Top 10 Tips For Buying Your First Home

February 25, 2007 at 8:20 pm · Filed under Money Management

Buying your first home is a major milestone and it is important that you acquire as much information as possible before taking this big leap. While my clients generally ask me questions about improving their credit and getting a lower interest rate, this outline covers the entire process to, hopefully, make it an enjoyable and stress-free experience.

1. Be Prepared & Knowledgeable – Sign a contract with a buyer’s agent who is familiar with the area in which you want to buy a home; independently search your local MLS and realtor.com; and find a mortgage broker who inspires confidence and has a solid reputation.

2. Getting Pre-Approved – Before you actually visit any homes, research and select a lender such as Quicken Loans, AmeriQuest, or Wells Fargo. After you have chosen the one that is right for you, get pre-approved to determine your price range and show potential sellers that you are a serious buyer, which can also increase your bargaining power when you find your dream home.

3. Understand Your Loan – There are various types of mortgages, 30 year fixed, 15 years fixed, 5/1 ARM, 3/1 ARM, etc., that you need to be familiar with before you can sign on the dotted line. While a 15 or 30 year fixed mortgage with 20% to 25% down is the best option for most first time buyers, I occasionally advise some people to do an 80 / 10 / 10. 20% down may seem excessive and unexpected, but paying 20% down or more towards the note allows you to avoid the PMI (Private Mortgage Insurance) cost that can be expensive and useless.

As a general rule, avoid exotic loans so you don’t need to worry about fluctuating costs from month to month and changing interest rates. If interest rates plummet from what you signed up for, in many instances you can refinance.

4. Preparing Your Credit – While everyone knows that their credit score will be an important element in determining their mortgage payments, most do not follow a few simple tips for improving their score in the months leading up to the closing. First, make sure you keep the balance on your credit cards under a quarter of the total line of credit. Also, avoid large purchases or transfers that might appear out of the ordinary. And finally, pay off debts such as student loans that may be keeping your score down.

5. Gather Data – Your lender will generally require 2 years of tax returns, a year of bank statements, W-2’s and 1099’s from the past 2 years, and a list of your current debts such as car and student loans. By having these prepared before they ask for them, you can save yourself a lot of time and avoid unnecessary stress.

6. Learn The Local Market – Many realtors will offer you “comps” on recently sold homes in your area of interest. Be sure to look over these carefully, particularly the asking price of the homes, what they sold for, and the price per square foot. With this information in hand, you can submit a more competitive first offer and come across as a serious buyer.

7. Compare Lenders – After your offer is accepted, I strongly suggest using the quick, easy, and free services of LendingTree to compare interest rates for your mortgage. While you may have found already found a trusted lender for your pre-approval, there is no guarantee that he will give you the best rate. One thing you can do, however, is take the best rate you receive from LendingTree and discuss this rate with your local bank and trusted lender. With this bargaining power, you can determine who really wants your business, get the best possible interest rate, and save the most money in the long run.

8. Avoid Pricey Closing Costs – As you narrow down your list of mortgage lenders and receive some great quotes on interest rates, ask for a good faith estimate so you can estimate your closing costs. Although many individuals overlook these one-time, up-front costs, they can add up quickly and are an important element in selecting a lender who is right for you.

9. Get an Inspection – When your offer is accepted and it seems that the process is almost over, do not get too attached and believe that the home is already yours. Although it can be a major stumbling block in the negotiations, you absolutely need to have a qualified inspector look for termites, pests, foundation problems, and numerous other things that cannot be seen when you stroll through a home. Sometimes the inspector will only find minor problems, but other times there are extremely expensive issues that may make your purchase impossible. Under any circumstances, you cannot skip this step.

10. RELAX – It can be expected that this major milestone is going to be somewhat stressful considering the major investment and lifestyle change you are making. However, it should also be fun so take pictures of the homes you like, both inside and outside, and write notes about each place you see. At the end of the day, if you follow the above steps and listen to your heart, you are bound to be one happy homeowner.

Good luck and happy house hunting!

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The Most Common Credit Problems

February 21, 2007 at 12:14 pm · Filed under Credit Tips, Money Management

After taking a few days off, I want to discuss some of the problems and situations I encounter on an everyday basis as a non-profit credit counselor. In general, there are two types of individuals who seek out my services: the extremely poor who are in a relatively large amount of debt and the middle class who have leveraged themselves into a whole world of debt.

In the former group, most individuals have accumulated around $2,500 of debt that increases monthly as they fall behind on their credit card, rent, and car payments. Since credit cards are the most lax about payments, allowing you to pay a minimum rather than the entire balance, this is generally where I see this group of people fall behind. And as they pay interest rates in the high teens, falling behind for only a few months can add up quickly.

To remedy this situation, I typically teach individuals to be more responsible by giving them certain texts and pamphlets in addition to one-on-one counseling. I also advise them to refinance an asset or get a bank loan with a lower interest rate than their credit card so they can pay off their debts and start anew. As an excellent short term option, most individuals will be able to save a relatively large amount of money from the lower interest payments.

For those in the middle class earning around $120,000 annually, the problems are essentially the same as those earning less except the debts are on a much larger scale. Luxury cars, interest-only mortgages, private schools for the kids, and an overwhelming credit card balance can easily lead to a $40,000 debt, which gradually accumulates on a few credit cards as cars and other monthly bills are never truly paid off.

To help these people that are swimming in debt, I also offer one-on-one counseling where we discuss which assets can be refinanced, such as a car or a home. Another possible solution for many individuals is to look into a tax-deductible HELOC (Home Equity Line of Credit) with a much lower interest payment than their credit cards. Although may of these problems can be solved by paying off high interest debts and using a little creative refinancing, education is essential to making sure that this issue does not arise again.

If you feel like you are treading water or sinking in debt, consult a credit counselor to discuss your options and gain some valuable insight into your overall financial situation. It is one meeting that could not only turn your credit situation around, but also your entire life.

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8 Things You Must Do If Your Identity Is Stolen

February 11, 2007 at 8:26 pm · Filed under Credit Tips

The dreaded phone call comes in: there has been some suspicious activity on your credit card and the bank would like to verify that you were the one spending thousands of dollars online. Shocked and appalled, it strikes you that your identity has been stolen and that you must act quickly to protect yourself from further damage. While the news can be overwhelming at first, and you most likely want to figure out how this even happened to you, there are a few steps you should immediately take to preserve your credit and your hard-earned money.

1) Call one of the three major credit reporting agencies (Equifax, Experian, TransUnion)* to place a fraud alert on your credit report. It is unnecessary to call all three since the one that you contact will inform the other two agencies in addition to sending you a copy of your credit report for review. A fraud alert is extremely important since it requires companies to verify your identity before issuing a line a credit, thus preventing thieves from opening new accounts under your name.

2) If the perpetrators were able to open new accounts, contact each creditor and notify them of the fraudulent activity. They will close the accounts and most likely have you fill out a fraud affidavit.

3) For those accounts that you opened and are now compromised, contact the creditor and inform them that your identity has been stolen. Not only will they close the accounts, but many will read through the most recent charges to help you determine how long the abuse has been going on and how much has been charged to your name.

4) Contact your local police and alert them to the fraud under your name. A detective will be assigned to your case and ask for details such as where the charges occurred, how much was spent, and how your identity was stolen (internet, lost wallet, etc.). When you are finished providing the detective with all of your information, be sure to write down the detective’s name and the case number since many fraud affidavits will ask for these.

5) File a complaint with the Federal Trade Commission (the FTC) by calling 1-877-IDTHEFT.

6) Change all of the passwords that you use online. Since the thieves may have acquired your information through one of your password-protected accounts, think of a completely different word and try not to use the same one for all of your accounts. Also, while it may be inconvenient to type your passwords each time you want to log-in, never save your passwords online or on your computer.

7) If you lost your entire wallet or you believe that someone is using your driver’s license, visit the DMV, Secretary of State, etc. as soon as possible to get a new driver’s license number and card. Even if you just renewed your license, you will be required to take a new picture and pay all of the regular fees.

8) KEEP RECORDS!! Throughout your dealings with creditors, companies, and detectives, always write down the name of the individual you spoke with, their employer, the date and time, and a short summary of your discussion. Keep all of this information in a centralized location and make sure that it is in a safe place since it can be used as evidence in your case. While you may be more diligent at the beginning, important information may come to light later so be sure to track everything until all of your disputes are resolved.

Identity theft doesn’t have to ruin your life or your credit. By staying calm, getting organized, and taking these crucial steps, you can bounce back from this stressful situation and stop thieves dead in their tracks.

* Equifax, P.O. Box 740241, Atlanta, GA 30374-0241, 888-766-0008
* Experian, P.O. Box 9532, Allen, TX 75013, 888-397-3742
* Trans Union, P.O. Box 6790, Fullerton, CA, 92834, 800-680-7289

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Improving Your Credit After a Bankruptcy

February 10, 2007 at 10:32 pm · Filed under Credit Tips

A few people have left me comments asking for information about how to recover or improve their credit after filing for bankruptcy. Although this is a situation that I encounter on a weekly basis, there is not too much one can do when faced with this difficult dilemma.

As easy as it is to say in retrospect, the best way to deal with this situation is to do everything possible to avoid bankruptcy. There are very few cases where it is the best option available and it will usually cause the most harm in the long run. That being said, if you have already declared bankruptcy, I hope you have at least one asset, such as a car, house, painting, etc., that is worth something.

When you possess a valuable asset, you can apply for a secured credit card, which means that the credit is backed by one of your assets and this item can be seized if you are unable to pay your balance. To help rejuvenate your credit, try to get a credit card like this as soon as possible and always be sure to pay it off in FULL every month.

If a secured credit card is not an option under your circumstances, you can ask a family member, girlfriend, boyfriend, etc. to piggyback on their credit. This means that they co-sign on a credit card or other small loan and are responsible for ensuring that you pay every debt according to the requirements. They must understand, however, that if you fail to pay, they will be responsible for your debts and may have their own credit score damaged as result of your actions.

After approximately 2-3 years of paying off your credit card or other small loans on time and in full, you may be able to get a loan for a larger item (like a car) at a somewhat normal interest rate. In addition, you may be able to refinance your car if you already have one to build more credit.

Declaring bankruptcy and overcoming the negative credit effects can take longer than you ever expected since the mark remains on your report for 10 years. However, with a few years of on-time payments and other positive attempts to re-build your credit and prove that you are not a significant risk, you should be able to overcome this dark period in your credit history. Since it is difficult to recover from bankruptcy and begin the uphill process of restoring your credit, consider seeking the advice of a non-profit credit counselor if you are considering bankruptcy or just declared bankruptcy.

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Avoiding Payday Loans

February 7, 2007 at 9:21 pm · Filed under Money Management

Thank you all very much for the tremendous response from my first credit tips article. I never expected it to get on digg and I hope a lot of you learned a few new things or will at least get rid of some bad credit habits.

Another common problem that I encounter on a daily basis has to do with payday loans. While these may appear to be a quick and easy way to get money for rent, bills, credit cards, etc., the first loan is simply the start of a cycle where you are continually further and further behind on your payments and in need of even more money. Before you know what has happened, you are left in a downward spiral of overwhelming debt.

In most instances, my clients only need a few hundred dollars to pay their bills, so they head over to a cash advance store and put up their future paycheck in return for a no credit check loan. However, things start to get a little sticky when you discover that this place is charging an exorbitant interest rate, sometimes as much as 25% for a two week advance. To put this into perspective, if you borrow a rather modest $200, you could end paying upwards of $50 for this “quick and painless” loan. And once you have paid off your bills and repaid the loan, you may see that you are still a little short on cash due to the unexpected interest payment, so you need to take out another loan. Well, there goes another $50 dollars, meaning you just paid $100 in interest for a one month loan of $400.

Although throwing away $100 a month will not affect the livelihood of most individuals, the people who are taking out these cash advance loans are usually making minimum wage and working hard to make ends meet. It may appear that these operations are taking advantage of the low-income earners plight, but the government has said payday loan stores are not predatory and fulfill a crucial role for some people. I wholeheartedly disagree with this considering that I have seen first hand how it can destroy a family’s life.

To avoid the steel trap of payday loans, there are a few alternatives that I regularly recommend to my clients. Instead of the 300% or so interest you may pay for a cash advance over the course of a year, try taking out an advance on your credit card, which probably charges under 20% yearly interest. While the interest rate is still extremely high, you can save more of your hard-earned money and put it towards better uses. Other options to consider include asking friends and family for a loan in writing (create a contract) or trying a local credit union, which may be able to help you out with a more reasonable interest rate.

If you are not able to come up with the money on your own, a few last resort methods should be attempted before ever stepping foot in a payday loan store. In some instances your employer will give you an advance paycheck, as long as this is a first time or extremely rare request. Also, you can even contact the companies to whom you owe money. In some instances, the company will allow you to pay a little late to ensure that you do not go deep into debt and can continue to make payments to them in the future.

When a payday loan seems like the only solution to your problem, take a step back to consider your situation and determine how you got into it. Do you need the loan because of bad credit, no credit, lots of debt? While each individual’s problems are different, it is always important to plan for the future and set aside money in advance so you can avoid this difficult and stressful situation. For tips and advice on how to track and budget your money, consider visiting a non-profit credit counselor such as myself. With their advice and your hard work, you can avoid payday loans and break out of the cash advance cycle.

Good luck!

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Top 7 Credit Score Secrets

February 5, 2007 at 3:30 am · Filed under Credit Tips

As a former credit counselor, I know that most individuals have a misguided perception of credit and I am here to debunk some common credit myths and provide you with some free information about how to improve your score. Since it is an absolute fact that a higher credit score means better interest rates for car loans, mortgages, and other debts, these tips can translate into a few extra dollars in your wallet each month.

1) Approximately 35% of your credit score is based on past debts that are over 30 days late. This means if for some reason you are going to be late on a payment, do not let it slip past 30 days late.

2) Canceling credit cards can actually hurt your credit score, particularly if they are an old and established part of your credit history. Even if you no longer use a card that is ten or twenty years old, in most cases it is better to simply shred it since 15% of your score is based on the length of your history. In addition, keeping accounts open gives you a better debt to credit ratio, which makes up 30% of your credit score.

3) While not taking on any debt and paying for everything with cash seems like a logical choice for individuals who can afford this lifestyle, no credit means bad credit in the eyes of lenders. There is bound to be a time when you cannot buy something with cash, such as purchasing your first house, so make the effort to open at least one account and make purchases with the credit card occasionally.

4) Applying for too many credit cards at once is extremely detrimental to your credit score since every time someone checks your current credit status, it leaves a ding that lasts a year. When you suddenly start applying for a large amount of credit, it sends up a red flag that you are enduring some financial trouble you are prepared for or that you are accumulating too much debt.

5) Although teenagers are not always the most responsible with money, getting your child a credit card early in life can make a significant difference in the long run as it is paid off in time. There are a few excellent options for low-limit cards and prepaid cards, which will both help you child start building a positive foundation for their future credit.

6) And finally, avoid freecreditreport.com like the plague! It isn’t free and is a complete scam. If you want your credit report for free you can check all three major reporting companies every 12 months without any negative effects at the government sponsored site: annualcreditreport.com

7) Never lie or falsify information about your credit score! Your credit score is easily checked by anyone and you may even face legal action for lying about it on loan applications.

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The Creation of CreditPro Blog

February 4, 2007 at 7:55 am · Filed under Personal

Welcome to my new blog! Without giving away too much information, I’ve spent the last 6 years working with a non-profit credit repair agency. We aren’t a scam like most of the for-profit credit repairing services; we use government subsidies to help individuals at no out-of-pocket expense. This blog is my attempt to help as many people as I can via the internet since my daily interactions are face-to-face only.

Throughout time, I will share my inside knowledge of credit information and advice so you can improve your credit score and avoid credit pitfalls.

Thank you for visiting and let me know if you enjoy the info by offering your comments. I 100% promise to never accept any advertising or money from this blog – it will be commercial free for its lifespan.

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