I am kind of disappointed this morning since I found out yesterday that the refinance on the rental homes would not work. Apparently, my credit score is not good enough. Ever since 2008, it has been incredibly difficult to get credit so I will be focusing on getting out of debt instead.
Ultimately, it turns out that the net impact on the monthly cash flow won’t be all that different without the refinance. That is because I had to have 2 appraisals and one came in below the expected amount. As a result, I had set aside $10,000 to bring to closing in order to save about $650-$700 per month through decreased payments.
Now that the refinance won’t be going through, I will using that money to pay down a credit card balance in order to save over $2300 per year in interest. Once I get this card paid off which should be in the next few months, I will save almost $800 per month in cash flow which can be added back into the budget. So all is not lost with plan B.
Then once that card is paid off and I get a little more credit card debt eliminated, my credit score may very well be in a better place that I could refi the rental houses, decrease my interest rate and my term. I don’t anticipate rates moving up any time soon. I would think that I have a year or more to get a better interest rate.
If not and rates start to increase, that would mean that the economy is heating up which will only help my retirement account investments in the stock market. So I look at it as a win-win.
With this behind me for the time being, I can now focus on getting the business transaction complete and meeting my 2 goals for this year which are losing weight and paying off debt. In fact, I am about to launch a blog solely devoted to working my way out of debt which should bring some increased accountability and motivation to the equation.
I will let you know when it is up and running.
Here are the recent carnivals that have included articles from my blogs:
The following is a guest post for which I am very grateful. I offer my own comments in italics.
If you are like most people, you probably look forward to owning your own home. You want to find a place that you love, purchase it and personalize it. You may have even checked out some mortgage rates and other online loans to get an idea of what you can afford.
But before you take that big step, there are some pitfalls that can come your way. With a little bit of planning and some smart financial decisions the process of purchasing a home can be enjoyable.
Mistake # 1: You don’t think you need the help of a real estate agent.
A real estate agent can make the entire home-buying process easier. From finding the right home for you and your family to picking up your keys and moving in, it helps to have the assistance of a professional.
Because you are purchasing a house, there is no real cost when it comes to a real estate agent. They will be paid by the seller. Choose someone that you like, that understands what you are looking for and keeps in close communication with you.
CFM comment: My wife is a real estate agent so it would be a major mistake not to enlist her help when purchasing. Few people realize that a real estate agent can help negotiate a better deal even with a brand new build. My wife has done this for a few clients and even got some extras thrown in.
Mistake # 2: You haven’t been paying attention to your credit score.
Keeping an eye on your credit score is a critical part of purchasing a home. All types of loans, including online loans, use your credit score as a way to determine whether or not to lend you money. If you have a poor score you may have a difficult time getting approved or end up paying a higher interest rate.
Because it affects your credit score, make sure that you are making all of your payments on time. You also need to find out how much money you owe and consider paying off the debt if it might prevent you from being approved for online loans or traditional home loans.
Mistake # 3: Buying more house than you can afford.
Your eyes grow wide as you see all of the homes for sale. Before you get your heart set on one, make sure that you can afford it. So many times homebuyers attempt to get more of a home than they can afford. They barely make the mortgage payment each month, don’t have enough money for maintenance or upkeep and end up not enjoying living in the home they chose.
Getting pre-approved before you even start to look at homes can help. You can find out what amount you can afford based on your income and the debts that you owe. Use this figure as a guide. You can always choose a home that cost less, but be wary of choosing a home that costs more.
CFM comment: This is a biggie. Just because the bank says it is OK doesn’t make it so. Think about several years into the future and consider family changes (like addition of children) or job security, etc before going for your upper limit. Besides, the temptation is always there to look a little bigger anyway. Rein in the expectations at the start.
Mistake # 4: You haven’t been saving up for a down payment for a house.
Once you find a home that you love you’ll want to be able to make the purchase. But if you haven’t been saving for a down payment your purchase may be delayed. You can never start saving too early when it comes to a down payment.
Choose a figure that you think will be sufficient. You can talk to a real estate agent or even look into online loans to determine how much of a down payment is necessary.
CFM comment: 20% down minimum to avoid PMI.
Mistake # 5: You go with the first loan company you talk to.
You may come across a great deal with the first loan company that you meet with. However, it doesn’t hurt to talk to a few other companies and find out what they are offering. While most will have close to the same interest rates some may let you put off locking in at a rate. Meet with a few lenders or check out online loans to find out just who you want to work with.
The following is a guest post. I have been on a mini-vacation for 5 days so am thankful for this.
More and more companies use our financial and credit history to evaluate the risk we present to them. It is a risk assessment not only for lenders, but for landlords, and employers as well. When we open our first credit account (credit card, auto loan, etc), our credit history begins. The longer we go without any blemishes to this history, the better we will look in the eyes of creditors. Two major incidents that can damage this history very seriously are bankruptcies and foreclosures. Foreclosures are hard on people emotionally, financially, and credit-wise. After a foreclosure, it is possible for a score to plummet by as much as 150-300 points. This can take a good or excellent credit score and drop it into the 400-500 range.
How Far Can Your Score Drop?
A credit score in the 400-500 range is considered untouchable by most lenders. The worst possible score is 340, so if your credit is anywhere near this, it may be difficult to have anyone take you seriously. Qualifying for any new loans or credit cards will be hard. It can also affect how future employers and landlords view you. Of course, your credit score is not the only factor that people look at when judging you as a good candidate to work with. If you have a good job, make good money, and other than the foreclosure are an upstanding citizen in every way, you can still get a break. If you lost your home due to problems with an adjustable rate mortgage, a landlord will probably understand. In 2008-2009, it was very common for a homeowner’s mortgage to skyrocket when their rates adjusted. If you sat down and gave them more information about your situation, they would most likely be sympathetic to what happened. This would be especially true if you were financially strong in other areas.
Credit Scores Move Up and Down Constantly
A credit score can plunge due to a foreclosure, but it can also improve with a good payment history. It is even possible for a score to move upward into the 700 (prime credit) range just two to three years after the home loan default. The default will of course still be seen on your credit report for up to 10 years after the incident, but your score still can increase in spite of this. There are also some things that you can do to improve a dropping score, like taking out a “credit builder loan” at a credit union. This type of loan is designed to help you either build a credit history or improve a poor score. How a credit builder loan works, is by taking out a small loan from $300-$600 at the credit union. This money is then placed in an interest bearing CD (certificate of deposit), while you make payments over a period of 6 months. At the end of this term, you can retrieve the funds from the CD or let it continue to build interest. This type of loan is very safe, has a low interest rate, and is run by people whose goal is to help you financially.
Other Methods to Improve A Poor Score
If you are having trouble getting credit, you can always start by applying for a secured credit card. These cards work similarly as traditional cards, but payment is deducted from a prepaid balance. These cards are extremely easy to qualify for, because they do not pose much of a risk. They can be obtained through the bank where you have an existing account or you can try through a company like Capital One. It is important to pick a card that reports each transaction back to the credit bureaus, because responsible use of this card will help increase your credit score over time.
Getting a co-signer is another way that you can get credit, even if your score was damaged by a foreclosure. It might be difficult to convince a person to co-sign, but they may be more open if the monthly limit is set low. A co-signer is completely responsible for the balance, in case you don’t pay your bills. You should send copies of you bill to the co-signer each month and keep them in the loop as you make your payments. Using a close friend or relative for this is your best option, but if anything should go wrong, you could be risking this relationship.
A foreclosure can be a serious hardship in anyone’s life. It can cause financially and emotional strain on both you and your family. It is important to know that recovery from this type of situation is very possible if the correct steps are taken. Getting back on track may take a few years, but with work, improving your credit score in spite of a foreclosure can be done.
About The Author:
Ross covers many aspects of finance such as the economy, investing, credit and debt.
CFM comment: As a landlord, I have seen some pretty crappy credit reports, but it does help to be honest. One of my best tenants was a young couple who declared bankruptcy due to a business failure. They were upfront and honest, explaining the situation before I even pulled the report.