Today, Dr. Don discusses brokerages vs. online mortgages and bankruptcy alternatives.

Brokerages vs. online mortgages

Dear Dr. Don,
My wife and I are in the process of purchasing a home. We've been dealing with a mortgage broker who seems very legitimate but isn't competitive with rates on the Internet. He maintains that the bait-and-switch tactics of these companies eventually will disappoint us. We're not sure where the truth lies.
Baffled Bob

Dear Bob,
It's always hard to tell whether sales professionals are providing valuable advice or talking their position. A mortgage broker isn't going to make any money on your loan if you get it without his services. That being said, it's not unheard of for a homeowner to be sold a mortgage with different terms than the offerings shown on this and other Web sites -- especially when the lender provides a convincing reason why the homeowner doesn't qualify for the posted terms.

It's not bait-and-switch if you refuse to be switched. But you need to be realistic about your ability to borrow at the posted rates. If you have a weak credit history, you're not going to get the same interest rate as a person with a strong credit history. Trying to squeeze your local lender by comparing their interest rate to rates posted on the Internet won't work if your credit history isn't strong enough to make the comparison relevant.

Mortgage brokerage is a value-added service. If you can do better without the broker than you can with him, then there's no value added. Realtor.com has a mortgage comparison table that will help you keep track of the differences between mortgages.

For a good look at how mortgage brokers work, look over Michael Larson's package of stories, "Mortgage brokers multiply, but their deals are not always bargains."

Bankruptcy alternatives

Dr. Don,
Two years ago, I started a small business. I never incorporated or even registered its name. I sunk all of my savings into the business (it wasn't much) and have incurred about $15,000 in credit card debt. The business is a flop and I'm closing the business and looking for a job. Meanwhile, my financial situation seems to be getting worse. Is there any way short of filing personal bankruptcy that I can get assistance in getting rid of this debt? I would like to get married and buy a house in the near future but this debt is not helping me reach these goals, nor would filing bankruptcy.
Sinking Sally

Dear Sally,
Don't kick yourself over keeping the business as a sole proprietorship and assuming all responsibility for the firm's debts, since it's likely you would have been required to provide a personal guarantee on a business loan. I'm sorry you weren't able to keep the business a going concern. A credit counseling service can help you get out from under the debt load by working with your creditors to arrange payment schedules and attempt to reduce your interest rates.

Bankruptcy would get you out from under the debt load, but it would be part of your credit history for 10 long years. This site's link library will point you toward several nonprofit credit counseling services. They will help you regain control of your finances. You can turn this situation around.

If you haven't used a tax professional in the past two years, hire one and have her review your returns. She may be able to help you reduce next year's taxes and will increase your comfort level that there's not something in your returns that would hurt you later in an IRS audit.

For a look at how credit counseling works, read Holden Lewis's story, "Debt reduction: The right call for help can lift your credit card bill blues," and Lucy Lazarony's excellent story, "Forgive us our debts."

Related information: Dr. Don's biography Submit a question to Dr. Don Archive of Dr. Don columns

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-- Posted: June 26, 2000