John Beckett's Real Estate Blog

If your primary goal is maintaining your credit scores, you should leave that extra card open — but not unused. Based on the list of cards in your wallet, I’d guess the card with zero activity is one you keep in case of emergencies. Having an emergency card is a smart move, since that plastic could come in handy when an unexpected event catches you without enough cash. Therefore, unless that extra card is causing legitimate problems – such as charging you an annual or inactivity fee, causing excessive temptation to spend or posing identity theft concerns – there probably isn’t a good reason to close that account. After all, a zero balance on a credit card account won’t hurt your FICO score, but closing an account could. If your card remains unused, however, the bank may cancel it for you. That’s because eventually the card issuer will close the account due to inactivity, because keeping the account open costs the lender money. In recent months, lenders have become eager to close accounts in an effort to protect their profits. Alternately, the card issuer could begin demanding that the consumer charge X amount to keep it open.Regardless of who closes an account, your credit scores may fall due to a change in a key credit scoring ratio. Closing an account causes you to lose the available credit limit associated with it. Your utilization rate, also called your balance-to-limit ratio, will increase as a result of closing the account. That may cause a temporary decline in your credit scores. That’s an important consideration if you’re about to apply for a loan. To get an idea of how your utilization ratio could be affected by closing an account, let’s say each of your four cards has a credit limit of $1,000, for a combined total of $4,000 in available credit. Let’s also say that across those four accounts, you’ve got a total debt burden of $2,000. Then your unused card gets closed, taking your available credit down to just $3,000. Now, instead of using 50% of your credit lines, you’re suddenly using 67% of your available credit. That higher proportion makes you appear to be a riskier borrower, because you’re that much closer to maxing out your available credit. Your credit scores will reflect such a change, although the actual scoring damage will vary from borrower to borrower. The FICO score assesses all the information on your credit report. So the score impact from any one action, such as closing an account, will depend on what other information is present on the credit report. Luckily, using that emergency card even semiregularly could prevent its closure by the bank  and could help your credit scores in the process. For example, you could charge a recurring subscription fee, such as Netflix, or a monthly cost, such as your cell phone bill, to your emergency card. By putting such regular charges on your plastic, you won’t be actually taking on additional debt but should keep the card alive. Just be sure you always pay your bills on time and in full, since those two steps are necessary for building good credit. Keeping the account open, using it to make small purchases and paying the balance in full each month is a good way to maintain your credit scores and might help improve them, especially if you’ve had recent credit problems. If you’ve been a responsible borrower, it’s unlikely that an account closure would have much impact. Because the most important steps for good credit involve making payments on time, not carrying excessive debt and applying for new loans only when necessary, closing one card is much less likely to affect your FICO score.

Read at: http://articles.moneycentral.msn.com/Banking/YourCreditRating/unused-credit-cards-can-hurt-you.aspx

You are two months late on your mortgage. You no longer have a grace period (usually 15 days), so your next payment is probably due on the first of the month. Once you are 90 days late, most lenders will not accept a partial payment. You usually need to pay the entire three months plus any fees, or the lender will start the foreclosure process. You have also recently gone through a Chapter 7 bankruptcy. Under the current bankruptcy law, you can’t refile for a Chapter 7 for the next eight years or a Chapter 13 for four years. Because of this fact, trying to save your home by using any unsecured or consumer credit lines (such as a personal line of credit or cash advances from a credit card) is risky if you find yourself unable to keep up with those payments. It is suggested that you contact Homeownership Preservation Foundation — a group partnered with NeighborWorks America, a national nonprofit created by Congress — by calling (888) 995-HOPE  at once. For the quickest service, call rather than e-mail or visit an office. A counselor will review your financial situation, make recommendations for a course of action that best fits your needs and help communicate with your mortgage lender to work out a plan. When you call, ask about a forbearance to temporarily modify or eliminate payments to be made up at the end of the forbearance period. Another alternative may be a permanent loan modification of the terms of the original mortgage in a way that addresses your specific needs. Such changes may include adding delinquent payments and other costs to the loan balance, changing interest rates or recalculating the loan. If all else fails, you may have two more options: selling your home in a short sale if you have no equity left, or a pre-foreclosure sale if the value of the house still exceeds the remainder of the mortgage. A pre-foreclosure sale arrangement allows you to defer mortgage payments that you can’t afford while you sell your house. This also keeps late payments off your credit report. These options are generally cheaper for the bank and less stressful for the homeowner than a foreclosure. Being late on your mortgage or having a loan modification on your credit report may set you up for a hike in your credit card interest rates under universal default rules. Review the default provisions of the credit cards on which you carry a balance and consider closing those accounts that have universal default provisions before they raise your rates. Once the accounts are closed, your rates should stay the same during your repayment period.

Read entire story at: http://realestate.msn.com/article.aspx?cp-documentid=13107755

Today’s Real Estate terms are ways to handle your home when you are behind on your payments are or will be behind in the near future:

Short Sale: A type of pre-foreclosure sale in which the mortgagee agrees to let you sell the property for less than the full amount due, and accept the proceeds as payment in full. The sale of property at a fair market price that’s lower than the loan balance(s).

Foreclosure: Foreclosure is the legal process whereby a lender (bank or secured creditor) terminates the owner’s right to a property that was pledged as security for a debt. The lender usually then forces a sale of parcel of the real estate or home, often at a public action, to satisfy the debt after the owner defaulted to comply with the agreement between the borrower and the lender.

Deed-in-Lieu of Foreclosure: Used by owners to voluntarily convey the title of their property to the mortgagee/beneficiary (lender) to avoid the negative credit consequences of a foreclosure. Lenders are generally reluctant to accept a “deed in lieu” unless the title is free and clear of any other encumbrances junior to theirs and the owners execute an estoppel affidavit acknowledging that they are acting volitionally, with informed consent.
A homeowner can qualify for a deed-in-lieu of foreclosure if:

• They are in default and do not qualify for any of the other options;
• All attempts at selling the house before foreclosure were unsuccessful; and
• There is no other mortgage in default.

Debtor In Possession: A situation arising out of a foreclosure or bankruptcy where the money-owing party remains in possession and controls the use of the property.

Deficiency Judgment:
1.  A judgment awarded by a court when the proceeds from the sale of the security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.
2.   A personal judgment against a debtor for the amount remaining due after a judicial foreclosure of a mortgage or a trust deed. This remaining amount is handled by the lender in one of three ways: a payment agreement is offered, a deficiency judgment is entered, or the debt is forgiven.
If the deficiency debt is forgiven, your lender will issue you a 1099-C IRS form. The IRS then views the forgiveness of the debt as your personal income, which you will need to report on your taxes. If you are declared financially insolvent, the IRS can render the income as exempt.

Even though the first-time homebuyer tax credit ended April 30, there are still many ways the government provides help and incentives to get first-timers into the housing market. With all mortgages, the interest rate you get will depend on your credit score and market rates at the time you buy.

1. FHA-insured loans
The Federal Housing Administration doesn’t make loans, it insures them. You buy the insurance and the government sets the rules and repays your lender’s investment in case you default.

The rules:

• Down payments are as low as 3.5% (example, for a $230,000 home, you’d pay $8,050 in cash).
• Your FICO credit score  must be 580 or above.
• Find more information at HUD.gov or read “FHA loans get dramatically costlier.”

The good:

The requirements are pretty easy, so newbies can qualify.

• If you haven’t yet built a strong credit score – and don’t have a record of late payments, missed payments or a foreclosure – you can use “nontraditional” credit sources, such as cell phone or other utility bills, rent payments or medical bills, to qualify.
• The FHA limits extra charges (“points” and fees) for things such as title insurance and settlement and escrow fees. These can add up, otherwise.
• You can use gifts — from family, for example — or a local government loan or grant for your down payment. (With conventional loans, it has to be all your own money.) You could conceivably pay nothing for the down payment.
• You don’t need the big bank reserves that conventional loans require.

The wrinkles:

• You have to buy mortgage insurance. C’mon, you didn’t really expect all this for free, did you? And you’ll need a chunk o’ change upfront to close the purchase.
• Funky properties are out. On this, the government can be fussy. The property has to be in “turn-key” shape with no major repairs needed so you can move right in. Even chipping paint can sour a deal. But the times are with you: In markets where sellers far outnumber buyers – which is most markets these days – sellers may be happy to make the repairs in order to sell the place.
• If the property has been expanded or has an addition, the FHA wants to see local government permits for the work.

2. FHA 203K loan
This type of FHA loan lets you purchase and repair a fixer-upper or foreclosure property. We’re not talking spa bathrooms and a haute-cuisine kitchen. The loan is for replacing or repairing basic home systems such as the roof, furnace, plumbing, wiring and floors.

The rules

• The buyer finds three licensed contractors who submit bids for repairs.
• The lender examines the bids and rules out any that don’t meet program guidelines.
• The buyer hires one of the approved contractors.
• Repairs are done in phases. After each phase, a lender’s inspector examines and approves or rejects the work.

The benefits:

• Uncle Sam insures your mortgage, and loans you money for authorized repairs. For example, a lender may offer you — based on the appraised value of the property you’re buying — a mortgage of $100,000 plus a $50,000 loan for repairs.
• You repay both loans with a single monthly payment.

The wrinkles:

• The rules are strict to protect buyers.
• Repairs must all be done before you can take possession.

3. City, county and state grants and loans
Every state has a housing finance agency. These disperse federal, state and local money and oversee programs to help make housing affordable.

The benefits:

• Many agencies have first-time-buyer assistance programs — grants or loans.
• The amounts vary greatly from state to state, running from as little as $2,500 to as much as $150,000. They are mainly targeted at low- to moderate-income individuals and can sometimes have restrictions on where you purchase. These loans can be used to subsidize the loan you are obtaining from your lender and give you more purchasing power.

The wrinkles:

• You have to get in quick because these programs are not well-funded. It’s first-come, first-served, and when they run out of money they don’t have any more to lend.
• City, county and state programs may target certain low- to moderate-income neighborhoods for improvement, limiting your purchase to these areas.
• Some programs are offered only to low-income buyers.

Other options
4. VA loans. If you’re a veteran, you might qualify for a VA Guaranteed Home Loan from the Department of Veterans Affairs, with no down payment — although you must buy mortgage insurance.

5. Navy Federal Credit Union. The Navy Federal Credit Union is offering no-down-payment mortgages of up to $650,000 for qualified members. Department of Defense military and civilian personnel and their families can join the credit union.

6. Conventional loans
Private lenders, including credit unions, banks and mortgage brokers, vary in their fees and services. It pays to shop around. Keep in mind:

• If your down payment is less than 20% of the property’s cost, you’ll need to buy private mortgage insurance.
• You won’t need to buy mortgage insurance if you put 20% or more down.

Need help deciding if you should get a conventional loan? Read: “Which mortgage is right for you?“

Don’t hesitate to ask for help

Before you go home shopping, you can get free housing counseling from a nonprofit agency approved by the Department of Housing and Urban Development call 1-800-569-4287. Studies show that a borrower who obtains housing counseling prior to purchasing is less likely to be foreclosed on.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24119778