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Posts Tagged ‘Homeownership’

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The two absolute fastest ways to significantly boost your credit scores both involve getting negative information deleted from your credit files. If you have anything negative on your Equifax, Experian or TransUnion reports that is outdated, inaccurate or that can’t be verified, try contesting that information directly with the credit bureaus. Use their online credit dispute services for the fastest possible results. I’ve disputed information online and had erroneous information removed in just a day or two. Here are the direct websites for the credit bureaus to initiate an online dispute:

www.investigate.equifax.com

www.Experian.com/disputes

www.Transunion.com/investigate

Additionally, since you are trying to get a mortgage, you can utilize a service known as “rapid re-scoring” also known as “credit re-scoring.” Read this post about rapid re-scoring to learn how to get errors removed from your credit report in just 48 hours.

There’s no guarantee that either of these methods will boost your credit score by the 75 points you are seeking, but it’s certainly worth a shot. And if there is negative information that gets removed, you will likely experience some boost to your FICO scores.

However, if there are no mistakes to dispute, trying paying off some or all of your credit card debt. That will usually improve your credit scores. Even though it may be a hardship to come up with the money to pay off credit card bills, it’s helpful to become debt-free. Not to mention the short-and long-term savings it will net you from snagging that better loan when you are able to refinance.

I don’t agree with the advice you’ve been given. I think it represents old-time thinking. Gone are the day when people had to (or wanted to) keep a home forever just for the sake of having a having a home that was owned free and clear. Don’t get me wrong: It’s still great to have a mortgage free property. But in your case, this sounds like a rental and perhaps not your primary residence. Even if you do live in one part of this two-family home, it sounds like the whole point of why you bought it was to pay off those student loans as quickly as possible. In other words, this property was an investment. Pure and simple. So you shouldn’t get emotionally wrapped up in it and feel like you need to keep it until it’s paid off.

Neither do you need to wait until the 30 year mortgage is paid off in order to get the financial benefits of property ownership. So if your goal is to quickly rid yourself of those student loans, by all means, I would encourage you to look into selling the property.

One caveat applies, however: You said you bought it with the hopes that it would appreciate and then you could sell it. I don’t know how long you’ve owned this home. But if you bought in in the past 2 to 5 years, it’s possible that it may have done the opposite of what you’d hoped — not appreciated, but actually fallen in value. If this is the case, your equity may have been diminished or wiped out completely, making a sale difficult. Under these circumstances, I would advise you to hold on to the property for a year or two longer – or at least until the real estate market turns around.

Here’s what to do right now. Get a local real estate expert to come see your property and give you a comprehensive market analysis, which will tell how you much you could likely sell the home for in the current market. If the home isn’t “under water” — meaning you own  more on the home than it’s worth — then you can consider selling it. If all works out, and you reap a chunk of money from your real estate sale, you’d be wise to pay off those student loans, or at a minimum to knock out a huge part of your college debt.

Keep some money from the sale of your home, if you can, just to have some extra cash in the bank. It’s always good to have additional savings, because you never know when unexpected circumstances may arrive that force you to tap into your emergency fund. Also, if something unanticipated happens – such as a job layoff – you’ll have some savings to tide you over, and you won’t wind up in credit card debt.

It probably does not make sense to refinance your existing mortgages. The wisdom of refinancing depends on three primary factors: 1) How long you plan to stay in the house; 2) How much a refinancing will cost; and 3) Whether your goal in refinancing is to save money on interest/finance charges over the long-run, or to simply free up monthly cash flow in the short term. To better help you understand your situation, I ran some numbers for you, using the mortgage calculator on Bankrate.com. Here is what I found.

For your first mortgage, your monthly payments should now be about $955 a month, including principal and interest. For your second mortgage, your payments should be about $292 a month. Therefore, I estimate your total mortgage costs to currently be at: $1,247 per month.

If you keep your existing loans, you will pay a total of $114,588 on the first mortgage, including $25,588 in interest over the next 10 years.
You will also pay a total of $24,542 on the second mortgage, including $4,542 in interest over the next seven years. Your total interest to be repaid over the remaining life of these loans is: $30,130.

By comparison, getting a new 15-year mortgage at a 5% rate means you’d cut your monthly costs by more than 30%. Your new payment would be $862, instead of $1,247 per month. You would be netting a monthly savings of $385. Since your closing costs are $7,000, it would only take about 18 months to recoup those closing costs and “break even” on your refinancing. So as long as you live in the home for at least a year and a half, the refinancing appears to make financial sense. And I know that these numbers initially look very attractive because who wouldn’t want to reduce their monthly expenses by $385?

If you plan to stay much longer, however, perhaps 7 years or more – or maybe even until the mortgage is paid off, this isn’t a smart move. Over the new 15-year term you would pay a total of $155,154, including $46,154 in interest. Based solely on the interest charges to be paid, the new mortgage would not be as good a deal as you currently have. If you keep your present loans, you’ll save $16,024 in interest (by paying only $30,130 instead of $46,154).

Plus, when you factor in the additional $7,000 in closing costs required for the new loan, it’s clear that you should just keep the mortgages you currently have. Not only will you pay less money over time, you’ll also own your home free and clear faster — up to five years sooner than you would with a new, longer, 15-year mortgage.

If you can not afford the property, yes, you should consider selling it. And by “afford” it, I mean cover all the costs associated with owning the property – including any mortgage that may exist, insurance, and certainly the property taxes on the home. You did not state whether this is your primary residence or whether this was a rental property/second home. You also did not indicate whether the home is owned free and clear. I suspect that may be the case, otherwise you would have likely mentioned that you could not afford a mortgage, which is almost always more expensive than property taxes. If you are a landlord, it could be the case that tenants are effectively paying the mortgage on the property and that’s why you’ve been able to keep it this long, considering that you do not work. Lastly, you did not say how much the property might be worth. All of these factors should weigh into your decision-making. If the home has substantial equity, and you can sell it, pay off your $15,000 in debt and find another affordable place to live (if necessary), then a sale is a good idea.

What I’d suggest at this point is that you get a local real estate agent to visit the property and give you a comprehensive market analysis. He or she will evaluate the home and tell you what “comps” – comparable homes in the neighborhood – are selling for. This would give you a good idea of how much your property might fetch. Obviously, many parts of Florida are flooded with foreclosures and prices are way down. So if a quick sale is necessary, you’ll have to price the property very agressively, in order to avoid the house being put on the auction block due to your tax delinquency.

I think you have to seriously consider whether you can afford your current home. Based on your email you’ve done three things to lower your monthly housing costs: refinanced, got a loan modification, and you also mentioned getting a new county assessment on your property. Since you stated that the new assessment found that your house was thousands less than last year, I assume that your property taxes were also reduced. All of these sounds like reasonable strategies to have a more affordable house payment. But it concerns me that even after having done these three things, you still find the house expenses to be “high.”

You certainly can try to refinance your home again. Since it sounds like your last refi happened four years ago, rates are much lower now. If you have great credit and at least 20% equity in your home, you can get a 30-year mortgage at around 5%. If you live in an expensive area, and have a jumbo mortgage (i.e. a loan above $417,000), your rate will probably be around 6%. Before you look at a refinance though, do take a good, hard, honest look at your overall financial picture. If you come to the conclusion that the house is simply too expensive given your combined incomes and your other bills, consider selling and finding less expensive housing. There’s no shame in that.