Eliminate Shame from your Game

One of the biggest challenges people face when they face financial hardship is acknowledging that fact to those who don't (or even sometimes do) live in their households. As referenced in the Bible, 'Pride cometh before the fall'. Many financial burdens can be eased by simply communicating with your mortgage company, car loan holder, credit card company, etc. before they've tried to track you down with repeated mailers and phone calls.

Most industry experts agree that taking a proactive approach towards your financial concerns is a more effective way to handle the stress that it puts on you and your family in the short and long term. Let's be frank, financial problems rarely sneak up on you. Most people don't wake up suddenly 30 days on their mortgage. When you see those issues start to become a reality, take a few proactive steps.

1. Call your debtors, let them know what the situation is and how important it is to you to protect your good credit standing. If your problem is short term, ask them if they can defer a payment to the end of your term. If it's a more long term problem, ask if there is a way to restructure your debts so you are better able to meet the obligation. You will be SHOCKED at how willing some banks and lenders are to working with you to keep your payments current. Remember, they make their money LONG TERM from you paying them every month. When your debt goes bad, they can't make any more money from you. It becomes a loss to them so they greatly benefit from helping you remain a loyal & paying customer.

2. Make a plan that's doable for you and stick to it. While banks and lenders are willing to work with you, they are less willing to do it over and over again. If you make a payment agreement/arrangement do all that you can to make sure you can honor that agreement. When you make it initially, make sure it is actually something you can afford and remember it's a short term solution in most cases. Banks and lenders may defer interest for a short time, but they aren't going to do it for the life of the loan. Take the steps while you are catching up to arrange your budget to be able to get on top of things sooner rather than later.

3. When all else fails, prepare to sell and move on. In the housing industry, the newest trend is 'short sales'. This is when a house is worth less than the mortgage balance and the bank agrees to take the lesser amount in order to salvage some of the debt. It's cheaper for a bank to take a $20,000 loss on a short sale than it is to lose $200,000 in a foreclosure. If you are in a situation where you are not going to be able to handle your escalating payments, take the steps to sell your property before it's too late. The keys will be to get the property to a stage where it's appealing to buyers-paint, clean up, trim shrubs, plant fresh flowers. Also, price it right for immediate sale. For example, if you live in a neighborhood where homes are selling for $200,000 then price yours at $190,000. Remember, even if that's less than what you owe, the bank will likely negotiate and accept the lower price without further dinging your credit. Your ultimate goal is to minimize the long term effect on your credit.

While financial problems can take an emotional toll on you, your family, your friends and those close to you, they don't have to be the cause for total ruin. Taking a few steps to get ahead of the problems now can put you in a much better place down the road.

What's a little risk between friends? A LOT!!!

Across the lending industry the new buzz of what's coming to some lenders and in existence at others is what's called 'risk based pricing'. What that means is that your interest rates and fees will be set by where you fall, based on your credit, your down payment and how you are documenting your income, into the matrices of the banks assessment of risk.

For example, for a borrower who wants to put 10% down on a $220,000, for a loan amount of $200,000, slightly below the national average, the difference rate or fees for a credit score of 620 vs. 680 could be 2 'points' (1 percent of the loan amount) or .5 in rate. So how does taht translate into real dollars and cents? It will cost the person with a 620 score $4,000 more up front or $23,675 over the life of the loan (assuming a difference from 6.25% at a 680 score vs. 6.75% at a 620 score on a 30 yer fixed rate). That's some serious money!!!!

Ok, so how do you make sure you get the best rates and fees? Two things are what matter, credit and down payment.

Get your credit right, don't exceed 33% of your credit card balances, pay your bills in a timely manner, avoid store credit cards and personal unsecured loans from finance companies.

If you are a First Time Home Buyer or have not owned a property in the past 3 years, take advantage of the state, county and local down payment assistance programs that are available at your disposal.

Buying a home is still the best long term investment you can make for yourself and your family. Take the proper steps to ensure you are putting yourself in position to secure your financial destiny now and in the days to come.

President Bush's Plan.. Will it help or not?

Last week Pres. Bush and Treasury Secretary Henry Paulson unveiled a plan to stem the tide of foreclosures that are happening at a record pace nationwide. In their plan, mortgage rates are frozen for subprime loans originated and closed from January 1st, 2005 to July 31st 2007. Is it as simple as it seems? Not really,check this out..

If you have an adjustable rate mortgage (ARM) that is set to adjust from it's initial term between January 1,2008 and July 31st 2010 AND thtat adjustment will be at least 10% of the current payment AND you have a FICO score below 660 or your score has not increased more than 10% since your loan closed AND your loan to value (loan balance in relation to property value) meets or exceed 97% AND you are current on your mortgage AND not have been more than 60 days late in the previous 12 months THEN you qualify for that freeze.. WHEW!!! That's a lot to digest..

Quoting an article on CNN.com, Sharon Reuss from the Center for Responsible Lending estimates that of the 1.2 million consumers that the White House claims it will help, a mere 7% will qualify for all of the restrictions of the program.. So what can you do?

First of all, you can be proactive about contacting your lender. The banks don't want your house and will work with you (as long as you work with them!) to save your house. Secondly, if you are starting down a bad path financially, contact your local Housing Finance Authority. Across the country, there are HFA's that are allocating personnel and resources to foreclosure prevention counseling.. Finally, contact a realtor. If you know the light at the end of that tunnel is a train, get out of the tunnel!! You can see down the path if you are not going to be able to afford your adjusting payments.. There is no shame or downside to selling your property before getting into a position where you can lose it..

Take the proper steps for YOU to ensure your financial stability & future today.

Week of 5/20-So Close but yet So Far.

Here's a quick story about 'so close but yet so far.'

I heard a story yesterday of a potential client who was looking to take some cash out of a property she owned so she could take advantage of a once in a lifetime business opportunity. She talked about her property, what she needed the cash for and the conversation finally got around to her credit. The excitement in her voice about the business opportunity dropped to almost nothing when the conversation turned to her credit score.

Her score ended up being 5 points BELOW where it needed to be in order to do the deal. 5 measly points!!! It was a heartbreaker when she was told that there was nothing that could be done to help her.

Ccould she pay a credit card bill down to less than 50% of the balance, did she have an old collection that was going to drop off, were there any late payments that were maybe 23 months old that may stop hurting her score in the next 30 days. Sadly, the answer to all of the above was no.

That's the delicate balance with credit. Manage it properly and the world is your oyster, make the wrong choices and it can hamper you from maximizing what possibilities life presents to you.

For more on credit management and personal finance, and information on my upcoming book 'Control Your Credit Destiny' and workbook & software set 'Controlling Your Credit Destiny', visit my website at http://www.johnalittle.com/.