Last
edited 5-1--2009
This latest edition reflects the
changing mortgage market represented by the downfall of the sub-prime mortgage
market and the signing of the new housing bill by President Bush 7-29-2008.
Most if not all of the loans offered by mortgage bankers and mortgage brokers,
so popular in 2008 are simply gone and no longer exist. The only game in town
now for a person with just a little bit of money down (especially those who
have had credit difficulties in the recent past and especially those who have
recently filed bankruptcy, either Chapter 7 or 13) is a government insured
mortgage, such as an FHA insured mortgage or VA insured mortgage (if you are a
veteran with housing benefits.). This article has been re-written and updated
to reflect those new realities including but not limited to the elimination of
seller assisted down payment assistance programs such as Nehemiah.
An On-line Internet
Booklet by
Larry Scites
Mortgage Banker
Real Estate
Professional
Larry is currently with Nichols Financial Services, Inc, an
Indiana Mortgage Bank. Nichols has been a name you can trust in the mortgage banking
world since 1924. Nichols Mortgages is not a broker, they are the lender.
General Title
Credit Repair in
Three Easy Steps
--with special
applications for those who have recently filed bankruptcy
Summary
Step 1: Get New Official Copies of All
Three of Your Credit Reports.
Step 2: Go Over Your Reports Line-by-Line and Word-by-Word
and
Correct them until they are 100% Accurate.
(Note: We are not removing legitimate Items. We are only
correcting and removing what is incorrectly reported.)
Step 3: Put Some New Good Credit on Your Credit Report
--Preferably a MasterCard or a Visa Credit Card--that
Reports to all Three Bureaus.
Links to Specific Topics in This Paper
This pamphlet is a do-it-yourself, free, anonymous
credit repair guide for anyone who wishes to repair their credit legally.
It contains all you need to know to repair and re-establish your credit. The
information contained in this pamphlet is taken from the thousands of personal
experiences I have had over the last eighteen years working in both the
residential real estate and home mortgage industries.
You have probably heard--especially from creditors trying to
talk you out of filing bankruptcy--that buying a home after a bankruptcy would
be difficult if not impossible. This is simply not true. After severe credit
difficulties, bankruptcy is almost always the shortest and easiest path to home
ownership.
It is a sad commentary on our credit industry that it often
takes years and literally tens of thousands of dollars to pay off bad debt,
repair your credit and secure a mortgage if you do not file bankruptcy, while
buying a home after bankruptcy can be done usually in twenty-four months (half
that time with mitigating circumstances) with little or no out of pocket
expense. Even if you consider the cost of obtaining and filing the bankruptcy a
part of the home buying process (which is almost always a small fraction of
what paying the debts would have cost), the comparison is still almost
ridiculous which is why so many people file bankruptcy instead of trying to pay
back all those debts and being penalized for seemingly doing the right thing.
This booklet is designed to give you all the information you
need to reestablish your credit and own your own home as soon as possible. This
information is provided free to you. No credit card or personal information
will be requested. If you wish, you may remain completely anonymous. There are
no seminars to attend. You can do this entirely by yourself. You do not need
any special training. All you need is the instructions included in this
pamphlet and the desire to own your own home.
There is no obligation to use my services or the services of
any of the companies with which I am associated. My hope is, however, that if
you find this information useful and allow me the opportunity of earning your
business when the time comes to apply for your mortgage. My contact information
is as follows:
Larry Scites
1-317-886-7616 Business
Email is the easiest way to reach me but feel free to call
or write with any comments or questions you might have about the information
contained in this online booklet.)
Finally, I want to thank your attorney or whom ever it was
who either gave you a written copy of this booklet or referred you to this web
site.
Larry Scites
General Title
Credit Repair in Three Easy Steps
--with special applications for those
who have recently filed bankruptcy
Step 1: Get New Official Copies of All
Three of Your Credit Reports.
!!! Do Not Even Think
of Skipping This Step. !!!
The greatest
credit mistake an individual can make -- especially after a bankruptcy-- is to
assume the information on their credit reports is correct.
I have been helping people rebuild their credit after
bankruptcy and secure mortgages now for over eighteen years. In that time, I
have read literally over ten thousand credit reports, and to this day, I can
honestly say I have yet to see a single credit report, bankruptcy or otherwise,
100% correct without the active input of the borrower.
If you have filed bankruptcy, I can promise you, your credit
report is full of errors. It will more than likely contain multiple entries
reporting the same debt. It will report paid accounts showing active balances.
It will also most certainly show accounts as simple "write offs" that
were included in the bankruptcy. In fact, the average credit report for someone
who has had credit difficulties is, in my opinion, usually so flawed that
individuals are unjustly and unnecessarily credit-damaged years beyond what is
necessary.
Before you begin working with the credit bureaus, in my
opinion, it is best that you understand a little about why they exist and what
they do and do not do. In my experience, credit bureaus exist primarily
for two very simple reasons.
1. So that companies
can decide whether to loan you money, and
2. To motivate you
to keep making your payments on time as your credit history will determine your
ability to do any future borrowing.
After you have had
credit difficulties, especially bankruptcy, in my experience,
your
credit reports will no longer---automatically---reflect accurate
information.
Your credit report only reflects information the credit bureaus
receives from outside sources, usually your creditors or companies that report
public record information directly to the bureaus. After you file bankruptcy,
your creditor's motivation to update and accurately reflect your account, in
large part, simply disappears. Many companies will, however, do the "right
thing" and continue to report your account accurately, but many more will
simply quit reporting anything as their interest in your account has now gone
away as their ability to collect the debt owed them has "gone away."
They have "written you off." Collection agencies are especially bad
at this. In fact, I have witnessed numerous time over the years when creditors
will actually use the credit reporting process to "punish" borrowers
who have filed bankruptcy by continuing to report accounts late years after a
bankruptcy even after being notified repeatedly of their error.
However, you do not need to rely on anyone other than
yourself--especially creditors who currently do not like you--to make sure your
credit report accurately reflects your credit history.
When it comes to credit reporting, in a very large sense,
you are in control--not the creditors.
Federal and state law in all fifty states gives you absolute
power over correcting anything that might be reported incorrectly on your
credit history. In fact, the law goes even to the point, that if a credit
bureau disagrees with you that an item is reported incorrectly, you can include
your own statement in their report stating why you think they are wrong. (These
consumer statements, in my opinion, do not work as well as actually persisting
until the report is corrected but they can be quite effective if used while the
dispute is pursued.)
This does not mean that you can just “erase” your bad credit
as some illegitimate companies have advertised. It does mean that you can
demand that your credit history be reported with 100% accuracy and nothing
less.
A note about “so called” credit repair companies in general and
especially those that use questionable or outright illegal means:
Avoid them like the plague they
are. The federal government and numerous states' attorney generals are, as we
speak, actively pursuing such companies with not only civil penalties but also
criminal charges. No one has the right or the ability to remove things from
your credit if they are really yours. To do so outside the law is fraud and can
subject you also to severe civil and criminal penalties. For example, if the
government finds out about anything remotely questionable, you may be barred
forever from obtaining a government insured loan. Do not do it.
This booklet contains all you
need to re-establish your credit and buy a home six months or sooner after
receiving your bankruptcy discharge. Everything contained within this report
has been reviewed by some of this country’s best legal counsel and found to be
100% legal. When fixing your credit and getting a new home is this easy, do not
ruin it by doing anything illegal or fraudulent.
Let me also give you some
general advice concerning hiring anyone to help you repair your credit. In my
opinion do not need to do it. You can do everything that needs to be done all
by yourself. You especially do not need or want to trust your creditors
to do this for you. You also do not need to hire a "professional." In
my personal opinion, that is a waste of not only your time but also your money.
It is your credit. For a “professional” to do it for you, they first have to
get the information from you. In the time required to give this information to
someone else, you could have just as easily given it to the credit bureaus
directly. In my opinion, no one is better suited or qualified to repair your
credit than you yourself. You can do it. If you need help beyond this paper, email
me or call me and I or one of my associates will personally help you accomplish
everything you need to do. (There is never a fee or charge for this service.)
Finally, before contacting the credit bureaus, I recommend
you wait until your bankruptcy is actually discharged. You will receive from
the court a document stating that your debts have been officially discharged
usually around two to three months after you file. (Check with your attorney
for your individual time line.) Be sure to keep that document and especially
note the official discharge date. This information will be required over
and over again as this date determines when you become eligible to utilize
certain kinds of loans with decreasing interest rates as your bankruptcy
becomes older and older. The credit bureaus often will not respond to
your corrections until your bankruptcy is actually "discharged"
because technically until that event happens your debts are still alive and
have not "gone away."
Correction to the above: I used to recommend (as you
can read above) that you wait until your bankruptcy was discharged because as I
stated above until your
bankruptcy is actually discharged your debts have not really gone
away. I have been proven wrong by a number of individuals recently who have
begun credit repair after just filing their bankruptcy. It seems the bureaus
will correct your credit just based on the filing and not simply the discharge.
I see no danger in beginning the process as soon as you file but be prepared
that some bureaus and creditors will not correct their entries until you
actually receive your discharge papers. In short it can not hurt to begin the
credit repair as soon as you file.
For those of you who have had a home "go back,"
either in foreclosure or some other devise, such as a "deed in lieu,"
this is another date very important to you. This date is the date the property
actually went out of "your name." This is not the date you, perhaps,
abandoned the property, but the date the Assessor of your county of residence,
actually took your name off the property and put on someone else on for tax
purposes. This date is often the date of the Sheriff's sale in the case of
foreclosure. To find this date, simply call the Assessor's office (or the recorder's
office) of the county in which the home was located and ask them when you name
was officially taken off the records as the official owner of the house. This
date may surprise some of you as it is usually years after you abandoned the
property. Nevertheless, if you let a house go back, you must find out when this
date is as it also will determine how long you may have to wait to secure more
attractive financing.
Great news for
Because of a recent new state law,
To order a report online, go to www.annualcreditreport.com.
Requests can also be made by phone at (877) 322-8228.
To submit a written request,
an Annual Credit
Report Request Form must be completed and mailed to:
Annual Credit Report Request Service,
The three credit bureaus are listed below with their current
telephone numbers and web addresses.
Contacting the credit bureaus
|
Equifax Equifax
Credit Information Services, Inc |
|
Experian (formerly TRW)
|
|
TransUnion LLC
|
Depending on your zip code, residents of some locations will
have to contact CSC credit services, instead of Equifax. As of the writing of
this report, this includes both the
CSC
Credit Services
Attention: Consumer Assistance
(800) 759-5979
http://www.csccredit.com/
You must contact all three as all three will be combined
when you apply for a mortgage to form what is called in the mortgage industry,
a "mortgage credit report" or a Residential Mortgage Credit Report,
an RMCR, for short. Policies change and you will need to call or log on to each
to find what the current costs or documentation requirements are for each
bureau. In the past, the cost has been rather nominal, such as $8 to $10 and
the documents requested are usually a copy of a driver's license or official ID
card and a copy of a current utility bill. This is to protect you from having
your report pulled by anyone other than you. If you have recently been turned
down for credit, you may be able to get a new credit report without a fee. As I
said before, read or listen carefully as to what each bureau requires and do
exactly what they say.
You must get the official version from the actual bureaus
for this to work. Only the official versions provide you the ready means of challenging
and correcting any mistakes on your report. The online "free" reports
or any older versions given to you by anyone else, such as a mortgage company
simply will not work. I, personally, prefer the written reports but the
bureaus seem to be strongly encouraging the online versions. No matter whether
you choose the online version or the printed ones, you must get it directly
from the bureaus themselves or from an official site as the state of
It may be possible to do so otherwise, but, I, personally,
have never had much success dealing with the bureaus under any terms other then
those set forth by the bureaus themselves. It has been my experience, if you
want results, you must play by their rules and their rules only. They have set
up specific procedures to accomplish what we need accomplished. Let us use
them. Do not try to rock the boat here. Do exactly what they request. No more.
No less. Just get an official copy of your report from each bureau and do
whatever it takes to do so even if you have to pay the ten dollars and send
them a copy of your driver’s license and a recent utility bill.
New Development: Recently under pressure from congress and
several state legislatures, the bureaus are now allowing some who have
purchased credit reports or who have received them through legitimate outlets
such as banks or mortgage brokers to dispute items on line or in writing
without having to purchase a credit report again from the bureaus themselves.
As of the date of this writing, 12-14-2005, two of the bureaus allow this,
Transunion and CSC credit services. You must have a copy of your credit report
as both require certain authenticating information as well as correct account
names and numbers to dispute items on line but this is a great advance over
just a few months ago. If you have a copy of your report and it contains this
bureau's information you may disputes items by logging on the following and
following the instructions for disputing an item on your credit report.
You will again need to follow their instruction precisely to
utilize this option but it is nice to be able to dispute items without having
to purchase a separate credit report each time. However, if this does not work
for you, do pay the ten dollars or so and get a legitimate copy of your report
directly from the bureaus themselves.
New Information: By accident, I found telephone number to
dispute items on your Transunion credit report. A real person even answers the
phone; however, you must have your report in front of you when you call.
1-800-916-8800.
Step 2: Go
Over Your Reports Line-by-Line Word-by-Word and correct them until they are
100% Accurate.
Now that you have gotten your report from each bureau, you
need to go over it LINE-BY-LINE and WORD-BY-WORD. I recommend you use a
highlighter and make notes as you go. We are looking for any information that
is incorrect that may reflect badly on your ability to get credit.
Personal Hint:
Many folks at this point will
go very overboard and correct too many things on their report. For example,
with regard to job history, the report may note your last three jobs but might
omit the two-month stint at McDonalds back in 1999. While technically correct,
this is not helpful or even beneficial to have on your report. It shows another
job of very short duration, which can affect your score. My own personal view
is the same advice professional recruiters give job applicants regarding
resumes. If it looks good, leave it alone. If it looks bad, omit it if you can
and if you cannot omit it, make it look as good as you can. Do not have
something removed or added just for the sake of accuracy unless it looks good
and will add to your credit worthiness.
For example, say you have an
account that was in the bankruptcy. It was paid off just about the time of the bankruptcy
but you included it in your list of creditors, just for "safety," in
case, something might "pop up" in the future. The credit report shows
it as perfect, having had twenty-four on time payments each made perfectly. In
my opinion, leave this one alone. Do not challenge it. Do not do anything to
it. Although technically correct, in my opinion, there is no need for it to
say, "Included in Bankruptcy". Who knows? Maybe, the computer will
pick it up as a good reference after the bankruptcy. Take your shot. In short,
in my opinion, if it looks bad, correct it as best you can. If it looks good,
leave it alone.
As you go over the report, keep a copy of your "List of
Creditors" from you bankruptcy filing at hand. Double check, even if you
know for sure it is there, that every debt, every collection, every anything
that is on your reports are actually, really, on your list of creditors. If you
find one that is not, contact your attorney immediately. Bankruptcies can
usually be amended to include items "unintentionally" left out. Check
with you attorney to find out what needs to be done. However, do it now. Do not
wait. A judgment based on a debt omitted from the bankruptcy can do
immeasurable harm to your credit after a bankruptcy.
Carefully mark each item that needs correcting. Each line
item that was in the bankruptcy needs to individually say "In
Bankruptcy," and zero balance. (If the computer picks up the bankruptcy
but sees a balance, it will assume either part of the debt was not dischargeable,
as for example for taxes or for a personal injury action, or part of the
debt was incurred after the bankruptcy.) It should also accurately reflect the
bankruptcy you filed. Some reports will have a generic statement about filing
either a Chapter 13 or a Chapter 7. In my opinion, if you filed a Chapter 7, it
needs to say a Chapter 7 not a Chapter 13. These miscellaneous references often
confuse mortgage underwriters later when you apply for your mortgage. In short,
if it was included in the bankruptcy, it needs to say that it was in the
bankruptcy and what kind it was and that it now is a zero balance. (If you are
uncertain of which kind of bankruptcy you filed, it is on the front page of the
papers your attorney gave you or you can just call his office.)
Personal Note:
It has been my experience that the
best way to do these corrections is to do them one by one with separate
distinct numbering that include each individual account numbers and other
relevant data. I know that it is easier to group them but, in my personal
experience, if you separate each one into its own little world with its own
account number, it is easier to keep track of the correction and it is easier
for the bureau to correct it. I also strongly suggest you number them with a
big circled number chosen by you in numerical sequence beginning with “1” so
you can keep track of them. If you ever do get to talk to a real person at the
bureau (and this does happen occasionally), it is so wonderful to ask her to
look at page three of your corrections at your big-circled number 17. I usually
go back, use a magic marker, and number them just before I send them. I know
this sounds a little paranoid but I have done this many times and this is the
only way that I have found that really works.
After you do your corrections, you need to send them back to
the bureaus. MAKE COPIES before you do. Do not rely on just keeping your notes.
Make copies of exactly what you send back to the bureaus.
Many of you who have access to a computer which if you are
reading this online will be obvious may wish to try to correct your reports
online. I recommend doing so if you feel comfortable with your computer and the
process. The online systems at all three bureaus have some challenging moments
but all in all work very well. Even after disputing items online, the bureaus
will either send you a corrected report by email or by regular mail and the
process is essentially the same just over the computer.
The bureaus, after receiving and reviewing, will send you an
updated report for your approval. I promise you this will still contain errors.
Count on it. Do the same thing again with the new report. Start a new list. Do
not resend your old list and tell them to get it right this time. I know it is
a lot of work but this is the only way I have ever gotten the bureaus to do
what I wanted them to do.
The bureaus, after receiving and reviewing your new request,
will again send you a "corrected" report for your approval. My guess
is that this one also will contain errors, although hopefully less than the
first two. Keep going. Repeat the same thing you did before. Do a new list.
Keep going. It's worth it. I promise you. Do not even think of stopping before
your report is 100% word-for-word correct.
The bureaus, after receiving and reviewing your new request,
will again send you a "corrected" report for your approval. This one
may be correct but do not count on it. Check it again LINE-BY-LINE and
WORD-BY-WORD. Have you spouse of significant other look at it also. Their eyes
may be fresher.
Continue this until your report is 100% word for word,
detail for detail, account by account accurate.
Let me say a word here about disputed items and how to deal
with them.
One of the most
frustrating things often in dealing with the bureaus is when you know an item
is incorrect and the original creditor verifies it.
This most commonly happens with regard to bankruptcy
with homes or vehicles with some kind of deficiency judgment. The bank has
repossessed or foreclosed but was unable to sell the collateral for all it was
owed. This balance, however, as your attorney advised you, if it were included
in your bankruptcy, also was included in your discharge. However, the banks may
not have gotten around to updating their records. No matter the reason, let us
say something is incorrect and the original creditor will not change it. At
this point, in my experience, you only have three choices.
New Information regarding court issues especially
judgments:
One of the most frustrating things to correct on any credit report is the
public record section. Sometimes correcting these items is easy but more often
than not this proves to be the most challenging area to correct. Just recently,
I had the opportunity to talk with a manager at one of the bureaus regarding
this. She related that all three bureaus (They do talk with each other!) have
basically agreed that because of all the fraudulent activity going on out there
that the only way they will normally correct court records is by having a document
signed by the court stating the change. The document does not have to be signed
by a judge but only someone from the court with authority to do so, such as the
clerk of the court or the judge's clerk.
Here is the problem and why it is not easy to solve. Let's say you have been
sued by a creditor before your bankruptcy and they successfully received a
judgment against you. You rightly included this in your bankruptcy and the debt
was discharged. However, no one notified the court. Your bankruptcy attorney
could notify the court for you as part of your bankruptcy but to do so under
most circumstance would have to enter an appearance as an attorney of record in
that case and then file the papers necessary to notify the court of the filing
of the bankruptcy and its subsequent discharge. This also means
"serving" notice on all the parties of the original case. This is a
lot of work to do just to notify the court you have filed bankruptcy. You have
two choices in my opinion. One is to have your attorney do this for you which I
am sure he will charge you an extra fee as this involves more work than is
usually allocated for in a normal bankruptcy. The second is to do it yourself.
Most of the individuals I have worked with have chosen the second approach.
Simply address a letter to the court of record listing the cause number from
your credit report and include a copy of your discharge and the page listing
the creditor who received the judgment. (Some courts will want the entire
bankruptcy document.) The court will then dismiss the judgment. Send that
document assuming it is signed to all three bureaus. If you judgment has
already been dismissed, just contact the court for a signed record stating such
(This may cost you a couple of dollars but usually no more than ten.) and send
that to all three bureaus.
Step 3: Put Some New Good Credit
on Your Credit Report--Preferably a MasterCard or Visa Credit Card that Reports
to all Three Bureaus.
Many individuals after a bankruptcy will swear off all
credit and especially credit cards. Almost nothing can harm your chances of
getting a new mortgage more than having no credit at all. Banks and lending
institutions along with the federal government want to know you have learned
your lesson. They want to know you can now use credit and use it wisely before
they loan you money to buy your own home. Your credit score is designed to
reflect the wise use of credit not the absence on any credit at all. To buy a
home or finance a car soon after a bankruptcy, you must demonstrate to your
potential creditors that you can now use credit wisely and can make your
payments on time.
The easiest way to do this is with a credit card that
reports monthly to all three credit bureaus. Debit cards do not work. They are
simply cards that take money directly from your checking account. In fact,
debit cards, from a bank's point of view are counterproductive. Debit cards by
themselves with out any credit cards actually make a rather strong statement
that you do not trust yourself with any credit that does not come immediately
out of either your savings or checking account. Banks want you to borrow money.
They want you to pay interest. They just want to be sure you are going to pay
back what you have borrowed. Nothing does this better
than a credit card. There are no exceptions to this rule. To buy a home six
months after a bankruptcy, in my opinion, you must get at least one credit card
and hopefully two.
The amount of the credit limit does not matter. Any limit
will work. Secured or unsecured does not matter as long as the card reports to
all three credit bureaus. I, personally, recommend a bank called First Premier
Bank, web address, http://www.firstpremier.com and
1-800-987-5521. I have no relationship with this bank whatsoever, but over the
years, my clients have had very good success with them. Their cards are usually
unsecured and usually start around $200 to $300 dollars. These cards are not
cheap. They come with start up fees, yearly fees, and even monthly fees. First
Premier, however, is very up front about all their costs unlike some of their
competitors in this field. No matter the costs, which usually run upwards of
$200 a year, this is cheap considering you'll save thousands on your next car
loan or mortgage. If, I, as a mortgage banker, said to you I was going to
charge you $200.00 closing costs on a home, you would probably not even
protest. Consider the charges paid to secure a credit card, part of the costs
necessary for you to buy your next home.
I even recommend after getting one card from First
Premier Bank, after a few months, go get a second card also. Use them for
gas or groceries and pay them off each month. Do not go over your limit and if
you do leave an unpaid balance on them each month, try to keep your balances
below 50% of your credit limit. Remember, the banks are looking for evidence
that you are using your credit wisely. A credit card at its credit limit
demonstrates just the opposite. I also recommend that you always pay at least
double the minimum payment. Again, we are trying to demonstrate to the bank
that you are handling your credit wisely and that your credit is not over
stressed. Try to think of it from the bank's point of view. What shows a
customer's good credit health? Think about it. The answer is, as you've
probably already answered, is to keep the ratio of credit used to credit
available low, always make more than minimum payments, and always pay your
bills before they are due. (Maybe you should consider being a banker. --Just
kidding.)
Nothing will build your credit faster than a credit card,
but let us consider some other ways to build your credit or, maybe, repair some
items you were not able to discharge.
New or used car dealers are often a source of ready credit
for those who have recently filed bankruptcy. However, please be careful. I
have personally worked with literally dozens of folks who have had to give
these cars back because they quit running literally, months after they were
bought. In my opinion, if this happens, you are really in trouble. You can only
file a Chapter 7 bankruptcy every six years and with a repossession on your
credit after a bankruptcy, your credit is essentially dead again. If you need a
car, in my opinion, go cheap. If it dies, at least, it did not cost a lot. If
you want to pay more, do so, only with the knowledge that you are going to be
paying this, no matter if it runs or not if you want to keep your credit in
good shape. Please be careful.
Rent-to-own businesses are also good ways to re-build
credit. Again, my advice is go cheap. Size does not
matter in the credit world. In fact, small things usually count more. If you
have two bills due this month, your credit card and your mortgage and you only
have money to pay one, which one will you pay? That is right, your mortgage.
That is why if you can be relied on to pay the little stuff on time; you will
probably pay the big stuff on time as well.
Sometimes, you can get credit by giving your local bank
money and having them lend it back to you. These are called secured loans. You
give your bank, say a $1,000 and they put it into a savings account and then
they make you a $1,000 personal loan. The banks makes money charging you
interest, they pay you almost nothing on your "savings" account, and
you re-establish your credit. Everyone wins. However, be sure they agree to
report this to all three credit bureaus before you do this.
Existing student loans are a good way to reestablish your
credit. As you know, they are not dischargeable in bankruptcy but they are
usually very easy to reinstate and to adjust if the payments are too high for
your existing circumstances. If you have student loans, they cannot be ignored.
They are there. You might as well use them to reestablish your credit. First,
make sure your credit report has removed all your duplicates. Student loans are
especially bad about re-reporting the same student loan time after time every
time they change your balance. I have seen many credit reports with the same
student loan repeated at least fifteen times. The credit bureaus see this as
fifteen separate accounts not just one. Call your servicing entity and see what
needs to be done to get this loan reinstated. Do not just start paying without
getting an agreement. Your goal is to make the credit report look good. There
is no other goal. Ask the servicer, how do I do this? If you get road blocked,
call the government agency that guaranteed the loan. Be persistent. Perhaps,
you can consolidate all your loans into one. No matter what, you must get your
loans under control and more importantly, you must get your credit report to
reflect that fact.
Many of you will have child support issues. Generally
government insured mortgage underwriters will not hold back child support against
you as long as you can demonstrate that you have been paying your support
consistently for a period of time, usually at least a year. Garnishments do no
count against you. Also, if you can, arrange to pay something on the overdue or
back balance. In all cases, get it in writing. Underwriters love paper. When
you apply for a mortgage, the more paper you can provide an underwriter, in my
experience, the better, especially on something that initially does not look
favorable. Many lenders will not even make you pay off balances on items that
you have been paying on for over three months. The initiative to set up a
payment arrangement and to keep it is viewed very favorably by the credit
industry.
Collections after a bankruptcy do not necessarily fatally damage
your chances of getting a new mortgage, but they do hurt. If a collection
agency contacts you, especially after a bankruptcy, do not ignore their
correspondence. In my experience, always, in writing, dispute the debt even if
it is only the amount you dispute and request documentation. It has been my
experience that occasionally this is enough for the debt to go away. If it does
not, try your best to pay it before it hits the credit report. If it does hit
the credit report, arrange with the collection agency and pay it off in
installment payments if possible. In my experience, most underwriters will even
count this as a credit reference if you've made at least three payments on a
debt and had a good reason for it becoming a collection in the first place,
such as medical or the debt of someone for whom you co-signed. If the debt is
small, it is OK to pay it off in one payment, but it is always better to pay it
off in payments especially if it is over, say, $200. Again, keep written
records, and when it is paid send copies of everything to credit bureaus.
Remember, once your creditors are paid, they generally lose all motivation to
update or correct your report.
Alternative credit is also a good thing to have on a credit
report. Alternative credit is defined as credit that normally does not show up
on a credit report. Although, in my experience, the different bureaus have
different rules concerning alternative credit, such as buy-here pay-here car
dealers, personal loans made by individuals, or even rent records, it never
hurts to try to get these on your credit report, if they look good! Sometimes,
especially with banks, all it takes is a request to report this loan to the
bureaus. Banks do not always report everything to the bureaus. Sometimes, you
need to ask.
Another great way, to reestablish credit is to have someone
with good credit put you on one of his or her accounts or to co-sign a loan
with you. You need to be careful here because some creditors may add you as an
authorized signer on an account and not report this to the credit bureau at
all. I have had the most personal success adding individuals to credit cards
and auto loans. However, all you need to do is ask. Do not assume anything. Ask
them if this will be reported to the bureaus in your name.
Having said all the above, let me summarize. Of all the
things mentioned above, there is no one thing more important, in my opinion,
than getting and using a credit card wisely. Nothing can hurt your credit more,
not even, it seems a mortgage late and nothing will help your score more than a
credit card. It does not matter if it is a secured or unsecured card. The only
thing that matters is that you have one and are using it wisely and it is being
reported every month to all three bureaus. I know the fees are high but they
are a small price compared to the money you will save on your mortgage and the
money saved not paying rent. In summary, if you only do one thing after
cleaning up your credit report, get a credit card and pay it off every month before
the due date.
Now: Everything You’ve Ever Wanted
to Know about Zero Down Mortgages and Where to Get one at the Best Rate and
Terms Possible.
Your ability to get the best rates and terms possible on any
credit purchase and especially a mortgage--and especially on a mortgage soon
after a bankruptcy--is almost exclusively determined by your credit
score. If you have low scores on all three bureaus, your chances of
getting a zero down loan are almost zero. However, if the middle score of your
three bureaus is above 580, your chances are excellent.
I have seen recently bankrupt individuals with scores in the
low to mid 600’s as soon as one day after their bankruptcy because of credit
they reaffirmed in their bankruptcy. They never let any payments go late and
other than the bankruptcy filing itself, their credit report looked perfect.
Usually though, this is not the case. It usually takes around six months of
cleaned credit report followed by some new credit to get a score above 600.
Note:
Credit scores go from the 400’s to
the 800’s. I have personally seen credit as low as the low 400’s and as high as
the 830’s. I have been told of other extremes but I personally have never seen
any lower than the 417 or higher than the 830's and I have seen literally
1000’s of credit reports in the last eighteen years.
To get a government insured loan,
we usually look for something above 580 but I have literally done hundreds with
scores less than that figure. However, for non-government loans, the magic
number for zero down loans is usually 580 or above with full documentation
required as to income and expenses to show you can afford your new house
payment. Self employed individuals need not have filed taxes to obtain a
mortgage as their income is most usually calculated through the amount of
deposits made to their bank account each month. (If you are self employed, open
a bank account if you don't have one already and deposit all your money each
month. You will be allowed roughly half of that amount toward a house payment
and other major debts such as a car or truck payment for a non-conforming
mortgage. (To do a government insured loan, you will have to have filed taxes
and other rules will also apply.)
As we have discussed, bankruptcy is not the killer it used
to be for those wanting to purchase a home. Years ago it may have hurt you
badly for years, often requiring large down payments as many as ten years after
a bankruptcy discharge (the legal time a credit bureau may report your
bankruptcy). Today that is not the case. It is true there are some banks and
creditors that even today will not loan you money ever because you have filed
bankruptcy, but there are many more that are more than willing to do so. The
trick is to find the right ones and not waste your time on the wrong ones,
especially the one that will try to "rip you off," as my kids used to
say.
This is especially true with respect to mortgages. It is
probably true that your local hometown state chartered bank will have little
interest in doing your mortgage even with a lot of money down for years after
your bankruptcy has been discharged.
This pamphlet is written especially for those of us who have
very little to put down on a home, usually at most one or two thousand dollars.
Beginning the subject of getting a mortgage, let us do some
groundwork stating where we are going and how we are going to get there.
First, bankruptcy or no, everyone wants the best deal and
interest rate they can get. For people who have filed bankruptcy, the very best
deal and interest rate to be found anywhere is in the government insured
mortgage sector, either a FHA loan or a VA loan. However, these loans although
probably the most familiar in the
First, although we call them a "FHA loan" or a
"VA loan" they are actually not made directly by either federal
organization. The Veterans Administration and the Federal Housing
Administration do not make mortgages directly to individuals wishing to purchase
individual homes. They simply "insure" the banks, which are willing
to lend the money. This insurance has nothing to do with the home burning down
or insuring an individual's ability to work, it only has to do with insuring
the lending bank against loss if the mortgage goes bad and the bank loses
money.
Similar to student loans, except this time for homeowners,
FHA and VA loans have much more lenient credit and income requirements than do
normal conventional bank mortgages. Ratios of monthly income to house payment
are normally allowed up to 29% or even higher and ratio of monthly income to
total credit related debt including your mortgage payment could go to 41% or
higher. (Mortgage payments for all government insured loans include your taxes,
homeowner's insurance, and mortgage insurance premium, if any.)
Down payment and closing costs on a government insured loans
are usually the same or less than with a conventional loan but more importantly
are not required to be paid for by the buyers themselves. Using a down payment
program, such as the Nehemiah program, and having the seller pay all the
borrowers costs, usually will allow any borrower to secure a government insured
loan literally for just dollars out of pocket.
Again similar to student loans, the credit requirements for
these types of loans are much more forgiving than conventional bank mortgages.
Special emphasis is usually paid only to the last twelve months. Credit lates
over a year old, especially medical collections are usually not sufficient to
turn a mortgage down. In some case, these collections even will not be required
to be paid before closing. The government wants individuals to buy homes. It
helps the economy and in turn creates a much larger tax base when individuals
buy homes and take out mortgages. However, they still want to do so safely and
not have to take back more homes than they have to. Although there are a myriad
of rules regarding credit on a federally insure loan, as an underwriter I have
known for years has said many times, the bottom line on every mortgage is can
an will the borrow make their mortgage payments. Because of this philosophy,
government mortgages tend to look forward more than other lenders.
Nowhere is this more evident than with those who have filed
bankruptcy. Bankruptcy will not prevent you from securing a normal mortgage at
a normal interest rate-exactly the same as everyone else applying at that
time-as early as two years after your Chapter 7 discharge or three years after
your bankruptcy if it included a foreclosure. The are many exceptions to the
above generality sometimes allowing individuals to secure normal mortgages
earlier than two years and some exceptions that may require individuals to wait
longer than two or three years especially if a house had to go back to a bank.
I have seen multiple individuals and families close on their new home literally
a year and one day after their chapter 7 bankruptcies--if they had a good
reason why they had to file their Chapter 7 in the first place. Government
regulations forgive individuals who were facing one time, non-recurring events
beyond their control, such as medical emergencies or severe income loss.
Special care should be taken when explaining your bankruptcy to be sure these
non-recurring, one time events, beyond your control are emphasized, assuming of
course they do exist. It has been my experience that almost every bankruptcy,
by definition, falls into this category. No one wished to go through this
voluntarily. Just choose your words wisely and you will be OK.
FHA and VA loans have lots of rules and guidelines attached
to them. However, in my opinion, this is not necessarily bad at all. The
government is only trying to protect itself and by doing so also protects the
homebuyers as well. All government insured mortgages require appraisals done by
either appraisers chosen by the respective agencies or appraisers approved by
them. These appraisers are generally the very best in the industry and are
monitored monthly for their continued excellence. FHA and VA strongly encourage
homebuyers to have their own home inspections done before you close and even
allow you to finance these costs under most circumstances in your mortgage.
In my opinion, for individuals starting over, credit-wise,
either a VA, if you qualify, or a FHA loan is definitely the way to go. Yes,
FHA can be a pain sometimes, but they are a pain for a reason. They are trying
to protect themselves and in doing so might just protect you and probably your most important investment, your home. The last thing,
in my opinion, you need after a bankruptcy is to get stuck with an over priced
home that you can't sell for what you paid for it or find out about repairs
that need to be done that a good home inspection would have caught before you
bought it.
If you can wait the two years or in some cases just a year
after your Chapter 7 bankruptcy, I strongly recommend you do so. Clean and
check your credit. Get a credit card and use it. Pay your bills on time and be
sure not to allow any collections to show up on your credit report after your
bankruptcy and I can almost 100% guarantee you will be approved for an FHA loan
on your two year anniversary. It would not hurt to save a couple of thousand
dollars but that is not as critical as watching your credit closely.
If you do not want to wait the two years or so to get a
government insured loan, there are plenty of options for you as long as your
middle credit score is above 600. These "interim" loans are sometime
called "band aid" loans because of their hopefully temporary nature.
The rates tend to be a little higher and they often come with what are called
"pre-payment" penalties but many people find these loans much more
preferable than renting. New Information: Whereas before the sub-prime credit
crisis, these loan were available with nothing down they are now still
available with at least 5% down and are a little harder to get but they do
exist for homebuyers who are buying their principal residence.
Note: A word about the difference
between "B" lenders and the sharks.
Much has been written recently
about predatory lending in most local papers and, in my opinion, much more
needs to be done to alert the public of the dangers of dealing with sharks. A
shark or a predatory lender in the industry is defined as someone who charges
outside the normal bounds for securing a mortgage. Usually anything above 6% in
total fees is considered predatory. "B" lenders are not sharks by
definition but they do charge more than normal banks because their risk factors
are higher. A normal "B" loan, in my experience, should cost no more
than 2-3% more in interest rate than the going FHA rate and the closing costs
should be very comparable usually not much over $2,000 to $3,000. Sharks will
often charge many times these figures.
How do you find reputable lenders who will do "B"
loans but not "rip you off"? The answer to that question is easier
than you might think. I would like to do this for you or if you live in a state
I do not currently work, I would be glad to refer you to someone who will treat
you correctly.
This is one reason why I wrote this booklet in the first
place. I do mortgages and specialize in the government insured sector with an
emphasis on first time homebuyers and those needing some credit repair before
they can get a mortgage.
I also wrote this online booklet hoping to correct
some of the abuses found in our industry. To date, it appears I have
accomplished some of both goals. The pamphlet you have read generates roughly
30% of my current client base and appears to be growing monthly. As to
improving my industry, only time will tell. I hope that this pamphlet will make
some small contribution, one family and one mortgage at a time.
If you have any questions, you may call me anytime 1-317-886-7616
or simply send me an email at buyerson@bluemarble.net.
If you are on line reading this simply click on the email bar located at the
top and bottom of each page. I usually return calls and email within 24 hours.
I work with a very simple commitment with all my clients. I
promise you two things.
If I can be of help, please contact me.
1-317-886-7616 Main Number
PS Fell free to share this information with anyone you wish,
as it is not copyrighted. I chose not to copyright this material so that it
might be presented to the widest audience possible. If you quote this material,
an acknowledgement listing this web site is all that I request. Best wishes to
you all. May all your experiences with credit be profitable?