Loans by Zach

When you’ve thought of a refinance in order to switch over to a better rate/loan, you’d like to be aware of the mistakes most people make while going for it. Know-how of the common mistakes would prevent you from taking a wrong step in the refinance/refinancing process. Here are the top 9 mistakes which you should avoid when you switch over to a new loan.

1. Refinancing without shopping around

May believe it’s easier to deal with your current lender. But he may not offer the best option in terms of rates, fees and other terms and conditions. So, it’s better to shop around with some more lenders and compare the offers till you get the right choice.

However, even if it’s your current lender with whom you’ll refinance, you need to re-qualify for the new loan and as such your current financial situation will be verified.

2. Unaware of the Break-Even period

When you are into refinancing, you’ll have to pay closing costs which can be offset by your savings due to lower rate. The time period during which your savings fully offset the costs is the break-even period.

You need to calculate the break-even period, so that you can occupy the property till then and recoup the costs. However, this is helpful in case of refinance transactions involving similar loans and wherein the purpose is to lower the rate and monthly payment.

3. Not received a Good Faith Estimate

The lender is likely to provide you with a Good Faith Estimate of closing costs within 3 business days of receiving your loan application. This helps you to trace any hidden cost so that you can avoid paying higher costs. So, if you don’t receive the estimate, get one from the lender.

4. Considering Assessed Value of property

Do not depend upon the assessed value of your property as determined by the county tax assessor. The loan amount isn’t based on the assessed value. Instead, it depends upon the appraised value of your property which real estate agents determine using either the Sales comparison Approach or the Cost Approach.

5. Paying for appraisal even if home value may be low

It’s better not to agree to pay for a formal appraisal when you are aware that your home appraised value may be low enough.

If you think the appraised value of your home is low enough to get a good amount of loan, then you can ask the current lender to determine your home value by using the automated valuation model (AVM). This approach takes into account the value of similar homes in the neighborhood.

Thus, the appraiser gives you a range of possible home values, which will allow you to determine whether you can afford the home with the amount of financing that is available.

6. Signing loan docs without proper review

Check the loan doc before signing on them. Read the terms and conditions thoroughly before you accept them in writing. If possible, request the lender to allow you to read the papers in advance because you may not get enough time to go through all the docs at closing.

7. Not providing relevant docs in time

You can prevent unnecessary delays in closing if you submit relevant documents to your lender just when it’s required. Otherwise, if closing is delayed, and mortgage rates go up, then you may have to choose the higher rate itself.

8. Getting a verbal Rate lock

It’s better if you can get the rate lock in writing from your lender. This written statement includes your interest rate, length of rate lock and other details of the loan program.

9. Taking cash from Heloc

Lenders often require that a homeowner should wait for 6 months at least if he has taken cash out of home equity line of credit, prior to refinancing.

Moreover, if you withdraw money from your Heloc for anything except home repairs, and then go for refinancing, lenders would consider the first transaction as “cash-out”. This is so because you’ve accessed your credit line. So, it’s a good move not to pull out equity prior to the refinance.

Refinancing mistakes can cost you a lot in terms of time and money. So, it’s better to avoid them and stay away from troubles in your mortgage.

9 Refinance Mistakes and how to avoid them
By Jessica Bennet

Self-help credit repair is similar to improving your credit score with a conscious effort from your end. A number of factors affect your credit score; improving the score requires you to take care of those factors such that you can manage your credit better.

Follow the simple steps to improve your score.

Improve your payment history:

* Avoid making late payments on your bills.
* Clear up all your past-due bills as soon as possible.
* Request your creditor for an alternative plan with low monthly payments.
* Negotiate with your creditors to remove charge-offs from your report and re-open those accounts.
* Request your creditors to erase late payment entries after you re-start paying in time.

Reduce your outstanding debts:

* Pay off high interest debts first.
* Keep your balances low and try to keep your revolving debt to 50% of your available credit.
* Don’t close old and unused accounts rapidly in order to lower your available credit. It will raise your debt-to-credit limit which has a negative impact on your score.
* Try to close accounts gradually over several months. Verify if the accounts closed are reported as “closed by consumer”.

Improve Your Credit History:

You should not open several new accounts within a short period of time when your credit history is less than at least three years. Adding too many accounts in a short interval implies that you are not able to manage your credit properly.

Manage new credit efficiently:

* Restrict yourself to a medium credit limit and not a higher one as your creditor suggests.
* Do not try to open too many new accounts if you have gone through credit problems in the past.
* Plan your budget taking into account your finances and credit.
* Avoid several credit inquiries within a short period; otherwise it would mean that you are about to open multiple new accounts and this will affect your score.

Use a proper mix of credit:

* It is better not to have too many installment loans as they can reduce your score. This is because the payments remain unchanged until you pay off the balances.
* You can have a combination of credit cards and installment loans or loans with fixed payments as they help in improving your score. But you need to handle your credit cards efficiently.

You can also contact a credit counseling agency for tips on managing your debts. These agencies are different from the credit repair companies and they can guide you on how to improve your financial situation.

Once you have checked through the various factors influencing the credit score, try to maintain a stable credit report with the latest details. A few simple steps will help you in this regard.

* Try to include positive details regarding your credit profile.
* Request your creditors to send your account details and payment history to the credit reprting agencies.
* Create a savings account at your bank. Your creditors will be convinced that you have started to save and maintain extra funds to pay down your debts.

Apart from practicing good payment habits and updating your credit report, you should look towards removing errors from your report. This will also help you to get a better score.

Credit history determines your chances of getting a loan through an assessment of your credit worthiness. Lenders need to know how well you can repay a loan and if there is any risk involved in the process.

Lenders generally verify the number and the type of credit accounts of a borrower. They also check out for how long these accounts have been kept opened and whether the borrower has delayed his payments towards any particular loan.

* The credit history includes information on the type of credit accounts that you have as well as the total amount of credit you have taken in the past.

* Credit history is basically a record of how an individual has paid back all his debts including secured and unsecured debts in time. It indicates if the debtor has ever filed bankruptcy in the past or if his property has ever been in foreclosure. All these make lenders aware of how well he has managed to repay his past credits.

* The credit history also specifies whether a debtor has come across any inquiry in the past or if there is any tax lien or monetary judgment imposed on him. Credit history includes information as to whether the consumer’s debt is passed on to any collection agency so that the creditor can get back as much part of the debt as possible. The credit history of an individual also speaks about his outstanding loans.

Maintaining a fair credit history is essential. With a good credit history, you can apply for loans in future and easily acquire them at the best interest rate and term. A good credit history assures a lender of your ability of repaying a loan within the specified time and with no late payments. A good credit history reduces the risk of offering you a credit.

Generally, credit history is explained in a credit report prepared by any of the credit reporting agencies, Equifax, Experian and TransUnion. Based on your credit report, the agencies assign a numerical value which reflects your credit worthiness. This numerical value is the credit score and it usually varies from 300 to 900.

A credit score of 680 or above indicates excellent credit and enhances the chances of getting a loan with reasonable payment scheme. On the other hand, a score having value less than 620 implies bad credit history.

Lenders request your credit report from any of these bureaus before approving your loan. Thus, it is necessary that any individual intending to apply for credit in future must maintain a fair credit history.

How credit report gets affected by credit history
By Sam

A credit score is a 3 digit number that implies how creditworthy you are and how likely it is that you’ll repay credit once you avail it. The score affects the rates you receive on mortgage loans, auto loans, credit cards etc. Besides, when you go for an insurance policy or apply for a job, the insurer or employer will look at your credit scores. Even if you’re looking to rent, your landlord would prefer you to have a good credit/FICO score.
What is FICO score?

FICO score is a credit score calculated on the basis of the FICO Scoring Model developed by the Fair Isaac Corporation. In most cases, when people speak about credit scores, the FICO credit score is what they mean. Consumers can access different versions of the FICO score at the 2 bureaus – Equifax and TransUnion. These scores are known as Beacon score and Empirica.

The consumer FICO scores calculated by Experian are sold off to lenders only. Consumers can’t access them. However, consumers can find their credit scores (based on Experian data) online at Experian. They can even request for a free credit report from Experian as they do from other bureaus.

What is a good credit score?

Usually FICO credit scores range from 300 to 850. The higher the score, the lower will be risk in offering you a loan. A FICO score equal to or above 700 can be considered as a good credit score. And you’re likely to qualify for some of the best deals at affordable rates.

What is a credit score chart?

A score chart helps you get an idea of credit score ratings based upon the credit scores you have. The credit score chart is given below:

* 730+ – Excellent
* 700 – 729 – Good
* 670 – 699 – Needs a closer look
* 585 – 699 – Higher risk
* Below 585 – Limited credit history

Can you get a free credit score?

As per the FCRA laws, anyone is entitled to a free copy of credit report once a year from each of the bureaus. But free credit scores are not available. You’ll have to place an order with the bureaus and pay a fee (as set by the Federal Trade Commission) if you’d like to get your credit score. You may apply for credit scores online at www.annualcreditreport.com or contact them at the toll free number 877-322-8228.

What is the Credit Scoring system?

It’s a system by which credit bureaus figure out your scores based on the information that is available from your credit report. The bureaus use a statistical program to compare the loan repayment history of consumers with similar profiles. Then they award points for each such item that helps to find out the consumer who can easily pay off a debt. The total number of points adds up to your credit score.

Why do credit scores or FICO scores vary?

The major credit bureaus – Experian, Equifax and TransUnion follow the FICO scoring model (developed by Fair Issac Corporation) to calculate the FICO score. But the scores differ as because they use minor variations in the FICO Scoring model as well as assign different points to each item on your credit report.

Not all lenders/creditors and collection agencies will report your credit information to the same credit bureau. Therefore, the credit score you get from Experian may differ from what you receive from Equifax. Besides, your credit scores change from time to time based on the credit transactions you go through. So, make sure that your creditors update the bureaus with your latest credit details.

Do credit score ratings differ?

The credit ratings may vary from one lender/creditor to another depending upon the items (such as late payments on revolving accounts, mortgage lates, credit card balances etc) they consider after reviewing your credit report. For instance, an auto loan provider may leave out an item which a mortgage lender would consider while providing credit score ratings.

Is Mortgage Credit score similar to the regular score?

Mortgage lenders consider the middle score – the one that comes in between the maximum and minimum scores you receive from the bureaus. But often lenders may not use the middle score in order to evaluate your creditworthiness. This is because the credit report you pull out from the bureau is based on the Consumer Model whereas your lender may prefer to calculate the score using a different scoring system – the Mortgage Model.

The information used for both Models may be the same but the importance given to each tradeline may vary. The Mortgage Model gives more emphasis to the tradeline, which can affect your mortgage loan. Thus, your chances of getting a mortgage at favorable rates may depend more upon Mortgage Credit Scores as compared to the regular score.

Are there alternatives to FICO scores?

Apart from the FICO Scores, there are Alternative scores developed for consumers with poor credit. The Alternative scores are based on your bill paying history, outstanding loan balance, the type of credit accounts etc.

As lenders pull out your credit report from different bureaus, therefore not all of them will give you the same credit score rating. Hence, you don’t get similar offers and rates from lenders. To avoid such discrepancy, the Vantage score has been introduced. Such a score ranges from 501 to 990. It is calculated the same way by each bureau. Thus, a Vantage score of 770 at Equifax will be the same at Experian, provided similar information is reported to the bureaus.

With market changes including rise in delinquencies and foreclosures, lending standards get tighter. Hence qualifying for loans is tough especially if you don’t have a good credit record and score. Especially when it comes to getting a mortgage, loans which are not score driven need you to have a minimum of 580 credit score. So, it’s important to protect your credit standing and maintain a good score.

Credit Scores – What are the types and why do they vary?
By Jessica Bennet

Like most big things, bankruptcy often seems to be scary and it brings a lot of misconceptions along with it. No doubt, you can look for some alternatives before opting for bankruptcy but when you don’t have a way out of your debt problems, this remains the one and the only option. However, when you have misleading ideas regarding this process, you may come across a lot of hassles.

Here is a list of the misconceptions that many debtors generally have about bankruptcy.

* People will come to know about the petition:
Unless you are a famous person or a major organization and the media reports on the filing, there is no chance of more people knowing that you have filed for bankruptcy. Moreover, the number of people filing for bankruptcy is so huge that the media does not have the time to report on the bankruptcy cases filed by each and every individual in a particular state.

* Chapter 7 can wipe out all debts:
Most individuals have a preconceived idea that Chapter 7 bankruptcy can dispose all debts. On the contrary, there are certain debts which cannot be discharged through filing such petitions. These debts include child support, alimony, alimony, student loans and debts incurred due to fraud.

* All the assets will be utilized:
This is a common conception that often prevents people from filing for bankruptcy. They believe that the government may sell off all their assets and then they’ll have to start off from the very beginning. But bankruptcy laws vary from one state to another. Each state has exemptions that may protect certain assets such as your house, your car (up to a definite value), and your contribution to a qualified retirement plan. In case you have a mortgage or a car loan, you can keep them as long as you continue to make the payments.

* It is impossible to get credit again:
Most debtors filing for bankruptcy feel that they won’t be getting credit for about 7 to 10 years since the effect of bankruptcy stays on a credit report for that time period. But you can avail mortgage loans from lenders who offer subprime loans at very high interest rates. You can also get credit card offers.

Regarding credit cards, if you have one with zero balance on the day of filing, you need not include that in the list of filing. This is because you do not owe any money on it. Although it is not a wise thing to get involved in any debt payment right at that moment, yet you are free to do so whenever required. However, getting a mortgage or a car loan may be difficult but you may acquire it only by paying larger interests.

* Both spouses will have to file for bankruptcy:
This is not always necessary. But if both spouses wish to discharge debts that they are both liable to pay off, then they should file together. Otherwise, the creditor will demand the total payment from the spouse who did not file.

* Filing a bankruptcy is not at all easy:
Most debtors feel that it is hard to file for bankruptcy. But this is not the fact; rather such filings can often be done without consulting an attorney. But it is better to take help from an attorney regarding the legal aspects of the process.

* Only people in debt problems file for bankruptcy:
Most individuals are of the opinion that people file for bankruptcy after they have a bitter experience in their lives. These may include divorce, losing a job or even serious illness. It is believed that these people have struggled to pay off their bills since a long time and that is why they have filed for bankruptcy.

* Not all creditors may be included:
Often debtors don’t prefer to include all creditors and lenders in their filings. They feel that if such debts are discharged after bankruptcy, then they will not be able to repay them. But the fact lies that you should include all your creditors and once your debts are discharged, you can pay back the creditor all your dues.

* Bankruptcy can improve credit rating:
It is a general conception that bankruptcy can erase all debts and hence improve your credit rating. On the contrary, bankruptcy is the most negative element that can show up on your credit report. It stays on your credit report for 7 to 10 years, thereby lowering your chances of getting credit and loans at better rates.

* Bankruptcy cannot help in getting rid of back taxes:
It is true that one cannot get rid off back taxes by filing for bankruptcy. But this is only possible through tax bankruptcy which requires you to file all your returns. The taxes owed should be at least 3 years old.

* Bankruptcy can be filed only for once:
You cannot file for bankruptcy once again within a short interval. Generally, debtors file for Chapter 7 at an interval 6 years. But you can file for Chapter 13 more often than Chapter 7, although it may not be ideal. This is because multiple filings may damage your credit rating thereby eliminating the opportunity to get credit at affordable rates in future.

* One can utilize all debts, file for bankruptcy and never pay all the bills:
Such activities are regarded as frauds by bankruptcy judges. The trustee appointed for Chapter 7 bankruptcy will review all that you have purchased prior to your filing. So you really can’t prevent yourself from paying at least some of your bills.

Bankruptcy involves legal formalities and any wrong move on your part can lead you into trouble instead of relieving yourself from debts. Therefore, it is necessary that you clear up all your doubts and then proceed towards filing the petition. This will help you to act accordingly and prevent you from being misled by anyone.

Common myths on bankruptcy
By Jessica Bennet

If you’re behind on mortgage, and alternative options aren’t available to help you get out of the problem, you’ll have to decide between foreclosure and bankruptcy Chapter 13.

When to file chapter 13 and why

When you are to decide upon foreclosure vs bankruptcy, the first thing to ask yourself is whether you’d like to keep the home. If you’re keen on keeping the home, filing Chapter13 makes sense. This helps you to pay off all or part of the mortgage, especially the amount by which you’re behind on the loan. The payoff period in Chapter 13 is quite short, that is within 3-5 years. However, you’ll have to go through credit counseling session within 6 months prior to the date of filing bankruptcy. Then you’ll have to pass through the Means Test which confirms whether you’re eligible for chapter 13.

More about chapter 13

Once you qualify, prepare a repayment plan such that you’ll be able to pay daily expenses and other financial obligations apart from making monthly payments under Chapter 13. Submit your plan to a court-appointed trustee who reviews it and sends the proposal to the lender.

The lender has the right to challenge the proposal at a hearing if he feels the plan is unreasonable. Once the plan is approved, you can go ahead with the filing and as soon as you file Chapter 13, the lender stops foreclosure. And until and unless you are discharged, the lender cannot initiate foreclosure again.

However, the question of foreclosing at the end of the 3-5 year period doesn’t arise if you have cleared the dues and are able to continue with the outstanding balance. You can even refinance or sell the home after that and get rid of the remaining balance.

Foreclosure vs bankruptcy Chapter 13

What’s important is that Chapter 13 bankruptcy shows you’ve tried to clear debts instead of avoiding them and this creates a positive impact on your credit report compared to foreclosure. However, if you fail to reorganize your debts and catch up with the payments, the bank is likely to foreclose and then you’ll have both bankruptcy and foreclosure on your credit, which is again very disturbing for any debtor. So, you shouldn’t miss any payment under the Chapter 13 plan or else the court will dismiss your case and then you’ll have no option but to lose your home in foreclosure.

Another positive aspect about Chapter 13 bankruptcy is that it helps you keep the home. So, even if your home is worth more than the homestead exemption of $125000 (under certain conditions), you need not worry as you are able to preserve it. But when you foreclose, you lose the home and added to it, if the house doesn’t sell for enough, the lender may file a deficiency judgment (if it’s not an anti-deficiency law state). And then you’ll have to pay the deficiency unless the lender/mortgage company cancels the debt. However, this will be reported on your credit report and is likely to affect your credit.

Then there are tax issues involved with the deficiency. If you don’t pay the deficiency, you may have to pay tax on canceled debt unless your property is in California or you don’t satisfy the criteria for mortgage debt forgiveness.

Credit effects – Foreclosure vs bankruptcy

Once you file bankruptcy, the creditor/lender can no longer report your debt as delinquent. So, except bankruptcy, no other debt affects your score after filing. But you can rebuild credit in 2 years. However, in other situations such as if you’re in mortgage problems, the bank won’t even start negotiating until you are 2-3 months behind. By this time, your credit already gets the hit. Then if you add a foreclosure, it turns out to be a 7 year record with your credit way below the average.

The bankruptcy on the other hand, stays on your report for 10 years but it doesn’t affect your credit rating after the initial hit. The best thing is, when you file bankruptcy, the court sends a note to your creditors/lender preventing any activity against you. So, you can expect no further credit damage. As for the credit report, it’s better to have a 650 score with bankruptcy instead of a 480 score and no bankruptcy.

Bankruptcy is no doubt an option which helps to avoid foreclosure. But when it comes to deciding upon foreclosure vs bankruptcy, one has to understand and decide which option will work better in his particular situation. This is because there can’t be a single solution that fits every debtor’s situation. So, the best thing is to act when you realize you cannot afford any longer. That’s the right time to talk to your lender and find out a solution to your problem.

Foreclosure vs bankruptcy – Which is right for you?
By Jessica Bennet