Author Archive: askcarolynwarren

My Podcast with Emmy Winner Elisabeth Leamy

I was a guest on the podcast Easy Money with 13-time Emmy winner,
Elisabeth Leamy!

Elisabeth is best known for her work on Good Morning America, The Washington Post and Dr. Oz.

Easy Money is full of surprising ways to MAKE more, SAVE more and find YOUR unclaimed money.

I shared my story about the benefits of improving your credit score .  Let me know what you think of my episode!

 

And, if you like it, you can help the show succeed by subscribing/reviewing here: http://apple.co/2tpUY6v

Land of the Free: Don’t let bad credit stop you

As we celebrate living in the Land of the Free and Home of the Brave, it occurred to me that being strapped with bad credit is the opposite of freedom. When you can’t enjoy life because you’ve got creditors hounding you to pay bills, that is not freedom. When you can’t get a decent interest rate on a car loan or decent insurance premiums because of a low credit score, that is not fun.

I urge you to take control of your credit and finances. No matter where you are today, you can make a plan for your future. It might not happen overnight, it might take some self-discipline, and some work — but that is what our legacy is all about.

Our forefathers and foremothers — all of them, not matter where they came from, whether rich or poor — wanted to be free. Let’s grab hold of that spirit of determination and pursue whatever it is that we need to do in order to make tomorrow better.

Credit repair is legal and ethical, when it is done properly. Others are repairing their credit and restoring their good name, and you can, too.

Harold from Indiana wrote this is an email (and gave permission to share it):

My score has gone up 89 points in a 2 month period. After mailing the letters it didn’t take long for them to respond, maybe 2 weeks. I will continue to work at improving my credit. Once again your book is amazing and it truly works.

He is talking about Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete bad credit and restore your good name. You can get more details here.

Have a happy and safe Fourth of July! God bless America!

 

 

 

Why Title Insurance is Required

Mortgage lenders require title insurance, and for good reason. Title insurance protects your investment (and theirs) and your ownership of the home.

Why Title Insurance is Worth the Cost

What if, after closing, an individual contacted you and said, “My grandma used to live in that house and I am an heir to the property. Sorry to inform you, but I actually own this home, and I never authorized it to be sold.”

What if a roofing contractor said he was never paid for his work and you find out there is a lien, and now you are being sued in court for payment of the roof over your head?

What if a previous owner got a divorce and the ex-spouse is now suing for his or her half of ownership?

What if another individual somewhere in the country has your same name, and that person owes an attorney tens of thousands of dollars, and now that attorney has placed a lien on every person they can find with that name?

All of these scenarios have happened, and you might be surprised at how often. Title problems occur in more than a third of residential real estate transactions, according to Ticor Title.

These are only a few of a myriad of things that could cost you big without title insurance to protect your good name and ownership.

The good news is that title insurance is a one-time fee paid at closing. There is no monthly bill and yet the insurance protects you as long as you own the property — and it extends to your heirs. However, if you refinance, you will need to buy another title search and policy due to having a new mortgage loan.

It’s easy to see why a mortgage lender won’t invest hundreds of thousands of dollars in a home without the safety of title insurance.

What if you pay cash? Is title insurance required then?
No, title insurance is optional. But knowing the pitfalls, who would be foolish enough to forego this protection?

If you pay cash and didn’t buy title insurance, can you add it later?
No, the only time you can buy title insurance is at closing. This is when the insurance company searches the history and clears any false liens, judgments, errors, fraudulent claims, etc.

So, when you see that seemingly large fee on your Closing Disclosure, go ahead and smile, because title insurance is keeping you safe from so many financial nightmares.

 

 

Which is Worse: Having a Low Credit Score or Having a DWI?

Which will cost you more: Having a low credit score or getting charged with Driving While Drunk?

If you’re thinking like an insurance company, you’re going to say the low credit score is worse than the DWI. And you’re going to charge your drivers higher premiums for it.

Is that reasonable? I don’t know about you, but I’d rather be a passenger in a car with a driver who had a low score than with an intoxicated driver.

Look at this comparison of auto insurance costs for an average new insurance customer*:

Low Credit Score: $1,521 insurance premium

High Credit Score but with a DWI: $1,097 insurance premium

The person with a low credit score pays $424 more than the person with the DWI.

Keep in mind that you can have a low score simply by carrying too much credit — even if all your payments are made on time.

I have seen credit reports for physicians, dentists, and attorneys who had low scores due to carrying a lot of credit. These professionals had high incomes and could easily afford their credit. They made all payments as agreed. But, according to statistics, they have higher insurance premiums than the person driving drunk!

Does this make sense to you? I’d love to hear what you think.

In the meantime, it cannot be overstated how important it is to have a good credit score. A low score will cost you more in every financial arena, from buying a home to insurance premiums to credit card rates.

If your score is below 740, you will be wise to examine your report to determine how you can improve it and save yourself a bundle of money.

*Thanks to Chad Kusner, president of Credit Repair Resources, Inc. for the statistics.

 

 

 

Should You Close Extra Credit Cards?

Some of my book readers have been asking me if they should close out their extra credit cards. They may have a Visa, MasterCard, Sears, Target, Macys, Chevron, and Walmart card. They do not need all of those cards, because Visa and MasterCard will handle it all.

But my answer is NO and here’s why.

By closing the cards you already have open, you risk losing credit points.

You gain points for having a long history of credit. By closing old cards, you could lower your average length of credit.

You gain points for using a small portion of your available credit. This is calculated in two ways:

1) A low balance-to-limit ratio on an individual card.

2) A low balance-to-available credit ratio on all your cards.

If you close out all your store cards that you don’t need, you could hurt your score per #2 above. Your balance-to-available credit ratio could go up (depending on your remaining credit).

So, in general, if you have extra cards you don’t need, let them set open and unused. That way, you won’t risk losing points.

What If You Only Have Three Credit Cards?

If you only have two or three credit cards, that is enough and you do not need to seek out more. If you have two credit cards, plus one other trade line on your credit report, such as an auto loan or student loan, then that’s perfect. You have three accounts showing on your credit report, which is what you want for a conventional mortgage loan.

Best Practice

Best practice for a high credit score is to keep your balance-to-limit ratio low on all your credit cards. I suggest keeping it at 30% or less. Never go over 50%, because that will dock points. And never, ever max out your cards!

Thank you for reading this post. Feel free to pass it on to others via social media, because a lot of folks are using too much credit without realizing it is hurting their scores.

Seven Credit Mistakes to Avoid When Buying a Home

Attention Home Buyers! Do not expect your loan to close smoothly if you make one of these money moves during your loan process (or right before your loan process). In fact, it could actually cause your approval to slip and fall into a denial.

“Can they do that? I have my approval in writing?” you may ask.

Absolutely. The lender can withdraw your loan approval — even after giving you a written commitment — if they perceive that you have become a greater credit risk.

Seven Mistakes to Avoid

1) Don’t apply for new credit of any kind.

2) Don’t pay off collections or charge-offs during the loan process.

3) Don’t close credit accounts, not even old ones you haven’t used in a long time.

4) Don’t increase the balance on your credit cards, which also means don’t buy furniture, appliances, or anything else for your upcoming new home until after closing.

5) Don’t consolidate your debt onto one or two cards.

6) Don’t co-sign on a loan for anyone.

7) Don’t change your name during the loan process.

If you need clarification about any of the seven, let me know. But please, take this advice as “set in stone” unless your loan officer has specifically given you an exception, because the last thing you need is more stress during your loan closing.

 

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.

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