Month: January 2010

Reverse Mortgages for Cash-Strapped Seniors

Posted by Kelly Simms – January 28, 2010

For most of us, the largest investment we’ll ever make is in a home. Once we’ve made that leap, mortgage becomes a cross to bear – or, in some cases, a leveraging tool.

If you’re over 62 years old and qualify in various ways (see the list below), what’s known as a reverse mortgage may allow you to withdraw some of the equity of your home as cash. In a sense, you’re temporarily liquidating a piece of your home.

What makes a reverse mortgage different from a simple second mortgage is that you don’t have to pay back a dime until your living situation changes (for instance, if you stop using the house as your main residence, or decide to sell it).

The general rules are:

  1. You must be over 62 years old.
  2. You must own your home outright or have a very low mortgage balance (the exact details of which are, of course, subjective).
  3. You must live in the home at least most of the time.
  4. Your home must be a single family home, a 1-4 unit home (and you live in one unit), a HUD-approved condo, or a HUD-approved manufactured home.

You’re also required to receive counseling from what’s called an HECM Counselor before you can qualify for a reverse mortgage.

Call the Housing Counseling Clearinghouse at 800.569.4287 to set up an appointment for counseling.

However, reverse mortgages can be a great deal for strapped-for-cash seniors because the loan is not required to be repaid at all until the homeowner permanently stops living at this property. Following this date, the homeowner (or his estate) has a year to repay the balance of the reverse mortgage or sell the house to pay it off.

And—better yet—if the home does not sell for as much as the balance of the reverse mortgage, the homeowner’s estate is not liable to repay it.

For general information about reverse mortgages call AARP toll free at (800) 209-8085.

The Five Cs of Credit

Posted by Kelly Simms – January 25, 2010

In credit-speak there’s something we call The Five Cs of Credit. Depending on who you ask, the Cs have varying descriptions, but the core words are the same:

Character:
Refers to your integrity and reputation as a borrower and consumer, but it can also refer to the impression you make on a lender in person or over the phone. Do you come across as responsible, mature, and level-headed? When you walk into a bank to ask for a loan, the person you speak with will be making a judgment call. Deciding whether to issue you that loan should be an objective decision—but alas, it isn’t.

Capacity:
Your ability to pay your debt down; in other words, what’s your cash flow like? This one is arguably the most important C because, when it comes down to it, all a lender wants to know is how you are going to repay your loan. Your prior history of paying back loans on time is key.

Capital:
To put it bluntly: your net worth. For example, with a small business loan, how much of your own money you invest in the business shows a lender how invested you are in the project’s success. A high amount of capital can offset the other factors because it decreases the lender’s risk.

Collateral:
Do you have assets to secure the debt? Without them, you may have to find someone to sign what’s known as a guarantee—in other words, they are guaranteeing to pay back the debt in the event that you can’t.

Conditions:
This C can refer to several types of conditions:

  • Your own financial state
  • The condition of the current economy
  • The economic condition of your specific industry (in the case of a small business loan)
  • And how you’re planning to use the loan

These five C’s determine your credit score and your worthiness as a borrower. Familiarize yourself with them for a well-rounded chance at securing a loan!

Get Your Expenses Down!

Posted by Kelly Simms – January 19, 2010

A new year began, you felt inspired, you made a budget… only to find out that you don’t actually make enough money to save, or perhaps even to pay your bills. Not a very empowering thought.  Don’t lose hope!

You have two choices:

  1. Make more money
  2. Spend less

Spending less money is no fun. And it can be challenging to figure out how to cut corners. Here are a few suggestions for ways to trim down your expenses without having to nickel and dime every last latte you crave.

  • Take a look at your cell phone bill. Are you using all your minutes every month? Is there a way you can downgrade your plan to save money? With internet-based phone services like Skype so easily available, you can make phone calls for free, from your computer, and avoid racking up precious minutes on your cell phone bill.
  • Shop around for better deals on all your bills. Car insurance, health insurance, Internet, cable…. none of these industries are monopolies, so you have options. And be on the lookout for specials deals.
  • If you have a flexible schedule, perhaps there’s a way to work from home more often, consolidate your meetings so they all happen in one day, or even carpool? Gas is expensive. Brainstorm ways you can save money on your commute.
  • Give yourself an allowance. Take out cash each week, be frugal with it, and don’t use your credit card. This way, you’ll know in advance exactly how much you’re spending.
  • Change your grocery shopping habits. Stopping at a small boutique market on the way home from work might be more convenient, but it’s also more expensive. Make room in your weekly schedule to shop at Trader Joe’s or visit a local farmer’s market. TIP: shopping farmer’s markets late in the day is a great way to get good deals.

The key to saving money is to get out of your comfort zone. A little initiative goes a long way!

I Was Declined Credit…Now What?

Posted by Kelly Simms – January 12, 2010

It happens to the best of us, and with the downturn in the economy and the passing of the Credit C.A.R.D. Act last summer we’re going to see more and more of it: declined credit.

When you are refused for a line of credit you were counting on, what do you do?

There are many reasons a lender would refuse you credit. The good news is, the lender is obligated to tell you why they are declining your application, which allows you to take positive steps to remedy the situation.

The information on your credit report may be incorrect

It’s important to periodically obtain a copy of your credit report and to check it for inaccuracies.

How to access your credit report for free: www.annualcreditreport.com is jointly operated by all three U.S. credit bureaus (Equifax, Experian and TransUnion) and is a good place to download your credit report.

If you find mistakes, you have the right to petition for changes.  You can also obtain a copy of your credit report — for free — once a year, from each of the three credit scoring agencies in the U.S. The next step is to file a dispute with each agency that is showing errors.

Disputing items in your credit report: If you’d like to dispute information in your credit report, the FTC has put together an unbiased approach on its website.

You don’t have a proven history of responsible payments

If you haven’t taken out a line of credit or a loan in the past, your credit score may be low because you haven’t yet proven yourself to be a responsible borrower. The best way to remedy this is to open up a line of credit and make small monthly purchases, paying them off immediately each month.

Unfortunately, this is a chicken-and-the-egg kind of paradox. How to create good credit when no one will give you a chance?

There are lenders who specifically lend to those with bad or no credit—at a high interest rate. Chances are, you can land one of these accounts, and as long as you pay off your balance in full each month, you won’t be affected by the high interest rate. In a little bit of time, your credit score should start to rise.

A bank error

Because the lender is required by something called Regulation B (sound like it’s straight out of the book 1984, doesn’t it?) to tell you why they are declining you, you may catch errors on their part. By law, they can only decline a loan based on certain explicit reasons. If they can’t give you a specific, legitimate reason for declining your loan, or if their decline was based on something like missing information on your application, you can petition to apply again.

Your credit score is low

If you’ve simply got bad credit and it’s your own fault, well, you’re going to have to wait it out. There are proactive steps you can take to start to heal your credit, but they will take time.

TIP: Centrro has a free 12-week program called “90 Days to Better Credit”. Sign up here to start receiving FREE weekly newsletters by email.