Costco Connection - March 2010

FINANCIALconnection

Also:
■ Refinancing
■ Reverse mortgage

Securing credit

Ask Suze Orman

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By Suze Orman

I am 76 years old. I retired in August 2008 at age 75. Having two mortgages and credit-card debt, I filed for bankruptcy. Now I am wondering how I can rebuild my credit. I went to the bank and tried to get a secured credit card and was refused. What is the best solution for me?

E. Lambeth Manchester, MO

MARC ROYCE

ONE BANK SAYS no and you’re giving up? Come on, you did not get to be 76 years young by giving up so easily. If you want to rebuild your credit, it is going to take more resolve than that. I don’t know why the bank said no; secured credit cards are a great solution for people in your situation. Because your card is “secured” by a deposit you make, it protects the credit-card issuer if you don’t pay your bill. My advice is to keep shopping for a secured card. Forget banks. I prefer credit unions; their interest rates and fees tend to be a lot lower than what banks charge. Go to www.creditcardconnection.org to search for credit unions in your area. Then contact credit unions that pop up on your search and ask if they offer secured cards.

One final tip: Confirm that the card issuer will report your payments to at least one of the credit bureaus. Not all secured cards do this. Making sure your on-time payments (you have turned over a new leaf and will always pay on time, right?) are recorded at a credit bureau is how you start to rebuild your credit rating.

I recently tried to refinance my condo, which has $90,000 in equity. I was charged a $425 application fee. Although my credit score is 680 I was turned down, then was told it was approved, then finally told it had been turned down. Is there anything I can do to get a refund for the application fee?

D. Chevalier Culver City, CA

FIRST, I HAVE TO tell you that 680 is not a great credit score. Any score below 700 is a signal to lenders that somewhere along the line you have tripped up. And, in this economic climate, that’s enough reason not to want to do business with you. Put your effort into boosting your FICO credit score and you may get a different response from lenders. (Your equity in the property and current income are also important factors.)

As for the application fee, does the paperwork
you signed say it is refundable if they turn you
down? I doubt it. What I would do is find out the
exact reasons you were turned down. Then ask the
lender if it will reconsider your application (without
charging you a new fee) if you address/fix the issues
within an agreed-upon amount of time.

My 67-year-old mother needs to retire and has a nice home in the Los Angeles area. The home has been appraised for more than $1.3 million and she has a $620,000 mortgage. Long story short, she cannot afford to make the payments on the mortgage and is now just about out of cash and in danger of foreclosure very soon. We’ve heard of reverse mortgages and would like to understand what the qualification requirements are and if it would be in her best interests to apply. Do you have any suggestions on this idea? We have contacted her bank, but they say her loan balance is too high.

G. Bocchino Redondo Beach, CA

TO QUALIFY FOR a reverse mortgage, you must have zero mortgage debt, although you can use proceeds from the reverse to repay any remaining mortgage balance. The problem here may be that Federal Housing Administration–insured reverse mortgages have a 2010 maximum loan amount of $625,500. That would be about 100 percent of the reverse, and at your mother’s age she likely won’t qualify for that big a loan: The math just doesn’t work. (You can learn more about reverse mortgages, and the eligibility rules, at AARP’s Web site, www.aarp.org. Type “reverse mortgage” in the search box.)

And if she can’t afford the mortgage, are you sure she would be able to keep up with the property tax and maintenance costs? You still must cover those expenses when you have a reverse mortgage.

If she is cutting it so close now, I think the best move for her is to move. What makes no sense here is that you say she is on the verge of foreclosure, but her home’s value is double her outstanding mortgage debt. So sell! Pay off the mortgage and she’ll still have plenty of money to downsize into another, affordable home. C