What Happens to the Money When You Can’t Use All of the Seller Credit?

You’re buying a house. Your purchase contract says the seller is giving you $7,000 credit toward closing costs. But your total closing costs are only $6,000. What happens to that extra grand?

Can you get the cash at closing? That would sure come in handy, right?

Sad to say, no. The Buyer cannot receive any cash from the Seller.

Some loan officers have let the extra cash stay with the Seller. But how is that fair? Part of your contractual agreement for buying the house for a certain dollar amount was that you would receive $7K.

Can you then reduce the price of the house by $1,000? Not really, because at this point in the process, it isn’t practical. You would surely close late, miss your interest rate lock and moving date. Plus, the appraisal report would need to be amended and new disclosures would be sent. It would create a nightmare in the 11th hour.

Principal Reduction

The easiest, most practical way to use that extra grand without delaying your loan is for the lender to apply it to your principal balance.

This means that at closing, your loan will be $1,000 less than originally planned. You have instant extra equity in your home, which is great. If you have a conventional loan with mortgage insurance, you are that much closer to  having 20 percent equity and getting rid of the monthly MI fee.

If your loan is a fixed rate, the lower loan balance will not change your monthly payment. But, it will change how much you owe. Depending on your loan size and payment, it could cut off a month (more or less) of your term.

Either way, having the Seller pay $1,000 of your mortgage for you is a positive thing!

What You Need to Know About Title Fees

Each title company has their own set of fees. Some charge one flat fee. Others add a couple junk fees. Some pile on a stack of fees that may add up to an extra $300 to $700.

The ones who charge multiple fees say, “We like to break it down for the buyer, so you know where everything goes.”

That sounds fine, but when the total of the break-down is significantly more than the flat-fee company, something is fishy.

And, there shouldn’t be double-charges. Such as a messenger fee and an overnight fee. Both of those fees are to transport the signed docs back to the lender. Which are you using, a messenger or FedEx overnight? And why are you charging $75 when Fedex overnight by 10:30 am (2 lbs) is $28.05?  3 lbs is $31.40.

Can You Object to Title Overcharges and Junk Fees?

You can always object to title fees, but if you’re far into the loan process or almost at closing, you have no leverage and will likely have no success. They will say no, and then what? It’s too late to start over with another title company.

The best solution is to know from the start which title company you want to use. That way, you write it in on your purchase offer.

The Law and the Seller

Federal lending law states that the choice of title company belongs to the Buyer. However, when a listing agent places the home on the Multiple Listing Service, he/she includes the legal description of the property, and they get that from the title company. Thus, the listing agent chooses a title company right from the start.

No actual work has yet been done by that title company, so at this point, it is no problem to switch companies. There is no reason you can’t say, “I’d like to use Y Title,” even though the listing shows X Title. Truly, it’s no problem.

How Do You Find Title Company Fees?

Use Google to search for your title company + zip code. Some companies have a fee calculator on their site you can use. For the others, call and ask. You don’t need a written quote. The title agent can provide the quote over the phone in just a few minutes.

Personally, I prefer to use the same company for both title and escrow settlement. This is because (1) many offer a 10 percent discount for doing so, (2) you avoid the sub-escrow fee, (3) avoid expensive little independent escrow companies–which in California can be double what the national title-and-escrow companies charge, and (4) possibly save time at closing.

If you are in a state where an attorney is used for settlement closing, then the above doesn’t apply to you. But do take the trouble to find a good and reasonably priced attorney.

When Good Folks Ask Me About their Closing Costs

I appreciate where people are coming from when they email me a list of their closing costs and ask, “Am I getting ripped off?” However, I cannot answer this question without seeing the actual Closing Disclosure. I don’t know the price of the home, their state and zip code (which affects the title cost), or what fees they might not have noticed hiding in a different section, or if the seller or lender are providing a credit. When I do a review, I spend time ahead of our consultation comparing local title fees for their exact situation, and this takes time out of my day. This is why I charge for my service. It’s not that I’m trying to be greedy, but a review-and-consult takes a good hour. If I do that for four people, that’s four hours of my day, so you get the idea.

I encourage you to do your research ahead of shopping for a house. That way, you will be empowered with knowledge and make a good choice for a title company right from the start.

Some Realtors say not to “rock the boat” and let the Seller choose the title company. In a super-competitive market where multiple offers are coming in, there’s some wisdom in that. If you’re bidding $25,000 over asking price, why worry about paying an extra $500 or even $1,000 for title? Your objective is to beat out five other buyers and get the house.

Thank you for reading. Remember, I am state licensed in California and Washington. (NMLS 1284134) I am a mortgage broker, so I am legally bound to find you the lowest interest rate, best pricing, and best loan program I have from my list of 50+ wholesale lenders. ApplyHere

Do You Have to Pay Taxes on Settled Debt?

If you negotiate a settlement agreement on a collection, charge-off, or credit card debt, will you be required to pay the IRS as if it were income? Maybe and maybe not.

The general rule is that if you owed $4,000 and agreed to settle for $1,000, then that $3,000 you were forgiven is considered as “income” and therefore taxable. But wait — there are exceptions to that rule!

Are You Broke or Partially Broke?

If you are considered insolvent, then you do not have to pay income tax on the settlement.

If you are considered partially insolvent, then you do not have to pay income tax on the entire settlement, only on part of it.

Insolvency is when your debt is greater than your assets. This applies to a lot of good people who don’t have much money or equity in real estate, automobiles, etc. If you’ve got $1,000 in assets and were forgiven $3,000 in debt, then you aren’t required to pay tax on it.

If you’ve got $4,000 in assets and were forgiven $3,000 in debt, then you only have to pay tax on $1,000. (4 – 3 = 1)

I am not a CPA, so I’m required to say this is my interpretation of the law, and that you should check with your tax accountant.

Was Your Settlement Less Than $600?

You do not have to claim income if your settlement-benefit was less than $600. Such as if you owed $1,000 and settled for $500, then your settlement benefit is only $500 and you aren’t required to tell the IRS.

Was Your Cancelled Debt a Gift?

If your debt was to a family or a friend, and then that person ended up saying, “You don’t have to pay me back after all,” then the forgiveness is considered to be a gift. In that case, you don’t have to claim it to the IRS. (How would they even know about it anyway, right? Nevertheless, it’s a rule.)

Did You Declare Bankruptcy?

Debt discharged in a BK is not income to be taxed.

Did the Creditor Fill Out Form 1099-C?

If the collector reported Form 1099-C to the IRS, then you can’t ignore it. Ask a tax professional whether or not you are considered “insolvent” or partially so. That way, you might be able to save on taxes.

If You Have to Pay Taxes on the Settlement, Will You Come Out Behind? Or Ahead?

Great question! Just because you are required to pay taxes on the amount forgiven, you could still come out financially ahead. It depends on how much money the settlement saved you and what your personal income and tax situation is. This is very individual, so you will need to speak with a tax professional to determine if it’s a yes or no for you personally.

What If You Overpaid Taxes Because You Didn’t Know About the Insolvency Rule or Made a Mistake?

Don’t despair! You can file an amended tax return and collect any refund that you are legally owed due to over-paying.

Best wishes and God’s blessings on your financial future. There is always hope for better days ahead. ~ Carolyn Warren

Do Inquiries Hurt Your Credit Score?

Here is the newest (and accurate) information about credit inquiries.

A credit inquiry is when a company pulls your credit report when you make an application for credit.

The last thing you want is for your credit score to go down while you’re shopping for a home loan. Here’s what you need to know:

  • For lenders using FICO 04, you have 30 days to shop for a mortgage, automobile, or student loan without having a penalty to your credit. No matter how many credit pulls you have in that time period, it will count as only one credit pull. (This is pretty much all mortgage lenders.)
  • For lenders using FICO 8 and 9, you have 45 days. But this is virtually no mortgage lenders, so in reality, it only applies to automobile loans and student loans. (Ask if they are using FICO 4 or FICO 8 or 9 to be sure of the 45 day timeline as opposed to 30 days.)
  • For credit cards, store cards, or lines of credit, there is no grace period. Every credit pull counts separately, and is subject to lowering your credit score.

If you need a credit card, don’t worry about the minor hit to your score, because establishing credit is part of the process.

If you already have three lines of credit and will be buying a home soon, avoid opening any new credit. Believe me, a 10 percent discount on merchandise is not worth taking a higher interest rate on your $200,000 home loan because your score dropped. Don’t risk it!

And remember, NEVER NEVER take out an automobile loan, finance a computer, appliances, or furniture, or open any other new credit six months before applying for a mortgage loan. You don’t want to risk lowering your credit score right when you’re trying to get a low rate for your home.

No More Tax Liens on Credit Reports as of April 17, 2018

As of today, no tax liens should be posted on credit reports. This will help boost credit scores for those people who were affected.

However, this does NOT mean that you get to wiggle out of paying your taxes. If you owed money to the IRS or to state taxes, then you still owe that money. The best way to handle it is to contact the tax representative and work out a payment plan. If you can make a lump sum payment, you can expect to pay less than if you need a monthly pay plan.

Be sure to get your agreement in writing.

Also, when you apply for a home loan, even though the tax lien will not show up on your credit report, the lender will still find it. LexisNexis is providing a service to banks and other mortgage lenders that provides information about pubic records such as tax liens.

Enjoy your higher credit score, but take care of the taxes you owe.

Please share this post with others who need this information: Facebook, etc. Thank you for helping get this important news out.

How Many Items Can You Dispute at One Time on Your Credit Report?

“My credit report shows several negative accounts that I need to dispute. Can I include them all in one letter?”

This is a common question, and I go into detail about how the professional credit repair specialists handle it in Repair Your Credit Like the Pros. But let’s talk about common sense.

If your credit is mixed up with another person’s credit, such as your name is Charles Moon, Jr. and Charles Moon Sr.’s credit is showing up on your report, then you should include all of Sr.’s credit accounts that do not belong to you in one letter. Also include two pieces of ID showing you are Jr.

If you were in the hospital getting an appendectomy and some of the bills went into collections because your insurance company messed up, then include all of those collection accounts in one letter, because they are all related to one event.

So, if the erroneous negative accounts are all related, include them in one letter — and if possible, send verification along with it.

On the other hand, if your report shows a collection account from Comcast dated 2013, and a collection account from Sears dated 2016, then it’s clear that those two accounts are not related to one another. Therefore, you must dispute them separately. For each, explain why it is incorrect and request that it be removed from your credit report. You can use a handy Credit Investigation Request Form that goes with the book if you like. It’s a good idea to hand write a short explanation in the white space. Or, if more appropriate, you can use a letter.

Some people have asked me what I think about the 609 template letters. I know a lot of people use them, and that’s one problem. They are over-used. Another problem is that they sound like legalese, not like something an honest citizen would write about his/her situation.

What’s more, the top credit repair experts that I interviewed and have worked with do not use those letters. The book is called Repair Your Credit Like the Pros.

Credit repair is a big topic and it is both simple and complex. It’s too much for a blog post, but I hope that using common sense will make sense to you for your situation. For more detailed instruction, please see the book.

For the record, I do not do credit repair, nor do I give credit advice by email. I am a licensed mortgage loan officer in California and Washington; and as all mortgage professionals do, I have helped my clients get approved for a home loan.

A Debt Too Big to Pay: A message for Good Friday

Today is Good Friday, which I think of as Sad Friday. I got to thinking about what that means and debts people owe. How can a person handle a debt that is too great for them to pay?

One choice is bankruptcy. There is Chapter 7 that wipes out all debts except for taxes, government debt (student loans), and child support–pending court approval. There is Chapter 13 which is a repayment plan set up by the court to satisfy the debts.

Another choice is to work out a settlement with a payment plan with the creditor. Even the IRS will grant a payment plan, and when a person has been making faithful payments for a year, he or she can qualify for a mortgage to buy a house.

But what about the debt that is so great, it can never be repaid, can never be declared bankruptcy on, cannot qualify for a repayment plan? The debt that weighs on a person’s soul, because the debt is actually sin against God?

That is the miracle of Good Friday. Jesus Christ, the only Son of God, stepped up and willing paid that debt for you, for me, for all humankind–by giving His own innocent life.

I know it seems odd, maybe even unfair, that Jesus should pay the debt of sin for you and me. But that is what happened, as verified by holy Scripture. Now to “seal the deal,” we have to accept that payment. We have to acknowledge our debt, our sin, and accept that Jesus Christ paid the price. In turn, we pledge to make him Lord of our life.

It’s a wonderful trade-off! We get forgiven and we get a Savior to lead and guide us through life.

So although Jesus dying on the cross is sad, it is also a day of goodness and hope — especially when Jesus rose from the grave in victory on what we call Easter morning!

Thank you for reading my heart-felt post today.

Need Money? said the spider to the fly

Who wouldn’t like some more cash? Unless you just won the lottery, it’s probably you (and me).

But listen, friends. The loan spiders know this and they are licking their fangs to get you trapped into their web. They are not your friends, being nice by handing you a check. They are looking at how much they’re going to make off the interest you’re going to pay. Here’s a real life example…

The Wedding Loan

One greedy credit union is now advertising that they make “wedding loans.” That’s right. In case love isn’t enough and it’s really all about your vanity and ego, you can borrow $10,000 and pay 4.99%. You end up paying back $11,006. Paying $1K in interest on $10K = paying 10% more!

(If you can afford a $10K or $100K wedding, I have no problem with it. But borrowing money for a ceremony is a bad idea. You don’t need to start your new life in debt.)

The “Me Loan” (They actually call it that.)

If you’re not totally pleased with your appearance and want to get some cosmetic work done, you can borrow money at what they call an “affordable” 9.45%. If you borrow $20,000, you’ll pay back almost $25,000 over five years.

Paying $5K in interest on $20K = paying 20% more!

The Vacation Loan

The worst idea of all is their “vacation loan.” Listen friends, if you haven’t been able to save enough money to travel, then it’s better to enjoy a “stay-cation” than to go into debt so you’ll have to work even harder just to keep even. Backyard parties, bike rides, the local sites… they can all be a lot of fun without spending a ton of money.

Yes, there are times it makes sense to take a loan. Some of those valid situations are…

  • Your house needs a vital repair, such as the roof is going bad. (Not new granite counter tops.)
  • Your child needs orthodontic work.
  • You need to take a class in order to qualify for a higher-paying position.

For the non-essentials, it’s best to save money until you’ve got the cash.

To get ahead, here are some ideas to consider:

  • Sell clothing/coats/handbags through a consignment shop.
  • Sell collectibles you no longer love on OfferUp, Ebay, or Craig’s List. In some neighborhoods, garage sales are effective for unloading a lot of inexpensive items in one day. Ebay is better for high priced items. Craig’s List is pure luck.
  • Cancel extra cable channels and maybe even cable TV altogether. Switch to antenna TV and read more.
  • Pack your own lunch for work. (Add up how much you spend eating out in a month.)
  • Switch to a cheaper grocery story. (You don’t have to spend gas driving all over town to four groceries, just stop paying more at the most expensive store in town.)

Two words to the wise (make a big different in a hurry):

  • Stop using the debit card. Examine the past two months of your bank statement and you’ll see what I mean. Add up all those “little” charges to see how your money is flushing away at an alarming rate.
  • Track your spending! Become more aware of where your money is going and then get creative with ways to save. I know 90 percent of you can do it. (The other 10 percent are already doing it.)

Temporary sacrifices bring wonderful rewards.

If you think this message is valuable, please share on social media and pass it on. Thank you.



Home Possible Advantage: A Good Program for Home Buyers

The Home Possible Advantage Loan Program has distinct advantages for home buyers. First, let’s look at what it takes to qualify, then we’ll look at the benefits.

Who Can Qualify for Home Possible Advantage

* First-time home buyer, or
* Displaced  homemaker or single parent who used to have joint ownership in a marital residence, but now is buying on their own, or
* Have not owned real estate in the last three years.

* Credit score 620 or higher.

* The home must be your primary residence, not a rental or vacation home.

* Annual income cannot exceed 100% of the median income in the area, UNLESS the property is located in an area designated to increase home ownership. In that case, there is no income limit.

The Home Possible Income & Property Eligibility tool is here.

Benefits of the Home Possible Advantage Loan Program

Only 3% down payment.

Lower monthly mortgage insurance (MI) payment.

No up-charge to the interest rate for the low down payment.

Lower monthly payment.

Down payment can be from your own money, or gift money from immediate family.

How to Get the Home Possible Advantage Loan

You get this loan through your mortgage broker. Your broker can shop several wholesale lending sources for Home Possible in order to find you the best pricing you qualify for. I am licensed in California and Washington.

Remember, get pre-approved for financing first, then contact your real estate agent to find a home.

Investor “Cash Flow” Loan Solves the Problem of Income Qualification

This is for people who want to buy a rental property, but cannot qualify based on their pexels-photo-206673.jpegpersonal income.

“Why are you turning me down based on my income when the property I am buying will have a positive cash flow?” they ask.

Good question. And now someone who is thinking outside of the Fannie Mae box has a solution.

Here are the details for the Investor Cash Flow Loan:

  • No personal income used to qualify (No W2s, no tax returns).
  • Qualify based on the rental income you will receive (verified by a rent appraisal).
  • 75% of the rental income is used (25% set aside for possible future repairs or time between renters).
  • Must have six months’ mortgage payments in savings or other reserve account as a safety net.

Credit score required: 660 or better (middle of three scores).

Down payment: 20%

The property can be a detached home or a condo. Non-warrantable condo is okay. There is no limit on the number of properties you can own (unlike Fannie Mae that caps at 10 properties).

How to Get the Cash Flow Loan

This program is available through a mortgage broker. If your property is in CA or WA, I am licensed in those two states. Otherwise, contact a local mortgage broker and ask for the Investor Cash Flow Loan. If your broker is not familiar with it, he or she can email me.

Get pre-approved, then ask your Realtor to show you some properties!

Thank you for reading this post.



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