MAKING CENTS: Will Fed’s move benefit you?

When Federal Reserve Chairman Ben Bernanke last week announced that the Fed will buy up to $40 billion per month in mortgaged back securities, markets rallied across the board. Speculating on the Fed’s moves is not a sound rational for investing in equity markets, but it may help you on the debt side of your balance sheet.



The moves also came with the Fed sending signals that it will intervene to keep interest rates low through 2015. In the past, moves like this gave optimism to borrowers about the possibilities of lowering their borrowing costs. But their dreams were shattered by underwriting standards that made it very difficult for many borrowers to qualify for a lower rate. While underwriting standards are still quite strict, loans are getting approved. Here are a few steps that you may take to dress yourself up for this rigorous process.


Know your credit score. Unfortunately, that little score, known as your FICO score is where it all starts. Lenders like to see a credit score above 700.

Get a copy of your credit report, and then take the steps that you can to improve that score. Clear up discrepancies, close out credit cards that you never use, and pay down your higher interest loans.

Begin pulling together all of your back up documentation.

You’ll need copies of tax returns, w-2’s or 1099’s, bank statements, investment statements, financial statements and tax returns of any businesses or entities that you own. Last year, we witnessed a client who had over $2.5 million in liquid assets, with a high FICO score get turned down for a mortgage on a vacation home because his business had losses for the last two years. The negative equity on the corporate balance sheet was enough for the lender to question the sustainability of the income he was taking from his closely held business, so he wrote a check for the vacation home.

Be prepared to discuss any loan guarantees. Your guaranty of a loan for a business or a child may make it more difficult to qualify. Attempt to get your guaranty released for that loan or it may become the impediment this time.

Start a discussion with a lender.

It is tempting to simply dial around and rate shop, but that may cause more harm than good. Shopping for rates by the phone is like trying to buy a car by the phone. Each time you make a loan application, your credit report is affected negatively. You may be better off working closely with one lender who can understand your situation and tell you what it will take to qualify you for the loan. Of course, be aware of the market rates and make sure that your new loan is competitive with what is being advertised by others.

And the last point is to determine if debt is right for you at all. If you have all of your savings in certificates of deposit, earning 1% or less, then even a 3% interest rate on a mortgage is expensive.

John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
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