Round Rio Rancho

If you have had credit problems, discuss them honestly with your mortgage professional. Responsible loan officers and underwriters know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. Unfortunately, if you’ve had these problems recently, lending guidelines won’t let them approve a mortgage for you. However, if your problems have been corrected, and your payments have been on time for a year or more, your credit may be considered satisfactory.

If you currently have an excessive amount of debt, there are four ways to control it:

1. If your credit is not in awful shape, you can reduce your other expenses, even if it means making hard choices or changing your lifestyle to fit your income. Consider any or all of the following:

Selling that second car;
Taking equity out of your home;
Applying for a non-secured signature loan at a credit union(they may have different lending standards);
Obtaining a loan from a relative;
Selling your home, paying off your debts with the proceeds and then renting;
Cashing out your 401K/retirement benefits or selling family heirlooms, jewelry;
Selling a kidney…  (well, maybe not the last one…).

2. If your credit is already damaged or one of the above isn’t an option, contact Consumer Credit Counseling Services or another credit repair service. Check your yellow pages for the local number. CCCS may be able to help you pay off your debts as if you were in a Chapter 13 bankruptcy, but you don’t actually file for bankruptcy. (Be sure to check them out with the local Better Business Bureau, especially before giving them any money.)

3. If  a credit repair service is not a good match for your situation, you may want to consider bankruptcy. Claiming Chapter 13 bankruptcy takes longer than a Chapter 7, but your credit will end up in a little better standing. Chapter 13 bankruptcy gives you up to 5 years to pay off your debts. The disadvantage is that you’re in bankruptcy for up to 5 years plus your credit report shows your bankruptcy for 7 more years after you have finished paying off your debts.

4. If you are so far in debt that you can never repay it, then the best solution may be a Chapter 7 bankruptcy. A Chapter 7 bankruptcy is the least desirable from a credit standpoint, but you are typically out of bankruptcy in 6 months and you don’t have to repay any debt. The disadvantage is that this shows on your credit report for 10 years from the date of filing your bankruptcy. Lenders are starting to tighten their credit requirements, and you may have a tough time getting future financing.

If your situation dictates that you choose from items 2, 3, or 4 above, you can probably forget about getting a mortgage anytime soon. Lending requirements have gotten much stiffer lately, and even 1 or 2 “lates” on a credit record can derail your loan application today. However, if things really are that bad, the more drastic measures may be needed as a first step to getting back on track for the future. (Be sure to talk with a CPA and an attorney specializing in such matters before making your choice.)

If you’re debts are under control now, but want to improve your bad credit history, the most important step is to START PAYING YOUR BILLS ONTIME! There is no substitute for this simple, basic practice.

Remember, it’s the day your payment is received that counts, not the postmark date. Give the post office sufficient time (five business days-at least) to deliver your mail. Late payments may mean late fees, higher interest, and/or a negative mark on your credit report. If you’ve already filed for bankruptcy, and even after being relieved of your debt you still pay your bills late, lenders will probably not consider giving you new credit, let alone a mortgage.

Taking money from your retirement account or tapping the cash value of your life insurance policy to pay bills or living expenses may have serious implications you haven’t considered, so again, get advice from an expert before you take any major financial actions.

This information was supplied by Chris Russo, Loan Officer with Legacy Mortgage in Albuquerque. We highly recommend Chris. You can reach him at the Legacy Mortgage Website.