Understanding the Basics of Credit Repair

If you find yourself in the midst of a credit challenge and feel you need the services of a credit repair agency, you may want to keep a few things in mind before you sign up.

First, credit repair companies work mainly on items that are incorrectly included on your credit report, and they do this by engaging in a dispute-resolution process with credit bureaus. But this only works for errors on the report; legitimate items on your credit report will most likely remain there at the conclusion of the process.

In many cases, most of what credit repair agencies do you could do yourself – providing you know how. Most people are unaware of this, and that’s why they look for outside help. In any case, before you decide to proceed, you need to understand how the process works.

If an erroneous item must be completely removed from your report, the dispute process needs to be opened with all the bureaus reporting the item. Bureaus have 30 days from the date they receive a request to generate a response. Both the request and response are usually delivered by certified mail.

The bureaus may confirm that the dispute is legitimate and, if so, it stays on the report; if is incorrect, it is removed.

You may be asked by the credit repair company for documentation to support a dispute. The more information you are able to provide, the more beneficial it will be in resolving the dispute.

If you do decide to hire an agency, check its rating with the Better Business Bureau. Also, start the process as soon as possible after you realize you’re going to need help to repair your damaged credit. Some items may take months to correct, and only after multiple communications between your repair agency and credit bureaus.

Your mortgage professional can provide more information.

The Cost of Closing: It’s About More Than the Down Payment

If you are planning on purchasing a home and are wondering how much money it will take to get into it, this information may help.

The minimum down payment when purchasing a home using an FHA mortgage is 3.5 percent. Conventional mortgages, meaning those using Fannie Mae or Freddie Mac guidelines, now have a minimum down payment of 5 percent.

However, bear in mind that there will be additional costs above and beyond the down payment, including closing costs, asset reserves, and escrow accounts.

FHA has no asset reserve requirements, but conventional mortgages require two months of mortgage payments, including taxes and insurance if applicable, as a reserve.

Depending on the property’s location, your lender may require that a number of months of property tax reserves be placed with the taxing body. You need to be aware of this so that you have an idea of what tax reserves, if any, you’ll need when closing.

Depending on your situation, you may receive seller and/or lender credits to help offset additional costs. These credits may be used for closing costs, asset reserves, and tax reserves only.

Your down payment must come either from your own funds or in the form of a gift from a close relative. All lenders require this to ensure that you as a buyer have a vested interest in the property; it’s assumed that those with a financial interest in a property are more likely to work hard on resolving potential financial challenges when and if they arise.