Little things mean a lot

Posted: Nov 16, 2006 10:13 PM

The title, "Little Things Mean a Lot" was a great song in the 50's or thereabouts, and has a special place in most of our lives. When I was busy opening the presents in my house on a warm winter morning in late December (I was raised in Southern California), I remember my parents telling me "great things come in small packages". I needn't have to tell you that most of my packages were small, and most of my brother's were large.

When I was in high school the coaches would say "a little more effort and you will be playing first string". I gave them everything I had and in just three short years, they were correct. We were all told about little secrets, little crushes, and little white lies, and in the end it added up to a little fun, a little pain and a part of life I, for one, was ready to move past.

The problem I found is that little things are always popping up to screw up a perfect plan, a great golf game, the start of a long awaited vacation, a well anticipated raise at work and a myriad of other things we so hoped to enjoy. Some tend to blame these little inconveniences on Murphy's law, but I don't think Murphy had anything to do with the problem. I say it is just life -- something we all have to deal with.

Let's take a look at some of the little things that can affect you when it comes to my industry, the mortgage business. Consider the value of your home. At any given time, it can change based on the value of the properties that have sold in the neighborhood within the past three months. We compare them to your size and configured house: same square feet, same room count, same size lot and same amenities. The problem is not your house, but what sells in the neighborhood when you want to get the loan. You may have had the sufficient value based on houses that sold six months to a year ago, but those sales are too old to be allowed in the appraisal for value. If you had decided to act a few months earlier, you would have been okay. But today you may be a little too late. The appraisal isn't coming in at the needed value. How many times have I heard "I am only shy of the needed value because the comps are just a little old".

On the other side of the coin, many people have 30 day lates on their credit report and admit they had to pay the late fee and they were late. Their credit score has gone down and the loan they desire is not looking too good. If it is due on the 1st of the month and you pay it on the 29th of the month, you are not 30 days late. This derogatory late must be removed from your credit report, and will be with a copy of the cancelled check. I am very aware of where we are in each month when reading someone's credit report, and if I see a 30 day late for the current month which has 10 days to go, I will contact the borrower. Most people let it go, but I don't. Send me the cancelled check and it will be fixed.

Many people have credit problems and face the same situation each day when it comes to their home financing. They have a decent first mortgage and a significant amount of other debt which costs too much and has a number of late payments associated with it. Their credit scores have dropped into the 500 range and they wish to clean it all up with a second mortgage or preferably a home equity line of credit. They are a little late. Once your credit drops under the low 600 range it is very hard to get a second mortgage of any kind. If you can get one, it will be more than a little high in rate. Generally, your only option is to refinance with a sub prime loan into a new first. Even though the rate will most likely be higher, the overall payments should be significantly lower. How could that be? Your other debt payments are much higher than the mortgage payments.

Some people will write to me and tell me I am enabling those with poor credit to not face their problem. I am more or less letting them escape their punishment. Actually I am helping them clean up their credit, raise their credit score and subsequently allowing them to lower their borrowing costs so they can eventually retire their debt much faster. While some wish for a penalty to the "wayward borrower", I am always looking for a solution.

Another area where people short change themselves is not realizing that first and second mortgages, especially 30 year fixed loans, can be refinanced with little change to their payment to at least a 20 year fixed, if not a 15 year, and can be refinanced into one loan. The payment change will be small, the savings could be very large.

One late payment, which seems like a little mistake, in reality can cost you up to 100 points on your credit score. The loss will usually take up to a year to make up, so make sure to make your payments on time. If you have a late payment on your mortgage, you are precluded from being an "A" borrower for a year, and two years if it is a 60 day late. Even if you have a good credit score late in the first year, or in the second year after the 60 day late, you still will probably not be able to get the best rates. Lenders are not amused by people who cannot make their payment on time. Lates on other types of payments do not seem to bother lenders as much.

A little notice to the unsuspecting can save you aggravation and money. Once again, I have only touched the surface of areas where borrowers need to know the consequences of their actions or inactions. But I only have a little time and space to help, so I picked the ones that can have significance to most people. Your questions are always welcome, as I learn as much from them as you might from my answers.