Jonathan Caguioa Loan Officer, Whittier CA home loans

How to Pay off Debt Fast To Qualify for a Home Loan

Struggling to pay down or pay off debt? You're not alone. Most Americans are shouldering about $30k in debt from credit cards, school loans, or car loans. And if you want to buy a home, too much debt...

Struggling to pay down or pay off debt? You're not alone. Most Americans are shouldering about $30k in debt from credit cards, school loans, or car loans. And if you want to buy a home, too much debt can hinder mortgage approval. Fortunately, there are ways to get a handle on it. Check out this popular and effective method for quickly lowering your debt.

The Fastest Way to Get Rid of Debt and Get Approved for a Home Loan

The Debt Snowball Method

Changing habits is tough. But when you see that your efforts are making a difference, the chances are that you'll continue the course. That's the trick behind the "Snowball Method" for debt elimination --positive feedback.

The Snowball Method uses positive feedback to help you stick to your plan of paying off debt. Here's how that works: Conventional wisdom says to pay down the biggest debt first because it has the highest interest rate, and paying this one first will save you money in interest. However, reducing large debt happens at a snail's pace and it can be discouraging. This is the primary reason that many give up too soon.

With the snowball way, you focus on the shorter-term goal of paying off your smallest debt first. Since it's the easiest one to pay off, you'll get rid of the debt sooner, and the sense of achievement will motivate you to keep going.

How To Make The Snowball Method Work For You

All you need to do is make the minimum payment on all but your smallest debt. On the smallest debt, put as much towards the payment as your budget allows. Once it's paid off, work on to the next smallest debt, funneling the funds that you freed from the previous debt to tackle this new goal.

Let's look at an example with a school loan, car loan, medical bill, and credit card. First, list the amount owed from smallest to largest, such as:

Credit Card: $1,000
Medical: $7,000
Car: $12,000
School: $23,000

In this example, you'd start with paying off the credit card first, making the minimum payments on all other debts except the credit card. Let's say the minimum on the credit card is $65, but pay $100 until it's paid off.

Once you've paid off the credit card debt, you'd move onto the medical bill, rolling over the $100 you spent paying off the credit card into the medical bill payment. So your monthly medical bill payment would be the minimum PLUS $100.

Keep "snowballing" like this until all debt is demolished!

Why Snowballing Works

While it logically makes more financial sense to focus on eliminating the debt with the highest interest rate, emotionally, it's not as rewarding --and this is why many lose their motivation.

With the "snowballing," you rely less on willpower and more on the sense of accomplishment. This approach, as it turns out, is a lot more effective for sticking to goals.

Where to Find the Money to Eliminate Your Debt

If you're living paycheck-to-paycheck, you may be wondering where you can find the funds to add a little more to pay extra to your debt. Start by reviewing your regular spending and see if there are any areas that you can cut back --even if only temporarily --while you work on paying off debt. Also, see if there are ways to increase your income with a side hustle so you have more money to work with.

And remember that it's just as essential to avoid getting deeper into debt while working on paying down what you already owe. And of course, once you get out of debt, stay out.

You Don't Need To Be Debt-Free to Buy A Home!

Depending on how much you owe, it can take some time to get rid of your debt entirely. But that doesn't mean buying a home now is out of the question.

Your debt-to-income (DTI) is just one of the factors that determine your eligibility. Get straightforward answers from a local loan expert. Contact us to set up your free consultation.

Tricks for Removing Negative Information From Your Credit Report

Removing negative marks from your credit report isn't just for raising your credit score. It's also the key to getting approved for a home loan with a favorable interest rate. Use these strategies...

Removing negative marks from your credit report isn't just for raising your credit score. It's also the key to getting approved for a home loan with a favorable interest rate. Use these strategies to eliminate negative information from your credit report.

Did you know that there are loan programs specifically for those with less-than-perfect credit? Contact us to learn about your mortgage options and how you can qualify while rebuilding your credit!

How to Remove Negative Marks on Your Credit Report

Submit a Dispute to Credit Bureau - The Fair Credit Reporting Act is a Federal law that says you have a right to an accurate report and can dispute any errors. The easiest way to that is online, but you can also mail your dispute. When doing it online, make sure you submit the most recent copy of your credit report and also remember to submit a dispute with the credit bureau who provided that credit report. To do it via mail, write a letter describing the error and if you have any proof, submit those too. The credit bureau will investigate and remove the entry if they find an error.

Dispute it With the Creditor That Reported the Error - You can also bypass the bureaus and dispute directly with the creditor that reported it in the first place. Submit the dispute in writing as this requires them to do a thorough investigation, just like the credit bureau would do. If the business finds that they made a reporting error, they must notify all the credit bureaus to delete it from your credit report.

Send a "Pay for Delete" Offer to the Creditor - You'll need to use a different approach for removing negative but accurate marks on your report. A "pay-for-delete" offer is a tactic best for delinquent accounts. Essentially, you offer to pay the past due in full in return for removing the negative info from your credit report.

Request a "Goodwill Deletion" - If you've already paid the delinquent account (losing your negotiating power), you can still ask for mercy by requesting a "goodwill deletion." With this tactic, you contact the creditor, explain why you were late, remind them that you've been a long-time patron and that you've paid on-time in the past. Creditors aren't required to comply, but many times an empathetic associate is willing to help.

As a Last Resort, Wait - If none of the above work to remove the negative info from your report, the only thing left to do is wait for it to fall off. Fortunately, the most damaging information will show up for a max of seven years, except for bankruptcy, which can be reported for up to 10 years. Remember that as time passes and you add more positive credit activity, the negative info's adverse effects lessen.

What's New with Purchasing a Home in 2020

The coronavirus outbreak has changed certain aspects of home buying. In some ways, it’s become more challenging. However, in many ways, it’s actually improved. Here are some of the differences...

The coronavirus outbreak has changed certain aspects of home buying. In some ways, it’s become more challenging. However, in many ways, it’s actually improved. Here are some of the differences you'll notice about purchasing a home in 2020 and how to prepare for them.

2020 Homebuying Overview:

Qualifying credit score has risen for some lenders. Not a concern with most loan programs, but it's good to be aware of this change.
Minimum down payments are also increasing. Again, not applicable in most loan options.
Some areas have seen a slowing of available homes on the market. Fewer houses to choose from makes for a more competitive environment.
Record low rates have lured new buyers. Read below for information on beating competitive offers.
You've also likely seen a decline in open houses and a rise in virtual home tours.

Behind the scenes, the mortgage process has also changed:

Home inspections and appraisals. They may take longer to complete due to new safeguards.
Physical documentation for loan applications. Most (if not all) paperwork is eliminated, reducing backlogs and speeding up funding.
Remote closing opportunities are expanded. Ask us for details on how we've digitized the loan process for our borrowers.

Changes to Credit Score and Down Payment Requirements

Generally speaking, the minimum FICO score needed for a conventional loan was 620 before COVID --although federally-backed loans allow for much lower credit scores.

Post-pandemic and mainly in response to ambiguities in the market, several large lenders raised the minimum FICO requirement for new borrowers. Some lenders were also less flexible when it came to down payments under 20% of the purchase price.

What this means for you: Having your finances in order and getting in touch with a loan expert early on in the process is more important than ever. Ensure you get the most accurate information and have a plan for buying a home in 2020 by talking with a loan expert as soon as possible.

Scarcity of Available Homes and The Rush to Buy

Certain areas in our community already experienced shortages in homes for sale as compared to home buyers. This was further exasperated homeowners pausing the sale of their homes due to the pandemic. When we combine this situation with the flood of new buyers fueled by record-low mortgage rates, you can see how the competition is more fierce than before.

What this means for you: Don't let competition keep you from your homebuying goals! Home prices have fallen in many areas --making it possible to buy a home in an area that would've been out of reach before the pandemic. Get prequalified as soon as possible, and confidently (and aggressively) make a bid on your dream home.

Navigating the real estate market is more challenging in 2020, but with a mortgage expert like us by your side, you'll be sure to stay in the loop with the best possible deal. Contact us today to get started

Reverse Mortgage - Before You Consider It

Nobody hesitates to take out a mortgage to buy their home. So what is the controversy around Reverse Mortgages all about? Honestly, I don’t know. In the right situation, the benefits certainly...

Nobody hesitates to take out a mortgage to buy their home. So what is the controversy around Reverse Mortgages all about?

Honestly, I don’t know. In the right situation, the benefits certainly outweigh the drawbacks.

A reverse mortgage is simply a tool that may allow you to stay in your home, rent free, while using some of your money that bought that home in the first place. That being said, like any major financial decision, you want to do your homework before you determine if it is the right tool for you.

Below you'll find two things to like, one thing to hate, and five things you need to know about reverse mortgages.

Like:

1. Flexibility

A reverse mortgage gives you the ability to use home equity for “extras” such as an annual vacation, new car or home improvements. This flexibility comes from the ability to take out equity as a lump sum, fixed monthly payments, a line of credit, or any combination thereof.

2. Non recourse financing

This simply means the total amount owed can never exceed the current value of the home. When the home is sold, after paying off the reverse mortgage, remaining proceeds go to you and your estate.

Hate:

1. Sleazy sales tactics

If someone is trying to talk you into taking money out of your home to buy a financial product that will pay them a commission (such as an annuity), run for the hills.

Most people recommending such strategies are not financial planners. They are salespeople; one trick ponies, whose trick benefits them, not you.

There are times where it may make sense to use home equity to pursue other investments, but these strategies contain additional risk, and should only be used by sophisticated investors who fully understand and can afford the consequences.

Be aware of:

1. Moving after taking a reverse mortgage

Like any mortgage, there are origination fees and expenses incurred when taking a reverse mortgage. With a reverse mortgage rather than paying for these things out of pocket, the fees are just added to the balance of the loan. You want to amortize these expenses over the longest period possible.

If you plan on moving in the next 2-4 years, look for less expensive ways to borrow money before using a reverse mortgage.

2. Keeping the home in the family

Upon your death (or the second person to die if you are married) the reverse mortgage will have to be repaid. If there is not enough cash in your estate then your heirs may have to sell the property to pay off the loan.

If your intention is to keep the property in the family, you’ll want to make sure heirs will have the ability to pay off the loan, or refinance the property based on their credit application. Look out for yourself first though. Keeping the home in the family may be nice, but if a reverse mortgage could give you the extra income you need to be comfortable then maybe that is what you should do.

3. Status of the real estate market

The amount of money you receive depends on your age and the appraised value of your home. Taking a reverse mortgage when the real estate market is in a slump means you’ll qualify for less.

On the other hand, if you take a reverse mortgage when the market is booming, then later decide to sell your home in a down market, you may have little equity left.

4. Ownership responsibilities

You always retain title (ownership) of the home. Thus, you are responsible for taxes and insurance and must keep the home well maintained. This works the same way as any mortgage. If you don't pay your taxes, you'll be in trouble.

5. Eligibility for medicaid

Any proceeds you receive from a reverse mortgage are tax free - which is great. However funds received will count as an asset or as income and may affect your eligibility for Medicaid. Proceeds will not affect Social Security or Medicare Benefits.

By Dana Anspach Updated August 19, 2016

How Loan Amounts Affect Rates

How loan amounts affect mortgage rates

LOAN LIMITS FOR LOS ANGELES COUNTY & ORANGE COUNTY
Property Type	Conforming	High Balance
SFR	510,400	765.600
2 Units	653,550	980,325
3 Units	789,950	1,184,925
4 Units	981,700	1,473,550