Real Estate Questions Answered Here
by Art Santellen, REALTOR®
Q: OK, tell us about credit counseling companies.
A: The first thing you need to remember is that the primary objective of these companies is NOT to get you ready to buy a home. Their primary objective is to help you learn how to budget your income and help you pay off your bills.
With that in mind, I can recommend the services of the good folks at the Credit Counseling Service of Southern Colorado. This HUT) recognized non-profit organization helps people who can't seem to make ends meet. For an incredibly small fee they will help you negotiate with your creditors so that you can pay off your bills. Usually, this means getting your creditors to accept a lower monthly payment. Once and a while, they will get your creditors to agree to lower the balance due.
They help you to learn to budget your income by having you agree to turn over the bulk of your earnings to them. They will make your monthly payments for you and let you keep a part of your earnings for discretionary spending.
For example, let's say you earn $2,000 a month and the total of all your bills and expenses total $3,000 a month. First, they will negotiate with your creditors to accept less each month. So, in our example, they reduce the total
of your debts and expenses to, say, $1,800. Out of your paycheck(s) each month you give them $1,800 and keep $200. They will take your $1,800 and make you bill payments for you.
The idea of all this is that after a certain time, you will be out of debt. In the meantime, you will be asked to attend monthly meetings with your case worker and periodic seminars on how to handle your money more intelligently Yes, a couple of these seminars include classes on buying a home.
In discussions with Cris Uhlenhopp, a mortgage lender with Principal Residential Mortgage (265-8932), I learned that sometimes, credit counseling companies inadvertently hurt your chances to buy a home. The problem centers on your credit report.
Remember that one of the things a credit counseling company does on your behalf is get your creditors to accept a lower monthly payment. Experience has shown that some of these creditors send information to credit reporting agencies (like Experian, Trans Union, and Equifax) that you are making monthly payments that are only partial monthly payments. It shows up on your credit report as making late payments. If all your creditors are reporting this information in the same fashion, your credit report will look terrible. Too terrible for a mortgage lender to give you a home loan.
Remember also that these credit counseling companies will make your payments for you. Sometimes, I'm told, you will send your payment to the credit counseling company on time only to have that company make disbursements to your creditors late. For example, you get paid on the 1st and 15th of the month. So, on the 1st you give most of your paycheck to the credit counseling company The credit counseling company takes 5 business
days to write up and mail out the checks to your creditors. So, bills that were due on the 1st get payments on the 5th... .or later. Bills that were due on the 15th get payments on the 20th.... or later. Your creditors will report that you make you monthly payments but are always late. When this information hits your credit report, once again, a mortgage lender will be reluctant to approve your request for a home loan.
So, what's the answer? My advice is for you to make your long term goals clear to the credit counseling service from the very beginning. Tell them you want to get your personal finances under control so you can buy a home and that you don't want your credit report to suffer in the process. Tell them you read a column in Hispania News that warned you about creditors reporting partial and late monthly payments. Tell them you don't want that to happen to you.
Next week I'll tell you all about the growing gap between home prices and job income.
NOTE: As you can see, I really do get questions from the public. To add your question to this list, please send them to me at the address listed below. Thanks.
The answers to these, and other fascinating real estate questions will be answered here, in Hispania News, next week.
When you're ready to buy or sell a home, see a REALTOR®
Art is a REALTOR® with Heritage Realtors in Colorado Springs.
If you have a real estate question you’d like answered, please send them to:
Art Santellen, care of Hispania News
PO Box 15116
Colorado Springs, CO 80935
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