When is it Time to Refinance?

You've probably begun to receive the calls during the dinner hour - mortgage companies' telemarketers are out in force trying to convince you that now is the time to refinance, as interest rates continue to drop. But should you take the advice of a minimum-wage phone solicitor on how to handle the financing of your largest, most important asset - your house?

Obviously, more thought should go into the idea of refinancing your home. Like anything else, refinancing has its good points and bad. First of all, trying to predict the best time to refinance is like trying to predict a teenager's moods - impossible and slightly dangerous. But there are some gauges you can use to decide if refinancing makes sense for you.

Refinancing 101

There are myriad motives for refinancing your home mortgage, but the most common reasons to refinance are to lower your interest rate thereby lowering your monthly payment; to use your equity for home improvements or other large expenses; when interest rates are low, to lock in a constant interest rate if you have an adjustable rate mortgage (ARM); when rates are high, to convert to an ARM to lower monthly payments; if your mortgage has a balloon provision with no conversion option; and/or for debt consolidation.

Refinancing for debt consolidation can be tricky. The loans being consolidated may include second mortgages, credit lines, student loans, credit cards. In many of these cases, debt consolidation also carries with it tax savings, since mortgage interest is tax deductible and consumer interest is not.

While all the above refinancing reasons are legitimate and reasonable, there are many factors to consider. For instance, it will be identical to the process you underwent when securing your original mortgage - requiring an application, credit check, title search, etc. This process, as you already know, is time-consuming and often expensive. Refinancing is not free. There are bank fees, appraisal and inspection fees, lawyer's fees, points and closing costs, just like the first time around.

Calculating Your Savings

So how do you calculate what rate you need for refinancing to be worthwhile? The interest rate isn't the only thing to consider when shopping for a new loan. However, the general rule of thumb is that if you can get an interest rate at least two percentage points lower than what you are currently paying, refinancing will pay for itself.
Pull out a piece of paper and figure out:

1) your current monthly payment,
2) the original cost of the home;
3) an Itemization of refinancing costs,
4) your monthly payment after the refinance,
5) the length of time you plan to live in the house after the refinance,
6) the amount still owed on the house,
7) the break-even point (calculate this by dividing the total cost of the refinance by how much you'll save each month on your payment; for example: $2000 cost of refinance divided by $100 per month savings equals 20 months).

Depending on your ultimate goal in refinancing, the above numbers should give you a good idea of whether or not it makes sense. If it still looks like a jumble to you, there are many online "calculators" that can assist you in figuring out the pros and cons of refinancing. I have one on my web site at http://www.noelwheeler.com under Resource Center tab.

Plan carefully

If you want to refinance, it's a good idea to think and plan carefully before you do so. First rule: if you plan to pull out cash from your refinance to pay off credit card debt, close your credit card accounts (don't just cut up the cards) so you don't run them up again.

If you're pulling out cash to make home improvements, do them right away. It is very easy to fritter money away without realizing it, and to adjust to a higher standard of living - even a temporary one. If you're pulling out cash for any reason, consider not pulling out the maximum. Leave some equity in place for your security, to ensure a lower house payment, or in case of emergency.

Refinancing can be a boon - or a bust. It's up to you to do the homework and decide if it makes sense for you.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

The Truth about Credit Cleaning Companies

The internet has made so many goods and services available; it's hard to keep up. Books, music, stocks, education - and the latest internet pitch: "Remove poor credit from your credit report immediately and permanently!" Can it be true? Is it this simple? Is it legal? Is it expensive?

The answers: No. No. Definitely not. And absolutely
Ten state attorneys general offices, 29 better business bureaus, and the National Foundation for Credit Counseling recently went web surfing and found almost 200 web sites that make the above claims. Their objective was to examine the advertising claims of the companies. The Federal Trade Commission emailed the sites to let them know that they were under investigation, and that their claims may violate federal and state statutes. In the email, the FTC stated: "If your company engages in any deceptive or fraudulent credit repair activities, we strongly urge you to stop; otherwise, you may be subject to legal action."

According to the FTC, many of these so-called credit repair companies "guarantee" that they can expunge negative information from credit reports, even if the information is accurate and timely. Not only is this claim false, but it may cost clients hundreds, even thousands, of dollars - and place them in jeopardy of committing a felony.

The Tactics
The credit cleaners take advantage of a practice known as "spamming" - sending out thousands of unsolicited emails to unsuspecting consumers. Their pitches are hard to resist, with lines like "Erase your Bad Credit!" "You'll have new credit in no time," "Start over with a clean slate." "It's 100% LEGAL," or "It's not only legal, it's your right." What they don't tell you is that the only way to erase bad credit is with time and effort, and that what they propose is not only illegal, it's a felony with jail time.

Credit cleaners depend on people's desperation and lack of education. One of their most common "strategies": they advise their clients to apply for a new Social Security Number. Just so there's no misunderstanding here - it's against the law to apply for a new Social Security number to create a new identity, no exceptions.

Another scheme they advise is to obtain a federally issued nine-digit Employer Identification Number (EIN), or a Taxpayer ID number, and substitute that for your Social Security number. Again, this in effect illegally creates a new identity, which can be used to get credit cards and loans. Add to the above using internet phone lines for the transaction, and you'll be guilty of racketeering as well.

Less fraudulent - but no less unethical - ways the credit cleaners try to achieve their goals include inundating credit bureaus with dozens of letters, disputing all negative information on your credit report

By law, if a credit bureau does not respond to requests within 30 days, they must remove the disputed items from your credit report. The theory is that the bureau will be so busy answering all the frivolous claims that they won't be able to review them all and therefore default on the 30-day limit. In addition to its questionable morality, this tactic has been rendered ineffective by the credit cleaners' frequent use of it. Credit bureaus are now allowed to refuse or ignore frivolous requests from credit repair services - they automatically red flag bulk requests that refute each and every entry (even the good ones) on the report. And the fact is that the bureaus are practiced at determining whether bad marks on your report are bona fide.

Legal and Ethical Tactics You Can Do Yourself For Free
Credit cleaners claim that they can persuade credit bureaus to remove negative information from your credit report for a fee. What they don't tell you is that you can accomplish the same thing in the same way free of charge. How? Contact your creditor personally. The credit bureau cannot remove valid bad marks off your record unless told to do so by the creditor who put it there. Inaccurate negative info on your credit report can be removed easily with a simple phone call to the creditor. Be calm, respectful, and grateful, never aggressive or angry. Many times your creditor will work hard to help you. Even if you paid a bill late years ago, you may be able to convince them to remove the bad mark on your credit report, especially if there were mitigating circumstances.

New Law on the Books
As it happens, there is a new federal law, the Credit Repair Organizations Act (CROA), designed to help consumers combat fraudulent credit repair scams. Any credit cleaner that claims it can improve a consumer's credit report and charges for the service in advance is in violation of CROA, plain and simple.

Don't be taken in by the "quick and easy" pitches of credit repair companies. If it sounds too good to be true - it probably is. Brochures about credit repair schemes are available on the FTC's web site (www.ftc.gov) or by calling toll-free 1-877-382-4357.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Down Payment Grants

Want to buy a home but can't seem to get ahead enough to save for the down payment? What if you could snap your fingers and make money appear, specifically down payment money? Well, start snapping and say hello to down payment grant programs. Sound too good to be true? It's not. There are programs available to help deserving folk-people with decent credit and stable work histories-get a home without having to save up for years while pouring rent money down the drain. And even better-because they're grants, you never have to pay them back. More than 200,000 homebuyers nationwide have benefited from these programs. Nonprofit organizations like Partners in Charity and the Genesis Program provide from 1 to 10 percent down payments, up to $22,500. While the qualifications vary according to program, each program requires that buyers qualify for financing with their lender. Other requirements may include completing a Home Ownership Counseling course, or that the home buyer provides 1 percent of their own money. Sellers are sometimes asked to contribute as well. Sellers benefit as well from these programs. By broadening the pool of potential homebuyers, grant programs help sellers and lenders sell homes faster than they might otherwise with a smaller group of eligible buyers. In effect, down payment grant programs bring more buyers to the marketplace. As you might expect, many programs have income/asset restrictions, recapture clauses, reserves required or geographic boundaries. Down payment assistance programs generally participate with FHA, conforming and jumbo loan products, and can be used for single family homes, manufactured/modular home, condos, town homes, existing or new construction, rehab and jumbo. Most of the programs don't underwrite the loan or add any cost in the form of points or fees. They just provide the gift for the down payment and/or closing costs. Let's look at two of the programs:

Partners in Charity (PIC): Provides 2 to 10 percent down payment.

• No cash investment required of the buyer.
• No extra qualifying after mortgage lender approval.
• First, log on to www.partnersincharity.org and fill out an application
to be added to PIC's "Grant Reservation List.
• If you've already selected a lender, have them call PIC, who will explain
the program to them. Your lender will then determine the down payment you'll
need and will advise PIC of the amount.
• After pre-qualifying for a mortgage, we will work together to find a home
in your price range.
• The seller is required to participate in the PIC program, so it's important
that I explain it to them before making a fair offer.
• Your lender will send an appraiser to the property to make sure everything's
in working order and you didn't overbid on the house.
• After the appraiser submits the appraisal report to your lender, they'll
approve your mortgage and settle on an interest rate.
• Now your lender will request your gift from PIC. PIC will wire your gift to
the closing or escrow company prior to your closing.
• Once you move into your new home, all PIC wants in return is for you to
refer someone else to them who needs help with a house down payment.


The Genesis Program: This program is similar to PIC in that it provides homebuyers with free money to use toward down payments, closing costs and other funds needed to buy a house. You can receive up to $22,500, and like PIC, no lien is recorded against the home and you don't have to repay.

• Homebuyers are not required to provide any of their own money.
• Sellers are required to put up a contribution equal to the gift amount
provided by Genesis to the home buyer (1 percent of the contract sales price
or $750 whichever is less).
• Buyers are automatically qualified for a gift from Genesis if they purchase
a Participating Home (a home in which the seller has entered into a
participating home agreement with Genesis Housing Development Corp. The
Participating Home Agreement outlines the contribution the seller makes to
Genesis and its use.) and obtaining financing through an eligible loan
program (any single-family mortgage loan that allows charitable
organizations to provide gift funds to a buyer for use toward their down
payment and/or closing costs. FHA guidelines allow a gift from a charitable
organization as an acceptable source of borrowers “Funds to Close” (HUD
Handbook 4155.1, Rev-4, Chg-1, Para.2-10C.)

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/