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Many improving their bad credit as economy improves

March 4, 2013

FORT LAUDERDALE, Fla. – March 4, 2013 – Melvin Montesino endured the full brunt of the Great Recession: A lost job, then foreclosure and even bankruptcy.

Since then Montesino has been on the rebound, working two jobs while improving his damaged credit. “It wasn’t easy. Some banks even turned me down for a prepaid credit card,” he said.

But his efforts have paid off. Despite the foreclosure and bankruptcy, he will close on a three-bedroom, two-bath home in Coral Springs later this month. “It’s pretty spacious,” he said.

The South Florida housing market is filled with thousands of others trying to start over after the recession left them with severe dings to their credit. Many are making good progress. In fact, South Florida is second only to the Los Angeles metro area in the number of people who have improved their once sub-prime credit scores in the year that ended Sept. 30, according to Equifax, the national credit reporting agency.

Some 40,000 people in Broward, Palm Beach and Miami-Dade counties raised their credit scores to 620 or above in a year, removing them from the Subprime/Risky category that meant they had to pay the highest interest rates – if they could get credit, Equifax found. That netted a 3.6 percent decline in the number of South Floridians with bad credit, a substantial improvement.

“People are getting back on their feet and improving their credit,” said Howard Dvorkin who founded the Fort Lauderdale-based nonprofit, Consolidated Credit Counseling Services. More people are optimistic about starting over – calls for help in improving low credit scores are up about 25 percent from just a year ago, he said.

In January, consumers in the three counties had an average credit score of 645, just three points below the national average, the consumer website CreditKarma.com reported.

Many South Florida lenders are trying to help out. Deerfield Beach senior mortgage specialist Adam Cohn said his company, The Mortgage Firm, provides free counseling to help people improve their credit scores so they can better qualify for a home loan.

Cohn, who helped Montesino get a loan for his Coral Springs house, said some South Floridians just need a little nudge, such as encouraging them to pay off credit cards with balances less than $500 to boost their credit score.

One woman took his advice and recently raised her score 30 points to 650. That got her a conventional loan for a home in Davie, Cohn said, a loan she otherwise would not have been eligible for.

Cohn said he also was able to help a man qualify for a loan on a Boynton Beach house after improving his credit score despite filing for bankruptcy five years ago.

“He’ll be closing in the next couple of weeks,” Cohn said.

Some who were forced into bankruptcy or a short sale of their home because of extenuating circumstances beyond their control – and not because of overspending – can qualify for a mortgage in as little time as 24 months, said secondary lender Freddie Mac spokesman Brad German. Those who are foreclosed on have to wait longer – at least three years – to get a Freddie Mac loan, German said.

In Parkland, contractor Ken Viviano sees his recent truck loan from Miramar-based Tropical Financial Credit Union as the start toward rebuilding his damaged credit and eventually buying a new home. He now is trying to short sale his Parkland home that he can’t afford.

“Life was good for many years. Then someone flipped the switch,” Viviano said. Large construction companies could not even pay his company for assignments already finished, Viviano said. “That wiped out my savings and caused me to go into bankruptcy,” he said.

But now the economy is better, he said. Viviano said he and his workers are concentrating on individual homeowners’ kitchen and bathroom remodeling projects.

He is grateful Tropical Financial gave him a chance.

Credit union staffers are aware of the financial trauma that South Florida went through and are willing to take a risk on members who are working again and have the money to pay on debts, said Tropical Financial’s chief lending officer, Helen McGiffin. “We’ll look at their alternate payments, such as utility bills, to see if they have been paying.”

To get a mortgage on the Coral Springs house, Montesino said he was able to improve his credit score to above 700. His break: A bank agreed to give him a prepaid credit card. He said he paid that and other bills faithfully and in the last two years was able to get other credit.

“It was pretty rough in 2008,” said Montesino who has since gone on to work in air conditioning and as a courier. “But you keep working hard.”

Credit score levels

A credit score reflects your creditworthiness to lenders. Increase your score by paying bills on time; using no more than 30 percent of your available credit; obtaining your credit report and disputing errors. Here’s what the scores mean:

720-850 (Excellent) – Earns the best financing terms.
700-719 (Very Good) – Favorable financing.
620-699 (Average) – Qualifies for most loans at higher interest rates
500-619 (Subprime/Risky) – Highest interest rates, credit uncertain.

Copyright © 2013 the Sun Sentinel (Fort Lauderdale, Fla.), Donna Gehrke-White. Distributed by MCT Information Services. Staff writer Richard Burnett contributed to this report.

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How to Improve Your Credit Score

January 16, 2010

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What’s My Credit Score and How Do I Raise It?

January 15, 2010

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What does mid score mean?

January 14, 2010

The middle score is used in mortgage lending by taking all three credit bureaus scores, in order from highest to lowest, and selecting the one in the middle.

Example: If your Experian score is 600, TransUnion 618 and Equifax is 720, your middle score is be 618.

Many people make the false assumption that a FICO mid score is all three scores added together and then divided by three. In other words they assume mid scores are averages of all three credit scores. This just isn’t the case.

In the above example the average of all three FICO credit scores is 646. A 646 is sufficient to get a mortgage just about anywhere. The score could certainly be higher, but a 646 will get the job done. But the mid score in the above scenario is actually not 646, but a mere 618, and it is close to impossible to borrow with a 618 mid score.

This should make it clear why it is vital to watch your FICO credit scores with all three credit agencies. Your mid score matters, when it comes time to apply for a mortgage, and it doesn’t matter that your highest score is 750+. It is your mid score that matters.

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Gus Bilirakis responds to my letter supporting extending the $8,000 tax credit

October 20, 2009

congress
Dear Chris:

Thank you for contacting me to express your support for extending and expanding the federal tax credit for first-time home buyers. I appreciate hearing from you.

I support lowering taxes on home purchases. As you may know, H.R. 1, the American Recovery and Reinvestment Act, was signed into law in February of this year. This legislation provided an $8,000 refundable credit for all first-time homes brought between January 1 and November 30, 2009. Several bills have been introduced in the House and the Senate that would extend the tax credit from anywhere from six months to one year, expand eligibility of the credit to multi-family properties used as the borrower’s primary residence, and eliminate income caps of $75,000 and $150,000.

I am reviewing these bills to determine how best to make home ownership more affordable and stabilize prices in the housing market. Your comments have provided a valuable perspective as I evaluate these bills. You may be certain that I will remember your support for expanding and extending the tax credit for first-time home buyers should I have the opportunity to consider relevant legislation in the future. I will also share your comments with my House colleagues, who will benefit from your views.

As a resident of Florida’s Ninth District, your comments and opinions are an important source of information to help me carry out my duties as your federal representative. In hat regard, please do not hesitate to contact me in the future on any issue important to you. Also, if you would like to be informed more frequently about my work in Congress and in Florida’s Ninth Congressional District, please visit my website at http://www.bilirakis.house.gov to sign up for regular email or to send me a message.

Again, thank you for sharing your thoughts with me.

Sincerely yours,

Gus M. Bilirakis
Member of Congress

I’m aware that this letter was probably sent out to 23,000 other people that sent similar letters expressing support for expanding and extending the tax credit.

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Credit and Home Buying – Like Peas and Carrots

January 22, 2009

by Brandon Cornett

In the classic film Forrest Gump, Tom Hank’s character said that “Jenny and me was like peas and carrots,” referring to how inseparable they were when growing up in Greenbow, Alabama.

Borrowing that analogy from Forrest, home buying and credit scores are like peas and carrots too. The two concepts are inseparable, so anyone planning to buy a home in the near future must understand the importance of credit.

The Credit and Mortgage Connection

For most people, purchasing a home means taking out a mortgage loan to pay for it. Unless, of course, you’ve just inherited a fortune from Uncle Ernie, won the lottery, or invested in Apple Computers stock back in the 1980’s. If you fall into one of those categories, count yourself lucky.

But for the rest of us “average folks,” buying a new home is only possible through the use of a mortgage loan. And this is where credit comes into the picture.

To obtain a home loan, you must have a credit history behind you (and ideally a good one). Lenders will review your financial background to “weigh” you in terms of risk:

– If you have a history of being financially responsible, then you’ll have a higher credit score and will be more likely to get a good interest rate on your home loan. You are a low-risk borrower for the lender.

– On the other hand, if you have a history of missing bill payments, carrying too much debt, or similar examples of bad financial management, you will have a lower credit score. In this scenario, it will be harder to obtain a loan for home buying purposes, and even if you do you’ll pay a higher interest rate on the loan.

The two points outlined above have always been true. But good credit is even more important for home buyers today, due to tighter regulations on the lending industry. So let’s talk about the things you can do to maintain a higher score:

Credit Score Needed to Buy a Home

What kind of score do you need for home buying in today’s economy? Well, this will partly depend on the lender you choose. But suffice to say that a better score will certainly make your home buying process a lot easier. Not only will you have an easier time qualifying for a loan, but you’ll also qualify for a better interest rate on that loan. This translates into money saved each month!

The average credit score in the United States currently falls between 650 and 700, depending on whom you ask. Higher is always better. According to experts, a score of 720 or above is ideal for home buying purposes because it will ensure that (A) you get qualified for a mortgage loan in the first place and (B) you get a good interest rate on the loan.

Carrots and Peas … Like Never Before

Good credit is more important for home buyers today than it was in the past. That’s because in the past, there were plenty of subprime lenders willing to offer home loans to borrowers with bad credit scores. Of course, they would charge them astronomically high interest rates on the loans, which is partly what led to the mortgage crisis of 2007 – 2008.

As a direct result of that crisis, there are very few subprime lenders around anymore. That particular business model is simply not viable anymore. So while there were plenty of subprime (bad credit) mortgages in the past, they simply aren’t around anymore.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

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Tips for Getting the Best Mortgage Rate

January 20, 2009

by Brandon Cornett

As a home buyer, it only makes sense to try and obtain the lowest interest rate when applying for a mortgage. After all, that rate is a primary component of the mortgage payment, so it has a direct bearing on the amount of money you’ll pay each month.

But how do you get a low rate when applying for a home loan? This is the question many home buyers want to know. So in this article, I’ll explain three important concepts you should keep in mind when seeking the best rates from mortgage lenders.

Concept #1 – Your Credit Score Plays a Role

The first thing to realize is that the interest rate you are offered will be partly determined by your credit score and financial history. In other words, the best mortgage terms are usually reserved for those home buyers with the best credit scores.

What does this mean to you when buying a home and applying for a loan? It means that your credit score will often dictate the type of interest rates you are offered. So if you have a bad credit history, and your score illustrates this to the lender, then there’s little chance you’ll be getting the best interest rate. If this is the case, you should focus on improving your credit score before you go shopping for a mortgage online.

Concept #2 – The Mortgage Type Makes a Difference

The type of home loan you select also plays a role in determining the interest rate you receive. So it’s important for home buyers to understand this concept as well. For example, an adjustable rate mortgage (ARM) loan will generally come with a lower interest rate than a fixed-rate loan — but that is only for the first few years. Of course, the rate on an ARM loan will also adjust at some predetermined point in the future, and typically this adjustment means a higher interest rate! That’s another thing to keep in mind when mortgage shopping.

Concept #3 – You Must Compare Lenders on Key Factors

There is one last thing I want to touch on, and that is the need to shop around in order to get the most favorable rates from a lender. Shopping for a loan is just like shopping for anything else — you have to compare multiple lenders in order to find one that offers the best rates and terms on the loan.

Many buyers don’t realize that ten different lenders may offer you ten slightly different mortgages. The interest rate will vary, the terms will vary, the closings costs will vary … you get the idea. And these make a big difference in the amount of money you pay over the long haul. That is why it’s so important to compare lenders and to carefully review the information they present to you, ideally with a financial advisor of some kind (or at least someone who is mortgage-savvy).

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

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How to Be a Real Estate Statistic – The Good Kind

January 11, 2009

2007 was a year of record-breaking real estate statistics in the United States. Unfortunately, most of those stats were bad. Just ask the hundreds of thousands of homeowners who faced foreclosure last year!

On the up side, there is a lot you can do to prevent this kind of real estate misery, and to avoid becoming a negative real estate statistic. Education goes a long way in this regard, and that’s why I continue to publish articles like this.

So with that said, here are five ways to be a good real estate statistic in 2008, instead of a negative one:

1. Understand and Guard Your Credit

Good credit has always been important for home buyers who are shopping for a mortgage loan. But it will be even more important this year, and for the foreseeable future. Last year’s subprime mortgage crisis has led to tougher regulation of the lending industry. As a result, most lenders (those that are regulated anyway) will be paying closer attention to the credit scores of borrowers.

So your first step is to understand the importance of credit in the real estate world. Your next step should be ordering a copy of your credit report so you’ll know where you stand, compared to the average consumer in this country. You should also check your credit reports for errors and work to get them corrected if need be.

You are entitled to one free credit report per year, from all three of the credit-reporting companies. There are several websites you can use (including my own) to request all three reports at once, which is certainly the convenient way to do things.

Also, if your credit score is low — lower than average, this is — you should work on improving it. You can do this by paying down your debt, paying all of you bills on time, and being financially responsible in general.

2. Don’t Buy Over Your Head

Many of the negative real estate statistics from 2007 were people who bought more home than they could rightfully afford. Of course, some of the lenders were to blame as well, mainly for offering ARM loans with low teaser rates during the introductory period, and glossing over the potential rise in monthly payments that would ensue.

Here’s the bottom line. If you can’t afford a home, you just can’t afford a home. Instead of pursuing dangerously “creative” financing methods to purchase that new home, focus on improving your financial situation first. Reduce your debt. Save up some cash. Try to increase your income, if at all possible. You might even relocate to an area where the housing costs are more within your reach. Heck, that’s the main reason I moved from San Diego to Austin!

Avoid buying beyond your financial means. It never ends well, and you will likely end up as a bad real estate statistic instead of a good one!

3. Choose Your Mortgage Type Carefully

In the previous point, I talked about the perils of the adjustable rate mortgage (ARM) loan, for people who don’t truly understand the ARM.

Don’t get me wrong … an adjustable-rate mortgage can be a good idea, mainly if you have plans to sell or refinance the home within a few years. In that case, you could save yourself some money by paying lower interest rates in the short term.

Here’s the key to success when choosing a type of mortgage loan. First of all, you have to understand the pros and cons of the different mortgage types. Secondly, you have to be realistic about your future plans. If you’ll be staying in the home for many years, you might be better off with a fixed-rate mortgage that can weather the financial storms of the future without being affected by them.

Research the different types of mortgage loans, and then match your loan to your home-buying situation and future plans.

4. Don’t Trust Lenders … Or the Government

Here’s a real “shocker.” Mortgage lenders are in the business of lending money to people, and making a profit while doing so. Surprised by this? I told you it was a revelation! Mortgage lenders will do everything they can to get somebody to borrow from them, as long as they don’t get burned in the short term.

So you really can’t trust a lender to tell you what you can and cannot afford to pay each month. The only thing a lender can tell you with certainty is whether or not you’re qualified for the mortgage … not whether or not you can realistically afford it. And if they sell the loan to the secondary market after granting it to you, then they don’t really have to worry about your financial woes down the road.

But what about the government? Surely they are looking out for home buyers, right? Well, not always. You see, there are these people called lobbyists, and many of them represent the lending industry. They make big contributions to certain political campaigns (like Schwarzenegger and Bush, to name only two) in order to influence regulations — or the lack of regulations — on the lending industry as a whole.

So don’t expect the government to come riding to your rescue if you get in over your head with a mortgage loan. You must be a smart consumer, an educated consumer, and a self-reliant consumer.

5. Be Proactive in Times of Trouble

Even if you adhere to the other four guidelines on this list, but you still find yourself in trouble, you should be proactive about finding a solution. In other words, don’t procrastinate.

Here’s an example of what I mean.

Let’s say you buy a new home and take on a mortgage loan to pay for it. Everything is fine for the first two or three years, but then you run into some unexpected hospital bills and other expenses. So you get behind on your mortgage payments. But you fully expect to be back on track in a few months.

Here’s where it pays to be proactive. If you contact your mortgage lender and explain that your financial problems are only temporary, they probably have ways to help you out.

Generally speaking, mortgage lenders want to avoid foreclosure as much as the homeowner does. After all, they are in the business of loaning money, not managing and selling properties. That’s why most lenders will work with homeowners to come up with a solution to temporary setbacks. Some lenders have tools at their disposal to help in such cases, such as repayment plans and lump-sum reinstatements. But you won’t know about them unless you’re proactive about it.

About the Author: Brandon Cornett publishes the Home Buying Institute, a website full of advice on mortgages loans, house hunting, credit scores and more. Learn more or contact the author by visiting www.homebuyinginstitute.com

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