MortgagesUndressed

Credit Wrinkle: Tip

Did you know that your credit score will probably get worse, not better, if you pay off an old collection?

Tip: Don’t pay off old collections if you are about to purchase a home. An experienced loan officer can guide you through what to do and when.

You can ask questions about this on this forum. Click Comment 1st and type in your question.

Larry Cragun

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For the second day in a row a friend of the faithful 25 came forward for help. Today’s brought front and center an important principle. Take care of your mortgage first, last, and always. In other words, if you are having financial problems your mortgage is your most important obligation.

The friend had gone through some problems. Things were better now, good enough they qualified for a 3 % down FHA loan. Then quickly a fact surfaced that dashed the possibility. They had let a home go back to the bank and the bank took a loss. That transaction was FHA. Instead of a great rate and a low down payment this borrower has to either pay off the FHA deficit, which they cannot, or go hard money.

Hard money is high interest rates, prepayment penalties, and a big down payment.

It is not fun not being able to help. So I guess I have to get my joy in sharing these important principles with those who drop by and read. Larry Cragun

The borrower had a 520 credit score. They wanted to put less than 10% down. They had some items on their report that could be cleaned up. It was a purchase.

They have to do something to fix this. In the short term a larger down payment via a gift could work. The interest rates would be very high.

They may lose the opportunity to buy this house with my suggestions, but that shouldn’t be the driving factor.

I suggest they work day and night, literally, to clean up the glaring problem on the report. Give proof it is resolved to the bureaus, and watch the score climb. With the new score in hand, get a pre-approval first, then go find a home. If at this point in time you are close to a year or two years without negative credit marks, expect to get a conventional type of a rate.

The lower the rate, the lower the payment, or the more home you can buy with your credential. It is worth the wait. The market has settled down in many places, even if this means no bubble, it should not mean the market getting away from you. Larry Cragun

How are you doing? Review the articles in this category. Don’t give up. Keep Dreaming, Keep Reviewing, Keep looking, Keep improving.

Larry Cragun

NEED I SAY MORE!

YOUR ADVOCATE:email me if you want.

LARRY CRAGUN

As I look at this wagon I see it’s limitations. But someone sees it for more.

Who pulls this wagon, who is its owner? I bet not your ordinary kid, probably one with vision.

- and Faith in Himself.

He probably will grow up to believe in trying and doing.

Who pulls your wagon? Faith or Fear?

Fear prevents, prohibits, and destroys.

Faith believes, endures, succeeds.

We are believers here. Moving forward.

And you? I bet you’d love this wagon…

and that bumpy roads won’t stop you.

Larry Cragun

This customer has had severe credit problems: Not in bankruptcy wants to purchase a home. You may comment on, write to, or follow this scenario. Larry Cragun

And you see the dream slip slip slipping away.

If you went through bankruptcy - make a 2 year plan.

In not - shoot for one year.

That isn’t far off really.

So go to work: No late payments from now on. That refers to 30 days late. If you have a 30 day late this month, start the plan today. Now, go to work hard on that plan. That might mean two jobs. You will need to have a reasonable amount of monthly payment obligations. Pay them down.

If you have no credit history that is good, go fix that. You must have 12 months of good credit.

A decent loan can’t be given to you if the only credit you have is bad credit. Time now for good credit, right? Right!

I have seen numerous people come off bad times and have the dream. You can too. If you need encouragement email me at larry@mortgagesundressed.com. If you have a question be the first to comment.
Go make it happen. You can do it.

Maybe, former friends if not careful.

First of all, most loan programs won’t let a person with bad credit use a co-signer with good credit to overcome the problem. A file with two borrowers will be underwritten with the lowest borrowers’ credit as the guide post. This is usually the case, even with the spouse having poor credit. The theory here is the lower credits habits will overpower that of the higher credit.

Co-signing can help in qualifying. FHA loans don’t require the co-signer to occupy the home, a unique benefit of FHA. Note - many lenders have dropped FHA, Washington Mutual being the most significant. FHA has become a burden to the lenders, not worth the hassle.

Co- signing by two people occupying the property is acceptable in almost all loan programs.

This however opens the pandora’s box for problems. I recommend you not do this. It is an invitation for future credit problems, legal problems, and friendship problems. You have no control of the future credit management behavior of the co-borrower. They may just run out on your joint obligation. This practice is most common in those under age 30, and this age group is most likely to be over burdened with debt.

Know this, there is a good chance that if you co-sign for another you may be totally obligated for a mortgage where there is a dispute or question as to your rights to own the property if you have to pay the entire obligation just to maintain your good credit.

Also note, I have seen many cases where the co-signer is unaware their credit is being damaged. Both signers credit is affected by late payments. It is common behavior for the person not making the payments to not tell anyone they are having problems.

Larry Cragun

Seven years, Ten for bankruptcy.

Collections and legal actions such as judgements continually hold the score down during the seven years.

The time to fix a legal action is quickly, except when you are applying for credit. Paying off an old collection actually pulls the score down by making it a current issue.

When a problem shows up during the mortgage process, work with your loan officer for timing. It may be better to leave it alone and agree to pay off the collection as a condition of closing the loan, at escrow.

Note then, the older a negative item is, the less it influences the score.

You can tell this, by the car they drive -

and if they are layed back and relaxed.

Like with this guy.