Chance Gates' Blog

By Pamela Yip

RISMEDIA, December 24, 2010—(MCT)—If you’ve been through a foreclosure, you may wonder if there is hope for you to become a homeowner again.

“It doesn’t mean you’ll never be a homeowner again,” said Linda Davis-Demas, director of housing at Consumer Credit Counseling Service of Greater Dallas.

But you’ll need to examine what caused you to fall behind on your mortgage and take steps to fix the problem.

“You have to look at what were the reasons you didn’t make the payment,” said Davis-Demas. “Was it budgeting? You can modify that type of behavior.”

A foreclosure is a major hit to your credit history and stays on your credit report for seven years.

“Foreclosure is one of the FICO seven deadlies,” said credit expert John Ulzheimer, referring to the dominant FICO credit score. “It’s considered a major derogatory item, regardless of the back story”—whether it’s a job loss, rate reset, underemployment or other reasons.

Your credit score will also suffer “the minute the foreclosure process begins,” said Ulzheimer, founder of 2StepCredit.com, a credit education website.

“It doesn’t have to be completed for it to be very damaging,” he said. “The damage will vary based on your scores, but it can damage the score as much as 200 points, especially if your scores are very strong to begin with.”

So, after a foreclosure, your priority has to be rebuilding your credit. You’ll have some time to do so, because mortgage giants Fannie Mae and Freddie Mac impose strict rules on how long it will take before you’re eligible for another mortgage.

For example, borrowers with a prior foreclosure and extenuating circumstances—such as a job loss, divorce or medical issues—must wait three years before they can qualify for a Fannie Mae-backed loan, said spokeswoman Amy Bonitatibus. For all other borrowers the waiting period is seven years.

At Freddie Mac, those who can prove extenuating circumstances must wait three years before applying for a new mortgage; everyone else must wait five years. But that will change in February, when the waiting period for those whose foreclosure was caused by their own financial mismanagement will increase to seven years.

Fannie Mae and Freddie Mac also have strict rules on the credit score and the size of the down payment required of borrowers with a prior foreclosure.

Here’s what you need to do to rebuild your credit to qualify again for a mortgage:

PAY YOUR BILLS ON TIME: The FICO score, the dominant credit score used by lenders, gives the greatest weight to payment history, so make sure you consistently pay your bills on time.

“Stability is the key,” said Craig Jarrell, president of the Dallas region of IberiaBank Mortgage Co. “Have you demonstrated that you are now capable of owning a home and paying the bills, and have recovered from whatever circumstance caused the original foreclosure?”

REVIEW CREDIT REPORT: You’re entitled to a free credit report once every 12 months from each of the three national credit bureaus—Experian, TransUnion and Equifax. You should get a copy and check it for any inaccuracies.

To get your free credit report, go to http://www.annualcreditreport.com. Go to only this website, not ones with similar-sounding names.

“Make sure it is about you and only you,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. “If you find errors, dispute them. If you discover old debts, it will weigh in your favor to satisfy them. Paid late looks better than not paid at all. Make sure that debts older than seven years have rotated off your report, as these could be dragging your score down unnecessarily.”

CHECK YOUR MORTGAGE: You want to be sure that you don’t still owe anything on your old mortgage. Sometimes proceeds from a foreclosure sale aren’t enough to cover what’s owed on the mortgage, which would leave you owing the difference.

“Make sure there is a zero balance reflected, and if you are responsible for a shortfall, make arrangements to repay the remaining balance,” Cunningham said.

Many lenders are willing to settle that “deficiency judgment” for less than what’s owed because “it’s better than getting no money at all,” Jarrell said.

APPLY FOR CREDIT: In particular, apply for different varieties of credit.

“Credit scoring models value having different types of credit,” Cunningham said. “Having some revolving accounts, typically credit cards, and some installment fixed-payment loans, such as a car payment, can improve your score.”

But don’t apply for too much credit at once.

“This can appear as though you’re desperate for credit and perhaps make lenders less inclined to extend credit to you,” Cunningham said. “Further, too many credit inquiries can have a negative impact on your credit score.”

DON’T FALL PREY: Watch out for credit repair companies that promise to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job—after paying a fee for the service.

“The truth is, that no one can remove accurate negative information from your credit report,” according to the Federal Trade Commission. “It’s illegal.”

Only the passage of time can assure that negative, but accurate, information on your credit report will be removed.

When it comes to repairing your credit, there are no quick fixes, the experts say. What lenders want to see is responsible financial behavior over time.

“Know that time is your friend, as the further you move away from the financial distress, the less negative impact it has,” Cunningham said. “Follow with responsible behavior with your new credit, and you’ll soon have a solid credit file.”

HOW TO HELP YOUR MORTGAGE CHANCES:
If you’ve been through a foreclosure, there’s still hope for you to become a homeowner again. Here are tips to make lenders want to take a chance on you:

—Save for a down payment.
—Clean up your credit. Pay off or pay down your debts and establish a record of consistent on-time bill payments.
—Get your credit score as high as possible.
—Show stability in your job.
—Monitor your credit report to ensure that your old loan shows up as closed and that you still don’t owe anything else on it.

As a Reno/Sparks real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog. Please feel free to use my back door to the MLS and search the houses available in the Reno/Sparks and most Northwest Nevada neighborhoods. I can be reached by email @ chance@ballard-company.com or  http://www.myspace.com/chancegates .  You can also follow me at http://www.twitter.com/chancegates .  If you are behind on your house payment and looking for a loan modification, go to making homes affordable to request a modification.  If the modification fails, contact your local real estate professional to help short sale your home.  To make sure there is no deficiency judgment a homeowner might find it necessary to hire an attorney. For a free copy of my blog titled  “5 Steps For Reno/Sparks Homeowners To Prevent Foreclosures” go to my about page
Source: Dallas Morning News research

By Debra Karplus
8 July 2010

Imagine that you’re a loan officer at the local bank. Two customers, Mr. Rich and Mr. Buck, come in to borrow money. You check Mr. Rich’s history; he has an excellent credit score, 800. Mr. Buck’s score is an embarrassingly low 300. To whom should you lend money? Mr. Buck’s low credit score indicates that he might not be able to repay the loan. Buck doesn’t stop here; goodbye, Mr. Buck.

What is a credit score?

When you were in school, your grade point average (GPA) indicated how well you performed in your classes. Your SAT and ACT scores measured overall achievement in language and math. Colleges used these indicators to decide if they wanted to admit you to their freshman class.

Your credit score works in a similar way as school tests, except that it’s a measure of your credit risk. Like college entrance exams, a credit score is derived from a standardized formula. Late payments on bills, having no credit references, and unfavorable credit card use will mar your credit history and lower your credit score.

Your credit report indicates how likely you are to pay your bills. It’s used anytime you’re seeking a mortgage, car loan, or credit card and also, for determining credit limit, which is the maximum amount of money you can borrow. Your credit score can even determine the premium you’ll pay for car insurance. Your credit report determines not only whether you will be given credit, but also, what interest rate you will be eligible for. A higher credit score gives you a lower interest rate when you’re borrowing money.

Who determines your credit score?

Credit scores range from 300 to 850. Most people’s score is 600 to 800. A credit score of over 720 is considered to be a good score and will generally get you the best interest rate.

There are three companies that provide credit scores, Equifax, TransUnion, and Experian. They are corporations that make their money, not directly from you, but from companies such as banks, that loan money to people. Each of the three allows you, the consumer, to receive a free credit report annually. But, it’s not done automatically; if you want to know your credit score, you’ll need to get on the website of one of these three companies and specifically request your score. Each calculates your score a bit differently. You can learn about these companies on their websites.

Equifax has been around for about one hundred years and is located in Atlanta, Georgia. They are a Standard & Poor’s (S&P) 500 company publicly traded corporation; symbol EFX, on the New York Stock Exchange. Equifax serves fifteen countries in North America, Latin America and Europe.

TransUnion, a global company, located in Chicago, serves twenty-five countries on five continents, for the past thirty years. They provide credit services and information management. They are a limited liability corporation (LLC); therefore they are not a publicly traded company.

Experian serves sixty-five countries and has 15,500 employees. Their stock trades on the London Stock Exchange, but formerly traded on NASDAQ under the symbol EXPN.

How can you improve your credit score?

It’s prudent to check your credit score yearly with one of the three credit reporting companies. When you receive your report you want to first, review it carefully and see if there are any errors or flaws. For example, if the report shows an old unpaid balance on your Target credit card, you’ll want to contact Target, and get that corrected. The other way to raise your credit score is to make sure you pay down any credit card debt that you have.

You should not close any unused accounts. This may go against your better judgment. But, closing credit card accounts, especially more than one at the same time, could be a red flag that you might be a credit risk.

Why does your credit score matter?

Your credit history is your credit reputation. It is maintained by a credit bureau. So how can you have a credit history if you’ve never had a credit card or borrowed any money? And, how do you establish a good credit history? The main way is to open a checking or savings account and to manage it well, such as avoid overdrawing the account. Second, pay your bills on time, and third, use your credit card carefully. These may seem obvious, but many people must be clueless, because they have a low credit score.

Borrowing money is a smart way to establish a credit history and have a favorable credit score, as long as you are responsible about using credit, whether from a lending institution or a credit card. When you are ready to finance your first car or get a mortgage for a house, you will be very pleased with yourself if you have a high credit score.

As a Reno/Sparks real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog.  You can email me @  chance at ballard-company.com or http://www.myspace.com/chancegates

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