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Archive for March, 2009

Credit score shuffle

March 20th, 2009 at 08:39 am

Since we are currently in the process of doing a refi, our new lender sent us a copy of our credit scores. This must be a new thing because I don't recall get this form last time we did a refi a few years ago.

The form lists 3 credit scores for both my wife and I, one from each bureau. The Equifax score is called Beacon 5.0, the Transunion score is called Empirica 950, and the Experian score is called Fair Isaac Score 2. Apparently they all use similar but slightly different algorithms, but all are scored on a range of 300-850.

My scores were 754 (Equifax), 729 (TU), and 755 (Experian), for an average of 746. My wife's were slightly higher at 768, 732, and 762 (average 754). You can see that there is approximately 25-35 points of variation depending on which bureau generates your score.

This also gives me the opportunity to check our real FICOs against the "fake" FICO that Creditkarma.com gives out for free. CK.com says they use the TU credit report to approximate your score. My CK score is 775, and my wife's is 751. Interestingly, my CK score is higher than my wife's by 25 points, although her real scores were higher than mine. Obviously the credit score is not an exact science. That is why it is so scary that a few points either way can make a big difference in your interest rate! After seeing this, I will be sure to take the CreditKarma score with a grain of salt.

Altogether, I am happy with our scores as I think we will be getting a good rate (maybe not great though).

Going for the refi

March 18th, 2009 at 12:45 pm

Well, I finally decided to pull the trigger on a refi. Rates have been steadily dropping at our credit union, and they reached 5.0% on a 30-year last week, so I put in an application. Got the phone call today locking in at 5.0%, with around $2000 in closing costs. We would be consolidating our 1st (at 5.375%) and 2nd (at 5.99%). The 2 payments are currently $1070 and $570, and the new payment would be $1090, so we effectively get rid of the 2nd payment. We would continue to pay the $570 as extra principal, but could stop if times got tough.

The big question mark is the appraisal. Values are all over the place so it will really depend on who does the appraisal and how many data points they get.

Oh, we get one free floatdown (we have a 45-day lock), so I will continue to watch interest rates to see if they go below 5.0%. With the Fed's announcement today, I am betting they will go to at least 4.875, if not lower. Rates on 30-year Treasuries went down .25% today, so I may even get 4.75% if I'm lucky.

Financial Fire Drill

March 6th, 2009 at 07:28 am

Have you ever done a financial fire drill? It's the equivalent of pretending an emergency has hit, and looking at what it does to you budget & savings. Most people don't sit down and do this important test until the fire is already burning. It's important to have a game plan before this happens as it will relieve a lot of the fear and stress that would hit in the event of an emergency.

I did it yesterday with my budgeting spreadsheet and was pretty happy with the results. I tried 3 scenarios; in the first 2 either my wife or I lost our job, without severance. The third scenario (doomsday) I figured we both lost our jobs tomorrow with no severance. I figured we would stop contributing to retirement immediately, so I cut our 401k contributions to 0, and stopped the biweekly Roth contributions. I also eliminated child care costs and savings for travel. I also cut back our overpayment on our HELOC.

In scenario #1, where my wife lost her job, the hit was not that bad (she makes about 50% of what I do, but provides our health insurance). I assumed we would go on COBRA at least short term, paying about $260 every two weeks (double her current premiums). This is probably overly conservative, since COBRA is supposed to be subsidized right now by the US of A. Surprisingly, we would actually not have to dip into the EF at all. We would probably not have to cut out vacations completely, and could still contribute a little to our retirement. So it would not be a catastrophe by a long shot.

Scenario #2 involves my losing my job tomorrow, which would obviously be a huge hit to our income (it would go down by approximately 66%). This is moderated a bit by the fact that we would still have health insurance through my wife's job. In this case we would have to draw approximately $1800-$2000 a month from the EF. Since our EF is about $41K right now, it would last us at least until the end of 2010, or about 22 months. I feel pretty confident that we would not get to this point without me finding some kind of work (even at a drastically lower salary).

Scenario #3 is the doomsday scenario where both my wife and I lose our jobs tomorrow, with no severance. In this case we'd have to draw about $5K a month out of the EF, which means it would only last until November 2009. Obviously not a pretty picture, but still an 8 month cushion for at least one of us to find a job.

Barring a total worst case scenario, I think our household would probably be able to weather most storms that could come our way. I recommend everyone run a FFD with their own household budget, to see how close to the edge you are.