December 16, 2013
By Molly Guthrey
Posted: 12/15/2013 12:01:00 AM CST
A divorce prompted a Coon Rapids woman’s fresh start.
Starting over isn’t always easy.
“It was very scary at first, to be on my own,” says Athena Degel, 39, an administrative assistant from Coon Rapids. “Renting my own apartment, trying to have two kids in daycare, making a car payment. After I sold my stock, took out a 401(k) loan and sold my engagement and wedding rings, I made just enough money to buy one tank of gas a month and some groceries.”
The divorce, which took place during the Great Recession of 2009, had other financial consequences, too.
“In the divorce, we put our house up for sale,” Degel says. “We had bought the house at a high point in the market, in 2006. A short sale was our best option, because we were so upside down on our mortgage. The short sale went through at a $100,000 loss.”
A short sale — where the seller comes up short when paying off the mortgage to the bank — damages a credit score.
“That was my biggest hurdle,” Degel says. “You can’t buy a house for three years. You just have to wait.”
The single mom used that time to heal. That included getting her financial house in order: She worked on repairing her credit history with the help of Shawn Hunter at Equity Source Mortgage.
“Because of him, I was able to close on my new house on Sept. 3,” Degel says.
This fresh start feels different — and it’s not just because she has a new love in her life and is engaged to be married.
“The thrill hasn’t worn off,” Degel says. “I was able to buy my own place. I have my own life. I’ve learned a lot about myself. It’s a new me.”
Share your own turning point with Molly Guthrey atmguthrey@pioneer press.com or 651-228-5505.
TOP 10 TIPS FOR TROUBLED HOMEBUYERS AND OWNERS
1. Fix your credit score. Credit scores are mainly driven by momentum, and small changes in behavior can make a big impact. Before applying for a mortgage, know which way your credit score is going, and what you can do to get it to go in the right direction.
2. Find an expert to help with the fix. If there are events in your credit history that need fixing, fine, but know it takes time, commitment and sound advice from trusted advisers. Experts can point you in the right direction.
3. Hold off on big purchases. Your debt-to-income ratio is one of the core qualifiers in getting a mortgage. If it’s too high, you may not qualify for a low rate or any rate at all. So if you’re thinking about buying a home, hold off on large-ticket purchases. An additional $100 a month payment could reduce your buying power by as much as $10,000.
4. Watch for credit disputes. Credit disputes are not only for the credit challenged. Some people have no idea there are disputes on their reports, yet those disputes could prevent them from getting a home. If you do have to dispute something on your credit report, make sure that the dispute is solved and removed from the report. Otherwise, it could appear as a negative on your credit and detract institutions from providing you a mortgage. Fannie Mae and Freddie Mac have had even tighter dispute resolution requirements for several years. These policies came about due to the positive impact on credit scores when a consumer enters a dispute on a derogatory account. Most credit-scoring models remove disputed accounts from the credit-score calculation, perhaps creating an artificially high score and exposing the lender to added risk. The FHA stated it also found a correlation between credit disputes and mortgage defaults in its loan-performance evaluations.
5. Know the difference between consumer credit monitoring and actual credit reports. Consumer credit monitoring is a different world than the credit reports available to professionals. These systems are very effective for fraud prevention but do not rely solely on the scores you see. In most cases, those scores are significantly higher than your score. Consumer Reports Webwatch recommends consumers not familiar with credit reports consider each separately and incrementally. Consumers are better off obtaining the one free report per year they are entitled to by law from annualcreditreport.com and purchasing credit scores from that site for as little as $8 each if desired.
6. Monitor interest rates and know what they mean to your payments. As the economy continues to improve, interest rates have gone up. Higher rates reduce buying power because the cost of the money is higher. Borrowers may have to settle for less. On a $200,000 loan, a 1 percent increase in interest rates represents a little more than $120 per month on the payment.
7. Learn about other options if you are underwater on your mortgage. If you’re upside down on your home mortgage loan (i.e. loan-to-value) and have been turned down on a refinance, there are options. First, find out who services your loan. A mortgage professional can talk to you about mortgage insurance, buy-back provisions, negative equity and government programs, such as principal-reduction alternatives recently designed to help homeowners.
8. Know what you’re qualified for. Some loans offer “no money down” options, but it’s hard to get a loan today without bringing money to the table. Still there are special programs out there. Some communities have a pool of money to attract potential buyers to buy distressed or foreclosed properties. But not everyone qualifies or is familiar with the fine print in the programs. Find out what you’re qualified for.
9. Choose a broker wisely. Whomever you choose to broker your mortgage, make sure that person really knows how to read and analyze a tax return, understand current guidelines and know credit requirements. That ability can often make or break you qualifying for a mortgage.
10. Don’t give up hope. If you can’t qualify for a mortgage today, that doesn’t mean you can’t take steps, change your spending habits, improve your credit and buy a home in the future. It might take some time, but it can happen. Make sure you find a mortgage professional who will be your advocate and partner to guide you through the process.
Source: Roy Sperr, Equity Source Mortgage