MONEYSMARTLIFE.ORG EMPOWERING SUSTAINABLE FINANCIAL WELL-BEING IN WORKING CLASS FAMILIES

the MoneySmartLife.org Lifestyle blog

Empowering sustainable financial well-being for working class families
Picture
  • Home
  • Take Control Tuesday
  • Blog Money Smart Lifestyle Moments Blog
  • About us
  • Money can be Funny Gallery
  • Trusted Advisor Sign-up
  • Discover Your Money Personality Game
  • Other Blogs and Voices
    • How Much Does It Cost You To Work
    • Detroit Praise Network Blog
    • Better Money Habits

4/6/2020

COVID-19 Mortgage Forbearance

0 Comments

Read Now
 
Money In Money Out of Home
 COVID-19 is affecting many business collection practices. If your bank is anything like mine, you got an email notification that they were offering payment deferrals for mortgages and credit card customers. In this post, we're going to take a look at what deferred payments or a forbearance looks like in your mortgage account should you choose one and what are the pros and cons of a mortgage forbearance.

Forbearance is when you and your mortgage company agree to temporarily suspend or reduce your monthly mortgage payments for a specific period. This allows you to deal with short-term financial problems by giving you time to get back on your feet and bring your mortgage current. Keeping your word is paramount in this situation. Do not make commitments you can't keep. You may have to go back to your creditors for additional relief. Broken payment promises may make them less likely to provide help.
​
You should contact your mortgage servicer to see what terms are offered. Doing so will help you better understand your options. It is always better to contact a creditor before you get behind on payments. You have to request and qualify for forbearance. If you have a federal loan (FHA, VA, USDA), your qualification is guaranteed during the COVID-19 pandemic. 

A forbearance allows you to maintain your cash as you navigate through a temporary crisis. Typically, the forbearance is for three months. You don't have to pay your mortgage during a forbearance. That deferred monthly payment becomes a cash cushion for you during this time. Understand a 'deferred payment' doesn't mean a 'never payment.' You will eventually have to make up any deferred payments. Please read the previous two sentences again.

Deferred payments may accrue additional interest and extend the length of your mortgage, depending on the forbearance terms. If your monthly payment includes an escrow amount, that will also be deferred. That will create an escrow shortage. An escrow shortage will increase your monthly mortgage payment escrow amount the next time your servicer does an escrow reconciliation. Be aware and prepare for such an eventuality. Escrow shortages and reconciliation timing can create future monthly mortgage payment volatility. You can pay your escrow amount during the forbearance to prevent a deficiency. If you decide to do this, verify your partial payments are credited to your escrow balance.

Before you agree to the forbearance, understand how it will report to the credit bureaus. Most lenders will not report your account to the credit bureaus during the forbearance, if you abide by the terms of the forbearance. The credit score impact of a late monthly mortgage payment can be devastating and long term. Most new credit scoring models more heavily weigh mortgage than other types of payments when calculating your payment history. Some newer credit scoring models treat late payments during a natural disaster less harshly. Surely the COVID-19 pandemic is a natural disaster.

​In times of financial uncertainty, cash on hand gives you options. A deferred payment doesn't increase your income. It lowers your outgo. During such times, reducing your monthly obligations is prudent. You can always pay your mortgage during or after the forbearance.

Should you take a mortgage forbearance offered during the pandemic? For the vast majority of borrowers, that answer would be yes. A lot depends on where you are on the pandemic financial disaster scale. There are three benchmarks on the scale:
  • Surviving mode
    • This crisis caught you unprepared. You have limited resources and a fragile safety net. Your income is gone. Your lifestyle is in jeopardy. 
      • A mortgage forbearance will provide short term relief and create some stability around your housing situation. There are no mortgage foreclosures during the forbearance period. It is one less thing to cause you to worry.
  • Treading mode
    • The crisis is disruptive but not destructive. You have some reserves and a safety net. You are experiencing diminished income. You can maintain most of your lifestyle with a combination of reduction of non-essential expenses and subsidies from your stockpiles of food and finances. 
      • Pay your bills. But cash on hand is the priority in a crisis. Don't leave yourself cash poor.
      • A mortgage forbearance allows you to keep those payments in the bank. Those funds become discretionary during the forbearance. They can be used to plug short term spending leaks or added to your emergency fund.
  • Thriving mode
    • The crisis provides opportunity. You maintain your full income. Government subsidies provide additional income. You don't need to access your reserves or safety net.
      • A mortgage forbearance can provide a short term low-interest loan. Invest the deferred payments safely now to take advantage of the myriad of opportunities available from the recovering economy at the end of the crisis. Use the deferred payment amounts to reduce higher interest debts or to improve and increase the value of your home. 
      • Make sure your ROI exceeds your current mortgage interest rate. Maintain the ability to satisfy the forbearance regardless of investment performance. 

Regardless of your situation, your deferred payments are not for vacations, entertainment, clothes, and other things "you deserve or owe to yourself." Do not use debt to finance your wants. Wants are why you have savings accounts. Beware of "easy money." Don't get greedy and let a short-term decision lead to long-term financial turmoil.

Here are two other considerations. First the less time you have left on your mortgage, the more impractical a forbearance. Since now, the majority of your payment is going toward extinguishing your principal and not interest. In such a situation, access forbearance in an extreme emergency only. Second, home equity line of credit (HELOC) loans are considered revolving accounts by most banks and generally don't offer traditional mortgage forbearance. Even though the loan is secured by your home. Most lenders will try to assist, if you need it.

No one knows the final impact of the virus or how long the pandemic will last. Every family is sure to be buffeted by its economic turbulence. Society will respond in various ways. There are future financial decisions to be made. But for now, taking a mortgage forbearance makes sense for a lot of us.

Share

0 Comments

7/2/2019

11 Benefits of a Great Credit Score

0 Comments

Read Now
 
A great credit score is 750++ on all credit scoring models. Having such scores is an important part of living a MoneySmartLife.
​
​Here are 11 benefits of having and maintaining great credit scores.
  1. Lowest Interest Rates on Credit Cards, Loans, and Leases
  2. Easier Approval for Rental Houses and Apartments
  3. Better Car Insurance Rates
  4. Get a Cell Phone on Contract with No Security Deposit
  5. Avoid Security Deposits on Utilities
  6. Bragging Rights
  7. Get Better Interest and PMI Rates on Your Mortgage
  8. Improve Your Chances of Getting Hired
  9. Get Approved for Higher Credit Card Cash Advance and Credit Limits
    • Part of your safety net
    • The proportion of balance to limit is 30% of your score. An increased credit limit automatically lowers the proportion to limit.
  10. More Negotiating Power on Financial Products terms and services
  11. Increases Your Partnerships Potential
  • It is hard to go it alone in life all the time. There are seasons in your life when you may want to form mutually beneficial partnerships with others. Having great credit scores can help you contribute to both personal and professional cooperative relationships. It allows you to both set and achieve higher standards.

Share

0 Comments

5/13/2018

Home Equity Recipes and Strategies

0 Comments

Read Now
 
Click here to register and get the recording

Share

0 Comments

12/14/2017

MICHIGAN PROPERTY TAX APPEAL PROCESS

0 Comments

Read Now
 
The window envelope comes from your Municipal Tax Assessor’s office. Your muscles tense. Your thoughts focus. Wasn’t the mortgage company suppose to handle property tax stuff? Who needs another bill. Your adrenaline has kicked in to help you face this “threat.” It sharpens your focus.
​You nervously open the envelope. Its contents scream in large bold font across the top “THIS IS NOT A TAX BILL.” Relief washes over you as you put the notice down, one of the biggest mistakes that homeowners make. Because if you take the time to read and understand this form, you will reduce the amount of taxes you pay on your home for years.
Notice of Assessment, Taxable Valuation, and Property Classification
THIS IS NOT A TAX BILL
Homeowners in their first year of ownership should pay particular attention. If this is the first year owning your home, then one of the most important things you can do is to make sure that your property is assessed correctly in the first year of​ ownership. Transfer of Ownership is a significant taxable event in Michigan. Transfer of Ownership includes not only purchases but inheritance, divorce, probate, etc.
Ignoring this can cost you thousands of dollars over the life of your homeownership. The first year of ownership is the only time your state equalized value (SEV) will be the same as your taxable value. The reset of SEV and taxable value can substantially raise a new homeowner’s property taxes during the first two years. That is called the “pop-up tax.”
You want your taxable value to start as low as possible. The only way to get it done is to appeal your property tax assessment. The good news is that it’s not hard to do. Since you just bought the house, you probably have all the documentation you need to make a strong appeal.

Read More

Share

0 Comments

11/21/2017

7 ways to improve your credit score on purpose.

0 Comments

Read Now
 
Picture
  1. Lower credit utilization ratios This method will have the quickest impact on your score. Reduce "proportion of balance to limit" on credit cards and home equity line of credits (HELOC) to 25% or less individually and in the aggregate. There two ways to do this. Pay down the balance. Obtain a limit increase on your accounts. It will cost you an inquiry, whether approved or not. A hybrid strategy is also useful. 
  2. Do NOT close any accounts in good standing.
  3. Close all inactive accounts that have a derogatory record.
  4. Challenge any negative accounts with a DLA ( Date of Last Activity)  longer than 7 years at a credit bureau.
  5. Negotiate collections off your credit report. Paying a collection could lower your credit score. If the DLA changes, you also refresh the seven years the derogatory information will remain on your report. Remember, from a FICO credit score standpoint, it is the fact that you went to collections that hurts you. The damage is virtually the same paid or not.
  6. Start paying your bills •On time •Every time •All the time• This one takes longer to impact your scores, but it is necessary for MAX credit and a MoneySmartLife style going forward
  7. Stop applying for credit No matter how tempting the multitude of easy credit offers with incentives you get, don't apply. The offers can be tempting and appear financially prudent with the promise of further savings by just applying. But they can really mess you up.
Take me to the maxing credit score webinar
Take to the maxing credit score Blog Post

Share

0 Comments
<<Previous
Details

    Archives

    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    May 2019
    April 2019
    November 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017

    Notify me of new blog posts

    Categories

    All
    Borrowing
    COVID 19
    COVID-19
    Credit
    Debt
    Financial Capability
    Financial Well Being
    First Time Home Buyer
    Max Income
    Protecting
    Savings
    Spending
    Taxes

    join money smart lifers

    RSS Feed

    Mansa Musa Trusted Advisor First time home buyer

    Author

    Mansa Musa is a homeownership counselor and homebuyer educator. He is currently the Principal at MoneySmartLife.org. He blogs and speaks on subjects of financial well-being and financial capability. Helping working class families live a sustainable MoneySmartLife through pragmatic solutions and behavior changes.

Picture
MoneySmartLife.org YouTube Channel
Money Smart Lifestyle Moments Blogs

    Subscribe Today!

Submit

Contact Us

Necessary Disclaimers 

  • MoneySmartLife.org and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. 
  • The views, thoughts, and opinions expressed belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual; either in the past or future. 
  • This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.” MoneySmartLife.org states that they’re using this material as part of their “efforts to advance understanding of issues of “financial well-being” and that they believe that this constitutes a “fair use” of the material in accordance with title 17 U.S.C. Section 107. ​
  • Home
  • Take Control Tuesday
  • Blog Money Smart Lifestyle Moments Blog
  • About us
  • Money can be Funny Gallery
  • Trusted Advisor Sign-up
  • Discover Your Money Personality Game
  • Other Blogs and Voices
    • How Much Does It Cost You To Work
    • Detroit Praise Network Blog
    • Better Money Habits