One mistake people sometimes make is closing off their credit cards so that they have no open accounts.
With no open credit card accounts and all your auto loans, student loans, and other installment debt paid, your credit score will disappear. This is because the credit bureaus have no way of rating your credit when you have no credit!
I believe in living debt-free. However, it is imperative that a person keep two to three credit cards open and active in order to qualify for the best mortgage at the best price. Otherwise, you could find yourself being forced to take a higher priced mortgage — or pay all cash for your house.
For a conventional loan, lenders want to see three trade line accounts. A closed installment loan (auto, etc.) is acceptable if it is not more than three years old.
For an FHA loan, lenders want to see two trade line accounts.
You do not need to carry a balance from month to month. In fact, it is better for your credit score if you pay off the balance in full each month and avoid paying interest. You can use the credit card minimally once a quarter to keep it active and accruing credit score points.
I urge you to pass on this information to folks who have dug themselves out of debt and then make the error of closing down all their credit cards. People get so sick of being in debt, that when they are finally free of that burden, they shut down all their accounts. THIS IS A BIG MISTAKE! Unless you are financially independent and will be paying cash for your houses, you need some open credit and a credit score to get a good mortgage.
If you need to dispute a late payment, collection, charge-off, or other negative item on your credit report, you can’t afford to make a mistake. If you do, you could inadvertently “cement” that negative into your report for a very long time.
This is why Mr. Pat Fasano, who I consider to be the #1 credit expert in the world, told me, “If they have already sent in a dispute for their bad credit, then most often, I won’t take them on as a client.”
The work Mr. Fasano, the owner and founder of Correct Credit Company, Inc. does is nothing short of phenomenal. But he cannot work his magic if the consumer has already muddied the waters by disputing online or sending in a statement that shoots himself or herself in the foot.
“Please remove this late payment because…
… I was sick and in the hospital,
… I was traveling and my mother was supposed to pay the bill, but she didn’t,
… I never got the bill,
… and so on…
THESE WILL NOT WORK! They will only serve to muddy the waters and make the negative item stick like glue.
Look at this legal verbiage about how creditors are to handle credit disputes:
If your investigation determines the dispute was incomplete, frivolous, or that the dispute has been investigated before, you must notify the consumer not later than five business days after making that determination.
WARNING: Do not dash off a quick online dispute or letter without knowing how to properly execute a legal dispute that will work!
If you would like the contact information for Correct Credit Company, Inc., send me an email through my page here. (A Google search will turn up the voice mail, not the phone number for a live person.)
If you want to save yourself the price of hiring a professional, then you have the right to conduct the credit repair work yourself. Just make certain you do it properly or correctly. All the instructions are clearly laid out in Repair Your Credit Like the Pros.
Either way, remember that reporting negative information that is incomplete, out-of-date, false, or unverified is illegal. The credit bureaus must adhere to the Fair and Accurate Credit Reporting Act by removing all such negative items.
After my colleague’s client signed his final mortgage documents for his refinance, he eagerly went out and bought a brand new truck. Little did he know he had just stopped his loan from closing. He thought his loan was a done deal because he’d signed the final papers, but that is not the way it works.
Signing is not closing (in most states).
For a refinance, closing is four days after signing, because federal law requires you to have a three-day right to cancel before the lender is allowed to fund and close the loan.
For a purchase loan, closing is normally two days after signing, because several things have to happen to complete the process. Your original loan documents are sent back to the lender. Someone in the funding department reviews all papers to make sure they are complete. Typically, there will be items for the escrow officer and/or processor and loan officer to do. In addition, the Deed is sent to the local county recorder’s office to receive a recording number. Only then are funds disbursed and is your loan closed.
In the West, if you used a small independent escrow agent rather than a title and escrow company that handles both functions, you are in a sub-escrow situation which can delay your closing by an additional day.
Disastrous Mistakes Borrowers Made
After signing for a refinance, a home owner dashed into work and told off her mean boss and quit. When the lender’s processor picked up the phone (as they typically do) to verify employment, she learned the borrower no longer had an income, and the loan was suddenly denied.
One eager home buyer was so excited, she went out and purchased all new appliances from Sears. As with “Mr. Eager” above, this put her debt-to-income ratio over the acceptable percentage, and her loan was promptly denied. She had to return all the appliances and provide a receipt–or she would have lost her house!
“Can They Do That?”
People think that once the contract is signed, they are set. But that is not true for mortgages. The lender can refuse to fund and close your loan if anything changes about your employment, credit, or overall risk factor.
So be wise and make no changes during your loan process–not even after you sign final papers. Have patience. Put your new loan as your priority. There will be plenty of time to get a truck, new appliances, or switch jobs later.
Has a loan officer pulled your credit report without your knowledge or permission? If so, this is illegal.
Within the past two weeks, three people have told me that a loan officer pulled their credit report without their authorization. They were angry–and rightfully so!
One was a credit union, and when the person complained, the loan officer apologized and said she would work with her manager to try to get the inquiry off her credit report.
The other was one of the big banks, a name you would all know because there is a branch near you. Unfortunately, this loan officer plowed forward, never apologized, never did anything to reverse the inquiry. Why? Because even though the customer was furious, he proceeded to let the loan officer who had performed illegal act to close his loan. In other words, he rewarded the criminal; and in so doing, sent a message that pulling unauthorized credit is an acceptable practice that he should continue doing to others.
I find it interesting that all of these loan officers illegally pulling credit reports did not have to pass a background check or get licensed. This is because there is a gaping loophole in the law: Only mortgage brokers have to go through fingerprinting, background checks, take 20+ hours of classes, pass tests, and be licensed.
Loan officers working at banks and credit unions get to skip all the checks, classes, and licensing.
If you had your credit report pulled without your permission, there are three steps you can and should take:
1) Complain to the loan officer and insist that he or she write you a letter of apology as well as write to the credit bureaus instructing them to remove the inquiry.
2) Don’t trust the loan officer to follow through; send your own letter to the credit bureaus, along with a copy of the apology, instructing them to remove the inquiry.
3) File a complaint with the Consumer Finance Protection Bureau here. The CFPB will follow up with the lender and possibly levy a fine against them.
When we all work together to follow the law, criminals will be forced to clean up their behavior or go out of business.
Yes, credit repair works! Every business day of the year, good folks are getting bad credit deleted from their credit files. The Fair and Accurate Credit Reporting Act (FACTA) gives consumers the legal right to dispute credit they believe is false, outdated, incomplete, belongs to someone else, or is in any way not 100 percent correct.
By law, the credit reporting agency must verify the fairness and accuracy of the account. If they cannot prove that it is right, then they must delete the disputed item. In America, the law says “innocent until proven guilty,” and that applies to credit as well.
“Why didn’t credit repair work for me?” people ask.
The answer is simple: It is because you went about disputing the incorrect credit the wrong way; and therefore, you shot yourself in the foot, as the saying goes.
Two Most Common Mistakes People Make When Disputing Credit
1) Disputing online.
Listen, the credit bureaus did not set up their online credit reports and dispute system for your benefit. They did it, because it is less work for them, and it prevents people from getting negative credit removed from their credit files.
None of the successful credit specialists I interviewed — from California to New Jersey — use the online system. Why? Because it does not work in the consumer’s favor. They order credit reports by mail and they dispute the same.
2) Writing the wrong type of letter.
People write a lot of things that won’t and don’t work for having bad credit removed. For example, if you write “I didn’t receive my bill on time,” or “I was traveling and my sister was supposed to make the payment,” or “They never sent me the bill at my new address after I moved,” or “I was in the hospital,” then you will not get the negative item removed. Instead, you will “cement” it in your file.
Writing a sad, heartbreaking story won’t work either. One lady I know wrote that the reason her account didn’t get paid was because her family was a victim of 9/11. Talk about a good reason! But it did not work. The representative told me she sent condolences but did not remove the negative item.
There is Hope!
When you write the same type of letter that the successful credit pros write — and use the method they use — then you will get the same positive results they get. I used to work for a brilliant man whom I consider to be the #1 credit expert in the world, and I saw the results with my own eyes. I referred friends in the mortgage business to him, and they saw the same positive results.
Using these methods, which I have written down in clear, easy, step-by-step directions, here is what Jerrid emailed me on May 27, 2015:
Hi Carolyn, I just wanted to let you know that I followed the processes from your book and letters and I have had a charge off from Bank of America with a $3700 balance removed completely from all 4 reporting agencies. Bank of America sent me a letter after the dispute and agreed to not recoup the balance and would not present this to any collectors or take any legal action.
His credit score increased by 65 points!
On June 14, 2015, Amanda Jones posted this on Amazon:
I have read about 3 other credit repair books and this is by far the BEST!! She answers the who, what, how, and why of all techniques where others have been somewhat vague. Plus, it is a good read finished in one day. I thought I was ready to send out my dispute letters but now will revise approach based on what I learned in this book.
You can read additional feedback here.
Credit Repair Does Work!
The Federal Trade Commission reported that 1 in 5 Americans has a mistake on their credit report.
CBS News reported there are 40 million errors on American credit reports.
This should not be! Now is the time to clean up your credit and restore your good name. I will write more on an upcoming blog. For now, if you know someone who needs credit restoration, please feel free to pass along this information, because everyone needs to know there is light at the end of the tunnel.
Heads Up! A new lending law coming in October is going to stop you from closing your loan fast as you might like. Currently, some lenders (not the big banks) are closing purchase loans in three weeks. At my office, we closed a loan in 14 business days, because the seller’s circumstances demanded a rush.
But the Consumer Finance Protection Bureau (CFPB), the watchdog committee set up by the White House, has decided that folks getting a mortgage need more time to think about their financing. Even though, per current law, borrowers must have received the Good Faith Estimate, Truth-in-Lending, Lock Confirmation, Notice of Settlement Service Providers, and other documents that come to approximately 100 pages of disclosures at least three days after making an application… and even though they have several weeks while the loan is processing to discuss their financing with their loan officer… and even though they have the legal right to review the Settlement Statement for 24 hours before signing… even though… the CFPB has determined that is not enough time for people to think about their financing.
A new 3-day delay period in which borrowers can think some more about their financing is being instated with the new law called TRID (which, interestingly, is DIRT backwards).
That is a mouthful, and it is so convoluted that banks and lenders have had their attorneys trying to decipher it for the past year. To help explain it to regular folks, the CFPB has written a shorter “plain language” version that is ONLY 91 pages. You can download it here.
If you don’t feel like reading it all, just know that the days of quick and easy loan closings are fast coming to an end. Most closing agents, escrow and title companies, attorneys, and lenders are suggesting that if you’re buying a home after TRID comes in October, you allow 45 days to close (60 days if your financing is with a big bank).
The public has a right to comment on this upcoming law until July 7, so act fast!
Real estate agents, this is your opportunity to make your voice heard!
Here is the link.
In addition to your down payment, there are closing costs that go into a mortgage. The down payment lowers your loan and goes toward the price of the house. The closing costs are fees paid for services rendered. Here are the seven most common and what they are for:
1) Origination Fee: The lender’s fee for processing, underwriting, and funding your loan.
2) Credit Report: Goes to the credit reporting agency that provides your tri-merge credit report to the lender. You have the right to know your credit score.
3) Tax Service Fee: Lenders use a third party service to ensure the property taxes are properly paid and posted. (You don’t want your property taxes going to the neighbor’s address.)
4) Flood Certification: Federal banking law requires lenders to determine whether or not the property is in a flood zone and needs flood insurance.
5) Escrow or Attorney: Federal law requires a neutral middle party to handle the disbursement of funds. They also sign and notarize your final loan documents, send the Deed of Trust to the county for recording, and perform other required tasks for your loan closing.
6) Title Fee: Insurance to protect your title against false liens and judgments, fraud, errors, and other incorrect encumbrances on your title.
7) Recording Fee: The local county charges to record your Deed of Trust.
None of the above fees are unnecessary, bogus, or junk fees. They are all costs for legitimate and required services.
Added, unnecessary fees would be things like Application Fee, Archive Fee, Doc Prep, Doc Fulfillment, Email or E-doc Fee, Wire Fee, and so on.
Discount Points are not a junk fee. This is when you choose to buy down your interest rate to a lower rate by paying a chunk of the interest up front. This is optional.
A no-fee loan means you are paying for the fees by taking a higher interest rate. One way or the other, you do pay required and necessary closing costs.
The seller may pay some or all of your closing costs. The real estate agent may not pay your closing costs, per federal banking law.
In addition to closing costs, there are “pre-paids.” These are not fees; but rather, your taxes and insurance as well as daily interest. (More about pre-paids in an upcoming blog post.)
There is a lot more information about fair and unfair mortgage costs than what I can put into a blog post. Feel free to check out my best-selling book that was chosen by The Washington Post as their Book of the Month (“Color of Money” book club). Mortgage Rip-Offs and Money Savers
I love California, and I am excited to announce that I am licensed to do mortgage loans in the Golden State. Whether you are a first-time home buyer, a seasoned home buyer, or a home owner refinancing, I can help you get the best loan for your situation.
Here are some of the loan programs I can help you with:
* First-time home buyer FHA loan with 3.5% down or with gift money for the down payment.
* Grant money for the down payment on an FHA loan with no pay back whatsoever. A true grant, from a private bank. No neighborhood restriction.
* Conventional loans: 30-year fixed, 20-year fixed, 15-year fixed, 10-year fixed rates.
* 5/1 ARM: fixed for the first five years, then adjusts annually. A good loan for people who plan to keep the home for five years or less.
* VA loan for U.S. Veterans
Getting Pre-Approved is No Cost
There is no cost to get pre-approved and/or to find out how much house you qualify for. Let me know what you want, and I will take it from there.
What Does It Mean to Be “State Licensed”?
Loan originators who work for banks and credit unions do not have to be state licensed. The CFPB assumes the bank will vouch for their integrity and competence. However, mortgage brokers and direct lenders (such as myself) have to pass multiple hurdles in order to do business in California. Here are the requirements we go through that those at banks and credit unions get to skip over:
* 20 course hours plus additional class hours for California state law.
* Pass both a national test and a CA state test.
* Get fingerprinted and have a background check done.
* Have a credit report pulled and checked for personal financial responsibility.
* Be approved by the CA state authority.
You might say that state licensing ensures a higher level of scrutiny, which means more security and peace of mind for you.
Please feel free to contact me about your mortgage questions or financing needs via the Ask a Question page here.
Looking for a Recommendation for a Licensed Real Estate Agent?
I have worked with fine real estate agents in California. If you would like my recommendation for an agent who will work hard and put YOUR best interests first, send me a message here.
Zillow, the company that tracks more home sales and amasses more stats than any other company I know of, tells us these surprising facts:
1) If you price your house too high and then reduce it later, you will end up selling for LESS than if you had priced it correctly from the get-go.
2) If you live in a neighborhood with a Chinese population of over 10%, your house will sell for more if the price ends in a lucky number (lucky according to Chinese culture).
3) The same applies if your address ends in a lucky Chinese number.
4) For the general American population, house prices that end with the two digits 99 sell faster and for more. There seems to be something about 99 that makes people think it is a bargain.
In an experiment where the same dress was put for sale at $35 and $39.99, it sold better at $39.99. In another example, a wine seller sold more bottles of a particular wine when the price ended in .99 even though it was more expensive than the previous price. Evidently, the same applies to selling houses.
5) Women and men real estate agents seemed to be equal at selling homes. That is, according to Zillow, neither sex outsold the other. However, women tended to over-price homes more often than men, but they were also quicker to drop the price. The men who over-priced a home tended to stick with it longer and lower the price by less when it was reduced.
That last point may prove to be controversial. If you disagree, I’d love to hear it! To leave a comment, see the top of this post, right side.
6) There is nothing you can do to control this one, but I found it interesting that house addresses that contained the words Place, Way, or Court sold for more than addresses with the more generic words of Street or Avenue.
The second most important strategy for home sellers is to present their property in the most favorable light possible. If you were going for a job interview, would you wear a rumpled shirt, dirty slacks, and smelly shoes? The same goes for your home. Clean it, fix it, de-clutter it, and stage it to best advantage. Listen to the advice of your experienced real estate agent. He or she is not emotionally attached to your belongings, so when they tell you that something has to go, take the advice.
Third, don’t over-do the remodeling right before placing your house on the market. Your taste in décor might be different than a buyer’s, so you will not recoup the total cost. Discuss the possible advantage of selling “as is” with your Realtor and make only the improvements he or she suggests. Not everyone is going to pay more for a swimming pool, sunroom, or granite counters.
As always, thank you for stopping by my blog.
1) Stay in town during the loan process.
This is not the time to travel so that you are unavailable to provide additional documents the underwriter might ask for. If your vacation to Europe was pre-planned and cannot be changed, then allow ample time after you return home before the closing date. It is unrealistic to think you can check out during the loan processing and come back to sign one day later.
2) Leave your money where it is.
Do not transfer funds from one account to another during the loan process without your loan officer specifically instructing you to do so. In addition, do not transfer funds the two months prior to applying for a mortgage. The reason is because doing so can cause a paper-trail nightmare for you and the underwriter.
3) Leave your credit as is; open no new accounts.
If you open a new credit card or installment loan during the loan process, you are potentially sacrificing your home. Don’t do it! Although your credit has been checked and approved, it is likely your credit will be checked again right before closing. If new accounts appear, then your debt ratio and/or your credit score could suffer.
One first time home buyer decided to buy new appliances for the new home during the loan process. When her credit was re-checked, the new Sears account showed up and the payments put her debt ratio over the line. Her loan was denied! In order to proceed, she had to return the appliances and prove with receipts that she had done so. How embarrassing, right?
The same goes for buying a new automobile. Don’t even think about it! Your priority must be buying the house.
4) Write your purchase offer contingent on a home inspection.
Waiving a home inspection is a dangerous move. Inspectors are paid to find fatal flaws and major problems that are not obvious to the eye. When you visit a home, do you climb up on top of the roof? Do you crawl under the house? Do you inspect the electrical wiring, plumbing, water heater, sump pump, etc.? That is what your home inspector is for. It is an important step that prevents you from having to shell out thousands (or tens of thousands) of dollars later.
5) Obtain your own buyer’s agent.
Calling the real estate agent listed on the for sale sign is a colossal mistake. The same goes for using the agent that is hosting the open house. When you use the seller’s agent, it is like using your opponent’s attorney in a court of law. Who would do that?! The seller’s agent is required by law to get the highest price and best terms for the seller. Dual-agency is not in your favor!
Since the seller pays for both the listing agent and the buyer’s agent, it is free to you to have your own expert agent representation. Therefore, there is never a reason not to do so. You do not save money or get a cheaper price on the house if you use the seller’s agent. Be smart and get your own agent representation.