Credit Score Rescue

Are you having trouble keeping up with your mortgage payments? Have you received a notice from your lender asking you to contact them?

* Don’t ignore the letters from your lender
* Contact your lender immediately
* Contact a HUD-approved Housing Counseling Agency

If you are unable to make your mortgage payment:

1. Don’t ignore the problem.

The further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.

2. Contact your lender as soon as you realize that you have a problem.

Lenders do not want your house. They have options to help borrowers through difficult financial times.

3. Open and respond to all mail from your lender.

The first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. Later mail may include important notice of pending legal action. Your failure to open the mail will not be an excuse in foreclosure court.

4. Know your mortgage rights.

Find your loan documents and read them so you know what your lender may do if you can’t make your payments. Learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the State Government Housing Office.

5. Understand foreclosure prevention options.

Valuable information about foreclosure prevention (also called loss mitigation) options can be found on the internet at the HUD’s main website.

6. Contact a HUD-approved housing counselor.

The U.S. Department of Housing and Urban Development (HUD) funds free or very low cost housing counseling nationwide. Housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender if you need this assistance.

7. Prioritize your spending.

After healthcare, keeping your house should be your first priority. Review your finances and see where you can cut spending in order to make your mortgage payment. Look for optional expenses-cable TV, memberships, entertainment-that you can eliminate. Delay payments on credit cards and other “unsecured” debt until you have paid your mortgage.

8. Use your assets.

Do you have assets-a second car, jewelry, a whole life insurance policy-that you can sell for cash to help reinstate your loan? Can anyone in your household get an extra job to bring in additional income? Even if these efforts don’t significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.

9. Avoid foreclosure prevention companies.

You don’t need to pay fees for foreclosure prevention help-use that money to pay the mortgage instead. Many for-profit companies will contact you promising to negotiate with your lender. While these may be legitimate businesses, they will charge you a hefty fee (often two or three month’s mortgage payment) for information and services your lender or a HUD approved housing counselor will provide free if you contact them.

10. Don’t lose your house to foreclosure recovery scams!

If any firm claims they can stop your foreclosure immediately if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! Never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a HUD approved housing counselor.

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Filed under: Credit news, Foreclosure Advice, Ways to Avoid Foreclosure by admin No Comments »

As of right now, hundreds of thousands of students have taken their first step on the path to financial maturity.  They are now responsible for their first student loan.

No one trains young adults for this phase of their lives. It’s not part of the standard high school lesson plan, and most parents don’t know enough about it to pass on much advice. If they went to college, it was probably many years ago when most undergraduate degrees didn’t leave people with substantial debt and multiple credit accounts

In the 1980s, amid concern about the rising number of students who weren’t making loan payments, the Education Department began requiring all students to undergo “initial counseling” when they took out a student loan, like a Perkins or Stafford loan, for the first time.

The curriculum, which the colleges are responsible for teaching, is supposed to include information on the contract that students sign when they borrow, the consequences of not paying back the loan and some basic information on the average level of indebtedness among recent graduates and the size of their monthly loan payments. Today, some students sit in a room for their counseling while many others take a short test on a Web site. No matter how students get the material though, the counseling sessions ought to provide much more than the government requires. Students need to know that learning about loans isn’t just applicable to the college years, and that they will probably need a team of people to help them make sense of the overall application process.

The material should be blunt in tone, brutally honest and occasionally frightening, but it shouldn’t leave students feeling powerless either. The session ought to feel like two wizened 25-year-olds are presiding: one who took on too much debt and ended up back home with a ruined credit score; the other living comfortably while still making loan payments each month. So if I were running the counseling sessions (and channeling my formerly indebted 25-year-old self), here are seven other points I’d add to the agenda.

TREAT IT LIKE IT’S A CLASS

Student loans, and the financial aid process in general, are incredibly complicated. There are several types of loans, with different terms and interest rates. You’ll probably graduate with at least four, maybe twice or three times that. “The process can seem like untying a Gordian knot,” said Kal Chany, a consultant to families and author of “Paying for College Without Going Broke.” “People just want to try to get through it.”

But just getting through it isn’t enough. You’ve heard about the mortgage crisis, right? Well, many people your parents’ age took the “just sign the papers” approach to their home loans and ended up not understanding why their payments went up sharply a few years later.

So you need to master the basics and then keep them in your head. Did you get any printouts or glossaries during your counseling session? If not, bookmark studentaid.ed.gov (the federal government’s site on financial aid), finaid.org/loans (a great independent site) and The New York Times Topics page on student loans (there’s a link from the version of this story posted at nytimes.com/yourmoney).

RECRUIT YOUR PARENTS

Yes, college is supposed to be a big step toward independence. But your parents can probably help you think of questions to ask about your loans that you haven’t thought of, simply because they’ve been borrowing money and paying bills much longer than you have.

You may also need to educate them about the process, given that they may be helping you pay for college and will want an update on your borrowing. They don’t have to sit for counseling, even if they’re borrowing money to send you to school. “We have a lot of students who are the first to go to college in their families,” said Patricia Hurley, associate dean and director of financial aid at Glendale Community College in Glendale, Calif. “The terminology around loans is new for them. It’s a completely different world.”

CHECK IN ONCE PER YEAR

Your school’s single counseling session is a good start, but you should really check in with your debt at least once a year, or every time you take out a new loan. Store all of the loan documents in a single file and keep a running total of what you’ve borrowed. If your e-mail or mail address has changed, let every lender know. Then, use the tool labeled “Loan Calculator (Standard and Extended Repayment)” at finaid.org/calculators to give you a sense of what you need to earn to make your monthly payment upon graduation.

BEFRIEND SOMEONE IN AID

One of the best things you can do for yourself is find people in the financial aid office who really know their stuff and then make one of them your friend for the next four years. This will also be a good person to know if you want to ask for more financial aid than the college gives you at first in this or future years. If you think you’re being a pest, don’t sweat it. One-on-one counseling is probably much more rewarding for them than reading financial aid forms and spreadsheets all day.

In fact, Education Department rules require that the college make someone available to answer questions right after your initial counseling is finished. If you go to a big university and are having trouble getting anyone to return your phone calls this month, it may help to write a note to the director of financial aid with a gentle reminder of the rule and a polite plea for assistance.

BORROWING IS BECOMING LESS EXPENSIVE

If you qualify for subsidized Stafford loans, the kind where the federal government pays the interest while you’re still in school, your interest rate on a loan issued after July 1 of this year is 6 percent. Last year it was 6.8 percent. Next school year, it will be 5.6 percent, and the year after, it will drop to 4.5 percent. The fees you pay when you first get the loan are also falling.

While it may be too late to halt your loan for this year, the falling rates suggest that you should try as hard as you can to borrow as little as possible until later in your undergraduate education. Perhaps there’s a relative who can help with a loan until then, or you can work a few more hours at a paid job.

SOME LOANS AREN’T BIG ENOUGH

That said, don’t work too much. Bob Shireman, executive director of a nonprofit student loan organization, said that some students, in an effort to keep their loans a bit lower, work 30 hours a week and take a full-time course load. Inevitably, some can’t handle the pressure and drop out. “You end up in an even worse situation,” he said. “Not only do you not have a degree but you have debt on top of it.”

BE CAUTIOUS OF PRIVATE LOANS

Private student loans are different from federal loans. Their interest rates are generally higher, and the rate usually isn’t fixed over the life of the loan. Still, a growing number of students are using them, in part because the application process is easier. Private loans may also be the only option for students who have maxed out the eligibility on their federal loans or are getting no help from their parents or scholarships.

The Education Department doesn’t require you to undergo counseling when taking out your first private loan. At Barnard College in New York City, however, the financial aid office reaches out to families who are using private loans before it will certify for the lender that the student is indeed attending. According to Alison Rabil, director of financial aid, the families are generally confused about the overall financial aid process and may not even know what interest rate they would be paying on the private loans.

As a result of what amounts to its mandatory private loan counseling, Barnard helped families get their private loan volume down to under $400,000 from $1.5 million in a single year. Colorado State University has a similar program in place, which suggests that large state universities have the capacity to help in this way, too.

More colleges ought to follow their lead. Until they do, however, go see your friend in financial aid before taking out any private loans. Finding a better option for paying your college bills could save you thousands of dollars over time.

Filed under: Credit news, How to increase your credit score, How to raise your credit score, Student Loans by admin No Comments »

There are things you should do before buying a home …. and you have to start EARLY

With the condition of the economy still slumped, qualifying for a mortgage has been tougher than it was just three years ago. Lenders are tightening the reins, and prospective homeowners must save more to put more down on their mortgages.

Despite the word “mortgage’s” Old French roots meaning “dead pledge,” qualifying does not have to be a do-or-die deal if prospective owners take proactive steps to beef up their credit reports and make a serous impression on lenders.

“You definitely want to get an early start at this,” said Robert Pagliarini, author of Amazon.com’s Business and Investing Bestseller “The Six Day Financial Makeover.”

Pagliarini, also an expert on self-help Web site PeopleJam.com, suggested eight points a prospective homeowner should consider when applying for a mortgage.

1. On the top of the list: Start by checking credit reports.
“The truth of the matter is, there are three different reports and three credit scores,” Pagliarini said. “And they each have their own way of determining what your credit score is.”

Credit reports can be pulled from Equifax, Experian and Transunion, for about $10 each, Pagliarini said.

Credit scores range from 400 to 850. Above 720 is considered good, he said.

“There are only two numbers you have to think about,” said Pagliarini. “There are 720 and 719 — 720 and above, you are good, 719 and below, you need to do something.”

Make sure to check for any discrepancies. Sometimes closed accounts are listed as open and count against the credit score, or an open account may show a missed payment that was, in fact, on time.

Making corrections to credit reports can take several months to complete so it is important to start no less than six months before applying for a mortgage.

2. According to PeopleJam.com, mortgage lenders weigh eligibility on a score that does not accurately measure financial stability. The FICO, Fair Isaac Company credit model, only measures someone’s ability to repay a loan. It can be improved by paying debt on time and keeping accounts open but with a $0 balance.

3. Years ago, the rule of thumb for down payments was to pay 20 percent of the mortgage up front. When the housing market was up, down payment percentages dropped to 10 or 15 percent and some required no down payments. With the recent drop off of the economy, lenders have again raised the percentage with some requiring 30 percent down, according to Pagliarini.

“In the last nine months it has become even more difficult to get a mortgage, and you have to put even more down,” he said. “The more you put down, the less of a risk you are to the mortgage company.”

To save for a down payment Pagliarini suggest taking a loan from a 401K plan, or a personal loan from a family member.

“The best way to save for a mortgage is to set up a separate savings account or separate investment account,” he said. “Just start putting money away and every month just direct deposit it in there. Every dollar, every penny is specifically for this down payment. It sounds corny, but it really is amazing what happens. People see the money in that account and they know exactly what it is for.”

4. By increasing household income, mortgage lenders see a more realistic way for mortgage applicants to repay loans. Two-income families qualify more easily than one-income families, so PeopleJam.com suggests picking up a second job.

5. Budget mortgage payments so only 25 percent of monthly household income is put toward the mortgage. Although mortgage lenders will say more than 25 percent of monthly income is affordable, getting in too deep could lead to filing for foreclosure.

6. “They are looking at all your fixed debt payments,” Pagliarini said, which include any student loans. Try to defer student loans by taking a course at a county college. After obtaining the mortgage, start payments on the students loan.

“Once you have your mortgage, they can’t go back and change the terms of it,” he said.

Mortgage lenders only need to see current financial positions, not what is to come in the future.

“It’s just a photograph in time,” he said. “How does the person look right now? And if you look really good right now and the picture is taken, you could have the worst credit score imaginable — it doesn’t matter, you’ve got it.”

7. PeopleJam.com also suggests sticking with one employer for more than two years. Lenders like to see stability.

8. When the mortgage company sends out an appraiser to assess the house, try to negotiate the seller to a lower price, or low ball.

“Fortunately, it’s really the agent, the Realtor you have representing you, that does the negotiating. You don’t have to get too involved,” Pagliarini said. “Agents want to make a sale, they want to make purchase, they want a transaction.”

Pagliarini reminded prospective homebuyers to look out for their best interest, which requires comparing properties similar to the one that sparks an interest. Find out if the price offered is at market value, above or below.

“Often times the negotiating is between you and your own agent,” Pagliarini said. “You have to convince the agent, ‘This is the price I am willing to pay. Here’s why.’”

Low balling also will help build “instant equity.” If the property is appraised at $500,000, but the prospective buyer offers $450,000 and that price is accepted, they have earned $50,000 of instant equity. The homebuyer could turn around and sell it again for $500,000. Instant equity is the difference between the house’s value and the offered price.

“If you are thinking about buying a house, start these steps a minimum of six months before you apply. They look back six months, so give yourself that time,” Pagliarini said. “It’s almost like trying to get into shape. You want to exercise, you want to eat right.”

Doing a couple of things, he said, will still be beneficial, but heeding all eight items will help prospective homebuyers get the most bang for their buck.

Filed under: Credit news, How to raise your credit score by admin No Comments »