Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
There is a well-known British saying that I very much appreciate, “penny wise and pound foolish.” The premise, in my mind at least, is that you shouldn’t make decision salvaging small amounts of money, that end up being poor choices and costlier in the end. This motto is so powerful and can apply to almost any aspect of our life, most significantly when it comes to the actual expenditure of monies.
A client of mine was very eager to put in an offer on a house. In this market, if a “good house” comes on the scene, that’s priced well, and in the location that you favor, it behooves you to act quickly. She called me to get a pre-approval to get her offer submitted. Our discussions were cut short when I saw her credit report and a few issues that needed to be addressed. There were a few critical items and some accounts that were in dispute. She was quick to tell me that all of the noted items would be addressed and resolved immediately.
I discussed some credit improvement strategies with her and was to be on the lookout for updates as the matters were handled. Of course, time was of the essence because the house that she really wanted was on the market being seen and toured by other interested parties. A few days later, I received an email with a few attachments addressing some of the accounts we identified, but also some that we didn’t.
The first two letters were settlement agreements where she paid-off in full two small open balance accounts that were otherwise in good standing. As part of the settlement agreement, the creditors were willing to take six hundred dollars instead of the eleven hundred balance, and a three-hundred-dollar discount on the second account.
While she saved eight hundred dollars in negotiating these accounts, she hurt herself in two ways. As part of the payment, the account was noted as being settled for less than the full balance (in a derogatory way), and both accounts were closed down at the creditor’s demand. I was disappointed, for her sake, as we never discussed doing anything regarding these two accounts. There was no doubt that these actions will have a damaging impact on her credit score.
In another instance, I was introduced to someone who just got into the real estate business, and was working on his first “investment.” The plan was to rent out the property as soon as the renovation was completed. I took a tour of the premises and was optimistic that he would be able to get a tenant for the amount he was requesting. It wasn’t much work that he was investing, but his “TLC” would be impactful. In passing, I asked how long he owned the property and the timeline for completion. I was surprised by his answer. He owned the property for about nine months, and he thought it would take another three months to complete the work.
Again, the renovations weren’t extensive at all. When I inquired as to the extended timeline, he said it was because he was using a contractor that could only work minimal hours a week. He said this guy was almost thirty percent more than everyone he interviewed. I knew the amount of the renovation costs because of the financing he was seeking, but I was perplexed with the math.
In my first situation, the client did save money, but it came at the expense of ruining their credit, and possibly losing the house they really wanted. In the latter instance, granted, the investor was saving on the overall costs of the project, but the extra six months of vacancy without a tenant were costly.
Both matters are a simple example of how people can be penny wise and pound foolish. I am in no way chastising these individuals for the decisions they made. In fact, when I raised the matter to them, they each quickly understood how they made a poor decision. I find that people often make hasty decisions, not necessarily because they are oblivious, but because when you are absorbed in the matter. It’s hard to look at things from different perspectives and vantage points when you are juggling many moving parts. Learn to lean on experts for guidance and advice so that you maximize your dollars “and sense.”
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