Overview Late
payments hurt credit scores
While she has a goal of improving her credit
score to over 700, she needs some help with
her payments. Angel recently was late on a
couple of credit card payments because she
lacks a systematic payment plan. Her credit
report has also been hurt by an old outstanding
dispute over a $500 medical bill resulting
from a worker's compensation claim.
She does have $15,000
in an IRA that she rolled over from her previous
employer's 401(k) plan. She is intending to
use the first-time home-buyer exception and
use up to $10,000 of that IRA to fund her
down payment and closing costs on a new home.
She is not eligible to participate in her
employer's 401(k) plan until August when she
will receive a 100 percent match on the first
6 percent of her deferred income.
Mortgage
loan choices
Angel is looking to buy her first home using
an FHA loan. She has been prequalified and
believes she can afford a home in the range
of $150,000 to $175,000 with a 30-year fixed
mortgage at 6.75 percent. She intends to make
a maximum loan-to-value purchase of 97 percent
and include her closing costs in the mortgage.
While this will allow her to purchase her
first home, she will be highly leveraged and
still in need of budgeting and credit repair.
One area that Angel seems
to have adequately covered is insurance: She
is covered for renter's, car, life, disability
and health. The term life insurance will cover
the home payments if something should happen
to her after she is married. She is currently
covered by her employer's disability policy
of 1.5 times her salary to protect her mortgage
if she becomes injured or disabled at work.
Except for the money
that Angel has saved for her wedding, she
does not have an emergency fund. Instead she
must rely on the remaining available credit
on her credit cards to finance any emergencies
that arise. This might be a last-gasp measure,
as all of Angel's cards are at very high rates.
Angel needs to reduce this debt and build
her savings as soon as possible.
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