“SHARED APPRECIATION” AND “CREDIT POINTS” DISCUSSED
November, 2000 by Jim Woodard "Shared appreciation" home mortgage loans are becoming a popular new option for homebuyers. The concept is quite simple: You can obtain a new mortgage loan to finance the purchase of a home with an interest rate that is one or two percentage points under the prevailing rate. The loan can be a 15 or 30 year fixed-rate mortgage, and in an amount up to 95 percent of the purchase price. That's what you get. What you give is part of the appreciation in your home's value at the time you sell the property -- its increased value over the purchased price. The lender will take from 30 to 60 percent of the appreciated value. And you must have a very good credit history to qualify for these loans The new plan is now being offered by a large group of lenders across the country. Bear Stearns & Co., Inc., a New York investment banker, will buy many of the new loans from local lenders through an arrangement with National Commerce Bank Services Inc. This makes the plan very appealing to lenders who deal with individual homebuyers. Whether or not the plan would be right for you depends on several key factors that must be studied carefully if you are to make a prudent decision. Consider the "value appreciation potential" of the home you are buying. The more it appreciates, the more you will owe the lender when it's sold. Also, consider how long you expect to keep the property. The longer you own it, the more you'll benefit (financially) from the lowered interest rate. The best method of determining the value of the plan is to estimate how much you would save in interest payment over a projected ownership period. Then estimate the amount of appreciation that will accrue during that period (using property sales data related to your area), and how much money will go back to the lender as his part of the value appreciation. Comparing these projected figures you give you a good perspective on the value of the new plan in your personal situation. For more information, call National Commerce Bank Services at 888-317-0858. * * * A consumer's "credit score" can no longer remain a mystery to them in California. California law now requires lenders and credit organizations to advise consumers of their score when they request it. And that trend will probably spread quickly to other states. The consumer's personal score is a vitally important factor in determining the amount of mortgage loan they can qualify for, and the interest rate they will be required to pay. It can also impact the amount of related fees and terms in their mortgage loan. It can even affect their ability to purchase homeowners insurance or rent a desired apartment or house. Over a period of years, that score can make a big difference in the amount of money put out each month for home mortgage loan payments. Generally, personal credit scores are determined by major credit organizations. Each score is determined by a wide range of criteria like the person's history of payments in past years and specific problems that have been recorded. But the bottom line in determining a score is the consumer's capability to repay a future loan. In the past, lenders and credit organizations have often been reluctant to reveal to consumers what their score is. When asked about their score, these groups usually try to explain to consumers that the score and all its implications are too confusing to be readily understood, so it's better to keep it confidential. An increasing number of consumers didn't buy that explanation. Political pressure has steadily grown to require disclosure of scores to consumers who ask for it. Now that pressure is resulting in action. "The action by the California Governor to require disclosure of credit scores (SB 1607) marks a milestone for homebuyers in this state," said Richard Gaylord, president of the California Association of Realtors. "In addition to providing consumers with their specific credit score and key reasons why a score was not better, the legislation also gives consumers the right to receive a copy of their credit scores when they request copies of their credit file." Gail Hillebrand, attorney for the Consumers Union, agrees that such legislation is needed. "This new law will help consumers learn more about what is affecting their ability to get a home loan. Because your credit score is affected by more than whether you have paid your bills, consumers need to know their score and the reasons behind it. For the first time, consumers will have that right." Other states are now considering similar laws. And there are three federal bills now pending that would achieve the same objective - two in the House and one in the Senate. | 
