Everyday hundreds of Americans apply for a home mortgage. Unfortunately, many lenders do not instruct their clients on the do nots of home financing. Consequently, before the loan process is complete, an approved buyer becomes unapproved.
Chuck Bricker of Bank of America and his team has put together a list of what they call “Thou Shall Not”. According to Chuck Bricker of Bank of America the following things should NOT be done between the time of submission of your home loan and closing.
Chuck Bricker goes on to state, “Some of these may seem very rudimentary and even silly, but I promise you that each one is from at least one real life event in my years of experience.”
Thou Shall Not:
Quit your job.
Overdraft your checking account.
Stop paying your rent or mortgage.
Change employers or compensation structure with current employer, at least without notification to your loan officer first.
Open any new accounts – including to finance appliances, etc, for your new house. Tempting as it may be, get the keys first, please.
Make any CASH deposits to your account(s).
Liquidate any major accounts, like 401k, without, first, getting proper instructions on documenting the withdraw or loan & deposit into your checking account properly.
Get gift funds from a friend or family member – Contact me first for proper instructions on how to transfer the money from donor to you & document it for your loan file.
Do anything that will result in a new collection, judgment or tax lien, etc.
Finance a new Harley Davidson & make your first excited phone call about the new purchase to your me, your loan officer. Sorry, I probably will not share in your excitement.
Change your marital status without notifying your loan officer.
Change your target closing date without notifying me first.
Forget to inform me that the home has a huge hole in the roof that could second as a shower when it rains.
Withdraw a large sum of money from your account(s) to make a major purchase – appliances, automobile, Michael Jordan rookie card, etc.
File bankruptcy.
Stop making payments or pay late on your current debts.
Get an loan of any type for your down payment.
Situations that reflect these items above do sometimes arise. If a client has the possibility of experiencing one (or more) of the above items – or anything similar – please contact your loan officer. There are others involved in helping during the loan process, such as processors, assistants, etc… According to Chuck Bricker, for matters like the above, yourloan officer is best equipped to help you navigate potential problems.
Finally, Chuck Bricker suggest that if you have applied for a home loan and perceive any bumps in the road, be proactive and up-front with your loan officer.
There were several nuggets from the show that I thought were very important.
Families need to budget monthly not yearly and divide by 12. Each month your needs change. For example, some months children are out of school and usually requires more food to be brought into the home.
Put your budget on paper. By writing down your budget, adjustments can be made if necessary.
Look at your cash flow. Many people do not know how much they actually make and/or bring home monthly.
Have a goal. Studies show that when we have set goals and we write down our goals we are more likely to achieve them.
I also promised the link regarding Parents’ 5 other card choices for college-age children. Click here to read the article in full posted on creditcards.com.
For more information contact The Finance Coach at 317-858-7270 or call Integrated Credit Specialists LLC at 317-527-1440.
I know you are wondering how in the heck can paying off an account lower my credit score. Yes, I know it sounds backwards that by trying to do the right thing you get penalized. Here is he scoop. I have long taught that 35% of your credit score is past delinquencies. Obviously, paying your accounts in full and on time has the greatest positive impact on your score. So why would paying a collection potentially lower your score?
Here’s why, the last 24 months of activity has the greatest impact on your score. The newer the item the more impact it has. The credit scoring model uses the date of last activity to determine when the 24 month countdown starts. (Note: accounts older than 24 months still have an impact on your credit score). If you have an older collection that has not had any activity on it and you make a payment, you have restarted the clock because you have moved the date of last activity.
Many times collection agencies will try to contact you in order to have you make a payment so that they can keep the account on your credit bureau longer. Per the Fair Credit Reporting Act, collections can stay on your report up to 7 years plus 180 days from the date of last activity. Do not fall for it!
I am not suggesting that you not pay your debts. I am letting you know that there is a strategic way to handle past collections. Here are 3 simple steps:
Begin with accounts reporting in the last 12 months.
Before you pay anything, write to the credit bureaus and request validation of the debt. Validation is not verification. Federal law specifies what is considered validation. See Fair Debt Collection Practices Act for more information.
If debt comes back verified, contact the collection company and negotiate for a lower payment. We suggest that you ask for a pay for delete. A pay for delete is a request that the collection company deletes the entry from your credit report when payment is received. Pay for deletes are becoming increasingly more difficult to get. But, a paid collection is better than an unpaid one.
If you are applying or going to apply for a home, we suggest you wait until you are instructed by your lender to pay off ANY collections. If your lender tells you pay off a particular account, then they have prepared for the impact it may have on your credit score.
There is nothing anyone can do for you that you can not do for yourself when it comes to your credit. However, if you want guidance and education about credit please contact us at info@intcredit.net.
Past delinquencies make up 35% of your credit score. Obviously paying your bills in full and on time will have the greatest positive affect on your credit score. The credit scoring model looks at the level of delinquency. For example a judgment will have a greater negative impact on your score than a collection. Always try to avoid public records such as bankruptcy, tax liens, and judgments.
Also, activity in the last 24 months has the greatest affect on your score. When looking a credit repair strategies concentrate on activity in the last 24 months first. Pay off collections in Escrow NOT before. By paying an old collection you will make it new again because the date of last activity will change.
If you would like to learn more about credit scoring and how past delinquencies affect your credit score, please contact us at info@intcredit.net.
There is a lot of misinformation out there about what a credit score really is. Simply put – a credit score is a 3 digit number that seeks to quantify how likely a borrower is going to be 90 days late on a payment. Why 90 days? At 90 days, lenders spend more to maintain the account. Calls increase, increased notices go out, the lender may turn the file over to another department or collection company.
Each score is specific to each bureau. The score is generated by analyzing the information in the consumer’s credit report at THAT particular point in time. The higher the score the less the odds of default. For instance statistically, a consumer with a credit score of 800 and above has a 1292 t0 1 chance of becoming 90 days late while a consumer with a credit score between 620 to 659 has a 38 to 1 chance of being 90 days late.
Your credit score is more important than ever. When it comes to credit what you do not know can cost you big. Stay tuned for more Credit 101.
Home ownership is part of the American dream. Many of us grew up with the notion that we would grow up, get married, and find the perfect home to raise our children. For some the dream of home ownership is a seamless process. But, for others it can be a nightmare. Many potential homeowners seek out a Realtor prior to checking their credit and getting a loan approval. That is a backwards approach to home buying.
Case study: Jane is a small business owner. She has always paid her bills on time and maintains relatively low balances on her credit cards. Knowing she had “good” credit, Jane sought out a Realtor to help her find her dream home. Jane found a home and made an offer. After finding a home, Jane’s Realtor referred her to a Mortgage Loan Officer. Jane’s credit score came back in the low 700′s, but her loan officer told Jane she has been denied for a home loan. Three years prior, Jane had an issue with a vendor for her business and her account was sent to a collection agency. Jane had settled the debt with the original vendor, but somehow it had gotten transferred to a collection agency. It took Jane months to straighten out the account with the vendor and the collection company. The sellers would not agree to keep the home off the market. The house sold to someone else.
Jane’s story is not unusual. I see it everyday. I cannot stress enough that lending is not just about your credit score. You must be proactive regarding your credit. In today’s economic climate the people making decisions to approve or disapprove financing are being very cautious. Follow this order when considering buying a home: 1. Check your credit. 2.Get mortgage approval. 3. Seek out a Realtor.
