Q & A with Dottie Herman

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Q1 - How much of an advantage does paying all cash play in purchasing an apartment?

A - Cash terms can provide a significant advantage for a buyer that sometimes even lead to a discounted price. In the current market, mortgage lending standards remain historically tight, so the terms of a sale--such as financing--have become just as important as the price that both parties agree to. Sellers have become acutely aware that getting a higher price isn't worthwhile if the buyer can't close because they can't get a mortgage. In other words, we are seeing discounts for cash purchases, but there is no standard rule of thumb for the amount of the discount, if any. Cash terms can also give you an advantage if you and a competing buyer with a mortgage have offered the same price for a house - a seller will generally place the cash buyer in front of the mortgage buyer in this situation. Your real estate agent can guide you on the most strategic approach to a specific transaction.

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Q2 - I am retired and re-financed from 15 to 30 year fixed in order to lower my monthly payments. The interest rate was at 5.25 %. Is it worth to pay off the entire amount owed, which is $160,000, from my savings, or should I continue paying the lower monthly rate for the rest of my life? Or, a third option I am considering would be to refinance again at 4 %. My income is approximately $5,000/month, and comes from Social Security and pension. Financial advisors usually say to keep the mortgage and invest the money. What do you think? I tried to downsize and sell the house, but had it on the market for a year with no luck.

A - In your situation, your financial advisor is the best person to ask regarding paying off the mortgage loan from your savings. If you do intend to keep the loan outstanding for the long term, the savings to refinance to current rates of about 4.000% will save you $1,440 over 12 months, $7,200 over 5 years, $14,400 over 10 years, and $43,200 over the life of the loan.

If you are still interested in downsizing and would like to sell your home, we would be happy to pair you with the appropriate real estate professional who specializes in your area. He or she can help you analyze your previous strategy and formulate a better plan to ensure that you are successful your second time around.

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Q3 - How much of an impact will a default on an education loan have on a credit report?

A - Education loans are a very different breed of credit. Each time a student applies for more funding, it will appear as a new account on your credit, so you are eventually left with a series of separate student loan accounts in your credit history.

What becomes a problem is that when you are late on one of these payments, it will post as a late payment to multiple accounts. This means that if you had been approved for student loan financing 10 times, and you were late making your payment in June of this year, your credit report will show 10 individual accounts, each with a late payment from June 2012, which means that you have 10 delinquent accounts in total. This can have a devastating effect on your credit scores.

Because of the multiple account occurrences, federally guaranteed student loans that have defaulted can update negatively on your credit profile for seven years from the date that the loans are paid off. Most negative credit information is reported for seven years from the date of the delinquency.

The laws regarding student loans and bankruptcy are much more restrictive than those surrounding regular debts. Because the government wants receivables paid, they have rigid guidelines in place that make student loan debt nearly impossible to be discharged in a bankruptcy.

For more info about student loans you can visit Consumer Financial Protection Bureau site or government sites that focus on defaulted student loans.

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Q4 - I'm a realtor in PA with a well-known company, and we also have a mortgage company. You keep saying that you need to be pre-approved, not pre-qualified. Our lender says that it cannot be a pre-approval if a client is looking to move quickly on a property because pre-approvals need to go to underwriting, and underwriting is working on all the transactions in the works, which can be a time-consuming process. They of course check credit, get W2, and pay stubs.

A - It is important to understand that a buyer or seller's reliance upon a pre-qualification/pre-approval is only as good as the thoroughness of the review provided by the lender. As a result, buyers should start well in advance of making an offer to get a pre-approval. Some lenders are not equipped with sufficient resources to provide an underwritten pre-approval, particularly in peak borrowing periods we are in today with rates low.

As a buyer, if you are considering signing a non-financing contingent contract, you should either be prepared to truly pay cash or get a lender to do a pre-approval and not a pre-qual. Please let us know if we can assist you in providing your buyers a pre-approval.

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