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Author: lethean Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308428  
Subject: Re: NO credit - 2 questions Date: 5/24/2012 11:59 PM
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AJ

Thank you.

<<<So he's still looking, and hasn't made any offers yet?>>>

That's right. He and his spouse are just starting to look at homes and were told to get preapproved so that they are in good position to make an offer. Sheesh.

>>>Has he asked Citi to change the credit card back to a personal card and report on the history since he opened the original account?>>>

He is calling Citi back with that specific request. Not hopeful. See the reply to Nancy above. The change happened in 2005. Citi cancelled personal credit card and opened a business credit card. That's a LONG time ago. But he will call again.

<<<Please note - a single credit card account is still going to be a very thin credit history, and may not qualify him for the best rates. Most mortgage lenders require at least 2 lines of credit on a credit history to qualify for a mortgage loan. But getting Citi to correct this will be a step in the right direction.>>>

Well DANG. This just gets worse and worse.

<<<Can he take out a loan on the car? Or does he have a savings account that he can pledge to a secured savings loan?>>>

Sheesh. Paying cash for a nice USED car comes back and bites you, too? I suppose he could take out a small loan on the car, but I'd sure hate to recommend that as a way to get credit. OMG. I PREACHED - buy a car you can afford and pay cash. This is SO bad. My bad advice. UGH.

A savings account. NO. His down payment is sitting in his checking account. I'll tell him to put it in a savings account. But borrow against the savings account? in order to establish credit? It seems like a waste of resources.

And this is going to take how many years to establish decent credit? I don't know the answer.

Re #1 above. I understand that adding him as an authorized user may or may not help. Re adding him to 2 accounts to try to correct a "thin" credit file? My somewhat sketchy understanding. The 2nd account that we could put him on as an authorized user - has a too high available credit limit for HIM and the useage is too high for HIM (not too high for us). Therefore, that 2nd card of ours could actually backfire on his credit report.

We have basically 2 cards that we use. That's because we had ID theft several years ago. Only one of the cards would seem to be appropriate for him as an authorized user. Even then? It might not work anyway. Right?

>>>Unless you each want to be legally responsible for the total debt on this card, adding him as a joint owner is a BAD idea.>>>

OK. Thanks. I can definitely see that we are going to HAVE to see an attorney - because right now I am thinking that there's NO WAY that we wouldn't pay our own credit card balance, ever. I get it though. You and others think that a credit card (ours) joint with him is a very BAD idea. OK. Will consult attorney.

<<<As a cosigner, you are legally responsible for ensuring that the mortgage payments get made, and if you want to ever borrow money for anything else again, the mortgage payment will reflect on your debt to income ratio, making it less likely that you will qualify for any loan you are applying for. Additionally, if he misses a payment for any reason, the delinquency will be reflected on your credit report, too.>>>

Oh man. Lots to think about. I don't mind being ultimately responsible for HIS mortgage, at all. Might we ever want a loan again ourselves? Maybe, but not likely. So, we lose some flexibility (maybe).

<<<Plus, as just a co-signer on the loan, without an ownership interest in the property, you have all the liability for the loan, and own none of the asset that secures the loan. That's a really bad position to be in.>>>

Why? I believe you. I just don't quite get it. Again, I can see that we need to talk this through thoroughly with a good attorney. We have a very good estate attorney. Would that work? He knows us. Maybe he can talk some sense into us. Lay out the pros/cons. Circumstances that could change, etc. The pitfalls.

<<<You would be better off buying the house yourself, and letting him do a lease to own.>>>

Can you explain this further? As I think I understand it. We purchase a house for HIM. The purchase can be for cash or by taking out a mortgage on the property. If a mortgage, then we should get preapproved.

Then, we have an attorney draw up a lease to own agreement.

<<<And would you even qualify for the mortgage, considering any/all debts you currently have?>>>

Yes. No debt. Retired. I pulled up our 3 credit reports today. They are high but not SUPER high as I would have thought them to be. There are some irritating dings on our credit reports. Do you want those in this thread? Or should I begin a new thread re our credit report dings and what to do about them, if anything?

<<<Actually, the best way for him to get a mortgage would be to look into an FHA loan, qualifying with alternative credit such as his rent payment history, utility payment history and business credit card history. If the bank did not suggest that to him, he needs to get another lender.>>>

Actually, many calls have gone out to bankers, brokers, friends in the business. Someone did mention an FHA mortgage. Family member said NO, he wouldn't go that route - because he has the 20% down.

Let me ask you AJ. What's the additional cost involved in an FHA mortage? Points? and only points? What are points? using numbers in an example would help if you can do that for me. Or, is the interest rate higher, too? Closing costs the same or higher?

Originally, the family member wanted a conventional mortgage with 20% down, for a term of 15 years at a fixed rate.

How things have changed!!!

AJ. I have been thinking and typing for a long while now. It just took me a lot longer to reply to your post than the others.

I look forward to your response. I know that I need an attorney, but this conversation is also valuable to me. Thank you.

There is one more factoid to add to the mix? Ready for this? The family member has a spouse. She is terrific. They have been married less than a year. The spouse graduated with a masters degree in June of 2011 with NO student loan debt or debt of any kind. She opened her first credit card EVER in Jan of 2012. She has had no car payments either. A thrifty, cash paying couple.

DANG. Are they screwed? Homes are cheap NOW. Mortgage interest rates are low NOW.

A reminder from my reply to Nancy above. Citi will write a letter to the family member stating that the business credit card was paid in full and on time for 7 years. Citi will not send the letter to the credit bureaus, however.

Do you have any other thoughts? I will consult an attorney, for sure. Estate attorney is good enough? He's has a Masters in Taxation, too. I'm thinking he might be the right guy for this. He knows me. Knows that I can get rigid in my thinking sometimes. And he is patient and can work me through it. Does he sound OK?

Thank you VERY, VERY much. This has been a kick in the teeth, to say the least.

ML
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