Advertiser Disclosure

News

7 Ways to Reduce Stress When Shopping For a Mortgage

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

iStock

In today’s hot real estate market, finding a house you can afford can be a major challenge. But finding a house isn’t the only frustrating thing about house-hunting. Finding the right mortgage to buy the house may be even more complex, overwhelming and stressful. That said, if you’re going to buy a house, you’ll probably need one, and making the right decision on your home loan can save you money for years to come.

Here’s how to find the right mortgage while keeping your stress level in check.

Knowing your budget

Before you start looking for you dream house, it’s important to figure out how your monthly mortgage payments will affect your budget. “Don’t let a lender or broker talk you into a loan that is more than you’re comfortable with,” said Kim Anderson, a financial advisor with Rooted Planning Group, based in Fargo, N.D. “The monthly payment shouldn’t be so great that [a person] can’t save for retirement or college or vacations or whatever else is important to them.”

In the long run, focusing your search on houses you can easily afford may be one of the best ways to reduce the overall stress of buying a home and taking out a mortgage. Mike Caligiuri, a Columbus, Ohio-based financial planner explained, “When people see that they can buy a house and still become financially independent, it takes a lot of the stress away.”

Not sure how much house you can afford? Consider using an affordability calculator to help you plan before you start shopping. But remember, this calculator will show you the top end of your budget. It may make sense to buy less house and have smaller payments.

Shopping for a mortgage before you make an offer

One of the most stressful times to shop for a mortgage is when you already have an accepted offer on a house. Once you have an accepted offer you have a lot of financing work to do. You have to find a lender, decide on a mortgage and submit all your loan documentation. Then the lender has to put the loan through underwriting. All this work doesn’t leave much time for shopping for the best rate. Matthew Broom, an Atlanta-based financial planner explained, “If you want to be able to act quickly when you find a home you love, you need to begin preparing long in advance. That includes getting preapproval from multiple lenders.”

During the preapproval process, some lenders allow you to “lock-in” an interest rate for a period of time. But even if you can’t lock in a rate, getting preapproved can help you shop for a house with confidence.

Ian Bloom, a CFP with Open World Financial Planning in Raleigh, N.C., advises clients to, “be upfront with the lenders, and tell them what you want. Explain that you don’t want the financing part of the process to be a problem. The lenders are salespeople, and they should want to earn your business.”

Looking at mortgages you understand

One major source of mortgage-shopping stress can be the complexity of mortgage products. To reduce that stress, only consider mortgage products you really understand. “Unless you’ve got a good reason [to choose another mortgage], I think a plain vanilla, 30-year fixed rate mortgage is a great choice,” Bloom said.

Of course, you may have a good reason to choose a 15-year fixed rate mortgage, a construction loan or some other unique loan. But if you’re planning to live in your house a long time, it’s tough to go wrong with a mortgage where your payments will stay the same for thirty years.

Starting your mortgage search online

When it comes to finding the best rate on your mortgage, consider starting your search online. It’s especially important not to assume you’ll get the best interest rate by walking into a local bank or credit union. Caligiuri told MagnifyMoney, “There are online mortgage companies that give substantially better rates than your local banks. You’ll get the best rates by comparing lenders”. He also emphasized that online mortgage comparison tools may help you get to the best deals more quickly. ”If Expedia works for travel, why wouldn’t you use the same type of technology for a bank loan?” Caligiuri posited.

Comparison shopping online is a great way to find the best rates without the pressure of a salesperson pushing you to make a decision. When you do start speaking directly with a lender, be sure to mention that you’re comparing lenders. This may encourage them to offer their best rates right away.

Having your documentation ready

Some lenders will require a lot of documentation from you before you can officially complete your application. Expect to provide bank statements, W-2 forms, recent pay stubs, tax returns, evidence of your current rent or house payment and proof of identification. Instead of waiting for instructions from a lender, gather all of these documents into a single electronic (or physical) file folder. Then you can send copies as the loan officer requests them.

Once you’ve officially applied at a lender, the lender will give you a written loan estimate within three days. The loan estimate isn’t an official loan offer. But having an estimate in hand can dramatically reduce your stress. Plus, the loan estimate shows the important numbers to understand, like your loan APR and the monthly payments.

Asking for time to review your loan estimate

When you have a loan estimate in hand, a lender may push you to put down a refundable deposit to lock in a loan rate. They are understandably eager to close a deal with you, but the lender’s timeline isn’t your timeline. Do not put any money down until you’ve had the opportunity to review loan estimates from multiple lenders.

Instead of making a hasty decision, ask the lender for a day or two to review the loan estimate and compare it to other offers. Then, take advantage of the time to review the loan estimates.

When you’re comparing offers, focus on the APR (Annual Percentage Rate). The interest rate tells you the cost of borrowing money, but it doesn’t include the fees. APR, on the other hand, includes the total cost of the loan. Caligiuri explains, “The APR bakes in all the costs and fees of borrowing. It’s really the most important number to consider.”

Borrowers should pay attention to upfront costs (such as discount points or mortgage origination fees) to be sure they have the cash on hand to cover the fees. But if you have enough cash to close the loan, then the APR number will tell you which loan is the best deal. You want to choose the loan with the lowest APR.

Working with a lender that makes you feel comfortable

While comparing rates and fees is important, choosing the lowest cost loan might not always be in your best interest. “I tell clients to compare rates with two or three different lenders, but to choose the person who is easiest to work with,” said Bloom. “You’ll probably make a better decision when you work with someone who doesn’t stress you out.”

If you want to work with a lender that didn’t offer you the best rate, ask if they have a rate matching policy. Some lenders will match the written offers from other lenders. Even if the lender doesn’t match rates, you may want to choose a lender for reasons other than the loan cost. The right lender should make you feel confident in your decision, and the more comfortable you feel, the happier you’ll be in the long run.

Bottom line

Taking out a mortgage is a huge financial commitment. You want to make a decision about the loan with as little frustration and outside pressure as possible. By giving yourself a long timeline, preparing your budget and understanding the loan, you maximize your chances of success while minimizing your overall stress.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Advertiser Disclosure

College Students and Recent Grads

Beware of Auto Defaults on Private Student Loans

iStock

When a tragedy befalls a loved one, the last thing you want to hear is more bad news. But unfortunately, some private student loan lenders have a policy called “auto default” that can turn bad news even worse.

According to the Consumer Finance Protection Bureau (CFPB), a private student loan can go into default if a responsible borrower’s cosigner undergoes bankruptcy or dies. The borrower may wind up with the shocking revelation that they need to pay the entire balance of the loan within 30 days or risk having a defaulted private student loan. This is known as auto default.

Like all loan defaults, auto default can destroy your credit and make it difficult to access loans, rent an apartment or even get a new job.

Such a lending policy seems arbitrary and unprofitable, but it exists. In March 2016, the CFPB reported that their examiners put a stop to unfair auto defaults from one or more servicers because their loan contracts were ambiguous.

If you’re a borrower with private loans, these are the facts about auto default that you need to know.

How private student loans enter auto default

More than 90% of private student loans require a cosigner to back the loan, according to a 2017 CFPB report. Cosigners enable you to access lower interest rates and greater amounts, since the cosigners promise to pay back the loan if you default.

Because private loans are contingent upon cosigner creditworthiness, many lenders retain clauses that allow banks to call a loan in full if the cosigner goes into bankruptcy or dies. Although some banks say they do not intend to trigger this option, the CFPB reports that many exercise this option when the loan has been sold or is part of a securitization trust.

Depending on the circumstances, however, calling the loan may be illegal. However, you may feel there’s little recourse when you’re told your loans must be paid within 30 days.

How to prevent auto default

The best way to prevent an auto default on your private student loan is to release your cosigner as soon as you are able to do so. Many student loan servicers allow cosigners to be released from a loan after a certain number of on-time payments or with a qualifying credit score. But unfortunately, the Consumer Federal Protection Board found in 2015 that more than 90% of all attempts to release private student loan cosigners were rejected.

As a result, the CFPB recommends using its sample letter to write to your lender and ensure that you receive complete information about your eligibility to release your cosigner. In particular, if your cosigner is in poor health or has financial trouble, you should double down on your efforts to release them.

If you are ineligible for a cosigner release, you should have the option to change cosigners if you believe that your current cosigner puts your credit score or payment schedule at risk. But note that eligibility requirements for changing cosigners vary from lender to lender and even from contract to contract.

Often, the best way to release a cosigner from a private student loan is to modify the loan or refinance it. Private student loans are notoriously difficult to modify, but refinancing with a different company may be possible for people with good to excellent credit.

What to do if you enter auto default on your private student loans

Though the CFPB has proposed legislation to make lending practices more transparent, you must act quickly if your private student loan is in default, lest it destroy your credit.

If a collections agent informs you that your loan is in default, you should request a verification of debt. The collector must provide information about the loan balance and the original lender, and you can then use that information to reach out to the lender directly. Do not attempt to negotiate with the collector, unless you’re prepared to pay the sum since they cannot restore your credit.

If the bank informs you about the auto default, then you should contact them to attempt to reverse the default and modify the loan. Under many circumstances, both the borrower and the bank are likely to come to the conclusion that modifying the loan may be in the best interest of both parties.

Once you are in contact with a bank, then you should propose mutually beneficial solutions like modifying a loan to include a cosigner release option, allowing for a period of time to find a new cosigner or enabling a refinance.

If you cannot convince the private lender to modify a loan and reverse a default, then you should submit a complaint to the CFPB. The bureau is tasked at working on behalf of consumers to ensure prompt responses and resolution.

In some cases, the CFPB can work quickly enough for you to avoid default. However, if you are put into auto default, then you will need to clean up your credit. To determine whether anything needs to be done, first check your credit score, and then access your full credit report (available for free at AnnualCreditReport.com) to see if there are any negative marks on there. If the student loan entered default, then that will be present on the credit report, and the CFPB can work with you and the lender to be sure that the negative information is removed.

Will auto defaults stop?

Even with proposed reforms in the private student lending market, you remain at risk for auto defaults as long as you have a cosigner on your loan. The best way you can protect yourself from an auto default is by removing your cosigner or refinancing your loans without a cosigner.

The CFPB works to protect consumers through action and reform, but you put yourself in a stronger position when you proactively work to avoid lending practices such as auto default.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Disclaimer

Student Loan
earnest

Refinance with Earnest

Refinancing rates from 1.89% APR. Checking your rates won’t affect your credit score.

Advertiser Disclosure

Building Credit

How to Successfully Repair Your Credit All By Yourself

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Digging yourself out of a bad credit hole is something you can get professional assistance with, but you can also make significant improvements on your own. This guide provides helpful tips on how to spot credit repair scams, how to fix bad information on your credit report, how to boost your credit score and more.

In this guide

What is negative credit information?

Negative credit information is anything that causes creditors to consider you a riskier borrower, including late payments, accounts in collections, foreclosures, bankruptcy and tax liens. Once negative credit information is introduced into your credit history, you cannot remove it on your own. However, time heals all wounds. The longer it’s been since the negative information was introduced, the less it will affect your credit score. In time, negative information falls off your credit history.

This list details the length of time that negative credit information affects your credit score:

Late payments: Seven years
Bankruptcies: Seven years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies
Foreclosures: Seven years
Collections: Generally, about Seven years, depending upon the age of the debt being collected
Public record: Generally, about Seven years, although unpaid tax liens can remain indefinitely (always pay the tax man first!)

Rather than despair over negative information, take action to improve your score.

The best way to improve your score is to have good behavior reported every  month. For example, you can apply for a secured credit card, which requires that you make a refundable deposit in exchange for a credit limit, typically at least $200. Then, use the card monthly. Charge no more than 10% of the available credit limit, and pay the balance in full and on time every month. Your credit score should improve as your negative information ages and your credit report fills with positive information.

How to spot a credit repair scam

Credit repair scammers prey on people who are desperate to remove negative credit information and improve their credit score. Engaging with these scammers won’t improve your credit and may also lead you into legal hot water.

The signs below indicate that a credit repair company is a scam:

  • The company wants you to pay before it provides a service.
  • The company recommends that you don’t contact any credit reporting agencies directly.
  • The company tells you it can get rid of negative credit information in your credit report, even if that information is accurate.
  • The company advises you to dispute all information in your credit report, regardless of its accuracy or timeliness.
  • The company suggests you create a new credit identity.

Companies that want you to lie about credit history or create a new credit identity can get you into legal trouble. Companies that provide “new” identifying information may use stolen Social Security numbers, and if you use this number, then you are committing fraud. Likewise, using an Employee Identification Number or Credit Profile Number provided by these companies is a crime. Rather than committing fraud, take the steps below to improve credit on your own.

Assess your credit history for free

You are entitled to receive one free credit report from each of the three major credit reporting bureaus (Experian, Equifax and TransUnion) every year. These credit reporting agencies keep detailed records of your credit history. Assessing your credit involves three simple steps:

  1. Download a free copy of all three credit reports.
  2. Review the credit report to find errors.
  3. Prepare a list of items you need to dispute.

Download free credit reports

AnnualCreditReport.com is a website sponsored by the three major credit reporting bureaus, and they are required to provide you with a full credit report every year. The first time that you assess your credit history, download a report from each of the major credit bureaus by following these steps.

Step one: Visit AnnualCreditReport.com and click on the “Request yours now!” link at the top of the page (in red) or the “Request your free credit reports” red box at the bottom of the page.

Step two: Follow the three-step instructions on the website. Download credit reports from all three bureaus, because a mistake may be listed only at one bureau.

Once you’ve filled out the form and requested reports from all three bureaus, you’ll answer some security questions and be directed to your report, one agency at a time. If the security questions trip you up, the website will lock you out of your report, but it will offer a phone number you can call to get your credit report via mail.

Keep in mind that you do not have to access all three credit bureau reports at the same time. If you prefer, you can space out this access over the year. So, for example, you can request a report from Experian in March, then TransUnion in June and Equifax in September.

After the bureau authenticates you, you’ll be directed to your credit report. In the next step, we’ll show you what you need to review.

Review your credit report

Review every credit reporting agency’s credit report in detail. Each report has the following sections: Credit Summary, Accounts (includes payment history), Inquiries and Negative Information. Reviewing each section can help you understand the source of a poor credit score, and if your report contains errors.

When you review your credit report, you will need to visit each section of your credit report, and keep notes about erroneous information. Remember, there are three bureaus, so you need to repeat this process for all three reports.

The next section details what you should should note.

Take notes

Accounts section
The accounts section contains a detailed history of all accounts (open and closed), your balance and your payment history associated with each account. You should be able to see month-by-month payment information for seven years of history. Each month will have a symbol next to it that indicates whether the account was paid as expected or if it was late.

Review each account, the balance and the payment history, and ask these questions:

  • Do you recognize all of the accounts on your credit report?
  • Are all your closed accounts noted as closed?
  • Does each account have the appropriate account balance listed?
  • Is your payment history accurate?

If you see missed payments that shouldn’t have been there, write them down. Your credit score is negatively impacted when you are 30 days or more past due. If you see a balance on a card that you haven’t used in years, it could be because the account has been stolen. Misinformation in the accounts section harms your credit score, so make a note of all of it.

For your own records, you should also take note of the following:

  • What is my current balance relative to my available credit (credit utilization)?
  • Do I have any open accounts that have associated late payments?

Resolving these issues can help you improve your credit score moving forward.

Credit inquiries

Credit inquiries are records of new credit for which you’ve applied. For example, if you apply for a new credit card, a car loan or a mortgage, you will see records of credit inquiries.

  • Do you recognize all the inquiries on your credit report?

If someone steals your identity and tries to apply for new credit in your name, an unrecognizable credit inquiry is usually the first sign of a problem. Make a note of any unrecognizable credit inquiries.

You will also want to take note if you see many credit inquiries where you did not receive the line of credit you wanted. Credit inquiries have a slight negative effect on your credit score, so if you’re applying for a lot of credit, you may need to slow down until your credit score improves.

Negative information

Negative information includes negative accounts, collections or public records. Negative information has the biggest impact on your credit score.

  • Do you recognize all of the negative information on your credit report?

If the negative information in your account is not accurate, you will need to contact the credit bureaus to correct it.

Negative information hurts your credit score, but as it gets older, the effect lessens. Take note of all accurate negative information, so you can follow our strategy to avoid it in the future.

Next steps

If all the information in your credit report is correct, learn how to monitor your credit score for free and how to improve your score.

On the other hand, if you don’t recognize all the information, you will need to take steps to remove incorrect information. And if your identity has been stolen, there will be even more steps required.

Resolve incorrect information on your report

Incorrect information appears on your report for four reasons:

  • Someone stole your identity and opened new accounts in your name.
  • Someone stole one of your existing accounts, and started using it.
  • The bank made an error and reported a delinquency or default that never happened.
  • A collection agency made an error and reported a collection item on debt that was never yours.

If someone stole your identity

Incorrect information due to identity theft is a serious issue that you need to resolve as soon as possible. These are some common signs of identity theft:

  • You don’t get your bills or other mail because someone has changed the mailing address on your accounts.
  • Debt collectors call you about debts that aren’t yours.
  • Medical providers bill you for services you didn’t use.
  • Your health plan rejects your legitimate medical claims because records show you’ve reached your benefits limit.
  • The IRS notifies you that more than one tax return was filed in your name.
  • You are arrested for a crime someone else allegedly committed in your name.

Warning: A common form of identity theft is when a family member steals your Social Security number and uses it to apply for credit.

You can start to resolve identity theft issues by visiting www.identitytheft.gov to report identity theft and get a recovery plan. This is an excellent, free website created by the Federal Trade Commission. In addition to reporting identity theft, you will receive a free action plan, and you’ll gain access to people who can guide you through the identity resolution process.

Below we detail some important action items you can take.

  1. Place a fraud alert on your account with the credit reporting agencies by calling each credit bureau (numbers below).
    • Equifax: 1-800-525-6285
    • Experian: 1-888-397-3742
    • TransUnion: 1-800-680-7289
  2. Put a freeze on your credit reports. A freeze blocks potential creditors from getting access to your credit report, making it less likely an identity thief can open new accounts in your name.
  3. Create an Identity Theft Report by submitting a complaint about the theft to the FTC and filing a police report.

If someone stole your account

If someone stole the account information of an existing account, you should immediately contact your bank or credit card company. Once you report your card as lost or stolen, the bank will typically reissue a new card and correct information on the credit report directly.

Dispute credit report errors

If you do not think you were the victim of identity theft, but believe there is incorrect information on your credit report, you can dispute the information directly with the credit reporting agencies. We will explain how.

Disputing incorrect information involves three steps:

  • Dispute the item online with each credit reporting agency.
  • Write a letter to each credit reporting agency, and keep copies of your correspondence.
  • Write a letter to each organization (bank, collection agency, credit union, etc.) that submitted incorrect information, and keep copies of those letters.

When you dispute incorrect information, you must keep a copy of your mailed correspondence in case the issue does not get resolved right away. Keeping copies of your correspondence will allow you to get help from the Consumer Federal Protection Bureau if necessary. Your dispute should include all of the following:

  • A copy of your report.
  • Specific information about what is incorrect.
  • Any documents that support your position.
  • An explicit request to remove or correct incorrect information.

If you need to dispute information, download the following step-by-step instructions and letter templates that will make disputing incorrect information as pain free as possible.

Download now

Reporting to debt collections agencies can be trickier, as collection agents are more aggressive in their tactics. The Consumer Federal Protection Bureau has a letter template you can use to make it clear that you do not owe the debt.

Download Letter Template Now

After you dispute the incorrect information, you will need to follow up to be sure  the information gets resolved.

If following the steps above seems daunting, some organizations specialize in paid credit repair services. Most of the services require a monthly subscription fee between $60-$100 per month, and most reviews report that the negative items are completely removed within three to five months. Despite the high cost, legitimate companies provide a valuable service if you’ve been the victim of identity theft and you want someone else to do the work for you.

Follow up on disputes

Once you register your dispute with the credit reporting agencies, they must investigate the item in question within 30 days, and they must forward all the relevant data you provide about the inaccuracy to the organization that provided the information.

If the information provider finds the disputed information is inaccurate, it must notify all three nationwide credit reporting companies so they can correct the information in your file.

When the investigation is complete, the credit reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. This free report does not count as your annual free report.

If you ask, the credit reporting company must send notices of any corrections to anyone who received your report over the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

What if my dispute isn’t resolved?

If an investigation doesn’t resolve your dispute with the credit reporting company, you can request that a statement of the dispute be included in your file and in future reports. You can also ask the credit reporting company to provide a statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service, and a dispute on your credit report does not improve your credit score.

Do I have any other options?

If you are unhappy with the way your case was investigated by the credit reporting agencies, you don’t have to give up. Instead, you can complain to the Consumer Financial Protection Bureau (CFPB).

When you complain to the CFPB, you can should provide copies of all of your correspondence to prove your case. The CFPB will reach out to the credit reporting agencies on your behalf and try to help get your situation resolved. At MagnifyMoney, we have worked with many people who have had good outcomes working with the CFPB.

Monitoring your credit score

In order to catch issues, and stay on top of your credit score, you should implement a credit monitoring strategy. You can monitor your credit for free with LendingTree, MagnifyMoney’s parent company. Keep in mind that LendingTree uses VantageScore, which is slightly different than the FICO score, although it has the same score range.

If you prefer more monitoring and additional credit protection, you can pay a fee for services that provide daily three-bureau credit monitoring, resolution assistance if your identity is stolen and insurance if you have to engage in a legal battle. This guide ranks the top identity theft protection services.

Whether you choose a free or paid version, credit monitoring is a great service. As soon as you detect suspicious activity, you can take action. The sooner you work to deal with issues in your credit report, the less the damage may be.

Improve your credit score

Once you resolve issues on your credit report, it’s time to implement a strategy to start improving your credit score. The single best thing that you can do to improve your credit score is to pay current accounts on time and in full every  month. You can picture it as burying negative information under a mountain of positive credit information.

Your top priority should be keeping accounts current. Continue to pay whatever account has the most positive information.

Your next priority should be keeping accounts out of collections. If you owe late payments, work to pay them back before the item goes into collections. Once these accounts are current, they will start to work positively toward your score.

Next, work on paying down your debt to provide positive information. Paying off installment credit (such as mortgages and car loans) will  also add good information to your credit report.

If you have no current accounts, consider taking out a secured credit card and using less than 10% of the available credit each month to add positive information to your report.

The last thing you should do is attempt to resolve debts in collections. Once an item is in collections, paying it off will not improve your credit score.

Going forward, take care to avoid taking on more debt than you can handle, and implement a strategy to pay down your debt quickly. Once you start making positive changes, your credit score should improve, and within a few years, you’re likely to have good credit and be a more desirable loan applicant.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Get Personal Loan Offers
Up to $50,000

$

Won’t impact your credit score