Your mortgage payment may be going up

July 31, 2007 by Leave a Comment

Last week we received a postcard from our friendly tax assessor informing us that our assessed value increased 14% over last year.   When I owned my first home, this news would probably excite me.   What it really means is that our mortgage payment is going to increase.

Your note rate determines the principle and interest portion of your mortgage.  However, property taxes and home owners insurance can and do change…count on it.   Your mortgage company received the same notice about your property taxes, too (this is one reason why you pay the "Tax Service Fee" when you obtain a mortgage).   

Our new assessment is effective for our 2008 real estate taxes.   Once this rolls into place in the beginning of the new year, our mortgage company will contact us and may offer the following options, after reviewing our escrow account:

  1. Increasing our mortgage payment to cover the difference in the account.
  2. Allow us to pay the difference in a lump sum.

We will most likely opt to have our payment increased.   

Please do be aware when you’re buying a home, that even if you have a fixed rate mortgage, the taxes and insurance are not "fixed".   If you currently own a home in the Pacific Northwest where our values are still strong, be prepared to have your mortgage payment increase in 2008.   

And for those of you who are squeaking by making your mortgage payment, this is even more reason to put away your credit cards and to have your credit reviewed by a Mortgage Professional in the event you need to restructure your current financial position (do this at least 6 months before you need to refinance so you have a chance to make any corrections or improvements to your credit).   Don’t wait.

Filed Under: Credit Scores and Reporting, Financial Planning, Mortgage, Seattle

Buying a house when you have a lot of debt

June 27, 2007 by Leave a Comment

A reader who recently moved to Seattle contacted with a question that I think many will relate to.   He contacted me offering his story:

"One idea you may be interested in writing about are house buying options when you have good credit and income – but a lot of credit card debt. We’re paying off the credit card debt slowly — very slowly, and seeing housing prices rise 15% or more annually. It’s frustrating because as time goes by — the dream house only gets further out of reach. We will be able to buy a nice house — but not the dream house we could if not saddled with the credit card debt. The credit card debt also isn’t tax deductible!"

I work with many families who have visions of their "dream home" while they’re trying to manage monthly debts.   And as if buying a home wasn’t stressful enough on it’s own, many home buyers seem to feel panicked over our local appreciation with home prices.   It’s a definite balancing act of buying as much home you can afford without "betting the ranch".   If you’re over burdened with credit cards AND you take on a hefty new mortgage payment, you could be setting yourself up for financial (and emotional) disaster.   

I do not encourage using a mortgage such as an Option ARM for sole purposes of stretching into your dream home.   If you make the minimum payments (which most will opt for) the deferred interest will reach it’s cap and you will be faced with a much higher mortgage payment.  If you cannot afford the mortgage payment using a fixed period ARM or fixed rate product, you probably cannot afford the home.   

It’s very possible that home buyers may need to redefine what their dream home is.  Buying a home that needs a little TLC or is a little further out from the city may afford you more comfort when it comes to your monthly cash flow.   Plus, you may receive a better return on this type of property should you decide to sell it in 5 or so years, using the net proceeds (profit) to purchase your "dream home". 

Modo3530For example, this 1800 sq. ft. completely remodeled rambler (now subject to inspection) was recently listed in Kent for $349,950.   It’s on a corner lot, in a popular neighborhood with four bedrooms and 1.75 bathrooms.   I’m not a Real Estate Agent, but I would bet that similar homes in Seattle would sell for closer to $500,000.   Having the lower payment and more funds in the bank from a reduced down payment can translate into a higher quality of life.   I know…I know…you do have to factor in commute times with our traffic.   But once you’re home, you are HOME.

I will go into more details about this families information in future posts.   They were gracious to share their information with me and their story is certainly not unique.

Filed Under: Debt Restructuring, Financial Planning, Residential Purchase

Divorce, your mortgage and your credit

June 11, 2007 by 11 Comments

Whether you’re married or are a couple who own a home together and are now facing a separation, dissolving a partnership is never easy.   Even if both parties are amicable and agree to the break up, it is a very emotional time.  You may just be thinking about who gets to keep the house…or you just may want out and not even care about the property.   Your mortgage and credit history is probably the last thing on your mind…however, you may want to consider protecting the credit that you’ve worked hard for.   

Do contact an attorney who specializes in divorce.   Even if you just contemplating a divorce and you’re not certain you will file.  It’s important to find out the facts and get legal advice from a professional. 

Obtain your current credit report.   You can get a free copy from www.annualcreditreport.com.    Review it to make sure that your debts are in order and that the other party is not using your credit for “retail therapy”.    Identify which accounts you may want to close if they have your name on them.   The credit company may be all too happy to issue your own card in your own name.    Having an ex-partner with your credit, even if you’re getting along now, can wreck havoc on your scores.   If your name remains on an account they have, even if they pay the debts on time, if the balances exceed 30% of the limit on a credit card, your credit score will suffer too.   

Consider closing any joint accounts immediately that are not in use and removing your name from any accounts that you are a signer on.

Secured accounts, such as loans attached to vehicles and mortgages must be dealt with too.   You might consider selling the items that have secured loans in order to remove your name and liability from the debt.   Otherwise, you should consider refinancing the loan.   Plus, the payments may be factored as your debt when qualifying for new loans, such as a  mortgage.

Should your ex-partner decide they want to keep the house, require that they refinance the mortgage so that your name can be removed from the debt.   Deeding the property from one person to another does not remove the liability of the mortgage.   Even if your partner is a really nice person right now, if they lose their job 5 or 10 years from now, and your name is still on the mortgage, it will dramatically impact your credit if the bills are not being paid. 

If your ex-partner does not qualify for a refinance of the property, then how can you expect them to make the payment?  It’s too risky.   

One of my friends went through a divorce.  Her ex really wanted the house.  He did not qualify for the mortgage on his income alone and wasn’t thrilled when she insisted that he needed to refinance to take her name off of the mortgage.   Although it was a tough decision, they sold the house and split the proceeds.   He remarried and bought another house with his new wife and in just a few years, filed bankruptcy and the home was foreclosed.   Imagine what would have happened to her credit if she would have accepted the cash offer of her share of equity without refinancing the mortgage out of her name?  She would have been responsible and included in the foreclosure.   Her credit would have been trashed and it would be extremely difficult for her to buy a home.   

Should you divorce, your divorce decree will not override your agreements with creditors.   It’s important to be proactive and to always take steps to protect your credit.  Although credit scores are reflective and not permanent, bankruptcy and (especially) foreclosure will impact your credit scores and interest rates for years.

Remember, take precautions with your mortgage, credit history and consult with an attorney if you are considering a possible divorce.

Filed Under: Credit Scores and Reporting, Debt Restructuring, Financial Planning Tagged With: , , ,

Question of the day: Just what DO you do?

May 17, 2007 by Leave a Comment

I received this question in an email yesterday…it’s priceless.Mpj043316500001

"First of all, are you like a real estate broker, in addition to your specialist title?  Are you a consultant /broker or just an educational resource? What is your fee for consultation?"

First of all, I am not a real estate broker.   I am a Correspondent Lender and I am a Certified Mortgage Planning Specialist (CMPS).

As Correspondent Lender, we fund a majority of our loans in our credit line.  We process, underwrite, prepare loan documents and fund a majority of our loans at our office located in King County, Washington.   Since we’re taking the upfront risk, we receive better pricing than a typical broker.  The loans are sold to lenders after closing.   We also have the ability to broker mortgages when necessary.  Typically a brokered loan is going to be a mortgage that is too unique to be in our credit line (such as subprime or alternative mortgages).   A brokered loan may have more fees than one closed as a Correspondent.  There are more "Mortgage Brokers" than "Correspondent Lenders" out there…it’s expensive to be Correspondent (but worth it)!

My DFI License "title" of 510-LO-32047 is also something that will be earned (officially ofter the exams take place starting next month).   Mortgage Brokers in the state of Washington are required to become licensed (as Correspondents, we’re not quite banks and not quite mortgage brokers, so we fall into this new state law).   What this means to the consumer, if the work with a Licensed Loan Originator is that they have:

  1. Passed an extensive exam.*
  2. Cleared a background check from the FBI and DFI.
  3. Must continue their education by means of clock hour course requirements.

If someone is working with a Loan Originator who does not have a license, such as a banker or credit union LO, they have not met (nor are they required to meet) the above requirements.   (*Again, the exam will not be available until next month).

To be a CMPS, you must pass an exam consisting of 100 questions (different from DFI’s test) and are held to additional ethics beyond what other loan originators strive for.  A Certified Mortgage Planning Specialist has gone through extensive training on mortgage planning and is doing so voluntarily in order to distinguish themselves over the rest of pack of Loan Originators knocking at your front door for a chance to sell you a mortgage you can’t resist.   The CMPS designation is beyond what is required to be a Mortgage Professional.

An education resource is what every Mortgage Professional (regardless of what we call ourselves) should be!  This is my favorite part of the question I was emailed.  And I’m very flattered that this is how she interpreted me.   In my opinion, a Mortgage Professionals first responsibility should be to make sure the consumer fully understands the mortgage process and what their options are so the borrower/buyer can make an educated choice as to what their mortgage will be.   Sometimes, that choice might be to wait a few months once some credit issues are cleared up or more funds are in hand.    There may be no mortgage involved at all.   

How am I paid?  That will have to be a new post!  Stay tuned.

Filed Under: Financial Planning, Mortgage

Debt and Your Mortgage

May 9, 2007 by Leave a Comment

Istock_000002310753medium_3This is the second part of my series on debt inspired by the blog Dollar Buy Dollar.  Before I get too deep into my posts, I want to stress that if you have a mortgage and you are sliding further into debt, please contact your Mortgage Professional as soon as possible.   Don’t wait.  It may feel better to dig your way out without help, however, credit card lates and even worse, mortgage lates, will ding your credit score down to where either:

  1. Your rate for a possible refinance or equity loan is much higher as rates are credit score based.
  2. You no longer qualify for a mortgage at the loan to value you need for debt relief.   (The amount of equity-loan to value-that is allowed to borrower is also credit score based).

I’m not a huge fan for using one’s equity as a cash card.   However if your equity can bail you out of a desperate debt situation and if you are capable of changing your spending and savings habits so you don’t wind up having to tap your equity again, then it makes sense.   

I cannot emphasize enough how important it is to take action right away.  Especially in our current mortgage "subprime" climate where it is tougher to qualify for loans with lower credit scores.  If your scores plumet too low and if you are not able to access  your equity, you may be forced to sell your home.   A mortgage late is more devistating to your scores than a credit card late and any recent lates will zap your score (mortgage lates carry more weight than a credit card late).    Credit is reflective, so the more time since a late payment, the more your score will rebound.

Recently I helped a couple where the homeowner, who was self employed successfuly for over 20 years ran into hardships with his business.   He wound up relying on credit cards to try to "bridge" his lack of income.   In a short period of time, he was not able to pay his credit cards or keep up with his mortgage.   He has a beautiful home valued around $700,000 and a mortgage balance of $250,000.   He wound up with a 120 day late (3 months of not paying a mortgage–preforeclosure).   His then Fiance helped to get him current on his mortgage, he was lucky!   However the mortgage he had was ugly.   The Fiance contacted me about refinancing their high rate subprime loan he was currently in.  She had credit scores over 700 and his were around 400.   In addition to the "preforeclosure" on his mortgage, his credit report was full of collections and late payments.  Here’s what we had to do in order to help this couple in order for them to receive the best rate and program available:

  1. Wait until the 120 day late was 1 year old.  (We were six months away and were waiting for the underlying mortgage’s prepayment penalty to expire).
  2. They married and she was added to the title.   The lender wanted to wait until she was on the title for 6 months before they would close.
  3. He remained on the title (is still a vested homeowner) and is not on the new mortgage.
  4. His judgments had to be paid at closing.  (This was a cash out refinance to pay off all remaining derogotory debts).

We did a no income verifed loan with just her on the mortgage.   The new rate was just 0.25% over the available conforming rates with no prepay penalties.   Bottom line, he was fortunate that when he disclosed his situation to his partner, she was willing to stick around and help bail him out.   He’s also lucky that he owned a home and had enough equity that he could do the cash refinance or, if he had to, sell the home and have enough proceeds to pay off debt and have a savings left over.

If he didn’t have the mortgage lates, we could have refinanced his loan much sooner.     It all worked out for the couple…now newlyweds!   Restructuring the mortgage to eliminate the debts has made a dramatic difference in their lives.   Your Mortgage Professional may or may not be able to help "bail you out".   At the very least, a qualified Mortgage Professional can help you decide which debts to pay first.   I’ll address that issue in my next post for this series.

Watch CNN’s video on Dollar Buy Dollar and couples who hide debt from each other.

Related Post: The Debt Disease…Dollar Buy Dollar; Borrower Beware

Filed Under: Credit Scores and Reporting, Debt Restructuring, Financial Planning, Mortgage, Refinance, Subprime Lending

Borrower Beware

May 7, 2007 by 6 Comments

I wasn’t planning this post to be part of my debt series but when I saw the front page of the Seattle Times this morning…the timing is uncanny.   Borrower, beware:  debt disaster looms as rates rise on easy-money.   

This is a tale of a couple who was turned down my many mortgage lenders for zero down financing because they had no savings and $20,000 in credit card debt.  They are a common portrait of a subprime home buyer over the past 2-3 years.

I have issues with both their loan originator AND the subprime borrowers in this report.   

"The couple signed two mortgages to buy their $246,800 house in July. The first loan, a so-called pick-a-payment loan for 80 percent of the deal, had a variable interest rate. The second mortgage, at 12.5 percent interest, covered the rest. The deal included a pre-payment penalty on the first mortgage, and a balloon payment on the second.

Not long after they signed the loan, [the home buyer] decided to dump her sedentary office job to become a personal fitness trainer. The new job paid less, $7.89 an hour, but she had the opportunity to earn commissions as she brought in clients."

There is nothing wrong with an 80/20 subprime mortgage when it’s structured correctly and the clients understand that they have 2-3 years to prepare for refinancing.   This means they need to improve their credit scores (having a mortgage paid on time helps credit scores) and to reduce frivolous spending.   They need to be accountable and take a hard look at themselves and their finances.   Switching from a fixed income, even if it’s a boring job, to a new career that pays commission is irresponsible as a brand new home owner.

The pick a payment program is negative amortization and is not the best program for anyone with 100% financing, let alone a subprime borrower.    In fact, it’s probably the worse program a first time home buyer (subprime or not) could have.    They will 9 times out of 10 opt for the lower (deferred interest) payment and not fully grasp what the consequence are when their mortgage recasts at the higher rate and fully amortized payment.

"I had no idea the interest was going to climb like it is — they didn’t tell us that at all," Fultz insisted. "Maybe I wasn’t listening. Maybe I’m not good at words. Negative amortization? I never even heard of that."

Their Loan Originator’s response to this (you might to sit down and put away any sharp objects before you read this): 

"I agree, it isn’t explaining it in full… But…it’s explained to the client 47,000 freaking times."

And to top it all off, the Loan Originator, who’s business primarily consist of feasting on subprime buyers says she can’t make her mortgage payments now due to the decline in the subprime market.

The pullback has cratered the business model for brokers like Mills. She used to write 10 to 15 loans a month. In March, she wrote two. In February? None.

"I didn’t make my own mortgage payment this month," [the LO] said in April. "But nobody feels sorry for me."

Oh boy…someone pass me a hanky!  This Loan Originator closes 10-15 deals typically a month and I’ll eat a shoe if she’s not making more than 1.5% on each transaction.   And a few tight months SHE’s missing her mortgage payment?   

Please work with a professional Mortgage Planner.   And not the first person who tells you "yes".    That type of LO smells your desire to own a home and will take you to the bank.   And they will not be there for you after closing…unless you want a new mortgage! 

Buyer beware, indeed.

Related post:  The Debt Disease:  Dollar Buy Dollar

Filed Under: Financial Planning, First Time Home Buyer, Predatory Lending, Residential Purchase, Subprime Lending

The Debt Disease…Dollar Buy Dollar

May 5, 2007 by 1 Comment

ShredderThe other morning, I had CNN on as I was getting ready for work when a story about a local blog caught my attention.   Dollar Buy Dollar is authored from a Washington State resident who has found himself in quite the pinch by jacking up his credit card bills and student loans to a total that tipped over $70,000.   The blog is an honest (sometimes painfully honest) account on what he’s doing to try to get out of that mess.   This should be a must read for every senior in high school and anyone with more credit debt than savings.    Debt happens far too easily and, like packing on a few pounds, it’s much easier to gain it than to whittle it away.

The author of the blog is remaining anonymous and calls himself "Fellowes" (like his shredder).    Here is an excerpt from Fellowes most recent post:

  • Taking on debt has become a lifestyle for many people, something that seems to be actively encouraged by our consumerist society
  • Couples hiding/lying to one another about debt IS a huge problem
  • Debt and the seeming inability to pay it down, discuss it openly with your spouse or other members of your family has a HUGE impact on mental health, physical health and family stability
  • There is a tremendous amount of confusion about the “best” way to pay off debt while still maintaining one’s dignity and self-respect.

As a Mortgage Planner, I see consumer’s debts all day long when I’m completing a loan application or reviewing a credit report.   It can be a tremendous slippery slope for a family when your debts exceed your savings.   And with the national savings rate at below 0%, we are in more danger of a credit bubble ready to burst than a real estate bubble (at least in the Seattle area).

This is such an important topic and I personally believe that this issue is more wide spread and impacts more consumers than we know since it is often kept secret, as Fellowes mentions above.   Fellowes is receiving quite a bit of attention from his bit on CNN, many others are confessing their tough situations via comments to his posts.   Fellowes offers this heartfelt advise:

For those of you in the same situation. DONT WANT ANOTHER MINUTE. Overspending, lying and hiding from this can lead to other VERY destructive behaviors that can not only put your marriage at risk, but your life at risk. Go seek professional help if you can’t have the conversation with your spouse, but my all means HAVE the conversation. The hardest part of this whole ordeal was admitting how bad the problem was and that I my behavior was out of control. Paying in down and finding ways to negotiate and save and nickel and dime here and there is becoming a game for me, albeit a fun one. Thanks everyone for your support, suggestions and feedback. I will do my best to chronicle my journey and share other financial musings to keep you all coming back.

I will be following up with a series of posts on this topic.   You can consider this "Part One".

Filed Under: Debt Restructuring, Financial Planning, Weblogs

Is it better to buy or rent?

April 12, 2007 by 3 Comments

An article in the New York Times was brought to my attention from Tim at Seattle Bubble on whether or not you should buy or rent.    The article is very slanted towards renting and considering the part of the country it’s originating from, they are right.   Our local economy and housing market remains strong and is not experiencing any sort of a slump.   

What I really liked about the article is the on-line calculator to help you determine if you should rent or buy.  The calculator is flexible and friendly with adjusting appreciation, down payment, rent increases and the costs associated with owning a home (funny how many potential home buyers forget about that).   If you’re considering buying a home, I encourage you to check it out.

Tim, where was this calculator when I did my post at Rain City Guide and Seattle Bubble Blog countered it? 

Filed Under: Financial Planning, First Time Home Buyer, Residential Purchase, Seattle, Weblogs
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