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By Ilyce R. Glink
Q: In your book, "100 Questions Every First-Time Home Buyer Should Ask," you mention that a lender will want to see all your current debts, including credit cards.
My wife and I are currently using one credit card to make most of our day-to-day purchases, so that we don't have to constantly balance our checkbook. Prior to using this card (which has zero percent interest for balances), we would only charge around $200-$400 a month on our other credit cards, and pay off the balance in full each month.
Now, we generally charge around $2,000 a month to it. We then use our checking account to make the one payment each month. We are running a $1,000 to $1,500 balance (again, at zero percent interest) and could very easily pay the card in full at any time.
We want to buy a house and are wondering if we should pay off the balance in full before talking to a lender. Since we regularly use this card, does this look like we will always have an outstanding balance on it based on its payment history? Will this affect us in a negative way?
Should we go back to using a checking account instead, and leave a zero balance on the card? Thank you for your time and sorry about the long-winded question.
A: Most of the time when people write in with this question, they've got a nice-sized balance in their checking account, but are paying anywhere from 3 percent to 30 percent interest on their credit card debt.
Clearly, you've got great credit. You have been offered a card with zero percent interest on it, so you are paying for your purchases over time and carrying a small balance on the account. And, you've got cash in your checking account, which may or may not be earning interest.
If the cash in your checking account is earning interest, you're coming out somewhat ahead of the game.
I say "somewhat" because carrying a balance can hurt your credit history and credit score, depending on who issued the card that you're using. Some credit card companies report your balance as if you had maxed out your credit limit.
That probably hasn't happened to you, but you'd be wise to pull a copy of your credit history from each of the three credit-reporting bureaus (you're entitled to do this once each year for free from www.annualcreditreport.com) and then pay for a copy of your credit score ($5 to $7 at the same Web site depending on which credit score you choose).
Lenders are used to seeing credit card balances, and they can adjust for them. What happens is that the lender adds up how much you can afford to spend each month on your mortgage, interest and taxes. Conventional lenders allow you to spend up to 28 percent of your gross monthly income on these three items and up to 36 percent on your total debt.
If you carry a credit card balance, the lender subtracts your minimum monthly payment from the total amount of debt you can carry. The result is that you'll qualify to get a smaller mortgage.
In your case, the lender might see that you have enough cash on hand to pay off the debt. And, you might not get "docked" for the way you're handling your finances.
But my general feeling is that you're talking about a thousand bucks. If you have the cash on hand, you should pay off your credit card debt and keep that slate clean.
Paying off your debts in full has obviously given you a high credit score. Carrying a balance, even at zero percent, can only hurt you.
Q: I took out a second mortgage on my house in 1994 that has since been paid off. However, the mortgage company never recorded a satisfaction of mortgage at the counter clerk's office.
The mortgage company, it seems, has gone out of business and I cannot find anyone with their records. How can I get this lien off of my house?
A: Here's the short answer: You can't. The lien will be there until the mortgage holder files a release. When you sell your home or get a new mortgage, the title company may accept a cancelled note indicating that the loan is paid. If you don't have that, how will you or anyone else know that the loan is paid off? You'll have to prove it and find the successor company to then get the mortgage release.
There are always successor companies to mortgage lenders. They don't just disappear. Mortgage companies always get bought out, particularly if there are loans still on the books. Loans are assets because folks like you make monthly payments of principal and interest.
I'm sure there is a successor company to your mortgage company -- you just have to know where to look for it.
You should research the company through any means possible, but a local title company may be able to expedite the process.
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