A Holiday Gift for Yourself

Thanksgiving is to shoppers as “Opening Day” is to hunters. Year after year, bargain hunters prowl malls, boutiques, and department stores searching for prey that will be served up as a delectable holiday gift. Unlike traditional hunters, however, some shoppers do not return with next-day hangovers. Rather, they suffer a much more severe ailment that could span many months…or even years.

Overzealous shoppers often find themselves saddled with huge credit card bills following holiday shopping binges. Consumers who have felt this credit card debt crunch know that it is not a fun place to be. Certainly, the best remedy is prevention, but paying off expensive credit cards with less expensive, tax-deductible interest makes a lot of sense for most borrowers.

Traditionally, overextended borrowers reach for a home equity line of credit for immediate relief for their situation. However, with the mortgage refinance market heating up again because of increasingly attractive interest rates, it may make more sense for these borrowers to forego the equity loan and consider a “cash-out” refinance instead.

Your financial planner or a good mortgage loan officer can help you determine your effective interest rate on your consumer debt. He will compare the “weighted” average interest rate of all of your non-tax-deductible debts plus your current mortgage to that of a newly refinanced mortgage that absorbs most or all of your consumer debt. The improved cash flow and collateral tax advantages almost always outweigh the cost of the mortgage refinance. If it doesn’t make sense for your situation, their calculations will show that, too.

Taking equity out of your home to pay off consumer debt should never be part of your financial plan. Your “plan” should be to have a budget that precludes you from getting into that bad situation. If you must resort to a cash-out refinance to relieve your consumer debt, try to treat it like a loan from yourself and pay it back to your home equity over a short period of time. It would be the best gift you could give yourself.

++ Republished as a courtesy of Phillips International LLC.  Readers may contact a mortgage professional at www.PhillipsHQ.com/mortgage.

Buying Homes with Bruised Credit

Buying Homes with Bruised Credit

We all know somebody who has been through rough times. Businesses fail, marriages fall apart, and people get laid off. Sometimes affected individuals can hold themselves together financially, sometimes not. When life’s challenges cause people to juggle bills and miss payments, they often end up with bruised credit.

Some potential homebuyers wrongfully assume that they are doomed to a lifetime of renting because of their blemished or bruised credit record. This notion is often false. Many of these borrowers have compensating factors that may allow them to still purchase a home even in the wake of financial maelstrom.

Recent bankruptcies or current collections do not automatically disqualify borrowers from getting mortgages. Mortgage lenders in these “non-conforming” scenarios will usually grant mortgages if the borrowers have a minimum credit score, if they have one or more “good-scored” credit references, and if they can put a meaningful down payment toward their home purchase.

Depending on the type of mortgage, it often helps for borrowers to write a letter to the mortgage underwriter explaining the situation that caused their financial problems. Some of my recent clients have legitimately cited the death of a sibling, the loss of a primary breadwinner, and long-term hospitalization. In each of these cases, we were able to provide the loan underwriter documentation validating the claim.

In most cases, lenders primarily want to know how you have handled your credit since your financial struggles. If you exhibit the same pattern of behavior that led to your earlier financial problems, you will likely have trouble getting a mortgage. Conversely, if you bounced back and maintained excellent credit since your setback, you may have a good shot at a mortgage.

If you have been denied credit for any reason, you may get free copies of your credit report from each of the three major credit repositories: (800)685-5000 (Equifax), (800)888-4213 (Transunion), or (888)397-3742 (Experian).

Remember, a skilled mortgage professional can usually find financing for borrowers if the borrowers are truly motivated. It takes hard work, creativity, and patience—but often these borrowers are usually very happy with the result: a home of their own.

++ Republished as a courtesy of Phillips International LLC.  Readers may contact a mortgage professional at www.PhillipsHQ.com/mortgage.