About Real Estate: New policy by credit bureaus helps borrowers “shop” for the best mortgage
A recent change allows borrowers more time to comparison-shop for a mortgage or even a student loan without hurting their credit score.Q. We want to refinance our mortgage, and we were planning to follow your recent advice to check with at least three banks and three local mortgage brokers to get the best loan deal. However, we then heard a guest on a financial radio talk show who said that multiple queries from different lenders to access a consumer#146;s credit files within a few weeks actually can lower a borrower#146;s credit score and thus prompt a lender to charge a higher interest rate. Is this correct?
A. No, the information you heard from the talk-show guest was wrong.
Several years ago, separate inquiries from multiple mortgage lenders in a short period of time could indeed negatively impact your score and force borrowers to settle for a higher-rate loan. One reason behind this policy was that some lenders believed that multiple queries implied the borrower wasn#146;t serious about getting a loan. Another was that more than two or three queries suggested the borrower might be fraudulently trying to obtain several loans for the same property.
Consumer advocates, though, complained this policy unfairly lowered the credit scores of honest borrowers who simply wanted to comparison shop among different lenders to get the best loan deal. Those advocates eventually got the policy changed so virtually any number of credit inquiries within a 30-day time frame for a combination of a mortgage, auto or student loan would have no effect on an applicant#146;s score.
Even better, a more recent revision says that anyone who applies solely for one specific type of those loans #8212; be it a mortgage, student loan or auto loan #8212; has a more generous 45 days to shop for the best deal without hurting his or her score.
It#146;s important to note, though, that the same rules don#146;t apply to applications for new credit cards. If you apply for more than one card or personal loan within weeks of each other, the credit query each bank launches will be considered a separate request and could very well drive your score lower because the bank may worry you are trying to borrow more than you can afford to pay back.
Q. Is it true that Brooklyn, N.Y., was named after a town in Holland?
A. Yes. When Dutch ships first landed on the East Coast in the mid-1600s, the voyagers quickly formed a village that they called #147;Breukelen#148; #8212; an homage to the community that they had left in The Netherlands several months earlier.
The Dutch, after two brief (and unsuccessful) wars with the British, surrendered the land to England. The Brits kept the town#146;s name, but few of the new owners could pronounce it, and it eventually morphed into the more easily pronounced #147;Brooklyn#148; as immigrants from other countries started to arrive.
Q. If I form the basic living trust that you have written about and put my home into it, will the home pass to my heirs #147;free and clear#148; after I die, even though I still owe about $70,000 on it?
A. Probably not, but that#146;s a myth that some high-priced lawyers, estate planners and seminar providers like to spread in order to increase their income.
It#146;s true that placing your home and other property into a trust can allow your heirs to quickly inherit the assets, because a trust, unlike a common will, is considered a #147;private document#148; and thus is not subject to the long and costly probate court process. It#146;s also true that placing your property into a trust can protect the privacy of you and your heirs because the trust#146;s assets won#146;t automatically be opened to public inspection #8212; which also tends to discourage family disputes or even lawsuits.
However, assets that are placed into a trust are still subject to lawful debts. If you pass away while owing $70,000 on the mortgage, the lender could demand your heirs either make the monthly payments or sell the home to pay the loan off. And though a trust is a private document, ownership of a home is a matter of public record that is easily accessible at the local recorder#146;s office #8212; which means it wouldn#146;t be difficult for the bank to find the heirs who inherited a home and demand that the debt be settled.
However, loans you obtained for other reasons may be treated differently. If, say, you borrowed $10,000 to finance some new furniture a few years ago but your trust left the items to your heirs with an outstanding balance on the loan, it#146;s unlikely the creditor would bother to spend all the time and money it would take to ask a judge to unseal the trust document and then file the additional legal motions needed to force your heirs to either repay the debt or return the items.
Ÿ For the booklet #147;Straight Talk About Living Trusts,#148; send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
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