Q & A with Dottie Herman

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Q1 - I recently opened an investment account and was wondering if/how that affects my credit?

A - There are many different types of investment accounts. It would be helpful to ask the company you opened the account with whether the account is updated on your credit and whether a credit review occurred prior to approval of the account. You may also want to check any documents that you signed with them because prior to a company reviewing your credit, they must first get authorization.

If the account has a credit extension or line attached, it may be on your credit report and show as revolving credit, but more likely it will not show, unless you defaulted on the credit aspect of the account. If the investment company did review your credit for approval of the account and this review was the only one you have had in the past year, your score could drop about 2-5 points.

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Q2 - Which is a better building, a co-op with high or low tax deductibility?

A - When you say "high or low tax deductibility," I believe you are referring to the percentage of your monthly co-op maintenance that is tax deductible. There is no single right answer to this question-it varies case-by-case. A co-op's monthly maintenance payment typically includes your apartment's share of the operating costs of the building, ground rent (if a lease exists), real estate taxes and the payment for the building's underlying mortgage. Real estate taxes and the interest on the underlying mortgage are usually the portion of the payment that are tax deductible. Some co-op purchasers may get the impression that the higher the deductibility is, the better it is (aka more affordable because you can write off more on your personal income taxes).

If the tax deductibility of a co-op is unusually high compared to competing co-ops, it could suggest that the real estate taxes are unusually high and/or the corporation is paying a lot of interest on their underlying mortgage because the underlying mortgage is larger than in other buildings. Quite often, a high deductibility goes along with a higher maintenance payment. Even though the actual maintenance paid after tax deduction may be similar to the after-tax payment on a building with a lower deductible and lower maintenance payments, it means you need to get a better understanding of the financial condition of the corporation through your trusted advisors.

As appraisers, we often observe higher property values in co-ops with lower maintenance payments and lower deductibility than with higher maintenance payments and higher deductibility, all other things being equal.

The concept of which is better, is both subjective and personal based upon assessment of many factors, including those provided above. Such a decision should be made taking into account a purchaser's specific needs and financial situation. A qualified real estate agent, in concert with a purchaser's financial advisor, accountant & legal counsel, can help to explain which may be the better option.

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Q3 - I will be relocating to NYC within a few years for work and have started casually looking around for housing options. I had a few questions. How exactly does a co-op work? Are appliances generally included? How soon ahead of moving should I start working with a real estate agent?

A - Co-ops are a common form of housing ownership in New York City. Purchasers are typically subject to approval of the co-op board of directors, and new owners become both shareholders of the co-op (with a stock certificate relating to the number of shares issued to them) and tenants of the corporation (with a proprietary lease permitting the new owner to occupy the apartment that they have "purchased"). Closing costs tend to be lower when purchasing a co-op, and there are many differences from owning a condominium. Consult an attorney for a more detailed explanation.

Appliances are typically included in apartment purchases in New York City. The timeline for your real estate search really depends on your individual requirements, such as whether you're looking to rent or buy, and what type of property you're looking for.

If you'd like, we can introduce you to an agent who can assist you in this important decision. We can also provide the most up-to-date financing options if you choose to purchase a home.

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Q4 - I recently attended a Driver's Ed course, and the instructor mentioned that your driving records could affect your credit. Is this true, and if so, how much does it affect it?

A - It is true that your driving record can affect your credit scores. Usually it happens when you do not pay your tickets or other driving-related penalties.

For example, let's say that you receive a citation for one of those photo tickets in another state and you choose not to pay it. After a period of time, the state will turn it over to a collection agency, who will then try to collect the debt from you. The agency adds a late fee, plus interest, and slaps a $100 collection fee onto your credit report. If your Fico scores were a 780, they could drop down 100 points to a 680.

Because scores decrease differently depending on what score you begin with before a derogatory is applied, it is hard to say exactly how much your score will be affected by the derogatory without knowing exactly what your current credit and scores look like. If you have a 620 Fico score, the drop will be less, since you are already a higher-risk-borrower with low credit scores. A 780 credit score is excellent, which is why it has to drop so much lower once a delinquency is reported. Studies show that consumers with even one new late payment pose a much higher risk of defaulting, and therefore the score must drop to reflect this.

There are cases where judgments are placed on credit for tickets or other penalties associated with driving. When a collection agency has no success collecting, the debt will eventually go to judgment and be updated on your credit in the public record section. These judgments will have a great effect on credit scores as well. If you would like us to review your credit and give you some feedback, feel free to send us a current copy of your report and scores. You can buy them at https://www.myfico.com. Let us know what we can do to point you in the right direction!

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