MODIFICATIONS:

A modification is the act of changing the original mortgage agreement between the borrower and the lender/bank to avoid foreclosure. There are many companies out there saying they do modifications, they don't, only the lender can actually modify the loan. So if someone wants money from you to get your loan "MODIFIED", they aren't being honest, if you actually qualified for a modification you could go directly to your bank to do it.

One of the scariest scams in the modification business goes something like this:

You get a call from a modification company and they tell you they get people down to rates as low as 2% and all they need from you is 1-2 months of mortgage payments to give to their attorney to get the process started and they will even give you a MONEY BACK GUARANTEE. So you give them the money and once the check clears they come back to you and tell you to stop making your mortgage payments, when you say no and demand your money back they tell you they are keeping your money because you are not following THEIR plan. If you do stop making your mortgage payments and try to follow THEIR plan and they can't get you modified, you might get your money back but by that time you are in foreclosure and so you lose your home.

HOME EQUITY LINES:

A. They are almost always adjustable (some are even adjustable every month), which might be o.k. when rates are low, but when rates are on the rise customers can really take a beating.

B. Generally they show up on the credit as a credit card and have the same effect on your credit

C. They are usually balloon loans, meaning you pay a little each month and then one day the bank is asking for all of their money back at once.

D. The payments are usually interest only, which wouldn't be a big deal except that they are usually balloons; show up as credit cards; and are adjustable (SEE  "A, B, C" ABOVE)

BALLOON LOANS:

When a bank/credit union puts a borrower on a balloon loan, it is a complete benefit to the bank. Most balloons are either 3 years or 5 years but the payments are based upon a 15 or 30 year term. When the balloon comes due the borrower has to pay the full amount of the mortgage back to the bank. It is similar to leasing a car where at the end of the lease you have a huge lump sum payment you have to make to the bank in order to buy the car, or in this case, keep your home. Most banks tell you they will refinance you and just roll the balloon into the new loan but what if:

• your credit drops?
• your income decreases?
• your debt load increases?
• your home value decreases?
• lending requirements change?
• the loan officer leaves the bank/credit union?

What happens is that you are stuck trying to pay back a huge mortgage all at one time, that if you could afford you probably wouldn't have borrowed the money in the first place. Banks/Credit Unions put borrowers on these loans to protect themselves against rising interest rates. TO US THESE ARE THE WORST LOANS POSSIBLE!!

SELLING YOUR HOME:

When selling your home please be realistic, don't just listen to what a realtor tells you. Many customers come to us with the idea that they can sell their home, take the equity and purchase a new home that is much nicer because of how much home values have dropped in the past 2 years. The only problem is that to sell your home you have to take into account the following:

• take 10% off what you (or the realtor) thinks your home is worth because you are competing with foreclosures/borrowers in trouble/bank owned properties
• take 6% and give it to the realtor. Maybe you can get a cheaper realtor, but guess who's house they are going to try to sell first? the customer who is paying 6%
• take 3% minimum to give to the buyer for their closing costs. If you don't, someone else will and that is who will sell their home.

So if you think your home is worth $200,000 don't expect to see more than $163,800 at closing and the mortgage still has to be paid in full.

We're not saying that homes can't be sold, of course they can, just be realistic. Most borrowers don't find out for 6 months to a year that they couldn't get what they needed for their homes in order to sell them and by then rates will have gone up. IT IS BEST TO WAIT UNTIL THE MARKET HAS TURNED AROUND AND BECOMES A SELLER'S MARKET TO SELL YOUR HOME.

DEBT SETTLEMENT COMPANIES

Everyone has seen the advertisements "IF YOU HAVE MORE THAN $10,000 IN CREDIT CARD DEBT YOU NEED TO CALL US" and so you call and they tell you they can settle your debt for pennies on the dollar as long as you enroll in their program for a small fee. If you look at the ad in fine print, it reads "YOU MIGHT BE SUBJECT TO TAX CONSEQUENCES" which basically means if you settle a debt for less than you owe the IRS might consider it income and so you could be liable to pay income taxes on the amount settled....if it sounds to good to be true, it probably is.

 

How scores are determined

 

According to FICO, they weigh different aspects of credit differently:

 

 

• 35% – punctuality of past payments later than 30 days past due
• 30% – the amount of revolving debt, expressed as the ratio vs. total available revolving credit (credit limits)
• 15% – length of credit history
• 10% – types of credit used (installment, revolving, consumer finance)
• 10% – recent searches for credit and/or amount of credit obtained recently

Credit Scores

A credit score is a single number that helps lenders and others decide how likely you are to repay your debts. One kind of credit score is a FICO score (FICO stands for Fair Isaac Corporation, the company that developed a common scoring method). FICO scores range from 300 – 850 points.

When you apply for a mortgage, your credit score is evaluated. Your credit score will be used to determine the terms of your mortgage and the interest rate.

Your credit score is based on several types of information contained in your credit report:

• Your payment history.
  Late payments will decrease your credit score.

• The amount of debt you owe.
  If your credit cards are at their limits, this can lower your credit score - even if the amount you owe isn't large.

• How long you've used credit.
  Your credit history is important. If you show a pattern of managing your credit wisely, keeping credit card balances low, and paying your bills on time, your credit score will be positively affected.

• How often you apply for new credit and take on new debt.
  If you've applied for several credit cards at the same time, your credit score can go down.

• The types of credit you currently use.
  This includes credit cards, retail accounts, installment loans, finance company accounts, and mortgages.

Your credit score is only one factor in the credit decision. Mortgage lenders also look at your credit report, employment history, income, debt-to-income ratio, and the value of the home you want to buy.

What the Numbers Mean

FICO does not make specific statistics available to the public regarding credit scores. However, they do provide a snapshot that can help you understand how to interpret your credit score:

• Credit scores ranging from 770 to 850 are considered very good, and the best credit rates are usually available to borrowers within this range.
• Credit scores above 700 are considered good, according to FICO, and most borrowers' credit scores are within this range. The median credit score is about 725.
• When credit scores are below the mid-600s borrowers may experience higher interest rates when looking for a loan.

It is important to remember that credit scores are like snapshots of your credit – they show a "picture" of your credit based on current information. By using credit wisely, you can improve your score over time.

Restoring Your Credit

It’s always in your best interest to improve your credit score. The good news is that no credit score lasts forever - it changes over time, so you can improve it over time.

Every time you apply for a loan or credit card, use credit, or make or miss a payment, you build another entry in your credit report. You also raise or lower your credit score.

Here are ways you can improve your credit score over time:

• Stop spending money you don't have.
  If you have a budget, stick to it. If you don't have a budget, make one.
• Make at least the minimum payments, on time.
  This is something that can begin to improve your credit rating right away.
• Pay off your accounts.
  If you have several accounts with small balances, try to pay them off. If you have accounts that went to collection, pay them off as soon as possible! But don’t use one credit card to pay off another. That is just transferring debt, not reducing it.
• Limit your credit.
  It may be tempting to open a new account to pay off other accounts, but it is a dangerous trap that can cost you money and actually hurt your credit rather than help.
• Use bankruptcy as a last resort.
  Filing for bankruptcy can keep you from getting a loan for a long time, raise your interest rates, and stay on your credit record for 7 to 10 years.

Fix errors on your credit report.

Sometimes, credit reporting agencies make mistakes that can damage your credit record, so it is important to check your credit report at least annually. If you see something wrong on your credit report, fix it immediately.

I received an email this morning regarding some APR questions. I realized that many people believe that when you get an APR quote that it encompasses all fees, but this certainly is not the case. Below is a list of NON-APR fees (they are not included in the APR at all):

• Abstractor’s Certificate
• Application Fee - (if charged to all persons seeking credit, whether or not credit is actually extended.)
• Appraisal Fee
• Appraisal Retype
• Appraisal Review (3rd party appraiser)
• Attorney Retained by Borrower Fee for File Review
• Credit Report Fee
• Credit Alert (CAVIR)
• Engineer’s Report (if not required by Lender)
• Escrow Repairs (Rehab. amounts)
• Flood Certification (if part of survey fee)
• Flood Determination/Inspection (initial determination)
• Flood Insurance
• Home Inspection
• Insurance Reimbursement
• Interest Collected for Old Loan Pay-Off In Refinance
• MIP Refund
• Modification Filing Fee
• Notary Fees
• Points - Paid by Seller
• Recertification Fee (To Appraiser)
• Recording Fee/Filing Fee
• Redraw Fee for doc prep lawyer
• Restriction Fees (To Title Company)
• Survey Fee
• Tax Certificate
• Tax Deletion (To Title Company)
• Tax Service Fee - Initial examination
• Tax Transfer Fee
• Termite/Pest Inspection
• Title Binder
• Title Inspection (To Title Company)
• Title Insurance (Lenders or Owners)
• Title Opinion/Policy (To Title Company)

Student Loans

Student loans can no longer be considered deferred. Fannie Mae and FHA will both require a percentage of the outstanding balance to be used for debt-to-income purposes.

Self-employed borrowers

Have you been in business more than 2 years, but had a much better year last year than the previous year? We have a program that would allow you to use ONLY YOUR LAST TAX RETURN!

 

 

 

 Resources:

to find out tax value and property tax amounts:

www.taxnetusa.com/

to find out if fannie mae owns your home so we can use their special programs:

www.fanniemae.com/loanlookup/

to find out if freddie mac owns your home so we can use their special programs:

https://ww3.freddiemac.com/corporate/

to find out if you are eligible for a USDA purchase program:

eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

to see what the fha loan limits are for your county/area:

entp.hud.gov/idapp/html/hicostlook.cfm

to check on the school systems in Texas:

ritter.tea.state.tx.us/perfreport/account/2011/index.html

to check out crime statistics in texas:

www.neighborhoodscout.com/tx/crime/