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Overall value of Share Secured Loan from Credit Union

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Anonymous
Not applicable

Overall value of Share Secured Loan from Credit Union

I have a plan to purchase a home in about 2 - 3 years.

 

I've read about diverisifying the types of credit before buying a home (currently have only credit cards).

 

Is it worth it to take out a $500 share secured loan this year and have it completed 2 years before mortgage shopping?

 

Or is a share secured loan something I should be doing every year up until mortgage shopping?

 

 

...and why do loan officers even care about such tiny secured loans if they are so popular/common for credit building?

Message 1 of 12
11 REPLIES 11
frugalQ
Valued Contributor

Re: Overall value of Share Secured Loan from Credit Union

if you start a new installment loan, make sure to push the payments out past the time you plan to close on a home.  credit mix is a factor in FICO scoring, so having installment history on your report will help to increase your scores in the long run.  However, some of us notice a drop in scores once an installment loan has been paid off and closed.   whatever loan you get, please ensure there's not a material impact on your DTI...this will be an important factor as you go through the mortgage qualification process.

 

good luck!

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Message 2 of 12
Revelate
Moderator Emeritus

Re: Overall value of Share Secured Loan from Credit Union


@Anonymous wrote:

I have a plan to purchase a home in about 2 - 3 years.

 

I've read about diverisifying the types of credit before buying a home (currently have only credit cards).

 

Is it worth it to take out a $500 share secured loan this year and have it completed 2 years before mortgage shopping?

 

Or is a share secured loan something I should be doing every year up until mortgage shopping?

 

 

...and why do loan officers even care about such tiny secured loans if they are so popular/common for credit building?


It's purely for FICO scoring purposes nothing else.

 

Pick up a $500 loan at either 4 or 5 year term, Alliant or SDFCU are both good choices and then just let it autopay at the 9/month or whatever.  Cost you on the order of $20 and it will benefit your scores going into the mortgage 3 years from now.  No need to prepay or do anything else on those time periods.




        
Message 3 of 12
Anonymous
Not applicable

Re: Overall value of Share Secured Loan from Credit Union

Wow - talk about a trickle...  :-)

 

 

I wonder if I can automatically set up an account as a closed system to both secure and pay off the loan...?

 

Ex:

 

- Place $550 in share account.

 

- Secured loan for $500 using that share account as security (5 year term).

 

- Set up the same account to pay off the loan (MCU in NYC says "As payments are made, the amount posted to principal is automatically released for member access")

 

- Set email alert on account: when payment due, when payment made, if account goes below $500

 

- Forget about account and let it service itself.

 

- Rinse and repeat every 5 years with same account.

 

 

...Jeez.

 

 

Message 4 of 12
Revelate
Moderator Emeritus

Re: Overall value of Share Secured Loan from Credit Union


@Anonymous wrote:

Wow - talk about a trickle...  :-)

 

 

I wonder if I can automatically set up an account as a closed system to both secure and pay off the loan...?

 

Ex:

 

- Place $550 in share account.

 

- Secured loan for $500 using that share account as security (5 year term).

 

- Set up the same account to pay off the loan (MCU in NYC says "As payments are made, the amount posted to principal is automatically released for member access")

 

- Set email alert on account: when payment due, when payment made, if account goes below $500

 

- Forget about account and let it service itself.

 

- Rinse and repeat every 5 years with same account.

 

 

...Jeez.

 

 


This is what I did with Alliant other than the email alert on a threshold being missed.  I check mine every couple of months but I'm sort of wired that way, admitted FICO fetishist.

 




        
Message 5 of 12
Anonymous
Not applicable

Re: Overall value of Share Secured Loan from Credit Union

Same here, except I also used that alliant account as a payment shock account. Moved what my mortgage payment (as it turns out 80 bucks more than my mortgage payment will be) into that Alliant account each month. I pay rent in cash to a friend, so rental history was an issue, so the shock account was nice to be able to show. And with only that money going in and the 11.02 for the loan going out it was obvious I was saving that money. Now that money is covering my down payment Smiley Happy and alliant actually pays interest, not great but better than a TBTF bank.

Message 6 of 12
CH-7-Mission-Accomplished
Valued Contributor

Re: Overall value of Share Secured Loan from Credit Union

I did this with my share secured at BECU.

 

$500.00 loan amount ($500 deposited)

Got $500.00 cash back - opened a secured credit card.

 

The payments @ 3% for 48 months are $11.07/month

Total payments = $531.36

Total interest = $31.36

 

To cover the $31.36 in interest I just added $50.00 to the savings account and set it up to pay from itself.

 

So the cost of this loan is $31.36/48 months = $0.65/month. or $7.80/year average.

 

I check the account monthly just to make sure my checking account hasn't somehow tapped into the savings account to an overdraft or something.  You might want to unlink this account from a checking account so that can't happen.

 

I am FICO paranoid, so I check it twice a month to be sure.

A great deal.

 

You need to find out what the minimum loan payment amount is and the maximum loan term in months, multiply the two together and that's your loan amount (round to next $100).

 

You should not ever pay any more than the lowest interest rates being offered on auto loans -- since this security is cash, better than a car.  There are some crazy people paying 6% or 17% on share secured loan.  If DCU is charging 2.5% for car loans, your share secured loan should be no higher or not much higher.

Message 7 of 12
Revelate
Moderator Emeritus

Re: Overall value of Share Secured Loan from Credit Union


@CH-7-Mission-Accomplished wrote:

I did this with my share secured at BECU.

 

$500.00 loan amount ($500 deposited)

Got $500.00 cash back - opened a secured credit card.

 

@Anonymous payments @ 3% for 48 months are $11.07/month

Total payments = $531.36

Total interest = $31.36

 

To cover the $31.36 in interest I just added $50.00 to the savings account and set it up to pay from itself.

 

So the cost of this loan is $31.36/48 months = $0.65/month. or $7.80/year average.

 

I check the account monthly just to make sure my checking account hasn't somehow tapped into the savings account to an overdraft or something.  You might want to unlink this account from a checking account so that can't happen.

 

I am FICO paranoid, so I check it twice a month to be sure.

A great deal.

 

You need to find out what the minimum loan payment amount is and the maximum loan term in months, multiply the two together and that's your loan amount (round to next $100).

 

You should not ever pay any more than the lowest interest rates being offered on auto loans -- since this security is cash, better than a car.  There are some crazy people paying 6% or 17% on share secured loan.  If DCU is charging 2.5% for car loans, your share secured loan should be no higher or not much higher.


I don't know anyone that high personally, there's some where the bank loans you the money that you can't touch which basically goes into the unsecured lending bucket around those rates, but most CU's and others are charging 2-3% above base interest rate on the deposit account securing it.

 

Which lenders did you see those rates on?  Sort of curious now.




        
Message 8 of 12
Anonymous
Not applicable

Re: Overall value of Share Secured Loan from Credit Union

Plus the effective rate on my alliant loan is down around 1.8 percent. Got the loan at 2.8 (secured loans are at 2% above share interest rate.) The 500 bucks they hold is earning .9 percent now after a rate increase. If you toss triple the loan amount into the savings account their interest to you and yours to them basically works out as a wash...

Message 9 of 12
Revelate
Moderator Emeritus

Re: Overall value of Share Secured Loan from Credit Union


@Anonymous wrote:

Plus the effective rate on my alliant loan is down around 1.8 percent. Got the loan at 2.8 (secured loans are at 2% above share interest rate.) The 500 bucks they hold is earning .9 percent now after a rate increase. If you toss triple the loan amount into the savings account their interest to you and yours to them basically works out as a wash...


Cheaper way to do with some lenders that Jamie and I confirmed works with Alliant and may even be even better for one's FICO (least FICO 8 and EX 98, the latter everyone in the Mortgage forum should care about):

 

$500 loan, pay back ~90-95% of it immediately.  Sit on it for the next 3-4 years, only thing to avoid at least in Alliant's world is leaving the savings account idle for a year, and I think I can game that by simply setting up a recurring transfer to the loan of $1 every six months or whatever.

 

2 or 3% YSP on ~$25% vs. the underlying account that's making 1% on $475.  Doesn't cover inflation of course, but if we're talking limiting expenses playing FICO reindeer games with materially affecting one's DTI for a mortgage calc, doesn't get much better than this.

 

According to Alliant, this is now my next payment due after kicking $310 to it to bring it under $100 in my case (from original $500):

 

10/21/18 - $9.16

 

Winner winner!  Now to see what the scores do at the end of the month between that and doing similarly on my USAA secured loan which also allows me to pay it forward.  Decided to try to ninja this test in before any mortgage reports.

 

 




        
Message 10 of 12
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