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Applying for a Mortgage

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There’s always talk about home-buying and mortgages, but with interest rates being at all-time lows over the past few years, I feel like the talk about those things have picked up. Not only that, interest rates are likely going up this year so people are trying to get in before it’s too late. In this post, I want to talk about mortgages, how they work, and what happens when applying for a mortgage.

What’s a mortgage?

A mortgage is a loan you get from the bank or another lender to buy a house. When you submit an offer to buy a house, you’ll apply for a mortgage, and it’s a very involved process. More on that later.

In a mortgage, you’ll have options for what your term is. Your typical options are 15-year, 20-year, and 30-year.

You’ll also have to make a down payment. Current trends show that a lower down payment is pretty common. Depending on the type of loan, you can put down 3+%. And how much you put down matters. If you put down less than 20%, you’ll have to pay Primary Mortgage Insurance (PMI).

Here are the pieces of your typical mortgage payment – principal, interest, taxes and insurance, and PMI (if applicable). Taxes and insurance are commonly put in an escrow account and paid when they’re due by the lender.

Mortgage application process

From application to closing, it’s about 45-60 days. During that period, you’ll go through underwriting. In underwriting, they’ll have you submit documentation to confirm your credit report, annual income, current assets and liabilities, employment information, prior tax returns, among other things.

After you’ve cleared underwriting and they’ve confirmed everything, you’ll head to closing. At closing, you’ll sign a lot of papers. You’ll likely need to bring your checkbook with you as well.

There are closing costs associated with your mortgage. Some of these can be added to your total mortgage and some of them need to be paid. Closing costs are normally 3%-6% of the total mortgage and can include real estate commissions, taxes, insurance premiums, title fees, and record filing fees.

And if you’re buying, you’ll also need to write a check for the down payment.

Who gets a mortgage?

There is a slough of factors you need to meet when applying for a mortgage. Credit score matters. Usually, you’ll need at least a 620 credit score (all else being equal) to get a mortgage. Though the better the credit score, the better interest rate you’ll get.

The debt to income ratio needs to be under 50%. The lower the debt to income ratio (all else being equal) the more you can afford. If you have a 45% debt to income ratio and can afford a $250,000 mortgage, you’d probably be able to afford a $300,000 if your debt to income ratio is 25% (this is just an example, I didn’t do the math on this).

Condition of the home. With an FHA mortgage, they are a little pickier on the condition of your home. Usually, it’s just the outside of the home they’re picky with. Chipped paint is a typical thing they take issue with, so just be aware of that.

Applying for a mortgage is necessary for most people so it’s important you understand how they work.

Related reading:

Understanding 15-Year vs. 30-Year Mortgages in the USA

What to do when you’re one month behind on your mortgage

Why Financial Literacy is Important

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Are Medical Collections Still Relevant to Your Credit Score?

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Staying healthy can be surprisingly expensive. As a result, many households end up with large medical bills. At times, the bills pile up so high that paying them seems (or legitimately becomes) impossible, causing the household to default on the debt. When that happens, the account can end up in medical collections. If you’re wondering do medical collections still affect your credit score, here’s what you need to know.

How Medical Debt Impacts Your Credit

Medical debt doesn’t usually have an impact on your credit score as long as you are paying the bill on time every month. When that happens, most healthcare facilities don’t bother reporting the account to the major credit bureaus, so neither the amount you owe nor your payment history ends up in your file.

In some cases, even a late or missed payment or two doesn’t cause an issue. Typically, it’s only when you default on the debt and end up in medical collections that you put your credit at risk.

What Are Medical Collections?

Medical collections are a recovery process designed to help healthcare facilities secure payments on past-due medical debt. In some cases, the standard procedure involves selling the debts to a traditional collections agency. However, larger healthcare facilities may have internal collections departments that essentially serve the same function.

It’s important to note that internal collections teams can differ from the healthcare facility’s regular billing department. However, some may use a blended approach.

Do Medical Collections Still Affect Your Credit Score

Once a medical debt ends up in collections – either internally at the healthcare facility or by being sold to a debt collection agency – the default can end up on your credit report. Once it does, it has a similar impact to any other debt that is past due, including a negative impact on your credit score.

However, unlike traditional debts, medical collections don’t appear on your report right away. All three major credit bureaus have a grace period of 180 days, giving you time to resolve the debt before it ends up on your credit report and impacts your score.

Once the grace period passes, the account appears on your report. At that time, you’ll see a negative impact on your score, including potentially a drop of 100 points or more.

How to Avoid Medical Collections

Usually, the simplest way to avoid medical collections is to make payment arrangements. Many healthcare facilities offer payment plans, particularly for large balances. At some facilities, extended payment arrangements can be set up for free and may not involve any interest.

If you can pay most, but not all, of what you owe, the healthcare facility may be open to considering your account paid-in-full in exchange for that lump sum. This is particularly true if you can pay in cash, as some clinics and hospitals do offer discounts for that.

If you’re a low-income household, you may qualify for financial assistance through the healthcare facility as well. Many larger hospitals and clinic systems do have financial assistance programs available, though you typically have to ask about them directly. Request information about eligibility and, if you may qualify, see what you need to do to apply. With that, your balance may end up fully paid or significantly reduced, making it more manageable.

What to Do If Your Account Is in Medical Collections

If your debt is already in medical collections and is legitimately yours, paying it off is usually your best bet. For internal collections, contact the healthcare facility to see if you can work out payment arrangements. If the debt has been sent to an external collections agency, then you’ll need to work with them.

While paying off the debt won’t remove the account from your credit report, the account details will be updated to show that you ultimately ended up handling it. This can benefit your credit score.

If paying it genuinely isn’t feasible, then you need to do some research. Learn more about the statute of limitations on debt collection efforts based on where you live, as the rules can vary from one state to the next. Additionally, find out what kinds of actions reset the clock, as a seemingly innocuous statement on your end can potentially give a collections agency more time to pursue you.

It’s also important to note that, even when a collections agency can no longer attempt to collect the debt, it doesn’t disappear from your credit report right away. Instead, it can show up for up to seven years from the date the account originally became delinquent, causing long-term harm to your score.

How to Dispute Medical Debt That Isn’t Yours

Sometimes, a medical collections account appears on a credit report even though the debt doesn’t belong to that person. This is normally identity theft or administrative errors relating to the account.

If the medical debt isn’t yours, then you do have the ability to dispute it. Usually, the first step you’ll need to take is to contact the collections agency or healthcare facility. Do this by sending a certified letter and tell them you want them to validate that the debt is yours. Also say that, if they can’t provide validation within 30 days (or whatever is allowed by state law in your area), you want the account removed from your credit report.

You can also go another route. All three major credit bureaus have dispute procedures in place. Through those, you can provide information showing that the debt doesn’t belong to you and request it be removed from your report. However, this approach usually only yields results if you have proof of an error.  Which isn’t always easy to find.

While disputing a medical debt can be a lengthy process, it can be worth pursuing. That way, you can get the illegitimate account off your report. Thus, restoring your credit score along the way.

Do medical collections still affect your credit score to this day? Has there been an impact in your financial life in other ways due to a medical bill going to collections? Share your thoughts in the comments below.

Read More:

What Could Cause a Credit Score Drop of 100 Points?

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If you’re wondering why did my credit score drop, the answer may or may not be simple. There are a lot of actions and activities that could cause your credit score to tumble, at times dramatically. However, if you’re credit score fell by 100 points in a single moment, the list of potential reasons tends to be shorter. If you’re wondering why did my credit score drop 100 points, here are some possibilities.

[Read more…]

What Happens if Debt Is Sold to a Collection Agency?

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When debt is sold to a collection agency, it’s incredibly common to get upset and/or worried. Odds are, you’ll start getting calls, emails, and text messages about you paying what’s owed.

In today’s post, we’ll discuss what leads to debt going to collections, what to do, what the collections agency can do, and what happens to your credit.

Why does debt go to collections?

Debt goes into collections when you’re behind a certain period of time (usually 30+ days) on your payment.

The lender will either use their own debt collectors or hire a third party to collect. What might also happen is your debt is sold to a collection agency, where they buy the debt from the lender (at a reduced amount than what you actually owe) and then attempt to collect on that amount.

Mortgages

With regard to mortgages, there are certain time periods to keep in mind:

  • 1 – 15 days – Typical grace period. Your payment must be paid in this period.
  • 16 30 days – You’ll start getting reminders, and you’ll likely pay a small late fee. No damage to your credit.
  • 31 – 59 days – Reminder calls and letters will increase. Your credit will reflect your current late status and your credit score will fall.
  • 60 – 90 days – The reminder calls and letters will stop. Someone from your lender will come to your house.

Read more on this subject, here.

What to do when your debt is sold to a collection agency

Don’t ignore it. The best thing you can do is get ahead of it. Gather information about the debt in question. Have them send it to you in writing.

Contact the creditor. Dispute it if you believe there are inaccuracies, or if it’s just not your debt. If it is your debt and everything is accurate, try to negotiate with the lender – they prefer to receive some of what you owe!

If the collection agency is harassing you, submit a request in writing for them to stop.

What if you’re at your wit’s end and don’t know what to do? Hire an attorney. All correspondence, going forward, has to go through them. If anything, get a consultation from an attorney (which is often offered for free) and see what they recommend.

What can they do?

When it comes to collections and the law, there are a few things they can do and several things they can’t do. If you want to know more about that, click here.

Your credit

There are two important things to know when it comes to collections and your credit report.

  1. A collection (or a charge off) hurts your credit score. Not only that, but your payment history (number one factor when calculating your score) will no longer be 100%, and that’s damaging as well.
  2. A collection will stay on your credit report for 7 years. You can implement strategies to improve your score, but you’ll only be able to do so much while that collection is on there.

Having a debt sold to a collection agency isn’t the end of the world. There are several things you can do to rectify it, dispute, or recover from it.

Related reading:

What You Need To Know About Bankruptcy

Deep Dive Into Credit Cards

What Affects Your Credit Score

How People with Bad Credit Can Survive the Storm

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Credit ScoreThe upcoming storm of rising interest rates and increasing lender cautiousness makes life difficult for people with already bad credit ratings. In the coming year, you will have to tighten up and you will have to make a new start to get your credit rating back on track. Forget about the mistakes of the past and read our tips for how people with bad credit can survive the storm.

Don’t Cancel Your Credit Cards 

Do you have a spending bug you can’t seem to beat? The worst thing you can do is to cancel your credit cards. Unbelievably, this is a sign of panic and lenders will kick your credit score in the pants for doing it. The alternative is to leave these lines of credit open, but cut up the card. That way you’ve effectively closed your account without hurting your credit score.

Can You Kick a Debt Quick?

The reason why so many people have bad credit is spiraling debt. They get into a situation where they have so many bills coming in they can’t pay them all off and they barely remember who they owe and how much they have to pay.

Start the next year by hitting a debt right between the eyes. Get together a lump sum and pay off some debts in their entirety. This is a form of debt consolidation that will make it easier to rebuild your credit rating later on.

Talk to Your Lenders

It’s amazing how many borrowers won’t speak to the people who have leant them money. Nevertheless, this is a powerful tool in your resource. If you’re having problems paying your debts or rebuilding your credit rating, talk to these people. Tell them your difficulties.

They’ll often work out a different agreement to help you make your repayments. They don’t care about anything except getting their money back, so any chance to make a formal arrangement will be grasped with both hands.

Too Many Loans?

This is the first step. We’re not saying that you need to stop taking out all loans. You need some lines of credit if you’re going to rebuild your score. However, what people need to understand is that in the future lenders are going to be more stringent than ever before. Every rejected application leaves a stain on your credit record; therefore, you should only apply for loans you’re practically guaranteed to receive. A good choice might be a company like the scottishtrustdeed.co.uk where their focus is to help people find personal loans with bad credit.  Interest rates will be higher but again your best bet is to not apply for loans.

Get a “Bad Credit” Credit Card

Someone with bad credit has the problem of not being able to easily get any new lines of credit. They need a higher rating. This is where “bad credit” credit cards come in. These are types of cards designed specifically for people with bad credit.

Here are some characteristics of these cards:

  • Higher interest rates.
  • Lower limits.
  • Lack of choice.

As you can see, the upcoming debt storm isn’t a reason to panic. Keep a cool head and you should have no problems getting out of that pit of bad credit.

4 Guidelines for Paying Down That Credit Card Debt

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If you’re like me, then the past month or two of your life has involved getting your financial ducks in a row in order to file your taxes. Now that tax season is essentially over, it’s a good time to take a look at your credit card situation before you take a much-deserved break from obsessing over your finances. If you’ve got any significant credit card debt, then you’re probably thinking of the best strategy to go about paying off that debt. As a former victim of credit card debt, I know that drowning in debt is not fun, and often leaves you feeling trapped. However, I’m here to tell you that you can get that debt paid off, and it’s easier than you may think as long as you are responsible with your spending. In addition to being responsible, stick to the four guidelines below to get that debt paid off most effectively.

 

  1. Pay down your highest APR credit card debt first. This point is the most important, and should probably go without saying, but I’m going to say it anyway. If you have several different credit cards that you’ve accrued debt on, you need to pay off the balance that is charging you the most interest first. If you fail to get those high-interest credit card balances paid down, then you will find yourself falling deeper and deeper into the debt hole.
  2. Always make the minimum payment. Sometimes it may seem as if there is no end in sight to the debt you have accrued. Since I’ve personally been through this myself, I know that there is an end in sight. However, if you fail to make your minimum payments each month, your credit score is going to take a pretty significant hit so that even when you have all your debt paid off, you will end up with a poor credit score, which isn’t going to be useful when it comes time to buy a house or car. Generally, the minimum payment each month isn’t a huge amount of money, so do everything you can in order to get that minimum payment in.
  3. Consider a balance transfer. If you have a decent credit score but have accrued sizeable debt on credit cards that charge high interest rates, it may be in your best interest to consider a balance transfer in order to consolidate your debt onto a credit card with a 0% APR introductory period on balance transfers. Not all balance transfer credit cards are created equally, however, so you will want to make sure you compare credit cards so that you can find a card that offers a long 0% introductory APR period. The longer the intro period, the more time you have to get that debt paid off without accruing any interest.
  4. Get rid of debt before trying to save. Generally, the credit card debt you accrue will charge a much higher interest rate than the interest you will earn on cash that you save. While it’s always smart to have a small stockpile of cash for extreme emergencies, most of your income should go to paying down that debt. If you try to save most of your money before paying down that credit card debt, you’ll be stuck in debt for much longer than you need to be, as well as hurting your credit score.

 

This article was written by Logan Abbott. Logan is the editor of MyRatePlan.com, and a personal finance and credit card expert with over a decade of experience.

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