Q & A with Dottie Herman

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Q1 - I live in NJ and recently went through a divorce. At the time of the divorce, the house wasn't settled.  Now, after trying to do a modification and not getting it, the house is on the market as a short sale. My credit has suffered and I was wondering, if I add a letter to my credit report explaining the divorce and such, will that help me get some credit? Prior to all of this happening, my credit was decent-I had a score of 720. Now it is much lower-in the low 600s. My ex-husband did nothing to help me and won't even cooperate with the short sale, but my saving grace is that my divorce decree says the house is to be sold.

A - Going through a divorce can wreak havoc on credit scores, as you have experienced.   Placing a note on the credit report will not help you.  It actually can hurt our ability to improve your credit scores if you were to hire us for credit repair.  The only thing a note will do is explain that you were having financial issues due to a divorce and that is why you have delinquencies.  The score does not care why you were delinquent, and will stay low with or without the note.  Fortunately, credit scores are never terminal, so there is always a light at the end of the tunnel.  If you are in the process of a possible short sale, it would be a good idea for you to have a credit review so that you can decide the best course of action once the short sale is completed.

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Q2 - I have been shopping for a mortgage for a month.  Does the inquiry about my credit affect my credit score?

A - An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing. But don't overreact. The data used to calculate your credit score does not include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. So, don't limit your mortgage shopping for fear of the effect on your credit score.

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Q3 - How much money will I save by choosing a 15-year rather than a 30-year fixed rate loan?

A - A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. And, while the monthly payments are somewhat higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower, and more importantly, you pay less than half the total interest cost of the traditional 30-year mortgage.

However, if you can't afford the higher monthly payment of a 15-year mortgage, don't feel alone. Many borrowers find the higher payment out of reach and choose a 30-year mortgage.  A 30-year mortgage still makes sense for most people.  Tip: If you are able to pay one additional payment per year (13 payments as opposed to 12), you could cut 7 to 8 years down on your 30-year mortgage.

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Q4 - How do you verify my income if I am self-employed?

A - Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period.

We review and average the net income from self-employment that is reported on your tax returns to determine the income that can be used to qualify. We do not consider any income that has not been reported as such on your tax returns. Typically, we need at least a one- or two-year history of self-employment to verify that your self-employment income is stable.  A letter from your accountant will also be required stating that they have completed your taxes for you, and the number of years that they have done so.  They will also need to state  how long you have been self-employed, the percentage of ownership you have in the company, and the nature of your business.

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If you have a real estate question for Dottie, please send it to; Reporters@WorldPropertyChannel.com