Photo by desire to inspire.

I don’t know how we did it, but my husband and I somehow squeaked through our closing when we purchased the home we now live in.  Why wouldn’t we? After we wrote our contract and got it to the lender, my husband – knowing we were moving to the “country” – went out and bought a new truck.

OUCH!

That should have demolished our ability to buy a house.  Fortunately our credit score was extremely high and we made really good money (then!) that we were somehow able to get the loan approved.  We got lucky. Others are not often that fortunate.  Rhode Island real estate agent Ginny Gorman tells about the toils and troubles others people have faced,

Credit Bumps that Delay Closings. It was a topic of conversation at a 50th birthday party of one of my clients the other night that got me going on this credit bump subject again. It is those bumps that can alter your credit worthiness for awhile but especially if you are in the process of buying a Rhode Island home.

A couple of the dinner party guests were talking about someone they ‘Knew’ (not them they said) who had an unpleasant experience with a home closing due to a credit issue.

Don’t go out and buy a new truck, the new fridge, living room furniture, or any other major purchases until AFTER you close!

Photo by HomeDSGN.

A good credit score is one of the most important tools a buyer has when making a major purchase – whether it’s furniture that you have to finance, a new car, or a home.  A bad credit score means you’ll have a very difficult time getting someone to agree to loan you money because you have demonstrated your inability to repay loans in a timely manner according to your credit score.

However, consumers do have the opportunity to challenge bad dings on their credit reports, but Ron Cooks a credit consultant from Ft. Hood, Texas cautions us to never challenge credit online.

I highly recommend you NEVER use their online dispute systems. It’s like the fox watching the hen house and I’ll explain why.

Reason #1: As most of you know, one factor you have on your side when disputing credit is time. The legal thirty-day limit is not a lot time for a credit bureau, creditor, or collection agency to properly investigate a dispute. The Credit Bureaus online dispute system is set up in such a way that when you use it, it makes their job not only that much easier but cost efficient. The information you put into their limited dispute fields falls right into their electronic verification system.

He makes some really good points for consumers. Thank you for sharing your insight!

There has been an upsurge recently in banks offering cold, hard cash to homeowners if they sell via shortsale.  As homeowners learn how to fight foreclosures, the banks are finding it saves money to just belly up to the bar and offer cash to sell.  From CNN Money,

And as the cases drag, expenses grow. Homeowners not only stop paying their mortgages but they stop paying property taxes and conducting normal maintenance as well. Roofs, siding, plumbing and other parts of the home deteriorate and the property loses value. By the time banks take possession, they’re out tens of thousands of dollars.

If my bank called today to make the offer, I’d first be suspicious but – if it was a real offer – I’d take the money and run!

An interesting phenomenon is popping up across the country – homes being used as billboards.  For families facing foreclosure, the billboards could be what saves their houses, even though the neighbors may not exactly love the bright paint.  From MSNBC,

In return for allowing the front of their four-bedroom house to become a garish advertisement, the Hostetlers are getting their nearly $2,000 monthly mortgage paid by the marketing company behind the project, Brainiacs From Mars.

In a residential neighborhood without heavy traffic, cars passing by the house slowed and drivers gawked at the vivid colors and a giant Brainiacs From Mars billboard.

I would volunteer my own house but we’re too far out in the country!

While the majority of people who are upside-down on their homes, behind on their mortgage payments, or who’ve lost their homes will not benefit from the massive settlement, some will be helped.

Today 49 states and federal officials settled with some of the nation’s biggest banks to the tune of $25 billion.  However we are still in the dark about whether you, me, and our neighbors will be helped.  According to MSNBC,

The settlement largely affects borrowers whose loans are serviced by five big banks: Bank of America, Citi, JPMorgan Chase, Wells Fargo, and Ally/GMAC. Loans owned by government-owned mortgage giants Fannie Mae and Freddie Mac are not affected. Borrowers from Oklahoma also will not be eligible because officials from that state did not join the settlement.

There are a lot of people in this nation tonight crossing their fingers that relief is coming. Unfortunately it will take many nights of crossed fingers before they get their answer.

A friend of mine went through a nasty divorce last year. The very weekend that the ugly argument occurred that ended the marriage, both he and the ex-wife moved out of their home.  The home is sitting empty today with a for-sale sign, grass that doesn’t get cut, and angry neighbors.  What’s worse is what is happening to their credit score.

He called me yesterday and wanted to see another home – an $80,000 fixer-upper that would ordinarily be a steal. There’s zero chance he will get a loan for the house. When you walk away, you pretty much guarantee no chance of buying (unless you win a lottery or inherit money) for several years.

Reuters Finance featured a story on just this issue,

The penalties largely revolve around your credit record, which admittedly gets blown up in the near-term. For a few years you can likely forget about qualifying for a mortgage or a car loan. When lenders are ready to take a chance on you again, you’ll have to pay for the privilege, with stiff interest rates due to your default history.

Sometimes a strategic default is the best option. But make sure before you do, you can live with the results.

New mortgage lending policies are now being developed to classify mortgages and set the standards on who qualifies.  While the intent is to develop rules “in the spirit” of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, what essentially happens is it becomes even more difficult for regular people to qualify for a home loan.  From Real Trends,

However, the lower default rates, moving from QM to QRM come at a cost—the number of potential borrowers who would be excluded from the market. This is where real estate professionals and their customers really get whacked.

Items of concern include the elimination of 8.55 million qualified loans of the 19 million analyzed.   Also excluded are minorities and low income buyers, “Even at a 3% down payment, 25% of low-income buyers would be excluded, and at 10% down payment, 50% would be excluded.”

Scary stuff coming around the bend.  Looks like a lot of houses will sit empty.

Photo pinned by Te Castle.