who assist in transactions without agent involvement, please note that generally speaking, a lender will not fund a loan with a repair credit, especially if there is little or no downpayment.

Understanding Credit Score and Credit Repair

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Credit remediation is a subject consumers often face with fear and trepidation, and for good reason. With the exception of recognizing that the best score wins, the average home shopper knows very little about the whole credit scoring process. Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to upgrade their credit history. The good news is there are ways to improve less-than-perfect credit scores and obtain a loan for the home you really want.

The first step in the process is making sure that you have a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you’ll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)


It’s also important to know just what a good credit score is. Most A-Paper scores generally begin around 680, although this number may differ slightly among lenders. Don’t despair if you come up shy, there is always room for improvement. Increasing your score just 5 points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan’s interest rate.

While credit repair is necessary for some, it’s not the only way to increase your credit score. Even if you have stellar credit, you can enhance your score through these steps:

  • Evenly distribute your credit card debt to change the ratio of debt to available credit. Let’s say you have a credit score of 665. If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket.
  • Keep your existing accounts open and active. The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit. The bottom line is don’t close those old accounts!
  • Keep credit inquiries to a minimum. Each inquiry into your credit history can impact your score anywhere from 2-50 points. When it comes to mortgage and auto loans, even though you’re only looking for one loan, multiple lenders may request your credit report. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, so try and stay within that time frame.

Remember, credit scores don’t change overnight. Improving them requires time and diligent effort on your part, so it’s a good idea to get the ball rolling at least three to six months prior to submitting your application for home financing.

If credit repair is what you need, you can either begin the process yourself or seek out a repair service. If you decide to make your own improvements, visit as many websites as possible to get information regarding credit laws and consumer rights. Diligently search through them and educate yourself to ensure that you don’t sustain any self-inflicted wounds. A good place to start would be the Federal Trade Commission’s website, which contains a wealth of helpful literature.

If you’re facing severe or complicated credit issues, then you’ll probably want to enlist the assistance of a professional credit repair company. Before you do, be sure to familiarize yourself with the FTC’s regulations on credit repair. With over 1100 credit repair companies to choose from, it’s important to be certain you are dealing with a reputable firm. Examine the FTC’s information on fraudulent practices to avoid falling prey to credit repair scams.

Addressing credit issues can be uncomfortable to say the least. But by taking these steps now, you’ll be that much closer to obtaining the home of your dreams.

Additional Resources:

To order your free credit report, go to:
www.annualcreditreport.com

To read the Fair Credit Reporting Act, go to:
www.ftc.gov/os/statutes/frca.htm

For the Federal Trade Commission’s information on consumer credit, go to:
www.ftc.gov/bcp/conline/edcams/credit/index.html