#AskanExpert: Does my Income-Based Repayment Affect My Husband Buying a Home?

February 17, 2020CreditBy toptierfinancial

Q. Hi! I have some questions about my student loan. I have the regular federal student loans and I already graduated. We are married filing jointly. I’m going to make my first standard payment of my student loan, but I am interested in applying for an income-based repayment(IBR) program and they already sent me the form to apply and placed me in a forbearance. My husband doesn’t have any student loans. We really need a home and my husband wants to apply for a mortgage in order to buy one.

But my question is, that since he needs to sign the IBR form, is his credit going to be hurt? Is his credit report is going to show the balance of my student loan? How is my income-based repayment going to affect his eligibility of the mortgage? Can I exit the IBR plan at any time?

Dear Reader,

Congratulations on the exciting prospect of buying a house with your husband. The first step toward homeownership is getting your finances in order to determine what kind of housing you can afford together. And I commend you for taking an additional step to explore your student loan repayment strategy in order to ensure you will be able to make your mortgage payments in the future.

If your husband is applying for the mortgage by himself, only his debts and credit report will be reviewed on the mortgage application. Your loans and any credit that you have taken out on your own will not affect your husband unless he is a cosigner. With that in mind, you can rest assured that his credit won’t be affected when you sign for an Income Based Repayment Plan and none of your student loan information will appear on his credit file. The only reason he is required to sign your IBR is because you are a married and filing your taxes together. This type of income-driven repayment plan uses the combined gross household income, that is your income plus your husband’s before taxes, to calculate your new student loan payment.

Generally, you can change your IBR to any other income-driven plan at any time as long as you qualify. And to better address your question of whether you should stay on the standard plan or move forward with your IBR, it really depends on your overall financial situation and your combined income. I suggest that before you make a commitment to sign for an IBR, you talk to an NFCC certified credit counselor to explore additional income-driven repayment options such as Pay as You Earn (PAYE) or the Revised Pay As You Earn (REPAY). Under your IBR, your payment will be roughly 15% of your discretionary income while under REPAY it will be capped at 10%. The math can get tricky, so I recommended you use online calculators or talk to an expert to have a more realistic estimate of what your payments could be under each plan.

As far as your husband applying for a mortgage on his own, he needs to get ready because lenders look beyond credit histories and credit scores. They will ask for your last tax returns and assess your husband’s risk based on all this information. And since he is applying on his own, only his income will be considered during the lending decision. If you were applying together, the income would increase, but then your credit and debts would be factored in as part of the decision, which could negatively impact his loan eligibility. If you feel that you and your husband need additional assistance, there are plenty of resources and programs to help first time home buyers achieve the big dream of homeownership. Explore the resources in your community and the NFCC and get ready for one of the biggest investments in your life. Good luck!

Sincerely, 

Bruce McClary, Vice President of Communications

Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

 

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How Can a Couple Save for Their First Home Purchase?

February 11, 2020CreditBy toptierfinancial

The purchase of their first home is a milestone for any couple — largely because it often takes so long to get there. So many variables are involved that it’s almost impossible to know where to start. Besides, there’s already planning for many other expenses on top of this, from student loans to new cars.

Luckily, with a few tips and tricks, couples can make this dream a reality. Here are a few ways you and your significant other can start to save for your first home.

Communication Is Key in a Relationship

Too often, couples don’t talk about their finances. In fact, a 2018 survey of over 1,000 couples found 38% of respondents didn’t know about their partner’s debts or assets. This lack of communication can cause immense stress, which then leads to arguments and fights.

Not a pretty picture, right? This why consistent, non-judgmental conversation is crucial when buying a home. You want to be open and honest with your partner so that you’re always on the same page. Talk about how much each of you makes, what you have saved and if you owe any debt.

This is also the perfect time to discuss general expectations related to finances. If your significant other wants to buy a new purse, do they need to let you know beforehand? Every couple is different, but the importance of communication remains the same.

Decide on Your Dream Home Qualities

When you can clearly envision the home you want to buy, it’s much easier to save. Create a list of needs and wants for your future house – is it more important to have a finished basement or a large backyard? What neighborhood is best for you? Answering these questions will help you narrow down your search so that you can save your time or money.

Afterward, look at each of your credit scores and start to shop around for mortgage rates. Once you know roughly what your first home will cost, you can save appropriately and apply for the right amount of assistance. Try not to go in blind – in this scenario, preparation is essential.

Track Your Expenses

Even if you don’t plan to buy a home right away, you should create a monthly budget to make the most of your money. It’s one thing to keep track of your own expenses, but when you throw another person into the mix, it can become a bit more complicated.

Sit down with your partner and begin with sharing your goals. These may be short-term things like a beach vacation or long-term objectives like saving for retirement. Then, see how long each of these will take to achieve and how much money you’ll need to set aside for them to happen.

You may find you both will need to eat out less or pick up side gigs to make it all work. That’s okay – at least you know what actions are necessary. These plans will help you accomplish your intentions in the long run, and in the meantime, your dinner dates can be just as special with home-cooked meals.

Home Buying Can Strengthen Your Relationship

Throughout this entire process, the most important thing you and your partner can do is remain realistic. While optimism is a good thing, it’s also essential to be levelheaded when it comes to serious financial decisions like your first home.

Narrow down your search and track your expenses so that you can save the right amount of money for what you want. Above all else, talk to each other — it’ll make the process that much easier and more memorable.

Holly Welles, Real Estate Writer, The Estate Update

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5 Ways to Still Refinance Your Mortgage With a Less Than Perfect Credit Score

February 7, 2020CreditBy toptierfinancial

Purchasing a home is still one of the main pillars of the American Dream, but for some homeowners, a mortgage can feel more like a heavy anchor. Thankfully, interest rates are riding steady at near historic lows, making it easier and more attractive for homeowners to refinance older and higher-rate mortgages. A refinance can lower your monthly mortgage payments, which is a great option if you’re “house poor”—when too much of your income goes toward housing costs.

However, the prospect of a refinance is a bit more difficult for homeowners with a less-than-perfect credit score. Being “house poor” only compounds the problem if you’re stuck with a mortgage you’re struggling to pay. However, there are ways homeowners with poor credit scores can refinance.

What does it mean to be ‘house poor’?

When you have a mortgage that demands a large percentage of your household income, you may be considered “house poor,” or “house rich and cash poor.” There’s no defined threshold one must cross to be considered house poor. However, this situation occurs when a large portion of your income goes toward housing costs such as the mortgage, maintenance, homeowner’s association fees and property taxes. There’s very little cash left over to meet other financial obligations or to save for emergencies.

This can put you in a risky financially situation. If your income changes, then you could be in danger of losing your home to foreclosure or missing other bill payments.

Refinancing options for homeowners with poor credit

Generally, if you’re seeking a conventional refinance, you’re more likely to be approved with a credit score of 620 or higher. However, you may find refinance programs that accept borrowers with lower credit scores.

Mortgage lenders may also check your income and your liquid cash reserves to see if you can address financial emergencies. This reduces the lender’s risk, as mortgage debt can be discharged in a Chapter 7 bankruptcy. By showing you have a steady income and liquid savings, your lender may be more willing to approve your refinance even if you have less-than-stellar credit.

If you’re looking to refinance your mortgage, research all of your options

These may include:

Improve your credit score before applying for a refinance.
Speak to your lender directly for refinancing options.
Search for a better deal or a different lender that offers refinancing for bad credit.
Find a family member or friend with good credit willing to co-sign the loan.
Use a streamline refinance if you have an FHA-insured loan.

Every homeowner will have different needs, so check out the options available to you.

Improve your credit score

Working to improve your credit score should be a top priority for you. This may be difficult if you’re house poor because you don’t have the extra income to pay down debt, or you may even miss other bill payments. However, there are ways to improve your credit score and refinance your mortgage.

Consider taking extra work on the side to help pay all of your debts on time.
Use your discretionary funds to pay down your credit card debts, which often have the largest impact on a credit score for many homeowners.
Keep your credit card balances low.
Keep your unused credit card accounts open. Closing accounts can lower your credit score.
Connect your utility and cellphone payments to Experian Boost, which will consider on-time payments for utilities as positive factors in your credit score calculation.
Check your credit report for inaccuracies, and dispute any that you find.
Don’t open new credit cards or other lines of credit. This helps you avoid hard inquiries.

Even if you’re not able to raise your credit score into the “good” or “excellent” range, you may be able to show lenders that you’re working to improve your credit score. This evidence can help you negotiate a refinance.

Speak to your lender

It’s often in your lender’s best interest to help you stay in your home. But most importantly, you’ll never know whether your lender is willing to work with you if you don’t ask. Your first step should be to contact your lender directly and fully explain your situation.

Most lenders have agents who can review your financial situation and help recommend potential options to explore. You may even find that your lender is willing to approve a lower rate without too much hassle.

Find a different lender

If your lender is unwilling to work directly with you to help you refinance your loan, you may need to research other lenders. Every lender will have different loan approval standards. You may find your unique financial profile, combined with lower interest rates, could result in a lender willing to buy your current mortgage with a lower interest rate.

Additionally, by searching around, you could find a lender more willing to help individuals with poor or bad credit looking to refinance their mortgage.

Get a co-signer for your refinanced mortgage

Mortgage lenders may be more willing to consider a refinance if you have a co-signer. Preferably, your co-signer should be someone with good or excellent credit and a strong and steady income history. Should you default on your mortgage, the bank will consider that person legally responsible for making the mortgage payments. This can be ok if this is a spouse or committed partner but you don’t want to put another person’s financial life in jeopardy in the event you are unable to pay.

Use an FHA streamline refinance

If you currently have an FHA-insured mortgage, you may qualify for an FHA streamline refinance. In the streamline refinance process, the lender may only ask you for certain documents. For homeowners with poor or bad credit, a streamline refinance process can be simpler and may have a higher chance of success.

Can refinancing help my credit score?

When you refinance your home mortgage, you may experience an initial decline in your credit score. As a mortgage refinance is a loan application, any refinance attempt will result in a hard inquiry to your credit score. This will be compounded if you submit multiple refinance applications.

You may also unintentionally lower your credit score if you stop paying your old loan while waiting for the refinanced loan to get approved. To avoid this situation, continue paying your old loan until your lender tells you when you can stop paying the old loan.

The goal of a refinance is to get lower monthly payments and put the savings toward your other financial goals, such as paying off debt and improving your credit score. Even with poor credit, you may be able to refinance your mortgage and work toward financial stability.

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How Can I Budget for Home Improvements?

September 6, 2019CreditBy toptierfinancial

Home improvements allow you to to make upgrades and add convenient features to your house. In 2018, American homeowners spent around $394 billion on improvement projects, including air conditioning and heating systems, waterproof roofs, soundproof rooms and renewable energy.

Do you want to save money for your dream renovation? Then follow the six tips below for creating a budget and sticking to it.

1. Determine Your Goals

Before you begin a renovation project, ask yourself what you hope to accomplish. Perhaps you want more counter space for appliances and dinner prep? Maybe you’d like an upgraded bathroom with a whirlpool tub and heated tiles? Once you’ve narrowed it down to one goal, determine how much you’re willing to spend.

2. Estimate the Costs

You have a goal — it might be a new patio or expanded master bedroom. Now it’s time to determine the costs. Experts say you should never spend more on a room than its value toward the home. For example, say your home is worth $200,000, and the kitchen takes up 15% of the square footage. In this case, you wouldn’t want to spend more than $30,000 on a kitchen remodel.

3. Account for Hidden Fees

You never know how much a renovation will cost until you start digging. Sure, your home looks perfect on the outside. However, it’s not uncommon for a remodel project to dig up hidden issues, whether beneath floorboards or under wallpaper. Plan for these expected fees by cushioning your budget with an additional 10-20%.

4. Understand Cost vs. Gain

You’ve probably heard the saying, “You need to spend money to make money.” The same is true when it comes to remodeling your home. The added value often outweighs the cost of upgrades and improvements. If you’re ever planning on selling your home, the added return on valued renovations can help with your budget down the line.

This is a personal decision, as only the homeowner can know which changes they’ll value most. But if you’re tempted to spend less in the moment, you may be reducing the chance to earn on long-term gains. As a general rule, opt for renovations with timeless appeal, including hardwood flooring, mid-range kitchen upgrades and bathroom accessibility changes.

5. Limit Your Wants

When you first start a new project, you might feel the urge to splurge. It may seem like you have plenty of funds for fixtures and finishes, only a small fraction of the entire budget. As the project continues, though, you’ll begin to see the money slowly disappear. It’s OK to make a few sacrifices for something you want, but it’s necessary to limit your wants to save for potential setbacks.

6. Assess Financing Options

Most people can’t cover all remodeling expenses with cash. In this case, you’ll have to borrow to finish the project. One option is a home-equity line of credit, which allows you to borrow money — up to a certain amount— when needed. Another choice is a home equity loan, where you apply for a lump sum up front and repay at a fixed interest rate in monthly installments.

Are you planning a home improvement project? Save money the easy way by creating a budget. Determine your No. 1 goal and come up with the estimated costs. Don’t forget about hidden fees and think about the value of the upgrade once complete. If you don’t have enough cash on hand to cover a remodel, consider convenient financing options to fund the changes you’re dreaming of.

Holly Welles, Real Estate Writer, The Estate Update

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How Do I Increase My Home Value on a Budget?

August 17, 2019CreditBy toptierfinancial

You’ll come across a range of opportunities to increase your home value over the course of ownership. Whether it’s the peeling paint on your front door, the scratches in your hardwood flooring or a similar issue with your property, you likely have a few projects you’d like to start. Unfortunately, the money isn’t always there.

It’s natural to feel a little frustration when you can’t afford a much-needed renovation. It’s especially aggravating when you have to handle an urgent or obvious problem before you put your house on the market. Luckily enough, you don’t have to compromise your plans just because you’re low on cash.

When you take a strategic approach to your improvements, you can boost your property value without breaking the bank. So where should you start?

Paint Your Front Door

The front door is often the focal point of a home’s exterior. It’s one of the first things a buyer will notice when they look at your property. If your front door has seen better days, and you want to restore it to its former beauty, a fresh coat of paint is more than enough to do the job.

Best of all, painting or refinishing your door can cost as little as $20 if you’re resourceful. With a few hours of work and a bit of color coordination, you’ll make a marked difference in your home’s appearance. Just choose a bright, eye-catching shade and check the guidelines of your homeowner’s association if you belong to one.

Update Your Cabinetry

An attractive kitchen is a high priority for house-hunters. They’re searching for stainless steel appliances, neutral tones and beautiful cabinetry. These changes may fall outside your budget, and that’s fair, but you don’t have to invest in a full overhaul of your kitchen to increase your home value.

Replacing your existing cabinetry with something new and stylish could make all the difference in the world. You have no shortage of options, with dozens of different styles at a wide range of price points. A modification to your kitchen is one of the best home upgrades you can make, so evaluate your current setup and consider the value of a potential renovation.

Plant Honeysuckle

One or two small adjustments to your landscaping can make an enormous impact on a buyer’s opinion. Just like a freshly painted front door, the curb appeal of a well-manicured lawn can leave a lasting impression on a visitor. Of course, your lawn is only part of the equation, and your walkways deserve attention as well.

When you plant honeysuckle along the path leading up to your door, you’ll greet your guests with a sweet, heady aroma and the charming sight of hummingbirds. They’re attracted to the plant for its nectar, and you’ll enjoy more of them around your home with this low-cost addition to your garden.

Replace Your Outlet Covers

Light switch and outlet covers can age a home dramatically if they’re scratched or marked. If you’re planning an open house in the near future, you should seek out any tarnished covers and replace them as soon as possible. It’s an easy, inexpensive way to boost your home value.

You should also consider a dimmer switch if your electrical wiring can manage it. Whatever you choose to do, exercise caution around your outlets. Replacing a light switch or outlet cover is simple enough to handle on your own, but an actual electrical project will require the help of a professional.

Start Increasing Your Home Value

You don’t have to spend a substantial sum of money to increase your home value. As long as you follow the four suggestions above, you’ll stay well within your budget as you beautify your home. With that in mind, review your options and start planning your next project today!

Sticking to a budget is important, especially when you have little left over each month to save or put towards home improvements. A nonprofit credit counselor can review your budget with you and help you find ways to save money for the home improvements your heart desires!

Holly Welles, Real Estate Writer, The Estate Update

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