Let Lexington Law Fix Your Credit Issues

You were only seven days late on your mortgage payment but your lender slapped with you with a 30-day late. Your daughter took out a credit card in your name without your knowledge and bought some bling-bling. You screamed "Fraud alert!" but credit card company still claims that you're liable. Your cellphone got stolen and someone made an all-day call to Europe, and you got whacked with a king's ransom in overseas phone charges. Ten years ago, that hospital that told you to go home and take some aspirin and then slapped you with a $2,000 invoice a few months after for some procedure that you know you didn't have still has their medical collection on your record, ten years after the fact.

Things like these are what bring down your credit score, and you end up getting unjustly punished. You get hit with higher interest rates, or worse, get denied for a mortgage.

If you're like most people, you know how important it is to clean up your credit but either you don't know how to go about doing it or you just don't want to deal with it at all. If you fall in either one of these categories, my recommendation is to go to a company like Lexington Law Firm


The truth of the matter is, in the same way that mortgage pros know lender guidelines like the back of our hands since we live and breathe this stuff day in and day out, only credit repair companies like Lexington Law Firm
know whether you've got a case against the creditors or not. Plus, the fact is, nothing scares the pants off creditors like someone calling with 'Law Group' in their company name. You, on the other hand, will most likely get some eye-rolling, ho-hum reaction from whoever's on the other line, no matter if you yell and scream till Kingdom Come.

Lenders Catch On To "Buy & Bail"

A couple years ago, you bought a no-frills home with a yard so small a chihuahua would get claustrophobia if you let the little critter stay out there for too long. You thought $500,000 was such a steal, considering that there were ten other offers on it. Today, it's only worth $350,000.

Over the weekend, you find out that a much larger home down the street is for sale. It's got a yard that could hold a small country, and , and it's got all the upgrades that you could ever wish for. The price tag? $300,000.

"Hmmm," you say, as your mind races a mile a minute. If you're thinking that you could use your good credit to purchase a second home by telling the lender that you're going to rent out your first property and then let it fall into foreclosure once you've purchased the second one, think again. Lenders are on to what's known as the "buy-and-bail" and they've put new guidelines into place to safeguard against "buy-and-bail" situations.

Here are a couple of them:

• The borrower's current property has to have at least 30% equity in it.


• If the borrower has put their current property up for sale, and it does not close prior to the second property closing, the lender will require that the housing payment be included in the qualifying ratios unless one of the following exists: the borrower has a minimum two year history of managing rental properties verified through the most recent two years of tax returns; or provides a copy of the fully executed sales contract and the sale of the current home closes simultaneously with the subject transaction; or if not closing simultaneously, provides a copy of the fully executed sales contract, lenders commitment letter to the buyer of the current home, and verification of post close reserves sufficient to cover 6 months housing payments

Lastly, if you're thinking of getting an FHA loan and having just your spouse be on the new loan so that your debt-to-income ratios meet the lender's guidelines, think again. FHA guidelines require that the non-borrower spouse's debts be included as part of the total debt. The logic behind this is that the additional debt will impact the couple's ability to repay their mortgage.

There are several major changes to Fannie Mae guidelines that have to do with conversion of principal residence to rental property, as well bankruptcy and foreclosure seasoning requirements. If you'd like to get more detailed information about these new Fannie Mae guidelines, holla' at me!

Don't Go Out Looking At Homes Without A Preapproval

One of my Realtor partners, John Carlson, has a personality as big as the state of Texas. I'm sure that's partly why he's always in the top 10% of Santa Clarita's realtors.

It doesn't hurt that he definitely knows his stuff when it comes to buying and selling real estate, of course, but people will always gravitate toward someone who makes them feel immediately at ease and treats them like family.

The first words out of John's mouth when I was first introduced to him were, "You're really tiny." to which all 60 inches of me plus 3 extra inches by way of stilleto heels quipped, "No, I'm aerodynamic. I'm low to the ground."

He may have one joke in his hand and a dozen up his sleeve at all times but the one thing that John doesn't joke about though is a preapproval.

When he tells people time and again, "You're not getting into my car without a preapproval," he means it, and he's not alone. Any realtor worth his or her Open House sign wouldn't touch a prospective buyer with a 10-foot pole without a preapproval either, and why would they?

To be blunt about it, it's bad business to spend your time and energy on buyers who may not even be able to afford the homes that they're looking at. Not when the price of gas is $5/gallon. Not when you don't get paid unless a deal closes.

Unless you're a masochist and get off on having your heart broken, looking at homes when you have no idea how much home you can afford, or if you can afford it at all, is like going into a world-class spa to get the head-to-toe treatment, only to find out you only have enough money to get one brow waxed. You're going to fall in love with a home that you simply can't afford.

So, my advise is, get thee to a loan officer for your preapproval before you ask your Realtor to take you out for a drive.

8 Things You Should NOT Do When Applying For A Home Loan

This is a list of things to steer clear of when you are seeking to obtain financing for a home. The following items may prove to be a detriment when you wish to move forward with the loan process.

• Don’t buy or lease a car! Lenders look carefully at your debt-to-income ratio. A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.
• Don't co-sign for someone else's car or home loan! When the lender pulls your credit, it could lower it. In addition, if the debt shows up on your credit report, unless you can prove by way of cancelled checks that someone else is making the payments, that debt will be counted as yours and it could affect your ability to qualify for a higher loan amount.
• Don’t move assets from one bank account to another! These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.
• Don’t change jobs! A new job may involve a probation period, which must be satisfied before income from the new job can be considered for qualifying purposes.
• Don’t buy new furniture or major appliances for your “new home!” If the new purchases increase the amount of debt you are responsible for on a monthly basis, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet closing costs.
• Don’t run a TRW report on yourself! This will show as an inquiry on your lender’s credit report. Inquiries must be explained in writing.
• Don’t attempt to consolidate bills before speaking with your lender! The lender can advise you if this needs to be done.
• Don’t pack or ship information needed for the loan application! Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.
• Don't close any credit cards unless your mortgage consultant tells you it's okay to do so. Your credit score is determined by how timely your payments are, how much debt you carry, the type of debt you have (mortgage, car loan, major credit cards, etc.) and how long you've had credit. Closing credit cards- especially if you've had them for a long time- could potentially lower your score.

Refinancing: The Mortgage Process Simplified

When you refinance, you'll go through almost the same process as when you first purchased your home, with the main difference being that you don't have the get-preapproved-and-find-a-house-to-purchase element.

Here's a simplified step-by-step process of what to expect when you're going through a refinance transaction.

1) You give your loan officer the following documentation: most recent paystubs, tax returns for the last two years, the last three months' bank statements, most current 401k, stocks and bonds statements (if any), a copy of your most current mortgage statement and a copy of your homeowners insurance policy.

2) Your loan officer will need to pull your credit report to find out what your credit score is.

3) Your loan officer, after doing a value check to make sure that your loan-to-value ratio is where it should be, will arrange to have an appraiser call you to set up a time to swing by your place and do an appraisal. You'll typically need to pay the appraiser on that same day.

4) Your loan officer will start putting your file together so it can be submitted to the lender for underwriting. Your file will include the income and asset documentation that you submitted, as well as the appraisal report, escrow instructions and a preliminary title report.

5) The lender will review your file, and if the underwriter doesn’t have any additional conditions (such as updated bank statements, etc.) that need to be submitted, your loan documents will be emailed to the escrow company. The escrow company will call you in to sign your loan documents or have a notary go to your house to have you sign loan docs. This is also the time that your escrow officer will let you know how much money you need to bring in for the rest of closing costs, if you asked that the amount not be rolled into your new loan amount.

Note: While not very many loan advisors attend their clients signing but I really prefer to be there, so that I can check and double-check and explain every document before my client signs anything.

6) Your signed loan documents are taken back to the escrow company. The escrow officer adds some more documents to the file and messengers it back to the lender.

7) The lender’s underwriter reviews your documents to make sure all the i’s are dotted and the t’s crossed. He or she will then tell the lender to release the money to the title company. The title company will then wire the money to escrow. Escrow disburses the funds accordingly.

8) Escrow sends out the forms to the courthouse of the county in which the property is located for recording.

9) Shortly before or after the recording, the escrow officer will call you and confirm that the deal's done. If you're doing a cashout refinance, you'll either pick up a check or have the escrow company wire it into your bank account.

10) Hooray! You're done!

The Homebuyer's Mortgage Process Simplified

If you're buying a home, here's a simplified step-by-step process of what to expect when you're going through a mortgage transaction.

1) Before you do anything else, get preapproved for a loan so that you know if you're qualified and if you are, how much home you qualify for. Heads up that you're going to need to gather your income (most recent paystubs, tax returns for 2006 and 2007) and asset (the last three months' bank statements, most current 401k, stocks, bonds and life insurance statements, etc.) documentation. Your loan officer will also need to pull your credit report to find out what your credit score is.

2) Start looking for a realtor to represent you in the buying process. Your loan officer will usually have a list of recommended realtors. If not, ask trusted family and friends for references.

3) Once you're preapproved, go look at homes within your price range with your realtor.

4) Once you find a home you like, your realtor will send an offer letter to the listing agent for that particular property.

5) If the seller accepts your offer, you’ll be giving your realtor a check (usually $3,000 to $5,000 for a single-family residence) to give to the escrow company that the seller’s agent chooses, and that will be kept “in escrow” as your earnest money deposit until the end of the transaction. Usually, that amount goes towards your closing cost and down payment at the end of the transaction.

6) A typical purchase transaction can take anywhere from 30-45 days. Sometimes it's less. Sometimes it takes longer. From the time that you get accepted on your offer, you typically have a 17-day contingency in which you’ll want to get the inspection done (to make sure the house is in good shape and doesn’t have mold, cracks in the foundation, etc,) and the appraisal as well (to make sure the house is valued correctly.

If the home is worth less than the offered price, you'll have to decide whether you want to pay over and above that or walk away from the deal while the 17-day contingency is still in effect. If it’s valued more than the purchase price, hey, so much the better. Instant equity for you!).

Within this contingency period is when you'll also need to have your loan approval (what you had prior to finding a house was a preapproval). In the approval process, in addition to your income and asset documentation, the lender will look at the appraisal report, escrow instructions, preliminary title report to make sure the property’s free and clear, and the value is where it should be. Expect to sign a ton of paperwork. Fun times. Fun times.

7) If the lender doesn’t have any additional conditions (such as updated bank statements, etc.) that have to be met prior to sending out the loan documents to the escrow company, the loan documents will be sent to the escrow company. The escrow company will call you in to sign your loan documents or have a notary go to your house to have you sign loan docs. This is also the time that your escrow officer will let you know how much money you need to bring in for the rest of the down payment or closing costs, if any.

Note: While not very many loan advisors attend their clients signing but I really prefer to be there, so that I can check and double-check and explain every document before my client signs anything.

8) Your signed loan documents are taken back to the escrow company. The escrow officer adds some more documents to the file and messengers it back to the lender.

9) The lender’s underwriter reviews your documents to make sure all the i’s are dotted and the t’s crossed. He or she will then tell the lender to release the money to the title company. The title company will then wire the money to escrow. Escrow disburses the funds accordingly.

10) Escrow sends out the forms to the courthouse of the county in which your property is located so that the property can be recorded in your name.

11) Shortly before or after the recording, your realtor will take you to the property to do a walkthrough to make sure the property is in the condition that it should be.

12) The escrow officer will call you and confirm that the property has been recorded in your name and arrange for you to swing by and pick up your keys.

13) Hooray! You walk into your new home and do the happy-happy-joy-joy dance!

Foreclosure: The Pros and Cons

Ed McMahon appeared on Larry King Live yesterday and talked about how he is on the verge of having his Beverly Hills home foreclosed because he is $644,000 behind on payments on his $4.8million mortgage.

While poor planning does play a big role (personally, if I had been in McMahon's shoes, and given that he says he had much less money than what people thought he made, there are better things I can think of to use my hard-earned money on- things that would have ensured that my money kept making even more money- than a swanky mansion in the 90210 zip code, but that's just me) foreclosure can happen to anyone, and often, it's due to a combination of factors, a lot of which cannot be helped, such as the economy, health problems, job loss, or divorce.

In a perfect world, if you can't make your mortgage payments anymore, you'd call you bank, ask them to do a loan modification. They'll acquiesce and come up with a way to make your payments affordable and you'd live happily ever after. That's not always the case.

If you're currently thinking of walking away from your home, here are some pros and cons that I hope will help you make the right decision.

THE PROS:

• If you choose to walk, you may be able to stay in your home payment free for up to 18 months.
• During that period of time, you will be able to save the payments you would have made to your lender and pay off your consumer debt or save for life after foreclosure.
• After you've been foreclosed on, you may have to put several month's rent down to secure a rental property.
• At this point, you may have nothing to lose. If you owe more than the house is worth, your home is no longer an investment. And if the property is not your primary residence, the "investment" may be costing you an awful lot of money.
• It may be significantly cheaper to rent than to continue paying the mortgage on your property.
• As home prices continue to plummet, making payments on a home bought at the peak of the market may just be throwing good money after bad.

THE CONS

• The principle area of concern is that there will be a foreclosure on your records. Foreclosures stay on your credit report for seven years. It is usually at least four years before you can get back into a house.
• When you go into foreclosure, the bank is often able to get a deficiency judgment. This means you will owe the bank the difference between what the house was sold for and the balance on the mortgage. Many people have a deficiency judgment against them, find themselves in a position where they have to file bankruptcy on top of the foreclosure.
• You should consider where you will live after the foreclosure. Many large property companies won't consider renting to people with foreclosures on their records. Individual investors may consider you only with a deposit of several month's rent.

Given that foreclosure should always be the final option, I do hope that you call your trusted mortgage advisor, as well as your CPA, to discuss the ramifications of your individual situation before you make your final decision.