Utah Home Mortgage Specialist

Many people who modify their home mortgage using the President’s Foreclosure Rescue Program are getting a big surprise. According to CNNMoney.com , people didn’t expect that their credit scores were going to take big hits as a result.  But think about it for a minute.  People are calling their lender and telling them they can no longer make the payment and want to modify the original terms of the loan.  I’m not sure how people didn’t think this would happen. Is this something that should affect a person’s credit?  What do you think?  I would love to hear your comments.

So you have been living with your girlfriend for awhile and you have decided that buying a home together is a great next step.  Or imagine this: you are single, unattached and ready to buy a home.  You don’t make enough money to qualify for the mortgage on the home you want to buy. You think, “Why not buy the home with a friend?”.  Makes sense, you and your buddy get along.  He is neat, clean and seems to pay his bills on time.  Why not?

These are just a couple of examples of situations people find themselves in everyday. Mortgage guidelines allow up to four (4) co-borrowers on a loan. These transactions can work out wonderfully. Everyone contribute a little bit and everyone reaps the benefits.  Much better than throwing your money away on rent. But there is a potential for things to turn out very badly. It is important to think about the what ifs.  What if there is a fight, one person loses their job or is a flake, what if someone dies, what happens when one friend gets married? It is always best to hope for the best but plan for the worst.

These types of purchase arrangement are no different than any other business transaction.  Make sure you define the contract very clearly.  You should put everything in writing.  Even if your coborrower is a significant other with whom you plan to spend the rest of your life. Honestly, married couples should discuss some of these things openly as well.  Especially if you are in a 2nd marriage, you are probably bringing more assets into this realtionship than the first time around.  The following is a short list of  things you need to discuss before you begin the prequalification process.

1-  How will you hold title? Make sure you review the different types of vesting.  There are several ways to hold title that can have a dramatic affect should one person die.

2- Discuss equity percentage.  Are you going to split the asset 50/50?  Or is one person going to receive a larger percentage.  This can be affected by things like how much one pays towards the down payment or even monthly payment.

3- Down Payment. Is this going to be a 50/50?  Most loans now require a down payment.  If this is not going be 50/50 make sure you have a clear agreement as to how this will be reconciled later.  Is someone going to make extra payments to payback their equity investment? Or will it be paid back when the property is sold or in the event one party wants out to cash out.

4- Monthly Payment.  50/50 or is someone’s income going to be covering a larger portion of the payment?  This should also be considered like #3 in how the equity later is going to be split.

4- Exit strategy.  Make sure you consider the end.  How you will divide equity when the home is sold or one person just wants to cash out. 

When a romantic relationships or friendships are involved people often don’t want to discuss these details.  When there is a marriage the law will somewhat protect both parties especially when children are involved.  Even then you need to be aware of the law since it will lean toward 50/50 rather than percentage of contribution.  Which might be an issue in a 2nd marriage. However, when you are not married you need to approach the transaction the same way you would approach any joint business venture.  One final thought, if later you want to cash out of your investment but the home is not going to be sold.  Consider refinancing the loan into the other borrower’s name. Refinancing is a great way to cash out your equity out of the home.  While at the same time removing your name from the mortgage loan.  This  insures that your credit is protected should the other person run into financial problems down the road.

Occasionally a borrower refinancing his home mortgage will find that there is room to get a little cashout and payoff some consumer debt.  Yes, in Utah we still have a little equity hanging around. Then comes the question ”Is it better to keep my principle low or keep my positive cashflow?”.  To that question I almost always say YES. 

I know sounds strange.  But that question is a double edge sword.  It really depends on your situation at that moment. Experts say that long term you would be better off to not include the debt into your mortgage since it will take longer and costs more to payoff $5000 over 30 years than say 5 years. Which is true and if you are not feeling a huge pinch on your budget this is a very good strategy.  But you also have to look at the emotional side of the equation.  If you are having nightmares and ulcers because you are trying to pay off your debt and put a hot meal on your table.  Then maybe inclusion is a better choice.  Peace of mind that can come from consolidation is priceless.

I would caution you to be mindful of your debt afterwards; do not let this opportunity go to waste.  Make sure you don’t go out and charge back up the credit cards or taking on a new payment because you can now “afford” that new car.  Remember our homes are not appreciating as quickly as in years past.  With rates so low, this may be a one time opportunity.  Use it to put some savings in the bank.  Build up your rainy day fund.  Make sure you have 3 or 4 months income in the bank.  This will help you weather those economic storms that may come in the future.

Credit is the first thing that lenders review when qualifying a borrower for a home mortgage.  However, most loan officers don’t understand how to help a person improve their credit score.  Honestly it is really complicated.  There are many variables that go into making up a credit score that each individuals situation is different. There is no one size fits all solution.  Helping people fix their credit is a very specialized skill.  I honestly admit this is not an area where I have focused much attention.  I understand how credit works, I know some tricks to help increase your score.  But in situation where a lot of work needs to be done I lack the knowledge to really get the job done right.

To overcome this weakness I have found a great person who really knows credit.  Surprisingly he is not the most expensive. Mike Burnett owner of Pinnacle Consulting Group is the best.  Part of the reason he is so good because he has been on the other side of the poor credit scenario.  But don’t take my word for it.  Here is his story in his own words…

I am driven by the desire to make a difference in other people’s lives — by helping them create wealth, enjoy greater peace of mind… and a better life.

Having personally lived through the nightmare of bankruptcy and foreclosure and financial ruin — I’ve made it my life purpose to help people free themselves from the “shackles” of poor credit.

Over the last 7 years as a private practice consultant, I’ve had the opportunity to personally help over 3000 individuals improve their credit scores.

My fees are already among the lowest in the country, and on top of that, I’m currently offering a $200 DISCOUNT — so my current start up fee is only $95!

Finding the FASTEST ways to get people qualified for their loans and mortgages. Having been through bankruptcy and foreclosure I have a unique level of empathy for my clients. This isn’t just my business — It’s my life purpose.

I had a borrower tell me he feels like he is just a number.  He felt the only thing lenders were interested in was his credit score.  I told him he was partly right.  Lending money for a home mortgage isn’t like it was in the 1920’s.  Then the banker was your next door neighbor or someone who you knew all your life.  Or more importantly knew you your entire life.  Now days the lender may be in another state or just met your 10 minutes ago.  To compensate for this lack of knowledge the credit reporting system was born.  Lenders needed a way to see how you have fulfilled your credit obligations in the past to help them determine if they should approve your request for credit now.

A FICO® score is a valuable guide to future risk based solely on credit file data. The higher the score, the lower the risk to lenders when extending new credit to a consumer. The score is an objective measurement of your credit risk at a particular point in time.

While a person’s credit score isn’t the only thing a lender will look at it is one of the first things that is evaluated.  Lenders do also evaluate other types of information — such as data you provide on the credit application (for example, income, how long you have lived at your residence, or how much equity you have in your home) in their loan evaluation process.  But at the beginning of the process your credit score is the first thing that is reviewed.

Make sure you know your Lender FICO® score. Let me know if you want a copy of your own lender credit report, it takes only moments and it is FREE!

Collette