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qualify for mortgage?

Question: Recently, I have gotten into big trouble with my credit cards. I am currently working with credit counseling to negotiate lower terms for all six of them. Many have already been handed over to collection agencies as they are 6 months past due. Not that it matters, but I “had” a gambling problem. My question is this:

I want to sell my condominium in about 1 year and buy another less expensive condo in another part of town. My current mortgage is $150,000 at 6.8% and I pay it on time. The new mortgage will hopefully be about $25,000 less. How difficult will it be for me to qualify for another mortgage because of my tarnished credit report? I hope to profit about $50,000 from the sale and use the proceeds to pay down my debt, credit cards included. Next, if I don’t qualify on my own would a co-signer help the situation any? Thanks, so much!

Answer: Be very careful here, you may have to use up a one-time-only tax exemption (usually used when someone retires and doesn’t buy a replacement home but rather goes into an assisted living facility) or else pay capital gains on any profit from the previous condo (and roll-over profit homes owned prior to that one). Talk to a tax specialist FIRST. This is copied from our web site: In recent years, Consumer Credit Counseling (CCC) has become increasingly popular. These organizations are also sometimes called “debt management” or “debt consolidation.” CCC companies offer to consolidate all of your consumer debt  usually credit card bills  into one payment at a lower interest rate, often around 8%. CCC contacts your creditors, who will often lower the interest rate and monthly payment. You pay CCC, they subtract their fee (usually 10%), and the balance is sent to your creditors.

“Non-Profit” is far from free Non-Profit simply means all the money collected by a company is dispersed to its employees and board members. The fees that Consumer Credit Counseling charge are often very large. Many people find that even though their payments to creditors have been lowered, they end up paying the same or more each month after the hefty CCC fee is added (After 8% interest to the creditor plus 10% to CCC, where is the savings?)

CCC companies earn a commission from the creditor on most of the debt you repay through them. Consumer Credit Counseling was established by Visa back in the eighties when customers started having trouble making payments. Creditors know that people who enter CCC have money problems, and they are happy to be able to collect whatever they can, instead of charging off the balance. Although CCC may reduce your interest rates, they generally do not reduce the balance owed. At best, you just lengthen your repayment period.

It hurts your credit.

When you enter a CCC program it is noted on your credit report. Although the rating is not as bad as a bankruptcy, it may as well be. CCC can make your credit scores drop below 500 and your accounts can become rated a “7.” Bankruptcy and charge-off accounts are rated a “9.” You are generally not going to receive decent terms on a loan with ratings over a “3.” Most lenders will reconsider you for traditional financing after 2 years discharge from a bankruptcy and some re-established credit. CCC will be on your credit from 7 to 10 years and lenders are not as willing to give you a second chance after CCC, as they are after Bankruptcy.

They are notorious for not making your payments on time.

You pay the CCC company, and they pay your creditors. We have received several reports from clients that payments were not sent to the creditors on time, adding late fees, additional interest, and more bad credit to the account. Please read this Business Week Article.

If you are considering entering CCC, first try to negotiate with your creditor directly. Tell them that you are on the verge of bankruptcy and ask them to reduce your payment and/or interest rate. Speak to a supervisor before you take “no” for an answer. If you file bankruptcy, they will likely get nothing, so often they will make surprisingly generous concessions.

Of course, it is best to not allow yourself to get into this situation. Proper debt management can make a huge impact on your net worth. Opening bank accounts, retirement accounts, homeowner’s insurance, life insurance, automobile insurance, and even being hired or promoted can all be affected by your credit standing.

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Filed under: Bad Credit