In real estate, unless you have so much cash it’s coming out of your ears, your credit is perhaps your most important asset.
Late last year, I refinanced our 16 unit building on Reno St. When we bought the property in 2008, our interest rate was locked at 6.3% for three years. Because I hadn’t been back in the States for very long at that point, my parents had to be on the loan in order for us to get it. So, when the fixed rate period of three years expired, I wanted to refinance to take advantage of the new, lower interest rates and also to remove my parents from the loan.
We went through the whole process of assembling the relevant information regarding rents and expenses, speaking to banks, getting terms sheets, etc. The first bank we tried sent an appraiser who, after a thorough evaluation, valued the property at a level too low to get a large enough loan to refinance out the existing loan. (Remember, banks will only loan up to a certain percentage of the appraised value of the asset, so the value can limit the loan size.) Uh-oh.
Fortunately, the second bank we approached sent a more knowledgable appraiser (at least, from my perspective!) who pegged the value high enough to enable us to get the loan we needed. I was incredibly relieved, until…
The phone rang and my loan broker told me my credit score was 620, too low for the bank to make the loan. WHAM! Now, 620 isn’t the worst score in the world, but it’s pretty damn bad. I was shocked, because I’d never been late on any important bills. Panicking, I ordered my credit report to figure out what was going on.
Turns out some real mensch had opened a charge account at JC Penney in New York with my personal information, bought $163 worth of pots and pans and then (obviously) never paid the bill. After spending hours on the phone with customer service, it turned out that the easiest thing for me to do was to just pay the $163, after which they removed the negative information from my credit report, my score went back up to the mid 700s, and I closed the loan.
Lesson learned. I now use one of those credit monitoring services. And I’m an absolute Nazi about paying bills on time. Because, at the end of the day, getting a loan means asking an institution or person with whom you’ve had no previous relationship to trust you with hundreds of thousands or, in this case, millions of dollars. To make that happen, you need to be squeaky, squeaky clean.